(Thoughts on) Natural Gas

Thursday, May 17th, 2012

by Scott Ronalds, Steady­hand Invest­ment Funds

We’re in one of the great­est bear mar­kets of all time. In nat­ural gas, that is. The commodity’s price has fallen from over $10 per thou­sand cubic feet (Mcf) in July 2008 to about $2.50 today. Last month, it touched $1.90, rep­re­sent­ing a decline of roughly 85% from peak to trough.

Nat­ural gas is used to heat and cool homes and gen­er­ate elec­tric­ity. It is also used in the pro­duc­tion of plas­tics, fab­rics and fer­til­iz­ers, and among other appli­ca­tions, can be used to run vehi­cles (although until recently it has been more expen­sive than gaso­line). Fur­ther, it’s a cleaner fuel than coal, which is more com­monly used in gen­er­at­ing electricity.

Over the past few years, advance­ments in drilling tech­niques – notably hydraulic frac­tur­ing (“frack­ing”) and hor­i­zon­tal drilling – and new dis­cov­er­ies in shale rock for­ma­tions in areas such as Louisiana, Arkansas, Texas and Penn­syl­va­nia, have led to a mas­sive increase in sup­ply. Promis­ing fields are also being devel­oped in B.C., Alberta, Que­bec and New Brunswick. Esti­mates sug­gest the new fields south of the bor­der could pro­vide enough gas to sat­isfy U.S. demand for decades. And to think that in the mid 2000’s many experts thought pro­duc­tion was in per­ma­nent decline.

Add a warm win­ter to the equa­tion (roughly half of Amer­i­can homes are heated by nat­ural gas), and the con­ti­nent is cur­rently swim­ming in the com­mod­ity. In fact, there are con­cerns that stor­age facil­i­ties will soon be full and pro­duc­ers will have to turn off the taps or dump gas.

It seems a shame. Nat­ural gas is a cleaner alter­na­tive than many fos­sil fuels, yet it’s not being used in enough indus­tries to soak up the mas­sive inven­to­ries. The com­mod­ity sells for much more in Europe and Asia ($8 — $16/Mcf), but it’s not cheap or easy to trans­port over­seas. Advo­cates of the fuel also see it as a way to fight cli­mate change and reduce depen­dence on for­eign oil.

Why aren’t more indus­tries and busi­nesses using nat­ural gas? For one, it’s expen­sive to mod­ify machin­ery, vehi­cles and ser­vice sta­tions. Also, busi­nesses can be tied into long-term con­tracts for coal or other fuels. And finally, there’s no guar­an­tee it will remain a cheaper alter­na­tive to coal and gasoline.

There are rad­i­cally dif­fer­ent views on nat­ural gas in the invest­ment com­mu­nity. Some ana­lysts believe that prices are bound to stay depressed, if not fall much fur­ther, because sup­ply will con­tinue to out­strip demand. Oth­ers feel that the spread between nat­ural gas and oil prices is unsus­tain­able (oil is cur­rently about 40x more expen­sive; the his­toric norm is around 10x) and the com­mod­ity is sure to rebound as more indus­tries make the change, more gov­ern­ments imple­ment green incen­tives, and new facil­i­ties and tech­nolo­gies make it eas­ier to export.

As a Steady­hand investor, you want to know what our man­agers think of nat­ural gas and the role it plays in your port­fo­lio. We break it down by fund below.

Income Fund

With respect to the fund’s income-equities, the manager’s focus (Con­nor, Clark & Lunn) is on com­pa­nies that gen­er­ate steady cash flows and have the finan­cial strength to pay ris­ing div­i­dends. Because of the volatile nature of nat­ural gas prices, direct pro­duc­ers typ­i­cally don’t fit CC&L’s invest­ment cri­te­ria. Nat­ural gas pro­duc­ers do not gen­er­ate sta­ble income and the man­ager is not com­fort­able with the div­i­dend sus­tain­abil­ity of many of these busi­nesses. Accord­ingly, they do not own any direct pro­duc­ers in the fund.

The port­fo­lio does have lim­ited expo­sure to the com­mod­ity through oil & gas ser­vice providers such as Enbridge and Gib­son Energy. These are mid­stream busi­nesses, mean­ing they are involved pri­mar­ily in stor­ing and trans­port­ing energy. Both com­pa­nies, how­ever, are more focused on oil than nat­ural gas.

Equity Fund

CGOV Asset Man­age­ment, the man­ager of the fund, feels that it’s anyone’s guess as to what will hap­pen to nat­ural gas prices in the short term. Gord O’Reilly (the lead man­ager) believes the mag­ni­tude of the price decline has been so great, how­ever, that a rever­sion to the mean is likely over time, par­tic­u­larly as liq­ue­fied nat­ural gas (LNG) export facil­i­ties come into pro­duc­tion over the next few years (facil­i­ties have been approved in Louisiana and Kiti­mat) and more elec­tric util­i­ties and com­mer­cial vehi­cles con­vert to nat­ural gas.

Yet, pro­duc­ers aren’t mak­ing prof­its at cur­rent prices and Gord feels it’s dif­fi­cult to find value in the sec­tor beyond CGOV’s two hold­ings, Birch­cliff Energy and Pason Sys­tems. Birch­cliff is focused on nat­ural gas explo­ration and pro­duc­tion in Alberta (with some light oil pro­duc­tion as well). The man­ager likes Birch­cliff because it has valu­able land assets and the abil­ity to rapidly increase reserves. Their light oil pro­duc­tion also helps pay the bills. The stock has been the sub­ject of acqui­si­tion talk and has bounced around as a result. Pason pro­vides rental oil­field instru­men­ta­tion sys­tems for oil & gas drilling and ser­vice rigs. Although low prices have hurt gas drilling, strong oil drilling activ­ity has helped compensate.

Global Equity Fund

The nat­ural gas land­scape out­side of North Amer­ica is much dif­fer­ent. The demand/supply equa­tion is more bal­anced. The clo­sure of nuclear power plants in Japan and Ger­many has added to demand, while a new wave of LNG com­ing out of the Asia-Pacific region and the Mid­dle East has con­tributed to sup­ply. Shale-related sup­plies are not as plen­ti­ful, how­ever, due to infe­rior geol­ogy. Nat­ural gas prices range from the equiv­a­lent of $11/Mcf in north­west Europe, to $13 in the Mid­dle East and close to $16 in Japan. The man­ager of the fund, Edin­burgh Part­ners Lim­ited, believes that gas will play a greater role in the world’s longer-term energy mix, with demand growth con­cen­trated in power gen­er­a­tion and the ever-increasing global vehi­cle fleet.

The fund holds three invest­ments with mean­ing­ful expo­sure to nat­ural gas. Russian-based Gazprom holds the world’s largest nat­ural gas reserves and owns the world’s largest gas trans­mis­sion net­work. The com­pany accounts for 15% of global gas out­put, sup­plies roughly 25% of Europe’s gas require­ments and exports gas to more than 30 coun­tries. ENI is an Italian-based energy con­glom­er­ate with a sig­nif­i­cant nat­ural gas divi­sion that pro­duces and sells the fuel through­out Europe and abroad. Petro­bras is a Brazil­ian oil and gas pro­ducer and the 5th largest energy com­pany in the world. Although its focus is more on oil, gas is an impor­tant division.

Small-Cap Equity Fund

While there are plenty of small-cap resource com­pa­nies oper­at­ing in west­ern Canada, few nat­ural gas-focused busi­nesses rep­re­sent attrac­tive invest­ment oppor­tu­ni­ties in the manager’s view (Wil Wutherich). Wil feels that stock val­u­a­tions are expen­sive at cur­rent gas prices. Unless the price of the com­mod­ity rises to around $5/Mcf in the near term (Wutherich is skep­ti­cal of this hap­pen­ing), he believes that most com­pa­nies will be hard-pressed to pro­duce com­pelling profits.

