Bloomberg Hedge Fund Summit 2012, next up is Dwight Anderson, Managing Partner, Ospraie Management, LLC, the famous commodities hedge fund.
Dwight notes that platinum should never trade at a discount to gold, since it is scarcer and much harder to extract. However, the demand side has created this market inefficiency. Additionally, central banks buy gold not platinum. Supply is down 10% in South Africa, which is 80% of the world’s supply. It will take a long time for supply to catch up when demand takes off.
Ospraie has found extremely cheap options on platinum and palladium, and have bought calls on both of them. They are attractive on a risk adjusted basis.
Dwight is still long farmland and other hard assets. There is a great real return over the long term, because it has actually cash flow, as opposed to commodities like soybeans. In 2008, the problem was not that people were invested in illiquid assets, the problem was the leverage. Many pension funds are now buying farmlands.
Dwight notes that we have had three bad corn seasons, and there has been a 25% change. The prices have to go up since demand is increasing and supply is not increasing.
Dwight’s notes that cheap volatility makes hedging extremely cheap, so that can hedge against some tail risk. However, problems in countries like Yemen and Syria make things totally unpredictable.
Many resources cannot be replaced at all, but management always seems they are worth more. That is a problem with some commodity companies.
Dwight is asked about Olam International, which he calls aggressive, but he cannot call it a fraud as Muddy Waters has claimed. However, Dwight thinks that Singapore’s Government might put the money up to prop up Olam.
China had zero percent growth, possibly negative growth. China is getting better according to every indicator.