HardAssetsInvestor

Mike Norman, Hard Assets Investor (Norman): Hello everybody, and welcome back to HardAssetsInvestor.com. I’m Mike Norman, your host. My guest today is Marshall Berol. He is the co-manager of the Encompass Fund, specializing in commodities. Marshall, thanks very much for coming on the show.

Marshall Berol, co-manager, Encompass Fund (Berol): I appreciate your having me.

Norman: I know your fund is focused on commodities. You’re long term, you’re bullish, notwithstanding the pullback. In some cases, it’s been a pretty sharp pullback we’ve seen in commodity prices since about May of this year I would say. How do you see the near term right now? Is it still sort of undecided, choppy market action, or have we bottomed out?

Berol: It would look like we bottomed out. The Encompass Fund, as you say, is long-term investing. We’re not traders; we’re a mutual fund focused on long-term investing. We’re not a commodity fund particularly, but we’re a fund that tries to find themes, figure out where there’s going to be good capital gains appreciation long term. And several years ago, we felt that that was in the various commodities: gold and silver and copper and some of the energy complex.

Norman: Several years ago, three or four years ago; you came a little bit late to the trend, didn’t you?

Berol: No, the fund is a little over five years old. We started in June 2006. We also invest for individual client accounts. We started investing in gold in about 2002, 2003 when gold was about $300 an ounce. And we continue to feel that it’s headed higher. Now along the way you have some corrections, you have some profit-taking, you have some headlines that may spook some of the traders. And so you get some volatility with the commodities and with the stocks.

But we feel certainly the long-term trends for the commodities are still intact, headed higher. And we invest in stocks — Encompass Fund is a stock investor; we don’t do futures.

Norman: Would you use the GLD for your gold proxy?

Berol: We tend not to use the GLD for the gold proxy because we invest in the companies. We do research, we do site visits. And we’ll tend to invest in the gold companies themselves, rather than GLD for the Encompass Fund. For individual clients, we have and we do use GLD in some of the other ETFs, commodity ETFs. But for Encompass Fund, we want to be invested in what we think are the best stock companies for the different commodities.

Norman: Let’s set gold aside for a second, because some people would say it’s a quasi-currency. Let’s talk about something more economically sensitive. Copper, for example, which has fallen very sharply recently. And we could see the correlation between weak copper prices and negative growth in Europe, a dramatic slowdown in growth here in the U.S. We went from about a 2.3 percent GDP last-year growth rates; I think the first half of this year, 1 percent.

China, still growing, but it’s come down from double-digit growth. So isn’t that saying something? And given the policies that are out there now — which everywhere you look pretty much is like austerity, and that’s putting the physical breaks on every region — isn’t that a negative environment?

Berol: It’s a negative environment, but probably more on a shorter-term basis. You talk about, and very correctly, copper being a good barometer of global economic activity. And as global economic activity reports come out daily and weekly and monthly, it affects the day-to-day price of copper. But long term, copper has been going up. Some years ago it was 70 cents a pound, and then $1, and then $1.50, and then $2, and has gotten as high as $4. And currently it is in the mid-$3’s, say, give or take. And it recently got down to say, $3 a pound, but is rising. And we think it will continue to rise, and as you point out, Europe’s growth is nominal.