Cur­rently, the fund does not hold any pure nat­ural gas pro­duc­ers. It does, how­ever, own some com­pa­nies with busi­ness divi­sions that are focused in part on nat­ural gas. Of note, Total Energy Ser­vices pro­vides drilling rigs and gas com­pres­sion equip­ment to west­ern Cana­dian pro­duc­ers. As well, Bad­ger Day­light­ing pro­vides exca­va­tion ser­vices that are used in the energy field for tank and pipeline clean­ing, pipeline trench­ing, and repair and con­struc­tion activ­i­ties. Wutherich has a hand­ful of other gas-related busi­nesses that he knows well and watches closely, but feels they aren’t attrac­tive invest­ments at cur­rent prices.

Sum­mary

If you hold a bal­anced port­fo­lio of our funds (or the Founders Fund), you have mod­est expo­sure to nat­ural gas. Our man­agers’ focus in North Amer­ica is pri­mar­ily on nat­ural gas ser­vice providers that also serve the oil indus­try and there­fore have a more diverse rev­enue base. CC&L, CGOV, and Wutherich & Co. are more cau­tious of direct pro­duc­ers (Birch­cliff Energy pro­vides the great­est direct expo­sure). The land­scape is quite dif­fer­ent out­side North Amer­ica, where nat­ural gas prices can be 4-6X higher. The Global Equity Fund has hold­ings in Rus­sia (Gazprom), Italy (ENI) and Brazil (Petro­bras), pro­vid­ing you with diver­si­fied expo­sure to a num­ber of inter­na­tional gas markets.

Tags: Bear Markets, Cubic Feet, Dependence On Foreign Oil, Drilling Techniques, Fertilizers, Fossil Fuels, Generating Electricity, Horizontal Drilling, Hydraulic Fracturing, Investment Funds, Massive Increase, Natural Gas, New Brunswick, New Discoveries, Promising Fields, Rock Formations, Shale Rock, Steadyhand, Storage Facilities, Warm Winter
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Last Month a Disaster for Commodities

Tuesday, May 15th, 2012

I went to cir­cle back today to look at what has been among the weak­est areas of the mar­ket, and chart after chart came up in the com­mod­ity space.   Here is a chart of the per­for­mance of the futures in var­i­ous mar­kets (mostly com­modi­ties) over the past month (via Fin­viz) and it's a mess.  Iron­i­cally, nat­ural gas – the most hated com­mod­ity of most of the first quar­ter, was the stand­out.  Rever­sion to mean trade.   Coal is not listed, but that group looks as bad as solar stocks… ironic since the lat­ter was sup­posed to sup­plant the for­mer at some point.

There is an in depth story on the sec­tor in the WSJ today as well.

• Com­modi­ties fell to nearly two-year lows last week, mea­sured by a widely used bench­mark, prompt­ing investors to pon­der whether the mas­sive rally that began in 1999 may be faltering.
• China is cool­ing down at the same time the U.S. is strug­gling to heat up, cloud­ing the out­look for the world's two biggest con­sumers. And pro­duc­ers of some raw mate­ri­als have ramped up sup­plies enough to cre­ate at least tem­po­rary gluts, par­tic­u­larly if appetites falter.
• For more than a decade, invest­ing in com­modi­ties was prac­ti­cally a sure thing. Prices rose in nine of the 12 years start­ing in 1999. Even down years had expla­na­tions, such as the Sept. 11 attacks in 2001 and the global finan­cial cri­sis in 2008.
• On Fri­day, the Dow Jones–UBS Com­mod­ity Index, which tracks futures con­tracts for 20 basic goods, fell 1% to the low­est level since Sep­tem­ber 2010. U.S. crude oil, gold and cotton—all com­po­nents of the index—helped lead the way down, as each hit fresh lows for 2012. The index is down 4% this year after a 13% drop last year, putting it on track for the first con­sec­u­tive declines since 1997 and 1998.

Tags: Appetites, Commodities Prices, Commodity Index, Commodity Space, Crude Oil, Declines, Dow Jones, Futures Contracts, Global Financial Crisis, Gluts, Investing In Commodities, Lows, Massive Rally, Natural Gas, Raw Materials, Sept 11 Attacks, Standout, Sure Thing, Ubs, Wsj
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Commodity Snapshot (Bespoke)

Thursday, April 5th, 2012

Tags: April, Commodities, Commodity, Copper, Copyright, Corn, Gold, Gold And Silver, Gold Silver, Green Zone, Investment Group, Natural Gas, Orange Juice, Range Charts, Shading, Silver Platinum, Snapshot, Standard Deviations, Trading Ranges, Wheat
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First Quarter Asset Class Performance (Bespoke)

Monday, April 2nd, 2012

Below is our key ETF matrix that high­lights the per­for­mance of var­i­ous asset classes dur­ing the first quar­ter.  As shown, the best per­form­ing ETF in the entire matrix was the Finan­cials (XLF) with a first quar­ter gain of 21.5%.  India (INP) ranks sec­ond with a gain of 21.13%, fol­lowed by Ger­many (EWG) at 21.12% and the Nas­daq 100 (QQQ) at 20.99%.  The worst per­form­ing ETF in Q1 was nat­ural gas (UNG) with a decline of 38.89%.  The 20+ Year Trea­sury ETF (TLT) and the Yen (FXY) did the sec­ond and third worst with respec­tive declines of 7.46% and 7.15%.

Look­ing for more info on this mar­ket?  Each Friday, members of our Bespoke sub­scrip­tion ser­vices receive our Week in Review newslet­ter.  This report pro­vides Bespoke's cur­rent mar­ket thoughts through com­men­tary and the unique graphs and charts that our clients have come to love.  If you're look­ing to get a bet­ter grasp of the mar­ket, sub­scribe to one of our mem­ber­ship pack­ages today and down­load our Week in Review newsletter.

Tags: asset class, Asset Classes, Class Performance, Current Market, Decline, Declines, Ewg, First Quarter, Graphs And Charts, Grasp, India, Inp, Market Thoughts, Membership Packages, Nasdaq 100, Natural Gas, Qqq, Subscription Services, Tlt, Xlf, Yen
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Asset Class Performance in February, and Year-To-Date

Friday, March 2nd, 2012

by Bespoke Invest­ment Group

Below we high­light our matrix of key ETFs, which shows the per­for­mance of var­i­ous asset classes over the last week, month, and YTD.  With a new month upon us, we thought read­ers may be inter­ested in see­ing where things stand.

In the US, the Nas­daq 100 (QQQ) has per­formed the best of the major indices in 2012.  Small caps have actu­ally done the worst.  Look­ing at sec­tors, Tech­nol­ogy and Finan­cials are up the most in 2012, while Util­i­ties is the only sec­tor that's down.  Look­ing at just Feb­ru­ary, the Mate­ri­als sec­tor is the only one that saw declines.

Inter­na­tional mar­kets have done very well this year.  Most of the coun­try ETFs shown are out­per­form­ing the US.  Look­ing at com­modi­ties, sil­ver is up the most YTD, while nat­ural gas is down the most.  And while the 20-Year+ Trea­sury ETF (TLT) was up the most out of any ETF shown in 2011, it's down 3.15% so far in 2012.

