Trading Copper and Gold in a Recession (w/ Peter Boockvar) | Stock Trade Ideas - YouTube

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Welcome to trade ideas

I'm Jake Merle sitting down Peter book bar CIO of Bleakley advisory group and editor of the book report

Peter great to have you back on the show. Thanks. Jake always good to be here

So we've got a lot going on in markets right now if there's 16 trillion dollars worth of negative yielding debt

The Fed is cutting rates. We have weak economic data. The yield curve is inverting

The stock market is selling off people are saying we're entering a recession soon. So what are your thoughts Peter?

What do you think markets are telling us right now? Well, it seems so long ago

We only had 12 trillion of negative yielding bonds

It's amazing how fast we're accelerating this process and it's it's almost two things that are feeding on each other

It's legitimate slowdown in growth

that leads to expectations of more central bank easing and then we get more data that leads to a weak or growth that reinforces the

Expectations are more easing. But when I say easing all I'm saying is lowering interest rates

I don't believe that what the European Central Bank or Bank of Japan is now doing is technically easing

I actually think it's restrictive and it's something that I've said on a previous real vision interview

is that the Europeans and the Japanese are destroying their banking system and

As they do that it further believes the economy of capital therefore

They're just spitting in the wind in terms of hoping to generate faster growth. So you throw on the

Fed tightening the lack of any

Stimulus overseas the China slowdown and then you group that on with the tariffs and we have the end of this economic cycle

With a situation where central banks are not going to be able to save the day

Whereas pretty much in all the previous

Downturns they've been able to ease policy which then stimulated growth and we've been somehow able to get out of it

So when you look at today there, is this belief. Okay? Yeah, the Fed is going to cut it there

No, it's not going to help though

and when you think about

Stimulus the government makes a deal with you when they create stimulus whether it's fiscal and monetary on the monetary side

They're saying to you. I'll make a deal and say you saving money to buy that car a house

I'll lower interest rates and you promise me that you'll buy that car or house today instead of waiting til tomorrow

Well, if rates are just low forever

You don't have that

Impulse because you can just wait till tomorrow because rates will not be any higher. If anything they can be even lower

So that's why there's really no more

Stimulus to be had even though these central banks are basically trying they're basically shooting blanks at this point

And as I said earlier actually doing damage now

in Europe and Japan and the question with the Fed is

Does Jake Jay Powell and and company?

Take the evidence of the experience overseas and say, okay

Market, we'll give you some of your rate cuts

Okay, Trump will give you some of your rate cuts, but this is not the path down to zero now

unfortunately

Jay Powell in his speech a few months ago said it's not if we go back to zero to when

Which shows that he's learned nothing and then in terms of qyz, like oh, yeah

There's plenty of Treasuries for us to buy so that's his do something instinct. That's his own institutionalized

I'm in the Fed. I drink that kool-aid. That's the only thing I know

Instinct but we'll have to see whether it actually comes to fruition. Like if I was in his spot I

Again, I don't think rate cuts are gonna do anything because the cost of capital is not an inhibiting factor in anything. I mean,

For those buying a house the bond market just ease policy by 100 basis points for you

And the only thing that it stimulated was reef eyes

It's done little to stimulate purchases because the average person is saying well rates aren't down because things are good

Things are softening. Therefore. I need to be nervous and rein it in and

affordability is a major problem of

Multiple years of excessive home price growth so I would be cutting rates

To no less than 1% I would basically say

1% is where we stop and the chips will fall where they may now I'm saying what they should do

Obviously, they're not going to do that. They're gonna follow what the others have done, but I think that's the situation we're in

Therefore investors need to reevaluate p/e multiples because there's assumption. Oh the lower rates go

It's the discount rate for future cash flows asset prices can go to the moon

But the flipside is is that cash flows are now shrinking

Margins are now receding earnings are now going to reverse. How much do you want to pay for that?

