Jim Rogers versus Vitaliy Katsenelson, Part I

What Jim Rogers and Vitaliy Katsenelson have in common is that both men believe we are in a negative secular market for U.S. stocks. There is a slight difference in terminology here, as Rogers calls this a secular bear market and Kastsenelson calls it a secular range-bound market. One difference between the two is that Jim Rogers also believes that we are in a secular bull market for commodities, and that, historically, commodities and stocks have been counter-cyclical. According to Jim Rogers, the current secular bull market in commodities started in 1999, and, historically, the shortest secular bull market in commodities lasted 15 years, and the longest lasted 23 years. So if that history is any guide, the current secular bull market in commodities (and, by implication, the current secular bear/range-bound market in stocks) could last until 2014 or 2022*. This time range is consistent with Katsenelson's point that secular range-bound markets tend to last roughly as long as the secular bull markets that preceded them, so since the last secular bull market in stocks lasted from 1982-2000, the current secular range-bound market might last until around 2018. Jim Rogers has suggested a few different ways to profit from this secular bull market in commodities:

• Invest in commodities directly (his preferred method). Rogers created his own broad-based commodity index which has ETNs linked to it, (e.g., RJI).
• Invest in stocks in regions that are benefiting from the secular bull market in commodities.
• Invest in real estate in regions that are benefiting from the secular bull market in commodities.

Before I had read enough of Rogers to know his explanation for why commodities and stocks tend to be countercyclical, I asked the following question of Vitaliy Katsenelson on his website:

There seems to be some overlap between the range-bound market in stocks that you argue started in 2000 and the secular bull market in commodities that Jim Rogers says started in 1999. Do you agree with Rogers that we are in a secular bull market for commodities? If so, is this just a coincidence that it’s happening during a secular range-bound market in stocks, or do the two normally go together? The 1970s was a time of rising commodity prices as well, and that decade was also part of the previous range-bound market in stocks, as you pointed out in Active Value Investing [Vitaliy's recently published book].

To keep this post from getting too long, I'll continue it starting with Katsenelson's response in Part II.

*In his book Hot Commodities, Rogers cautions that during a secular bull market in commodities, different commodities will peak in price at different times. For example, he notes that, although the last secular bull market in commodities didn't end until 1982, the price of sugar peaked in 1974.