1. I received a near firestorm of emails yesterday relating to Natural Gas. Natural Gas is mostly methane. By-products include propane. It burns cleaner than most fossil fuels and there are huge worldwide supplies.
2. Bottom Line: It's not about to go off the board, to a price of zero. Sadly, most of the emails I got seemed to be carrying an undercurrent that "I'm about to lose everything, maybe I should just sell it all at the market right now!"
3. I won't be joining you. I'm accelerating my natural gas buy programs. Natural Gas is a major commodity. When a major commodity declines in price towards zero, it becomes less risky to own, not more risky. I suggest you read this paragraph only ten thousand times if you dumped your natural gas yesterday in terror, as it became less risky to own. "I want more risk! Raise that price so I can buy it and then lose more as it declines!" That's not the mindset you should be seeking if you want to make consistent money in the markets.
4. I like to operate out of the limelight. If something gets too popular, I look elsewhere. The ETF United States Natural Gas Fund became a huge entity holding a substantial portion of the total natural gas futures contract open interest.
5. Just as the price to earnings ratio of a stock can rise or fall in relation to the market price of stock, so can a premium or discount develop, and rise and fall with a fund, in relation to the underlying commodity.
6. Just as investors swarmed into the US Nat Gas Fund (UNG-n), they are now swarming out of it. It's a stampede to the exits, a run from an "it's on fire!" premium of approx 17%. That is a $9.18 net asset value versus approx $10.72 market price as of Aug 31st Monday closing price.
7. When you buy a stock with a PE ratio of say 20, do you sell it in terror because it the PE ratio might tank? What about a gold stock with a 200 to 1 PE ratio, do you sell that in terror? No. If you own Natural Gas, you own a major asset you can build wealth with.
8. When you get into trouble with a fund like UNG-n, is when YOU let big price air pockets develop between the price you paid and the market price. The market didn't create that gap. You did. Think about that. Action or non-action cause movements in your account. Take the approach of responding to price with action, not non-action. Or you will fail in the markets. If you "knew" Natural Gas was about to soar a few months ago, I'll bet money many of you now "know" something is "wrong" with UNG, so it should be bailed on. Question: What do you really know? I personally don't "know" anything. I work in terms of possibilities. Not probabilities, and certainly not "knowledge". While I've perhaps read more text from Edwards and Magee more times than anyone else in the gold community, I don't claim to "know" anything about charts. My only "knowledge" is that if the price of a major commodity falls, I am a buyer. If it rises, I am a seller.
9. I also know this: If anyone gets in my way when I'm pressing my buy button into nat gas weakness or my sell button into nat gas strength, I won't be very happy, to put it mildly.
10. Enough of the stick. Here's today's major carrot: Many of the big US ETFs are mimicked in Canada in a smaller way. These Canadian funds aren't bulls-eye targets for the banks and regulators because they are just too small. They do approx the same thing as the big name ETFs, but on a smaller scale.
11. The Claymore natural gas ETF carries about a 2% premium to its net asset value. Maybe that premium rises, maybe it doesn't. Right now, it is a far cry from the 17% premium on UNG.
12. When you buy items traded on the Toronto stock exchange, there is a currency issue. You need to accept that. If the Canadian dollar rises against the US dollar, your commodity ETF may not rise that much in price, true. But you are making money on the rise in the CAD and you don't to worry (as much) about the banksters using your ETF as a massive arbitrage target.
13. When I start buying, I focus on how stupid I am, not how smart I am. So I'm a buyer of Natural Gas in increasing size into all price weakness, all the way to zero. If you blew all your risk capital focusing on how high gas would go, how much reward you would make, all you will make is: a big error. The big money in any market is always made by managing risk and getting involved when everyone is bored or has thrown in the towel. Soon nobody will be paying attention to natural gas.
14. Likewise, few are paying attention to the Dow. Shorts have mostly bailed, fuelling the market higher. The few that are left look like the human torch. Longs are drifting in, lead by the golf ball advisors, buying from insiders like Bill Gates. After all, what does he know, he's only one of the richest men in America, selling about 20 million shares of his own stock over the past month as Microsoft soared 70% in 6 months. What a loser. He better get out to the golf course and learn how to be a good price chaser.
