FM: Is this talk coming from people losing stock brokerage because of the growth in commodities?
R: Conceivably that is part of it. Many people are starting to learn about commodities, some investors are starting to move towards commodities, I guess people are worried that they would lose but I don’t think they are that Machiavellian or that smart. I think they are just people who have to say something to sound like they are smart and what actually is happening is they are embarrassing themselves showing how dumb they are.
FM: Are all the factors that caused you to believe we were entering a commodity bull market in 1998 still in place?
R: Nothing has changed since I came to the conclusion in 1998 that a bull market in commodities was about to begin. Nothing fundamental has changed since I wrote the book. Mines continue to deplete, oil fields continue to deplete. It is almost impossible now to get engineers, it is almost impossible to get workers, to get tractors or to get production machinery. It is almost impossible to get miners or lumberjacks. You speak to any CEO in the production business of metals or energy and even if they decided today to open new mines and gear up, they can’t get the people. They can’t get the equipment because everyone is capacity restrained. They can’t even get rail cars to move iron ore or agricultural products. Everybody is capacity constrained because nobody invested in production capacity for 20 years. That is a continuation of the same theme, the result of the same theme and it is making the situation worse and not better.
It is not like a dot-com where a couple of 18 year olds can go in the garage and start a company and bring it to market, this is real stuff and it is not easy.
FM: Have some commodities gotten ahead of themselves? Which commodities have the most potential?
R: If I were looking for new opportunities, I would be looking at agriculture because that is where you have prices that are still low on a historic basis but also where fundamental positive changes are taking place. I suspect new money now will be looking at agricultural commodities, whether it is coffee or cotton or whatever it happens to be. That is where you are going to find new opportunities, I suspect.
FM: Why so few mutual funds?
R: Most people don’t know about them. Even on Wall Street in the mutual fund community, very few people know about commodities and if they do think about commodities, they think about commodity stocks. They want to buy Exxon and BP. As you well know, stocks are entirely different than commodities but that is where people jump if they don’t know much about commodities. Not many people have been involved in the commodities business in the last 25 years. That is true on the financial side as well. Most people have not made that leap as yet. They will eventually.
The tendency for analysts in this country to only think in terms of stocks is one reason for the lack of respect for commodities as an investment class. One of the recent stories in a major wire service promoted the idea of a commodity bubble with an example of an ethanol company that had grown exponentially without the resultant earnings. Problem is it is a stock not a commodity.
FM: There are ETFs on gold, silver and oil. Dow Jones AIG has created individual commodities indexes bases on the 19 components in their index plus cocoa. What is your opinion on Commodity based ETFs?
R: I don’t see anything wrong with it. Whenever there is a bull market in anything, people try and figure out more ways to invest in it. Whether it is in tankers or land or stocks or commodities. It is the normal course financial history, when you find a bull market, people say ‘I want to play’ and come up with some new ways. I am sure you are going to see a lot more of those. I guess it makes it easier for some people. There are all those stock brokers out there who are not registered to trade commodities who now call up their customers and say lets buy oil through the ETF. They don’t have to register as commodities brokers to sell an oil ETF. It will bring more people into the market. It is just the normal course of history.