InvestMacro FX

The Best Way to Play the Spike in Home Heating Costs…

by David Fessler, Investment U Senior Analyst
Tuesday, October 18, 2011: Issue #1623

I was up at my hunting and fishing club this weekend enjoying the fall colors. They were at their peak in the Pocono Mountains here in Northeast Pennsylvania.

It was cold enough that the furnace kicked on at night. All three of our buildings are heated with oil. We just topped off our tanks. If you live in the Northeast, you might want to do the same. I’ll get to that in a moment.

Regular readers know I write a lot about factors that will continue to keep an upward bias on the demand for natural gas. Utilities switching old power plants over and building new ones to run on it are a big factor. The increasing use of natural gas as a source of transportation fuel will be, too.

But home heating isn’t something I’ve addressed thus far. However, recent statistics published by the Energy Information Administration point to a big swing away from heating oil towards natural gas.

Natural Gas and Home Heating Costs

About 5.7 million households in the Northeast United States use heating oil to keep warm in the winter. Seven years ago, that number was 6.9 million. That’s a decrease of 21 percent.

About half of those 1.2 million people switched to natural gas. Check out the graph below.

The peak of the oil-to-gas switch occurred three years ago, but the EIA is forecasting the changeover to begin rising again this coming winter as oil prices increase.

Why? Because heating oil prices are largely reflective of those for crude.

It’s easy to understand why people are considering the switch when you consider the following graph of crude oil and natural gas prices.

Both are expressed in dollars per million Btus, so we can directly compare the two.

It’s easy to see from the graph above that heating oil costs nearly twice as much as natural gas. Even installing a new furnace pays for itself very quickly under those circumstances.

From a historical perspective, the difference is even more dramatic. The average price for crude back in 2003 was $24 per barrel, and this year so far the average is $99 per barrel.

The prices for natural gas on the other hand, while on the rise through the 2008 heating season, fell dramatically ever since. This was largely due to the glut of gas on the market as a result of unconventional shale gas production.

Natural gas prices are about 20 percent lower this year than back in 2003, exacerbating the disparity between it and heating oil.

Heating Oil Prices To Set Winter Records

The EIA predicts that heating oil prices will set a new winter record this year. The EIA forecast shows a 10-percent increase over last year’s prices for the heating oil season, which runs from October through March. While natural gas is expected to rise five percent this winter, that’s from seasonal demand more than anything else.

Any global supply disruption in the flow of oil could send heating oil prices even higher.

For consumers contemplating a switch to natural gas, this just might be the best time, before the really cold weather descends on the Northeast.

The bottom line for investors, though, is that this switch over to natural gas is one more factor that’s actually reducing our use of oil and increasing the use of natural gas. In addition, the newer furnaces most consumers install are far more efficient than the ones they’re replacing, adding to the savings.

There are companies that can take advantage of these trends. I recommend that you keep an eye on pipeline carriers and producers like Kinder Morgan Energy Partners LP (NYSE: KMP), which recently announced the acquisition of El Paso Corporation (NYSE: EP). You can also monitor Williams Companies, Inc. (NYSE: WMB) and Energy Transfer Equity (NYSE: ETE); both produce, transport and store natural gas.

If you live in the Northeast and heat with oil, an investment in one of the above companies might be just the ticket to “warm” your portfolio and offset some of the higher heating oil prices you’ll likely be paying to heat your house this winter.

Good investing,

David Fessler

Article by Investment U

Source: ForexYard

Statements being released from within the upper echelons of the Riksbank are now pointing to a possibility that interest rates will be held steady for the majority of next year. Sweden’s economy, which rebounded stronger and faster than most others during the recession, is now being affected by regional and global downturns in a variety of sectors.

The opinion of an interest rate freeze next year came after money market participants were surveyed by a commission sponsored by the bank. The Riksbank held rates at 2% last month despite being expected to increase them each month in 2011. Tightening financials and weakened demand for Swedish goods has put a damper on those plans of increasing rates through this year.

