Victor Adair is a Senior Vice President and Derivatives Portfolio Manager for Man Financial Global Canada Co and began trading financial markets over 30 years ago and has held a number of senior positions during his long career as a commodity and stockbroker. He provides daily market commentary on CKNW AM 980 radio in Vancouver and is nationally syndicated on Mike Campbell's weekly Moneytalks radio show. Mr. Adair’s trading focus is primarily on the currency, precious metal, interest rate and stock index markets and his clients are high net worth individuals and corporations.
Me: Do you believe that we are in a commodity super cycle?
Mr. Adair: Let me preface this by saying I cannot predict the future. Regarding the question, my answer is probably so – we probably are in a commodity super cycle. However, I must mention that commodities don’t just include precious metals but also encompass grains, energy, cattle and meat products etc. On the demand side of the equation, a confluence of factors involving rapidly growing economies in emerging markets and with global economic activity in general firing on all cylinders, the demand for commodities is substantially higher than it was 10-12 years ago. On the supply side, for the longest time, commodity production capability from raw material through to finished product has been neglected. So at present, the bull market in commodities has been fuelled by the supply side of the equation not being able to meet the demand side and I think the imbalance will carry on for some time.
Me: Are there any indicators or points of reference that you use, to figure out which futures contract you want to be long or short?
Mr. Adair: I’m rather undisciplined in how I make my decisions. If discipline is defined by having a checklist, I do not have a checklist. I read lots of research that is written by some very smart people but that usually ends up leaving me confused with all the differing opinions. But since I do need to have an opinion before executing a trade, I usually rely on my chart reading skills. I will not enter a trade without looking at the charts because price action represents the sum total of fear, greed, bullishness and bearishness of all participants in the market and who I am I to argue with that. Unlike market strategists who form a thesis and tend to rationalize their thesis even if the market is moving against them, I have no problem exiting a trade if the market moves against me. I consider myself to be a cynical contrarian.
Me: What if any, futures contract has the best risk to reward profile for the next 6-9 months?
Mr. Adair: Once again I’d like to preface this by saying that I cannot predict the future. My guess is that in the near future, interest rates around the world go higher and betting this way would give you a pretty good risk to reward spread. You can think of the risk as X and the reward as X+. I would trade the bond market because the long interest rate markets affect everything and are affected by everything. I would bet that long term (l0 year yield on US Treasury bonds) interest rates, which currently sit at around 5%, would increase to 6% in the next 12 months. If this trade works out, this would mean that the US dollar moves higher and commodities as a group move lower.
Me: So what contract then, has the worst risk to reward profile for the next 6-9 months?
Mr. Adair: Housing prices! Regardless of where you are located in North America the risk to reward of buying a house is skewed towards the riskier side. You can think of reward as X and risk as X+. Rising interest rates worsen the housing situation and I’m not saying that housing prices are going to zero but chances of prices going down are better than the chances of house prices going up.
Me: Thank you so much, Mr. Adair.
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