Do you still want to pay 18 times earning just because rates although no

I want to pay less than that because as I said rates will not stimulate growth and all I'm gonna be left with is a

lower lower earnings piece at which to price

So in terms of timing the end of the cycle

How close do you think we're actually to a recession so I get asked that question all the time

When will when will we have the recession and I argue we're manufacturing and trade. We're already in a recession

Capital investment is is bordering on a recession particularly an equipment on software. It's doing better

So really the only thing that's keeping us afloat is the services side of the economy in the u.s

Consumer and the question is okay. What tips over the US consumer?

Well, that'll be the labor market that'll be wages. And that'll be the direction of the stock market

So in the July payroll number we saw a few weeks ago

We're beginning to see a change in in the labor market

so hours worked slipped because when you're an employer and your business, all of a sudden is more uncertain the first thing you do is

Okay, let me reduce the hours worked in my employees. I don't want to get rid of them. I like my employees

They're good people. They're qualified but businesses a little slow. So instead of working, you know, 40 hours a week. They're going to work

37 hours a week. Well if time goes and business doesn't improve and you need to protect your earnings well

Then you'll you'll you'll you'll stop hiring and then you'll eventually start to lay off workers

Well, then what's the spillover into the services sector? Well, look at the trucking sector, which is a service sector

Those trucks are taking everything that the manufacturers are making putting along the trucks and delivering it to their end points

Well, we're beginning to see a slowdown in the trucking business. We're beginning to see bankruptcies and a reduction in hiring

well if these truckers are

Doing less miles and then less people on the road where they're stopping at restaurants less often. They're making less money

so we're beginning to see the progression of how this is now spreading and

So all the sudden hiring slows down consumers become less confident about their job

Wage growth starts to slow down then lose that consumer support

Then all within this the stock market will not be able to be kept up by the Fed

So you get a decline in the stock market? Well that affects consumer spending because we are an asset price depend an economy

So as the stock market goes so goes confidence and you can really make a correlation

Between the sp500 and the University of Michigan consumer confidence number

So it's going to be a combination of the decline in asset prices with the economic scenario that I think unfortunately is

Unfolding now things could reverse Trump can pull back the tariffs and there can be a kumbaya and we can somehow

regenerate confidence again because a lot of it is at least right now confidence that is then of now affecting business decision making

But it doesn't look like he's gonna pull that back. It doesn't look like there's going to be any potential for a deal

So I'm afraid that

This is going to continue so given the current environment

How should traders position I know you've mentioned a few different trades over the past few months

You've been long gold, which has finally started to work out for you finally after quite some time

I know you're excited about that one and you've also been long copper which is kind of unique

To be long copper in a slowing growth environment. I know you mentioned that last time can you please break down your copper trade?

And why it hasn't worked out recently. So I I

unfocused on value right now and one of the caveats I gave when I talked about copper was

This is highly economically sensitive

This is going to be driven in the short term where China's growth goes and where global growth goes

That is the risk. I was making the argument from a longer-term perspective that the supply-demand imbalance

Is is beginning to get out of whack and that there even with this reduction and demand?

There's still major supply deficits in copper and that we were on the cusp of getting a secular shift in the demand

drivers for copper away from the historical

construction, you know in China, for example

You know building apartment building after apartment building and that solar wind

electric vehicles was going to be over the next five to ten years a voracious buyer of copper and that

trading and commodities hugely volatile, of course and

You want to buy them when they're out of favor? You want to sell them when they're in favor and

You know for all these to me today

The recession fears are the greatest

It's hard to make this case for copper right now because the trades not going to work

If the globe is gonna go into recession

So the way that I sort of danced around it rather than saying go out and buy copper was southern copper

Was a name that I liked because it's paying a five percent dividend and its cost as 80 cents a pound

With the price of copper now about 260 and that I was willing to ride out this

demand

Destruction you can call it if the global economy goes into a recession for this longer-term

Supply-demand imbalance that's only growing. And if anything you get a further decline in copper

You know expansion plans and all that easy copper mines are going to get cut even more

So you're really setting ourselves up for a voracious bull market at some point. It's just from a trading standpoint

It's not worked and for all you know, I called in probably high 30s now it's in the low thirties

So for the short term trader, you can say okay cut my losses at you know

A 20% decline for those were the long-term perspective like myself

Any decline in copper, I'm gonna buy this stock at and I'm specifying the stock might interest supplying copper futures