Copy­right ©  Bespoke Invest­ment Group

Tags: Asset Classes, Class Performance, Commodities, Declines, ETF, ETFs, International Markets, Investment Group, Major Indices, Materials Sector, Matrix, Nasdaq 100, Natural Gas, Qqq, Sectors, Small Caps, Technology, Tlt, Treasury, Ytd
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Bespoke's Commodity Snapshot (02/09)

Friday, February 10th, 2012

Many com­modi­ties have had nice runs recently, and below we pro­vide our updated trad­ing range charts for ten of them. In each chart, the green shad­ing rep­re­sents between two stan­dard devi­a­tions above and below the commodity's 50-day mov­ing aver­age. Moves to the top of or above the green zone are con­sid­ered over­bought, while moves to the bot­tom or below the green zone are con­sid­ered oversold.

As shown, the met­als have made the biggest move recently, and all four of the met­als high­lighted below are cur­rently at or well into over­bought ter­ri­tory. Oil is just about in the mid­dle of its trad­ing range, which has been tight­en­ing a lot recently due to the side­ways trad­ing pat­tern it has been in since last November.

After bounc­ing slightly a cou­ple of weeks ago, nat­ural gas has resumed its downtrend.

Sub­scribe to Bespoke Pre­mium and gain access to the top earn­ings sea­son analy­sis around.

Tags: Commodities, Commodity, Earnings Season, Green Zone, Last November, Metals, Natural Gas, Range Charts, Shading, Snapshot, Standard Deviations
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What the Next Decade Holds for Commodities

Saturday, January 14th, 2012

What the Next Decade Holds for Commodities

By Frank Holmes, CEO and Chief Invest­ment Offi­cer

U.S. Global Investors

What a decade! A rapidly urban­iz­ing global pop­u­la­tion dri­ven by tremen­dous growth in emerg­ing mar­kets has sent com­modi­ties on quite a run over the past 10 years. If you annu­al­ize the returns since 2002, you find that all 14 com­modi­ties are in pos­i­tive territory.

A pre­cious metal was the best per­former but it’s prob­a­bly not the one you were think­ing of. With an impres­sive 20 per­cent annu­al­ized return, sil­ver is king of the com­mod­ity space over the past decade with gold (19 per­cent annu­al­ized) and cop­per (18 per­cent annu­al­ized) fol­low­ing closely behind.

Notably, all com­modi­ties except nat­ural gas out­per­formed the S&P 500 Index 10-year annu­al­ized return of 2.92 percent.

Last year did not seem reflec­tive of the decade-long clamor for com­modi­ties. In 2011, only four com­modi­ties we track increased: gold (10 per­cent), oil (8 per­cent), coal (nearly 6 per­cent), and corn (nearly 3 per­cent). The remain­ing listed on our pop­u­lar Peri­odic Table of Com­mod­ity Returns fell, with losses rang­ing from nearly 10 per­cent for sil­ver to 32 per­cent for nat­ural gas.

Down­load a pdf of the com­mod­ity table here

I think this chart is a “must-have” for investors and advi­sors because you can visu­ally see how com­modi­ties have fluc­tu­ated from year to year. Take nat­ural gas, for exam­ple, which posted out­stand­ing increases in 2002 and 2005, but has been a cellar-dweller for the last four years as a result of over­abun­dant sup­ply and soft­en­ing demand. The indus­try is also still try­ing to digest break­through tech­nol­ogy that opened the door to vast shale deposits at a much lower cost.

On the other hand, oil fin­ished in the top half of the com­mod­ity bas­ket six out of the past 10 years. No stranger to volatile price swings, oil pos­sesses much more attrac­tive fun­da­men­tals as we con­tin­u­ally see restricted sup­ply cou­pled with ris­ing demand.

After 11 con­sec­u­tive years of gains, some are ques­tion­ing whether gold can keep its win­ning streak alive in 2012. One of those skep­tics is CNBC’s “Street Signs” co-host Brian Sul­li­van. In an appear­ance on Thurs­day, I explained how I believe the Fear Trade and Love Trade will con­tinue to for­tify gold prices at his­tor­i­cally high levels.

I explained that one of the rea­sons the Fear Trade will per­sist in pur­chas­ing gold is the ever-rising gov­ern­ment debt across numer­ous devel­oped coun­tries. Dur­ing our Out­look 2012 web­cast, John Mauldin kid­ded that the Mayans were not astrologers pre­dict­ing the end of the world, but econ­o­mists pre­dict­ing the end of Europe. Whereas John believes the U.S. has wig­gle room to decide on how to deal with deficits and debt, Europe and Japan are run­ning out of time.

The sit­u­a­tion is quite somber when you con­sider how much debt Europe, Japan and the U.S. owes this year alone, says global macro research provider Greg Wel­don. In his pre­view of 2012, Wel­don says that the matur­ing prin­ci­pal and inter­est on U.S. Trea­sury debt due this year totals just under $3 tril­lion. Aus­tria, Bel­gium, France, Ger­many, Italy, Por­tu­gal and Spain together face nearly $2 tril­lion in prin­ci­pal and inter­est pay­ments. Japan is the leader in the club­house, owing just over $3 tril­lion in 2012. With the com­bined debt for these devel­oped coun­tries total­ing nearly $8 tril­lion, the inter­est pay­ments alone dwarf the total GDP of many coun­tries in the world.

This week, Ger­many sold a five-year gov­ern­ment note for less than 1 per­cent, the low­est inter­est rate on record. Bids for the low-yielding debt were three times more than the amount sold, even as the con­sumer price index stands at more than 2 per­cent year-over-year. This means that investors have so few accept­able safe havens they are will­ing to accept neg­a­tive real rates of return.

This is good news for gold as a safe haven alter­na­tive against depre­ci­at­ing cur­ren­cies such as the euro, the yen and the U.S. dollar.

The over­whelm­ing debt bur­den in devel­oped coun­tries trans­lates to an expected slow­down in imports from the emerg­ing world. How­ever, the grand­est of those coun­tries, China, likely won’t be affected as much as some peo­ple assume. This is “the biggest mis­con­cep­tion” about the country’s econ­omy, says CLSA’s Andy Roth­man. Exports only play a sup­port­ing role for the Chi­nese econ­omy. The world’s second-largest econ­omy is actu­ally largely dri­ven by domes­tic con­sump­tion from a pop­u­la­tion more than 1 bil­lion strong with more padding in their wallets.

Andy says 10 years of tremen­dous income growth and lit­tle house­hold debt, make China the “world’s best con­sump­tion story, for every­thing from instant noo­dles to lux­ury cars” in 2012.

Accord­ing to Decem­ber Chi­nese trade fig­ures, month-over-month and year-over-year imports of alu­minum and cop­per increased sig­nif­i­cantly. This may be a result of China restock­ing ahead of Chi­nese New Year, but M2 money sup­ply growth rapidly rose in recent months, a sign the gov­ern­ment is attempt­ing to reac­cel­er­ate the econ­omy. Also, the urban labor mar­ket has been robust over the past two years, with an annual change just below 5 percent—a record high over the past 15 years.

Along with ris­ing urban employ­ment, income growth has been tremen­dous as well. CLSA says that last year was “the eleventh con­sec­u­tive year of 7 percent-plus real urban income growth,” with dis­pos­able incomes ris­ing 152 per­cent over the past decade.

Investors shouldn’t expect China’s growth to be as robust as it’s been, as the country’s fixed asset invest­ment growth drops below the 25 per­cent year-over-year pace of the last nine years, says CLSA. China’s 12th Five-Year Plan has less infra­struc­ture spend­ing com­pared to the 11th five-year plan. Trans­port and rail spend­ing is also expected to drop, with only water and envi­ron­men­tal pro­tec­tion spend­ing growth rising.