The downturn in exports from Swedish companies was also viewed as severe enough o hamper any possibility of an increase in the near future. So long as fundamentals remain weak, the Swedish economy isn’t likely to put further limitations on growth and checks on inflation.

Read more forex trading news on our forex blog.

Forex Market Analysis provided by ForexYard.

© 2006 by FxYard Ltd

Disclaimer: Trading Foreign Exchange carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all of your investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with Foreign Exchange trading.

Source: ForexYard

Today’s ZEW reports on Germany and the broader euro zone’s economic confidence revealed plummeting numbers this month. Both figures were forecast to show mildly worsening data, though not nearly as deep as the actual figures came.

The German report, which tends to have a sharper impact than the broader reading, revealed a moderate downturn from last month’s reading of negative 43.3 to negative 48.3. The broader report, however, revealed a deeper decline, pushing to a negative 51.2. Both reports imply an impending decline in EUR values.

Read more forex trading news on our forex blog.

Forex Market Analysis provided by ForexYard.

© 2006 by FxYard Ltd

Disclaimer: Trading Foreign Exchange carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all of your investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with Foreign Exchange trading.

Source: ForexYard

This morning’s publication from China regarding its retail sales and industrial production revealed an expanding economy. Both figures relate to separate realms of economic activity, but both witnessed an increase of similar size this month.

Industrial production in China was expected to rise approximately 13.5%, year-on-year. The actual results showed a 13.8% increase instead. Retail sales, likewise, showed a year-on-year rise to 17.7%, beating expectations for a 17.1% increase. Both figures should help the CNY hold ground today.

Read more forex trading news on our forex blog.

Forex Market Analysis provided by ForexYard.

© 2006 by FxYard Ltd

Disclaimer: Trading Foreign Exchange carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all of your investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with Foreign Exchange trading.

By DividendOpportunities.com

I call it the “apple tree” loophole. I think it’s one of the best ways I know to make money in the market, especially if you don’t want to fuss over your investments every day.

But before I tell you what the loophole is, let me first tell you what it’s not…

It’s not illegal. It’s not confusing. And it’s not a get-rich-quick scheme.

When used properly, this loophole can greatly reduce the risk of losing money in any market.

But before I go on, I must say that there are a few caveats to how you use it. First, you have to follow this simple strategy exactly as I’ll outline below. Second, it only works with high-yield stocks and funds.

It all started with a simple saying I heard years ago:

That saying has stuck with me. And if you hadn’t noticed, it’s talking about a lot more than planting a couple of apple trees in your backyard and enjoying the fruit later.

The real lesson here is this: It’s the moves we make today that deliver the greatest payoff down the road.

And that’s the perfect analogy for investing in consistent, high quality dividend-payers. I firmly believe the high-yield stocks we buy today — those with steady and increasing dividend payments — are the ones that will end up paying us the most over the long run.

Just imagine if you had bought no more than a handful of the market’s top dividend payers just 10 years ago.

Altria (NYSE: MO) pays 5.9%, has increased the dividend 41% in the past three years, and has returned 331% in the last 10 years thanks to all the dividends paid. Realty Income (NYSE: O) brags of being the “Monthly Dividend Company” and returned 347% in ten years, thanks in part to its 5.5% yield. Magellan Midstream Partners (NYSE: MMP) has returned 504%, thanks in part to its 5%-plus yield and the fact that it has increased payments 437% since 2001.

As you can see, thanks to dividends each of these investments easily returned triple-digits over the past decade. Compare that to the paltry 28% return by the S&P 500 over the same period, and the power of dividends becomes apparent.

But the benefits don’t stop there. If you were to hold those stocks for a longer a period of time, the difference would be even more pronounced.

And that’s the premise for the loophole. Every time you’re paid a dividend, the risk of losing money on that position gets smaller. And over time, those steady — and increasing — dividends can add up to unlikely returns, even from “boring” companies. Hold your stocks for long enough and eventually you’re collecting pure profit with each dividend payment.

