Delivering Alpha Commodities Panel: Dwight Anderson, Jennifer Fan & Beau Taylor

The last set of notes from CNBC & Institutional Investor's Delivering Alpha Conference comes from the commodities panel featuring Ospraie's Dwight Anderson, Arbalet Capital's Jennifer Fan, and Taylor Woods Capital's Beau Taylor.

Be sure to check out notes from the Delivering Alpha conference for all the other panels.

Dwight Anderson (Ospraie):  The legendary commodities man thinks there's risk in corn, wheat and grain markets (corn has spiked insanely higher, trading limit up on numerous occasions).  He argued more investors should look into farmland.  We've highlighted in the past how Michael Burry likes farmland (yes, the Michael Burry of subprime shorting fame).  Two months ago at the Ira Sohn Conference, we also highlighted how Anderson was long palladium, short platinum.


Jennifer Fan (Arbalet Capital):  She was named one of Institutional Investor's rising stars in 2011 and Arbalet was one of the biggest fund launches this year.  Her comments included that being a farmer is harder than being a hedgie.  She also echoed Anderson's sentiment that corn is risky.  She also pointed out that Chinese GDP numbers are volatile (much more-so than what's reported).


Beau Taylor (Taylor Woods Cap): He feels that crude oil could go much higher ($200 per barrel), citing violence in countries like Syria, Iraq, Iran and some African countries.  He likes Brent over WTI.  He also likes farmland, but says it's hard to scale.

Sources: Notes from readers, II's blog, @ldelevingne


Be sure to check out all the other notes from the Delivering Alpha Conference.

Paul Touradji & Jeff Scott on Commodities: Delivering Alpha Conference

Continuing coverage from the Delivering Alpha conference today, we turn next to the commodities panel with Paul Touradji, founder of hedge fund Touradji Capital and Jeff Scott, CIO at Worts & Associates (both pictured left, image courtesy of CNBC).


Commodities Fueled by Emerging Markets

Paul Touradji was the 'commodities guru' at Julian Robertson's Tiger Management back in the day. Since then, he went on to found his own hedge fund, Touradji Capital. He kicked off the panel by saying that "the story of commodities going forward is in the emerging markets."

Jeff Scott added that, "in emerging markets, they're lowering interest rates because they're worried about growth. So weak growth now in emerging markets so in theory commodities prices should fall."

We've highlighted in the past how hedge fund Kleinheinz Capital thinks inflation is the biggest threat to emerging markets.


On Gold

It seems like a ton of hedge funds and investors in general own gold these days. Dan Loeb's Third Point has gold as its largest position. David Einhorn's Greenlight Capital has long owned physical gold. John Paulson even has a separate gold fund.

Jeff Scott pointed out the prevailing sentiment toward the precious metal. He presented the audience with a true story about a taxi cab driver in Alaska that was asking him about gold. He said this means that everyone is piling into gold and it makes him nervous. After all, when the mania around any particular investment trickles down to the random 'John Doe' on the street, many see that as one of the age-old contrarian indicators.

While Touradji is seemingly a long-term gold bull, he did agree by saying, "I'm heartened to hear Larry Fink's take on gold equities, $2,500 and a lot higher a year from now. But to put a price on it when it's in a phase like this, it's useless. I agree with (George) Soros that it will soon be in a bubble."

They polled the audience asking whether gold was going higher or lower: 34% thought it was going lower while 33% said higher.


Inflation Versus Deflation

Commodities are always affected whether there is an inflationary environment or a deflationary one. Jeff Scott said that, "at this point in time, you need to be thinking about deflationary and inflationary aspects in terms of angling your portfolio for the long-term." In the past we've posted up the best investments during inflation and the best investments during deflation.

Paul Touradji went on to add that "Ten year TIPS are at zero. The market's worried about recession. But there also aren't rational people, they're acting out of fear and a flight to safety."



