Markets yesterday were very mixed, and if not due to our diversification between stocks and actual commodities it may have been a rough day due to the weights of high beta stocks in our portfolios. We will continue to ride our horses until we cannot, and view yesterday's movement more as a breather rather than the beginning of a regression for those individual companies.
This morning we see that the Nikkei 225 is up 0.44% along with the Shanghai Composite which itself is up 0.25%. The rest of Asia is down with the commodities/dollar focused markets (Australia down 0.11% and New Zealand down 0.15%) hanging in much stronger than the Asian Tigers which are all down between 0.6-1%. Europe is also mixed, with Greece leading the way higher but one must remember that it was down sharply yesterday - volatility has picked up here and one would imagine it will continue to be bumpy for the foreseeable future.
Looking at commodities themselves it appears it will be another strong day as futures are all looking strong in early morning trading.
Currently up about $0.20/barrel in early morning trading, readers will remember we are playing this via Bakken/Williston Basin and Utica area plays. Yesterday Gulfport Energy (GPOR) saw a pullback, however it had risen quite a lot over that past few days with little resistance. Our other play which we are focused on, Kodiak Oil & Gas (KOG), broke through the $10/share level once again and held onto the gains.
The company has earnings approaching and based on what others in the area have said we are content to keep this on our bullish list. Many are growing weary of the price of oil, but with Iran barring nuclear inspectors from certain military bases, it appears they are not negotiating in good faith and news like this will only push oil higher.
Gold & Silver
Gold has now put together two straight strong days. In early trading today it is up another $7/ounce. Over the past two days, gold has risen from the 1740 level to the 1780 level twice, falling back below that level each time. Also of note, New York usually decides where gold goes, so trading today could show us whether gold can take out the 1780 level and move higher for a test of 1800/ounce.
We have said all along that we are bullish both gold and silver, however we have more exposure to silver than gold due to silver having additional industrial uses over gold. Silver has risen roughly $1 over the past two trading sessions when including today's early gains. Silver is doing a slow creep upwards, and rising in spite of many thinking we were due for a correction. We are now through the $35/ounce silver, so we will continue to remain bullish here both long-term and short-term as well.
We are going to read the Chesapeake Energy (CHK) earnings call transcript (read here) to see if we can find any interesting information in it. Last time Aubrey McClendon insinuated natural gas prices were headed lower, but I am not sure even he knew it would happen this quickly or this dramatically. The company is redefining itself, but if the move towards natural gas liquids and oil ramps up significantly across all of their acreage, we could see Chesapeake revert to its old ways - when the stock was a Wall Street sweetheart. We are still bearish nat gas prices, but are not short, simply staying away as we see the economy reinflating and have no handle on the impact of that event on the North American gas market.
Once again our exposure to fertilizers was a good thing yesterday. Potash Corp (POT) and Mosaic (MOS) were strong. The CEO of CANPOTEX, the potash exporting cartel for those not familiar with the industry, stated that they see the market recovering in the second half of the year, backing up our comments of late (see Reuters update here). We can also expect the new Chinese contract by the end of the month at the earliest, which will give us our first glimpse into the strength of the market at this point.
The big three have done a good job of managing supply, and if prices justify it the market might see mines coming back online which have been shut to stabilize the market. Potash Corp. is the company with the most excess capacity and the one expanding capacity dramatically, so they are the true growth story in the industry with Mosaic the takeover candidate.
We have not seen such strength in some of these uranium equities since the uranium bull market was raging in its latter stages of 2005-2007. Uranium One (SXRZF.PK) was strong again yesterday as was Cameco (CCJ). When the leaders are leading, it is usually wise to fall in line, and we reiterate our choice of the producers and near-term producers in the US for North American investors and African deposits for those with the ability to trade worldwide. We suspect that the price of U3O8 will rise above $60/lb over the next quarter as the recovering economy and economics of the industry will demand it. The spot market is due for a recovery, and upwards movement in the spot price usually drags the junior uranium plays along with it.
Rare Earth Elements
We saw Stans Energy (HREEF.PK) take a beating yesterday, but for no apparent reason. We are still playing their announcement regarding the economics of the mine, so this day-to-day movement is of no concern to us unless the general market begins to move against us. We knew it would be volatile and have factored this into our analysis.
The market leaders here have been taking a breather in North America with both Molycorp (MCP) and Rare Element Resources (REE) simply hanging in there. We are bullish the industry in general terms, but realize that we are at the stage in this play that it is now time to do two things - 1st trade when prices justify it and 2nd migrate towards only the strongest plays, which means moving towards those plays with the best chance of producing.
Additional disclosure: I am also long physical gold and silver.