Commodities were down yesterday, dragging our personal holdings down and leading to a red day for the entire portfolio. There were very few movers up, and the consensus was down. We do see risk returning to the market, and think that commodities will have a part in any move upwards due to a growing economy and inflation fears.
Oil is up marginally so today, but still below the $106/barrel range. Iran has been relatively quiet lately and the saber rattling in both the US and Israel almost nonexistent as of late. Good news geopolitically, however not so much for oil traders who were expecting some fireworks and a dramatic move higher in oil prices.
Prices are high enough to help many of our picks actually make money, although on a cash flow basis most will run negative. We are looking to increase exposure to EV Energy Partners, LP (EVEP) over the next quarter and hope to have an answer on how we plan to do this using limited capital in the next few days. We will be doing this of course to play the Utica news, so we have ample time to see this one through.
Sandridge Energy (SD) has been stuck in a bit of a trading range over the past 3 months and we are looking for the shares to breakout in one way or another. We feel they move higher, and may make a speculative go at a handful of shares. We cannot say when this will be, but when it looks right both at a market level and individual stock level we will make our move then. We think the company has the assets to cover cash flow needs and the goods to deliver growth to investors.
Chesapeake (CHK) sold off yesterday much like the rest of the oil and natural gas plays. We will be buyers in the $22 range and are watching this one closely. As we said yesterday we think that they are seeing extremely good results from the Utica and thus the large capital expenditures. Also, investors should ignore the 'noise' coming from politicians such as Dennis Kucinich - who is actually on his way out in Ohio and rumor has it that he may move to Washington state in order to run for Congress there. Ohio needs the jobs created by a shale boom, and will welcome them with open arms. That is a fact.
Gold & Silver
Gold and silver have been annihilated recently and it is quite apparent that the bears have won this bout. The battle may be won, but not the war and at these levels we find silver quite attractive. Currently we have limited capital as we are trying to stay within a range of leverage for the portfolio, but will look at establishing a trading position in silver moving forward. We will not be buying physical silver, but rather the tradable securities in order to be able to move in quickly and out when we so choose.
We find it rather ironic that the US and Europe are going after China to export more rare earths and telling the WTO that what they are doing is illegal. For all the free traders getting on the bandwagon such as Larry Kudlow and the Fox News staff, we would like to point out the fact that China is slowing exports to keep materials they need. Most importantly they are cutting production in response to environmental concerns. It is quite hypocritical for the US and Europe, who both refuse to drill for oil and natural gas in various areas and will not mine in others, to demand that China disregard its environment in order to fulfill their desire for low REE prices and ample supply. We have stated this before using the same argument, but how it has come to this we do not know.
We think that ultimately China will not be forced to export more REEs, as they can simply suspend production or find other means to slow exports and believe that Molycorp (MCP) and Rare Element Resources (REE) are two ways to play a move higher.
Disclosure: I am long EVEP.