HardAssetsInvestor

Mike Norman (Norman): Welcome back to HardAssetsInvestor.com. I’m Mike Norman, your host, here with the second part of my interview with Frances Newton, who’s the CEO of Frances Insights. We talked about, in the last interview, that you thought we’re heading into a fairly strong time for the U.S. economy and the stock market. Doesn’t that suggest then that certain industrial commodities like oil and copper are going to do very well?

Frances Newton, CEO, Frances Insight (Newton): Yeah, I do think that some commodities will continue to do well. However, the commodities right now are very overbought. And I think that’s because of the speculation. As the equities sell off, everybody is looking for somewhere to throw their money in. They like bull markets. Nobody likes the short.

So I do think we’re going to see a correction in the commodities in the short term. I would say if oil can’t surpass $93.75 a barrel, we’re going to see a correction possibly to $75. It’s overbought. When they put this stimulus into the economy, it actually has to run through a process before it can actually hit the demand. And so depending on when those gears catch each other ...

Norman: But is there usually like a certain amount of time that it takes for the stimulus to run through, as you say?

Newton: At the rate that it’s going now, based on the stimulus that we’ve had in the past, I would say that it’s running through about two years. So I think that 2012 is really going to be a great time to look.

As far as oil, I think oil is directly connected also to unemployment and demand in that area. If people don’t have jobs, obviously they’re not going to be buying oil. And so I’m looking very carefully at this $93.75. There’s a lot of resistance there.

Norman: So you don’t see it going up to $150 a barrel again, anytime soon?

Newton: It’s possible. It just depends on how the gears hit, where the stimulus hits and when. And it’s possible. But again, I’m really interested in that …

Norman: So you’re actually saying, we haven’t really felt the bulk of the stimulus yet. That’s still yet to come.

Newton: No, we have not, I don’t think. Because the new quantitative easing, they’re going to put … I think you and I said it was $70 billion every other month. That’s new liquidity coming on to the marketplace. Those dollars have to find investment homes. And I think that’s why the equities probably might have a correction in the short term. We might see 10,625 on the Dow. But I still think before we see the second half of the deflationary collapse that we do have some room to the upside.

Norman: How about some of the agricultural commodities? We’ve seen big run-ups in, for example, sugar, soybeans, wheat, etc. There’s somewhat of a fundamental story behind that. I mean, we had the Russian wheat problem over there. What do you see for those commodities?

Newton: Well, there is a fundamental story there. I mostly trade technicals. The commodities have run up − wheat, corn, soybeans have just all skyrocketed. And what I’m looking for is if there is a continuation in the momentum. For wheats, I’m looking at $8.75. If wheat can’t trade above $8.75, I think it could correct back down to $5.00. I think as people jump over into the equities and kind of move their money around a bit, that makes sense.

A lot of the commodities … I think people went there for flight to safety; they speculated. I do think that those markets are overbought right now. If soybeans can’t trade above $13.75, I think we could actually see a correction all the way back down to $10.00. That’s how overbought that scenario is.

Corn is kind of stuck in a trading range between $5.625 … so if it stays above $5.625, I’d say $6.25?

Norman: Corn is stuck on the cob still, I guess you’d say.

Newton: Corn is stuck on the cob.