I had the chance to speak with commodities expert Jim Rogers earlier this month before his presentation at an event in New York sponsored by ETF Securities. The conversation touched on regulatory issues, the energy markets and the U.S. government’s spending spree, among other topics.

If you’d like a recap of Rogers’ presentation that day, check out my recent blog.

IndexUniverse.com (IU.com): How do you think the specter of increased regulation will affect futures-based index commodities ETFs?

Jim Rogers (Rogers): First of all, there’s no question: It’s not just a specter—they seem to have it in their heads that they’ve got to do something. It’s interesting because index investing doesn’t really have much effect on the price. Index investors don’t take delivery of commodities—they turn around and sell them again. Index investors in stocks, now they do have influence on the market, because they take stocks off the market. Anybody who invests in the S&P 500 funds, they buy stocks and take them off the market. If anybody manipulates the market, it’s the stock index investors. Having said that [the regulators] look like they’re going to do something.

It is having a temporary effect on the market, but eventually it’s going to drive the markets offshore. America has had a near-monopoly on commodity trading for 100 years, and they’re just giving it to the rest of the world. I live in Asia, and I travel a lot. [They] can’t believe what they’re seeing because America’s about to say, “Here. Take the business.”

Many countries have made mistakes like this. If it happens, there’s going to be a temporary blip in the market. It will make the fundamentals of commodities better because as long as prices are down, there’s less incentive for people to produce more. But eventually you’re going to see [business move to other] markets, whether it’s in Japan, Singapore or India. They’re all sitting there dumbfounded that this is happening.

If you’ll notice, the English have said “well, we’re not going to do this.” Because they love the fact that all of a sudden they may get a lot of business that will be forced out of the U.S. and into other markets. It’s staggering.

But then I’ve often been staggered by politicians throughout my life, and if you read back in history, you sometimes say to yourself, “How can anyone be so dumb?”

IU.com: Has the persistent contango in certain commodities counteracted the argument for index-based commodities investment?

Rogers: I do notice the press has suddenly learned how to spell “contango,” and even “commodities.”

I’ve seen it come and go. Certainly when you deal in a commodity that is in contango, it makes it more difficult. However, if a commodity is in contango and the basic price is going through the roof, you’re still going to make a lot of money. But I’ve seen contango come and go. From my point of view, as a passive investor, I really don’t pay attention because there’s usually something in backwardation and something else in contango, and they come and go over time. According to studies, they haven’t had that much difference.

But if you’re really smart and you can invest away from contango or can invest with contango and know how to do it, you’ll make a lot more money. And there are people who think they are really smart and are trying to do that right now. I’m not smart enough to do it, so I just continue to invest in an indexed way with all commodities.

IU.com: Do you think investors should be in commodity futures or commodity stocks right now?

Rogers: Studies show, in my experience, that commodities themselves outperform commodity stocks. In the ‘70s, oil prices went up 10 times; commodity oil stocks did nothing. With stocks you have to worry about the management and the balance sheet—a hundred things. Commodities are pretty dumb: If there’s too much oil, the price is going to go down; if there’s too little, it’s going to go up. Oil doesn’t care who the head of the Federal Reserve is; it doesn’t care what laws Congress passes, for the most part. But if you’re Exxon, you’ve got to worry about that stuff.

The studies show that you would’ve made 300 percent more investing in commodities themselves over the past several decades than in commodity stocks, but if you know a company that’s going to discover a lot of natural gas in Berlin, you buy all you can. Then you call me. Because then you’re going to make a lot more money than in commodities themselves.

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