hammer

Today in Commodities: Living Up to Expectations

MB I only follow the energy complex and you have been dead wrong on NG. To prove my point these are a few of the comments you have made in the past few months.

August 27, 2009

As of this moment the October spread is 22:1, November 17:1 and December at 15:1. We would suggest allocating approximately $5000 per strategy, getting short crude and long Natural gas for the month of December.

August 26, 2009

This week the Crude:Natural gas ratio traded to historical extremes and we do not expect it to last.

August 21, 2009

Natural gas was lower today but UNG was higher -- could that be a forward indicator of an impending bottom in the futures? Additionally the forward months held their value, trading only slightly lower. The November$5/6 is where we would suggest looking currently.

August 11, 2009

For the October $5/6 call spreads we suggest trying to buy back the top leg for $300 gtc. For new entries we were buyers of the November $5.50/6.50 today at $1900/per.

July 27, 2009

A potential double top formed last week at $4.05 (September) as prices failed to get through the 50 day moving average after 2 attempts. That level should serve as resistance at $4.03 with support at $3.65. We are still advising clients $1 call spreads, on multiple positions split the purchase between October and November.

July 15, 2009

Natural gas got hit by 4% today. For all you naysayers, this is not a day trade; we are building long positions for clients expecting to see 60 cents to $1 appreciation in the next 2 months. Talk to me in late September and then say we’re wrong.

Thank God we have guys like you telling their clients to go long NG. You have been DEAD WRONG !!!


On Sep 03 05:52 PM Matthew Bradbard wrote:

> Hammer
> Did someone hit you in the head with a hammer? I am long $1 call
> spreads not futures so though clients are down they are still in
> expecting a move higher. See previous posts. Clients that listened
> to me are down in this trade but most are also long sugar and silver
> from much lower levels. It is called diversification.

Today in Commodities: Living Up to Expectations

errata

Commodities are zero and....

should be

Commodities are zero sum....

Today in Commodities: Living Up to Expectations

"There was a new 7 1/2 year low in natural gas today as prices are currently down 20 cents. LET ME SAY THIS LOUD AND CLEAR: WE MAY BE WRONG BEING LONG FOR THE NEXT 60 DAYS BUT WE WILL KEEP A PORTION OF OUR CLIENTS' COMMODITY PORTFOLIO LONG NATURAL GAS AS TO BE THERE WHEN PRICES GET BACK IN LINE, whether that be two, three or four months from now."

Long and terribly wrong. A week ago you were long NGV09 at $3.20/mmbtu, now its $2.50/mmbu. A mere 22% loss. The initial and maintenance margin for 1 NYMEX NG contract is $10,575. You would have lost $7,000/$10,575 or 71% on your initial investment. Hopefully your audience has ignored your bad advice.

Ask yourself why NG is at $2.50 and you"ll realize why simple technical analysis and historical analogies of crude:natural gas are inane and misguided.

NGX09 has another 10% decline and NGZ09-NGF10 have even more. The contango is unprecedented and WILL come in. Commodities are zero and Matt is trying to convince you it is an investment. It isn't, its a trading asset.

Options: The Crude Oil / Natural Gas Ratio

The author has been completely wrong on NG in his simplistic analysis.

1) He neglects the massive overhang in storage inventory
2) He doesn't understand there is seasonality in NG
3) He doesn't realize the inter-month spreads in NG are too high
4) He doesn't understand that NG demand has fallen by over 2% this year.
5) He doesn't factor the increase in production from shale plays
6) He doesn't say the world is awash in LNG and it will sell at the margin at the variable cos of production plus ransportation
7) He doesn't mention that all those that could have substituted oil for NG have already done so.
8) Ask him why cash prices are trading at $2.70/MMBtu.

If there are no disruptive hurricanes and an early winter look months X-H to fall to the $3.5-$4/MMBtu. Plus as investors lose another 25% in UNG there will be massive futures liquidation and further price declines.

What's Citigroup Really Worth?

Citigroup exchanged its publicly held convertible and non-convertible preferred and trust preferred securities for newly issued shares of its common stock and the completion of the previously announced further matching exchange offer with the U.S. Government. Approximately $20.3 billion in aggregate liquidation value of publicly held convertible and non-convertible preferred and trust preferred securities were validly tendered and not withdrawn in the public exchange. This represents 99% of the total liquidation value of securities that Citi was offering to exchange. Citi has accepted for exchange all publicly held convertible and non-convertible preferred and trust preferred securities that were validly tendered and not withdrawn and has issued 5,834,126,284 common shares in the public exchange offer.

