Interview with David Abramson

Photo via BCA

Business Writer Sean Saggi recently had a chance to sit down with David Abramson, Director of Research and Chief Strategist for Energy & Commodities at BCA Research in Montreal. The following is a segment of the interview, the full transcript of which is available on The Bull & Bear Website.

S: Can you tell me a little bit about your position? What sort of work do you do as part of BCA?

D: In a nutshell, I’m a strategist. Not just an economist, not just an investment manager, but a combination of the two. You need to see the big picture, but also be granular. I’m a commodities strategist, but the end point is to have a commodities strategy for the investor. We’re not ever going to be zinc or natural gas experts, so what we need to do is start with top-down themes like “China is going to have a soft-landing.” What are the commodities that would be affected? Maybe some of them will be cheap. That’s what I do at BCA. The skillset usually is an economics background and some background in investing. What are you giving these people that they can’t read in the newspaper? You are writing something every week and asking them to pay you a lot of money, Can they read the same thing in the New York Times? This is the challenge: to differentiate yourself.

S: Were there any steps or careers that you held prior to joining BCA Research?

D: I’ve had summer jobs. The only real job that I had before this one was with the Bank of Canada. I was in the international department and modelled international payments while working on my masters at night. I had my bachelor’s degree in honours economics, that was 30 years ago that I graduated. And so I guess the question is what are the things you need for this kind of a job? You have to be able to think outside the box, have some basic macro understanding, and  be able think like an investor. I have a degree in economics and international relations, and you can do worse than to work for central bank. They will teach you how to think in a way that is coherent and logical, but also like a policy maker. In the investment world, you get a lot of not necessarily logical thinking, because people have a gut feeling. This is okay if you’re a successful investor, but as a strategist you need to have a logical, coherent way to think about things.

S: Can you briefly explain your personal take on the state of Canadian commodities? What are some of the things you look for when evaluating the market?

D: Oil and gold. There are others too, but let’s stick with oil and gold because everyone knows what they are. The thing about oil and gold is that there fungible. Gold here is the same as gold there. These are very important for the Canadian economy, and there are a lot of direct and indirect implications for the Canadian economy.

The state of Canadian economy is very interesting. In 2000, commodity sales were in a bull market. Sales went up year after year, month after month. It also pushed up our currency. It caused a boom in a lot of parts of Canada, but also hurt [other] parts due to the expensive loony. For example, [the city] I’m from, Windsor, was greatly hurt by the commodities boom because it is mainly a car producer, and competes for tourism with Michigan. The expensive dollar hurt Windsor’s economy.

So where are we right now? Since 2008-2009, the prices of those commodities, especially gold and oil that Canada produces, have started to go down. It could be argued that…some parts of Canada have done better as the dollar drops in value. So what is going to happen that Canada produces it gets a little more complicated? Although oil and even natural gas are kind of the same around the world, it just so happens that it is very hard to transport natural gas or oil from North America to other parts of the world. So there has been a phenomenal boom in non-conventional energies (you’ve probably heard of Shale) across North America. The main thing to understand is that Americans don’t need our gas as much, so can we send it to the rest of the world…Their production has gone up 2 million barrels per day, that’s a very big number. [In regards to] the movements in commodities, there are some question marks associated with the value of the commodity, because of what’s going to happen in the US, so the Canadian dollar moves with it.

S: When you’re evaluating commodities or macro trends, what are some of the aspects you look at?

D: The things you must understand are the prospects of what’s happening in China and what’s happening in currency markets. Those are absolutely critical. This is a chart of 200 commodity prices. What you need to understand is that commodities prices fall, and we’re at the high end of the range right now. The thing about commodities is that you can’t differentiate between the products. Copper is copper. Unless this time is different, commodity prices tend not to go up for very long relative to consumer prices.

China has come in a short period of time, 12 years, from being a relatively small user of commodities to becoming key users of [resources] such as copper or nickel. You need to understand the Chinese business cycle, and [whether or not ] it is in a middle income trap. Has it created imbalances? They’ve already built all the highways and now they’re going to do some consuming, which is not as commodity intensive. What happens with the dollar both influences, and is a sign, of things that are happening with the commodity markets. Movements in the dollar tend to be closely related to commodity prices. If the fed is taking risk with Fiat (is this capitalized?) money, then you can imagine why the dollar would fall and gold would go up.

A complete transcript of the interview is available here.