Published: Wednesday, 23 Nov 2011 | 9:52 AM ET
The recent decline in commodity prices has little to do with fundamentals and everything to do with the collapse of brokerage firm MF Global, says renowned investor Jim Rogers, who described the sell-off as artificial.
“With MF Global going bankrupt – which was a gigantic commodities firm – there was a lot of artificial forced liquidation of commodities. People have to sell whether they like it or not. It’s artificial selling right now,” Rogers told CNBC on Wednesday.
The CRB Jefferies Index – which serves as a measure of the broad commodities complex – has fallen 4 percent since MF Global declared bankruptcy nearly 4 weeks ago. Agricultural commodities have been the hardest hit, with rice futures falling more than 14 percent and wheat futures down 9 percent in the period.
Rogers says the drop isn’t surprising. “This happened before in 2008, when Lehman and AIG went bankrupt, they were both huge in commodities and everybody had to sell,” he said, referring to the onset of the global financial crisis in late 2008, when the CRB Index fell by half in a matter of months. Prices have rebounded since, climbing nearly 60 percent from March 2009 to May this year, when the sector took a hit again on concerns over the headwinds facing the global economy.
Rogers remains bullish on the sector, saying investors will benefit whether the global economy improves or not.
“I’m long commodities and currencies, because if the world gets better, the shortages in commodities will make sure I make money; if the world economy doesn’t get better, I’d rather own commodities because they’re going to print money,” he said, referring to the easy monetary policy central banks have taken in the last few years to stimulate anemic growth.
“Throughout history, when things have gone wrong, they print money…when they print money, you should own silver [XAG= 31.60 -1.10 (-3.36%)], you should own rice, you should own real assets.”
Rogers says he is using the recent drop in prices to accumulate agricultural commodities, and is waiting to add positions in gold [XAU= 1685.1899 -14.60 (-0.86%)]. While he expects the yellow metal to reach $2,400 sometime in the next five to twenty years, he believes its run-up in the last 11 years has been “unusual” and needs a “rest”.
“Gold could go down a fair bit more…but I’m certainly going to buy more gold if it goes down and silver.”
This not a time to buy stocks, Rogers added, and says he is shorting the asset class.
“This is like the 1970s, in the 1970s stocks did nothing. Commodities went through the roof. I’m short stocks and long commodities for the most part.”
© 2011 CNBC.com