Interview with Gary Dorsch,  a noted commodity analyst and market strategist who worked on the trading floor of the Chicago Mercantile Exchange for nine years as the Chief Financial Futures Analyst for three clearing firms. Written summary HERE

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Marc Faber, Editor and Publisher of “The Gloom, Boom & Doom Report’” talks about the commodities-super-cycle.

In your 2002 book “Tomorrow’s gold” you identified two major investment themes: emerging markets along with commodities. That was a great call. As for commodities, they had a great run up until 2008. Then they crashed sharply along with everything else just to recover strongly into 2011. Since then they have acted weakly, and recently commodities even reached a 13-years low. Is this the end of the commodities-super-cycle, as some have claimed, or is it more like a correction?

Well that’s a very good question because obviously the weakness in commodities this time is not due to, like, contraction in liquidity as we had in 2008. 2008 commodities ran up very quickly in the first half until July. The oil prices in 2007, just before they started to cut interest rates in the US were still at 78 dollars a barrel and then by July 2008 they ran up to 147 dollars a barrel. Afterwards they crashed within six months to 32 dollars a barrel and then as you said in 2011-2012, they recovered and were trading around 100 dollars a barrel. Now they have been weak again as well as all other industrial commodities and precious metals.

My sense is that this time around, commodity prices are weak because of weakness in the global economy, specifically weakening demand from China,

because if you look at the Chinese consumption of industrial commodities, in 1970 China consumed 2% of all industrial commodities, by 1990 it was 5% of global commodity consumption for industrial commodities and by the year 2000 it was 12% and then it went in 2011-2012 to 47%, in other words almost half of all industrial commodities in the world were consumed by China.

Therefore a slowdown in the Chinese economy has a huge impact on the demand for industrial commodities and on the wellbeing of the commodity producers, whether that is the commodity producers in Latin America, in Central Asia, Middle East, Australasia, Africa and Russia.

And so because of the reduced demand from China, the prices have been very weak and I think that may last for quite some time because the Chinese economy will not go back and grow at 10% per annum any time soon. My view is that at the present time, there is hardly any growth in China. In some sectors there is a contraction and in some sectors, and don’t forget China is a country with 1.3 billion people, so some provinces may still grow and other provinces may contract, as well as some sectors may grow and others may contract. But in general I think the economy is weak.

My estimate is that at the very best the Chinese economy is growing at the present time at say 4% per annum and not at 7.8 or 8% as the government claims. We have relatively reliable statistics like auto sales and freight loadings that are down year on year, electricity consumption, exports, imports and so forth. So there has been a remarkable slow down and to answer your question about commodity prices, if the global economy slows down as much as I do believe, because other economists predict an acceleration of global growth, a healing of global growth, my sense is that it is the opposite, that within 6 months to one year we are back into recession and then it will depend on central banks and what they will do. Up until now, they have always printed money and I suppose they will continue to do that.

… within 6 months to one year we are back into recession and then it will depend on central banks and what they will do. Up until now, they have always printed money and I suppose they will continue to do that.
Now from a longer term perspective, commodity cycles last 45 to 60 years roughly, from trough to trough or peak to peak. In other words we had a peak in 1980 and then commodity prices were weak throughout the 1980s and 1990s, then in 1999 they started to pick up and went and made a peak for most commodities in 2008 and for the grains 2011-2012. Since then everything has been weak. I could argue that well, maybe this is a major correction in the commodities complex within still an upward wave of commodity prices and that the final peak prices are not yet seen.

Interview conducted by Johannes Maierhofer and Peter Matay

Marc Faber is an international investor known for his uncanny predictions of the stock market and futures markets around the world.Dr. Doom also trades currencies and commodity futures like Gold and Oil.

A week of very difficult market conditions calls for another macro view on the energy sector – and a further emphasis on my recommendation of oil and gas stocks being at fantastic, generational values.  

One of the most important value quotients in any investment is not just about price – it is about relative price. What I mean is that when we allocate to invest, we’re not just thinking about the upside potential – or at least we shouldn’t. We should also consider the downside risk should the rest of the macro environment turn sour. This is precisely where we are now, as energy shares show relative strength, even as the ‘correction’ in the major indexes continues.  

It is telling to me that oil has shown mid-$40’s stability in light of a continuing commodity and stock market down cycle – and I believe that even if prices don’t get constructive for the next two quarters, I am doing the right thing in recommending repositioning into the energy sector now.

