SUFFOLK
Five days a week, Dennis Gartman is up at 1:15 a.m. By 5:30 a.m., his The Gartman Letter on developments in the world’s capital markets is on its way to about 1,000 subscribers.
What Gartman strives to do in his five-page newsletter is keep traders and investors informed of developments that could influence their lines of work.
The Suffolk resident, who works from home, routinely covers the foreign exchange markets, debt markets and equities markets. In addition, “I write a fair amount on the commodities markets, which means that on some days I spend time talking about energy,” said Gartman, who worked at the Chicago Board of Trade from 1973 to 1984 trading Treasury bonds and notes, Ginnie Maes and gold.
Before launching his newsletter in 1987, he was chief executive officer of Sovran Futures Corp., a unit of the Norfolk-based banking company Sovran Financial Corp. that became part of Bank of America.
Gartman, who is routinely interviewed on CNBC and Bloomberg television, discussed the rise in oil prices, commodities markets and his work a few days ago with The Pilot.
Q. Before the fallback, the price of crude oil had climbed almost 50 percent this year. Why?
A. There are real forces taking the price higher, including political circumstances. There’s plenty of crude oil out there, but it’s not the kind that we want. The problem is that the world is very short of high-quality, low-sulfur, “sweet” crude. Who produces high-quality crude? We do. Mexico does. Nigeria does. We can ask the Nigerians to produce more crude, but they can’t because of political circumstances. Nigeria’s crude comes from one area, the Niger River delta. Members of the Movement for the Emancipation of the Niger Delta, the chief rebel group, conducted a four-pronged attack last month on an oil platform 75 miles out in the water. This is not the same group that we knew a year ago. These people have more money and arms. They are better trained, and they’re creating mischief.
Meanwhile, the world wants more diesel fuel. That’s in big demand, especially in China, because of mining and infrastructure needs, and you need good-quality crude for diesel.
Q. What’s the outlook for oil prices?
A. There’s a panic in the air right now, but it would shock me if the price didn’t fall. Everybody I know is driving less. Meanwhile, there are more proven reserves and more advanced technology to recover them. Petrobras , Brazil’s state-owned oil company, recently discovered some very big reserves off that country’s coast.
Q. Given the demand for gasoline and diesel fuel, are refiners going to expand their facilities?
A. No. Two years ago, crude was at $60 a barrel, and they were probably making $17 to $18 a barrel in refining margins. Now the price is at $140 a barrel, and if they’re refining gasoline, they’re making a buck. If you’re a refiner, are you going to expend any money to increase refining capacity to make a dollar? No.
Q. Why has so much money been flowing into the futures markets for oil and other commodities?
A. Money is coming out of the equities market. You used to have a flight to quality, and everything went into the two-year Treasury note. Now it goes into gold, West Texas Intermediate crude and even into soybeans.
Q. What about the burst of activity in the grain market?
A. People talk about how much the price of crude oil has gone up, but it’s nothing compared to the escalation in grain prices earlier this year. Spring wheat went from $3 to $25 a bushel in three months.
Q. Some members of Congress have blamed the surge in oil and food prices on speculators. How big a role have speculators played in the run-up of these prices?
A. You hear stories that a lot of “filthy speculators” are driving up the price of oil in the futures market. For each buyer in the futures markets, there is a seller. Speculators discover the price and provide liquidity for these markets.
On balance, the futures markets are very efficient. In short time spans, they can be erratic, but they provide valuable signals. The rising price of wheat earlier this year was a signal to bakers, “Hey, you’d better use less of this.” For farmers, it was a signal that, “You’d better plant more of this.”
Q. Members of Congress have proposed measures that would restrict futures trading by large financial organizations like pension funds. What do you see happening?
A. Given that this is an election year, Congress will do something, but trying to punish speculators or shut down the futures markets would be ill-advised. If you think shutting down the futures markets in the United States won’t cause the markets to move overseas, you’re naive.
Q. Where do you gather the information for your newsletter?
A. From news services, magazines, newspapers and readers. Conversations with readers are invaluable, and they often send me news items. I read the China Daily. Even though it’s government-controlled, they are pretty straightforward. The newspaper has a great sports section because the Chinese are the biggest bettors in the world. I also like the Moscow Times, but the two most important newspapers for me are the Financial Times and International Herald Tribune.
Q. In recent years, you’ve been interviewed more frequently on TV, including CNBC. Has that exposure had any effect on the newsletter’s readership?
A. I’m shocked by the effect. Years ago, if we grew by two or three new subscribers a month, I was happy. We’ve grown by 60 or 65 a month with subscribers from places like Indonesia, Luxembourg and South Africa.
Tom Shean, (757) 446-2379, tom.shean@pilotonline.com