Tuesday, October 2, 2012

Jim Rogers: Newfound Love For Russia And The Gradual Improvement InIts ... - Forbes

I wanted to highlight a story I saw the other day because I think that it nicely encapsulates the (slow!) improvement in Western perceptions of Russia’s economy.

Jim Rogers is the co-creator of the Quantum fund, a best-selling author, a regular guest at Ivy-League business schools, and generally one of the world’s most successful, famous, and high-profile investors. He was in the news recently because he has just taken a job as an adviser to the agricultural fund run by Russian state-owned banking group VTB. In a press release announcing the move, Rogers was quotes as saying that “Russia and the CIS region have all the ingredients needed to become the world’s agriculture powerhouse. It seems that everything may now be coming together under VTB Capital to make this happen, so I am keen to participate.”

Rogers, as the FT and other outlets have noted, was famous as a Russia “bear.” But simply calling him a “bear” doesn’t really do justice to the strength of his former views. As the FT astutely noted, Rogers was so ostentatiously negative in his views on Russia that a back-and-forth e-mail exchange he had with Dmitri Alimov, a Russian MBA student at Harvard Business School, made it all the way to the New Yorker.

I think it’s worth digging a little deeper into that New Yorker story, and into the e-mail exchange between Alimov and Rogers, because the positions that Rogers espoused back then are basically identical to those still made by many Russia bears today. Rogers essentially based his negativity towards Russia on four main factors: 1) that people were abandoning Russia 2) that Russian oil production was declining 3) that investors were abandoning Russia and 4) that figures showing improvement in Russia’s economic figures were unreliable and probably doctored.

Alimov countered by noting that 1) Russia was, in fact, experiencing net immigration 2) that Russian oil production was increasing and was likely to continue doing so 3) that investors were, if not flocking to Russia, then certainly not abandoning it and 4) that Russian economic statistics weren’t doctored and that other organizations, such as the US government and the World Bank, also thought the situation was improving.

Ben Aris, in his original FT post, dug up a genuine re-production of the entire e-mail exchange, and, with the benefit of 20-20 hindsight, Rogers’ position does not come off in the best light. In his response to Alimov, Rogers tended to eschew any actual data and instead went with “common sense” observations such as:

This is not from “Reuters”. It is from the Russian government – the same group which claims to have had a balance of trade surplus for the last 9 years. The same group of bureaucrats and charlatans who became a laughing stock with their “facts” under  the USSR.

Every now and then when I publish something about Russian demographics someone will show up in the comment section making that exact same argument, saying something to the effect of “but Mark, everyone knows that Rosstat manipulates their statistics and that Putin tells them to lie to make things look better.” That certainly seems reasonable enough, the Russian government really is quite corrupt and ineffective, but it’s not intuitively obvious and its certainly
not something that anyone should believe purely on the basis of vague allusions to the Soviet Union. Handwaving of this sort is both incredibly common and incredibly dangerous.
With the benefit of hindsight, we can see pretty clearly that Alimov was right and that Rogers was wrong. If, back in the fall of 2003, you were an investor with a lot of money to throw around and you thought that Alimov was a Kremlin-manipulated dullard and that Rogers was saying harsh and uncomfortable truths (and therefore went short on the ruble and the Russian stock market) you would have gotten absolutely wiped out over the next 5 years. Russia, in 2003, really was in the midst of a long-term boom and its economic fundamentals really were increasing as a rapid clip: it wasn’t an illusion or the result of simple manipulation by the dread Kremlin.

As should be seen from the e-mail exchange (which people ought to read in full) Rogers was not simply a “bear” he was the capo de tutti capi
of people who thought that Russia was a doomed and collapsing nightmare of a place. That he has now not only agreed to invest  in the country but to work on behalf of a state-owned Russian bank is dramatic in a way that’s hard to overstate. A rough equivalent, I think, would be if Richard Dawkins got religion, quit Oxford, joined a monastery on Mount Athos, and penned an updated version of Mere Christianity.
While it would be a mistake to read too much into a single individual action, Jim Rogers is, I think it’s safe to say,  incredibly well respected in the finance and investing community. There are an awful lot of people in the West who (quite understandably) follow his lead and trust his judgement. That Rogers’ views on Russia and its economy have undergone such a complete reinvention in less than a decade shows just how quickly history moves. It also shows, I think, that Russia’s economic image is finally starting to turn a corner and that informed investors understand that there is a lot of money to be made under the right conditions.

Rogers’ move is essentially a long position on commodities, food, and the basic continuity of Russia’s current institutions: all things considered, I think it’s a perfectly reasonable bet.

Jim Rogers

Warren Buffett

Nouriel Roubini