Steel Vine Investments founder sees low inflation and an opportunity in grains
With financial markets experiencing their worst turmoil since 2008, Hard Assets Investor is conducting a virtual roundtable with commodity experts, asking them a series of questions facing investors during these tumultuous times. We hope this gives you some guidance when investors need it most. Today we feature Spencer Patton, founder of Steel Vine Investments in Chicago and a frequent market commentator on Bloomberg TV, CNBC and financial publications.
Hard Assets Investor: How will the U.S. downgrade affect demand for commodities?
Spencer Patton: There will be zero effect on demand. The true implication of the downgrade is extraordinarily small, especially when it comes to the consumer. We’ve seen no interest rate impact. If anything, they have declined. The volatility introduced into the markets has made everything more affordable for consumers. If anything, we are going to see more driving and more consumption. Honestly, it is a positive, and what a backwards world that is.
HAI: Will the current low inflation environment persist? And will commodities be a good hedge should it not?
Spencer Patton: I do think it will persist for a very long time. I think the Fed has made that clear by keeping interest rates low through 2013. We are really in a slow-growth economy. I do not think we are declining or headed for a recession or a depression, and that’s not so bad.
HAI: Do you think the Federal Reserve will initiate QE3? What impact will that have on commodities?
Patton: I do not think that they would ever want it to be labeled as QE3. There’s such a stigma around the first two, that there is just not the political will for QE3. I do not think that we are going to see worsening conditions in the near future. The benchmark-threshold level that the Fed is going to look for before they activate QE3 will be quite a bit below here. I don’t think we are going to get to those levels. If the Fed did decide to go ahead and do QE3, the long-term implications would be a weaker dollar, higher commodities.
HAI: Where do you see gold heading? Is there a price that is “too high” given the current environment?
Patton: It is truly incredible the parabolic move that gold prices have made. Prices will certainly be over $2,000 in 2012. It’s more of a play as an alternative currency. You are going to see gold as less of a safe haven and more of an alternative currency to the dollar and euro. I do expect gold to be higher. I think it is always hard to say gold is too high.
HAI: Where do you see oil heading? And will the spread between Brent and WTI ever revert?
Patton: I do think that spread will revert and it is a temporary. In terms of where crude oil will go, we are in a comfortable range for crude. Any time we’ve stuck our nose about $100 a barrel [for WTI], we’ve seen economic destruction. It is showing us that the consumer reject prices that are that high. We will stay in the $80-$100 range.
HAI: What’s the best-positioned commodity for the current environment and why?
Patton: I really like the grain market. The USDA came out and confirmed that crop conditions are far worse than what the USDA has been estimating. They lowered their bushels to 152 [per acre] from 158. I think the grain market makes a ton of sense. If we have another downturn, I think grains will be the most immune to a downturn.
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