August 6, 2008

Anyone who publicly calls for the abolition of the Fed gets my attention.  Add to his resume the fact that he rode a motorcycle across China once, circled the planet on the ground twice (the second time with his beautiful bride), ran the New York City marathon three times, and is one of the world’s most successful investors as well as a best-selling author, and I’ll sit and take notes.   

I did my note-taking while reading Jim Rogers’s book, Adventure Capitalist: The Ultimate Road Trip, which documents his world-spanning odyssey at the turn of the century with his wife, Paige Parker.  Unlike other books you can’t stop reading, Rogers ’s narrative doesn’t grip you so much with the tension of what might lie ahead, though there’s certainly some of that.  Instead, it holds you prisoner with fascinating detail and anecdotes written from a perspective few of us will ever experience.  He also elucidates the political and economic background of the places they visit from a refreshingly free-market, libertarian orientation.   

In the early ‘90s, James B. Rogers, Jr., the oldest of five boys from Demopolis , Alabama , where his phone number once consisted of a single digit, traveled the world alone with a motorcycle under him, reporting his journey in the best-seller, Investment Biker: Around the World with Jim Rogers.  So why go around again in the same decade?  Because he wanted to see what shape the world was in as it headed into the new century.  And to do that, he had to experience it from ground level.  “In Rome , talk to the Romans,” as he puts it.  Though he’s never patronized a prostitute, he believes you can learn more about a country by speaking to a madam of a brothel or a black marketeer than from speaking to a government minister.  

Besides this, the man simply loves adventure, and his first trip only left him hungrier for more.  “If the [millennium] trip killed me, I would die happy, pursuing my passion.  And that was better than dying on Wall Street someday with a few extra dollars in my pocket.”  

In 1996, Rogers was giving a speech about his bike trip at the Mint Museum in Charlotte , NC .  In the audience was a young woman, a fundraiser for Queens College , whom Rogers met after the talk.  He called her the next day and said, “Something magic happened. Let's pursue it.''  Two weeks later, Paige Parker flew to New York where for their first date Rogers took her to the Boathouse Café in Central Park on his bicycle built for two.  Over dinner he said to her, “I’m thinking of going around the world again at the turn of the millennium.  Do you want to go with me?”  

Paige said yes, but wasn’t thrilled about doing it on a motorcycle.  She encouraged him to consider going in a car.  

To Rogers , there’s “nothing more exhilarating than driving a motorcycle.”  But beyond the excitement there is the simplicity of getting a bike across oceans, over deserts, or through jungles.  Yes, he would consider a car, but it would have to be a sports car, a convertible, so he could put the top down and feel the wind in his face.  

He ended up with a custom-built yellow Mercedes with a hardtop retractable roof, featured on his book’s cover.  It was a two-seater with four-wheel drive, boldly cartoonish in appearance. The choice of Mercedes was easy: Their dealerships covered the earth.  “Every dictator and Mafioso in the world drives a Mercedes,” he writes, “even in countries with no roads to speak of.”  For this we have government to thank, he says. U.S. foreign aid and handouts from the World Bank and IMF have to go somewhere, and the money ends up “fattening the bureaucrats on both sides of the transaction who diligently work the trough.”  

He went with a hardtop convertible to prevent the top from being slashed and had a diesel engine installed because, unlike gasoline, diesel fuel was available everywhere.  He added an extra fuel tank and a secret compartment for hiding money, and was talked into going with an automatic transmission.  Rogers thought the vehicle’s brilliant yellow and oddball looks would attract small gatherings of the curious and thus provide a modicum of security.  But in case they were held up, he also put together a spare wallet consisting of nearly worthless currency and expired credit cards, so he would have something believable to hand over.  With trunk space reserved for the retractable top, they hauled their supplies in a trailer, and following them for much of the trip was a webmaster and videographer in a second Mercedes--a stock SUV--to handle the interactive real-time diary he wanted.  If he carried any kind of firearm, he didn’t mention it.  

Their trip began in late December 1998 in Reykjavik , Iceland and finished in late December 2001 at his father’s grave in Letohatchee , Alabama .  They covered 156,000 miles driving through 162 countries, fighting blizzards, dodging kangaroos, complying with miles of bureaucratic red tape, camping under the stars in the Sahara , eating food I don’t like to think about, and waiting for mechanics to fix the springs on their trailer.  What follows is a necessarily selective and brief account of some of the countries they passed through, but I hope it will give you a decent idea of what he means by the “ultimate road trip.”   