As shown in the BCA chart above, GDP growth has declined below 10 per­cent, but the growth is cur­rently not the low­est we’ve seen in recent years. CLSA believes that China will pre­vent GDP growth from slip­ping below 8.5 per­cent for the full year, as “Bei­jing has the fis­cal resources and polit­i­cal will to quickly imple­ment a much larger stimulus.”

Judg­ing by the record num­ber of arti­cles men­tion­ing a hard land­ing in China in late 2011, investor sen­ti­ment has swung from eupho­ria to exces­sive pes­simism, accord­ing to BCA Research. Last fall, more than 1,000 arti­cles dis­cussed the risk of a “China Crash.”

As I’ve men­tioned before, con­trar­i­ans view extremely bear­ish sen­ti­ment as a poten­tial attrac­tive entry point. BCA believes the pes­simism has been priced in, as tech­ni­cal indi­ca­tors as well as val­u­a­tions for domes­tic and investable mar­kets appear “deeply depressed.”

What will hap­pen over the next 10 years? I believe the super­cy­cle of growth across emerg­ing mar­kets will con­tinue with ris­ing urban­iza­tion and income rates. This bodes well for com­modi­ties, espe­cially cop­per, coal, oil and gold, and we’ll con­tinue to focus on com­pa­nies that will ben­e­fit the most from these much-needed resources.

Tags: Annualized Return, Breakthrough Technology, Cellar Dweller, Chief Investment Officer, Clamor, Coal, Commodities, Commodity Space, Emerging Markets, Frank Holmes, Global Population, Hand Oil, Natural Gas, Next Decade, Periodic Table, Precious Metal, Price Swings, Shale Deposits, Stranger, U S Global Investors
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Commodities Snapshot (Bespoke)

Tuesday, January 3rd, 2012

Below we pro­vide an update of our trad­ing range charts for ten major com­modi­ties.  For each chart, the green shad­ing rep­re­sents between two stan­dard devi­a­tions above and below the commodity's 50-day mov­ing aver­age.  Moves to the top of or above the green zone are con­sid­ered over­bought, while moves to the bot­tom of or below the green zone are con­sid­ered oversold.

Pre­cious met­als have been get­ting absolutely crushed lately, and it shows in the charts of gold, sil­ver and plat­inum below.  All three have recently com­pletely bro­ken down tech­ni­cally and are trad­ing in extreme over­sold ter­ri­tory.  Sil­ver and plat­inum are at their low­est lev­els in at least a year, and buy­ing now would be like catch­ing the prover­bial falling knife.

Oil is trad­ing the clos­est to over­bought ter­ri­tory out of all of the com­modi­ties shown.  Corn and wheat have both seen nice bounces off of over­sold lev­els recently, and they're the next clos­est to over­bought ter­ri­tory.  Cop­per, orange juice, cof­fee, and of course, nat­ural gas, are all stuck in long-term downtrends.

Tags: Bounces, coffee, Commodities, Commodity, Copper, Corn, Gold Silver, Green Zone, Knife Oil, Natural Gas, Orange Juice, Platinum, precious metals, Range Charts, Shading, Snapshot, Standard Deviations, Wheat
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2011 Key ETF Performance (Bespoke)

Tuesday, January 3rd, 2012

Before the 2012 trad­ing year begins tomor­row, below we take a look at the final 2011 per­for­mance num­bers for key ETFs across all asset classes.  The left side of the table high­lights all US based ETFs, which clearly out­per­formed the for­eign ETFs shown in the top right cor­ner of the table.  The top per­form­ing ETF on the entire list was the 20-Year+ Trea­sury ETF (TLT) with a gain of 28.82% in 2011.  The worst per­form­ing ETF was nat­ural gas (UNG) with a decline of 46.09%.

Copy­right © Bespoke Invest­ment Group

Tags: Asset Classes, Copyright, Decline, Etf Performance, ETFs, Investment Group, Natural Gas, Performance Numbers, Tlt, Treasury
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Gold and Oil Outlook (Bart Melek)

Sunday, November 20th, 2011

This online video fea­tures Bart Melek, Head of Com­mod­ity Strat­egy, TD Secu­ri­ties, in con­ver­sa­tion with MaryAnn Matthews.

While the econ­omy and finan­cial mar­kets have been clouded with uncer­tainty, crude oil con­tin­ues to chart its own path. Bart dis­cusses what is behind this strength and also pro­vides his out­look on gold, sil­ver and nat­ural gas.

In this inter­view, Melek addresses the fol­low­ing questions:

• What is behind crude's strength and what's your outlook?
• Do you expect to see sea­sonal strength in nat­ural gas?
• Your thoughts on gold as a tra­di­tional safe haven?
• Your out­look for sil­ver and other pre­cious metals?
• What role can pre­cious met­als play in an investor's portfolio?

To view, click here or on image below:

Copy­right © TD Water­house

Tags: Addresses, Bart, Commodity Strategy, Crude Oil, Economy, Financial Markets, Gold Silver, Investor, Maryann, Melek, Natural Gas, Oil Online, Online Video, Outlook, Path, precious metals, Safe Haven, Td Waterhouse, Uncertainty
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Natural Gas the Most Overbought? (Bespoke)

Friday, June 3rd, 2011

by Bespoke Invest­ment Group

Don't look now but the nat­ural gas fund (UNG) is cur­rently the far­thest above its 50-day mov­ing aver­age out of more than 200 key ETFs (and ETNs, etc.) that we track daily in our ETF Trends report over at Bespoke Pre­mium.  You know the finan­cial mar­kets are strug­gling when nat­ural gas is the most over­bought asset class, con­sid­er­ing that the com­mod­ity has been a per­pet­ual decliner for years now.

Give credit where credit is due, though.  As shown below, UNG has made a sig­nif­i­cant bounce over the past week or so, and today it traded to a new four month high.

Copy­right © Bespoke Invest­ment Group

Tags: asset class, Bounce, Commodity, Copyright, ETFs, Financial Markets, Investment Group, Natural Gas
Posted in ETFs, Markets | Comments Off

A Look at Oil, Natural Gas, Gold and Silver (Bespoke, MarketClub)

Tuesday, May 31st, 2011

Below we pro­vide our trad­ing range charts for four key com­modi­ties.  In each chart, the green shad­ing rep­re­sents between two stan­dard devi­a­tions above and below the 50-day mov­ing aver­age, and moves above or below the green shad­ing are con­sid­ered over­bought or oversold.

As shown, nat­ural gas is now right at over­bought ter­ri­tory, while oil is close to over­sold ter­ri­tory.  No, that's not a mis­print, nat­ural gas really is at over­bought ter­ri­tory, while oil is close to over­sold territory.

Gold is also now close to over­bought ter­ri­tory once again as it closed the week above $1,530.  After the sharp pull­back sil­ver saw ear­lier this month, it has made a decent recov­ery as well.

The rally in com­modi­ties to close out the week coin­cided with a pull­back in the dol­lar.  The US Dol­lar index broke above its 50-day mov­ing aver­age a cou­ple of weeks ago, and it was even close to break­ing its long-term down­trend as we noted ear­lier in the week.  Thoughts of the long-term down­trend com­ing to an end proved to be wish­ful think­ing, however, and the Dol­lar index fin­ished off the week back below its 50-day.

[AA] Accord­ing to MarketClub's tech­ni­cal indi­ca­tors, gold is in a solid uptrend, with all three of their trade tri­an­gles point­ing upward. The monthly tri­an­gle sig­nalled in at $1,430.90, the weekly tri­an­gle turned on at $1,444.28 and the daily tri­an­gle turned on at $1,499.83. The Williams%R indi­ca­tor says that gold is in over­bought ter­ri­tory, and the MACD indi­cates accu­mu­la­tion. Cur­rently, at the time of this chart, gold was trad­ing at 1,537.68.

