In early 2016 the price of WTI crude oil had hit lows not seen for 13 years. Over the previous 18-24 months oil prices had been falling relentlessly; from over $110 per barrel in August 2013 the price had dropped by almost 75% to around $30 per barrel.
With oil prices so low, pundit Dennis Gartman, appeared on TV stating that: “We won’t see crude above $44 again in my lifetime.” Gartman is an omnipresent voice on the 24 hour business news coverage. He is the publisher of the Gartman Letter, a daily markets newsletter, which is, according to his website, read by “leading banks, brokerage firms, hedge funds, mutual funds and energy and grain trading firms around the world.”
Now, Gartman is no spring chicken and perhaps he knew something we didn’t, but only three months later oil prices had rebounded to $45 per barrel. Pity those investors that placed too much emphasis on Gartman’s forecasts. Still alive, but perhaps not with his credibility, Gartman appeared again with an explanation:
“Finally… and perhaps most importantly… we invoke Lord John Maynard Keynes this morning who said long ago when he had changed his mind on an investment he had previous touted that “When the facts change, I change; What then do you do, Sir?” The facts are changing in the world of crude oil; demand is still rather strong and supplies seem to be rising but only modestly. Further, the term structures are shifting. We had been, on balance and really quite openly, bearish of crude for the past several years, erring always to sell crude’s rallies rather than to buy crude’s weakness. That has been wrong for the past two months and it is time to acknowledge that “wrongness”. If the facts are indeed changing… and certainly they seem to be… then we too must change. Lord Keynes did; we must also.”
Although conciliatory, acknowledging his mistakes, you would have thought that Gartman would learn from making such bombastic calls. You would think that the TV networks that propagate his views would put someone on who was more accurate in his or her predictions. And you would think that investors would be turned by his inability to provide them with any clue over where they should put their capital. But alas, no. Fast forward another few months and Gartman appears again with another prediction:
“investors shouldn’t expect the commodity to break through $55 for a few years.”
Gartman’s calls on markets of all sorts are the stuff of ridicule. But of course he had a newsletter for sell, and eye catching forecasts sell newsletters. From crude to equity markets to bonds and currencies, his daily newsletter, “The Gartman Letter” made bold but largely incorrect forecasts. After sending out his final newsletter in late 2019 after 30 years you would think he would have put on his slippers.
In the past week the pundit appeared on Bloomberg to outline his views on the prospect of a commodity super-cycle:
“I think there is something going on and its very serious in the commodity markets. Take a look at pretty much any commodity you want to look at; look at Tin its up dramatically, look at copper its up dramatically, look at Cotton its up dramatically; look at Wheat, Corn, Soybeans its up dramatically, look at livestock prices its up dramatically, look at the cost of shipping goods its up dramatically. There’s something more going on than a mere bounce from the lows. I think that the bear market that existed for more than a decade has ended. I think that a bull market that will exist for a long period of time has begun.”
When asked how investors should act to avoid losing money investing in commodities Gartman had this pearl of wisdom:
“Add to winning trades and avoid adding to losing trades….Do more of that which is working and less of that which is not.”
While I don’t disagree with Gartman’s argument about the longer-term picture, I disagree about his approach when it comes to commodities. Adding to winning trades that are up “dramatically” so early in a long-term cycle seems like the recipe for disappointment for any investor without a long-term time horizon and the stomach to cope with some wallet wrenching volatility. Add in Gartman’s history of questionable calls on commodity markets and this feels like a strong indicator that sentiment (especially for those commodities that have performed dramatically over the past year) may have got ahead of itself.
The positive sentiment for commodities is backed up by the recent Bank of America) survey of global fund managers in which they found that allocations “to stocks & commodities [is the] highest since Feb’11”, and “The only reason to be bearish is, there is no reason to be bearish”.
Investing through a commodity super-cycle is a long-term play full of disappointments. That should give anyone invested in commodities that have done well over the pause for thought. Now may be the point in the cycle when it could pay to reallocate some funds from those markets that have done well to those that remain largely off investors radar and still deemed ‘uninvestable’.