Ireland  

Instead of people leaving Ireland , as they did for 150 years, people are now flocking to it.  Europeans, Americans, and multinationals are building factories there.  It’s a European Tiger, though it is in debt.  

Hungary  

Budapest is a glorious, beautiful city that could serve as a museum because little has changed in a hundred years.  Like the rest of the country, it “has been nothing but broke.”  

Yugoslavia  

As they crossed into Yugoslavia , the border guards told them extra fees were required.  And they weren’t accepting dinars.  In other words, they were refusing their own currency.  Dollars, deutsche marks, Austrian shillings, those were okay.  But not dinars.  

“In most places around the world, the currency is like a thermometer,” Rogers says.  “You know a country is falling apart when even the government will not accept its own currency.”  

Turkey  

According to a successful Turkish businessman with whom they dined one evening, Turkey could claim three of the largest corporations of their kind in Europe .  One of the companies, Sabanci, which made tire cord fabric and industrial nylon, was the largest of its kind in the world.  

“You do not accomplish something like that in a week or two,” Rogers says.  “It takes brains, the accumulation of capital, and a sound educational system.”  

His optimism about Turkey quickly faded, however.  He had ordered a car cover to be made in Germany and sent to the airport at Istanbul .  When it arrived, DHL, the carrier, told him they couldn’t deliver it to the hotel where they were staying, he had to pick it up at the airport. Turkish officials considered his car cover an import intended for sale.  At the airport, Rogers spent hours filling out countless forms and buying $75 in stamps for a cover that topped out at $150.  

The next day his scarred laptop arrived from New York , requiring another trip to the airport.  Altogether he had to see 22 separate officials, some of them three or four times, pay for more stamps, fill out more forms.  

Georgia  

Crossing into Georgia from Turkey was delayed by the fact that the border guards on both sides were drunk when they arrived.  

Rogers looked up an old friend, Zaza Aleksidze, a university professor, and discovered he had the same income in 1999 that he had in 1990, when Rogers met him.  But since then the currency had collapsed and the money was almost worthless.  Zaza lived on the fifteenth floor of a building that seldom had electricity.  

China  

“The best capitalists are in Communist China,” Rogers declares unabashedly.  The Chinese have a long entrepreneurial history that was reignited by Deng Xiaoping in 1978 when he unleashed a new spirit of commerce under a policy called the Four Modernizations.  

What are the keys to China ’s success?  

For one, the expatriate class plays a huge role:  

The country has a vast network of overseas Chinese – in Singapore , Bangkok , Vancouver , Jakarta , New York – who are very successful.  They may be fifth-generation Thais, but they are nonetheless Chinese.   Many of them speak Chinese.  And China opens it doors to these people.  They bring in both capital and expertise.  

And the Chinese have a great work ethic:  

Driving through China , we would see people constantly working the fields . . . from dawn to dusk, literally.  Indeed, they worked beyond dusk.  We saw road builders laboring under floodlights, and there were almost as many women working as men. . . You will not see people lounging around . . .  

When Rogers rode a motorcycle across China in 1988, he literally drove across the desert.  There were no roads.  By 1999 they had built a procession of toll roads, which in his opinion are the best in the world.  (He should know.)  

Still, the Chinese desert is a very desolate place.  It is called the Takla Makan, meaning “He who goes in does not come out.”  Yet, hundreds of years ago the Chinese figured out how to irrigate the few towns that exist there, by building tunnels under the desert that draw water from the mountains hundreds of miles to the north.  

Driving across the bleakest of deserts, we were periodically brought up short by the sight of tomatoes, pumpkins, and melons growing.  The people of these oasis towns were so proficient in capturing water . . . that they were able to hose down the streets to reduce dust.  

They ate at a Chinese restaurant where the food was not yet dead.  Rogers ordered snake and watched as a young man slaughtered it in front of him before sending it off to the kitchen to be cooked.  Paige ordered duck but declined the offer of seeing it killed.   In another restaurant, their waitress, Mae Wang, literally ran to tables when a patron caught her attention.  “She ran to see what she could do to serve you,” Rogers explains.  

