by Jim Rogers
We crossed Ireland and headed for England, exultant.
After a week in England, I was antsy to leave for Europe. I needed to get to Linz to speak to Oberbank’s clients about developments in Central Europe.
As we had been to Europe many times, we zipped across its familiar face, a thousand miles in a few days. During the 527 miles from Paris to Munich we were pummeled by cold spring rains, no fun on a motorcycle but a real-world consequence of being close to the road. I led, and Tabitha complained about doing such a long distance in one day, but I was sure she would get used to the pace.
I had fond, fond memories of Austria and its stock market, where I’d made one of my best coups.
Six years before, believing the time was right to invest in Vienna, the sleepy former capital of the Austro-Hungarian Empire, I had put out feelers by calling the New York office of Creditanstalt, its largest bank. I asked the manager how I could go about investing in his country’s stock market.
“We don’t have a stock market,” he said.
I laughed. This was music to my ears. The largest bank in the country—and the New York rep didn’t even know he had a stock market!
I knew there was one and that big changes were taking place in Austria. The bank manager’s ignorance showed me how wonderfully obscure the stock market was, just what I like as an investor.
I assured him that his country had a stock market and asked if he could find out how I could buy shares. It was hopeless dealing with him. But that just whetted my appetite. The largest bank in Austria and no one knew how to buy shares on its stock market!
I knew what was going on in Germany—that it was becoming an industrial powerhouse—and how Austria, like Germany, was loosening its socialistic chains.
In November of 1984 I went to Austria. I went to the stock exchange. Nobody was there. It was dead, open only a few hours a week.
Finally I found the one guy in charge of the stock market at the Creditanstalt Bank’s main office, Otto Breuer. One guy handling shares, without a secretary, in the country’s largest bank. I felt as though I were in knee-high cotton.
The Austrian exchange had less than thirty stocks listed, and it had fewer than twenty members. Back before the First World War there had been four thousand members on the Austro-Hungarian stock exchange. Then it had been the largest stock market in Central Europe, dominant, as New York and Tokyo are today.
I got Otto to take me to see the government official in charge of the stock market, Werner Mehlberg, who assured me there would be changes made in the laws that would encourage people to invest in stocks. The government recognized that it had to have a capital market.
“What changes?” I asked, masking my excitement.
Lower taxes on dividends, said Herr Mehlberg. We’re going to make the dividends tax-free if you reinvest them in stocks. Give tax credits for investing in stocks. Give special provisions in the laws for pension funds and insurance companies to invest in stocks, which they hadn’t had before.
Other countries had done these things, and they had achieved dramatic results. These were copycat measures. The Austrians had seen the German stock market going up. But at the same time, I thought about the portfolio managers in Germany. They read German, while Americans might not, and these German portfolio managers knew where Austria was, practically a suburb of Germany. If this market started to move they would pile in and drive it up even higher.
But ever cautious—the first rule in investing is not to lose any capital—I went to the head of an Austrian labor union and asked him about the position of the socialist party—capitalism’s loyal opposition, so to speak—on all of this. He told me the socialist crowd was in favor of these changes. They didn’t like stock markets, but they knew they were necessary to make the country go. That was it—no opposition from the opposition. I decided to pile in.
My attitude is, if you believe in a country, you should buy shares of every decent stock on its exchange. If you’ve got the right concept going for you, they’re all going to move up together. I bought shares in everything that had a solid balance sheet—a home-building construction company, finance and manufacturing companies, banks, other construction firms, and a big machinery company.
A few weeks later I was on the Barron’s Roundtable, an annual forum for discussing investment ideas. I reminded the other members that the year before, I had invested in Germany, but this year the country to invest in was Austria. I laid out my reasons.
The paper comes out on Saturday morning. Saturday, Sunday went by, everything was quiet. On Monday morning Otto Breuer, the guy without the secretary at the Creditanstalt, came in late. His desk was covered with phone messages, and the market was going through the roof. Calls were pouring in from London, Munich, New York: “Buy me Austrian shares.”
Otto had no idea what was going on. People just kept calling from everywhere—Barron’s is read all over the world—wanting to buy shares on this dead stock exchange. Finally, somebody said to him, “Hey, don’t you read Barron’s?” Of course he didn’t, because this was a backwater job. The market started to move up, which naturally attracted even more interest.
Now, I can’t move a stock market. All I can do is point out the reality of a situation. It was one of those things, a simple idea, but once you looked at it, it was dead clear and everybody piled in.
To this day people say I kissed the sleeping beauty and woke her up. The smart ones say that, while the dumb ones think I actually did something magical. But everybody said what a beautiful thing it was when the princess woke up, because everybody made so much money. The stock market went up 125 percent that year, and then went up more and more.
Well, when the Austrians figured out that I was Prince Charming, the Creditanstalt invited me to speak at their quarterly forum, at which Kissinger had spoken not long before—a forum where I would definitely be heard.
So I went, and I said, “This ain’t over yet, folks; hang on. You are all gonna make a whole lot more money in the Austrian market. This thing is big. You’re going from a state of gross undervaluation to a normal valuation, and your economy’s growing. Just because it’s double up now doesn’t mean more money’s not going to be made.”
