Transcript:
Caroline Woods: Joining me now, Maleeha Bengali founder, MB Commodities Capital. Maleeha, Thank you so much for joining me at the desk.
Maleeha Bengali: Thank you for having me here. It’s a pleasure.
Caroline Woods: So we’re talking commodities. I think a good place to start would be oil, because we are seeing an uptick in oil prices trading above $61 right now. It seems like the US sanctions on Russian oil could be contributing to that. How significant are those sanctions and where can oil go from here?
Maleeha Bengali: That’s a great question. So we think the oil, the market. We’ve been for the last few years, because there really hasn’t been a shortage in oil. We just think the players have changed. Right the main contributors to OPEC has been Saudi Arabia, UAE. And I think what Trump is trying to do right now is to coerce Russia. But it just means the barrels will be replaced by Saudi and UAE actually contributing rather than losing barrels. The market gets a bit nervous. Oil is actually holding on $55 a barrel. It’s very cheap right now. So there’s a bit of nervousness because people are very short. Sentiment is very weak. We’re going into the winter northern hemisphere, but there’s no shortage. As we’ve seen OPEC has been releasing about 3 and 1/2 barrels. They still have about 2 and 1/2 barrels to come to the market. So this is just changing the player and getting market share. But markets a bit nervous. And that’s why oil is rallying.
Caroline Woods: But if there’s no supply issue there where do you think oil goes from here?
Maleeha Bengali: We think oil stays between 55 and 65. Once it gets to 65 whether we’re going to see a lot more supply come to the market. Because the demand side of the equation has changed Chinese demand. There’s a lot more storage on water. Chinese inventories are quite full right now. So we’re in that range below 55 gets a bit tricky because that’s when US shale loses money. So there’s a supply crunch below that. And there’s a demand crunch above 65. So it’s really rangebound. But like I said, I think for the last three or five years Saudi Arabia completely got their oil demand numbers wrong. Demand is very weak. And they need demand to pick up for oil to go to 100, but it won’t get there. There is no shortage of oil.
Caroline Woods: OK, so rangebound, but if it breaks out of the range, more likely to go below $55 or above $65?
Maleeha Bengali: That depends on the economic cycle. So if we are in a recession, which we think into next year, things will get a bit tough. It could actually break below 55 because the US economy right now is slowing down. We have the Fed cutting rates to stimulate so the labor market. But we’re not in a very sort of rosy economic scenario. We’re talking about stagflation. We can get into gold and silver later on. So if you have that scenario scare the low end of the range. Now if you get to a point where we get the roaring 2020s, then of course, oil can go above, but we’re not really forecasting that because looking at Europe, China and all the demand indicators, we’re right now on a softening economy as opposed to a reaccelerating economy.
Caroline Woods: And what points to that, aside from the data in terms of the commodities market, because commodities often lead right in terms of the economy?
Maleeha Bengali: So if you just look at where oil is, where, and we will talk gold or silver where commodities are. So I’m actually glad you asked that question because, you know, look at equities, bonds, and dollar. And that’s great. But commodity markets are physically led. That means today if either you have the barrels or you don’t, if you do the price can go to negative. If you don’t, it goes to infinity. So they’re very economically sensitive and very demand sensitive. So they sort of lead the market. Now oil like I said, there’s a bit of a glut. So prices are staying subdued. Copper has actually been staying quite flat to robust because there’s a bit of a tight end the market. It’s a bit of a deficit now gold and silver is a massive physical shortage. So we’re seeing prices rally. But I’m looking at a broad based quantitative factor model. We’re not seeing an acceleration on the physical side from a host of because we track every oil barrel and every gas flow. And our demand indicators are showing pockets of strength, but there’s no intermediate reaccelerating strength. So we think the commodity markets have been spot on. The big sort of canary in the coal mine here is the Fed monetary policy. I think the Fed is cutting interest rates, which we think they should not. The economy is holding in, you know, 3.2% right now, but they’re being forced to cut rates because of us interest expense, debt expense, to help the banks into lending rates. But there is no reason to cut the labor market is softening. But you can argue the break even rate of payroll growth is a lot lower in this new economy. So they are judging everything from the last four years and the Fed is reacting, but they think they’re being too preemptive. And that is why gold and silver is moving away it is, because they are cutting rates in a market where inflation is sticky at 3.2% It’s the wrong time because you’re cutting right now when markets are at all time highs. So if they do, inflation will get even worse. And gold and silver got a whiff of this last month. Bitcoin as well.
Caroline Woods: Is that why you are kind of forecasting economic weakness next year. Because as a result of the Fed cutting when they shouldn’t?
Maleeha Bengali: So the weakness comes from Trump tariffs. You know obviously Trump’s trying to get more power and get some money of that. There’s also just general US economic slowdown. Mortgage rates are really high. The US consumer is actually suffering. You know retail sales are holding up. There are a lot of economic factors at play after the last two years. We’re seeing a bit of a slowdown. But it’s robust. It’s not slowing down. But there is weakness in the economy. You know you talk about AI and technology. But we’re not really seeing everything at peak margins right now. So when you have a softening economy the labor market is imploding due to immigration policies. And just general AI being laying off staff, cutting the interest rates because we have a very debt ridden economy. We have $38 trillion in debt right now. And interest expense is $1.2 trillion. So as interest rates hold up high, the debt is very expensive for the US to service. But the Fed can’t cut that to lower the interest expense. So Trump is trying to obviously get other ways to pay for that debt. But you have this sort of chicken and egg scenario that if you cut rate debt gets even worse. And there’s all these theories about they need to inflate the debt away. So that’s just the fact that you have a slowing economy, but it’s not slowing enough to warrant a raise because the Fed has a dual mandate. It’s labor market versus inflation. But inflation is not at 2% It’s at 3.2% So they need to be vigilant and wait for a couple of months because the data being bad in August, September is not really that bad. So if they wait, it’s better for them, but they’re not waiting and they’re about to raise rates is a lot higher than the bar to cut rates. So I think that’s where the markets sniffed it out.