For more coverage of the Delivering Alpha conference, head to our posts:

- Bill Ackman's new investment: long Hong Kong Dollar

- China: Bubble or Bonanza? Dan Arbess versus Jim Chanos

- Jim Chanos: long corruption, short property in China

Crude Oil & Gold Trading Ranges: Key Levels to Watch

MarketClub recently analyzed two of everyone's most favorite commodities: crude oil and gold. Adam just took a technical look at crude oil and wondered if it has topped out for the year. He draws a fibonacci retracement from the peak during oil's epic rise down to the trough and notes that the commodity is currently trading right around the 38.2% retracement level. In his oil video, Adam concludes that it is currently stuck in a trading range and could be for some time. But he does note that after trading ranges often come explosive moves. He highlights that the $72 level as an absolutely key level for support. If crude oil breaks that level to the downside, then he thinks it sets new lows for the year. One thing their analysis does not take into consideration, however, are the seasonal factors at play with crude. Typically, summer months command higher prices in oil so we'll have to see what happens there. Click below to watch Adam's video:



MarketClub also cranked out a technical analysis video on gold where they wonder whether or not gold is setting up for its next big move. Obviously, the longer term trend has been up and they illustrate how the metal continues to make a large move higher and then consolidate and trade sideways for a while to digest the move. It has repeated this pattern on a large scale numerous times over the past few years as you can see in their gold video. So, similar to crude oil, Adam feels there's really no trend right now and it will continue to trade sideways. He outlines $1,165 as the key level for the metal as it won't be able to start any move higher until it breaches that level to the upside. You can check out their technical look at gold below:

Don Coxe's Basic Points April 2010: A Slow Boat to China

Market Strategist Don Coxe is out with the latest edition of his Basic Points publication. His commentary entitled, 'A slow boat to China' focuses on his latest view on the markets and how he would position portfolios accordingly. As we've covered before, Coxe has been a long-time commodity and agriculture bull so it should come as no surprise that many of his recommendations center around that theme. To get a better idea as to the rationale behind a bullish agriculture bet, we recommend heading to hedge fund Passport Capital's case for agriculture.

Turning to Coxe's most recent market commentary, we see some of his main viewpoints summarized below:

- Underweight integrated oil companies ('big oil' stocks like Exxon Mobil, Chevron, etc).
- Increase equity exposure via mining stocks.
- Overweight oil producers and underweight gas producers.
- Continue to overweight oil sands companies.
- If running a US based portfolio, focus on cyclical equities.
- Within agriculture, add to companies in the equipment and logistics.
- Overweight precious metals (gold & silver).
- If you're investing in bonds, focus on Canadian bonds if you're Canadian and TIPs if you're American.

Lastly, he also lays out some ideas to 'hedge' yourself against a possible double-dip recession after the market stops receiving its heroin fix from Ben Bernanke. If you are holding high exposure to cyclicals, Coxe argues to hold some long-duration bonds as a hedge. We've obviously simplified his viewpoints here so of course read Donald Coxe's April set of Basic Points in its entirety below:



You can directly download a .pdf here.

Overall, it seems Coxe remains a staunch commodity bull, or dare we say super-bull. For a technical look at how some of his favorite commodities have been trading as of late, check out an analysis of gold as well as an analysis of crude oil.

Jim Rogers Still Bullish on Commodities

Wait for it. Jim Rogers is... *gasp* bullish on commodities still! Now, who would have ever guessed that?! On a serious note, he still is adamant that 1999 was the start of the commodity bull market and he is bullish on the prospects. What's interesting is that he fully admits it will be a bubble at some point, but he's not worried about that right now as that's a 'way's off.' This interview comes after we saw Rogers recently start some short positions as he wagers the market is overdue for a correction.

Of course he also thinks gold is going up and he expects it to be at $2,000 at least by the end of this decade, if not higher. In the past we've posted up plenty of hedge fund research on gold, all of which we recommend checking out. He recently sat down with Bloomberg to discuss his most recent thoughts on April 7th. If you come to the site, below you'll find an embedded video of his quick interview:



So, he'll continue to ride the longer term trend that he feels is in-tact here. Rogers isn't a big believer in market timing and he'll gladly wait out the trend over the long-term. We check in on Rogers from time to time just to see what he's saying, but he appears in the media quite often, re-iterating a lot of his views anyways. Keep in mind that Rogers and George Soros previously managed the highly successful Quantum Fund and have since gone their separate ways. Head over to see Rogers' recent rationale for starting short positions as well as our coverage of George Soros' hedge fund portfolio.

What's The Commodities Index Telling Us?