I'm not interested in buying Freeport

This is a company with a strong balance sheet that can get through, you know

Any short-term difficult time because I know this is this is a big trade

I mean, I'm expecting copper to go to four or five dollars a pound

From two and a half to two sixty now. So yeah, maybe copper goes back to two

But the upside to me is much greater than the downside

So you're saying right here right now Southern coppers trading around $30 or so, you'd be buying the stock right here

Yes buying more but people have to understand that again. This is a very sick

This is cyclical downturn we're in but I emphasize a cyclical downturn. There's not a secular story. That's

Negative here for copper copper is the most important industrial metal with them the most attractive

Fundamentals over the next ten years in terms of what it's going to be used for my commodity exposure. My portfolio is usually

Much smaller than my you know secular

Ideas that I have it's just so happens that my recent ones for real vision have been more of the commodity more cyclically

Impacted ideas. So how much upside I guess over the next two to three years. Do you see for southern copper?

well if I'm right and and and we do actually

grow again globally and and and this Evy story really picks up steam and

Copper does go to four or five because of the major imbalances that I'm seeing

I mean, I think you'll get you know, at least a double from here in southern copper

And you know their dividend is is could be somewhat variable. But at least right now it's paying about a five percent

Dividend and just in case things don't go your way

And we do see this recession unfold where would you put your stop-loss for southern copper?

Well in a short term trading basis my stop when I gave the last idea I would have been stopped out. Correct? Yeah

Dollars or so. Yeah, it was down at these levels stopped out twenty percent the climate which which when you're dealing with the commodity,

It's fine. I'll take that because usually the upside is much greater

But because of what I see over time, I'm comfortable, you know

The mistake people make is buying on the dip in broken situations broken companies and bad balance sheets

Where you never recover that capital?

I'm more comfortable buying on the pull backs when I know I'm buying not a broken story, but a cyclical e

Impacted story but a company with a good balance sheet that can survive the downturns because then you know those stories rebound

It's the value traps that you get into that you want to avoid. So it's not for everybody buying on the dip

some traders

They should stay discipline and to be out of the trade and and wait for

The story to get better in terms of the the economic situation, you know, I tend to be more patient. So I'm willing to

To write out the situation just in case traders or investors wanted to play more of a short-term thesis here. What should they do?

I know you I know you like gold you mentioned copper. But what else can they do?

Well, I I would be in the short-term swapping, you know

If you wanted to be out of that copper trade to me gold and silver

This is just the beginning of something more and when I say just the beginning Gold's already of fifty percent

From its December 2015. Beer market low

Silver though is is barely above its low. So silver has a lot of catch up to do and silver somehow some days

It's treated as a currency just as gold is some days it's treated as an industrial metal where those economic worries

you know filter in I

Think over time it'll be more grouped in as a currency than an industrial metal and that gold is silver ratio will

compress leading to a lot of upside in the price of silver

So I am really optimistic about gold and silver and I've talked about gold and silver multiple times

But I remember last time I talked about it. It felt like everything was coming together

both in terms of the bear case disappearing

With the bear case was of the feds raising rates in there far away

Tightening more than any other central bank and that's good for the dollar

- now the feds obviously easing the dollars hung in pretty well here

But gold is rallying in the face of that dollar strength, and then you throw in this collapse and real rates

Which the rise in negative yielding rates is another way of saying that and then you have the technical story getting above this

1375 level which I mentioned last time and to me you're you know, now you're looking at the September

2011 highs

Silver silver got 250 now, it's 17. So you have a lot of upside in silver as well

So in the short term that's where the trader should have their focus. That's where the bull market is right now

That's where you want to buy dips. That's where you want to ride on the upside

The other stuff is you know

coppers gonna be more a difficult situation here in the short term because of the cyclical

Demand issues that it's now experiencing Peter bullish on copper bullish on gold. We'll see how it plays out in the months to come

Thanks so much for joining us. Thanks changing. So Peter is still bullish on precious metals and copper

he recommends traders buy gold and silver for short term trades and suggests investors buy shares of southern copper ticker symbol s

CCO at current levels. He thinks the stock could double over the next few years