Of course, because it takes a while to make any dent if you’re only being paid 2-3% a year, this strategy works best with high-yield stocks that pay 5% or more.

Now, with investing there is never a surefire thing. I can’t guarantee success with the “apple tree” strategy, or any other investing strategy. But one thing you can’t deny is that every dividend you receive makes it that much more likely that you will see a winning position.

And in a market that’s keeping investors up at night, I can’t think of a better way to make money without worrying over your investments every day.

All the best,

Paul Tracy
StreetAuthority Co-founder, Chief Investment Strategist — Top 10 Stocks

P.S. — I use the “apple tree” loophole in my personal investing. As well, it was a deciding factor behind the majority of my “10 Best Stocks to Hold Forever.” I selected many of these long-term investments based on their history of solid (and growing) dividend payments. This includes one stock that has made 89 consecutive payments… and grown dividends 28.9% since 2004. For more details on these “Forever” stocks, visit this link.

Disclosure: StreetAuthority owns shares of MO and MMP as part of the company’s various “real money” portfolios. In accordance with company policies, StreetAuthority always provides readers with at least 48 hours advance notice before buying or selling any securities in any “real money” portfolio.

London Gold Market Report
from Ben Traynor
BullionVault
Tuesday 18 October, 08:30 EDT

U.S. DOLLAR gold bullion prices fell 1.4% in less than half an hour to $1638 per ounce Tuesday lunchtime in London – while stock markets also fell sharply – after investment bank Goldman Sachs announced a third quarter net loss of $393 million.

The loss – Goldman’s second ever as a listed company – represents 84 cents per share, compared to a Bloomberg analysts’ consensus forecast of 11 cents.

Earlier trading saw gold bullion prices steadily decline throughout Tuesday morning – along with stocks and commodities – after China’s GDP figures showed an economic slowdown and doubts were raised about France’s sovereign credit rating.

On the currency markets, the Euro fell for the second day running against the Dollar.

Meanwhile in Washington, US regulator the Commodity Futures Trading Commission was set to vote later today to set “position limits” on traders in a range of markets, including silver and gold futures.

Aimed at “curbing excessive speculation”, the position limits are one of 32 areas demanding new CFTC regulation under the Dodd-Frank finance bill.

The CFTC vote comes just one day after the Chinese Gold & Silver Exchange Society launched the Yuan-denominated Kilobar Gold contract in Hong Kong – the world’s first Yuan-denominated gold contract outside mainland China.

“If the theme of the precious metals market was smuggling into the subcontinent in the 80s,” says a note from the Hong Kong desk at Mitsui Precious Metals this morning, “mining finance in 90s, the rise of ETFs in the first decade of new millennium, then one theme for this decade is probably the great gold hoarding in Asia and possibly the rise of new pool of liquidity outside London and New York.”

“We continue to expect gold prices to be cushioned amid the seasonally strong period for physical demand,” says a note from Barclays Capital.

“As confidence over Europe remains fragile and concerns over China build amid a low interest rate environment, investor appetite is set to remain positive, barring the need for liquidity.”

China’s economy grew at an annualized rate of 9.1% in the third quarter – down from 9.5% in Q2 and the slowest pace in two years – official figures published Tuesday show.

“China’s export-reliant enterprises are facing their toughest time in years,” says Wei Jianguo, former vice-minister of commerce.

“It’s time to ease macroeconomic policies in the export sector and give exporters easier access to loans.”

“The risk of a hard landing is a distant scenario,” counters Liu Li-Gang, Hong-Kong-based economist at ANZ Bank.

In Europe meantime, ratings agency Moody’s said Monday that it will monitor its ‘stable’ outlook for France’s Aaa rating over the next three months.

“Moody’s notes that the government’s financial strength has weakened, as it has for other Euro area sovereigns,” said a statement from the rating agency.

“The global financial and economic crisis has led to a deterioration in French government debt metrics — which are now among the weakest of France’s Aaa peers.”

Yields on French 10-Year government bonds this morning rose to 3.1% – over 100 basis points (one percentage point) above 10-Year German bund yields, compared to a 38 bps spread this time last year.

