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Sean Brazney Interviews CPM Group's Jeff Christian - April 2019 Part II

April 23, 2019
Video Transcript

Sean Brazney: Hello. My name is Sean Brazney. I'm here with Jeffrey Christian, Managing Partner of CPM Group. Thank you for being with us today, Jeffrey. I want to circle back to platinum and palladium. I did a video a few weeks ago talking about the relationship with palladium being at record setting highs at the time in the $1,500's per ounce level, basis to contract. Platinum trading about $100 off of its 10-year lows. Talking about an opportunity in platinum, we mentioned some legislation coming out, China VI, Bharat VI, legislation coming out in 2020 is maybe a potential catalyst. This was the auto industry potentially retooling back to the less expensive metal of platinum rather than palladium. Since then, we have seen a correction in palladium and seen platinum breakout of that lower range, but we're seeing some information come through from the news sources talking about the switch over in the auto industry to platinum, but we couldn't really find any evidence of that really happening. Is that bad news? Can you fill us in a little bit better on that?

Jeffrey Christian: No, it's not bad news. It's good news for platinum and it's a very interesting opportunity for investors to take advantage. The shift away from palladium and back toward platinum is occurring, but the issue is this, auto makers have no regulatory responsibility to disclose what their PGM loadings are and really since 1988 the auto industry globally has been extremely hesitant to say anything about their PGM use in auto catalysts. There was one fellow at General Motors in the late 1990's who was authorized to speak publicly about PGM use, simply because GM was tired of bad information circulating in the platinum market, but the auto industry has no regulatory reason to disclose this and it actually has commercial reasons to not disclose it. The auto industry does not necessarily want people to realize how much platinum they may be using relative to palladium going forward, because investors will trade in front of them. So, you'll never see a press release from an auto company or from the auto industry or from the motor vehicle manufacturers of the industry of association, saying, "Oh, we're moving more toward platinum and away from palladium," because it's not in their best interest to disclose that information and there's no regulatory requirement for them to do that. What you've been seeing over, I think, over the last few months is a lot of people anticipating that this shift is occurring and our view is that the shift has been occurring on a low level basis over the last couple of years, but going into the second half of this year with model year 2020, we think that you'll see... what you won't see, but we think there will be a more pronounced shift away from palladium toward more platinum, both in diesel catalysts and in gasoline powered vehicle catalysts. It won't be announced, but we think that there will be an increased use of platinum and a decreased use of palladium marginally within auto cats. And what you're seeing in the prices right now is investors and traders taking advantage of that and they're taking profits of their palladium and they're also taking the advantage of the fact that the platinum prices, as you say, been bouncing along a multi-year low for a long, long period of time. So, platinum looks attractive from a long-term perspective. Palladium looks less attractive, because it's already three times what it was a couple years ago...two to three times what it was a couple of years ago.

Sean Brazney: I'm going to shift a little bit on my question is. So, maybe it puts you a little bit on the spot. Looking for some sage old advice from obviously you and your history, long standing history in the commodities market, looking just at patterns in the market place. In 2011, we were hitting some historic if not all-time record highs in gold and silver. Now, we're looking at in 2019 an opportunity to see those prices much lower. When we're thinking buy low, sell high, buy weakness and sell strength, we often have the investor who likes to chase momentum and it's sometimes hard to get them to even look at a price when it's down. Yet, you can't talk them out of it when it's at the high side. Do you have some sage old advice for the investors to keep them from getting stuck in that pattern again?

Jeffrey Christian: You know, there are different ways to use precious metals. You can use it for capital preservation, but capital appreciation is how you really make a lot of money in it. In order to do that, you have to buy low and sell high. Investors have a natural proclivity to chase the markets. So, when the price is high or rising, they'll buy and when the price is falling or low they won't buy. It's a very nasty habit that's very hard to break for many investors. We benefit from the fact that we've always been value investors, but we tell all of our investors and clients the first thing that you ought to do is you have to be a value investor. So, platinum looks cheap right now, gold looks cheap right now, silver looks cheap right now. Palladium is very pricey right now. It makes sense to be loading up on platinum, gold and silver and not necessarily buying palladium at record high levels. The other thing that we tell them... we tell them many things, but another thing that we tell them is you have to understand these are commodities. So, gold can go to $1,900, because the economic environment is really scaring investors into the market, but it probably can't stay there for a multi-year time. We saw that in 2011. Gold went from $270 in 2000 to $1,900 in 2011 and back down to $1,180 a couple of years ago. That's because these things are commodities. When the price rises, you see mine production increase, you see secondary recovery increase, you see fabrication demand from jewelry especially in the gold and silver and also platinum and palladium markets cut back. So, these things are commodities. They behave like commodities. They rise and they fall and you have to pay attention to that kind of behavior in the market. I think those are two key ingredients that have led to our success, since the late 1970's.

Sean Brazney: Love it! You've got to be a value investor. Well, we heard it from Jeffrey Christian. Thank you very much for your time, Jeffrey today. It's always extremely valuable. We appreciate your input and your time. Give Monex a call today. Talk to our account representatives. Ask them for the CPM Group outlook on gold, silver, platinum and palladium. We would love to get the reports in your hands to help you look for these opportunities.

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