Plus there were 5,507,700,000 at the end of the second quarter 2009. Cumulatively, this is around 11.34 billion shares outstanding.
At the close of 8/28/2009 the share price is $5.32. Therefore the market cap is $60.3 billion.

Maybe one should read the 10Q and press release on the exchange of preferred shares for common.

Today in Commodities: Driving Force

errata:

but you can make money:

should be you can't make money

Today in Commodities: Driving Force

"This week the Crude:Natural gas ratio traded to historical extremes and we do not expect it to last."

That is absolutely true because of the seasonality of natural gas. NGU9 is 2.91/MMBtu and CLU9 71.43/bbl for a ratio of 24.5. The futures for January are NGF10 is 5.386/MMBtu and CLF10 is 73.68/bbl for a ratio of 13.68. The ratio has contracted, but you can make any money on it unless either NGF10 has increased or CLF10 has decreased. You definitely can't make any money buying the spot months and rolling forward each month on futures expiration.

The situation doesn't necessarily look any better as you go out to the summer months of 2010 because of the contango of the NG curve. Spread players have shorted the front and went long the outer months and have done well. But, given the enormous overhang of NG in inventory, reduced demand because of slackened economy and strong production from new sources one could expect the relative strength in the summer of 2010 for NG to weaken.

The caveats for this analysis are:

1) How strong will winter be?
2) How early will winter be?
3) How will new government regulations affect energy trading?
4) What will the recovery of the economy.

Natural as is "cheap" but, there is a reason why it is that way. It might not go any lower, but that doesn't mean it will increase that much either. Crude is subject to investor demand and is used as a proxy for inflation hedging, as a negative corollary to the dollar, an event risk insurance and a principal component in investor diversification into commodities.

Be wary of the hype to play the CL:NG spread.

Investing in Natural Gas: It's Time

The author fails to mention the 1) record storage overhang, 2) the seasonality of the commodity, 3) the contango of the forward curve and its associated negative roll yield, 4) the collapse of industrial demand, 5) enormous shale new shale gas production, 6) new LNG liquidfication and de-gasification plants that will operate variable costs.

The prompt NGV9 is cheap or actually fairly priced because of the above, but the NGZ9 is way too high given the above. The spread is the widest its has ever been. Plus NGZ9 will expire around 11/27/09 and it will be too cold to say if we will have an early winter. If there is a moderate to normal winter prices will collapse in the front and weaken in NG(J-V)10. So where is there good value? No where at the given moment. You have to let the hurrican season play itself out to see if prices move upwards. And you have to see if there is an early winter before you take the WAG being long NG.

Those intrigued by the wide CL:NG spread have been wrong for well over a year. The two commodities are following different fundamentals. Crude is used as a proxy for the weak dollar, strong equity markets and inflation also with a weak supply/demand story. NG is about the huge inventory overhang and strong new source of domestic NG and the possibility of new import sources. There is no physical nor financial shortage. Go ahead and throw your money away listening to this guy.

Today in Commodities: Fall Is Coming

Better off short NG because of huge inventory overhang and short oil if you believe CL rose because of speculative increases. NGV9/NGX9 spread is way too high given storage levels, supply and demand and weather outlook.


On Aug 24 11:11 PM bearfund wrote:

> The long gas / short oil trade looks good to me. The green shoots
> trade is supporting oil while NG languishes. Whichever side is right,
> this trade should show a profit. Especially if you are looking farther
> out. One interesting possibility is to short December oil and be
> long November gas.

Today in Commodities: Fall Is Coming

NG in Dec/Jan/Feb/Mar look wildly overvalued. Unless there is either more disruptive hurricane activity or extreme cold weather starting earlier than Thanksgiving then the anticipated record NG storage inventories of >3700 BCF will be a huge negative overhang.

The seasonality of the winter months makes being long NG a difficult investment. The high prices for J-V 2010 merit a look in a few months. If winter doesn't occur early short.

Prompt month NG is cheap but fairly valued, but that doesn't translate to the outer months because of contango and seasonality. CL:NG spread is wide for a reason and those waiting for it to close have been wrong for at least a year. These two commodities are negatively correlated at the moment. They have different fundamental at this time and historical comparisons are not appropriate.

Buffett's $5B Goldman Investment Up $2B? Try $6B

If he doesn't "delta" hedge the warrants by selling GS shares then he won't capture any of the time value of the options. The intrinsic value of the options is ($163-$115) x 43.48 million shares. Only 4 1/2 months ago the intrinsic value of the warrants was zero because the underlying price was less than $50 dollars.

