When it comes to the 2010 outlook for commodities, who better to ask than commodities whiz Trader Vic?
Victor Sperandeo (also known as "Trader Vic") is one of the world's most outspoken commodities traders, with over 40 years of market experience. He has invested independently for the likes of George Soros, Leon Cooperman and BT Alex Brown, and has written a book, "Trader Vic on Commodities." Mr. Sperandeo also created the popular Diversified Trends Indicator, a long/short rules-based trading methodology based on a highly diversified basket of commodity and financial futures contracts.
At last month's "Inside Commodities" conference, HAI Associate Editor Lara Crigger caught up with Trader Vic between sessions to ask about his general outlook for commodities in 2010.
Lara Crigger, associate editor, HardAssetsInvestor.com (Crigger): Which commodities do you think are going to do well next year?
Victor Sperandeo, "Trader Vic" (Sperandeo): Well, I'm on record across the world as saying that gold is the best investment in the world for the next two to three years. It's fundamentally obvious, but when you're printing huge amounts of paper vs. something that is considered money, the paper will depreciate and the hard assets will go up. So gold and silver will do well—silver a little less so—but gold certainly.
Even when it was about $830-$850/oz, I basically said, "I don't see any scenario where it can come down." But I wouldn't say that it can't correct at any given moment. When the Fed decides to raise interest rates, at that point, gold will sell off. It will be a steep correction.
But it's also a buying opportunity, because if they raise rates, it would only be to try to stabilize the dollar. But it wouldn't affect the kinds of huge deficits and the printing of money that's going on for the next 10 years. It's unsustainable. So gold, that's my most favorite, if you will.
Crigger: What about the idea that gold's starting to move into bubble territory?
Sperandeo: I don't agree. If you go back to its lows, and you compound where it is today, it's about 6.5 percent compounded. That isn't a bubble. You know, when oil went from $10 to $150 in 10 years, that was more froth.
Crigger: You just mentioned that you thought silver would rise "a little less so" than gold. But many analysts have suggested that silver actually has better long-term prospects than gold.
Sperandeo: Possibly, except that gold has been universally and historically seen as money. It is the preference to silver. I'm not saying that you shouldn't own silver. I'm only saying that gold is the preferred item. There is an industrial use for gold, yes, and in jewelry, but it's more used as money. Silver has several other industrial uses.
Crigger: What's your outlook for some of the other precious metals, like platinum or palladium?
Sperandeo: I like those two. They've obviously done well. But they are more connected to economic circumstances. So as you get more and more problems from these economic circumstances that come about because of the huge deficits and inflationary times, they will run into more resistance.
So when I say I think gold's the best investment in the world for the next two to three years, I'm trying to take a lot into account. Because you may not see me again for awhile, so I can't correct myself.
Crigger: Let's switch gears and talk industrial metals. Do you think China will continue to drive demand into 2010?
Sperandeo: I think they will, and if I were China, I'd be selling my Treasury bonds and I'd be buying things like copper and platinum and palladium—other industrial metals, like aluminum, etc., that you need to produce. Especially with interest rates at zero. So if China gets that, then you'll have a real bull market. Buy the stuff, not the paper.
Crigger: Recently both China and Russia have publicly called for a move away from the dollar as the world's reserve currency. Do you think this will ever happen?
Sperandeo: I do think it will happen. It's not easy, because with the nature of the U.S. dollar as a world currency and acting as reserves to many banks and loans, there are just not enough assets to take the place of the dollar right now. But I believe it will eventually occur.
Crigger: What takes the dollar's place?
Sperandeo: It will be a basket. Not just one currency, but a multicurrency basket. I would guess gold would be in there for sure.
Crigger: In terms of regulation, where do you come down on the debate? Do you think position limits would be useful for the commodity markets?
Sperandeo: Well, I think indexes should be exempt for sure, because that's how institutions get exposure. But the bottom line is: Every 30 years, you will get an attempt like the Hunts trying to corner silver, for example. But it's very few and far between, with the regulations the way they are now. They're very rare. The only reason a bureaucrat would want to change things is so that he could promote more of the printing and borrowing of money that commodities offset. So they're trying to have their cake and eat it too.
Crigger: What do you think is the best strategy for investors approaching the commodities space?
Sperandeo: It's got to be a long/short strategy. So whether it's indexes—we have indexes that are long/short—or it's a managed futures approach, you should take a long/short approach. With long-only, you don't go anywhere. You just don't make money.