Mike Norman, anchor, HardAssetsInvestor.com (Norman): Hello everybody, and welcome to HardAssetsInvestor.com’s interview series. I’m Mike Norman, your host. Today we’re going to talk commodities with a very active player in the commodity market … he comes back to join us … Kevin Kerr of Global Commodities Alert. Kevin, thanks for coming back; it’s always a pleasure to see you.
I think the last time we spoke, things were really happening, things were very strong – commodities were the sector, the asset class that everybody wanted to be in. A year later, how things have changed; we have an economic contraction globally of a magnitude we’ve never seen before. |
In fact, I think this is the first time we’ve had a synchronized global economic recession; commodity prices have collapsed – many of them have given back even their entire moves and then some.
Tell us, in your opinion, where do you think we are in this process? Obviously things got overdone on the upside; we’ve come down – but for how long or how much farther do we have to go in this process?
Kevin Kerr, editor, Global Commodities Alert (Kerr): Like they say on the trading floor, “from hero to zero.” That’s true; the market’s really got frothy. You and I’ve been talking for a long time, and we saw the commodities just march higher and higher and higher in the irrational exuberance. We even talked about it when oil got up to over $100; we said, what’s going on here? A lot of the other commodities … like grains … everything really was exploding and getting past the point of sensibility.
Now of course we’ve seen in the global market across the board … equities, real estate … everything just swing all the way to the other side and probably oversold; in some places, maybe still have further to go than others. So it’s been a wild ride for investors; of course, people lost tons of money and it’s been devastating.
So I think right now we’re starting to creep back the other way, and somewhere in between, hopefully this time around we’ll find some equilibrium and start trading on real fundamentals, not all this froth.
Norman: Because that’s the thing; we can talk about, for example, the dot-com bubble in the late ’90s and investors throwing money essentially at companies that had no profits, no revenues, an idea on a piece of paper. But these are real physical things, these are resources that are necessary for use in production.
So at some level – and even though, as I said, this has been a severe and unprecedented and synchronized global economic recession – at some level, though there has to be demand because we’re still using these materials, they’re still basic to the processes of production and wealth creation. You’re saying we’re maybe approaching that point then, right?
Kerr: Again, I think we saw that pendulum swing all the way this way to the downside. The difference between the NASDAQ and that froth that came out, nobody needed Pets.com to recover the economy – those other stocks that just got decimated – but they do need oil and energy and grains to eat. So there’s going to be demand.
If we start to see the economy improve, you’re going to have demand certainly for energy; they go hand in hand. If you’re going to have a growing economy and people getting back to work, you’re going to need more energy.
Norman: They’re going to need food too.
Kerr: You need food and you’re going to need a lot of oil.
Norman: But did it surprise you … because on the way up, even those who were skeptical, sometimes myself even, I started to buy into it thinking, look, we have this global boom, you have these countries like China and India emerging on the scene for the first time as real economic powerhouses. Did it surprise you how far back we came?
Kerr: Yeah, of course. I’m not going to sit here and say, well, I completely believed that it was going to fall back that far. No, I really thought oil prices were getting way too high; in fact, I shorted oil when it was up near the highest because of that, but I was a little tenuous to do that. Like you, I was trying to say, what’s going on?
But I think it’s fallen too far to the down side; I did not think it would go as far as it has; and who knows – it may have further to go. It’s pretty impressive in a bad sense to see these moves to the down side as far as they have; it’s really unbelievable.
|