Caroline Woods: So we got your economic forecast out of the way or oil forecast. But let’s talk about gold because we’re seeing a bit of a rebound today. But gold had its worst day in some 12 years yesterday. Still pretty close to the highs though. So do you look at oil as more or I’m sorry at gold as more pain in store or was that just a healthy bit of a pullback and it was a much needed pullback?
Maleeha Bengali: OK so let’s continue to charge higher I think is the question. So gold is up 60% this year. It was up like another 30% last year. The reason why the gold market is changing for us gold is a mixture of a commodity a digital currency, a physical gold, a recession hedge, inflation hedge. And now since the Ukraine war, central banks around the world, especially India and China, are buying gold to diversify our US bonds because they’ve gotten very nervous as to what happened to Russia. So there’s a secular macro tailwind to gold and also a macro with the Fed cutting rates. So gold obviously in the last $300 or $400 move, retail side chasing the move. People who have been very agnostic on gold have been chasing it. There’s a lot of leverage. There’s a lot of option activity. So we got parabolic moves. Those people got flushed out yesterday because of the Delta and the gamma hedging. But we don’t think gold is actually coming down. It’ll probably stay here and sideline consolidate a bit. But if the Fed does what it is and we see the economy the way we predict in terms of stagflation, it’ll continue going higher. So we’re not bearish. But Yes 10% to 15% pullbacks are completely normal in a market that’s moved 60%.
Caroline Woods: Is that a buying opportunity?
Maleeha Bengali: So Yes, we have been long we’ve been pushing gold for a long time. Obviously, it’s good to take some chips off the table and do it, but we probably see it going down to 38,900. There’ll be a lot of demand coming in at those levels. So this flush out has been weak hands. But institutions are not selling out of gold. Silver is a very different matter. So you know, if you ask me what I prefer, I prefer gold or silver. But now there are other sort of assets like Bitcoin. Bitcoin has been a big thing for a lot of people. So it’s been actually lagging this year versus gold. So you can argue it’s two sides of the same coin. Which one has better value. But it’s about risk management. They all say the same story. But there is a physical demand tailwind from coming from Central banks. That really makes gold very appealing.
Caroline Woods: So which one has more value though?
Maleeha Bengali: Gold of course. You know Bitcoin is not really digital gold. It doesn’t really have a store of value. You can argue. You know gold is actually a resource of things go crazy. It’s real hard assets. Bitcoin is a speculative trade on the Fed cutting policy. We like Bitcoin. But you have to know it to be cognizant of the risks of what it is. And once you understand that it’s about risk management. And it’s going to be a mature asset class, still quite small as an asset class. But we see tremendous growth for Bitcoin as well. Just a lot more volatility.
Caroline Woods: Sure so just final takeaway then for investors as they think about adding commodities to their portfolio and also protecting themselves from what could be some more market volatility?
Maleeha Bengali: So people are used to train the 60/40, 60% equity and 40% bonds. If we view a stagflation scenario, inflation is going to kill bond returns. And bonds have done nothing. Equities will be sort of choppy as we’ve seen this year. They’re really rangebound and next year will be a lot harder because I’m talking about earnings, margins, all that stuff. Right so where do you get your growth and inflation goes up. You’ve got to actually diversify into commodities. And that gets tricky because commodities are very physical oriented, very opaque. So we recommend our clients to be allocated to precious metals as opposed to basic resources, because they are less economically sensitive. So we like gold, we like silver, palladium, platinum. But our preference is gold because the other ones have a worse deficits of demand, supply balance and a bit of Bitcoin. We won’t really go into altcoins because it’s very, very risky. So that’s how we’ve been pushing it. Silver I think we loved it a lot. But right now, the last, 10% or 15% you have to understand there’s, you know, the US, the COMEX, the LME and the Shanghai. There was no physical silver in LME vaults. When you buy an ETF, you have to have it physically backed. And in a very short period of time the banks couldn’t buy enough physical, which is why Essilor and parabolic. But there’s no shortage of silver also. And now what we’re doing is getting a bunch of boats, putting silver on and sending to the exchange. And Lo and behold, the price fell. Right so these are games we do because as we understand them, the retail is going, what happened. Why silver crash. So we got to be careful with silver. It’s quite speculative compared to the physical market. Gold is your best inflation hedge and I think it’s a portfolio an asset allocator. You’ve got to have some, performance in allocation to gold rather than just the tech stocks.
Caroline Woods: All right. We will leave it there Maleeha. Thanks so much for breaking it all down for us.
Maleeha Bengali: Thank you very much.
Caroline Woods: That’s Maleeha Bengali, Founder of MB Commodities Capital.