15. Earth to Retail Investor Pinheads on Mars: Here's somebody who IS paying attention to the Dow: Sept. 1 (Bloomberg) -- Paul Tudor Jones, the billionaire hedge-fund manager who outperformed peers last year, is wagering that Goldman Sachs Group Inc. and Morgan Stanley got it wrong in declaring the start of an economic recovery. Jones's Tudor Investment Corp., Clarium Capital Management LLC and Horseman Capital Management Ltd. are taking a bearish stand as U.S. stock and bond prices rise, saying that record government spending may be forestalling another slowdown and market selloff. The firms oversee a combined $15 billion in so- called macro funds, which seek to profit from economic trends by trading stocks, bonds, currencies and commodities. "If we have a recovery at all, it isn't sustainable," Kevin Harrington, managing director at Clarium, said in an interview at the firm's New York offices. "This is more likely a ski-jump recession, with short-term stimulus creating a bump that will ultimately lead to a more precipitous decline later."
16. "What's a Paul Tudor, is that a new bank stock I should buy?" -Joe Golf Ball Advisor.
17. The Dow daily chart is a picture of a car running out of gas. Technical indicators are failing to confirm price and rolling over one after another. Here's a look:
18. I continue to build my short position into this Dow strength. If you take a simple look at the indicators on the Dow weekly chart and the Dow monthly chart, you see the Dow as "two-faced". The "big 4" oscillators are RSI, Stochastics, MACD, Trix.
19. What's an oscillator? It's a technical indicator that "oscillates" with an implied ceiling and floor range. There could be a specific ceiling like with RSI and Stochastics 0-100 range, or the ceiling and floor could be unlimited. The weekly Dow chart shows all of the big 4 heading into or towards possible ceiling territory. The weekly chart shows the exact opposite. The big 4 are almost "screaming buys, coming off the "floor".
20. In a case like the confusion created by the Dow "Two Face" we must look towards the daily as a lead indicator. While the indicators are toppy on the daily, the question is whether they are toppy enough to cause the monthly chart buy signals to fail. Are we looking at a big Dow sell-off or a small one? Here's the monthly:
21. I don't think the jury is in yet. Which means you need to keep the size of Dow short positions modest, and be prepared to buy the Dow at much lower prices. End of story.
22. "America doesn't make anything anymore." Sure, and Bill Gates didn't MAKE Microsoft Windows, it just appeared out of thin air. I'm sure Bill Gates tosses in his bed at night thinking, "If only I could make a real rotary dial phone or a horse and buggy, then I could be a real manufacturer. Instead I've ruined America!" Hands up everyone with no computer. If only Intel could make a proper loaf of bread or a 1957 Chevy instead of these useless Pentium Chips, then America would be moving forward. The reality is that soon there will be hologram screens, cars that drive themselves, vast medical advances. By the time the taxpayers finish paying the interest on the government debt, Johnson and Johnson will probably have a Star Trek Cancer Remover that retails for $1000, with a 99.99% success rate. Thank goodness America got out of the horse and buggy manufacturing business and is leading the computer age. The only thing stone age about America is the government, aka the "Gman". And it's the same for Gmen all over the world. They operate out of the stone age while business engineers a spectacular future. The gman profits more than the oil companies from the burning of fossil fuels, which is why electric cars are in turtle-mode, like everything the Gman touches. Well, everything except his debt. That's not in turtle mode. Since the Gmen are just managers, and it's not their debt, they don't care how much of your money they spend, borrow, print. Or steal for that matter.
23. "A new law a day keeps the taxpayer away." -Gman's motto.
24. Do not ignore gold stocks. When the Dow melts away, buy it. America isn't finished. The Gman may wreck the dollar. If he does, the Dow will hyperinflate. The Gman can confiscate your gold. He won't touch your gold stock because the gold companies are where he'll get his gold!
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Stewart Thomson is a retired Merrill Lynch broker. Stewart writes the Graceland Updates daily between 4am-7am. They are sent out around 8am. The newsletter is attractively priced and the format is a unique numbered point form; giving clarity to each point and saving valuable reading time.
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