Lincoln Ellis of Poplar Jackson Talks Gold and Commodities

TOM HUDSON: We have seen some pretty big moves in commodities lately, gold falling below $1700 an ounce just today and of course, energy prices have been
heating up. Tonight’s “Street Critique” guest says forget gold — go for
grains and natural gas. Lincoln Ellis back with us, managing partner of
Poplar Jackson with us tonight from the CME Group (NASDAQ:CME). Lincoln,
always great to see you. Welcome back.


HUDSON: At least through yesterday, we had the major stock indices
with multi-year highs. The broad commodity market hasn’t been breaking out
to new highs. Why not?

ELLIS: Interesting thing. I think two points here Tom that are worth
noting. First is the commodity market is telling you that there’s a
recovery. It too has rebounded since those December lows. It just hasn’t
rebounded as much. And so perhaps it’s better to listen to the commodity
complex and not be so irrationally exuberant in terms of the pace of
recovery in this economy. And then secondly, I would point out that
perhaps commodities have also signaled that there wouldn’t be a QE III. We
had sort of a mini-bubblette last year around this time at the
beginning of QE II or at the mention of QE II across the commodity complex,
and clearly today in the Federal Reserve chairman’s testimony on the Hill,
that was definitely not on the table, and therefore various consequences
across the commodity complex.

HUDSON: QE is quantitative easing, of course, when the Federal
Reserve tries to push money out. We saw the consequences just today with
gold. A big move lower. GLD, the Gold Trust Exchange traded fund. Why
don’t you think this is a buying opportunity?

ELLIS: Well, first, if the Federal Reserve chairman has actually
taken quantitative easing off the table, this is quite a strong backing for
the U.S. dollar, and obviously, the relationship between gold and the U.S.
dollar has been a prominent one over the course of the last 12 months. And
then secondarily, it’s always been our mantra, until you can buy a Big Mac
and french fries with your gold coins, it just – it doesn’t really have a
place in our portfolios.

HUDSON: That is an interesting metric you have there for precious
metals. All right, speaking of which, how about grains? You do like
grains and the PowerShares Ag Fund, ticker DBA. The trend has been lower
over the past 12 months. Are you looking for value?

ELLIS: Yes, I think that’s exactly right. We’ve had very low carry-
out and very low ending stocks across the grain complex, combined with some
warm weather in South America. And you know, we’re just getting ready to
plan our crops here in North America. So at these lower levels, we’re
interested in the longer term picture for food.

HUDSON: You still see global demand increasing while supplies
inventories have been picked away, haven’t they?

ELLIS: Yes, I think that that’s right, and that really synchronizes
with the kind of global recovery scenario that we have as a backdrop here.
And that’s really why and where we see food as – it really does have an
appropriate place in the portfolio.

HUDSON: Speaking of inventories, natural gas inventories have been at
record levels due to the unseasonably mild temperature. UNG is the U.S.
Natural Gas Fund exchange traded fund. Why are you picking up nat gas at
these low levels? Just because you don’t think it can drop any further?

ELLIS: Obviously it could drop a little bit further because it has
been dropping, it has dropped a little bit further a couple of weeks ago.
The ideas here are two-fold. First, is that prices are at decade low
levels, and secondarily, both political and technological developments
could bode well for natural gas in the coming 12 to 24 months. And that is
the changeover to natural gas in the transportation fleet, in particular
trucks across the transportation sector, and then secondarily, it’s an
election year. And we have an abundance of natural gas, and there could be
all sorts of programs announced around that very rich resource here in
North America.

HUDSON: Let me ask you, do you have any positions yourself in the

ELLIS: We do, we are long natural gas and we are long some grains.

HUDSON: OK, you can email us questions at
Our guest this evening from Chicago is Lincoln Ellis.

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