To be fair, oil companies have surprised me in their nimbleness. I had expected to see much more carnage from the exploration and production companies and many more signs of clearing markets by this time late in 2015. Production efficiencies including heavy sand fracs, refracs of previously inefficient wells, spacing and water renewal programs have helped all of the E+P’s get more oil and gas out using less and less money. Add that to the staunch wills from both investor banks and bondholders to continue to add capital and credit to failing oil producers and you’ve got a recipe to see production slacken only slightly and slowly through the rest of 2015.  

All of this, however, only extends the timeline of the oil bust cycle I’ve often outlined. Oil companies at $45 crude still go broke – they’re just managing to do it more slowly.  

That nimbleness on the part of energy players also extends the timeline for investment in the energy space – a good thing for those of you who have been slow to rotate into oil. It now seems energy stocks are destined to stay lower for longer, like oil prices themselves. But even if prices idle here for another quarter or so doesn’t make me hesitate from buying more.  

Even in this environment of weak stock indexes and commodity prices, I continue to be tempted to add shares to those I already own and start new positions in others. Whether your risk profile is ultra conservative or mad, there are incredible values out there:

Exxon Mobil (XOM) – my favorite U.S. major is now yielding over 4% (!)

Total (TOT) – my overall favorite major is yielding 6 1/2%

Schlumberger (SLB) – is well under $70 a share for the first time in 3 years – and yielding 3%

Kinder Morgan (KMI) – is, in my mind, by far the best of a horrible sector of pipeline companies, surely the last to recover from the oil bust. And yet, if yield were your only thought, I cannot help but love it yielding over 7%. If KMI can’t survive, no one can.

For those who want more beta, I reiterate:

EOG Resources (EOG) – the best of the shale players, in my view. $70 is just cheap.

Cimarex (XEC) – Best in the Permian. Anything under $100 a share is a tremendous buy.

Hess (HES) – quality Bakken assets and solid restructuring will see it through. Under $50? Wow.  

Devon (DVN) – Near $35? Hasn’t been in my top pick list, but at this price?  

Anadarko (APC) – Everything continues to go wrong, except they still have the best asset portfolio and deepest flexibility going forward. $60? Please. Try and stop me.

What’s important here is not the absolute stock price – we know that other macro events are possible to push them lower. What we want to do right now is start positioning away from stocks that have a lot more froth to possibly give back, stocks which I believe are near their skin-and-bones valuations right now.  

That’s the game we need to play in this China and Fed-dominated market that’s still wondering where it wants to go. And if you’re playing that game with me, I think its wise to do it with some of these stocks, and worry about the price you paid 12 months from now. My guess is you’ll be smiling.

• Rogers sees decline in U.S. output helping stabilize prices
• Investor also sees opportunities in agricultural commodities

Oil is holding near $45 while the bad news keeps coming. For investor Jim Rogers, that’s usually a sign a rebound is near.

The Organization of Petroleum Exporting Countries is still pumping near record amounts of oil, China’s imports have slowed and U.S. crude stockpiles remain about 100 million barrels above the five-year seasonal average. Yet, U.S. benchmark prices have held steady for more than four weeks since plunging to a six-year low at the end of August.

….read more HERE

The major news from the week is Royal Dutch Shell’s (NYSE: RDS.A) decision to scrap its Arctic drilling program. The future of oil development in the U.S. Arctic depended heavily on the success of Shell’s exploration campaign in the Chukchi Sea. With other companies having previously put their Arctic ambitions on hold, Shell was the last to remain. Shell did encounter the presence of oil and gas, but ultimately not enough to warrant further spending, especially given low prices. The “disappointing” results from its exploration well led the company to withdraw from the Arctic for the “foreseeable” future. Despite spending $7 billion, and expecting to take more than $4 billion in impairment charges, there is no doubt that many shareholders of Shell will be relieved to see the company pull the plug.

Russia and Ukraine came to terms on a gas deal that will ensure the taps stay open for Ukraine through the winter season. The two sides have been at odds over the price at which Ukraine will pay for Russian gas since the ouster of former Ukrainian President Viktor Yanukovych in early 2014. The latest agreement will allow Ukraine to import natural gas at about $227 per 1,000 cubic meters for the rest of the year. That price is above what Ukraine wanted but below what Gazprom initially demanded. The deal will ensure that the flows of natural gas to Europe will remain stable, and could go a long way to lowering tensions between Russia and the West.

