Peter Boockvar - Commodities, Volatility, and the Next Macro Shift

Hey everyone, welcome to the KE Report in a daily editorial on Tuesday, February tenth. We're kicking off the day with Peter Bukvar. Peter is the Chief Investment Officer at One Point BFG Wealth Partners. and editor of the book report on Substack. I'll post a link to Peter Substack in the show notes.

Peter, I want to start off by kind of going around the horn on commodities here. We've seen a lot of volatility in almost all commodities. And some questions around the precious metals after recent drops from all time highs and more so just what happens with precious metals and some of the other commodities.

from here out and then I also want to get a bit of a earnings recap from you. So let's start with Gold and Silver. They were trucking higher. They started this year very well. The last year they were outperformers. And silver went on a blow off top potentially, some sort of parabolic move that reached a hundred and twenty, over a hundred and twenty dollars an ounce.

And then had a historic drop m not this last Friday, but the Friday before. Peter, what do you make of the volatility in the precious metals first? Well, I think we know that a a parabolic move is never a sustainable chart pattern. And while it can keep on going in that vertical move, uh it eventually comes crashing down. And that's obviously what we saw. I still think that the underpinnings of precious metal bull market is still intact.

But when you get a price move like that, it certainly pulls forward some future returns. Silver we know is uh highly It it it's gold on steroids and many years it does sits there and does nothing and then all of a sudden it decides to have an epic party. And we know that silver had an epic party. So I think that after this pullback, we're in a period of

uh digestion and consolidation that could last a couple of months, maybe even more. But I do think that we will eventually start building a base again for both. And when that finally starts to develop, then I think that it'll be more safer to uh to be long. Again, I still think that the underpinnings are still there, particularly in the supply-demand side with silver and certainly.

the desire to own gold in a soft dollar central bank diversification type mode that we're in is is I think will continue. But we have to acknowledge again that prices got a bit out of control in the short term. Yeah, Peter, it was quite a move to the upside and the downside, but it's created this really wide range. Have you ever seen a range like this?

Where there's a twelve hundred dollar spread in the gold from fifty-six hundred down to forty four hundred and silver got up to one twenty-one on the futures market, got all the way down to sixty-four. just the end of last week. Now it's back up to eighty three, eighty four for silver as we record this and and gold is back up to fifty one hundred. But with that big of a range, does it bring in more volatility? Does it smooth out? Do you think generalist exit that

Maybe think it's a little too wonky for them. What are your thoughts on the range here? Well, I think the wide range is gonna sort of define the level of volatility we're gonna see until things calm down. At some point we're gonna calm down and that range will shrink. and we'll get more of a narrowing of those ups and downs. And what that range eventually settles out at, we don't know, but I think it will be

telling uh when that that occurs because then you can be more comfortable that we're pro probably closer to a bottom rather than than uh anything else. So I mean when you again when you get such big moves I I I guess it's You get these kind of of ranges where it's great for traders. It's going to be uncomfortable for those buying holders. But I think that that's gonna be part of this.

of this bull market. Just as, you know, stocks crashed in nineteen eighty seven, but it wasn't the end of the bull market. The question though is is this the crash in nineteen eighty and two thousand eleven and then we're gonna go into the into hibernation again? I actually don't think so. So I think that uh there is gonna be a buying opportunity again ahead, just not yet.

What do we have to look for on the downside? Everybody is still pretty confident. You look at the long term charts, you look at the long term narrative, that gold and silver are going to bounce back, but what would happen that would maybe change that outlook? I think Kevin Walsh who comes in and and is a real hawk and and defies Trump and decides not to cut interest rates. On the balance sheet, I do not think he's gonna shrink it further. I think he's just gonna be more judicious.

in using it incrementally, but I'm less worried about the the balance sheet side. So I think that that would be the risk. The risk also, there are a couple of other risks. What happened okay, so the Chinese wan is actually traded very well this year. It's uh near the highest level against the US dollar since uh I think you have to go back to mid twenty twenty three. But what happens if that currency strength continues?

Maybe the Chinese will feel less of a need to own gold. We know China, the Japanese, the South Koreans, they've been big buyers of gold. If their currency strengthened, maybe there'll be uh less of a bid from them. One of the big buyers of gold has been tether.