You can watch the latest technical analysis video on the commodities index here. Like the overall stock market, commodities seem to have topped out in July of 2008 and bottomed in March of 2009. Since then, the commodities index has slowly but surely been rising, with a recent surge upwards. The video examines fibonacci retracements and identifies 304 and 336 as possible resistance areas up and coming for that particular index, which is a basket of a ton of various commodities. The guys at MarketClub have identified this index as one of the major indicators for inflation versus deflation, so it's always prudent to keep an eye on it. Check out what the commodities index is telling us in the video.

Crude Oil Breaks Trendline (Technical Analysis)

We haven't looked at crude oil in a while from a technical perspective so we figured it'd be worth a look as the guys at MarketClub analyze it in this crude oil video. They highlight a trendline in crude from the lows in March until September. They note a trend break here just recently which signals crude could trade lower in the near-term.

They also pull up a fibonacci retracement on crude oil from the lows of March until the highs in August and notice that the 50% retracement could be a pivot point for crude as it has already acted as support for the commodity once before back in July. Check out their analysis here. And if you're unfamiliar with fibonacci, learn about it in this video as it's a useful technical analysis tool).

Commodity Bull Market - Interview With Brett

This week we're exchanging interviews with Brett over at Commodity Bull Market. A few days ago, Brett interviewed us for the first leg of a 2 part interview (you can check it out here). And today, we've done the first part of his interview. Brett has been a friend of ours in the blogosphere for a while now and fills a niche in commodities. Here's part 1 of the interview:

1. Can you give us a little background about your investment
philosophy?

Sure - it's definitely evolved over the years. I started as a pure
fundamental guy, and purely stocks - Benjamin Graham, Warren Buffett were my idols. Buy cheap and sell dear.

Then I started to believe that picking the right asset class was more
important than picking the right asset. I read Jim Rogers' Adventure
Capitalist for the first time in 2004, and it was almost a religious
experience for me. He made investing sound so easy - "just look for money
sitting in the corner, and go pick it up".

Then I bought and read his instant classic Hot Commodities as soon as it
came out and thought wow, this guy is right - commodities are going to boom.
How can I get in on this?

2. So would you still call yourself a fundamentalist, just focused
more on the commodity sector?

For awhile I was - I'd look at the fundamentals of, say, sugar. Big picture
fundamentals, like year over year supply/demand trends. This is what I did
back in 2005, before I made my first purchase. If the odds looked to be in
favor of a supply deficit, I'd buy some futures contracts.

As time went on, for better or for worse, I started paying attention to the
technical picture as well. I sustained some very large losses that could
have been prevented had I employed some basic stop-loss formula. So I did
some more reading up - Winner Take All was a great book that opened my eyes,
along with Trade Your Way to Financial Freedom - and began buying during
uptrends and breakouts, and using protective stops.

Links for book reviews:
http://commoditybullmarket.blogspot.com/2007/12/book-review-winner-take-all-
by-william.html
http://commoditybullmarket.blogspot.com/2007/11/new-trading-outlook.html


3. Cool - so what inspired you to start your blog?

When I started researching commodities in early 2005, there were very few
good resources. There was Rogers' book. And there's the CRB Yearbook. But
not much covering the day-to-day, week-to-week happenings. At that time,
there was just a small blurb about commodities each day in Section C of the
Wall Street Journal - you didn't have oil all over the front pages.

So I figured I'd start up a blog, and see where it went. If nothing else, I
had made some early money trading futures, and thought that if I ended up
pissing it away, at least I should have a record of the gains to remind me
of the good times!

4. When you started blogging, did you ever imagine it'd take off like
it has?

Not at all! In fact, nobody read it other than a friend or two for the
first year. Slowly and steadily, readership has been building through the
years, and it's been a real blast. Reading about the markets is my favorite
pastime, I'd do it all day if I could! So blogging on these topics is
really a lot of fun, and I'm flattered to have developed a regular
readership.

5. Tell us a little about how you gear Commodity Bull Market towards
your readers - especially as it pertains to your personal research and
investment philosophy.

To be honest, it's something that's constantly evolving. One thing I try to
do is present both sides of an argument. For example, the
inflation/deflation argument - until recently, I'd say I was leaning
inflation, and recently have started leaning deflation. I try to present
both sides of the argument, because, both are certainly valid, and at the
end of the day nobody really knows what's going to happen anyway!

