|Dow||+183.54 to 18,024.06|
|S&P 500||+22.76 to 2,108.27|
|Nasdaq||+63.97 to 5,005.39|
|10-YR Yield||+0.07 to 2.117%|
|Gold||-$8.60 to $1,173.80|
|Crude Oil||-$0.42 to $59.20|
One dime. Ten measly cents. That’s how close U.S. crude oil futures got to $60 a barrel in the early morning hours today, before pulling back. That move leaves oil up a whopping 42 percent from its mid-March low!
And how about the global price benchmark, Brent crude? It just notched the best month since May 2009 — almost six years ago!
Naturally this has been great for oil stocks. Many of my recommendations in that sector are on fire, hitting four-, five-, even six-month highs, and I couldn’t be happier.
But could there be an intriguing NEW play on $60 oil? One many on Wall Street are overlooking? My work suggests that’s the case.
I’m talking about natural gas. Woefully beaten down “natty,” recently trading for around $2.70 per million British Thermal Units (BTU). That’s down from more than $6 as recently as last winter, and more than $15 in its 2005 heyday.
Why is gas so cheap? Because we’ve been swimming in it! Massive production from shale regions has boosted inventories substantially, leaving us with an even-bigger glut than we had in oil (relatively speaking).
But yesterday, something big happened. Natural gas futures surged more than 5 percent after the Energy Information Administration (EIA) reported an 81 billion cubic feet build in supply. That was about 10 billion shy of estimates. It also left gas supply up 76 percent from a year ago, down from the previous week’s 83 percent surplus.
Not only that, but gas rig counts have absolutely collapsed! According to Baker Hughes (BHI, Weiss Ratings: B-), only around 222 rigs are drilling for gas these days. That’s down 37 percent just since the fall, and a whopping 86 percent from the 2008 high. It’s also an all-time low, as you can see in this chart:
Click chart for larger version
As for demand, we’re seeing more and more power companies shift over to burning gas versus dirtier and more expensive coal to generate electricity. Plus, industrial demand for gas remains robust. The EIA believes gas consumption will climb almost 4 percent this year to 76.34 billion cubic feet per day, a number that could prove conservative at these compelling prices.
Now, I’ll be the first to admit that we’ve seen some “flash in a pan” rallies in gas over the past year and a half. And gas-heavy energy stocks have been trading like death warmed over, relative to those with more oil exposure.
But I have to tell you, I’m intrigued here. If some of the same trends that have already started boosting oil stocks spill over into the gas space, we could be in for one heck of a ride.
|“If some of the same trends that have already started boosting oil stocks spill over into the gas space, we could be in for one heck of a ride.”|
Now there are some generic ways to play it. You could buy something like the First Trust ISE-Revere Natural Gas Index Fund (FCG) and make out okay, if I’m right. It owns a diversified portfolio of 30 gas producers and explorers, and sports a reasonable expense ratio of 0.6 percent.
But I’m eyeing some even more aggressive plays. I’m talking about companies that have been absolutely beaten to a pulp … but that could rise like a phoenix if gas starts making a comeback! I can’t share more details here just yet — but stay tuned. I should have more for you in due time.
For now, let me know what you think! Is there a promising future for nat gas and gas stocks? Or is this latest rally just going to flame out? Do you think they offer more or less value than oil stocks, and if so, why? Let me know over at the website!
|Our Readers Speak|
The discussions online were all over the place in the last 24 hours — and that’s a good thing!
Reader Henry B. said he doubts the recent rally in the euro will amount to anything in the long run. His view: “I know you short-term market people like to over-dramatize small movements in prices. But in regards to the euro, last summer it was at $1.30 or thereabouts. I know because we had to buy some. So I think the euro is still pretty cheap and will probably remain so for the next several months.”
Reader Jim weighed in on the issue of water supply and drought, saying: “I keep reading more about the growing water shortages, not just out West, but in the Plains states as well. The logical response is to let water prices adjust until supply and demand rebalance, but I’ll bet our socialist politicians will have none of it.
“I think we can expect a new host of ‘water Nazis’ to insist on monitoring every drop we use. This could make Badger Meter (BMI, Weiss Ratings: B+) an interesting play.”
Reader Tommr discussed the risk of rising interest rates, and what it means for rate-sensitive stocks. His take: “I have been selling off my utility stocks and REITs for a couple of months now in anticipation of high interest rates. I have also been adding to my European stocks in a hedged ETF.
“If I see that the euro currency is turning around, I will switch to an unhedged European stock ETF. I have been sitting painfully on a short position in the long dated U.S. Treasury Bond. I hope this will finally pay off here in the near future!”
Finally, Reader Jeff said he doubts rates will climb very far despite their recent move. His comments: “Sorry Mike, I have to disagree with you, Gross and Gundlach on bond rates, in Germany and in the U.S. The small rise in German bond yields is no surprise, given how extremely low they had gotten. But I see the current movement as just a small temporary correction.
“QE and only QE is keeping the global economy afloat, the Fed’s QE for years and Europe’s QE now. If rates rise, the global economy sinks. (By the way, isn’t this the idea behind the fear of a ‘Bloody Wednesday’?)”
Phew, that’s a lot of ground to cover! My quick thoughts: The euro hasn’t moved much … yet. But given the fact the entire world has been short the currency in massive size, and the shift in global economic momentum, I believe we’ve seen a significant change in trend. That means it could carry much further in the months ahead.
On water, BMI is an interesting company I haven’t done much research into … but will do so going forward. It seems like their recent earnings weren’t too much to write home about, thanks to headwinds from a rising dollar and weakness in the oil and gas industry. But if the euro and energy trends are reversing as I believe, those headwinds could turn into tailwinds!
As for interest rates, it sometimes seems like waiting for Godot when it comes to waiting for rates to rise. But this week was a big start!
Keep those comments coming, as they help keep me on my toes — and help your fellow investors! Here’s the website link again.
|Other Developments of the Day|
$160 billion. Billion with a B. That’s how much value was vaporized in European government bonds this week. Bloomberg calls it the worst wipeout in at least 22 years, and it goes to show just how dangerous buying into massive bond bubbles can be!
Are wage-earners finally getting a bigger piece of the pie in America? That’s what the Wall Street Journal argued in a piece today. The paper highlighted the 0.7 percent rise in the employment cost index in Q1, a faster rise than expected. Wages and salaries at private employers climbed 2.8 percent, the biggest rise in six-and-a-half years.
The NFL Draft took over Chicago yesterday for the first time in a half-decade. Things went off without a hitch, unless you count the multiple rounds of booing for Commissioner Roger Goodell!
Quarterbacks Jameis Winston and Marcus Mariota went #1 and #2 to Tampa Bay and Tennessee. Plus, there was less overall wheeling and dealing than I expected.
What’s with these Internet companies anyway? That’s what you have to wonder after watching job-search and networking company LinkedIn (LNKD, Weiss Ratings: C) implode on lousy earnings. Restaurant review site Yelp (YELP, Weiss Ratings: C) and social media company Twitter (TWTR, Weiss Ratings: C-) also collapsed in the wake of disappointing quarterly results.
Stocks aren’t in a bubble … yet. That’s what noted conservative investor Jeremy Grantham of Grantham, Maya, Van Otterloo & Co. argues. He said stocks could rally another 8 percent or so before being radically overvalued.
Would you buy today’s crop of dot-coms … or dot-bombs? Did you watch (and enjoy) the first round of this year’s NFL Draft? Are stocks in a bubble or not? Hit up the website and let your opinion be heard!
Until next time,