Vikram Saxena

Natural Gas ETFs: Not a Good Investment

NGAnalyst:

1) GAZ was trading without any premium to NAV till they too decided not to issue new shares. Last Thursday (8/20) the news leaked and since then it has built up a healthy premium to NAV which lead to the run its price. The spread between NGX9 and NGV9 has also increased; it is showing up in a percentage change plot of GAZ.IV versus UNG.IV

2) UNG does not lose value just because of the roll. The total value does not change simply because they now own smaller number of contracts at a higher price. However UNG does not benefit from the higher price of the new contract because of negative roll yield. The spread between the two contracts (plot NGV9 - NGU9) widens just prior to the roll date, further short-changing UNG holders.

Zero Hedge's Bloomberg Podcast: Why Did Bloomberg Delete It?

I read somewhere that the total profit from the insider trading for which Daniel Ivandjiiski was debarred by FINRA was around $800-$900. Yes, you read it right. He was debarred for an amount that was less than a thousand dollars. There are people on Wall Street who spend that much on a single meal.

ZeroHedge is taking on the titans of the financial industry and I can completely understand their need for anonymity. However, ZH should not only ensure that their claims are properly substantiated (they typically are), but also that the conclusions reached do not need a stretch of imagination (which they often do).

Though I read ZeroHedge to get a better picture, you can not trade based on what they write.

UNG Hasn't Changed the Laws of Natural Gas Supply and Demand

William,
The problem with UNG is the contango roll costs. You can look up the forward curve for natural gas
finance.yahoo.com/q/fc...

The price for the January '10 is a full $2 above the price of the Oct '09 contract. This a lot more than the same spread next year; Jan '11 is just $1 above the price of the Oct'10. If you go further out, the difference between the Oct and the next Jan contract is even smaller (70-80c). So even if the price of Natural Gas rises in a few months, UNG investors will be short-changed since the forward curve is already pricing in the rise in the price of natural gas.

Since UNG and other commodity funds have become very big players in the futures market the market games them. Plot NGV9-NGU9 and you notice that the spread went up from around 25c to 40c just as UNG was rolling over.

In the short term the market is really depressed because storage is almost full since supply is not diminishing at the same rate as demand, thanks to new shale wells which have very high output initially. The September contract collapsed in pricing as it got close to expiration; there is the same risk even with the October contract. Over the past 4 weeks the spread between October and November contract has widened by almost 30c!

Right now the premium to NAV for UNG is close to 14.2%. GAZ is relatively less pricey though its premium shot up as the news about GAZ not issuing more shares leaked out yesterday.

What we need is a product like USL which has an equal weighted portfolio of contracts spread over an year. Such a fund can capture the structural moves in the pricing of natural gas. Right now UNG is just a proxy of the front month contract.

U.S. 5 Year Bond Auction Effectively Fails

There is a lot of emphasis being placed on foreign buyers and their lack of interest. However we need to look at the bigger picture.

(1) The yield curve is very steep especially in intermediate term bonds. So going out an year or two gives you over-sized gains in yield. With the risk appetite growing, bond buyers might be willing to extend their duration and start moving further along the steep curve instead of crowding into the shorter term maturities. This seems to have been reflected in the good 7 year auction.

(2) The local demand for US treasuries is going to increase as the US savings rate goes up, and the boomers retire and shift towards less risky investments. So while foreign demand will continue to be critical, the pendulum will likely swing back as more Americans try to secure their nest-eggs in the perceived safety of Treasuries. The spreads on High Yield, Corporate and MBS have come back close to pre-Lehman level and a result treasuries are going to see an increased domestic bid vis a vis non-govt. bonds.

Is the U.S. Dollar the Fed's Next Weapon?

Whatever the US will do, Euro-zone will have to do. They will just take their own sweet time to do it. The Western world is caught up in a cycle of competitive devaluation so any gains in the Euro are going to be fleeting.

The currencies of interest should be the commodity currencies (NOK, AUD, CAD, BRL, NZD, even the RUB), not the EUR.

Yields Soar as Mortgage Bond Holders Start to Sell

I was betting that TBT will go down. However to keep my risk limited I used options, since it limits my max loss. I used a put spread to reduce the theta (time decay) while capturing most of the delta (price based movement). Regarding strikes, I opened the long leg, at or near the money, and the short leg at or near my downside price target.


On May 28 12:08 PM RiskReturnOptimizer wrote:

> Please elaborate your Long TBT Bearish Put Spread position.
>
> This one is very interesting to me, since TBT is already double inverse
> price of 20 year treasury.
>
> Put spread is buying one put and selling another put.
>
> What strike prices are you using?
>
> What exactly is the derivative trade (e.g., put spread on a double
> inverse index) ....... is there is simpler bet on direction of treasury
> yield?

Higher Mortgage Rates Are Not a Threat

The difference between the past and now is that most buyers do not want to use ARMs anymore. Even first time buyers want the safety of a fixed rate mortgage since the future appreciation of houses is still questionable. The current recovery in home purchases is being driven by first time home buyers who find homes affordable. Further the Fed wants to re-capitalize the balance sheets of US households by offering them low fixed rate refinancing options. I will be curious to see how many homes which went under contract last month actually close.