What happens if Bitcoin rolls over again and Tether is forced to uh not just uh to stop buying gold, but what happens if they eventually get redemptions and they need to sell their gold? You know, those are the things that could reverse this move and the things that I think any bull uh needs to always be watching their back for. And if I missed anything, please add.

To it. Well, Peter, I think that uh the big driver has been global central banks of gold and then silver obviously eventually followed along. Do you think there's anything on the macro landscape to cause them to quit buying gold and go back to adding in more fiat on their balance sheet? I think as long as Trump is president, they'll continue to want to buy gold.

So I guess we still have a three year window uh with that because I don't think that his approach to our foreign trading partners uh is gonna change. But if it did and we woke up one day and central bank said to the world, okay, guys, we have enough. We don't need any more, uh, that would certainly mark the end of the bull market in gold.

Let's also talk base medals, but even tying in critical medals, strategic medals, they're all becoming kind of one in the same because It seems like so many countries right now are focused on building up some sort of inventory or some sort of consistent repl supply for their own domestic needs.

It's almost like globalization is coming to an end where instead of sharing stuff, everybody needs to hoard it for themselves. Is this or what is your outlook for base medals? But even tying in that whole narrative around critical and strategic metals. Yeah, I I think that that the hoarding is the right word because I think that's what is going on here. Yes, there are certainly demand dynamics and

supply imbalances for some of them. But yeah, it's that wording that I think has given these uh all a bid. I still think that that continues. And I think that the industrial and precious metal bull market, even though it's obviously taking Uh is gonna widen to the right.

And uh I think we've all been alert of owning this stuff. I mean, even China, if you take oil for example, they've been big buyers, crude oil, not to not to use necessarily, even though obviously using a lot of it, but to in Petroleum reserve. And it seemed like every day I'm reading about somebody that's gonna be creating a copper reserve and this reserve and that reserve and

The world has become a less reliable place trade-wise. So yeah, you need the stuff to function as a society. So you better get your hands on it before somebody else does. Well, and if we think about critical minerals, there's the energy component, so you need things like copper, uranium, lithium,

nickel for battery energy storage, wire transmission, AI data centers, all that side. And then there's the strategic side or the defense side where some of it like antimony or tungsten or rare earth you need it for defense. missiles and for weapons. So how much of it isn't just the end of globalization, but it's almost like the tensions of a a World War Three scenario, not necessarily a hot war, but a resource war.

I think that's exactly right. I think when Raytheon called the White House and said, if you keep this trade war up with China and we can't get our magnets from them, there'll be military equipment that we can no longer produce. And then that call was followed up by the CEO Ford, if we don't get these magnets, we're gonna have to shut down production in two weeks.

So the trade war is over with China, with with the US, for these exact reasons, until there's a steady stream of supply of these crucial things that we can either produce or source without China's influence.

Peter, let's go to energy then. I know and you've been on the show a number of times over the tail end of last year saying just how much you like the setup in oil. Quite frankly, just how cheap it got compared to so many different other assets and other commodities.

Oil's had a little bit of life. Uh recently, and boy oh boy, there's a lot of geopolitical news or at least noise that keeps it on people's radar. What do you think about crude? What drives crude from here and What levels could it get to? I mean, I don't know how much more bearish stuff that the world can throw crude oil and it's it won't really sustainably break below sixty. I think OPEC is done raising production. I think you got serious depletion issues with many basins in US shale.

You can see that in uh the production numbers out of a bunch of them. Uh you can see that with uh the still very low level of of writ the rate count. Uh I think people understand that getting oil out of Venezuela is going to take many, many years. I think demand is still pretty steady at a million plus barrels a day. You now understand you you have incremental demand of a million.

you have depletion of about five percent. So that's about five million barrels. So the world needs to find six million barrels of incremental supply every day. to just to sustain and meet the level of demand. So I think we've been in a long period of underinvestment. At least US oil companies have more folk now, they're certainly exploring out there, no doubt, but they've certainly allocated a lot of capital to stock buybacks and dividends and less so on exploration and production.