The corruption probe into Brazil’s state-owned oil company Petrobras continues to widen. The latest details have raised links between the embattled Brazilian firm and Transocean Ltd. (NYSE: RIG), the Swiss offshore rig supplier. A former Petrobras executive recently testified, saying that he received payments from someone representing Transocean in exchange for awarding the Swiss company a contract from Petrobras. “Transocean has not identified any wrongdoing by any employee or any of its agents in connection with the company’s business,” Transocean said in a statement. Meanwhile, the Bill and Melinda Gates foundation has decided to sue Petrobras for the massive losses the philanthropic organization has suffered due to the selloff in Petrobras’ stock over the past year. The foundation is merely the most famous in a long line of other entities seeking compensation for losses due to Petrobras’ extensive corruption investigation.

The debt problems for many U.S. shale companies may be coming to a head. Goodrich Petroleum (NYSE: GDP) managed to secure a haircut from its investors, with holders of $158.2 million in debt agreeing to take 47 cents on the dollar. The deal comes only three weeks after a separate agreement to write down some of its debt. Companies like Goodrich are running on fumes, and debtholders are willing to take a haircut in order to increase the likelihood that they get something for their positions. With credit redeterminations underway, and oil prices far from a convincing rebound, more write-downs and defaults are likely.

California regulators decided to restore the state’s low carbon fuel standard, a policy that has been on hold since 2013. The standard would require a 10 percent cut in greenhouse gas emissions from liquid fuels by 2020. The oil industry objected to the regulation, but the state overcame legal challenges and will re-implement the program. California regulators estimate that the standard will only raise fuel prices – the principle criticism of the measure’s critics – by a few cents per gallon of gasoline. The regulation will require more fuel efficient vehicles or cleaner fuel, such as biofuels, to cut down on pollution. California already has some of the highest fuel prices in the country, a ranking that could get worse under the state’s initiative, the industry argues.

North Dakota sided with oil and gas industry in its decision to delay a measure that would limit flaring. The North Dakota Industrial Commission decided in July 2014 to require drillers to reduce flaring down to just 15 percent of associated gas by March 2016, and then down to just 5 to 10 percent by 2020. The commission, in a nod to industry pleas, will only require drillers to reduce flaring to 20 percent of associated gas beginning on April 1, 2016, and the 15 percent target won’t have to be achieved until November 1. Explaining its decision to push back the timeline, the commission said a lack of pipeline infrastructure made meeting the standards difficult.

Sir Ian Wood, who has advised the British government on how to rescue the country’s flailing oil industry, now says that the UK needs to prepare for a future without oil. In an interview with the FT, Sir Ian Wood says the downturn could last quite a while. “The industry will lose jobs, whole teams, plants and equipment. But we must be really careful we don’t lose infrastructure, as the damage will then be permanent,” he told the FT. There are certain things that the government can do to keep the industry alive. However, the long-term prospects remain dire. “By the middle of the century, the UK will have largely exploited its offshore oil and gas reserves,” Sir Ian Wood said conclusively.

Finally, while crude oil garners the most attention, the meltdown in other commodities continues to make news. Glencore (LON: GLEN), the Swiss mining giant, has seen an extraordinary sell off in its stock in recent weeks. The company’s share price was down an eye-watering 29 percent on September 28, and is down nearly 40 percent since mid-September alone. The mining multinational is buckling under the weight of low commodity prices. But an investor’s note from Investec saying that there is little value left in the company for shareholders sent a dire warning across financial markets on Monday. The rout is a reminder that the massive bust for prices is not unique to oil.

We invite you to read several of the most recent articles we have published which may be of interest to you:

With Shell’s Failure, U.S. Arctic Drilling Is Dead
How Much Longer Can Venezuela Keep The Wolves At Bay?
Exxon CEO: Alaska Is Its Own Worst Enemy
EV Market Has An Unlikely Backer
Germany Now Faced With Thousands Of Aging Wind Farms
What Oil Investors Can Learn From Gold

Commodities investors had been riding on momentum for years and with a diminishing supply of the product coming from producers, prices seemed destined to keep rising for the foreseeable future.

Then in the span of a few months, the commodity’s price crashed and billions upon billions in investment value and producer company market capitalization was wiped out. For many energy investors, this story might sound familiar. But it’s not the story they are thinking of.

In 2013, after a price run-up that had lasted for a decade, investors in gold found out that the precious metal was not as safe as many had assumed. Gold is supposed to be the ultimate safe-haven asset. Like land, as Mark Twain once said, they’ve stopped making it. Unlike stocks or bonds or even green pieces of paper, gold is tangible and has been traded for centuries. It also has a global demand base that is largely built in and reasonably consistent. Yet, after prices neared $2000 an ounce, gold’s price fell by hundreds of dollars an ounce in the span of a few weeks….continue reading HERE