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» Rogers on commodities » Healthy living

Rogers on commodities

KAREN GIBBS: All that food we’re consuming has to come from somewhere. That’s one reason Intrepid Global investor Jim Rogers continues putting his money into things such as soy beans and sugar. It used to be that investing in commodities was just for the super rich or the super foolish. But that may be changing. Tepid stock market returns the last few years have lots of people taking note of the fact for nearly 50 years commodity futures have outperformed both stocks and bonds. Jim says it’s time to educate all investors. That’s why he’s written Hot Commodities: How Anyone Can Invest Profitably in the World’s Best Markets. Jim, why should commodities be a part of anyone’s portfolio?

JIM ROGERS: Does everybody know that you used to be on the commodities floor, that you used to be a commodities writer?

GIBBS: Probably not.

ROGERS: I know. I want you know she’s good at all of this.

Well, you know Karen, as well as I do, that you can make a lot of money in commodities if you do your homework, and if you’re careful and if you invest properly. Karen, you know the study you yourself referred to shows that you would have made more money in commodities in the past 50 years than you would have made in stocks and bonds, and you would have done it with less risk, less volatility and a better inflation hedge. You know that as well as I do.

GIBBS: But the bad rap the commodity gets of course is that it’s so risky. Horror stories abound.

ROGERS: Karen, you know everybody’s got a brother-in-law who lost his shirt in either soybeans or pork bellies or something. And that’s because he didn’t know what he was doing, he hadn’t done his homework, and he bought it on very thin margin. He didn’t put up much money.

But you can buy soybeans the same way you buy IBM. You put up 50 percent or 100 percent of your money and you don’t have to take those wild trading risks, short-term trading risks.

GIBBS: Well, we’ve already seen a really big move in a lot of raw materials. Steel up 106 percent last year. And, in fact, crude oil, lead, aluminum, copper, any of those industrial metals were up double digits. Is there any bang left in this buck?

ROGERS: Well, of course there is. There are going to be consolidations and corrections, and we’re probably overdue for a consolidation in many commodities right now.

But remember, between 1982 and 2000 we had a huge bull market in stocks. Well, there were some enormous setbacks along the way, but anybody who recognized it was a long-term bull market in stocks made a fortune. That’s what’s happening in commodities.

There will be some setbacks, there’s going to be one this year, I think, a big one. But take advantage of it and buy more. Don’t panic and dump, buy more.

GIBBS: How can an individual investor get in on it? Not everybody had the deep pockets that you do.

ROGERS: Read Hot Commodities.

No, what they should do is do their homework. Everybody knows something about sugar, everybody watching this show knows something about copper, so start doing your homework, find out the supply and demand. You can companies, you can buy futures -- and futures are not nearly as dangerous as they’re cracked up to be, I try to explain that in the book. The study you had mentioned does the same thing. Do your homework and you buy -- or you can buy countries. Some countries are raw material producing countries. Canada, for instance, is going to have a much better economy in the next decade than the U.S. Buy Canadian department stores, buy Canadian restaurants. You know, find the countries, one of the companies that will benefit and buy them if you don’t want to buy the commodities themselves.

GIBBS: Is there another way? Can you buy companies that either service or produce some of these commodities?

» Commodity returns

ROGERS: Well, you can, but the Yale study to which you referred demonstrated that if you had bought the commodities themselves, you would have made 300 percent more than buying the stocks. But if copper goes up, Phelps Dodge is probably going to go up. Phelps Dodge is a major commodity copper producer.

But with stocks you have to worry about management, balance sheets, unions, environmentalists, governments, stock market, lots of things. We all learned from Enron. It’s not as simple as it looks. Copper is so dumb. If there’s too much copper, it’s going to go down. And if there’s not enough copper, it’s going to go up. Copper doesn’t know who Alan Greenspan is, and it doesn’t care where the New York Stock Exchange is located. So copper is very simple.

GIBBS: It’s all about the supply and demand and balances then that we see globally?

ROGERS: That’s exactly it. That’s why we have a new bull market in commodities. In the '80s and '90s everybody was buying dot com. Everybody was blah, blah, blah about stocks. Nobody was investing in productive capacity for commodities. There’s been one lead mine open in the world in the last 25 years. There’s been no major oil discovery in over 35 years. Oil wells deplete. The production in Alaska is now in decline. Production in the North Sea is now in decline. England has been one of the great oil exporters of the world for 25 years, they’re about to start importing oil. Karen, we’re running out of this stuff. That’s why we have a bull market. This is not rocket science, I’m not very smart, it’s supply and demand, and it’s simple history.