So I think we're lining up for a bull run in oil prices. I'm not smart enough to know when it starts, but I see a lot of things lining up to cause it. Uh whether it's sentiment, positioning, fundamentals, supply demand uh imbalances, and so on. Peter, are you surprised by how well the US producers have held up all things considered? When I look at the ETF XLE, one of the spider ETFs.

It's up near all time highs and has been running for years now. It's really been running since twenty twenty one. It's really been running since the pandemic crash, but it's dialed up so much better than the oil price. If oil prices do rebound, what does that mean for oil stocks? Well, that that's that yeah, yeah, you're exactly right. Uh I think a lot of these companies have really focused on

Profits. The US shale, similar to AI now companies, uh every dollar that came in in revenue went out in CapEx. And they were awarded for a period of time and then they got punished. And then a lot of these CEOs, and we saw that in the mining sector too, got religion that under any oil price circumstance, we need to generate profits. We need to become more reliable.

And yes, we can control our end the price of our end product, but we have to position ourselves to be profitable in any sort of price macro landscape. And I think that that's the case. They these be these have become in a way more reliable stocks. And now that said, you break below fifty. Uh, you're gonna see uh most of US shell uh that can't make money. Uh the Saudis will be screaming uh because they still need uh an elevated price of oil.

So I just think that people view now that this all said, energy stocks are only two point nine percent of the S P five hundred. It it's rare in history that it's ever been this small. So while the stocks have held up as a portion of the S P, they're still historically very low. So to your other point that if oil prices do go to seventy five, eighty-five, ninety-five, which I think they will, Uh they are set up to really gush profits, no pun intended.

What about all commodity stocks? We hear no matter what sector we're talking about, precious metals, base metals, these energy stocks, we just keep hearing due to current prices, all these stocks are undervalued. What would you have to say to that? Well, I think they are and I think that that is I think we're seeing a a a supply response from a bunch of different producers and you see that in the recount and so I I I think that can produce earnings and cash flow.

in a d in the bottom of a cycle, that's usually a good time to buy. You can't necessarily get your timing right. Uh, but you take chamico at the bottom of the uranium cycle. The balance sheet was really good. uh they cut production, they were making money and you knew that, hey, prices at seventeen dollars a pound was not sustainable, but if they can survive that sort of

quote unquote nuclear women turn no pun intended again, that just imagine money they would make on the upside. So uh I I think we're setting ourselves up for that same situation.

Peter, just curious as far as you talk to a lot of generalists, you reach out on your sub stack to a lot of generalists and a lot of them couldn't spell commodities just a year or two ago, but because of all the executive orders and some of the things in the fiscal bills, both in uh the Biden Inflation Reduction Act and in Trump's big beautiful bill there was

things uh there was money set aside to help mineral development in the US domestically. You see it in the news all the time, out of Europe, out of Australia, out of Asia, with the whole world now thinking about where stuff actually comes from and where supply chains actually connect.

Do you think it opens a broader universe to the point you just made about oil stocks being underallocated? Do more generalists find the commodity sector and rotate out of some of the overpriced tech area and into this sector? They will follow what works. Rather than the rest of us. trying to figure out what will work and then hope that it eventually will. So yeah, they'll chase it just as they chased gold and silver uh in the back half of twenty twenty five. And because they saw the price and

Uh, you know, you have the average person that said, Wow, it's going up and let me buy it. Uh, and let me find uh, you know, a big cap uh miner like Newmont or Barrack that I can buy. So yeah, it that that's just the nature of of That's human nature when it comes to markets. And a generalist is, you know, commodities aren't really exciting, even though they're powering everything that you just

earlier talked about. You know, I you talk to somebody who thinks that Nvidia and Google and and Micron and Sandisk are much more exciting. about what it's like to mine copper, you know, they're obviously less interested in that. Of but of course you need to mine copper in order for the other things to be creative.

Yeah, it's so true. That is commodities though, right? They're kind of at the in a way bottom of the food chain. They go into everything, but then you forget about them because they're not what is necessarily staring you in the face. when you do think of or look at different technologies or really anything. But

It just seems like the way the world has shifted now with countries again hoarding their own metals, it's put a lot of these investments back on the radar. Okay, so commodities broadly sounds like you like We are through a bit of Q four earnings season, still fairly early on.

