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I have been keeping an eye on natural gas and I love the way the
chart looks right now for a trade. But trying to find a way to play it
without going into the futures market exposes the problems with our current
financial markets. The fraud is too prevalent and the instruments are too
opaque. I don't want to invest in natural gas stocks, but rather I want to
invest in natural gas itself as a trade.
For those who don't think it should be easy to trade paper
versions of commodities, I don't disagree. It can create dangerous price
swings in things vital to the economy and to life itself. But this is a
different issue altogether.
As someone who had a bad experience in the UNG natural gas ETF a
few years ago, I decided to look around this morning in the ETF/ETN universe.
I wanted to see what was available to retail investors who believed the price
of natural gas was heading higher and wanted to make a bullish bet on the
natural gas price. First, let me show you a 30 month daily chart of natural
gas with my thoughts and comments:
Now, here are the illustrious trading instruments in natural gas
for those who want to place bets on the price of natural gas. The following
charts are all 30 month daily charts and are plotted using a log scale. First
up, the UNG ETF:
How about the Claymore Canadian Natural Gas ETF (ticker:
GAS.TO):
Perhaps the iPath Dow Jones UBS Natural Gas Subindex Total
Return ETN (say that ten times fast...) with ticker GAZ will be kinder to
retail investors:
I guess the only way to get around this problem is to use
leverage and boost gains. Perhaps the Horizons BetaPro NYMEX Natural Gas Bull
Plus ETF with its 2x leverage can overcome the slippage these products have:
Now, let me just preempt all the arguments people will make
about these charts and these gains. First, there are issues with the way
futures contracts are rolled over, there are issues with expenses, there are
issues with the daily tracking method and there are currency-related issues
when looking at the Canadian products. The vehicles are for day trading, not
investing. Blah, blah, blah.
The bottom line is this: 99% of people who act so smart about
these ETF/ETN products were burned by at least one of them at some point.
Whether it was due to the leverage, the misunderstanding of how the daily
price moves don't track well over a period of more than one day or the
futures contract rollover issues in the case of commodity products, it's hard
to make money on some of these products even if you guess correctly on what
the underlying price will do. Every one of these products screws more than
90% of those who try to use them to bet on higher natural gas prices.
In other words, these products are for sophisticated investors
but are marketed to the retail public. This
small example in one corner of the investment universe shows how much the
odds are stacked against the retail investor. The promise/hope of riches
keeps many of us coming back to the casino for more, but the house (in
aggregate) always wins in the end.
This is exactly what happened in the housing market. Yes, it
takes two to tango and yes, people were trying to get rich by speculating in
housing. But who gave them that opportunity and why? Why were down payments
waived? Why were mortgages designed to explode after a few years created in
the first place? Why were the least sophisticated market participants put
into the most exotic products with the least chance of performing? The
answer, of course, is greed. When both parties are greedy in a financial
transaction but one party is sophisticated and educated and the other isn't,
guess who usually wins?
Our federal government not only allowed this fraud to occur
while they witnessed it, they actively participated in it. Thru the government-sponsored housing agencies, the housing
bubble was made much worse than it should have been and houses were made even
more unaffordable for those who didn't want to speculate on home prices. Now,
by buying lousy mortgage paper and re-financing loans that should be allowed
to fail, the government puts our currency at risk so that private banks can
stay afloat. Those who want increased government regulation don't understand
that the government aided and abetted the financial fraud and is still doing
so to this day. The rules are already there to prevent such idiocracy, so its
not a question of passing new laws and bills with expensive pork attached.
Right now, the SEC is intentionally ignoring the fraud in such
ETF/ETN instruments as those above related to natural gas. These products are
way too sophisticated for retail investors, but man, they sure do make Wall
Street a lot of money and we all know who pays the campaign bills. The CFTC
is ignoring the manipulative short positions in the Gold and silver markets
because it is in collusion with the financial firms engaged in this illegal
market manipulation. Don't worry, no one sees it coming so we can all act
surprised when it blows up and we give more taxpayer money to our financial
masters and government agencies to bail them out.
The fraud is too prevalent to allow a sustained stock market
advance from current levels. When you can't believe a balance sheet, how can
you invest? When the government is complicit in massive fraud on a scale that
makes hardcore cynics blush, how can you trust in the stability of markets?
When secretive and opaque markets are allowed to be used to raid entire
countries, who is really in control?
The best most retail investors can do is to buy and hold whatever
is in a secular bull market. Currently, the only decent looking bull market
around with an opportunity for significant long-term gains is in Gold. That's
right, a shiny piece of metal that doesn't taste very good when you try to
eat it. Gold works when confidence in the paper promises of apparatchiks and
teflon Wall Street dons evaporates. The carnival barkers would prefer you
stay in the casino so that they can finish their financial rape job on you.
The choice is yours. When the Dow to Gold ratio gets
back to 2 (or even less than 1), will you have any money left to invest in
the sound, cash-producing companies left standing?
Adam
Brochert
GoldVersusPaper
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