Sil­ver shows an uptrend (+65), up 8.3% last week, fol­low­ing the sub­stan­tial sell-off in the wake of mar­gin require­ments being raised. With the monthly (18.74) and daily (35.39) tri­an­gles, green, the near term weekly tri­an­gle (which turned red at 39.66) is set to turn green, as the price of sil­ver nears the Don­nchian chan­nel (pur­ple chan­nel lines) mid-point, and MarketClub's Adam Hewi­son says that sil­ver could reach up into the low 40s in the short term. Williams%R took off into the over­bought zone at the end of last week, and the MACD shows a solid diver­gence in favour of accumulation.

Oil too, is expe­ri­enc­ing a strong recov­ery, in the wake of the sell­off in early May, and shows a solid uptrend (+100), and monthly and daily Mar­ket­Club trade tri­an­gles green, and the Weekly tri­an­gle still red, hav­ing turned so at 106.44. Had you been in crude before the sell­off, the effec­tive red weekly sell tri­an­gle was loss minimizing.

Williams%R indi­cates oil is over­bought, how­ever, MACD indi­cates diver­gence in favour of accumulation.

[AA]

Copy­right © Bespoke Invest­ment Group

Tags: Aa, Accumulation, Commodities, Crude Oil, Macd, Margin Requirements, Marketclub, Mid Point, Moving Average, Natural Gas, Price Of Silver, Range Charts, Shading, Sharp Pullback, Standard Deviations, Technical Indicators, Triangle, Triangles, Uptrend, Us Dollar Index, Wishful Thinking
Posted in Markets, Oil and Gas | Comments Off

Oil and Gas Outlook (David Bouckhout)

Thursday, May 5th, 2011

Apr 29, 2011 (5 minutes)

Crude oil prices have hit lev­els unseen since the sum­mer of 2008. TD Water­house Com­mod­ity Strate­gist, David Bouck­hout, dis­cusses the key fac­tors con­tribut­ing to the climb­ing price and pro­vides his thoughts on the global supply/demand equa­tion of crude. Bouck­hout also shares his out­look for nat­ural gas and the price of oil.

In the inter­view, David Bouck­hout dis­cusses the fol­low­ing points:

• What is influ­enc­ing the price of oil?
• How are high crude prices influ­enc­ing North Amer­i­can refin­ing margins?
• Out­look for the price of oil in 2011 and 2012?
• What energy sec­tors are likely to ben­e­fit from Japan's nuclear disaster?
• What should investors keep in mind when look­ing for an energy opportunity?

Click here or on the image below to view this interview:

Copy­right © TD Water­house

Tags: Commodity, Crude Oil, Crude Oil Prices, Crude Prices, Energy Sectors, Gas Price, Global Supply, Investors, Japan, Margins, Natural Gas, Nuclear Disaster, Oil and Gas, Oil and Gas, Oil Energy, Outlook, Price Of Oil, Shares, Strategist, Td Waterhouse
Posted in Markets, Oil and Gas | Comments Off

TSX: Global Concerns, Local Impact?

Wednesday, March 30th, 2011

John Smolin­ski, Port­fo­lio Man­ager, TD Cana­dian Equity Fund, dis­cusses the impact of the Japan­ese cri­sis and the polit­i­cal tur­moil in the Mid­dle East and North Africa on the Cana­dian bank­ing and energy sec­tors and shares names of some stocks that he likes.

In the inter­view, TD Mutual Fund's John Smolin­ski addresses the fol­low­ing concerns:

• How are you man­ag­ing the con­stantly evolv­ing global risks?
• What has been the impact on the markets?
• Will nat­ural gas ben­e­fit from increased demand?
• How are you posi­tion­ing the portfolio?
• Are there any sec­tors or com­pa­nies that you like?

Click on the image below, or here, to watch the interview:

John Smolin­ski, CFA
Title: Man­ag­ing Direc­tor
Edu­ca­tion: BA Eco­nom­ics, York Uni­ver­sity, Char­tered Finan­cial Ana­lyst
Indus­try Expe­ri­ence: Since 1990
Funds: TD Cana­dian Equity Fund, TD Bal­anced Growth Fund

Tags: Ba Economics, Canadian, Canadian Equity Fund, Canadian Market, Cfa, Chartered Financial Analyst, Director Education, energy, Energy Sectors, Global Concerns, Global Risks, Industry Experience, Interview John, Managing Director, Middle East, Mutual Fund, Natural Gas, North Africa, oil, Political Turmoil, Portfolio Manager, Smolinski, Tsx, York University
Posted in Canadian Market, Energy & Natural Resources, Markets, Oil and Gas | Comments Off

"Commodity-Rise Impacts" (Schwab Sector Views)

Friday, February 25th, 2011

Schwab Sec­tor Views: Commodity-Rise Impacts

Brad Sorensen, CFA, Direc­tor of Mar­ket and Sec­tor Analy­sis, Schwab Cen­ter for Finan­cial Research
Feb­ru­ary 24, 2011

Schwab Sec­tor Views reflect a three– to six-month out­look and are appro­pri­ate for investors look­ing for tac­ti­cal ideas. We typ­i­cally update our views every two weeks.

Com­mod­ity prices have received a lot of atten­tion dur­ing the past sev­eral months: from oil and gold, that have been mul­ti­year sto­ries, to the more-recent rise in food-related com­modi­ties that has helped fuel unrest in the Mid­dle East. As a reader of our sec­tor views, which are more tac­ti­cal in nature, you may won­der if there are some near-term sec­tor impli­ca­tions of the ris­ing com­modi­ties complex.

Let me unequiv­o­cally say … maybe. As we've noted before, invest­ing is never a one-factor model and this case is no dif­fer­ent. How­ever, we must pay atten­tion to the recent rise in com­mod­ity prices, because it can cer­tainly have an impact on our sec­tor calls.

For exam­ple, we recently upgraded both energy and mate­ri­als on our view that eco­nomic growth would con­tinue to fuel ris­ing oil, nat­ural gas and met­als prices. Now we have to start look­ing at the other side of the ledger, because the rise in some prices has been so severe that it could threaten the per­for­mance of some sectors.

Let me first note that we don't want to over­re­act and aren't mak­ing any changes in rec­om­men­da­tions this week, but we are watch­ing the fol­low­ing closely for their poten­tial impe­tus for changes in our views.

For sec­tors includ­ing con­sumer dis­cre­tionary, con­sumer sta­ples, mate­ri­als and indus­tri­als, we're watch­ing not only the sus­tain­abil­ity of the higher input costs, but also the abil­ity of com­pa­nies in these groups to pass their increased costs on to customers.

Com­pa­nies have largely been unsuc­cess­ful in rais­ing prices dur­ing the past cou­ple of years, so mar­gins could be at risk if both the high com­mod­ity prices and inabil­ity to pass those costs on continue.

For now, wage growth remains stag­nant, and given that labor is often the major expense for com­pa­nies, this helps man­age­ment main­tain prof­itabil­ity. How­ever, we'll watch for poten­tial changes there.

Addi­tion­ally, we're watch­ing the reac­tion of global cen­tral banks to the rise in com­mod­ity prices as tight­en­ing mea­sures are already being put in place. The dan­ger, of course, is that cen­tral banks over­re­act, push­ing the global econ­omy back into recession—which would vastly change our sec­tor out­look. We're not pre­dict­ing that will occur, as pol­i­cy­mak­ers are aware of the risks of aggres­sive tight­en­ing, but as global unrest rises, it's not some­thing we can discount.

