HardAssetsInvestor

Mike Norman (Norman): Hello everybody. Welcome back to HardAssetsInvestor.com. I’m Mike Norman, your host, as always, here with the second part of my interview with Scotty George, chairman of du Pasquier Asset Management.

So, in our last discussion, I think you pretty much put out your short-term, medium-term, long-term outlook for the volatile commodity asset classes. So let’s drill down a little bit and get into some of your favorite areas. I know you mentioned agriculture. Why agriculture?

Scotty George, chairman, du Pasquier Asset Management (George): Well, I think when looking at the sectors as being leading, lagging or coincidental to the market, we try to measure − through these quantitative statistics that I employ − the velocity of probability within the capital gains spectrum. Given that, we’re seeing enormous demographic leadership in the agriculture sector. And that would include potable water, as well as traditional meats, grains and other.

I believe, and I’m sure you have expressed in your views, too, that we’re running out of fertile land. And as the population grows − including issues that are fiscal and monetary, related to the rich and the poor − the disparity is growing; the need for these data is becoming greater. So we’re finding more and more probability of capital gains in the agriculture sector within the tangible asset group as a whole.

Norman: Now again, I come back to this point that has kind of always been the worry. But, what we’ve seen historically − crop yields just going up to levels that nobody ever would have predicted. So, again, that comes with technology, science, innovation, new ways of approaching farming, etc. You don’t see this as a force that, once again, will alleviate the problem?

George: Well, let me ask you a question. If you recall back to the dot-com era in the mid- to late-’90s, do you think anyone was interested in buying stocks like General Mills, Heinz, Hormel and what we traditionally call the consumer noncyclicals, the brand names? I don’t want to imply in my response that these long-term factors aren’t influenced either by short-term events or by the duration of their own cycle. But clearly, as an investor, as a portfolio manager, we have to find areas where the money is flowing currently in order to best take advantage of our asset allocation probabilities.

So, I guess the best answer I can give you is that I think these are long-term trends that have a basis in fundamentals, technical considerations, quantifiable considerations, but which are affected more so in the short run by where money is flowing and where opportunity exists.

Norman: It’s interesting, because you did put agriculture as your first choice, where I think many people would have said oil, energy. You know, that’s where you could pick out any periodical or journal and you’ll be reading something about peak oil theory.

George: Well, let’s broaden the category, Mike, to basic materials. I think if you look at the market in the 11 traditional S&P sectors, or the eight which we measure, you're going to call them basic materials, tangible assets, depleting natural resources. There’s no question that we have exposure, currently, to energy in both coal and traditional fossil fuels. But how long can those trends run, in the short run, before money, even within the sector, begins to look at other ideas?

So I would say gold, for example, within the basic materials, is a long-term theme that we feel quite favorable about, but which, in the short run, has run extremely long in the tooth, and from which we’re taking some capital gains.