In Nanjing , building cranes were everywhere.  He fell in love with Shanghai , which he calls “the Emerald City of twenty-first century capitalism.”  

China is second only to Japan in international currency reserves.  Japan is the world’s largest creditor, but it has vast internal debts.  China has neither a huge internal debt nor any foreign debt – it is a net creditor.  

China ’s one-child policy, that ran from 1980 to 2002, has made China a nation of only children. People with one child are going to be very reluctant to send that child to war.  China , he expects, will be less aggressive in the future.  

Japan  

Japan is “absurdly” protectionist:  

Huge amounts of money and votes lie with the rich Japanese rice farmer, which explains why rice prices in Japan are several times what they are even in the United States . . . .  

The cost of a house in Japan is astronomical in part because the price of land is so high, and that in turn is due in large part to the value of rice.  No farmer is going to build an apartment house on a field that will support a crop so valuable.  

Because of regulation and inflexibility, the creativity that made the country great is fast disappearing.  Japan ’s many laws regarding vehicle inspections and upgrade standards make it cheaper to buy a new car every 2-3 years than to keep one’s current vehicle on the road.  Three-year-old cars are very expensive to own but cheap to buy – so cheap, in fact, that a booming business has developed selling the used cars all over the world.  

Siberia  

All of Siberia at one time used to be China .  And the Chinese are slowly returning.  

Mongolia  

Mongolia is about the size of Alaska but with a population roughly the same as Kansas City ’s.  As a recipient of foreign aid and with no infrastructure to upgrade, Mongolia spent the largess on technology.  They now take plastic, credit or debit.  Everyone has a cell phone – even the nomads crossing the country on horseback.  

Russia  

Russia is a third-world country.  Capital will not come to its aid.  Intelligent capital does not aid thieves.  

Africa  

There are a million Africas , but from a distance one tends to see only two: North Africa and sub-Saharan Africa .  Or white Africa and black.  

By way of illustration, he offered this anecdote: While ordering food in a Korean restaurant in Mauritania that served only Chinese food, they were having trouble with their French, so the owner brought out a dishwasher who spoke perfect English, an African woman from Ghana , a thousand miles to the south.  She like many others were working their way north trying to get to Europe .  

Throughout Africa Rogers found “vast numbers of people with talent and drive willing to labor from dawn to dusk, their work ethic no less powerful than that of the Chinese.” But war and corrupt politics were limiting opportunities.  

Most foreign aid to Africa “winds up with outside consultants, the local military, corrupt bureaucrats, the new NGO administrators, and Mercedes dealers.  There are Mercedes dealers in places where there are not even roads.”  He adds: “What our aid buys first is guns to keep thieves in power.”  

They traveled down Africa ’s west coast then up the east coast.  When they reached Sudan , they were stuck for 12 days trying to get into Egypt , which Rogers considers a “world-class bureaucratic disaster.” They finally got there by taking a barge across Lake Naser , a five-day trip of “devastating boredom.”  When they reached Aswan , some 250 miles into Egypt , officials impounded their car, demanding that he prove ownership.  For that, Rogers had to put Paige up at a hotel while he flew to Cairo to purchase more stamps.  

Pakistan  

In late 2000 when they arrived, U.S. relations with Pakistan were poor. President Clinton had recently toured India , with whom Pakistan had been at war off and on since 1947, but made only a stopover at the airport in Pakistan .  Hillary had recently returned a $50K campaign donation from Pakistani-American doctors for her Senate race.  And the U.S. had recently sold a large number of fighter planes to Pakistan , took the money, but refused to deliver the planes.  

But on September 12, 2001 , Pakistan became “ America ’s great ally and longtime friend.”  

In Pakistan , every restaurant had at least 10 guys sitting around with submachine guns.  

Pakistan is predominantly agricultural and depends for water on an ingenious system of dams and interchanges known as Sukkar Barrage.  Like the Answar Dam in Egypt , its destruction would ruin the country.  

India  

“Savagery has been a way of life here since 1947,” Rogers says.  Immediately after independence, Hindus in Pakistan and Muslims in India were slaughtered, hundreds of thousands of them, by the majority populations in their respective countries, sending some 12 million fleeing across the border in either direction.  

India has been aggressive with other countries, warring with China , Pakistan , Bangladesh , and Sri Lanka since 1970.  

