Peter Brandt: Buying Commodities at the Bottom

Published on
November 20th, 2018
Topic
Valuation, Equities, Food agriculture
Duration
8 minutes
Asset class
Commodities

Peter Brandt: Buying Commodities at the Bottom

Technical Trader ·
Featuring Peter Brandt

Published on: November 20th, 2018 • Duration: 8 minutes • Asset Class: Commodities • Topic: Valuation, Equities, Food agriculture

Peter Brandt of Factor LLC joins Real Vision to highlight some of the greatest opportunities he sees in the commodities complex right now. He analyzes the situation, reviews the key charts, and explains how to make the play. Filmed on November 13, 2018 in Tucson, Arizona.

Comments

  • WS
    Wouter S.
    26 November 2018 @ 21:08
    Sorry but this was not the best RV production. Closing argument: “we are gonna neééd a price recovery to help farmers and to bring prices back to the real world”. Quite shallow statement. Commodity markets trade fundamentals on the Long run and not basis such sentiments. Also if you compare 20 to 30 year price charts vs equity markets you need to be able to digest maybe a couple of years of rolling your long through a hefty carry (contango) market (esp soy and corn). Dis he take that into consideration?
  • IO
    Igor O.
    25 November 2018 @ 20:41
    You don't need commodities chart in SnP points to know that stock market on top of the cycle and commodities on its bottom.
  • RH
    ROBERT H.
    25 November 2018 @ 19:04
    But what if commodity prices instead of being wildly deflated, are actually more constant and, instead, the S&P point is the wildly inflated unit?
    • IO
      Igor O.
      25 November 2018 @ 19:47
      Still might work as a pair trade. Short S&P long commodities.
  • MF
    M F.
    25 November 2018 @ 14:15
    I'm afraid my comment (constructive critique) is a repeat, to which I don't know why this isn't being addressed. Firstly, the utmost respect for Peter, as a well seasoned trader that combines an outstanding wealth of knowledge and a degree of humility rarely seen together in this industry. However, as mentioned now too many times to remember to RV, can "The Trade" section be usable for those that are time constrained and looking for rubber meeting the road, with actual specific trade set ups. I.e. state instrument, entry price, target price, stop loss, catalyst, time frame, and risks to the trade. This is something that RV should tell the speaker for "The Trade" section to prepare ahead of time and present at the end (it used to happen, and now its hit and miss). Otherwise, markets (including and esp commods) can move massively even in a few days, so without knowing the expert's entry, its just a conversation...not a real trade...which then belongs in another section of RV or dare i say CNBC...there are many other areas of RV it can go, but pls keep "The Trade as actionable, which requires specifics". I view "The Trade" section for real trades, that are specific, timely, and punchy...without specifics, its just another chat....Again, i think this is an RV issue, nothing wrong with Peter's ideas, which are of course insightful as ever. Time is a precious commodity...pls allow this part of RV to be actionable for trading, not generalities (or call it/make it something else)...thanking you in advance.
  • SB
    Stewart B.
    25 November 2018 @ 13:55
    Interesting interview however some of the earnings of SP500 stocks have been paid out as dividends and some reinvested. The constituent names have also changed. On the other hand, a given weight of coffee, oil, sugar etc are the same today as decades ago. Apples and oranges.
  • BB
    Brian B.
    24 November 2018 @ 13:57
    The Corn market now is nothing like it was years ago. This is a very poor recommendation.
    • JR
      Jace R.
      18 December 2018 @ 18:12
      The USD is different that it was back then as well. peter’s charts do a good job of showing the SP500 valuation in relation to many different commodities. Each comparison has a unique story, but the general theme is similar. The valuation of SP500 in terms of hard assets is higher than normal.
  • CK
    Cirilo K.
    23 November 2018 @ 21:33
    Love Peters work but i am also not so sure about the usefulness of these comparisons. The S&P 500 from 1980 is not the same as today. The S&P index companies grew with the economy and accumulated profits year after year and as a consequence the index is more valuable now. Many Commodities on the other hand cost less to produce inflation adjusted because of productivity gains. Just look at the cost of producing corn over many decades.
  • TB
    Thomas B.
    21 November 2018 @ 21:27
    I am only a retail commodities futures trader and do only have a fraction of Peter Brand's experience, so I probably have to apologize for daring to making this remark. But this analysis lacks - to my mind - the time horizon and any reference to CoT data which are most relevant to any commodity trade. Those data are published and available for free. If one is willing to learn how to interpret it, this is an invaluable resource for any trader. Actually I can just not believe that Brandt doesn't use it. I don't see any value in comparing commodity prices to stock indices. Only if you would trade the spread.
  • MP
    Mark P.
    21 November 2018 @ 11:52
