He is the editor of one of my favorite technical blogs and an excellent classical chart trader. This week Peter L Brandt sat for an interview with Jonathan Burton at MarketWatch to talk about some of the biggest topics in commodities today. I wanted to post his responses over the weekend because I think they add a lot of value to what we’re tying to do here: Profit and Manage Risk. Be sure to check out his blog and definitely follow him on Stocktwits @PeterLBrandt.
To every commodities trader, there’s a time to plant and a time to reap.
This is harvest time, said commodities trader Peter Brandt, who sizes up the climate bluntly: “Markets are getting set up to slam the speculator.”
Brandt has been buying and selling commodities for almost four decades. His Colorado Springs, Colo.-based company, Factor LLC, trades on behalf of and offers research to institutional and speculative clients.
Brandt is a technical trader, poring over charts and patterns to spot potential breakouts and breakdowns. Nowadays he’s bearish on corn and other grains, along with farmland, oil and natural gas.
“When you look at those markets, I think we’re at prices that are unsustainable.” said Brandt, who also writes a popular Internet blog about trading commodities and stocks. Read Peter Brandt’s blog.
Gold is one of the few commodities Brandt is staying long on. He also said the U.S. stock market is attractively valued, and warns of a “huge bubble” forming in Treasurys and other fixed-income investments once U.S. interest rates rise.
1. Natural gas is a bust
Natural gas prices have been at decade lows — and for good reason, Brandt said: “We have such a huge supply of natural gas in this country,” he pointed out — “more gas than can be consumed.”
He’s watched with fascination and trepidation as investors have bet on the natural gas sector through exchange-traded funds such as United States Natural Gas Fund ($UNG). Those ETFs and their leveraged siblings have taken a beating that Brandt doesn’t believe is over.
“I have no desire to be involved in natural gas whatsoever,” Brandt said. “I don’t think there’s any way for an investor to make money.”
2. Oil spills and slicks
If natural gas is a bad trade, oil futures aren’t any better, Brandt said. He expects crude prices to move to a more normalized level from their recent spike, and not to challenge the summer 2008 highs when a barrel of oil commanded close to $150.
“A year out I do not think we’ll be at $104 oil,” Brandt said. “Oil could go back to the $60 level.”
Brandt advised investors to avoid or take short positions on leveraged oil ETFs and exchange-traded notes, such as PowerShares DB Crude Oil Double Short ETN ($DTO) and ProShares Ultra DJ-UBS Crude Oil ($UCO), and even avoid the straight, nonleveraged United States Oil Fund ($USO). “It’s a sucker play,” he said about the oil-patch ETFs.
3. Harvest crop profits
Corn ($ZC_F) and many other crop prices are as high as, well, an elephant’s eye — “Too high,” Brandt said — and the trader said he’s short-selling grain futures in anticipation of the agriculture investing theme playing itself out.
In the supply- and demand-driven world of commodities, “there’s nothing that cures high prices like high prices,” he said.
“I would be looking for a top to grain prices, which could be the top for the next couple of years, somewhere in the next two months,” Brandt added. He said that he plans to unwind his long position in soybeans in coming months in the wake of an expected strong pickup in trading volume that catapults prices.
4. Plow under farmland
Agriculture products are in a bubble, and so is the land they grow on, Brandt said.
“The price of farmland is at an obscene level,” he said. “It’s impossible to make money by being a farmer, and the land can’t be justified as an investment.”
Farmland, largely in the Midwest grain belt, has been one of the few bright spots in the U.S. real estate market. Agricultural land prices rose 3.8% on average in the first quarter, the strongest start to a year since 2006 and the second-highest going back to 1991, according to the National Council of Real Estate Investment Fiduciaries.
For example, farm acreage values rose 24% in Iowa and 17% in Nebraska in 2011, according to the National Agricultural Statistics Service. Double-digit yearly gains for farmland were also realized in Illinois, Kansas, Indiana, Minnesota, South Dakota and North Dakota.
The main drivers of this land rush — high grain prices, Asian demand, weather-plagued supply — have reached unrealistic territory, Brandt said.
“When the reality comes in that grain prices have seen their best for sometime in the future, there starts to be nervousness about owning $15,000 an acre in Iowa,” Brandt said. “The only reason you own farmland today is the belief that you can sell it to the next sucker for more than you paid.”
His warning to investors who have exposure to farmland: “Scramble quickly. Land is not a liquid asset. You want to sell it on the way up.”
5. Gold on the verge
“We’re in an extremely broad trading range, but I think the next move for gold will be up,” Brandt said, forecasting a climb as high as $2,200 an ounce.
Why so bullish? Brandt said the technical chart pattern of the past year resembles a period in 2009 when gold prices drifted sideways for many exasperating months. That go-nowhere trading eventually “exhausted the participants,” Brandt said, setting the stage for a sharp rally. Moreover, he added, the current lackluster movement in the gold market has washed out a large swath of buyers.
Said Brandt: “Markets that have lulled people to sleep are typically ready to have a substantial move.”
Tags: $NG_F $CL_F $CORN $GLD $GC_F