The newspapers gave this lots of coverage. The Creditanstalt people rented me a motorcycle and I, the “eccentric Jim Rogers” according to the newspapers, drove up to Prague. I finally sold out of Austria in the spring of 1987—the market was up 400 percent or 500 percent by then—because I was worried about stock markets around the world. I was worried about a financial crisis, yet the Austrian market was one of the last ones I sold.
Now the Austrians had asked me back to make another speech. I was eager to get to Linz—I prefer to ride hard and arrive where I have to be and relax—but the closer I got the less keen I was on speaking.
The flattery of being called the father of the Austrian stock market was nice, but this time around I was terribly bearish on Austria and all of Central Europe.
The Austrian stock market was ripe for collapse, and like people everywhere, those involved weren’t going to be happy to hear the bad news.
The berlin wall had just fallen, and everybody in the global market in early 1990 was certain that Central Europe—historically defined as that central part of Europe west of European Russia and the Ukraine—was going to be the next economic miracle, another Southeast Asia.
The consensus bullish argument went like this: The stock markets in Germany and Austria had historic ties to Central Europe, where their companies had owned businesses. The only neutral country between the eastern and western blocs of Europe, Austria was a natural crossroads. Vienna had been the economic and political gateway to Central Europe historically and geographically, and it would flourish as these new democracies grew. As late as the early twentieth century, Vienna was the capital of the Austro-Hungarian Empire, which over the centuries had dominated Central Europe. The Austrians had maintained closer ties to Central and Eastern Europe than had Germ
any, which had been the enemy. Plus, during the Cold War all the world’s spies used to go through Vienna because it was a neutral city and it was right there.
I didn’t see any of it this way. I thought anybody who put money into the Soviet Union and much of Central Europe was going to lose it because of the strife and chaos to come. There wasn’t one legitimate border in the entire area. All its borders were settled in 1945 by victorious armies either granting rewards or extracting revenge, and I didn’t expect many of them to last. As the Central Europeans discovered that democracy didn’t automatically create prosperity, the politicians would print money to win votes. The resulting inflation and economic collapse would only heighten ethnic hostilities and lead to constant strife. Hyperinflation would turn Central Europe into a South American–type economy long before it could become the next Southeast Asia.
Word was leaking out about my ideas. An Austrian magazine article said Sleeping Beauty’s prince thought Central Europe was going to collapse. Suddenly this little bank that had invited me to speak, the ninth largest bank in Austria, had a tiger by the tail: Everybody in Austria wanted to come to Linz for the speech. It had originally been for the bank’s own customers, but now it had to hire the biggest hall in town. The bank sold it out and had to install video monitors outside the hall for those who couldn’t get in to watch.
So we rolled into Linz, and I got up there in my black leather jacket and bow tie and told them how I saw it. Central Europe was going to be a disaster. I said the Austrian stock market had been going up for some time—seven fat years—and that we were now at a point of hysteria. I described the classic signs: All the university students wanted to do was go into the stock market. People were leaving their jobs to go into stock market work because it was such an easy and wonderful way to make a living. By every traditional measure—low dividend yields, high price-earnings ratios, staggering volume of trades—a top was near. This was a classic speculative bubble—only a pinprick would be needed to burst the balloon.
“This is coming to an end,” I said, “and you’d better be selling, because it’s gonna go down by at least fifty percent. I don’t know if it’s going to happen next week or next month, but it’s gonna happen over the next few months.”
Several questions from the audience: “Aren’t you just saying this because you’ve sold short our market and want it to go down?”
I previously had said publicly that I was short the Austria Fund, which was the only way you could short the Austrian stock market. If the market fell, I would make a profit.
“I’m trying to explain to you that there is going to be a major change coming in your market that has nothing to do with whether I’m alive and well or have never been here,” I explained.
There were more hostile questions from the audience, because nobody wanted this to happen. Why was I saying this? they muttered; this wasn’t nice. “Why are you ruining our country?” they said. “We only invited you back because we thought you would say nice things.”
They didn’t want to look at the facts, but only at the idea that a big new market was opening up, that freedom was coming. They forgot that democracy doesn’t equal prosperity, nor could they see that when the expected prosperity didn’t arrive, the new democratic leaders would be blamed. All these countries—Hungary, Poland, Romania, Yugoslavia, Bulgaria, and Czechoslovakia—had huge foreign debts, among the highest in the world on a per-capita basis. None of these countries had a thing to sell. After all, their industries had produced only shoddy goods for almost forty years, which they had sold to captive markets in the COMECON. Except in the coming tourist boomlet, nobody in the West was going to buy anything—not a wristwatch, much less a car—from these countries.
