Wednesday, June 4, 2014

Natural gas has a very big hole to fill this summer

The Polar Vortex winter dramatically drew down natural gas stocks as the numerous cold fronts worked their way through America.  While a decline is natural gas inventories is expected each year, this year America ended the winter with dramatically less natural gas in inventory.

US Natural Gas inventories - via the US EIA

As of the most recent report, inventories are 40.1% below their 5 year average. To graphically show what this means going forward, here's an estimation of how much needs to be injected into storage every day until the maximum fill date date of November 11th.

The 2014 line is the one much higher than the rest.  Note how the 2012 line was the lowest, when we experienced extremely low prices.

While it's always a guess as to when we'll hit the maximum in storage each year, (going back 19 years the average date was November 11th with a standard deviation of 9.5 days)  it is quite apparent this year is unlike many others in recent history.  Injecting ~40% more each day looks like a challenge which will not be overcome.  Injection rates depend upon the increased production, weather, industrial activity, hurricanes, and I'm sure a few other factors I have forgotten.

 IF we get a nasty hurricane barreling through the gulf, a hot summer, or an early cold winter we could have some serious inventory problems in early 2015.

I am not attempting to estimate how much natural gas will be in the ground for this coming winter but it is something to watch this summer. 

Thursday, September 12, 2013

Peak Hurricane?

Atlantic hurricane frequency - source: NOAA
So far this year we have been blessed by a lack of hurricanes on the East Coast.  As the accompanying graphic shows, we are past peak hurricane season this year without any major storms.  Of course statistics only work with a large sample size. Hurricane Sandy from last year is an unfortunate contrary example.  She struck in the last few days of October and as you can see from the accompanying graph this is supposed to be rather uncommon.   This doesn't matter to someone whose home that was demolished by Sandy.

As of right now the coast does look rather clear except for one storm named Humberto near Africa.  The current forecast is for it to rise to hurricane force winds and then fall back to a tropical storm.  One can keep an eye on any storms forming at  During hurricane season I open this window every day to see if anything is forming on the horizon.

Beyond the horrible damage, death and destruction a hurricane inflicts upon society they also play havoc with a portfolio.  Reinsurance firms, oil service companies, oil and natural gas exploration firms, and even utility companies are but a few of the sectors which can be adversely affected by one slamming into America.    Keep an eye out for upcoming storms and also consider stress testing your portfolio. If a major hurricane hit the East Coast how would it affect your portfolio?  Do all your energy stocks have Gulf of Mexico fields? What's the risk with your insurance firms, reinsurance firms?  

Disclosure: Own stock in pipeline companies, reinsurance, oil service, and major oil & nat gas companies

Edit: Reuters also notices the lack of meteorological violence this year 

Wednesday, September 11, 2013

The rising oil choke collar

Oil prices are on the upper end of the post 2008 financial crisis range. So far each time prices rose to the 110+ region they have backed down again.

Gasoline and Oil prices - source: Federal Reserve

While Syria has been getting all the news, Libya's declining oil production may be another reason for firm oil prices. A recent WSJ article (September 10, 2013) highlights the situation.   Considering the vast majority of Libya's GDP is derived from the energy sector (CIA Factbook) this does not bode well for the new post Gaddafi Libya.

I suggest keeping an eye on the price of oil. If it gets much higher it may temper the recent positive economic news.

Additional reading:

Disclosure: Own oil service, energy, and pipeline stocks

Friday, May 31, 2013

Divergence in employment growth numbers

A few months ago I highlighted how looking at the employment data on a year over year basis provides a different perspective on the numbers.  Today I'd like to bring up a divergence between the private and public data.

yoy employment data and divergence them

The green and blue lines are the ADP and government year over year employment growth data, left scale and the red jagged line is the difference between their growth rates, right scale.  What's noticeable is the divergence between them.  While it would be better to show just the absolute difference between them regardless of sign, I'm not enough of a FRED graph Meister to figure that out right now.   Right now the >0.35% difference between them is the largest on record for this data series.

Is this divergence truly exceptional? It may have been greater in the past and only later revisions tightened up the spread.

I'm not making a prediction as to which is wrong, merely it's likely the spread will narrow in the future.

Wednesday, May 22, 2013

Hugh Hendry watch - Turning Japanese

I'm a bit late in this, but here's the most recent report from Hugh Hendry's Eclectica fund.

It's a quick read so I won't excerpt from it except for one trading tidbit:  In 2008 he purchased a 10 year one touch call on the Nikkei with a 40,000 strike price !!!

Q1 Review 2013 Hendry by

ht: Mark H @fundmyfund

Thursday, May 16, 2013

Addition by subtraction -- Not all dividends are created equal

The current low bond yield, low growth environment has fostered a growing interest in high dividend yield paying stock. I myself have a separate account offering focused on this very area of the equity markets.  A number of ETF's have popped up as well over the last few years to accommodate this demand.

Some of these ETF's may not be the best designed and can show the downside of simplistic indexing. An excellent example of this is Pitney Bowes' recent dividend slashing.

For those of you unfamiliar with the company, they derive a vast majority of their revenue from helping companies snail mail packages and letters.  (Pitney Bowes presentation dated 02/12/13, page 6)  Since you are reading this post online I don't think much discussion is needed to expound upon the disruptive capabilities of the internet. The revenue chart below shows how they have fared.  I do imply anything nefarious with the company mind you, just they are stuck in a market segment that will most likely continue to experience challenges in the future.

They recently cut their dividend after several years of consistent dividend increases. The stock has not done well in the past few years.

When this company popped up on my screens for possible purchase it didn't take long for me to reject it.

As you can see from this chart from, revenue growth has been declining for years, even though dividends have been rising.

Pitney Bowes data - source:

Unfortunately there were a few dividend focused etf's which were sucked into buying the very high yield provided by the stock. Thanks to the site we can see which etf's hold the stock

Etf's holding PBI - source
Note: 20% of the free float of PBI is held in ETF's and the vast majority of the top ten etf holders were dividend focused.

Pitney Bowes shows just because a company has a high yield and a growing dividend you shouldn't just blindly purchase it.  Always do you homework and look at their long term history and prospects. A very high yield can be a sign of distress instead of opportunity.

Disclosure: Do not and never have held Pitney Bowes stock in my dividend focused separate accounts  or anywhere else.

Monday, April 1, 2013

Copper inventories swelling

I have discussed copper before and something recently caught my eye which deserves a followup post.  Copper inventories are rising rather dramatically.

Worldwide copper inventories and yearly change

As you can see from the chart above copper inventories are now at highs not seen since nearly 10 years ago.  More importantly the year over year change is quite positive as well.  The above graph is a month old but as we can see from a higher frequency chart total inventories may break 900 thousand tons soon.

Glocal Copper stocks - Source: Reuters
Copper pricing has been week recently as well and sits on a rough trendline going back to mid 2010.

Copper prices week - Source:

Why inventories are rising so quickly could be due to several forces, some of the top of my head are:

Rising production -- New mines coming online.

Declining demand -- A sluggish Europe could be assisting in keeping demand down.

Hidden inventory being brought back onto the markets -- If this is a case of Dark Copper coming back into the official warehouses it would validate some theories regarding base metals being used as financing source in China. posts dated March 31, 2011  and April, 26 2012 provide good roundups of the possibility and mechanics.

Of course only hindsight knows why copper stocks are building right now. We have to wait to find out why.

Disclosure: Short Base Metals