The editor of the Global Commodities Alert discusses how investors can protect themselves in the coming months.
- From whirlwind to implosion
- Increased interest rates: wishful thinking?
- Silver as an inflation play
With over 20 years' experience in natural resources, Kevin Kerr (the "Maniac Trader") is one of the most recognizable analysts in the commodities biz today. Kerr is the president and CEO of Kerr Trading International, editor of the Global Commodities Alert and a frequent voice at Hard Assets Investor.
HAI's associate editor Lara Crigger recently sat down with Kevin to talk about the hows and whys of the weak U.S. dollar, and how investors can protect themselves in the months to come.
Lara Crigger (Crigger): So as a trader, how have you seen the market change over the past year?
Kevin Kerr, editor, Global Commodities Alert (Kerr): The commodities market has really gone through a whirlwind change. We had prices for almost everything flying on record highs 12-18 months ago, and then of course everything completely imploded. It's this pendulum that swung all the way to one side, then all the way to the other, and really beat up a lot of the funds, retail investors and those in between.
Now that we're starting to come out of that, I hope we're a lot more educated as to value pricing, margins and volatility. So I think you're seeing a more cautious investor now, and investors looking at material assets and resources as something they should've maybe considered before, instead of just stocks.
But I think the uptick we've seen recently in many commodities has just been about them getting back to normal. There's certainly not a lot of that hot fund money that we saw coming in a year ago; this is based more on middle ground, realistic pricing, than the lows or the highs we saw a year ago.
Crigger: Do you think this realistic pricing is going to stick around for awhile? Or will we soon return to giant mood swings in either direction?
Kerr: I think we'll see a return to even higher prices. You can't count out the widespread speculation that may come in, as the global economy resumes. I think the wild swings could get even wilder, frankly, because of the fear factor that may persist.
So as prices get ahead of themselves - like they may be right now in the energy market, for example - you may see a quick swing to the downside, before the trend then moves back up. You may see a stair-step volatile action as they move higher, but I think the long-term trend for most of these commodities is higher.
But in my opinion, a lot of this is not based on fundamentals. It's based on a weak dollar - that's a bigger factor than simple demand.
Crigger: How do you mean?
Kerr: Well, the dollar is not being well-supported here in the U.S. The Fed has not been supportive of the dollar; there's even a lot of talk about replacing it as the reserve currency, which doesn't help things at all, since all these commodities are priced in dollars, and the dollar weakens all the commodities rally. Right now that relationship is loud and clear: On days where the dollar drops, we see a lot of commodities regain strength and move higher.
Crigger: Do you think the dollar will stay weak and commodities will keep going up?
Kerr: I think that trend will continue. I don't see any reason for the dollar to rise higher any time soon - the talk of the Fed raising interest rates is just wishful thinking, I think.
So if I had to break it out, I'd say maybe 20% of this move is supported by demand. Longer term, I think that demand will increase, but now, especially in energy, I don't think the majority of this move is demand. We have plenty of crude, even though the inventory report this week was bullish. We know there's plenty of crude out there floating around on barges and wherever else, and so clearly oil at $75 is ahead of itself, based more on speculation and dollar weakness.
Crigger: But long term, oil will just keep going up, right?
Kerr: Yes, I still believe that. There's no question that the price of oil can and will go higher. The other day, the president of Gazprom said that $250 oil is not out of the question. If we're already seeing a $75 price tag, when we're only in the beginning stages of recovery, that tells me that as we come out of this recession completely and the global engine starts firing - well, $147 for oil could be cheap.
Personally, though, I just don't think that oil can hold this level right now on fundamentals. Eventually it's going to hit a plateau, and then it's going to sell off pretty hard in this front part of the curve. But as we go out farther, I think the price is going to get consistently higher and higher over the long term.