Food, Fuel, and the Fed

12/21/2011 10:45 am EST

Focus: MARKETS

Dennis Gartman

Editor and Publisher, The Gartman Letter, L.C.

These are the mega themes for at least the next couple of years, says Dennis Gartman, who explains why and when you'll need to worry about them, and how to trade them.

You were talking about food, fuel, and the Fed. Could you synopsize that for us?

Sure. As I said, it's always good to have when you're making a speech, have it alliterative. So food, fuel, and the Fed.

Food is going to be tight. The world is going to need more food. Per-capita incomes are rising and it's an old story, but it's a story that needs to be told again.

The demand for food is going to continue, and the demand for grains predominantly is going to continue to rise. Prices for especially livestock are going to be much stronger and much higher than they are right now. So food is important.

Fuel.I'm not a believer in the end of crude oil. I'm not a believer that we're anywhere close.

To peak oil.

To peak oil. But nonetheless, there are problems in the crude oil market, and if you're going to be bullish, it's interesting to see what's happening in the relationship between Brent crude and West Texas Intermediate, which has really gotten to be extended.

There are exigencies there involved in that that are probably going to drive Brent higher but likely not driving West Texas Intermediate any higher. So the only crude trade that I see of consequence is to err upon the side of owning Brent-if you're bullish, buy Brent; if you're bearish, sell West Texas Intermediate.

The other thing about fuel is that with the amount of natural gas that we're finding on a daily basis, natural gas is abundant and going to be even more abundant. So as I said in the speech, if you have any intention of owning natural gas, sit down, be patient, and put that thought aside. Prices are going to be under pressure and not rise in that instance.

Is that good for the US?

Oh, it's great for the US.

Because we're going to generate more employment, like in North Dakota.

It's amazing, isn't it? North Dakota has unemployment of less than 2%. South Dakota has unemployment of less than 3%.all because of what's going on in finding natural gas in shale formations.

Shale is everywhere in the United States. We're going to find a lot more of it. So natural gas is going to be extraordinarily abundant and it's likely not to get very expensive.

And that casts oil prices somewhat?

It tends to. Oil and natural gas don't tend to work with one another. They don't follow one another too often, because only at high margins can you change from firing natural gas for electricity usage to changing to crude oil.

So don't think that if crude could go higher that natural gas has to follow. Or don't think that if natural gas is going to go lower, that crude has to follow. The two really are only at the margins substitutable, one for the other.

And the Fed?

The Fed has told us without a question that it's not going to tighten the monetary policy between now and mid-2013, which is interesting because now every other central bank of the world is following suit. Bank of Canada said it won't be tightening for the foreseeable future. The Australian, the Reserve Bank, which really had a reason to tighten.and even the ECB has said now we won't be tightening for the foreseeable future.

So the Fed has set the policy for the world. The Fed is not going to tighten. Overnight Fed Funds are going to remain at zero for a very long period of time.

Are you worried that there may be too much consensus among all of those geniuses at all of these central banks?

Well, there wasn't consensus on that even two and three weeks ago. Okay, so there's only been a consensus that has been formed now. I would be worried if that was a consensus that had been existent for six months. I'm not worried that it's only been existent for a couple of hours.

OK, and then the investment ideas to follow those and the fertilizer. I assume you like the Potashes (POT), the Mosaics (MOS), energy.

Those are the easy ones. As far as food is concerned, most people can't trade the grain futures. That's a little difficult. There are grain ETFs, but I wouldn't even be involved in that.

I think the better trades are to be involved in fertilizer. As I explained to the crowd, one of the things that we have to understand is that the world produces enormous amounts of grain, but we still have people starving. It's not because there's not grain to feed them, it's because we can't get the grain to them.

The transportation circumstances are bad. Eventually what you're going to end up seeing if you've watched the dry bolt cargo ships, those prices of their stocks have fallen by 95% in the course of the past several years.

The dry bolt producers four years ago had very high rates, and they did the stupidest thing of all-they built more ships than anybody ever needs. The supply of ships is just too large. Now we're starting to scrap those ships.

Those stock prices have stopped going down and pretty soon, they're going to start going higher. The other trade in agriculture, then, will be dry bolt carriers, but not quite yet.

In 2012, do you expect?

In 2013, maybe.

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