Here in the UK, consumer price inflation rose to 5.2% in September – up from 4.5% the previous month – according to official data. September was the 21st month in a row to see CPI outside the Bank of England’s target range of one percentage point either side of 2%.

So-called underlying inflation – the change in the retail price index excluding mortgage interest payments (RPIX) – rose to a 19 year high of 5.7%. Until 2003, the Bank’s inflation target was 2.5% RPIX, with a tolerance of one percentage point either way.

Bolivia, Russia, Thailand and Tajikistan all added to their official gold bullion reserves in August, according to figures published by the World Gold Council.

Thailand was the largest declared buyer with 9.3 tonnes, followed by Bolivia with 7.0 tonnes, Russia with 3.6 tonnes and Tajikistan, which bought 1.9 tonnes.

Three countries – Czech Republic, Mexico and Mongolia – declared sales of gold bullion during August, measuring 0.1 tonnes, 0.2 tonnes and 0.7 tonnes respectively.

Ben Traynor
BullionVault

Gold value calculator   |   Buy gold online at live prices

Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK’s longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.

(c) BullionVault 2011

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Source: ForexYard

A vacation allows for one to take a step back from the grind of the markets while taking a look at the larger picture. The October bounce in the values of the EUR and the S&P 500 look positive. Though a solution to the European fiscal difficulties remains elusive, a coordinated resolution from the October 23rd euro zone summit could help to sustain the recent bounce higher in the EUR and other risky assets.

In early Asian trading China posted lower than expected GDP at 9.1% on forecasts of a 9.2% increase. While it is a sharp drop off from the previous release of 9.5% the Q3 GDP data strengthens the soft landing theory for the Chinese economy, the engine of the world’s economic growth.

French bond spreads have continued to move higher with a potential negative outlook by Moody’s if costs rise for bank bailouts or additional Greek bailout funds are needed. A loss of France’s top credit rating would have knock on effects for the EFSF as the program which would likely lose its AAA rating in toe France is the second largest contributor to the EFSF behind Germany. As such spreads between French and German 10-year bonds have climbed to a 16-year high.

Both the German ZEW and the European ZEW economic sentiment surveys were weaker than expected which has contributed to USD strength going into the North American open. Market participants are building expectations for a bit of closure coming from the October 23rd euro zone summit with a possible write down of Greek debt in the range of 50-60%, the potential to leverage EFSF funds, and bank recapitalization.

CFTC data ending on October 11th shows EUR shorts have decreased their positioning and the potential remains for additional short covering should the news flow turn EUR positive (see chart below).

US monetary policy may also prove to be USD negative with potential for QE3 but I will save that discussion for later with additional entries in the forex blog.

Given the fundamental news flow from today’s Chinese GDP data, expectations of some sort of agreement to be hashed out in Europe on October 23rd, and market positioning, the EUR could be poised to move higher. Initial resistance for the EUR/USD is found at the weekly high which coincides with the 50-day moving average at 1.3910 and a retracement target at 1.4015. The previously broken trend line from May 2010 beckons as resistance at 1.4175. Should more downside price action be seen in the EUR/USD pair, then the 20-day moving average could come into play at 1.3550.

Read more forex trading news on our forex blog.

Forex Market Analysis provided by ForexYard.

© 2006 by FxYard Ltd

Disclaimer: Trading Foreign Exchange carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all of your investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with Foreign Exchange trading.

Video courtesy of ForexCT – A leading Australian forex broker, liscensed by the Australian Securities & Investments Commission, offers the MetaTrader4 and PROfit Platform to retail traders. Other services include Segregated Accounts, Trading workshops, Tutorials, and Commodities trading.

By The Sizemore Letter

Is it December 31 yet?

John Paulson must be breathing a small sigh of relief.  The recent bounce in the prices of bank stocks and gold has, at least for the time being, stopped the bleeding.  The patient, alas, is still in critical condition.