Finally, a word of cau­tion about invest­ing directly in com­modi­ties. While there may be sit­u­a­tions when it's appro­pri­ate, it can also be tricky. First, remem­ber that often when every­one is clam­or­ing to get into some­thing, that's often a decent time to move the other way.

Sec­ond, there are many prod­ucts designed to pro­vide direct com­mod­ity expo­sure, but many have lit­tle track record and can get com­pli­cated pretty quickly—plus, liq­uid­ity can be an issue in some. If you insist on invest­ing directly in com­modi­ties, we strongly sug­gest doing so with cau­tion and with the appro­pri­ate due diligence.

For details on our sec­tor views, please read the expanded analy­sis below for each sec­tor. As noted above, our rec­om­men­da­tions can and do change quickly at times as we con­tin­u­ally mon­i­tor eco­nomic progress and spe­cific fac­tors influ­enc­ing indi­vid­ual sec­tors, so check back often.

Con­sumer dis­cre­tionary: Marketperform

Bad weather through much of the coun­try through­out the first part of the year con­tin­ues to make it more dif­fi­cult to get a good read on what the con­sumer is doing. How­ever, the per­sonal con­sump­tion com­po­nent of fourth-quarter gross domes­tic prod­uct, along with a cou­ple of con­sumer sen­ti­ment sur­veys, indi­cates that the mori­bund Amer­i­can con­sumer is a thing of the past—at least for now.

How­ever, that doesn't mean that spend­ing has returned with abandon—the sav­ings rate remains above 5% and com­pa­nies con­tinue to point to the price dis­crim­i­na­tion of con­sumers as a con­tin­u­ing challenge.

Addi­tion­ally, unem­ploy­ment remains stub­bornly high, credit stan­dards remain tight, and, as noted, con­sumers still seem to be intent on sav­ing more and spend­ing less. Com­bine these issues with the margin-squeezing dis­count­ing men­tioned above that many retail­ers had to insti­tute in order to entice shop­pers, and you still have a chal­leng­ing retail envi­ron­ment, lead­ing us to con­tinue to hold the dis­cre­tionary group at marketperform.

Also, we're becom­ing more con­cerned with the rise in com­mod­ity prices, which threaten to not only squeeze mar­gins as pass­ing costs on to cus­tomers remains dif­fi­cult, but also to crimp cus­tomers' abil­ity to spend on dis­cre­tionary items as more money is spent on such things as food and energy.

Tags: China, Commodities, Commodity Prices, Consumer Staples, Economic Growth, Emerging Markets, energy, Factor Model, Gold, Impetus, Industrials, Infrastructure, Input Costs, Investors, Margins, Metals Prices, Middle East, Natural Gas, oil, risk, Schwab, Sector Analysis, Sectors, Sustainability, Unrest
Posted in Commodities, Credit Markets, Energy & Natural Resources, Gold, Infrastructure, Markets, Oil and Gas, Outlook | Comments Off

Jim Rogers: How to Profit During Monetary Crises

Wednesday, February 9th, 2011

In this video clip, investor Jim Rogers sits down with Judge Andrew Napoli­tano to dis­cuss profit strate­gies dur­ing mon­e­tary crises.

Rogers said: “… what you have to do is you have to find things that will pro­tect your assets real assets sil­ver rice nat­ural gas some­thing that will hold its value in an infla­tion­ary time … I do it two ways: I own gold and sil­ver coins in my hand in my house in my box; I also own gold and sil­ver futures that’s another way to do it.”

He also com­mented Fed as fol­lows: “Bernanke, he does not under­stand finance, eco­nom­ics and cur­ren­cies; all he under­stands is print­ing money and now we have giv­ing him the print­ing presses he has run those print­ing presses as fast as he can …”

Source: Free­dom Watch (via YouTube), Feb­ru­ary 7, 2011 (hat tip: Global Investor Blog).

Tags: China, Crises, Currencies, Finance Economics, Freedom, Global Investor, Gold, Hat Tip, Jim Rogers, Natural Gas, Printing Money, Printing Presses, Profit Strategies, Real Assets, Silver, Silver Coins, Silver Futures, Two Ways, Video Clip, Youtube
Posted in Gold, Markets, Silver | Comments Off

Outlook 2011: Fear and Love in Gold Trading

Sunday, January 9th, 2011

Out­look 2011: Fear and Love in Gold Trading

By Frank Holmes, CEO and Chief Invest­ment Offi­cer, U.S. Global Investors

Wall Street has been call­ing gold a bub­ble since 2005 when it hit $500. Some media naysay­ers remained neg­a­tive even as they wrote the head­lines pro­claim­ing record highs and saw gold rise almost 30 per­cent in the past 12 months.

Inter­est­ingly, despite gold’s lat­est run, it was still a lag­gard com­pared to many other com­modi­ties. In the com­mod­ity world, gold didn’t even place in the top half in 2010. Against a bas­ket of 14 com­modi­ties that includes every­thing from alu­minum to wheat, gold’s 29.52 per­cent return places it eighth. Pal­la­dium took the top spot with a 96.6 per­cent return, fol­lowed by sil­ver with an 83.21 per­cent return. Nat­ural gas con­tin­ued its cellar-dwelling ways, drop­ping 21.28 per­cent to become the worst-performing com­mod­ity of the basket.

There are two main dri­vers of gold demand: The Fear Trade and the Love Trade.

Fear Trade: The fear trade is what you often hear about from the media and the gloom-and-doomers. The fear trade is dri­ven by neg­a­tive real inter­est rates—where infla­tion is greater than the nom­i­nal inter­est rate—and deficit spend­ing. When­ever you have neg­a­tive real inter­est rates cou­pled with increased deficit spend­ing, gold tends to rise in that country’s currency.

In the U.S., we’re in the mid­dle of an extended period of neg­a­tive real inter­est rates that will likely last through the year. The Fed­eral Reserve is acutely aware that if inter­est rates should spike, it would be cat­a­strophic for the eco­nomic recovery.

Look­ing back over the past 400 years, there has been a major cur­rency or credit cri­sis every decade and, his­tor­i­cally, it takes approx­i­mately four years to heal from the con­trac­tion. The U.S. econ­omy is on the road to recov­ery, how­ever the ele­vated num­ber of home fore­clo­sures and high unem­ploy­ment make it unlikely the Fed will risk a relapse by rais­ing inter­est rates any time soon. The gov­ern­ment is also unlikely to cut spend­ing or wel­fare sup­port dur­ing the heal­ing process.

As for deficit spend­ing, we still have an over­sized gov­ern­ment, cre­at­ing reg­u­la­tory traf­fic jams for busi­ness devel­op­ment and hur­dles for eco­nomic trade.

Love Trade: The love trade is sig­nif­i­cant and unique to gold. Peo­ple buy gold out of love and those in emerg­ing mar­kets are espe­cially amorous of the metal. We refer to the most pop­u­lous seven of the emerg­ing economies as the E-7. Cur­rently, the E-7 coun­tries hold nearly half of the world’s pop­u­la­tion but make up less than 20 per­cent of global GDP. The G-7 indus­tri­al­ized nations are a mir­ror of this; they host 11 per­cent of the world’s pop­u­la­tion but con­trol more than 50 per­cent of the global economy.

But things are changing.

I’ve dis­cussed this many times but it’s impor­tant to grasp how today’s world looks a lot dif­fer­ent than yesterday’s. Many of these emerg­ing economies are aver­ag­ing over 6 per­cent GDP growth and per­sonal incomes are ris­ing around 8 per­cent. In addi­tion, emerg­ing economies are home to 27 per­cent of the world’s pur­chas­ing power, accord­ing to eco­nomic research firm ISI.