Folks seem to appreciate this, as they've expressed to me they are sick and
tired of financial analysts who insist they know the answer.

So the site, as you can tell from the name, is pretty focused on commodities
- because I still believe that's the last bull market standing. However, I
now think we're due for another potential crash in the sector, so I'm trying
to take a step back and brainstorm about ways to play potential scenarios
that unfold.

But like I said, at the end of the day, nobody really knows for sure whether
it will be inflation or deflation - so we're trying to highlight ways to
protect capital no matter the scenario, and then react profitably where
appropriate.

-----

Thanks to Brett for taking the time out to answer some questions and to give us a better idea as to where he comes from.

Commodity Inflation Versus Asset Deflation (Guest Post)

This is a Guest Post from Phil at Phil's Stock World

California lost more than Michael Jackson recently. They also lost their credit rating as Fitch dropped them to A-minus and even that rating was immediately placed on negative credit watch. California faces a $24 billion-plus budget deficit for the fiscal year that begins Wednesday, rapidly declining sales tax revenues and an impotent legislature that can’t agree on solutions. Faced with the prospect of running out of cash, State Controller John Chiang said Wednesday the state will begin to issue IOUs for all general fund payments other than those categories protected by the state constitution, federal law and court decisions.

California has always been a trend-setting state and we have to wonder how far behind them the rest of the country is. According the the Congressional Budget Office, the US’s projected debt is now growing so quickly that is will exceed the size of the economy in 2023, that is 7 years earlier than the projections of the last report just 18 months ago. The culprit is not the huge sum of stimulus spending that President Obama and Congress have injected into the economy this year, the budget office said. Instead, rising health care costs and an aging population together continue to push government spending upward at an unsustainable pace, only faster than the budget office last estimated.

“Debt soars because of unrelenting growth in federal spending on health care programs and a rise in Social Security spending” as a share of the economy, the report said. Up to 90 percent of the increase is due to Medicare and Medicaid spending rather than Social Security, it added. Senator Kent Conrad, a Democrat from North Dakota who is chairman of the Senate Budget Committee, released a statement saying that the budget office report “reinforces the importance of not only paying for health reform, but ensuring that it significantly bends the cost curve on health care beyond the next ten years. We simply must get these health costs under control.”

Gee, we can’t afford health care, we can’t afford rising energy costs but people are buying stocks as if both industries have nowhere to go but up, despite lower demand and rising unemployment. I guess we can keep borrowing and borrowing and borrowing and borrowing to pay the ever-increasing prices projected by commodity futures and biotech multiples but one would think there’s a theoretical limit…

There’s a major disconnect going on between the markets and reality - perhaps it is end of quarter window dressing by financials and funds so desperate for a good quarter they will do anything to maintain the market for another 7 days . Just this morning the Nikkei was up 84 points despite the Dollar falling back below 96 Yen. That wasn’t even the bad news for Japan though: Inside the country, consumer prices fell at a record pace in May adding to the risk that deflation will become entrenched and hamper a rebound from the nation’s worst postwar recession. Prices excluding fresh food slid 1.1 percent from a year earlier after dropping 0.1 percent in the preceding two months, the statistics bureau said today in Tokyo. It was the sharpest decrease since comparable figures were first compiled in 1971.

“Profits fall, then wages come down, then consumers stop shopping,” said Junko Nishioka, chief Japan economist at RBS Securities Japan Ltd. in Tokyo. “And because people aren’t shopping, companies lower prices. That’s the process that we’re starting to see. It isn’t easy to break out of.” Some 47 percent of 775 Japanese retailers surveyed by the Nikkei newspaper plan to lower prices in the year ending March 2010 to spur sales, up from 9 percent a year earlier. “With demand deteriorating, companies are finding it more difficult to sell goods and services and are turning to discounting,” said Azusa Kato, an economist at BNP Paribas in Tokyo.

I hope I didn’t give you the impression that THAT was Japan’s biggest problem though. Oh no, they’ve got much bigger fish to fry (or eat raw, as the case may be). While their CPI does the moon-walk, the London Times points out this morning:

Anaemic exports, a struggling domestic economy and a dramatic plunge in summer bonuses could cause Japan’s version of the sub-prime mortgage crisis to explode, a leading think-tank has warned. A housing loan default problem is looming and likely to begin in the next few weeks. It amounts to the detonation of a ten-year time bomb that, researchers at the Tokyo Foundation say, started ticking around 1999 in the immediate aftermath of the Asian financial meltdown. This is the result of flawed government policy, whereby the state housing loan agency offered mortgages to families that they knew were unable to pay.

