Commodities: Natural Gas In Free Fall, When Does Oil Follow?

The price of natural gas is in a free fall. This week the price of the energy commodity plumetted to the lowest point since 2002 (bespokeinvest.com). This is reaction to the mild winter in the U.S. (reduced demand for heating) and a rising supply (businessinsider.com). But the oil price is sticking close to the $100 mark and didn`t move much in the recent months (marketwatch). This is somewhat surprising because both commodities are used for heating and producing electricity.

It seems that the market for natural gas reacts to the economic fundamentals and the market for oil doesn`t. The market for oil ignores the mild winter in the U.S. and Europe and the rising oil production in the U.S. and other Non-Opec-countries (cnn.com). It also ignores the shrinking demand for the commodity in the U.S. and Europe. Bloomberg wrote that gasoline consumption fell to the lowest in 10 years in the U.S., which is the world’s biggest crude consumer (bloomberg). U.S. demand for oil products in the latest four-week period was down 7.2 percent from a year ago, according to Societe Generale SA. I guess that U.S. companies and consumers now are reacting to the high gas prices at the pump and to the mild winter.

But it seems that the price for Oil is not driven by the facts, instead just by speculation & rumors about what could possibly happen in the future. In the spring the price for oil was high because of speculation that the war in Iraq might almost last forever, hindering the oil flow from this important producer country. As the war ended the change was ignored because of speculation that Iraq`s oil production would need many years to recover. Now Iraq is back on the oil market, but this is again ignored because of speculation that Iran may reduce its supply or close the straits of Hormuz, stopping the oil transports from the Arabian neighbors (drivebycuriosity).

These rumors are spread by a mighty group of speculators who seem to control the market for oil, including a bunch of hedge funds, who invested billions of dollars into the commodity, and banks like Goldman Sachs, who earn big amounts by trading commodities.

The situation reminds me of 2008 as the price of oil climbed to $147 even the recession had already started.  This price explosion was caused by rumors about alleged supply disruptions spread by Goldman Sachs and others (drivebycuriosity). In the second half of 2008 the price of oil imploded because the exorbitant high oil price destroyed the demand for this commoditiy.

Movies: My Week With Marilyn

 

(Drivebycuriosity) - Congratulations, Michelle Williams! Last weekend the actress gained the Golden Globe for "Best Performance by an Actress in a Motion Picture - Musical or Comedy" (imdb). Williams incarnated Marilyn Monroe in the movie "My Week with Marilyn", directed by Simon Curtis (imdb).

It`s a charming film about Marilyn `s little love adventure while she was shooting an unimportant flick ("The Prince and the Showgirl") 1957 in England. Williams represented a very complex Marilyn. If we believe the plot the mega-star was sometimes very unsure and innocent. Otherwise she indulged in the freedom provided by her English visit, including a short love affair, almost as a child would.

Williams`performance gives the film a lot of grace. I also enjoyed the nostalgic patina of the flick, which fit well into the now apparently fashionable 20th century movies  ("Iron Lady", "Edgar", "The Rum Diary").

Investing: Time For An Uranium Revival?

Uranium stocks are the bad boys of the stock markets. They fell in disgrace after the shock from Fukushima (CNBC). Japan will reduce its nuclear power and eco-centric Germany will fully abandon it.

But otherwise energy is getting more and more expensive. Oil costs now around $100, around 4-times the average price of the 90s. There is a lot of speculation that the supply of this energy commodity might be endangered by political tensions (Iran conflict). Alternative energy sources like photovoltaic or wind power are still very expensive and inefficient. Therefore China, India and other nations are still expanding their nuclear power to reduce their dependence from the unreliable oil supply and to keep up with the rising energy demand in the coming years.

This week uranium stocks showed a rally. The management of Denison Mines (DNN), one of the smaller North American uranium mines, announced that it expects a 40% Y/Y increase in uranium production this year (seekingalpha.com). The company also plans to "aggressively" pursue exploration and developments projects in the U.S., Canada, Mongolia, and Zambia.

Maybe this year we will see a revival of uranium mining stocks, especially if the price of oil continues its rise and the economies in U.S and Asia continue getting stronger creating a rising demand for energy. But uranium mining stocks still have an above-average high risk because of political resistance. Some stocks like Dension Mines, are too volatile for my taste (finance.yahoo). The stock price of Dension Mines is still too close to the $1 mark. Below that it would be a penny stock, which are usually off limits. The stock of the Canadian-based Cameco (CCJ) — the world's largest uranium miner (finance.yahoo) - looks more reasonable.  But this company also depends on the skill of the management and on finding and exploring new uranium resources. Special events like a water invasion in one of the mines could spoil the profit of a whole year.

Investors who want to bet on an uranium revival could buy an ETF on uranium miner stocks. I found just one pure play on this metal: The Global X Uranium ETF (URA). This ETF invests in a basket of uranium miner stocks (globalxfunds.com) (seekingalpha.com).

Investors who want to try their luck with the whole nuclear sector could buy the Market Vectors Nuclear Energy (NLR). This is a basket (finance.yahoo) (seekingalpha) of uranium miners plus stocks of energy producers who use nuclear plants like the U.S Constellation Energy Group (CEG  finance.yahoo).

But these ETFs, which are diversified portfolios, are still risky because there might be a high correlation between the stocks (going the same way). Therefore I would consider these ETFs just as a cautious addition to a well diversified portfolio.

Disclaimer: I don´t own uranium stocks or other energy related investments.

Globalization: On Asia We Can Trust

If we believe the headlines the world is following Europe into a new recession. But the facts show a much more benign picture of the global economy.

