We recently had the chance to ask Mish Schneider questions related to her views ranging from Gold to Silver ratio to fake burgers. Below is our Q&A but first a brief bio:
Mish Schneider is one of the original female Wall Street trailblazers, a former NY Commodities Floor trader and one of the top 50 financial people to follow on Twitter. Mish’s just released book, Plant Your Money Tree: A Guide to Growing Your Wealth, is a #1 New Release on Amazon in Intro to Investing, Retirement Planning and Business & Finance.
Many value investors have given up on their strategy over the last 15 years amid concerns that value investing no longer worked. However, some made small adjustments to their strategy but remained value investors to the core. Now all of the value investors who held fast to their investment philosophy are being rewarded as value Read More
Q&A With Mish Schneider
You called the bottom in agricultural and soft commodities three weeks ago. Was that macro, technical or fundamental?
All 3. Technical in that the softs and ags are way oversold, plus had what we call a slingshot pattern with volume at the lows. Macro, in that the ratio between stocks and commodities are at a 100-year low with equities showing signs of weakness, this ratio is not sustainable. Fundamental in that in spite of tariffs, farmers are getting a $16 billion aid package and weather in the US and Brazil are factoring in. Plus, should any of the potentially chaotic situations play out-Iran, North Korea, China, the WH issues, etc.-commodities tend to run up.
You are not a fan of gold why is that?
At this point, I am watching the gold to silver ratio. When silver outperforms gold, then my interest will increase. At this point, both metals are in negative phases.
Modern Monetary theory is that deficits don’t matter until they do matter. The Fed and central; banks worldwide have broad abilities to make up for the dysfunction of government policies and rising deficits.
Is this a long term or short term view?
Short-term view, depending upon what happens with inflation numbers, the Fed policy and geo-political concerns.
Why do you think gold has not moved much in past 10 years despite massive debt issuance around the world?
Because of perpetually low interest rates, money has flowed into stocks seeking a return. And, there is no visible inflation yet. Combo of low rates and low inflation, not great for gold. Furthermore, although there are pockets of geo-political concerns, nothing has ballooned.
Looking at the Dow: Gold ratio, it used to take one ounce of gold to buy one share (1:1) of the Dow. In 1980, gold hit 850 per ounce and the Dow was around 850-900. Now, Dow is at 25-26K and gold is at around 1200. So, Dow is 20:1 to gold.
Crypto has emerged as well as an alternative play to gold.
How does that compare to your views on silver?
Silver has a double function-industrial and inflation hedge-so very similar to gold which is why I am waiting for the silver to gold ratio to flip
What about cash?
If you’re old school, stuffing cash into a mattress sounds safe. But, if the dollar value declines and interest rates stay historically low, then holding cash in a mattress or in a bank is a negative.
The size of the crypto move off the lows tells us that there is something meaningful going on in alt currencies.
The changing regulatory stance, increasing adoption and acceptance, and investment in Bitcoin start-ups and products are cumulatively increasing confidence in Bitcoin. However, it is still in a nascent stage with price volatility and an uncertain stance regarding taxation and legality.
2 ETFs to watch are GBTC and BLOK.
What do you think of other precious metals such as pallidum and platinum?
Platinum has not done well. Looking at a 5-year chart, Platinum sits at around $800 and not too far off the historical lows. Platinum used to be twice the value of gold. Now, platinum is trading at a ratio low compared to the price of gold. Platinum is an industrial metal, and it’s specifically a car industry metal. So it shares no common drivers with gold, and there’s really no reason why platinum should be more expensive than gold.
Palladium has done a lot better, having hit an all time high in March 2019, and ow retracing to around 1150-1200, where there is technical support based on the 2017 highs. This now has taken over from platinum mainly because it used in petrol cars. Platinum is used in diesel. (catalytic converter).
At some point – as is always the case with industrial commodities – it will become profitable to substitute palladium for something cheaper. The obvious candidate is platinum.
The tricky thing is knowing when that point will be reached.
Fake burgers and diamonds are in the news, does this impact your view on the potential to create synthetic gold or silver?
It all boils down to whether people prefer buying a cheaper, synthetic version rather than the real thing.
The buying patterns of the Millennials suggest that buying synthetics that are cheaper could gain traction. For example, in a recent poll, 70% of millennials say they will consider buying a lab-grown diamond engagement ring. Millennials are exceedingly responsible consumers, but they are value consumers too.
In recent years, consumers have been asking more and more about how their burgers are made. Climate-change debates have put traditional meat processors on the defensive and companies producing meat substitutes, from Quorn to the Impossible Burger to Beyond Meat, have made raising questions about traditional meat production—from greenhouse gas emissions to animal welfare—an important part of their marketing strategy.