China Is Now in Firm Control of U.S. Debt Markets

Food for Thought: An alternate perspective.

www.treas.gov/press/re...

These are the monthly inflows in the last quarter of 2008. The net inflows were 273.1,61.3,74.0 in Oct,Nov&Dec respectively; a total of 408.4B for Q4 2008.

www.treas.gov/press/re...
The TIC data for Jan-March 2009 showed inflows of -143.5 -91.1 23.2, a total of -211.40B for Q12009.

So over the last two quarters the net-inflow has been 197B. The number for Sep2008 was 142.7, taking the total to 339.7B since Sept08.

Were the outflow in Q109 is a readjustment after the rush to safety last Fall? Also note that the inflow went positive in March in spite of the Fed's Quantitative Easing Policy.

India ETFs and ETNs Are Not the Best Emerging Market Investments

"Many believe this may be due to India's greater dependency on foreign countries, whereas China and Brazil have more substantial middle classes."

Indian economy is a lot more insular and less affected by foreign countries. China had to pump its economy with a massive stimulus package to ensure that the economy does not follow exports and collapse. India had to do an order of magnitude less to get similar results, since most of the growth in India is organic and not export driven.

Much of China's stimulus has been handed out as loans, whose future performance is uncertain. Though it has created a big buzz, it is not clear whether it will result in sustainable growth, in the absence of growth in exports.

Monday Market Review: Bulls Back with a Vengence

Respirate: The area between 85 and 90 was strong resistance. It is likely to provide strong support and a good entry point with well defined stops.


On May 19 07:05 AM Respirate wrote:

> Vikram, if you can answer a question: What level are you looking
> at for an OIH trade? $86-87?
>
> I agree that 'Services' is the sweet spot in the oil sector. It's
> easily outpaced the S&P in recent months and may be expensive
> in the short term.
> Thanks -- R

Weekend Roundup: The Standoff Continues but Sentiment Shifting

fatcat:

Trade the channel on the IYR. I have written some articles on IYR and the technical levels it follows religiously; they might give some better tools to work with. Also avoid the SRS; if you need leverage use IYR puts.



On May 18 03:09 AM fatcat wrote:

> IYR has spent the last 6 months in lala land....been a hard trade
> for me,one that looked so obvious...oh well...

Global Decoupling: Distinguishing Between Economies and Markets

Thanks for your thoughts Clive (I have your book and get your daily mailings).

The frontier markets are going to be the emerging markets of the last decade. As long as you are selective about where you go, there is a strong chance of out-sized returns as these markets are discovered. Of course out-sized returns come with the risk of out-sized losses. Loose but firm stop levels, is what you definitely need with these markets.

Look at the Indian market today. If you had bought some index options last week, you might as well be ready to retire today :).


On May 18 09:43 AM morph366 wrote:

> One thing to remember about being a pioneer in a "frontier market"
> - you might end up with an arrow in your back :-)

Is the Correction Over?

You can follow my intra-day tweets for setups on stocks I trade:
twitter.com/aviat72

Use tweetdeck to filter out relevant tickers.


On May 13 09:56 AM Techtrader10 wrote:

> You might be someone I want to follow as I day trade Apple usually
> on the short side. How do you find the time to follow all the various
> indicators you mentioned? And do you really find all the index information
> of any real value?

Uneasy Silence About Regional Banks

What I wanted to highlight was the complete black out about the regionals. Given Team Obama's media savvy, I would like to see some proof before I jump in.

The note about preferred is from the WSJ article. I am including the relevant excerpts below.
Quote WSJ:
"In addition, it isn't clear what happens to hobbled regional banks that could have a hard time finding extra capital. Many are facing a deluge of bad loans to finance residential and commercial properties.

Regions, based in Birmingham, Ala., is among a handful of the tested banks without any privately held preferred shares that it could convert into common stock to boost its capital buffer, according to Deutsche Bank. That leaves it with a narrow range of options beyond turning to the government for aid."

On May 07 11:02 AM greedcanbgood wrote:

> "Many of these banks, especially Regions, do not have a large cushion
> of preferred capital to convert to common."
>
> Your analysis is incomplete unless you provide details. Otherwise,
> the reader is led to believe that all your regional listed are in
> the same boat and clearly, they are not.

Uneasy Silence About Regional Banks

1. I am sorry for the spelling error. This was done very late last night and Seeking Alpha's editor does not have a spell-check (or allow the built in checker of Chrome to highlight spelling mistakes).

2. Before the wireless revolution what you call the obscure was the more common idiomatic use of the word
www.thefreedictionary....


On May 07 10:36 AM Kenny Sullivan wrote:

> Ever hear of spell check? Poor spelling, poor grammar and an obscure,
> if not wrong, use of of the word tether are unprofessional. I began
> looking for errors in the article, rather than looking for content.
>
> Kenny Sullivan