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We are seeing a rotation take place in high yielding stocks as the 10-year rises and until missiles actually fly in the Eastern Mediterranean it is hard to see any reason for interest rates to back off unless we get some disappointing jobs numbers this week. Syria will continue to dominate the news and one has to pay attention to the volatility this is creating in the precious metals and oil markets right now.

We do think that oil prices will come down, and quickly if the U.S. and its allies simply lob missiles into Syria and refrain from establishing a ground presence. We remain bullish of energy names though, especially those which we have spoken kindly of over the year in our morning commentaries.

Chart of the Day:

The U.S. consumer has benefited from gas prices declining recently, which was to be expected as the Holiday Weekend is over and the official summer driving season is over. So long as Syria does not escalate into a war we expect to see gas hit $2.80/gallon.


(Click to enlarge)

Source: CNBC

Commodity prices this morning are as follows:

  • Gold: $1403.80/ounce, down by $8.20/ounce
  • Silver: $23.855/ounce, down by $0.574/ounce
  • Oil: $107.92/barrel, down by $0.62/barrel
  • RBOB Gas: $2.8522/gallon, down by $0.0124/gallon
  • Natural Gas: $3.692/MMbtu, up by $0.026/MMbtu
  • Copper: $3.248/pound, down by $0.0565/pound
  • Platinum: $1524.90/ounce, down by $13.30/ounce

Utilities

We had argued earlier this year that the all-time highs that various utility companies were hitting were bullish and led U.S. to believe that the economy would be doing better down the road and not worse. That belief has held to be true, however now we notice that the utilities have come under fire and Southern Company (SO) actually hit a new 52-week low yesterday at $40.96/share before rebounding ever so slightly. This is not an indication of investors' belief that the economy will not be growing as much as expected, but rather a rotation out of high yielding stocks that many expect to decline as rates for fixed income securities rise. It is a rotation and nothing more. We would however point out that as these names trend lower it will present an opportunity to our conservative readers and those looking for a pillar to their portfolio to buy on the cheap for long-term investing.

Not too long ago we were discussing the fresh highs all of the utility names were hitting...now we are having to look at the lows. The yields are to blame, and we are of course talking about the 10-year in particular...not the dividend.


(Click to enlarge)

Source: Yahoo Finance

Oil & Natural Gas

Two of our favorite E&P names hit fresh 52-week highs yesterday early in the session before backing off. We are of course referring to Gulfport Energy (GPOR) and PDC Energy (PDCE), two names that some readers have questioned our bullishness on recently. The fact of the matter is that Gulfport actually hit an all-time high yesterday of $61.46/share and as many of the other names which are leaders in the sector have demonstrated, strength is to be bought right now.

The next leg up we had discussed only weeks ago is now underway. It should take U.S. well above $60/share, especially considering that we should have some news flow soon.


(Click to enlarge)

Source: Yahoo Finance

We were asked how we hold these two names by a reader recently and although we used to have exposure in a myriad of ways it is much more simplified these days. Gulfport is held in both a retirement account and a taxable account, with the vast majority being in the taxable account and PDC Energy is held solely in a retirement account. We no longer have exposure to either of these names via options, so our exposure is very real and held in a manner that matters to us.

We wanted to point out to readers that Murphy Oil (MUR) has completed the spin-off of its retail business as of yesterday and is now a focused player in the E&P space. We like these pure-plays and now that Murphy has cut the tie to the retail space we will once again evaluate this name on the merits of its E&P activities and present our findings here once that research project is completed.

Iron-Ore

Brazil's Vale (VALE) saw shares rise nearly 6% as investors weighed the effects of expansion in the iron-ore industry. Vale has been expanding and so too has Rio Tinto and BHP over the years. The bad news is that all of the expansion of the past few years, coupled with the economic downturn and subsequent decline in demand, has pushed prices lower. The good news is that the big names, including Vale, are pushing more supply onto the market and forcing their smaller rivals with high cost production into financial hardships which in the long-run should serve to also drive down supply and then prices higher. We are not buyers yet, but as more and more of these smaller players experience trouble the more bullish we do become.

Source: Commodities Today: Next Leg Up Currently Underway