“The country epitomizes bureaucracy, chauvinism, and protectionism run amok.”  If you’re a foreigner wishing to launch an investment project in India , it would take 10 man-years to get the approvals necessary.  

In India , self-described as a great incubator of information technology, we could not even use mobile phones universally.  We had to buy a different phone for almost every city.  

In China , by contrast, one mobile phone works everywhere.  China has grown far more than India since 1980, and Indians resent the Chinese for that.  

Singapore  

With an enormously high living standard, Singapore is probably the greatest success story of the developed world in the past 40 years.  Singapore ’s neighbors began discovering oil, so Singapore began building refineries.  But regulation and protectionism are now creating rot in the financial industry.  

And of course, freedom of expression is greatly curtailed.  

Australia  

In spite of its anti-immigration laws, Australia is a good investment opportunity because of its rich deposits of raw materials.  

In Darwin, a frontier town, women in the restaurant/bars dressed half-naked because of the patrons, who were mostly miners and ranch hands.  Women would commute by air from places like Melbourne and Perth just to take part-time jobs at these places.  

New Zealand  

Effectively socialist during the 1960s and 1970s, New Zealnd turned itself around in 1984, going from a protected agrarian economy to an open free market economy. Then in 1996, a new party, populist and xenophobic, took office and their currency soon dropped by 70 percent.  The huge immigration that had characterized New Zealand ’s growth came to a halt.  There was now a net emigration out of New Zealand .  

“What I saw in New Zealand was another country closing itself off to the world and borrowing lots of money.”  Rogers sold many of his investments there.  

And yet, Paige fell in love with the country and wanted to move there.  

Chile  

Chile has a natural resources economy with a spectacular infrastructure built to serve it.  A four-lane toll road in the center of the country connects the north and south regions.  

Argentina  

Driving through the country, seeing that everything was so expensive and knowing the government had been borrowing heavily since 1996, Rogers concluded that Argentina was about to collapse. While there, he wrote an article for a Latin America magazine advising readers to get their money out of the country.  Heeding his own advice, he went to a bank in Buenos Aires where he had an account, converted his pesos to dollars, and sent them elsewhere.  Three months later, his prediction proved correct.  

Brazil  

Rogers predicts Brazil will split into two countries, north and south.  

Paraguay  

Paraguay is one huge black market.  It’s not so much a country as it is a vast criminal enterprise.  

Immigrant Amish from the United States and Canada were buying huge tracts of the country’s western wasteland, the Chaco .  Mennonites had been settling there since the 1930s.  If Paraguay wouldn’t prosecute Dr. Josef Mengele, the Nazi Angel of Death, it certainly wouldn’t go after Amish farmers.  

Bolivia  

They entered the country in Yacuiba and found a bustling market because thousands of people from overpriced Argentina flooded across the border to shop there.  

Bolivia holds the record for the most governments per annum, having something like 150 coups or attempted coups in one two-year period.  The chaos consists of white guys fighting among themselves to control an indigenous people.  

Bolivia has lost every war it has fought, losing a large share of its territory to its neighbors.  

Bolivia has had a fairly stable government since 1982, and economically things have improved.  It has an impressive infrastructure, and the Japanese are investing there, along with the Amish.  Plus it has trillions of feet of natural gas.  But Rogers advises caution.  He can think of three others who were bullish on Bolivia , all of whom were eventually buried there: Butch, Sundance, and Che Guevara.  

Peru  

It was very dangerous when he was there in 1991.  With peace, Peru is now flush with tourists.  

Venezuela  

Along with a tradition of bad politicians, Venezuela is a member of OPEC.  Its second-most visible export is beauty contestants.  

Panama  

They were allowed to photograph the canal but not the nearby welcome sign.  The guards there told them Panamanians did not like tourists, especially American tourists.  

Mexico  

They spent two weeks driving north through the country. On his previous trip, decent roads in Mexico had been scarce.  This time Mexico had new toll roads, among the most expensive in the world, and they were all crumbling.  

The country’s state-run oil monopoly, Pemex, nationalized in the 1930s, accounts for 40 percent of the government’s revenues. In 2001, Pemex employed 137,000 workers to produce three million barrels of oil a day, about twice the workforce of countries such as Venezuela with similar production levels.  

Gas stations are located where the government and its cronies dictate, rather than where the market dictates.  And the filling stations don’t take credit cards.  One station did, and it promoted the revolutionary move with a huge banner: WE TAKE VISA.  

