Analysis Of Commodity Prices - Nightly Business Report
PAUL KANGAS: With me now to discuss the recent activity in commodity prices is Bob Hafer,
director of the Bridge Commodities Research Bureau in Chicago. And welcome, Bob.
BOB HAFER, DIRECTOR BRIDGE COMMODITY RESEARCH BUREAU: Thank you, Paul.
KANGAS: You've concluded that the performance of the Bridge CRB Index over the next several
weeks could give very important clues about where commodity price levels are headed for the rest of
the year. Why is that? And what specifically are you looking for?
HAFER: Well Paul, as you can see from the chart on the screen, we're very intrigued by the current
decline in the index as we come down to retest the low we made on January 12th. If this test is
successful, we think there's a good chance the commodity prices have bottomed. And I basically have
four reasons for thinking that.
KANGAS: Okay, let's have number one.
HAFER: Number one would be we've had the Asian crisis on the front page of every newspaper now
for six months. And that 221 low in January was as low as the CRB Index could trade.
KANGAS: Okay.
HAFER: Number two, the mood in the commodity markets is pervasively bearish. About as bearish
as I've seen it in a long time.
KANGAS: And you're a contrarian then obviously?
HAFER: Well, when markets make important lows when people are bearish.
KANGAS: Understood.
HAFER: Number three, of course, we have the step up to the plate in the silver market by Warren
Buffett. This could prove to be very important. And fourth of all, we just have many commodity
markets sitting at historic price lows. The prices that look as though purchases at these levels could
provide rewards.
KANGAS: All right, well what would we purchase if, if we tend to believe your scenario that we've
seen a bottom? How do we go about making money on this?
HAFER: Well the simplest investment would be to buy futures on the CRB Index, that way you're
participating in 17 different commodities and you're not exposed to the risk of buying one market and
perhaps being in the wrong market.
KANGAS: How expensive is that, Bob?
HAFER: The margin on the CRB runs about $2,000 now depending on your brokerage firm.
KANGAS: Okay, and each point it moves is how much?
HAFER: It's $500 per point. For example, today the index was down a little over 2 points, Paul. So
that was a $1,000 per contract move.
KANGAS: So you could have lost that if you were long on the index today?
HAFER: That's correct.
KANGAS: But your thinking is that we've seen a major bottom and things should improve?
HAFER: Well it'll be interesting to see what happens over the next few weeks, as we are sitting
among the lowest levels we've seen in the last 4 years.
KANGAS: Bob, we appreciate your opinions very much.
HAFER: Thank you, Paul.
KANGAS: My guest, Bob Hafer, director of the Bridge Commodities Research Bureau in Chicago.
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