It’s been a rough year for the hedge fund legend.  According to the Financial Times, Mr. Paulson’s flagship Advantage Plus fund was down 47% for the year (see article).  The unleveraged version of the fund—ostensibly more conservative—was down by “only” a third.

I’ll refrain from kicking Mr. Paulson while he’s down.  I’ve learned the hard way that the market gods tend to smite the arrogant.  And as an investor, I’ve certainly made my share of bad trades over the years.  We all have.  Everyone.  Yes, even demigods like Warren Buffett, and we’ll get to him a little later.

The problem, as Mr. Paulson is no doubt painfully aware, is that it is hard to recover from a loss of nearly 50%.  In order to get back to break even you have to double your money, and that’s not particularly easy to do in a short period of time.

Take a look at Figure 1.  This chart shows the subsequent gains that you’d have to earn in order to recover a given loss.  A 10 percent loss requires only an 11 percent gain to get back to break even.  A 20 percent loss requires a slightly higher 25 percent to recover.

Figure 1

But now take a look at the bottom of the chart.  A 90 percent loss requires a 900 percent gain to break even.  A 99 percent loss requires an almost unfathomable 9,900 percent rise.  Suffice it to say that, while 90 and 99 percent losses are unfortunately quite common, 900 and 9,900 percent gains are exceptionally rare.

The Sage of Omaha

This is what prompted Warren Buffett to pen his first two rules of investing:

1. Don’t lose money.
2. Don’t forget the first rule.

John Paulson broke Mr. Buffett’s two rules by making an enormous bet on an inflationary boom and by failing to ask that all-important question:  What if I’m wrong?

Paulson had roughly 30 percent of his fund in financials, 15 percent in materials, and 9 percent in oil and gas.  (See John Paulson’s current portfolio holdings here.)

Paulson also happens to be the largest shareholder in the SPDR Gold Trust (NYSE: $GLD) and is so enamored with the yellow metal that he offers his investors the opportunity to denominate their shares in gold. (Though this was a savvy marketing ploy, it has absolutely no real value.  It doesn’t matter what “currency” you report on your quarterly statements.  Returns are returns.  Paulson’s clients who chose to denominate their account in gold took losses every bit as large as those that denominated in dollars.)

The problem was not so much that Paulson invested heavily in banks; he certainly wasn’t the only investor to believe that American banks were undervalued at the beginning of this year.  The problem was that his entire portfolio was one big bet on an inflationary boom.  His portfolio holdings were highly correlated to each other and highly dependent on the same macro forces.  He had practically no exposure to anything that might do well should inflation fail to materialize—such as high-dividend stocks, utilities, pharmaceutical, etc.  And to make it worse, he did it with leverage.

This isn’t sound portfolio management; it’s gambling

There is nothing inherently wrong with a little gambling, of course.  A cynic could argue that all trading and investing is nothing more than gambling, and to an extent that is true.  Risk is certainly part of the game.

Good investors—and good gamblers too, for that matter—practice risk control.  Whether through careful use of position sizing, diversification, hedging, keeping cash in reserve, or even tools such as stop loss orders, they have processes in place that prevent an investing mistake from turning into a catastrophic loss they may never recover from.

If you want to avoid finding yourself in Mr. Paulson’s predicament, remember Warren Buffett’s two rules.

This article first appeared on MarketWatch.

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The Bank of Botswana‘s Monetary Policy Committee held the benchmark interest rate unchanged at 9.50%.  The Bank said: “While short-term price developments have resulted in inflation remaining above the objective range of 3 – 6 percent, the medium-term outlook for consumer prices is more encouraging. As a result, the Committee judged that maintaining the Bank Rate at the current level is consistent with inflation converging on the objective range in the medium term.”

Previously the Bank also kept the bank rate unchanged at 9.50% during its August meeting, while the Bank last dropped the rate 50 basis points to 9.50% in December last year.  Botswana recorded annual price inflation of 8.6% in September, 7.8% in July, 7.9% in June, 8.3% in May, and 8.2% in April, and above the central bank’s target range of 3-6%, according to the central bank.