    Compelling charts. As someone too early in this space tactically if not strategically (entered the Farmland space with Ceres Farms earlier this year) I believe USD needs to peak before ag and other commodities shine again. Deflationary /disinflationary waves as we appear to currently be in both USD friendly and classically a real headwind for commodities (maybe gold exception in cases where it becomes safe haven asset...one day?). Observations from a non professional investor. Mark
  • BD
    Borut D.
    21 November 2018 @ 09:30
    He is probably right, but the logic is in my oppinion flawed.
  • AB
    Aron B.
    21 November 2018 @ 04:57
    What about copper ? Nobody wants to touch it because the coming recession/end of business cycle/everything bubble but some copper miners offer and will give you a bargain later when indexes break down. If you look at it from a 20 year perspective it does make sense to have an eye for these. I have mine on Lundin so far. Anybody ?
    • MO
      Mike O.
      22 November 2018 @ 20:30
      OK ... I'll bite. Here's a few more copper miners that have caught my notice (since you asked) - Copperbank (CPPKF), Sama Resources (LNZCF), Copper Mountain (CPPMF), Excelsior Mining (EXMGF), Kutcho Copper (KCCFF), Atico Mining (ATCMF), Nevada Copper (NEVDF), Western Copper and Gold (WRN), Ivanhoe (IVPAF), Taseko Mines (TGB), Euro Sun Mining (CPNFF) Anybody else? p.s. Sama also has nickel resources ... it may be a better play than copper in the near term (very useful in batteries).
    • dd
      darrell d.
      24 November 2018 @ 01:41
      Copper from just a supply story looks very interesting. Buy the best and keep buying.
  • ss
    sid s.
    21 November 2018 @ 03:33
    Peter is great as always.
  • KB
    Kirk B.
    20 November 2018 @ 21:04
    As a retiree, I am not a trader, but rather an investor who manages our investment portfolio as an endowment, investing in a variety of diversified, non-correlated investment assets. Based upon the trends that Peter highlights in agricultural commodities, I believe that a small allocation to agricultural commodities is currently appropriate for such an endowment portfolio. After researching the available investment vehicles, I selected the RJA (Elements Rogers International Commodity Agriculture Trust) ETN as the best diversified agricultural commodity fund with adequate liquidity. Other funds to consider are DBA ETF and JJG ETN.
    • EF
      Eric F.
      21 November 2018 @ 05:18
      Thanks for sharing findings from research Kirk, much appreciated.
    • EP
      Erik P.
      21 November 2018 @ 06:19
      Kirk, Big fan of Jim Rogers, his track record and outlook (as well as his books) and I'm sure the balance of commodities available in that ETN (based on his index) are structured to what he believes is the best and most diversified allocation, but it lacks liquidity. It trades about $200,000 per day, versus about $9,500,000 per day in DBA (another alternative that you reference). I believe US tax treatment is superior in an ETN (Rogers), but it also has counterparty risk (albeit minimal as it appears to be state backed). Expenses are similar. Tracking error appears minimal on the ETF. If you overlay the two, they track fairly closely. Kirk, I'm curious as to what lead you to the Rogers ETN vs. the alternatives? Any insight would be much appreciated, as I've only spent a few minutes on this. Thanks.
    • CM
      Christopher M.
      21 November 2018 @ 09:41
      If this is an investment buy and hold you must be cautious of ETN as they trade futures so you have a continuous roll cost. ETN are more of a trade than hold. Eriks point on liquidity is also very valid here for DBA.
    • sm
      stephane m.
      21 November 2018 @ 10:42
      To Erik P.: I choose RJA over DBA at the time because I didn't want to own anything with Deutsche Bank name in it (now it's with proshares). I don't like ETN usually but RJA is backed by a Swedish state own bank. The liquidity is good with RJA, you can buy for 1,000,000$ without moving the market one penny. Beware of the false illiquidity of certain ETF... It's not because it doesn't trade much that it's not liquid. You have to look at the bid and ask size!!! The only thing favoring DBA is the tight spread between the bid and ask vs RJA
    • KB
      Kirk B.
      21 November 2018 @ 19:14
      Great, thoughtful replies to my original comment regarding my decision to buy RJA. The question was raised: why RJA vs. DBA or other funds? While I was attracted by the structure and broader range of ag commodities included in the index used by RJA, the critical factors for me in selecting RJA over DBA is the Swedish bank backing the ETN (vs. Deutsche Bank for DBA) and the fact the DBA involves K-1s while RJA does not. While the larger size DBA likely makes it more liquid, RJA appears to have sufficient liquidity, particularly for smaller positions such as mine (other commodity funds appear to be to too small for consideration). Due the continuous roll of futures contracts by such funds, it would seem not to make sense to an investor if the price trend of the basket commodities remains flat or continues to decrease. However, if there is a future strong upward trend in these prices, as suggested by Peter Brandt and Jim Roders, then it would seem to make sense to hold onto RJA until the trend flattens or reverses; definitely not appropriate to simply buy and hold. In any case, future based funds should only represent a small allocation of a well diversified, perhaps somewhat idiosyncratic portfolio (which would seem to be necessary with most asset classes at historically high valuations).
