TFN eNews 08/21/2009: Will natural gas prices really triple by February?
Published via e-mail broadcast on August 21, 2009
In today’s TFN eNews:
* The oil/gas spread is stretching
* China’s bailing out of U.S. debt
* New TFN Reader Grapevine pick
Dear TFN Reader,
No matter how you slice it: It wasn’t a good omen when a usually polite Chinese audience burst out laughing when Treasury chief Tim Either promised China’s dollar-denominated holdings were “safe”.
Because the Chinese still have excellent math skills. And more practical experience running businesses and economy than the team of callow academic theorists and apparatchiks that is playing Monopoly with taxpayer money in DC these days.
Accordingly, you really shouldn’t be surprised that China reduced its holdings of U.S. government debt by the largest margin in nearly nine years this past June. Beijing cut its holdings of U.S. securities by 3.1%.
That may sound like not much. But in terms of global debt, it’s huge.
Chief cause for China’s reticence to continue funding American debt is distrust: The US government’s budget deficit has smashed all records “thanks in part to the Obama administration’s costly stimulus plan” (not my words, but the BBC’s).
The reckless spreading of unearned wealth via various stimulus and socialized medicine efforts is expected to fuel inflation in the United States. That would reduce the value of the dollar even beyond Beijing’s rather wide comfort zone. And terminally erode the value of the debt China U.S. holdings.
China now even advocates the establishment of an alternative to the greenback as the world’s favored currency for foreign exchange reserves.
“These figures suggest they are exploring ways to diversify their investments where they can,” a BBC source was quoted today.
For you, this should’ve been old news. Because we’ve been harping on just that every day now for months! We even know what China’s doing with the money it is not buying Treasuries with!
It’s buying commodities like there’s no tomorrow!
Our resident financial wizard Andrew Snyder called this mechanism the “Commodity Carry Trade” (CCT.)
His forecasts are coming true. Across the board, commodities prices are on the rise today. Oil’s above $74. Gold’s well above $950 (a huge turnaround on the week!) Copper is up by more than 3%. Platinum is up. You name the commodity, it’s up.
Everything but the dollar, that is.
As China backs away from American debt, the greenback is falling. Right now, it takes $1.43 to buy just one euro. That figure is only going to get bigger as the CCT unfolds.
There is no denying this trend. The facts are as plain as the nose in my face.
But we’re doing something about it. Or better, members of our options trading service TFN Strategic Trader are. One of the commodity-based stocks profiting from the CCT is up 5% so far today, taking our CCT options up by 57%.
Best of all, we are just getting started.
There’s plenty of room for you on our Members list: We’ve kept a space open for you. Just read up on the CCT right here…
*** Crude oil prices hit a 2009 record of over $74 today.
Meanwhile, natural gas prices have collapsed, too their lowest price in seven years.
The price of gas on the New York Mercantile Exchange fell below $3 for the first time since August 2002.
Latest inventory reports showed another huge injection of the commodity into underground storage caverns in the United States.
“The gap between the crude and natural gas markets continues to expand,” wrote TFN’s finance guru Andrew Snyder today. “The world is concerned with having too little of the former and too much of the latter. The dramatic cave-in in natural gas prices is certainly bad news for domestic companies that worked overtime to expand their drilling range during the bullish run of the past several years.
“Pennsylvania, West Virginia, Ohio, and New York all saw companies like Chesapeake Energy (NYSE:CHK) and Andarko (NYSE:APC) knocking on the door of property owners, willing to sign big checks to get their hands on mineral rights.
“But now that the nation’s economy has ground to a halt and gas prices have fallen off a cliff, producers are wondering what in the world they were thinking. All they can do is shut down the drills and close the valves.
“The further natural gas futures fall, the more output will be stricken from the market. It’s a race to see which side of the equation can reach equilibrium first.
