David Steinberg, managing partner at DLS Capital Management, a Bannockburn, Ill.-based money manager with more than $300 million in assets, is as bullish on commodities as they come.

But, crucially, Steinberg is steering clear for now of futures-based commodities exposure. Instead, he looks to the equities space and to commodities-focused companies for interesting valuation plays at a time of easy-money policies by many of the world’s biggest central banks and growing demand in the developing world for everything from grains to oil.

Murphy: There seems to be a growing momentum in commodities. What’s driving that?

Steinberg: You have global debasement of currencies. You have major structural entities—such as the Fed and the European Central Bank—all needing to stimulate or basically to monetize debt to fill their budget gaps. That’s not going to change. It’ll take them 10 years to balance the budget. So, that’s a driving force in commodities markets—trillions of dollars that are causing the barter value of paper money to go down.

The second thing driving commodities is industrial growth, and we are looking at a boom here with the growth of the middle class in emerging markets. That growth might slow down a bit, but we are talking about long-term demographic turns.

Murphy: Still, when you look at where investors are putting their money, you are somewhat hard-pressed to make a case for commodities. Is there a disconnect here between fundamentals and investor sentiment?

Steinberg: You have $250 trillion in financial assets—that’s an estimate based on data from McKinsey—and 75 percent of that money is in fixed income. With interest rates at such low levels, you’re talking about 75 percent of assets earning less than 4 percent, or even zero. These are sentiment-based decisions, not factual-based.

But in the end, you have gigantic things going on directionally for commodities—the currency debasement, the monetization of debt, emerging market demand growth—and you have all this money in the wrong place. It’s only a matter of time before you get a very modest sliver of a change, and for every 1 percent asset allocation adjustment from fixed income to equities or commodities, we are going to see $2.5 trillion move. When sentiment changes or variables change, and we get past this sense of doom and gloom that’s overhanging the market right now, or people start to think: “Hey, I need to start making some money on my money,” it’s going to be like trying to get an elephant through a keyhole.

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