It is cus­tom­ary in most emerg­ing coun­tries to give gold as a gift to friends and rel­a­tives for birth­days, wed­dings, and to cel­e­brate reli­gious holidays.

In Decem­ber, the Shang­hai Gold Exchange reported that China imported five times more gold in 2010 than 2009 and that was just dur­ing the first 10 months of the year. In India, spend­ing on gold rose 100 per­cent on a year-over-year basis through Sep­tem­ber, accord­ing to Mor­gan Stan­ley. Russia’s cen­tral bank hold­ings of gold rose 7 per­cent in 2010.

What is impor­tant to remem­ber when look­ing at the his­tory of gold is that in the 1970s, China, India and Rus­sia were iso­la­tion­ists with no sig­nif­i­cant global eco­nomic foot­print. The world’s pop­u­la­tion was 3 bil­lion and today we have wit­nessed an awak­en­ing of epic proportions.

These coun­tries are grow­ing with free mar­ket poli­cies and mas­sive infra­struc­ture spend­ing. In the 1970s, gold rose on the fear trade and the cold war. Today the world is sig­nif­i­cantly dif­fer­ent and the love trade dri­ves gold.

If QE2 was the fuel that sent gold prices to the moon, the gold hol­i­day sea­son was the vehi­cle they rode in. Gold prices rose steadily as Ramadan came early, which then car­ried into the Diwali sea­son of lights in India. Then came Christ­mas, with shop­pers around the world spend­ing more than they had in years.

Next is the Chi­nese New Year—the Year of the Rabbit—on Feb­ru­ary 3. It’s believed that peo­ple born in the Year of the Rab­bit are wise, finan­cially lucky and have a gift for mak­ing the right decision—similar to how gold investors are feel­ing these days.

Look­ing Ahead
It’s impos­si­ble to pre­dict where gold prices will be 12 months from now but we think gold prices could dou­ble over the next five years. This would mean roughly a 15 per­cent return, if you com­pounded it annually.

How­ever, it will by no means be a straight line. Volatil­ity is always inher­ent in com­mod­ity invest­ing. It’s a non-event for gold to go up or down 15 per­cent in a year—this hap­pens 68 per­cent of the time. For gold stocks, the volatil­ity is even more dramatic—plus or minus 40 per­cent, historically.

We have always sug­gested that investors con­sider a 10 per­cent weight in gold funds and rebal­ance their port­fo­lio each year to cap­ture the volatil­ity and not chase return. Since gold was up almost 30 per­cent last year, it could eas­ily cor­rect from its peak by 10 to 15 per­cent. This is why we believe gold stock investors need to be active, not pas­sive, when it comes to man­ag­ing portfolios.

Investors look­ing to either add to or ini­ti­ate new posi­tions in gold must be aware of this volatil­ity and use it their advan­tage. Use sharp sell­offs as cheap entry points and make sure to rebal­ance those port­fo­lios in order to lock in prof­its from 2010’s big gains.

Tags: Chief Investment Officer, Commodities, Commodity Gold, Contraction, Credit Crisis, Currency, Deficit Spending, Economic Recovery, Emerging Markets, Federal Reserve, Frank Holmes, Gloom, Gold, Gold Demand, Home Foreclosures, India, Natural Gas, Naysayers, Nominal Interest Rate, Palladium, Record Highs, Relapse, Russia, Silver, U S Global Investors, World Gold
Posted in Commodities, Credit Markets, Gold, Infrastructure, Markets, Outlook, Silver | Comments Off

Energy and Natural Resources Market Diary (November 8, 2010)

Saturday, November 6th, 2010

Energy and Nat­ural Resources Mar­ket Diary (Novem­ber 8, 2010)

This chart shows a sharp rise in the super­tanker rate for oil ship­ments in the Per­sian Gulf. A report from Bloomberg this week said that the Per­sian Gulf, which is the world's largest crude-oil load­ing region, doesn't have enough of the super­tankers to meet demand. Just a week ago there was a 20 per­cent sur­plus of these ships, but Bloomberg's sur­vey this week showed a 1 per­cent short­age. This region feeds 20 per­cent of the world's crude oil demand, so a short­age of ships means that global demand for oil is pick­ing up.

Strengths

• Crude oil futures closed at a 24-month high of $87.11 per bar­rel this week.
• Russia's oil pro­duc­tion rose 4 per­cent to a new record 10.26 mil­lion bar­rels per day in Octo­ber. This beats the high of 10.16 mil­lion bar­rels per day set in September.
• Turkey's gold imports rose to 9.07 tons in Octo­ber, com­pared with 2.45 tons the pre­vi­ous month.
• A report from the Bom­bay Bul­lion Asso­ci­a­tion says that Indian gold imports rose to 43 tons, an 18 per­cent increase from the same time last year.

Weak­nesses

• Despite price gains for most com­modi­ties this week, nat­ural gas remains below $4 per mil­lion British ther­mal units (Mmbtu) and is down 2.7 per­cent over the prior five days.
• The Baltic Dry Freight Index, typ­i­cally an indi­ca­tor of global com­mod­ity demand, declined by 7 per­cent to 2,510 over the past five days through Thursday.

Oppor­tu­ni­ties

• China's real con­sump­tion for cop­per may rise to 8.5 mil­lion tons by 2015. This would be a 25 per­cent rise from 2010 demand forecasts.
• China Steel Corp is in talks with five groups to buy stakes in iron ore and coal mines to reduce its reliance on raw mate­r­ial sup­pli­ers as it increases pro­duc­tion. Aus­tralia is the main tar­get for these invest­ments, while Brazil and Africa are among prospec­tive loca­tions. The com­pany aims to raise the por­tion of iron ore and coal it receives from its mines to 30 per­cent from 2 per­cent through invest­ments over the next five years.
• China's gold mar­ket may dou­ble in the next decade as retail invest­ment and jew­elry demand gain, the World Gold Council's China Gen­eral Man­ager said. Con­sump­tion may rise to 900 tons over the next ten years. China's jew­elry and invest­ment gold demand was 428 tons in 2009, accord­ing to the council.

Threats

• Canada blocked BHP Billiton's $40 bil­lion hos­tile bid for Potash Corp. of Saskatchewan, say­ing a sale wouldn't pro­vide a net ben­e­fit to the coun­try. BHP has 30 days to appeal, at which point the gov­ern­ment will make a final decision.

Tags: Baltic Dry Freight Index, Brazil, BRIC, BRICs, Canadian Market, China, China Steel, Coal Mines, Commodities, Crude Oil Futures, Demand Forecasts, Dry Freight, energy, Global Commodity, Global Demand, Gold, Gold Bullion, Gold Imports, India, Indian Gold, Iron Ore, Market Diary, Mmbtu, Natural Gas, Natural Resources, oil, Oil Demand, Oil Shipments, Persian Gulf, Raw Material Suppliers, Russia, Steel Corp, Supertankers, Target
Posted in Brazil, Canadian Market, China, Energy & Natural Resources, Gold, India, Markets, Oil and Gas | Comments Off

Don’t Get Rolled When Investing In Natural Gas

Friday, November 5th, 2010

Invest In Nat­ural Gas With­out Being Affected By Contango

by Alfred Lee, CFA, DMS
Invest­ment Strate­gist, BMO ETFs
Global Struc­tured Invest­ments
alfred.lee@bmo.com

Novem­ber 5, 2010

Recent Devel­op­ments:

• Given the recent rise in nat­ural gas prices, the com­mod­ity is again attract­ing invest­ment inter­est from the mar­ket. This is espe­cially so as nat­ural gas prices tend to exhibit sea­sonal patterns.
• Nat­ural gas stor­age lev­els (as indi­cated by the U.S. Depart­ment of Energy) have shown a ten­dency to plum­met in early to mid-November. This year, how­ever, we have not yet seen that sud­den drop in nat­ural gas stor­age (Chart A) but given the recent cooler tem­per­a­tures, that drop in nat­ural gas stor­age may be right around the corner.
• This past week, the U.S. Depart­ment of Energy sur­vey expected an injec­tion of 64 bil­lion cubic feet (bcf) indi­cat­ing that the mar­ket is not yet pric­ing in a draw­down. Although, the actual inven­tory num­ber reported was 67 bcf, an unex­pected with­drawal of sup­ply would likely cause the price of nat­ural gas to rally.
• While futures-based ETFs are effec­tive tools for short-term trad­ing, dur­ing con­tango (when future prices exceed the spot price) being accu­rate on tim­ing is espe­cially impor­tant. As such, for those investors that want to rely less on tim­ing and imple­ment more of a buy and hold approach, they may want to con­sider exchange-traded funds (ETFs) that invest in gas-related companies.

