Jim Rogers Sizes up the Commodity Bull Market… Is it Over?

The Investment U E-Letter: Issue # 369
Tuesday, September 14, 2004

By Dr. Steve Sjuggerud, President, Investment U

"When Merrill goes back into the commodity business… sell out [of commodities]"
-- Legendary investor Jim Rogers, in his 2003 book, Adventure Capitalist

"Merrill re-enters energy trading,"
--Headline in the Financial Times, September 3, 2004

Two legends sent me e-mails last night, back to back…

At 5:01 p.m., world champion windsurfer Kevin Pritchard e-mailed me out of the blue. And at 5:02 p.m. an e-mail arrived from legendary investor Jim Rogers. Both surprised me with what was on their minds…

I first got to know Jim Rogers back in 1997 when I sat next to him at a black-tie Speakers Dinner at the New Orleans Investment Conference. Jim impressed me as one of the few investors in the world who draws his own conclusions. We talked a lot, and he was quick, witty and worldly. He was supposedly retired, but he was more current than anyone else there.

Jim Rogers' book, Adventure Capitalist, is one of the most important investment books of our time. Jim spent about four years traveling the world, seeing places no American has ever seen. He wrote about what he saw, and the implications going forward, as only he can. I highly recommend that you read it. I e-mailed Jim yesterday, as one of the predictions in his book came true…

Back in 2003, Jim rightly wrote about a new bull market in commodities that could last a very long time… and that it was just getting underway. He said that nobody was paying attention.

He couldn't have been more right. Oil has soared and commodities like copper have soared for a variety of reasons. Now people are paying attention. When will the commodity bull market be near its end? Jim wrote in the book:

"…when Merrill goes back into the commodity business."

I e-mailed Jim because my Investment U colleague, Brian Hunt, spotted this headline in the September 3, 2004, Financial Times: "Merrill re-enters energy trading."

I got a real kick out of this, as oil prices peaked just two weeks ago. Merrill may be late to the game once again (it exited commodities in 2001, which would have been a perfect buy signal). I asked Jim how he felt about Merrill re-entering commodities… is this the peak? Is it time to sell? He said no… About Merrill, he said:

"They are not back into all commodities full force yet. We will welcome them back, since someone has to make the last two or three legs of the bull market."

No doubt, Jim was using Merrill getting back in as an anecdotal way of sizing up the maturity of the bull market in commodities. Merrill has entered, so the commodity bull market is well underway.

But is the bull market in commodities over yet? Not yet, according to Jim Rogers, and I wouldn't want to bet against his track record.

There is a substantial risk of loss trading futures, forex and options. Before investing please understand that changes in the cash and commodity futures price do not typically correlate on a one to one ratio with the corresponding commodity option price. Moreover, past trends in cash and futures prices on specific commodities do not necessarily forecast current profitability of options on those commodity futures. All known market news will not necessarily affect option prices since the news is usually already factored into the underlying futures price, as well as option value.

Past performance is not indicative of future results.