GIBBS: And we are seeing a bull market. We did a chart (from January 2000 to December 2004) and we figured if you had put $1,000 in the RICI, Rogers International Commodity Index, and a $1,000 in the S&P, where would we be? The RICI index would show a gain of $1,403 while you would have lost about $110 in the S&P. So, you do see better returns, but there is a risk element, correct?

ROGERS: Well, every once in awhile I do get it right, Karen. Not often, but sometimes I luck out, and I happened to get it right this time. Of course there’s a risk element in everything. There are going to be consolidations along the way, even if I’m right. If China has a hard landing this year, commodities will go down for awhile.

But, there’s a risk in everything. You think there’s not a risk, look at a chart of the NASDAQ for the past five years. Everybody watching this show knows what’s happened to the NASDAQ, and to Cisco, and a few other stocks. There’s a risk in everything, including bonds. Listen, I wish it were easy getting rich, but it ain’t easy getting rich. Everybody knows that.

GIBBS: That’s why I work for a living.

ROGERS: That’s why you left the Bull and Exchange.

GIBBS: Well, let’s talk about China because you see that as a very big market, and I was thinking of China in terms of cotton talking earlier to you, like don’t they export cotton?

ROGERS: 10 years ago China exported cotton, yes. But now China imports cotton. China’s been booming, and as China grows, or as the world grows, supplies get tighter, especially is nobody’s been adding productive capacity. How many people called you in the last 20 years and said, "I want you to invest in a cotton plantation?" Nobody. They all wanted you to invest in a mutual fund. So there have been no new productive capacity added to cotton. Listen, 10 years ago China exported oil. Now they import oil. China’s the second largest buyer of oil in the world right now and 10 years ago they were exporting the stuff. As the world grows, and as supply goes down, prices go up.

GIBBS: How long do you see this bull market for commodities running?

ROGERS: Historically, bull markets in commodities have lasted from 15 to 23 years. They’ve averaged 18 years. I don’t know how long it will last, but according to the history, that means this bull market will last until sometime between 2014 and 2022. I have no idea, Karen, but based on history, we have another 10 to 18 years to go.

GIBBS: With the move that we’ve already seen in some of the commodities, particularly the metals and energy, where do you see the value now?

ROGERS: Well, you hit it. You pick the things that haven’t gone up. That’s the way any investor, successful investor...

GIBBS: Just as simple as that?

ROGERS: You buy the things that are down. Sugar is 80 percent below its all-time high. You look at things like soybeans. Soybeans are 70 percent below their all-time high. You remember beans in the teens?

GIBBS: I certainly do.

ROGERS: In the '70s people used to say soybeans are going to the teens, $13, $14.

GIBBS: That was the chant, the rally cry on the farm.

ROGERS: They never made it. They made it to $12.90.

GIBBS: That was close to the teens.

ROGERS: That was close. But soybeans, sugar, all of this stuff is way down.

GIBBS: I remember 40-cents-a-pound sugar, and you couldn’t find sugar in restaurants.

ROGERS: I remember my brother brought me a 5 pound bag of sugar as a dinner party present one time because you couldn’t get sugar, it was so expensive.

GIBBS: Forget the Dom Perignon.

ROGERS: Yeah, he didn’t bring any wine, he couldn’t afford the wine either, but sugar was better. That will happen again. I remember when sugar was 66 cents. And for your viewers who don’t know, sugar is now 9 cents. But anyway, I’m not suggesting you buy sugar, I’m just saying that’s where you look. You look at cotton. Cotton is 70 percent below its all-time high. Look at the agricultural products, at least that’s what I’m doing. At this point in time, I’d rather buy agricultural products than metals or energy.

GIBBS: I know very often bad news means profits for commodity investors, say a frost in Florida ruining the orange juice crop, or a drought in the Midwest and you have no beans or corn. We just had a terrible Asian tsunami. Do you see any long-term economic impact from that?

ROGERS: I looked, I don’t see any at all. I mean the people that got wiped out, it’s a horrible disaster of course, but as far as the world economy, they weren’t producers of many things. They weren’t consumers of many things. The tourism industry is being devastated, mainly because the press is talking so much about the disaster that people aren’t going there anymore. But apparently the hotels, for the most part, are okay.

But to answer your question, no, I don’t see much. But you are right about, you know, a frost in Florida can make a lot of people rich. It can wipe out some people, but other people get rich. So you have to learn to think both ways.