Oppor­tu­nity:

• The BMO Junior Gas Index ETF (ZJN) tracks the Dow Jones North Amer­i­can Junior Gas Index, which is made up of 31 North Amer­i­can small cap com­pa­nies involved in nat­ural gas related activities.
• Investors that want to invest in nat­ural gas with­out hav­ing the con­cerns of con­tango and thus the impacts of a neg­a­tive roll yield may want to con­sider small-cap nat­ural gas com­pa­nies. Year to date, the Dow Jones North Amer­i­can Nat­ural Gas Index has pro­vided a siz­able return, where both the near month con­tract of nat­ural gas and larger cap nat­ural gas com­pa­nies (as mea­sured by the NYSE Arca Nat­ural Gas) have deliv­ered neg­a­tive to near-zero returns (in C$) respectively.
• In addi­tion, the small-cap com­mod­ity space has been an area ripe for merger and acqui­si­tion activ­ity. Many larger com­pa­nies have taken advan­tage of low inter­est rates and used merger and acqui­si­tions as a means of growth. Recent exam­ples include the acqui­si­tion of Storm Explo­ration Inc. by ARC Energy Trust and Chi­nook Energy Inc.’s cash and stock takeover of Iter­a­tion Energy Ltd.

Chart A: Nat­ural Gas Inven­tory Tends To Plum­met In Early To Mid November

Source: Bloomberg, BMO ETFs

Chart B: Nat­ural Gas Con­tracts Is Cur­rently In Contango

Source: Bloomberg, BMO ETFs

Chart C: Junior Nat­ural Gas Com­pa­nies Have Per­formed Well Year To Date

Source: Bloomberg, BMO ETFs

*All prices as of mar­ket close Octo­ber 29, 2010 unless oth­er­wise indicated.

Dis­claimer:
Infor­ma­tion, opin­ions and sta­tis­ti­cal data con­tained in this report were obtained or derived from sources deemed to be reli­able, but BMO Asset Man­age­ment Inc. does not rep­re­sent that any such infor­ma­tion, opin­ion or sta­tis­ti­cal data is accu­rate or com­plete and they should not be relied upon as such. Par­tic­u­lar invest­ments and/or trad­ing strate­gies should be eval­u­ated rel­a­tive to each individual’s cir­cum­stances. Indi­vid­u­als should seek the advice of pro­fes­sion­als, as appro­pri­ate, regard­ing any par­tic­u­lar investment.

BMO ETFs are man­aged by BMO Asset Man­age­ment Inc, an invest­ment coun­sel firm and sep­a­rate legal entity from the Bank of Mon­tréal. Com­mis­sions, man­age­ment fees and expenses all may be asso­ci­ated with invest­ments in exchange-traded funds. Please read the prospec­tus before invest­ing. The funds are not guar­an­teed, their value changes fre­quently and past per­for­mance may not be repeated.

"Dow Jones", "Dow Jones Indus­trial Aver­age", "Dow Jones Canada Titans 60", and "Titans" are ser­vice marks of Dow Jones & Com­pany, Inc. and have been licensed for use for cer­tain pur­poses. BMO ETFs based on Dow Jones’ indices are not spon­sored, endorsed, sold or pro­moted by Dow Jones, and Dow Jones makes no rep­re­sen­ta­tion regard­ing the advis­abil­ity of trad­ing in such ETFs.

Tags: Alfred Lee, BMO, BMO ETFs, Canadian Market, contango, Dow Jones, Drawdown, Effective Tools, Energy Survey, ETF, ETFs, Exchange Traded Funds, Future Prices, Gas Index, Inventory Number, Investment Interest, Investment Strategist, Natural Gas, Natural Gas Prices, Natural Gas Storage, Price Of Natural Gas, Seasonal Patterns, Small Cap Companies, Storage Chart, Storage Levels, Structured Investments
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Energy and Natural Resources Market Diary (October 25, 2010)

Saturday, October 23rd, 2010

Energy and Nat­ural Resources Mar­ket Diary (Octo­ber 25, 2010)

Strengths

• China's total coal imports surged 15 per­cent sequen­tially in Sep­tem­ber to 15.22 met­ric tons. Sep­tem­ber marks the fifth con­sec­u­tive monthly gain in coal import lev­els accord­ing to McCloskey.
• Early this week, cop­per prices in Lon­don and Shang­hai ral­lied to their high­est lev­els since July 2008, sup­ported by improv­ing global demand and expec­ta­tions of a sec­ond round of quan­ti­ta­tive eas­ing in the U.S.
• Corn imports by South Korea, the world's third-largest buyer, rose by 21 per­cent to 6.5 mil­lion tons in the first nine months of the year, cus­toms data showed.

Weak­nesses

• Accord­ing to China Iron & Steel Asso­ci­a­tion sta­tis­tics, the crude steel out­put from the 75 mem­ber mills have dropped in the first ten days of Octo­ber to 13.74 mil­lion tons from 14.17 mil­lion tons due to power-induced pro­duc­tion cuts ordered by the provin­cial governments.
• For the week end­ing Octo­ber 16, U.S. steel capac­ity uti­liza­tion rates decreased to 67.4 per­cent ver­sus the prior week of 68.3 per­cent. This is the fifth week in a row of declin­ing uti­liza­tion rates and the first time uti­liza­tion rates dipped below 68 per­cent since early February.

Oppor­tu­ni­ties

• Reuters reported that coal miner Peabody Energy is ship­ping a test cargo of U.S. Pow­der River Basin coal to the United King­dom in a response to Euro­pean con­cerns about future supply.
• Reuters reports that an aluminum-backed ETF will hit the mar­ket within three months, backed by half a mil­lion to one mil­lion met­ric tons from Rusal.
• China Min­metals Corp. plans to invest $2.5 bil­lion to develop the Galeno cop­per project in Peru. Galeno, located in the north­ern region of Caja­marca, would pro­duce 144,000 tons of cop­per in con­cen­trate annu­ally, accord­ing to a 2007 fea­si­bil­ity study. No time­line of the project was provided.

Threats

• The Cana­dian province home to Potash Corp said it opposed BHP Billiton's $39 bil­lion bid to buy the fer­til­izer sup­plier, set­ting the stage for a politically-charged final deci­sion by the Cana­dian government.

Tags: Canadian Market, China, China Minmetals Corp, Coal Imports, Coal Miner, Commodities, Copper Prices, Copper Project, Crude Steel, energy, ETF, European Concerns, Feasibility Study, First Nine Months, Import Levels, Market Diary, Member Mills, Million Metric Tons, Natural Gas, Natural Resources, Peabody Energy, Potash Corp, Powder River Basin, Powder River Basin Coal, Provincial Governments, Reuters Reports, Steel Association
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