"Market Monitor"-Renee Haugerud, Founder & CIO of Galtere International Fund.
Friday, July 21, 2006SUSIE GHARIB: Our market monitor guest tonight is bearish on U.S. stocks, and says the place to make money is commodities. Joining us now Renee Haugerud, founder and chief investment officer of the Galtere International Fund. The fund is up 7.5 percent so far this year. Renee, welcome to NIGHTLY BUSINESS REPORT and your first appearance as a market monitor.
RENEE HAUGERUD, CHIEF INVESTMENT OFFICER, GALTERE INTERNATIONAL FUND: Thank you, Susie. I`m happy to be here.
GHARIB: Let`s begin by you explaining why you`re bearish on stocks and bullish on commodity.
HAUGERUD: Well, a little bit different than the previous report, I think we`re in a new paradigm, a new economic paradigm, and I don`t think we`re entering stagflation. We`re entering an economic situation of inverse stagflation, the opposite of stagflation. And basically as the previous report said, that the last time we experienced stagflation was in the early `80s. That was when we had a stagnant economy, high unemployment and inflation. But what kind of inflation did we have? We had financial inflation. Interest rates were high, and equities were bottoming and starting to go up in `81, `82, by `83 they were on the assent, but commodities were actually going down. We experienced commodity deflation in land, commodities, low-end labor, concomitantly with the inflation of financial assets. Fast forward 25 years today and basically I believe we`re in a situation of the opposite. We don`t have a stagnate economy. I believe we`ll slow down a bit, but it will be relative growth, as opposed to stagnant. And yes, we will have inflation, but what kind of inflation? Commodity inflation and not financial inflation. In fact, the silos are empty of commodities and full of money. So money is like green of the `80s.
GHARIB: That`s an interesting way of putting it, and that`s why you think that investors should have a larger amount of commodity investments in their portfolios, rather than just U.S. equities, right?
HAUGERUD: Absolutely. I think the recipe, saying whether you`re 80 percent, 50 percent stocks and you hear people saying put 5 percent commodities. Well, commodities are the thing that are going up. I think you should be up to 50 percent in commodities. Commodities are like equities of 1993. They`re going to get overvalued and stay overvalued, because they`re in short supply and they`re undervalued. GHARIB: Let`s go over some of the commodities that you find attractive. At the top of your list, you put corn. Tell us why you like corn?
HAUGERUD: There are various reasons that I like corn. One, it is not only a food. It is now becoming a fuel with ethanol and it is a feed for livestock as well. In addition, basically we are at the low and inflation adjusted rates, corn is very, very low. We`re at about $2.40 a bushel. And I calculate that with increased fertilizer costs, with increased land costs, with increased energy costs, the cost of production now is up $2.40, $2.50 a bushel. For the last 15 years, we have been down around $1.80 to $2.20 a bushel.
GHARIB: Renee, let`s move along because I`d like to get some of your other choices in there. I know you like soybean oil. What is attractive there?
HAUGERUD: Again, soybean oil is other fuel. We basically believe that there is going to be demand (INAUDIBLE) in fossil fuels in favor of bio- fuels. Ethanol is getting all the play right now, but bio-diesel could be a big factor as well. And in the diesel fuels, what you use is you use oil. So you use palm oil. You use bean oil. You can use canola oil, and bean oil right now at $26 is good value as well.
GHARIB: Now you`re bullish on crude oil, but you`re bullish on natural gas. Where do you see crude oil prices going and where do you see natural gas going?
HAUGERUD: I am overall bearish on crude, but again, I caution against shorting it because we do have the political situation and the climate situation if a hurricane should blow through Houston. So I personally don`t agree with being short, but there is plenty of supply around. It`s basically the refining capacity. We could see oil going back down to $50, $60. We think $75 to $85 is definitely over valued.
GHARIB: How about natural gas? Do you see natural gas getting back up to $16?
HAUGERUD: Eventually, over the long-term. This year I think it will be a little bit difficult. But basically we came from the early `90s when we were at $1.50, $1. $1.20 per million --
GHARIB: Renee, I`m sorry. I hate to interrupt you, but we`ve really run out of time. Very interesting thoughts and very different than what we usually hear. Thank you so much for coming on the program. HAUGERUD: Thank you.
GHARIB: My guest tonight, Renee Haugerud, founder and chief investment officer of the Galtere International Investment Funds.
