Commodities 'bull market'
The only place where there is currently a pure bull market is in commodities, investment guru Jim Rogers told the SuperHedge conference in Frankfurt last month.
Allaying investor fears that commodities are dangerous, the author of bestselling books ‘Hot Commodities’ and ‘Adventure Capitalist’ pointed out that economic history shows there have been periods of long bull markets in commodities. “They happen because supply and demand get out of whack,” he said.
During the 1980s and 1990s no one was advising investors to invest in sugar plantations and lead mines, as commodities were in a bear market. However, mines and oil reserves are now becoming depleted.
“All the great oil discoveries that we know of are over 35 years old,” he said. Production is in decline in Alaska and Mexico. while the UK will become a net oil importer over the next 10 years. “Investors needed to understand what is going on,” he declared.
“Supply has been going down while demand has been going up,” Rogers said. He pointed that in 1998 he set up his own index commodities fund.
“This is a simple basket of shares in an index. The fund has grown 185% from inception to end-January.”
He predicted there would be setbacks on the way. For example, if China has a hard landing this year that might cause a setback in the market. If this happens his advice is to buy commodities and China. “That’s going to be your last opportunity to buy them.”
He added: “The bull market in bonds is over. Bonds peaked in 2003 and could now be going down for the next 20 years or so. They are now in a long bear market, having been in a long bull market. Even if bonds do not go down investors would not be making any money from them at 4% yields, he said.
“Stocks all over the world are over-priced,” Rogers said. For the next one to two decades stocks are going to act as in the 1970s and fluctuate, he argued. “If you are good at catching these swings you will make money.”
“Real estate in much of the world is in a bubble,” Rogers concluded.
Hedge funds in Germany are set to double from an investment of currently €15bn to €30bn by 2007, the SuperHedge conference was told by Christian Edelmann of Mercer Oliver Wyman, which has just launched a study of the German market for hedge funds. He said the increase should place Germany among those countries enjoying the quickest growth in Europe.
But Germany was starting from a low level, with France standing at twice the German figure and the UK at three times. But when the figures were corrected for the overall size of the German market the ratio comes down to twice, he said.
The €30bn figure takes into account the fact that German institutional investors are more conservative than other continental institutions.
The ultimate market potential would be much higher, Edelmann said. With insurance companies able to invest up to 5% off their assets this provided a potential of €50bn, with a further €20bn from the whole of the pensions marketplace, he added.
The charity and endowment marketplace, which is key in other countries such as the US, contains few large players in Germany and has limited potential for hedge funds, Edelmann pointed out.
But large corporates are frequently overlooked, he said. “If you are only to take from the largest 150 German companies, 20% of their financial assets which are not required for credit issues, this gave a total potential of €80bn.”
Matthias Erb of Swiss Capital Group, commenting on these figures, said he was somewhat shocked at the “pessimistic potential capacity” in the market. He felt there was a “huge highway” for approaches such as using as certificates. “The figure should be more than €30bn by 2007, otherwise it would not be worthwhile for groups such as Deutsche Bank or UBS to be involved in this business.”