Mike Norman, anchor, HardAssetsInvestor.com (HAI): Hello folks; this is Mike Norman, your host here at HardAssetsInvestor.com. We're here for the second half of my interview with Dan Frishberg, chief investment strategist at LafferFrishberg.com.

All right, in our earlier interview, we talked about the rationale for the commodities, for the hard assets. It's embraced as an asset now; investors want them for all the reasons that you mentioned in our last segment. Let's look at the outlook. I mean, we've had six years … I don't think anyone could have predicted the extent of the gains that some of these markets experienced; but now we're having a pullback. Is that it? You sort of kind of hinted to that when you said it depends on the stock market, but is that really it?

Dan Frishberg, chief investment strategist, LafferFrishberg.com: No, it's not over. Three years ago, in "Escape from the Herd," I was writing about this.

Norman: That's a book you authored?

Frishberg: Yeah, never mind; I was going to give you the commercial. But look, here's the thing. What I was saying was, you wonder why would anybody let you in? If everybody knows about the development of Asia and everybody knows about all this stuff, how could you possibly get in at a reasonable price? It's gone, right? It's in the market.

And what I said was there's going to come a time when people are going to be so worried about the American economy that they're going to be distracted from this secular trend that they know is going to happen; they're going to totally forget about it, and you're going to be buying this stuff on the cheap again, and we are coming to that.

Now to get to that, it's not on the cheap yet; it's down quite a bit, and it's got a lot of room to go down further. As you can see with this stock market - which as we speak today is at what, a 1998 level - it's going to overshoot, but you are going to get a chance to get in cheap. The compelling low prices of these things and the obvious appreciation are going to attract people again and it will make it rise.

Norman: So what you're saying is there are two rationales going on. In the short-to-medium term, it's "do what works." If these markets are outperforming equities, let's do them, and there's certain elements of investor class…

Frishberg: Well, right now they're going to go down in the short-to-medium term.

Norman: OK. In the long term, there's that more-fundamental outlook that kicks in, the demand for these things, maybe the lack of investment that we have had up until this point. But what about that? I mean, look, any free market economist - Dr. Laffer I'm sure included - would tell you that high prices are the cure for this sort of thing because they'll encourage more exploration and production.

Frishberg: Well, that's right, and I will tell you that Arthur believes that the commodity deal is over; it's over, it's done. I don't happen to see that right now because I don't exactly see the replacement for steel in the buildings yet, and I know that they're not going to have …I come from Houston. We know that there isn't going to be transportation that goes 70 miles an hour on the freeway that doesn't use petroleum for at least 10 to 30 years, depending on how we put resources into it. So I don't really see that this substitution is going to happen, but it is happening in the short run right now. That's a cyclical trend, but the secular trend, which is two and a half billion people, are going to live like Americans in the next 20 years; that's going to take a lot of materials.

Norman: Prices go up. We just know that; that's the force of inflation. The question is on an inflation-adjusted basis, because here's where we see … historically we've seen these spike and then retrace down to their prior levels on an inflation-adjusted basis. That's not to say crude oil is going to go back down to $20/barrel, but maybe $65/barrel on an inflation-adjusted basis that might be equal to $20/barrel nowadays.

Frishberg: Look, you can't compare these things to gold and things that are meaningless. Those are emotional purchases; they have to do with confidence and things like that. But gold doesn't go up because people need more gold for their teeth or anything. You're talking about the building blocks of society. There's more demand for the use of these materials than there is our ability to get it to the place that needs it in a timely manner. At the same time, there are more people who are willing to do work than there used to be compared to the number of jobs. The jobs are growing but the people are growing more, so the number of hours that you have to work to get a certain amount of materials is going to go up.

Norman: Got it. So basically, short-to-medium term, expect a little bit more volatility. Longer-term fundamentals will keep these markets headed higher.

Folks, we're out of time, but stick around; there's going to be a lot more interviews like that right here on HardAssetsInvestor.com. I'm Mike Norman; see you.