  • JG
    John G.
    20 November 2018 @ 19:32
    For ag commodity ETF's you can look at DBA, WEAT, CORN, SOYB. These ETF's trade in futures so pay attention to the contango/backwardation of future prices.
    • FA
      Fadi A.
      20 November 2018 @ 20:27
      Thank you
  • SS
    Steven S.
    20 November 2018 @ 19:23
    I would think that over long periods of time, one would expect that the ratio of commodities to the S&P would decrease. Commodities don't generate revenue and as technology advances, we have a greater ability to increase yields of agricultural products. On the risk side, commodities can't go bankrupt. Wouldn't currencies or even short-term bonds be a better way to normalize commodity prices over long periods of time? I can see comparing commodities to the S&P over short periods of time, but it makes much more sense to me to compare the ratio of commodities to the S&P against a long-term declining trend line.
  • MS
    Mark S.
    20 November 2018 @ 19:11
    Hope you come back with a look at some individual trades in these commodities. Even if you're not quite ready to pull the trigger just yet, maybe discuss the action and levels you're looking for as possible entry points, target levels, etc. Tks, Peter, always a pleasure to see you.
  • FA
    Fadi A.
    20 November 2018 @ 18:26
    Can you suggest ETF's or special stocks for this trade
  • AC
    Andy C.
    20 November 2018 @ 18:13
    Isn't the opportunity here to be short equities? Commodities continue to be produced at expanding volumes supporting increasing world population with productivity enhancements in production techniques over the years. The charts imply to me that equities (SPX) are overvalued vs commodities and reversion to mean possible. More likely for equity prices to come down to correct the imbalance IMO.
    • EF
      Eric F.
      21 November 2018 @ 05:20
      To be fair Andy, I think Peter is experienced enough to probably consider that.
    • tc
      t c.
      21 November 2018 @ 09:04
      I had the same question about which reverts. I would like to hear from PB on that.
    • CM
      Christopher M.
      21 November 2018 @ 09:50
      There comes point in this game where you have to disconnect from the "value" of the underlying asset. Think about money moving around. There will be 10's of trillions of dollars looking for safety soon. Take everyones favourite punch bag Tesla. If during the next crisis the US is deemed the safety trade, and bonds are not an option where will the money flow?into US equities. Yes it will be defensive sectors but it is a lot money it will float all boats per Brent Johnsons "dollar milkshake". Same here for commodities, the money has to move somewhere a lot of it. So regardless of new farming techniques, when the shit hits the fan the money needs to move to "perceived safety"' and if that is commodities they will go up. Money flows matter.
    • ED
      Ethan D.
      22 November 2018 @ 19:02
      Brandt is bullish on the S&P. So following his logic it must be that commodities are mispriced. Definitely a hole in the logic of this presentation. If you are talking about a ratio, you need to think about both the numerator and the denominator.
    • AZ
      Angelo Z.
      23 November 2018 @ 07:16
      I love how bearish folks are on commodities. No one even thinks about them anymore. Some here are even perma commodity bears. One word "exponential", and one more word, "growth". How many billions on earth right now? How many in 50 years? Commodity perma bears! We're getting close.
  • MP
    Mirjam P.
    20 November 2018 @ 17:42
    Interesting charts though I can‘t wrap my head around „… bought by one SPX point“. The charts seem to show „... bought by one unit of SPX“?
  • NG
    Nick G.
    20 November 2018 @ 16:46
    Or, translated into English: what any uneducated third world farmer can produce is worth less every year compared to what people at the vanguard of technology are being repriced at. Hardly surprising, is it? Not much of a long term trade going long ignorance and short innovation.
    • MF
      Michael F.
      20 November 2018 @ 17:56
      Enjoy your youthful outlook Nick, history has a tendency to repeat.
  • WB
    Wes B.
    20 November 2018 @ 15:58
    Could just be SPX crashes to meet the commodity prices...
    • LH
      Lloyd H.
      20 November 2018 @ 19:53
      could it be that stocks are way over priced and raw materials prices have been subject to normal price discovery, QE has not flowed into this sector ?
    • CM
      Christopher M.
      21 November 2018 @ 09:56
      Simply put stop thinking about growth and think about protection. Peter has $10,000 and believes in innovation at all costs. Remains fully invested in SPX. SPX drops 30%. Paul has $10,000 and believes in protecting his almost 10 years of gains and invests in DBA. DBA goes up 0%. Who wins? Because psychology is now coming in, Peter only started investing in 2012 he has ridden 2-3 10% corrections but 30%? Does he hold like everyone says does he sell? First rule of investing is not to lose money.
  • NH
    Nigel H.
    20 November 2018 @ 13:29
    A stock market collapse and USD deval will sort that out promptly in 2019.
  • Nv
    Nick v.
    20 November 2018 @ 13:21
    Very interesting. Thanks Peter

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