The impending meltdown, which the Tokyo Foundation believes could affect some hundreds of thousands of households, will be focused initially on the country’s industrial heartlands, where corporate bankruptcy rates are rising. The residential zones around Toyota’s home territory of Nagoya could become ghost towns, Kazuo Ishikawa, the think-tank’s senior research fellow, said.

The alarming prediction comes amid clear signs of upheaval in the micro economies of Japanese households. With Toyota, Panasonic and other groups expected to finish the current financial year in the red, the system of company bonuses has been shaken. The Japan Business Federation calculates that June bonuses will suffer an almost 20 per cent cut across the board, and a dip from which there appears little immediate prospect of recovery. Because those twice-yearly bonuses amount, on average, to about a quarter of the annual salary package of mortgage-payers, the effect is likely to be severe. Mr Ishikawa said: “The next six months are going to see a sharp increase in housing refugees. People are first going to try to defer payments, but then they will default and be forced to abandon their homes and head somewhere cheaper.”

I keep telling people but the market does not listen to me: Commodity hyperinflation is causing DEFLATION in the price of everything else, especially when necessities like fuel are allowed to run out of control. This is sucking money out of the rest of the economy and causes a deflationary cycle that ends up snapping back and bursting the commodity bubble anyway. IT JUST HAPPENED LAST YEAR - WHY DOES NO ONE THINK IT WILL HAPPEN AGAIN?

There, I feel better now… This is really serious stuff though and it’s why I called a top for Members at 8,450 in yesterday’s live chat session. This is really just getting silly and we take our profits and run at this point, especially with the holiday weekend looming shortly where it all may hit the fan very hard. That is the World’s second largest economy and China’s second biggest customer and the World’s favorite low-interest lender (0.1%) sitting on what may be an economic implosion and WHERE IS THE FEAR? The VIX fell to 26.36 yesterday, back to pre Lehman levels as if nothing can possibly go wrong with the global economy. Well it’s a great time to by VIX leaps, that’s for sure!

Look, I do not like being negative. You do not like to hear negative things - this is human nature, we like to be happy. But this is seriously dangerous stuff people! If nothing happens then fine but please do not get all bullish as if nothing will. A major bank or a medium-sized country could default tomorrow and who knows who they owe money to who would also default and so on and so on. Very sadly, we’re going to have to do a weekend post on catastrophe protection because the VIX isn’t the only thing back to pre-Lehman levels. So is the level of economic idiocy….

Personal income was out today and "economists" (the ones we trust to tell us how the economy is doing) were off by 600% in their estimates. Personal income was up 1.4% due to massive inflows of stimulus but what’s disturbing here is how wildly far off the "experts" can be. This is their job, they are supposed to have a clue! While boosing incomes for a month by 1.4% may sound great, what we really have is an indication that you can’t stimulate a dead cat as Personal Spending was up just 0.3% and the PCE came in at our own deflationary 0.1%. US consumers look pretty much like the cow in the above cartoon and if they stop giving milk, the whole World economy begins to starve.

The media can do their sunshine and lollipops dance all day long and I guess that’s one of the reasons I start turning negative - just trying to balance out the nonsense. I am optimistic that, long-term, we can work our way out of this crisis but we need to do it through hard work, not make-believe games that everything got magically better with no pain at all and, until the market begins to embrace that reality, I will continue to watch the sky for signs of cracks, just in case….

- Phil

----------

Thanks to Phil for the excellent write-up. If you enjoyed the piece above, you can sign-up to receive Phil's free updates here (just select the free option). This is a topic we've examined before here at MarketFolly before when we noted that Dennis Gartman sees both inflation and deflation. It certainly will be interesting to monitor going forward.

Jim Rogers' Latest Thoughts: Bearish on British Pound (& More)

Grace Cheng over at DailyMarkets has interviewed Jim Rogers recently and we've highlighted some of the intriguing parts of the interview below.

"As you’ve said many times, the US government is printing a lot of money right now, when do you think inflation will come around and bite us?