Foreign investment has declined.  Tens of thousands of jobs have left Mexico for China , which means more Mexicans will end up in the U.S.  

They had to buy a tourist license to leave the country.  It took them three hours and visits to three different offices.  

United States  

During their absence, government was saying inflation was in check and prices were stable.  But when Rogers and his wife got home, they were shocked at how much prices had gone up.  Still, the CPI was relatively tame because government, with the aid of Wall Street and the media, was involved in a charade.  

In 1996 the government began using “hedonic adjustments,” a term invented by the Bureau of Labor Statistics, in reporting price increases.  According to the BLS , for instance, the price of a Chevy had not really gone up because the new Chevy was more comfortable than the earlier model.  Gasoline was rising by only 15 percent instead of 20 percent because the new gasoline was  better than the old.  

In 2002, fully 56 percent of the figures that go into the CPI were hedonically adjusted.  Rogers expected that percentage to rise.  

The hedonic adjustments, of course, provide cover for the effects of the Federal Reserve’s printing press.  The Fed was trying to save Wall Street and the stock market, but instead was creating a real estate bubble.  

Alan Greenspan was still the Fed chairman in 2002.  Bob Woodward had tried to promote Greenspan as a genius in his book Maestro.  But Woodward “knows as little about what Greenspan does as the family cocker spaniel.”  Greenspan’s history was replete with failure.  That’s why he had a government job.  

As head of the Council of Economic Advisors in 1974, Greenspan’s solution to inflation was to issue little WIN buttons, for Whip Inflation Now.  During his tenure, inflation went wild.  Soon after he became Fed chairman in 1987, the stock market tanked by 20 percent in one day, the largest ever in terms of percentage.  A week earlier, Greenspan had assured the country that the U.S. balance-of-trade was improving and under control.  Two days later, balance-of-trade figures came out, “and they were the worst in the history of the world.”  

When Long-Term Capital Management was on the verge of collapse in 1998, many Wall Street firms stood to be aversely affected.  They went crying to Greenspan, who, instead of letting LTCM fail and thus clean out the system, started pumping money into the system to bail out his friends.  

In the 18 months that followed, NASDAQ soared, because new money tends to flow into financial assets first.  On TV everyone was going nuts over the “New Economy” and the bull market.  Yet the economy was going down, and profits had peaked.  About 30 big stocks were distorting the picture.  Take them out, and it was very easy to see that a bear market was well under way.  

Greenspan had panicked.  He printed money.  “He caused the bubble, pure and simple.”  Rather than take the punch bowl away, he kept refilling it.  

In 2001, Greenspan hit the panic button again.  The printing presses ran harder that year than ever before.  Bush was spending as fast as Greenspan could print.  Most Americans were thinking, “Well, things aren’t so bad after all.”  

The maestro had perpetrated a housing and consumption bubble by driving down interest rates.  

Both Greenspan and Bernanke stated they will do everything they can to prevent prices from declining in the United States .  There will be no deflation.  They will buy any asset to drive prices higher.  To Rogers , that means sell U.S. dollars.  There may very well be a deflation sometime down the road, “but before that happens the government will print money until the world runs out of trees.”  

Conclusion  

He drove around the world when he did “to get a measure of the world’s heart rate as it jumped a millennial divide.”  “The largest and most prosperous city at the end of the last millenium was Cordoba , Spain . . . What will the world look like a thousand years from now?” Based on his travels and the changes he’s seen, he is quite certain “that in a thousand years [the world] will be all but unrecognizable.”  

“I promise you that the time will come, however unfortunate, if not four hundred years from now, then certainly by the turn of the next millennium, that few will be able to name a single American president, not even George Washington.”  

He quotes Ernest Hemingway:  

The first pancea for a mismanaged nation is inflation of the currency; the second is war.  Both bring temporary prosperity; both bring permanent ruin.  Both are the refuge of political and economic opportunists.  

Though written six years ago, Rogers ’s book is a still a fascinating and relevant read.  I find it interesting that gold has been mankind’s money through much of its history, and with few exceptions, governments have either corrupted or outlawed gold in an attempt to maximize their power.  In the perpetual war between government and sound money, perhaps the latter will finally emerge victorious, and the next millennium will be unrecognizable today because the world will be a place of peace and prosperity.