As a vegan, I am delighted to see fake burgers making headlines. The IPO Beyond Meat, was rolled out to huge success, but has sold off since it reached a peak week of 5/17. With the swine flu affecting a huge population of pigs in China, the purchases of cows and chickens have gone up. Question is, will these prices rise enough to engender folks to buy an alternative meat product? The Millennial generation, with the social consciousness, could help the industry blossom in years to come. For now, I would watch the trend, but not necessarily, jump in to invest. Beyond Meat says its sales have surged to $87.9 million in 2018, from $16.2 million in 2016, admittedly still a small part of the U.S.’s $270 billion meat market, as it seeks to appeal to mainstream eaters.
De Beers’s diamond sales plunged to the lowest since 2017. Diamond miners are struggling across the board, especially those producing cheaper and smaller gems where there is too much supply. Plus, Sandvik Additive Manufacturing has created the first ever 3D printed diamond composite. The stones lack sparkle but are perfect for a wide range of industrial uses, says the company. The advantage is that the diamond can be 3D printed in very complex shapes, unlike mined or manufactured diamonds.
Impact on creating synthetic gold and silver? Currently, gold can be created from other elements. But the process requires nuclear reactions and is so expensive that you currently cannot make money by selling the gold that you create from other elements. Industrially, the future for synthetic metals will help reduce costs. As a hedge for inflation, people will want the real thing.
What about central bank purchases of gold and silver?
Russia has been the biggest buyer because it is de-dollarizing its reserves. Russia and other countries that are buying metals are doing so to hedge against changes in the international finance system.
Gold purchases and the reduction of buying in US treasuries by both Russia and China- has been going on for a while. But it is not enough to propel the gold market into a bullish one at this point.
Any views on rare metals?
Rare earth metals are used in computer memory, DVDs, rechargeable batteries, cell phones, catalytic converters, magnets, fluorescent lighting and much more. China has the most rare earth minerals with Brazil second and Russia 3rd. The US is 7th.
As an issue in the forefront because of the trade war with China, I would personally avoid investing in anything that moves due to political footballing. With fake news, skewed facts, and a potential overblown level of importance, best to stay away.
Related will a trade war impact import or Chinese demand of precious metals?
If a trade war sparks an overall recession, that will lower the demand for metals. However, the outlook for Chinese demand may also be boosted if China’s trade dispute with the United States continues, as retail investors are likely to fret about the probability of yuan depreciation and may seek to buy gold as a hedge. Plus, if China stops buying US dollar, that is very bullish for gold.
Can you tell us about your background?
I have a master’s degree in special education. In late 1979, making very little money as a special education teacher, I saw the chance to change my life. I grew up in a low middle-class household that never talked about Wall Street or investing. When I met a woman who worked for Merrill Lynch on the floor of the NY Commodities exchanges, she took me to see the floor. It was then and there I discovered what I wanted to do to improve my financial status-work on the floor-so I hustled to get a job and finally did at Conti-Commodities as an analyst in Coffee, Sugar and Cocoa Exchange. I knew virtually nothing and learned everything I could-or what is called Baptism by fire!
What drew you towards Wall Street?
I did not know I would be drawn to Wall St until I went to see the floor. Then, everything I had not thought about before became a focus-making money, having a finger on the pulse of global events, working closely with thousands of people, mainly men, improving my financial status from broke to independently wealthy, all of this at once became possible. As an athlete, the physicality of the floor appealed to me as well. I liked being on my feet and learning to think fast. In school, I excelled in math, particularly in geometry. When I saw numbers flying across the tape along, in order to make sense of the patterns, I began to draw point and figure charts, eventually learning about bar charts, and high probability patterns that formed on those charts. I learned to compare short term price movements within a longer-term trend.
Has it been an advantage or disadvantage being a female in a male dominated environment?
Both. The disadvantage was my physical size. I could not compete in the “pit” when it got very active. Nor could my voice be heard. I would give my orders to someone if the noise level made it hard for me to yell. Sometimes I would blow a schoolyard whistle to get attention. As far as being a woman in a man’s world-I found most of the guys extremely welcoming, with a few exceptions of course. In the coffee pit, I was constantly thrown out of the ring once I became a member under the excuse they would not allow charts in the ring. I was brought up on charges and appeared to testify in front of the membership committee. The man who brought me up lost. The committee ruled it was perfectly ok to keep charts in the ring-it was a victory for chartists-but really-for me as a woman as well. One aspect I rarely mention is the social norms of the decade. The 80’s were wild in every way. So for me, I had to navigate how involved I should be with the after the market scene-enough to be considered fun, but not too much to be labeled a party girl. Socialization was a big part of doing business.
The advantages were that because of my smaller size, I learned to chart-and soon became considered one of the best chartists on the floor. Other traders consulted me all day long on what I saw in the charts. That charting skill is what has endured once open outcry ended and electronic trading began. Another advantage was that I got quite the education on the ways of men-witnessing the “locker room” mentality, gave me an understanding about men’s behavior. With that understanding, I have made many life-long male friends. I also appreciate the differences between men and women without much judgement.
40 years later, this past April, I went to a reunion of COMEX and NYMEX members. As one of two women members who showed up, the respect those men expressed for me was beyond gratifying. I chose the right path with zero regrets.