Rogers: Well there is inflation now in many things. There’s temporary deflation in raw material prices and in some property. But throughout history, whenever you’ve had gigantic printing of money and spending of borrowed money, it has always led to higher prices. Unless something is dramatic, it’s going to happen again. When? I don’t know. It’s already happening in some things. I don’t know if you’ve bought any sugar recently or some other things, prices are up and that will continue and it will get worse.

You’ve been bullish on commodities for a long time, recently you said you’re buying the Rogers Metal Index. Do you think that the Obama stimulus plan will create more demand for commodities?

Rogers: Well of course, anything that causes a revival of economic activity causes a revival of demand for everything including commodities. I mean if you’re gonna build bridges you’ve got to build them out of something you cannot build virtual bridges you have to build real bridges, etc.

You’ve said that over the long term, the US dollar is doomed. What are your thoughts on the British Pound?

Rogers: More doomed. It will disappear sooner. If it weren’t for the North Sea, the British Pound would have already disappeared. It’s more doomed. The UK has been exporting oil for 26 years; within the decade, the UK will be a net importer of oil again, and they have nothing else to sell to the world once the oil dries up."

Rogers has been out in the media a lot lately, re-hashing numerous themes. Here are some of his theses, many of which we've highlighted on the blog before:

• Bullish on agriculture
• Bullish on commodities
  
• Bullish on China
• Bearish on long term US bonds/treasuries
• Bearish on the US Dollar
• Bearish on the British Pound
  

Make sure you check out the rest of Grace's interview here.

Eric Bolling's Latest Trades & Thoughts

Over on TheStreet.com, notable trader Eric Bolling has posted up his latest piece. He's bullish on commodities and writes,

"And then, wow, it hit me like an ice cold shower. We are headed for a period of serious inflation with all the stimulus (free money) we are pumping into our economy. The dollar will be dramatically devalued and the reflation of the U.S. economy will happen, in a big way! Watch oil, gold and agricultural commodities soar in the coming years. With cheap and free dollars pumped into the system, the value, or buying power of those dollars, has to drop. The things we buy with dollars will increase in price just to keep up with the devaluing currency that is traded for it. And toss in a recovery and rebound in demand, you have the makings of a serious price recovery."

...

In energy related stocks and ETFs, I own U.S. Oil Fund (USO), El Paso (EP), and Quantum Fuels (QTWW). In metals, I own iShares Silver Trust (SLV) and SPDR Gold Shares (GLD). And finally, I bought PowerShares DB Agriculture (DBA) as the agricultural commodities have fallen with the rest of the dollar-based commodities. Much of the timing of this trade relies on the length of the current recession. It is possible that this trade may take months to open up. If the global economy struggles, so will this trade, so either have a longer-term horizon or trade smaller. I am in this for the long haul. At lower oil prices, I like the trade even more.

...

I am more convinced than ever that if you have a 12- to 18-month time horizon, there are amazing opportunities out there in commodities."

Regarding crude oil, we definitely agree with him and have been trading around it with the gyrations, while maintaining a core position all along. Longer-term, we see this as an excellent area to accumulate oil. The supply picture is and will continue to dwindle going forward. In terms of agriculture, we've also been getting constructively bullish, but still think it is a little early to touch this one. However, legendary investors and ex-hedge fund managers of the notable Quantum Fund, Jim Rogers and George Soros have both proclaimed their bullishness on agriculture. Rogers thinks that commodities will be in a bull market for years to come and have unimpaired fundamentals. Soros is equally as bullish and has also been accumulating a lot of Potash (POT).


In addition to TheStreet.com, Eric Bolling posts over on Twitter. On Monday night (1/5) and again Wednesday morning (1/7), Bolling noted that he,

"Trimmed (United States Oil Fund USO position) by 1/3....another 1/3 a bit higher and last 1/3 hold for the run up. will buy all sales back on a (Crude Oil) $45 pullback...under $45 I like it. I will scale down from $45 to $35 "

And, he also re-affirmed his play on platinum, writing

"I talked about this trade on Happy Hour last night. Long $PL short $GC long platinum short gold spread trade. I put it on yest(erday)."

You can follow Eric's twitter here and our twitter updates here. Make sure to check out the entirety of Eric's piece on TheStreet.com. Lastly, if you've missed it, you can check out some of Eric's other recent commentary here.