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What’s Bugging Dennis Gartman

Farmers Will Love Some of These Predictions

Dennis Gartman can stir things up. His daily commentary on global capital markets, The Gartman Letter, addresses political, economic, and technical trends. We caught up with Gartman to see what's on his mind. (There is good news for farmers.)

SF: What is top of mind?

DG: Trade tariffs, fears of trade tariffs, and rumors of trade tariffs. We will probably end up with NO additional tariffs, but the debate is raging. This is a very strange president and he is likely to do anything and everything.

SF: What if additional tariffs do go into place?

DG: Then it’s devastation. Tariffs are a nasty, vile, horrifying, stupid, illogical, dumb decision. I don’t doubt that this president has the ability to do that, but it will be devastating. It will be devastating to the farming community, to land values, to the stock market, and to the economy in general.

SF: He still has support.

DG: Strangely enough, a large component of his base is the farming community. Why it supports him is beyond me. He is detrimental to farmers. Free trade, trade without tariffs, trade that is freer is always beneficial to the farming community. I voted for the man and he embarrasses the hell out of me.

SF: What do you think of building a wall?

DG: I’m a far right-winger, but I am one of the few right-wingers who believes that the way we treat immigrants in the United States is devastating. The farm community needs more labor, not less labor. The labor we get from Central and South America does jobs we don’t want to do. They are the farming community’s backbone and clearly are needed. The attempt to put up a wall is deleterious to them.

SF: What else could affect farmers?

DG: The relative cheapness of commodity prices to almost any other asset in the world, including real estate, equity prices, and the debt market. Commodities are extraordinary inexpensive. Corn, wheat, and soybean prices are as cheap as they are going to get. They could get 15% to 30% higher over the course of the next year. I think that is reasonable, rational, and really quite likely. I put my money where my mouth is. I am the chairman of the University of Akron’s endowment committee and I am making sure we are moving more of our assets out of the equity markets and into commodities in general.

SF: Any thoughts on land?

DG: The value of land will get cheaper, not more expensive. I’m not a great believer that land values are going to go higher. The technology of farming is advancing at a faster and faster pace. It’s astonishing. The public has no idea how good American farmers really are.

SF: What else should farmers pay attention to this spring?

DG: Pay attention to crude oil prices. The United States is now the largest producer of crude oil in the world, surpassing the Russians and the Saudi Arabians last year. The probability of crude oil rallying much beyond $60 a barrel is slim. It could fall from those levels. The cost of running your machinery is not going to go higher, and it could go lower.

Until four years ago, driving miles in the U.S. went up at a consistent pace since 1947. Now the trend line is falling. There is no question people are driving less. It’s Uber and Amazon and Netflix. People are staying home. It is an amazing phenomenon that is not going to change. Fuel prices probably are not going to get any higher.

SF: You’ve always followed the fracking industry. Is it here to stay?

DG: Fracking gets a bad name. It has changed. Ten or 15 years ago, wildcatters were lucky if 50% of their drilling hit crude oil. Now it’s 95%. It’s astonishing. Now, instead of a rig sending down one pipe to look for crude oil, it sends down that pipe and then bends it into 16 different directions for miles. It’s called horizontal drilling. We are sucking crude oil out of the fingertips of reserves in the ground that 10 years ago we couldn’t get to. It’s just amazing what’s going on.

Look at the number of drilling rigs on the Pennsylvania-New York border. New York does not allow you to drill for crude oil or natural gas, even though it has one of the biggest reserves in the U.S., the Marcellus shale. It’s a rock formation that’s frackable. There are hundreds of drilling rigs on the Pennsylvania-New York border. Each one of them says they are not drilling into New York. Bull. Of course they are.

SF: Could we see a general recession in the economy?

DG: If we put into effect greater tariffs, there is no question we will have a recession. If we do away with the tariff fears, the economy will probably expand.

It also depends upon what the Federal Reserve does. I focus on the Fed’s assets. The Fed began adding to its balance sheet, called quantitative easing, in 2007. It bought treasury securities from the treasury, writing checks to itself, which is what central banks can do. From 2008 to 2015, the Fed expanded the adjusted monetary base from $800 billion to $4.3 trillion.

Sooner or later, those assets have to be run down. You can’t continue to expand the supply of reserves that fast. The Fed is now in the process of allowing those old treasury securities to run off. If you take your foot off the gas pedal that doesn’t stop the car from moving forward, but it slows the car. It’s frightening to the stock market, and a frightened stock market is detrimental to the economy. If the Fed begins to sell treasury securities and reduce its assets that way rather than allowing them to mature off, no question we would run into a recession.

All that said, I don’t think we are going to have a recession this year unless the president pushes through more trade tariffs. If he does, no question we shall. He will blame it on the Chinese.

SF: What else keeps you up at night?

DG: The one thing that really bothers me is the burdensome nature of college debt. When I went to college, the dorm room was lucky to have a fan. Now these colleges are competing with one another and the dorm rooms look like the Ritz Carlton. Young people are graduating $150,000 in debt. It’s not dischargeable in bankruptcy, it has to be paid off, and they are deferring purchases of housing. That is a real problem. Something has to be done and I’m not sure what can be done. I would be angry if the loans were forgiven, because I paid the full boat for my kids to go to college. It’s a problem that wiser heads are going to have to deal with.

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