When he received the warrants GS traded to around $125/share. If he were and options trader he would have sold or shorted around 55-60% of GS shares as a hedge against his warrants. As the price fell from $125 to $50 he would have eventually shorted all 43.48 million shares against his position of long the warrants. The average short price would have around $80. At the lows of $50 for the stock he would have realized a profit of around $1.3bn from the shorts, offsetting the value of the "free" warrants. As the market rose option theory would have told him to start buying at $50 all the way to the strike price of $115. He would have made at least a billion from that move. Since he has stated he wouldn't sell the warrants he probably wouldn't have sold anything from $115 to the current rise of $163. Mr. Buffet should definitely delta hedge his warrants because GS shares could tumble once again and he go get the benefit of delta hedging and realizing gains as the market for GS moves up and down.

Pandit's Loaded Gun

Derivatives aren't MTM when you are Citigroup because they don't have the capital to take the hits. FASB loosened the rules on MTM. Also level III assets aren't MTM because there is no visible market and Citigroup has to use assumptions to value the securities. The same goes for its derivatives. Don't you remember Pandit brought $54 billion in derivatives/SIVs on to the book when he first arrived because they were recourse securities. Also it wouldn't surprise me is Citi marker what they were long on the offer and what they were short on the bid. Citi is using all the accounting tricks and leeway to recognize as much MTM income.


On Jul 15 01:22 PM liveafterdeath wrote:

> sorry, since when are derivatives not marked to market?

Pandit's Loaded Gun

As we all know the capital structure of a firm is secondary to the business strategy and performance of a corporation. No matter how Citigroup splits itself up it still is problematic. Who is going to buy Citi's weakest businesses at anything close to book value? That means someone eventually will take a large loss. It will be common shareholders and taxpayers that will bear the eventual losses. If Citi had to mark-to-market their assets today; it would be woefully undercapitalized at best.

In its current form Citi can only struggle. A bank is successful because it has the right client /trading mix, 11:1 leverage and cheap access to funds. Citi will continue to require government assistance on bonds its floats and will continue to pay the highest deposit rates to attract sorely needed funds. Therefore their net interest margin will be worse than their peers. The reality is than Citi is saddled with hundreds of billions of lousy loans, securities and derivatives that are not marked-to-market and any financial manipulation cannot mask the underlying truth.

Natural Gas ETF: Nowhere to Go but Up, Yet It Keeps Going Down

The costs to liquidfy natural gas for export is prohibitive. A facility to turn a gas into a liquid would run from $2.5bn to $5.0bn. The only export market is to Mexico via pipeline.


On Jul 11 04:39 PM Mark Anthony wrote:

> Philipp:
>
> Don't listen to the nonsense Wall Street propaganda. Here is a web
> page of the EIA detailing recent prices of natural gas for import
> and export as LNG:
> tonto.eia.doe.gov/dnav...
>
> Look the LNG import and export prices. They are way much higher than
> current domestic natural gas price. Now you tell me who is going
> to endure all the cost to import LNG and sell it at only $2 per MMBTU?
> The LNG importation will drop to zero and a large chunk of domestic
> natural gas production will be exported as LNG, at far higher prices.
>
>
> My most favorite investments right now are LNG, palladium (SWC/PAL),
> and shipping (EXM, EGLE, DRYS, TBSI):
>
> seekingalpha.com/artic...
>
>
> I think I really want to call a solid bottom of NG price at this
> point, as now there is incentive to burn natural gas instead of coal.
> See a recent EIA report on that possibility.
>
> On Jul 11 11:02 AM Philipp wrote:

Natural Gas ETF: Nowhere to Go but Up, Yet It Keeps Going Down

Drilling cost were inelastic during the commodity run up. There were too few rigs, personnel and equipment. But, with the collapse in price and the worldwide recession these costs are finally starting to fall. Therefore the breakeven costs for the shale plays will eventually fall.

The contango from August to Jan or Feb also makes a huge negative yield roll. If bought the front contract and rolled in to the next month when the front expired you would eventually buy up to 50% less contracts. It is difficult to overcome this negative yield. Also the same months a year forward are substantially higher than this years prices. The market has made two large assumptions. it has assumed the supply overhang is temporary and it has assumed the there will be a substantial economic rebound increasing industrial demand. Sadly, the reality is that neither of those two scenarios are likely.

UNG is not an investment that is to be held for the above reasons. It is merely a trading instrument. If the ETF doesn't jump 10-25% during the first large hurricane warning then there is no relief in sight until the start of the peak winter heating demand (December/January.) North America is awash in natural gas. It isn't in oil. All the fuel switchability from oil to NG has already occurred so no one can capitalize to the relative differences. Investors shouldn't think NG is cheap because the NG/WTI spread is at record levels. If anything WTI is overpriced and NG is accurately priced give record storage, large reductions in industrial demand and new supply.