GIBBS: Jim, we know that commodity training or commodity investing is not for everyone, you have to have a certain suitability requirement, but there are ways for small investors to get in on natural resources and raw material, and some of them are mutual funds. I know the PIMCO commodity, Real Strategy Return Fund, that’s one of them. Merrill Lynch has a commodity fund. J.P. Morgan, Fleming, InvesTech, mutual funds like those. What’s your thought?

ROGERS: Well, that is a way, there’s no question. Be careful because most of the ones you mentioned actually buy stocks of producers of raw materials rather than raw materials themselves, and the studies show you normally make more with the commodities. Now, PIMCO does buy the commodities themselves, that is a buyable option.

ROGERS: But you have to remember, Karen, this is one reason I’m so bullish on commodities. There are 30,000 stocks, mutual funds in the world, there are only three or four commodity mutual funds in the world. That’s because nobody is investing in commodities yet. That’s going to change. Some day there will be hundreds or thousands of commodity mutual funds, and then it will be time to get out of commodities again and go back to stocks or bonds, or something else.

GIBBS: What protection or regulatory oversight do investors have when investing in commodities? Like if it’s stock you have the SEC.

ROGERS: Commodity Futures Trading Commission, which oversees commodity trading. And from what I can tell, they’ve done a much better job than the SEC. We all know about the problems of the SEC in the past five years. You haven’t heard any problems coming out of the commodity regulators in the past five years. So both are controlled, at least as far as Washington is concerned.

GIBBS: But there were some problems. I can remember the Hunt Brothers trying to corner the silver market.

ROGERS: There have been some spectacular problems in the commodity business. But let me tell you about Enron, let me tell you about WorldCom. I can tell you about the spectacular fraud that’s in everything, including TV, believe it or not.

GIBBS: Jim Rogers, always a pleasure.

ROGERS: Thank you.

Healthy living

GEOFF COLVIN: Millions of Americans -- including maybe you -- have resolved to lose weight and get healthy in 2005. They're supporting a highly successful weight loss and healthy living industry. But hold on -- the Centers for Disease Control and Prevention recently said, oops -- obesity actually isn't nearly as deadly as we previously announced. Other new research says most people can't stay on a diet long enough for it to do much good, and there's no scientific evidence most commercial weight-loss programs work at all. So does the obesity scare lack substance? And is the highly profitable weight-loss industry a fraud? Harry Balzer tracks America's eating habits for NPD Group; he joins us from Chicago. Scott Van Winkle covers the food industry for Adams Harkness & Hill in Boston.

Scott, the CDC got huge headlines when it announced that obesity was killing almost as many Americans as smoking. Now they've said, well, we were wrong. The number isn't really nearly that big. Were we sold a bill of goods on the danger of obesity?

SCOTT VAN WINKLE: I don't think so. If you look at all the contributing diseases that obesity contributes to, things like cardiovascular disease and diabetes, there are still very high death rates associated with those. So I don't think you can take obesity alone and try and separate it from these other diseases that it's a big contributor towards.

COLVIN: And you track this pretty closely. I gather the underlying facts about the increases in obesity are not in question, right?

VAN WINKLE: Oh, absolutely not. The growth rate for obesity over the last 10 or 20 years has been substantial. It's actually waned a little bit in the last couple of years. I think we've reached somewhat toward the peak, but the high obesity rates are a huge health care crisis and it's something we're going to have to deal with.

COLVIN: Harry, there is all kinds of evidence that Americans are more and more concerned now about health and weight and so forth, but what about their behavior? Are they behaving as if they're more concerned about it?

HARRY BALZER: Not really, no. What amazes me is that while we have these means to eat healthier, we don't have the will, and that's the thing that surprises me. We've had salad bars in every one of our fast food restaurants, only to see them disappear. We've had healthier snacks, only to see them come and go. We've had healthier potato chips, to see them come and go. We've been provided the means. Where's the will?

COLVIN: It seems so contradictory, what's going on with the way Americans eat now, and it has big affects on all kinds of companies. I mean on the one hand, you see McDonald's eliminating the super size option in response to criticism of them. On the other hand, and a lot of people have heard about this perhaps, Hardee's has just introduced this incredible product, the double bacon cheese monster thick burger, over 1,400 calories, over 100 grams of fat in this one item. I mean first of all, Scott, have you had one of these things?

VAN WINKLE: I have not.

COLVIN: I mean I wouldn't eat this at gunpoint, but I think a lot of people are going to eat it or at least Hardee's thinks so. What is going on? Harry?

BALZER: Well, when we started collecting data back in 1976 on eating patterns at restaurants, the number one food that Americans ordered at a restaurant in 1976 was a hamburger. And you know what the number one food today is ordered at a restaurant in America?

