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Lucas Finco
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I operate my own data analysis consulting company Quadlet LLC. Some samples are available at http://www.quadlet.com/ Make sure to visit my blog! at http://quadlet.blogspot.com/
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  • KED a good pairs trade.
    The Kayne Anderson Energy Development fund is a closed-end fund that invests at least 80% of its assets in energy companies.  A closed end fund is a fund that has a limited number of shares that trade like a stock.  They hold a diversified You can see a list of KED holdings HERE.

    Closed end funds usually have more volatility than the sectors they track because they have less of a float and the owners of the shares usually do not move in and out of the stock.  For instance, right now KED is trading at a 9.1% discount to NAV.  This means that you are buying into the fund's companies at less than their market value.

    We can use this volatility to our advantage in a pairs trade.  By trading KED against an energy sector ETF, we can hedge away market risk and capture the inefficiency of the market for KED.  Even if sellers of KED are correct and the diversified energy holdings of KED are headed down, then the entire energy sector should also head down.  This makes KED a good candidate for a pairs trade.  If we pair a long KED position with a short XLF position, our market risk is hedged and we can profit from the inefficient market in KED.

    Below is a chart of KED vs XLE for the past year.

    KED vs. XLE

    They have been trading off kilter now for about 3 months.  They should return to an equivalent return over the long run.  Could be an easy 5-10% return with little to no risk.



    Disclosure: I am long KED.

    Additional disclosure: Short XLE
    Mar 06 8:35 PM | Link | Comment!
  • Buying Gold Stocks vs. Gold

    recently heard from Charles Nenner from the Charles Nenner Research Center that he likes the gold stocks better than outright buying gold right now.  He claims that gold stocks have been lagging gold for some time now, so I decided to investigate.  Here is a gold mining ETF GDX plotted against GLD, the gold ETF, plotted on Yahoo! Finance:

    GDX vs. GLD

    I appears Charles is correct and the mining stocks would make a good pairs trade with GLD.  If you're looking for a little less risk, the mining ETF XME is also showing this diversion:

    Disclosure: No positions

    XME vs. GLD

    Jun 22 11:01 AM | Link | Comment!
  • New Nuclear Fuel

    Many analysts have predicted a future shortage of Uranium. Some rumors on the net and in the broadcast media say that known reserves of Uranium will only last 50 years at current usage rates. For this reason, many commodity traders and speculators have been bullish on Uranium in recent years. The spike in new reactor permits would tend to lend credibility to their arguments. Increased demand with limited supply will lead to higher prices.

    So, how high can it really go? The beautiful thing about free markets is that they are self-correcting. High prices are the cure for high prices. As the price for Uranium increases, there is a price that is high enough that it is no longer economical to produce electricity. For example, it might be cheaper to produce your power from wind, solar, oil or natural gas, depending on their prices. The situation is a little more complicated than a single supply & demand curve. Now, factor in nuclear fuel pre-processing, safety and nuclear proliferation issues, and nuclear waste concerns, and you’ve found yourself in a big mess.

    However, there is a substitute for Uranium. Thorium is a similar element that can also be used to produce nuclear power. It is easier to process into fuel, safer to operate, easier to dispose of, and is much more abundant on Earth than Uranium. The Thorium fuel cycle also does not produce Plutonium 239, which is used to make nuclear bombs. It really is a much better source of nuclear fuel. That is why modern nuclear “Generation IV” reactor designs are built to run on Thorium, NOT Uranium.

    I could only find one stock ticker to buy into the Thorium future: THPW. Might make for a good investment. Make sure to read up on the company at http://www.thoriumpower.com.

    Disclosure: Long THPW

    Jun 15 12:18 PM | Link | 3 Comments
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