HardAssetsInvestor

An Interview With Brad Zigler

Brad Zigler, managing editor of HardAssetsInvestor.com, discusses some of the hottest topics in commodities.

• Where are we in the bull market?
• The froth in the market
• The role of gold as a 'safety asset'

As managing editor of HardAssetsInvestor.com, Brad Zigler spends his days immersed in commodities: researching the markets, interviewing key opinion leaders and analyzing late-breaking news. His daily column, posted on the site as "Brad's Desktop," has become a must-read for many in the commodities market.

As a special thank you for completing our survey, we're pleased to provide this exclusive interview with Brad covering some of the biggest and most hotly debated topics in the commodities space.

HardAssetsInvestor.com (HAI): Do you believe in the commodities supercycle?

Brad Zigler (Zigler): I'm not sure I subscribe to the Elliott Wave conception of a supercycle, but I definitely believe that we are in an inflationary cycle which favors commodities.

I say this after witnessing two decades of managed disinflation in the U.S. economy. I think we are seeing a cyclical pendulum swing, and a rebirth of inflation, and that is supporting the strong move in commodities.

HAI: Let me ask that a different way: Are we closer to the beginning or the end of the bull market in commodities?

Zigler: I can't tell you exactly where we are in that bull market, but I don't think we're at the end of the cycle. If you subscribe to the Jim Rogers notion, we could be in this bull cycle for another six years. I don't necessarily agree with that, but Jim makes a convincing argument.

I don't think we've seen the end of inflation, which is playing a big role in the recent commodities move. So don't count commodities out. That said, I do believe that there is bound to be significant volatility along the way.

HAI: You "don't think we've seen the end of inflation," but the most recent CPI [Consumer Price Index] numbers showed relatively tame inflation growth. How does that match up?

Zigler: I think the CPI numbers understate most readers' lived experience of inflation.

A more telling measure of inflation would probably be its monetary precursor: money supply growth. Here the government is playing a sleight-of-hand trick. Back in 2006, the Federal Reserve discontinued publication of M3 money supply statistics, the broadest measure of money. The growth in M3 is looked at as a bellwether of inflationary pressure. If you subscribe to the notion that inflation is more dollars chasing fewer goods, this makes sense.

The discontinuation of M3 means that the broadest measure of money supply growth is now M2, which cuts out a large and substantial portion of money supply, namely large time deposits, institutional money market funds, short-term repurchase agreements and other large liquid assets.

M2 grew 5.9% in calendar year 2007. M3 money supply growth is still being tracked by a private organization. The M3 growth rate they estimate is 15.1%, a much scarier number. It seems to me that the Fed is trying to hide a statistic under the excuse that M3 was too expensive to publish, when in fact they are tracking virtually all the components and reporting it separately anyway. It's a hoodwink.

HAI: Do inflationary pressures impact just oil and gold, or do they impact commodities as a whole?

Zigler: The impact is felt across the board. Oil and metals prices have a certain degree of speculative froth right now, which is directly related to the inflationary pressure.

HAI: What influence is institutional money having on the commodities space?

Zigler: It's creating some froth in the market. Some observers have said there may be as much as 15%-25% speculative premium in the price of oil right now.

Of course, it's hard to stand in front of that freight train as it rolls over you while you're screaming, "the market is wrong!" Sometimes, it's best not to get in the way of the market. As they say, "the trend is your friend."

But you can't ignore it either. Absolute reliance on continued higher prices without expecting some volatility-especially from the weaker hands in the market-is dangerous.