COLVIN: I could guess, but tell us.

BALZER: It's a hamburger. Do you know what the number one food by a male is in this country? A hamburger. As a matter of fact, I think that product is going after a portion of the males who will eat that product. But the other thing that I always find surprising is that the number two food ordered by American women in this country at a restaurant is also a hamburger. Incidentally, their number one food is a French fry.

COLVIN: And the number two food ordered by men?

BALZER: Is a French fry. So it's really burgers and fries. These are the top two foods eaten in America.

COLVIN: Here's a question that I want to ask both of you, because it really affects the future of a lot of companies. Harry, you first. Low-carb diets - trend or fad?

BALZER: Oh, no question a fad. No question a fad.

COLVIN: On their way out…

BALZER: Clearly Americans are less interested in it than they were a year ago at this time. Manufacturers haven't caught up with it yet. They're still pouring out some products that are low-carb versions. So sales may still be going up, but interest in this is actually going down.

COLVIN: so if that one is fading, what is going to replace it?

BALZER: Boy, it's tough to say. It's hard to pick fads. It's much easier to pick trends, because trends take a long time to develop, much more difficult the fads. Not an area I even have a clue as to what we'll go into next.

COLVIN: Scott, how do you answer the question? Low-carb diets -- trend or fad?

VAN WINKLE: I actually think it's a trend. I think that the faddish portion of it going to 10 percent of the population is over. You have that short window. You have a diet season, a three- or four-month period. But at the end of the day, consumers will always do diets that work, and this is a very man-friendly diet. So my thought has always been that we would peak and fall off. We've certainly done that. But you're going to see this sustaining. Maybe it's only a one or two percent penetration among adults on this diet, but I do think as long as it works, people are going to use it.

COLVIN: Harry, go ahead. You have an observation?

BALZER: I would agree with Scott that the low-carb diet is more of a male-oriented diet. Unfortunately, it asks one thing that is very difficult for us to do. It allows you to eat foods that you like, but it requires you to avoid foods that you also like, and therein lies the problem. You have to change.

COLVIN: Very few people can do that for very long.

VAN WINKLE: In the end, calorie control is the ultimate key.

BALZER: In the end it is calorie control. Now what is not a fad in this country is health. That is not a fad. When we started collecting data back in 1980, and we've been collecting the way people eat every day since 1980, we found that back then about 27 percent of all adults in this country were on a diet on that day that we were asking to give us records on how they eat. Last year when we did this study, we found again 27 percent. That number has never changed.

COLVIN: That's very interesting, because most people would tell you that there has been a huge increase in the people on diets. No difference.

BALZER: Well, most people would also tell you we're drinking more coffee than ever before, and that's because those are people who don't have data. In truth, we're drinking less coffee than ever before. Because what you see and what you feel and what you think may be different than what we are doing.

COLVIN: That's right. Coffee has become a sort of higher profile item than it used to be. Scott, let me ask you this. You have identified some other big trends or what you see as big trends in American eating in the next few years. What's number one?

VAN WINKLE: Well, I think the dietary guidelines coming out in January and we'll get a new pyramid in March is going to shed some light on this.

COLVIN: What's it going to be? What's it going to say?

VAN WINKLE: Fiber is going to be a big deal here. The low-carb trend last year I think actually gave a little credence to this with the idea of good carbs versus bad carbs. You never thought you'd read that in the dietary guidelines, but in fact when the dietary guidelines are published next month or this month, you're going to see the idea of choosing good carbohydrates versus bad carbohydrates. So fiber and whole grains I think are going to be key. And we've seen movements from General Mills, from Sara Lee, movements right across the board of seeing the whole grains. And they're responding to what they know is going to be a change in consumption due to these new dietary guidelines.

COLVIN: Harry, any chance that Americans are going to go for whole grains?

BALZER: Well, I think again this will be about distribution. Americans will, they'll be placed out into the marketplace, but consumers will make the ultimate decision. And many manufacturers have put out healthier or better for you products, only to find that they were not accepted by consumers. I think whole grains is going to be a topic, because it is going to be the subject of the new dietary guidelines. It will be one of the big changes in here. But I actually think you'll look for behavioral shifts that are already in place that can continue, and we'll just look for new ones to pop up in new places. Like I'll give you what I believe to be the big change that's going to come in this country. It's going to be, watch out for drive-throughs.

COLVIN: Watch out for them in what sense?