“But if you have been following our line of thought this summer, you know I have remained bullish on natural gas. And if you are a TFN Strategic Trader subscriber, you know I have made several recommendations in kind. Judging by the headlines, I’m not alone.
“According to the Financial Times, an unnamed hedge fund has spent millions to gobble up extremely bullish natural gas options with expirations later this winter. Specifically, the fund bought contracts with $10 strike prices that expire in January and February. That means the fund is showing its confidence that natural gas prices will more than triple in the coming months. If it happens, or comes anywhere close to happening, the mysterious hedge fund stands to rake in tens of millions of dollars.
Finish Andy’s article right here!
*** TFN Reader Grapevine Maven Charles D. filed this with us:
“I’m buying Consolidated Water Co. Ltd. (NASDAQ:CWCO). I expect the stock to run to the $30’s shortly. The company is in a lawsuit with the British government over a multi-decade contract that the Brits have not been honoring. Consolidated Water has been absorbing all of the costs associated with this contract (providing desalinated water to the British Virgin Islands), but not receiving the associated revenue. The court case is now complete and we’re waiting on the court’s ruling.
“All of my extensive due-diligence on this tells me that CWCO will win this case which will provide a judgment in favor of CWCO for (who knows for certain) but I understand about $14 Million as well as remove the obstacle from above their head. The downside, should they lose, is all baked into the stock.
“They have paid all associated costs with providing this service for several years.) However, when the ruling comes out, and I believe they will win, this one flies. When Consolidated Water wins the case, they get the judgment and they get revenue going forward for the contract that the Brits have not been paying but must pay for the service going forward.
“For these reasons, I rate CWCO a Strong Buy, even at its current price of $19.”
Quote of the Day:
“In the end, perhaps the biggest objection to nationalized health care is the ‘principal-agent problem.’ For whom does the doctor work? Ordinarily, the doctor is the agent of the patient. But when government signs the checks and orders doctors to reduce spending, it is not crazy to think that this won’t influence their ‘advance care planning consultation’. Freedom is about self-determination. Obama’s health care scheme would undermine both.”
– John Stossel, Creators.com
*** Better than your $1,000-a-year trading service: HSC members had a shot at 45 double-digit gainers this year.
Recommended Reading:
Futures market: Taking a big bet on natural gas
NEW Special Report: The Top Swine Flu Vaccine Stocks under $20
The 3 Best Chinese Stocks Under $5!
4 Top Energy Stocks You Need to Own
The TFN Complete Guide to Biotech Penny Stocks
Today’s Top 3 Financial News Stories:
NPR.org – 46 Million Uninsured: A Look Behind The Number “Also, almost one in five of the uninsured are not citizens of the United States. About half of that group — some 5 million or so — are undocumented. Whether legal immigrants should be included in expanded coverage is a matter of debate, but none of the plans being considered by Congress covers illegal immigrants. ‘Liberals can argue that we still have a moral duty to cover noncitizens, but this doesn’t change the fact that as a matter of accuracy, the Census data only tells us that 36 million Americans are uninsured, The American Spectator’s Philip Klein wrote in the March issue. Another challenge is getting people who are already eligible for existing federal health plans like Medicaid and the state Children’s Health Insurance Program to sign up.”
MoneyNews.com — Stiglitz: Dollar Reserve System Falling Apart “A new global reserve system is needed after the global financial crisis exposed the U.S. dollar-based system as flawed and risky, Nobel Prize-winning economist Joseph Stiglitz said on Friday.”
Bloomberg.com – China’s 2% Inflation Estimate Puzzles Economists as Prices Fall “The People’s Bank of China said last month that consumer prices may rebound after bottoming out in the third quarter. Central banks around the world are gauging the risk that monetary policies aimed at easing the worst economic slump since the Great Depression will trigger inflation.”
Cordially yours,
J. Christoph Amberger
Executive Publisher, TodaysFinancialNews.com
Next Article: TFN Reader Grapevine: Look at Consolidated Water (CWCO)
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