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Why is the Price Action in Commodities So Extreme? (w/ Raoul Pal & Peter Brandt) - YouTube
Channel: Real Vision Finance
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RAOUL PAL: When I read a chart that way, I
then often start to look around at other supporting
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evidence that that could be the case.
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If you're looking at anything within equity
world or sector world, are you picking up
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similar things that's saying, huh, okay, this
fits in with that point of view?
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PETER BRANDT: Not necessarily in terms of
sectors, because generally, there's way too
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many sides.
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I'm a futures trader.
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I'm a forex trader.
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When I try to put together a mini narrative,
so to speak, on a more composite basis, for
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me, I don't wander all the way into sectors
because that's just too deep a water for me.
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Rather, I'll tend to look at what's going
on in a composite of other markets.
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Yeah, I think I can create the story because
a significant downside move in the equity
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market makes sense to me.
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For instance, when I look at metals, when
I especially look at interest rates, all of
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a sudden, a mosaic comes together that says
if this happens, then that would make sense
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to what I'm seeing, for instance, over and
the 10-year, the 5- year, the 30-year, the
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Eurodollars, all of a sudden, that would tend
to line up and then indeed, I think it's what
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we're seeing.
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RAOUL PAL: I looked at-- I do a similar process
as you by seeing how things evolve across
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all asset classes, and the CRB index and any
of the commodity based index, big, huge top
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patterns, big, massive monthly head and shoulders
tops and stuff like that that I've never seen
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in my career, I've never seen them on the
charts in history before, tops of this size.
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I look at that and think, wow, oil is obviously
playing itself out.
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How do you see that commodity complex right
now?
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What's interesting to you in how you're reading
it?
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PETER BRANDT: I have mixed emotions there.
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I started as a corn trader, I understand the
corn market, I look at the price of corn,
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and with the decline that we're seeing in
corn as we speak today, we're down in an area
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that we haven't seen in a number of years.
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As a matter of fact, when I started trading
corn in 1974- 1975, corn was trading not adjusted
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for inflation, but trading at approximately
the same price it's trading today.
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We're seeing corn prices right where they
were in 1975 and 1976.
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That's almost a 50-year period of time, corn
prices haven't gone up and of course, American
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farmers would be the first ones to remind
us all of that.
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Corn is a perfect example.
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We have a potential huge head and shoulders
top on the weekly continuation chart of corn,
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but I'm split between what's the basic value
or at least value relative to what my experience
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is and just the pure chart pattern itself.
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Pure chart pattern itself in corn tells me
that corn, that raw material prices can go
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substantially lower but yes, there's a value
investor part of me to that goes, wow, I've
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a chance to own corn at 50-year lows.
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That's a pretty cool deal.
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RAOUL PAL: Yeah, and that's not the same in
metals I guess.
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Metals are still more elevated overall.
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PETER BRANDT: Yeah, they are.
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They are, and of course, crude oil is getting
back there too.
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Crude oil is back in areas where I traded
crude oil back in the low teens in the past.
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It's been a number of years, but they're getting
back in there, but their raw material prices
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are very weak.
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For instance, when we look at data adjusted
sugar prices, which go back and adjust prices
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to take away the role charges we have from
going to one futures contract to the next,
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we're at all-time lows.
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We have never had sugar prices as low as they
are today on a back-adjusted price chart basis.
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There's a number of commodities that look
that way.
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Same thing with some of the livestock markets,
its cheapest can be.
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There's part of me though, particularly in
some raw materials, where I go even on a global
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macro basis, I can't really become a bear.
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I think wheat prices are a perfect example.
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People are going to have to still eat.
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There is the basic necessity of human beings
to consume food.
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If I'm looking at wheat prices and saying
we're already done in the area of the same
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level of where I traded wheat prices back
in the mid-70s, maybe I can just get all buried
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up.
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There's a better place to be a bear, I guess
is what I'm telling you.
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If I'm going to be a bear, it's not going
to be on raw material prices.
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I'll be a bull on interest rate futures.
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I'll be a bear on equities.
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I'll look to trade the grain.
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RAOUL PAL: Commodity prices are telling you
that it's consistent with the equity market
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falling further is the fact that commodities
look weak, whether they rebound, whether ags
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rebound or not, okay, but it looks weak as
a structure.
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