BALZER: The fastest-growing appliance in food preparation in this country is the power window. It's the use of that drive-through. One out of every five meals bought at a restaurant in this country today, you never get out of your car. And that's the highest that number's been, and it's been growing for the last 20 years. As a matter of fact, take-out in this country has stopped growing, but not the use of the drive-through. What surprises me is we haven't seen supermarkets start offering drive-through for their ready-made meals. Keep your eye on the use of that car to feed you.

COLVIN: Well, so you won't even have to expend the calories of getting out of the car and getting back into it in order to get your meal, right?

BALZER: We have another service that watches gasoline purchases, and this past year it went over 50 percent for the first time where you'll pay at the pump, and if you can't pay at the pump, you'll leave. You won't even walk across the apron to pay for your gasoline, and it's food you need every day.

COLVIN: That's for sure. What else are you seeing?

BALZER: One trend in this country is the movement away from fresh foods.

COLVIN: Away from fresh foods?

BALZER: Fresh foods inside our house. That's correct.

COLVIN: Everyone would have said the opposite.

BALZER: It's not that we don't want fresh foods. It's that we are using fresh foods less. That's the big trend in this country. It was something like 15 years ago, something like 56 percent of all suppers included at least one fresh item. Last year it was 47 percent. It's the lowest level it's ever been. It's been on a slow decline. And you can relate to this if you've ever one any shopping, and when you get home you hear these words: "I bought bananas. You better eat them. " Because we know what's going to happen to those bananas.

COLVIN: They're going to turn brown and get thrown out. That's exactly right.

BALZER: Worse they're not going to get thrown out. They're going to make banana nut bread and banana smoothies is going to take place. And so the food industry has been really working to have you, to replace that fresh, that need. And so packaged goods have really been the driving force behind the food industry.

COLVIN: Scott, what else in the way of big trends affecting the way Americans eat?

VAN WINKLE: I think the obesity epidemic has brought the idea of the zero calorie beverage. And I look at Splenda, in the past couple of years what it's done as a new sweetener. And the other item that I've been a big fan of in nutrition for quite some time is functional foods.

COLVIN: Which are?

VAN WINKLE: Functional foods are any food that adds a nutritional ingredient with the idea of giving you some health benefit.

COLVIN: Such as?

VAN WINKLE: An example would be from fortification, like putting calcium in orange juice, a cholesterol-lowering food. For example, just this week in the Netherlands an insurance company has decided to reimburse consumers for purchase of cholesterol-lowering margarine and dairy products from Unilever.

COLVIN: Scott, what companies are taking advantage of these trends in a successful way now?

VAN WINKLE: Well, I think on the food side, Whole Foods Market, the leading natural and organic retailer, is going after the healthy consumer, the health desire of the consumer. They're also giving them everything else they want, and that's this growth of perishable products and fresher items. We're eating less of them, but we want them. And they've been a leader in the natural and organic food industry for the last 10 or 20 years.

COLVIN: What about companies going into particular niches around this space of healthier food?

VAN WINKLE: Well, I think if you look at what Dean Foods has done in the last five years with acquiring Horizon Organic Dairy, acquiring the Silk brand of soy milk, they have certainly done a very good job of gobbling up the organic beverage business and focusing on these healthier portfolios. And today I think if you look at Dean Foods, this is a very small percentage of their sales, but it's a growing and bigger piece of their profits and a bigger and more important question, a bigger piece of their valuation.

COLVIN: Harry Balzer and Scott Van Winkle, thanks for your insights.

VAN WINKLE: A pleasure.

BALZER: Thank you.

Predictions gone awry

GEOFF COLVIN:It's the time of year when people on programs like this one make New Year's predictions. Well I'm not making any. Two reasons. First, no one, and I mean no one, has the remotest idea where individual stocks or the overall market will go in the next 12 months. And second, we looked back at some incredibly boneheaded predictions made by apparently intelligent people in the past.

• Journalist Junius Henri Browne in 1893: "Lawyers will have diminished [in the next century], and their fees will have been vastly curtailed." The reality: For the first time in history there are billionaire lawyers.
• Arthur Summerfield, Postmaster General in 1959: "Before man reaches the moon your mail will be delivered within hours from New York to Australia by guided missiles. We stand on the threshhold of rocket mail." Hope your parents didn't invest in that.
• John Foster Dulles in 1954: "The Japanese don't make anything the people in the U.S. would want." Last year we wanted over $100 billion worth of what they make.
• And my favorite, The New York Times in 1939: "The problem with television is that the people must sit and keep their eyes glued on a screen; the average American family hasn't time for it." Turns out we have time for little else -- the average family keeps this thing on seven hours a day. Though you only really need a particular half hour each week.