Expectations would be aroused, and next time there wouldn’t be Ceauşescu to shoot or Communists to throw out. One of history’s lessons is that truly downtrodden peoples do not rise up, but hell hath no fury like suppressed peoples whose expectations have been aroused. And now that their expectations were piqued, this fury would have to find a target. The ethnic, national, and religious rivalries that had plagued the area for centuries would erupt again. None of the borders in Central Europe were rational—historically, linguistically, religiously, or ethnically. Could anyone explain why Moldavia was part of the USSR and not Romania? The Moldavians wanted to be part of Romania, while the Hungarians and Germans who were dumped into Romania desperately wanted out, and for good reason. Yugoslavia, an artificial conglomeration of six countries, had never been a nation except for a few forced decades in the twentieth century, and certainly wasn’t one now.
History was on the march and nobody wanted to listen.
The next day Tabitha and I left. The Austrian stock market fell off a point or two as a result of my speech—nothing spectacular, or we might never have gotten out. However, there was a big controversy in the press. Because no one was allowed to short Austrian stocks, there were no bears in the Austrian market. Nobody wanted it to go down.
It was shoot the messenger all over again. People never want to hear bad news—never want to hear what upsets their view of life. Back in the oil boom days, guys on Wall Street would tell me oil was going to one hundred dollars a barrel, and I’d tell them it was impossible, that when the price got too high the same thing would happen that always happened with a high price: Somebody would find more of whatever it was, or somebody else would make a substitute. Consumption would go down. People would lower their thermostats and wear sweaters. The Wall Street types would get mad and call me crazy.
They will always tell you, “This time it’s different.” I hear that a lot, but it’s never different. It’s just a different situation. Trees don’t grow to the sky, stock markets don’t go up forever, and high prices cut back demand. With prices high, a million guys pile in to figure out how to take advantage of all that money, bringing in supply and eventually driving down the price. No one has ever repealed the law of supply and demand, and no one ever will—not Republicans, Democrats, Communists, or capitalists. It’s a law of nature, a mechanism many governments can’t seem to understand or trust to make things right. So in the United States we had to endure gas lines because the government thought it could legislate price. Well, it can’t, or at least not for very long.
It was clear and bright the day we pushed toward Hungary, a little cool because this was April and we were coming out of the mountains.
What struck me on nearing the border was what a vast, flat plain we were approaching—lots of farms, lots of farm buildings, broad, flat fields. Historically, all the way to the Ukraine this was the breadbasket of Europe, the Kansas and Nebraska for Vienna and Berlin.
I realized as we came down out of the mountains and onto the plains how often borders followed geographical features and changes such as rivers, mountains, lakes, deserts. Here the border ran along the edge between the mountains and the fertile plains.
Coming out of the first border checkpoint toward the second, I was leading. We slowly drove along a big S-curve covered with a long oil slick—all Communist cars leak oil. I checked Tabitha in my rearview mirror, and she was leaning to the right, accelerating, as you’re supposed to coming out of a curve.
When I next checked my rearview, I saw her bike bouncing in the air from its right-side crash bars to its left, and then back onto its right—but no Tabitha!
I panicked, pulled to the side, and looked back. Her bike was in gear, now on its left side, but I couldn’t see her. The bike bounced upright. With its throttle fixed and back wheel turning, the bike’s gyroscopic tendency made it bounce back upright, then over again, up and down, up and down. Every time the back wheel touched the ground it gained new thrust.
Where was Tabitha? The bike was still moving on the other side of the two-lane road, into oncoming traffic, which scattered out of its way. She was gone and that damn bike was still flopping around.
I jumped off my bike and raced back. She was on the ground next to the road, struggling to get up.
I was terrified. I pictured her bloody, torn, ripped, this beautiful woman I loved. What had I done? I’d rarely traveled with another cyclist before, much less an inexperienced one. Had I put her through something she couldn’t handle? Scarcely a week into the trip and here she was injured, possibly maimed.
But she sprang up and said she was okay. Relief flooded through me. As she pulled off her helmet I saw she wasn’t bloody, not even scratched. Her leathers, boots, gloves, helmet, and the crash bar shielding the engine and her legs had all worked, protecting her as they were supposed to—plus, she’d been lucky.
Yards away, the bike was on its side, still in gear, its rear wheel still turning. She was so little hurt that she was able to run with me to it.
We flipped off the emergency switch and gas cocks and pulled it upright to stop any gas leaks. The Hungarians had left their cars and were gaping. When it was clear that we were okay, they waved and got back in their cars and drove on.
I was worried about Tabitha. She was more worried about the bike because she thought she was okay. But maybe she had a concussion and didn’t know it. Sometimes these things didn’t show up for a day or so. Maybe her parents had been right. Her mother had said this was madness; her father had put his foot down, even though at seventeen he had gone to Europe and, against his parents’ specific instructions, bought a motorcycle and toured about for the summer. Maybe I should have found a soldier of fortune to come along, or should have done this alone.
After she assured me three or four times that she was okay, I had to buy it. We eyeballed the bike and it looked okay, too. We were delighted to find that it started up right away. I looked Tabitha over again to see if she had holes in her leathers and was hurt some place and didn’t feel it. I figured we had been going twenty to thirty miles an hour, not at high speed, but she didn’t know how to handle an oil slick because of her inexperience. No tears in her leathers, and on second inspection the bike again seemed to be fine.
