Mike Norman, anchor, HardAssetsInvestor.com (Norman): Hello everybody, and welcome to HardAssetsInvestor.com. I’m Mike Norman, your host. Today my guest is Dan Frishberg, chief investment strategist at LafferFrishberg.com. Dan, thanks a lot for coming here; I really appreciate it.

Dan Frishberg, chief investment strategist, LafferFrishberg.com (Frishberg): Thanks for having me.

Norman: You work with the esteemed Dr. Arthur Laffer?

Frishberg: I do.

Norman: Terrific. Now I know that you’ve been a longtime money manager and investor. Years ago you started talking about commodities and raw materials as the place to be. We’ve certainly seen in the last six or seven years the explosion, not only in terms of prices but in interest in these investment areas. A lot of investors are really embracing them as an asset class. Is this a flash in the pan or this something that’s going to continue?

Frishberg: Well, if the stock market continues to go sideways for another five or 10 years …

Norman: What if it doesn’t? Is it all based on the stock market?

Frishberg: I think it is, yes. Look, the companies that provide these things, these are the building blocks of society, the commodities. There are billions of people now, as you know, that are going to move from the country to the city. They’re going to keep doing it. No political system is going to stop them, no bank balance sheet is going to stop them; they don’t care. They’re going to have clothes like you, their children are going to go to schools like the ones your kids go to. They’re going to have it all and they’re going to need all those materials to do it, and there’s going to be more demand for those materials than there is supply. So that’s going to continue.

Norman: But haven’t we heard that argument in the past? All throughout history? Look, the growth of the world’s population is nothing new; it’s always been happening. So the demand for natural resources has always been there. But what about technology? Technology has helped us use less and less of these things. How is that going to play in?

Frishberg: These things coexist; they’re not mutually exclusive. We also need technology, and look, we’ve got other demographic issues. You got 60-year-old guys like me: I’m happy to be married but the single ones are running on treadmills in the morning trying to pick up girls. Their shoulders and arms are not made for this. They’re going to be having…

Norman: They’ll have bionic legs that’ll take titanium.

Frishberg: That’s correct. Buy titanium. Well, that’s the point. There’s more demand for this stuff and it’s in predictable places, and that’s why people like it. The stock market has been sideways and unpredictable, and the demand for these things is clear. Why not invest in them?

Norman: All right, let’s look at who’s been buying this from an institutional perspective. We’re talking about now what, pension funds? We’re talking about endowments, large institutional investors, maybe sovereign wealth funds. Do they just say, well, we want to have 5% allocated to this? They achieve that and that’s it, or is this an active management, they keep adding to this?

Frishberg: Well, what most of them do is actually become kind of fund of funds. They find hedge funds that they think are cool. Some of them are getting some surprises actually as we speak, because some of the people that they’ve been hiring are only cool when the stuff they buy goes up.

Norman: They’re not cool when it goes down.

Frishberg: Or they’re not very good at recovering when they get it wrong. You once told me in an interview I did of you many years ago …

Norman: You’re going to dredge that up now?

Frishberg: It was very interesting. You said, “Well, I’m not going to get it right but because of experience, I’m going to trade my way out of it.”

Norman: Too bad I didn’t listen to myself. But there also has been the advent of new instruments that allow for easier access to these markets. For example, ETFs - exchange-traded funds - that’s one area. I’m an old futures trader myself, so I’ve been doing this for a long time, but the ETFs have revolutionized it, haven’t they?

Frishberg: Yeah, and actually the guys at the Chicago Board of Trade are dying and the Chicago Mercantile Exchange who run it are dying because they missed that boat, and what they should have been doing is making those ETFs themselves. Of course what they have to compensate for that is the fact that the ETF guys like Barclays still go and buy the futures anyway.

Norman: Well, what they have to compensate for too is the general interest that made them rich because they all own shares in those exchanges right now, which have at least up until recently been on fire.

Frishberg: The future is good, anyway.

Norman: The future is good, and we’re going to talk about that in the second part of our interview, when we will look at the outlook in some particular markets. So come back; we’re going to conduct the second half with Dan Frishberg. This is Mike Norman, don’t go away; come back to HardAssetsInvestor.com.