Executive summary:
- Short-term "exogenous" events can create investment opportunities.
- Weather, politics and geopolitical friction can all create investment possibilities.
- Cold winter may create pent up demand that will be recognized later in the year.
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Recently, I also wrote numerous bearish articles on natural gas, which is now headed for its worst week since 1996.
Natural Gas Heads for Biggest Weekly Drop Since 1996 on Stocks
Natural gas highlights one of my favorite investment strategies, a tactic I call "exogenous event trading." I scan the markets looking for large pops in the price action that are due to sudden and unexpected events that couldn't have already been discounted into the markets, i.e. exogenous. I then determine if the event is short-term in nature, or something that fundamentally changes the future prospects for gains. Weather and other natural phenomenon are the most obvious short-term events that can drive stocks higher. Last year I wrote about how hurricane Sandy had driven the demand for home generators unexpectedly higher. I then did a follow up article to highlight that once the storm passed, future sales of generators were expected to fall, as were earnings.
I recently wrote an article titled "Sandy's Silver Lining; Generac" that described how Hurricane Sandy was driving sales for Generac (GNRC) generators. However, I noted that I wouldn't invest for the long term based on one single hurricane.
This year the exogenous event driving earnings is the winter of the polar vortexes. The extremely cold winter being caused by global warming has taken a toll on retail sales. Janet Yellen in her testimony yesterday stated that the impact of the winter is hard to determine. I'm pretty sure that what she will discover is that items essential for survival during a near mini ice age