Today we got news that the industrial production in China is reaccelerating. Bloomberg reported that  Chinese manufacturing increased 12.8% in December from a year earlier, more than the median estimate of 12.3% in a Bloomberg survey and a 12.4% increase in November (bloomberg).
On Sunday we learned that the industrial production in India rebounded to a growth rate of 5.9% in November (minus 4.7% October  bloomberg). Today we also were informed that the exports of Singapore rose in December driven by pharmaceutical shipments and that the Japanese government maintained its assessment that the economy is still picking up from the March earthquake (bloomberg).

Last week people in  Beijing were rioting. Not, because their children don´t get enough food; no, they got angry because the newest Apple  gadget, the iPhone 4S. was sold out (bloomberg).

These data show that Asia, the growth engine of the global economy, isn`t damaged by the European mess, instead it`s gaining steam. The new strength in  Asia should also rekindle the economies in U.S. and Europe. Today we heard that the Empire State factory index, an early indicator for manufacturing in the U.S.,  jumped to 13.5 in January (December 8.2  marketwatch), a sign that the U.S. economy might gather steam too.

Iran Conflict: And The Winner Is……

The Iran conflict rules the headlines. There is much ado about possible sanctions against the country (because they are accused of developing nuclear weapons) and how Teheran could respond to these measures. Now Iran is threatening that it might to close the Strait of Hormuz, an important waterway, and hence stop the transport of most of the Arabian oil to the west. As a respond the price of oil sticks close to the $100 mark even as the demand for oil is falling in the U.S. and Europe (bloomberg). Without the Iran conflict the price of oil would be significantly lower, because the price of oil contains an Iran premium (marketwatch.com).

The winner of the Iran conflict is ……..Iran! The country has just one noteworthy source of income : Oil. Teheran is one of the leading exporters of oil and an influentual member of OPEC (wikipedia). Because the country`s wealth and fate depends on oil, Teheran is getting stronger when the price of the commodity is rising.

The Iran conflict has been smoldering for years (wikipedia). All the talking about possible sanctions and the measures already taken didn´t stop Teheran from advancing it´s nuclear program yet. The Iranian government didn`t show any reaction at all.  All the talking about possible sanctions & reactions didn`t do any harm to the Iranian government but the notorious conflict keeps the price of oil artificially high for years.

The high & rising price for energy is harming the U.S., Europa and Asia and is slowing the upswing of the global economy, but it is beneficial for Iran. For years the artificial high oil prices, the Iran premium, flush billions of dollar into the cash boxes of Teheran. The Iranian government can use these amounts to strengthen its global power and to invest in their nuclear program and in their army. Therefore the conflict makes Iran stronger & stronger.

Movies: The Iron Lady

 

(Drivebycuriosity) - What a mess! Europe could badly need a very charismatic person to bail it out. It is interesting timing that recently started the movie "The Iron Lady" in some cinema theaters. It`s a biopic about Maggie Thatcher who changed history and revitalized the UK, at least for some decades.

The film, directed by Phyllida Lloyd (imdb), isn`t a political manifest, nor does it care much about the economic aspects of the Thatcher revolution. Instead Lloyd and her script writer Abi Morgan ("Shame") painted a very emotional picture. As usual the story is told in flashbacks. It`s about winning power and loosing it. The flick shows both, the pain and deprivation of the old age and the short intoxication of gaining power and influence.

The center of the movie is - of course - Meryl Streep. It´s really impressive how this American actor incarnates the very English politician. The Hollywood icon plays both characters perfectly, the elderly person who is loosing her grip on reality, and the very optimistic courageous woman who is fighting everyone for her ambitious convictions by using charm and a lot of wit. By the way: "Iron Lady" is shot in a pleasant tone with a bit of patina and more entertaining than I expected.

Well done, Mrs. Streep, Mrs. Lloyd and crew!

Investing: Who Needs Fund Managers Anyway?

One of the articles that got recently my attention was a Bloomberg report with the headline "Funds Trail S&P 500 Index By Most Since 1997" (bloomberg). The S&P 500 (Standard & Poor’s 500 Index) is the traditional benchmark for the performance of U.S. stocks and the Wall Street.

Bloomberg reported that "equity mutual funds had their worst year since 1997 relative to the Standard & Poor’s 500 Index". Among about 4,100 funds that invest in large-cap stocks, 17 percent beat the benchmark index for U.S. equities last year, the least since the 12 percent recorded in 1997, based on data from Chicago-based Morningstar Inc. Most funds performed worse than their benchmark gauges, wrote Bloomberg.

This is not a surprise. The average of the managed funds performs generally worse than the index because they are very costly and burn a lot of money. The fund managers are usually clueless and are just gambling with the money of their clients. When the stocks fall, they get pessimistic and sell. They have to buy the shares back, when stock prices rise again. Very often they sell cheap and buy dear.

The transactions (selling & buying of stocks) add to the other costs of the fund (salaries of the fund managers, research, administration, lawyers, marketing and more). These transaction costs are paid with the money/portfolio of the clients and deteriorate the performance of the fund. To say it shortly: Managed funds are a waste of money.

Investors who want to participate in the stock market find cheaper alternatives: ETFs (Exchange Traded Funds) on indices. There are at least 2 ETFs which track the S&P 500:  The "iShares S&P 500 Index Fund" (IVV) (finance.yahoo) and the "SPDR S&P 500" (SPY) (finance.yahoo).

These funds invest only in stocks which are part of this index and they have the same structure (you can find more informations, including how the deal with dividends on the blog portal Seeking Alpha seekingalpha.com). Investors can buy & sell these ETFS on the stock market like stocks with the same transaction costs.

These ETFs are more cost-efficient than the usual (managed) funds because they save the money for research & funds manager (which they don´t need) and have less costly transactions (speculations). Who needs fund managers?