Some of the estimates that I've seen and forecast for these earnings have been sky high. And it seems like a lot of these companies are hitting a lot of the estimates, but the estimates are so high that they don't seem to be surprising the market to the upside. And we've actually seen, I feel like, more sell-offs rather than pop. so far in this season. What are you seeing out there, Peter?

Every single earnings season, you'll have about seventy-five percent of companies beat earnings per share. It's one big uh expectations game. And uh we've seen that over and over again, and that's the case now. Just the question of what the positioning is going into an earnings season.

And whether uh there's surprises to that or not. I think overall earnings, yeah, they're they're good again. There will be up double digits and you know, it's been an impressive performance with corporate America. But again, it's it's where the bar is set. going into that level of beats. And also the revenue side is a key focus because there are many ways of of sort of manipulating the earnings side, whether it's through stock buybacks, charges, restructurings.

stock based compensation and other things where revenue can't fake revenue. But I think overall, yeah, it's another good earning season. I think On one side we're seeing uh a slowdown in hiring. uh which has an economic impact, but on the other hand, uh taking on less labor costs. helps to improve profit margins. uh that are obviously impacted by other things too, but like tariffs. But I think that's one thing that's also helping and

And also it depends on where you're exposed. If you're exposed to global growth, then you have more opportunities than one that's just domestically focused. Are there any sectors, Peter, that you feel are really set up for a bigger twenty twenty six than maybe in prior years or maybe compared to other sectors? Anything you're looking for strength in the year to come?

Well, outside of of energy and ag and hopefully precious metals at some point, the the group that I love Uh that's I'm sorry to disappoint those that are looking for exciting things, but to me, consumer staple stocks. are really cheap. They were thrown out the window last year for good reason. Their volume challenges, there's pricing power challenges, but I think these stocks got have gotten so cheap. that uh along with really nice dividends, uh

They've had a good start to the year. And I think that uh it's also could be a good defensive part of one's portfolio if there are any uh bumps in the road in this whole AI trade, which I'm beginning to see some hear some bells ringing. Can those type of stocks hold up the markets then or are we looking at the thing? No, they certainly cannot hold up the market, but they could be more immune uh to other parts of the market.

So are we seeing a broad shift defensively then? Do you think growth is off the table now because AI is starting to fade in people's minds? I think AI growth is beginning to slow, particularly with the hyperscalers, as investors reassess the free cash flow generating power of these businesses that are shrinking relative to their prior history.

Peter, you've talked a lot about the impact of tariffs and how some of it has been passed along to consumers, some of it's been eaten by the importers, but uh you know you write about it a lot. Any new trends that you're seeing as far as how tariffs affect the punch bowl here? I think tariffs are a big problem for a lot of small and medium sized businesses. Big companies can offset it. Big companies have leverage. Big companies have a lot of optionality. Big companies can shift factories.

Small and medium-sized businesses that source product from overseas have gotten really beaten up by these tariffs. And I hear about it all the time, whether it's anecdotally from people I know who are reading through a lot of earnings costs, it's still around and there's still gonna be an influence in 2026 and both in terms of the cost.

pressures and also the pass through. Now some businesses can pass it through. They're gonna get hit on the margin. Others are gonna do their best to pass it through. But people have to understand that technically speaking, a tax, which a tariff is, is a one time reset and pricing. However, if you just raised my price by 20%. I can't necessarily pass it on to my customers all in one shot.

But in year one, maybe I'll raise prices four to five percent. Year two, I'll raise prices four to five percent. In year three, I'll raise prices to four to five percent. I will incrementally try to recapture my lost margin. So that is a multi-year impact from that tariff. Well that's a good point. Mandy says w we're never it feels like it's never gonna end when we're talking about tariffs and

the geopolitics in the world, but the markets are still doing pretty well. It's a bit more volatile this year to say the least. And we're only a month, almost a month and a half through this year. So Peter, I'm gonna keep bringing you back on the show and seeing if any of your opinions change uh for whatever reason that might be throughout this year, but right now still pretty consistent in I believe your outlook for what's coming for the rest of this year.

Again, Peter Bookvar, Chief Investment Officer at One Point BFG Wealth Partners and editor of the Book Report on Substack. I'll post a link in the show notes. Peter, thank you so much for your time. Thanks. Appreciate having me on, as always.