Strategic Investment

Strategic Invesment
Monday, December 14, 2009
By Charles Delvalle

Dear Reader,

As I sit in my cozy heated home in the Pacific Northwest, I can’t help but think about natural gas.

Maybe it’s because my heating bill went up by 130% last month. Or maybe it’s because I know it’s moving even higher this month as night time temperatures reach 13 Fahrenheit.

Whatever the case, I simply don’t understand how natural gas prices can stay down much longer. The U.S. is experiencing one of its nastiest winters this year.

This is something James and I have discussed before. We’re not just making up the fact that the globe is cooler today than it was just a few years ago. And lucky for Americans, all the cool weather seems to be centered here.

Back to natural gas. Why are prices near historic lows? Much has to do with the amount of inventory there is out there. There’s 3.77 trillion cubic feet of natural gas housed in various places across the U.S.

To put that into perspective, inventories are 14.3% higher than last year. And they’re 15.7% higher than five years ago.

But there is some hope on the horizon. The Energy Information Agency (EIA) reported that natural gas inventories are finally falling, with a draw of 64 billion cubic feet last week alone. That’s the first draw since March 13th. Since the beginning of December, Natural Gas prices have popped 16%.

Much of the rebound in gas prices is due to that winter storm I’ve been experiencing, which will spread throughout most of the Northeast United States over the weekend. Most forecasters are even predicting snow in the Willamette valley (between the Cascades and the Oregon Coast Range), which is something that rarely happens.

The recent upward momentum in natural gas was enough to bring our position in our First Trust ISE Nat Gas ETF (NYSE:FCG) to above breakeven.

Of course, a colder winter has an effect on coal prices too. A lot of people plug in their space heaters and heated blankets to keep warm. That results in a lot of electricity use. While there is a good amount of electricity plants that use natural gas, most still use coal.

The result is that our coal holdings have done quite nicely. The MarketVectors Coal ETF (NYSE:KOL) is up 14.4% and the PowerShares Global Coal Portfolio (NasdaqGM:PKOL) is up 17.5%.

Despite the most recent sell-off in gold, most of our positions are holding strong. The MarketVectors Gold ETF (NYSE:GDX) is up 31.6% and Wits Gold (Toronto:WGR.TO) is up 106.7%.

Our position in Money4Gold (OTC BB:MFGD.OB) has also begun recouping its losses. We were down over 50% two weeks ago. As of this writing, we are only down 28%. James and I are positive that as investors continue to see above average earnings from MFGD, the stock will push far higher.

I also heard good news regarding our bond holdings from my friend and bond broker, Richard Panchookian.

He told me that our Motorola bonds (Cusip: 620076AR0) are up 18%, from 16%. Our Citigroup bonds (Cusip: 173034GV5) are up 15%, from 14%. And our Brazil Government Bonds (Cusip:105756BJ8) are up a whopping 55%, from 49%. 24% of that return is all thanks to the depreciation of the dollar.

That gives us a 29% total return on our bond positions.

If you haven’t bought these bonds already, don’t. All three are well above par. But James and I do expect to see the Brazilian bonds at better prices as the dollar appreciates in the next leg down in the stock market.

At that time, we’ll re-recommend the position for anyone who hasn’t gotten into it.

As for the rest of our portfolio positions, they are all doing extraordinarily well. There’s nothing else significant to report.

That gives me some peace of mind heading into the end of the year.

Hopefully I’ll be able to rent a cabin in the next three weeks up in Mt. Hood to go skiing or snowboarding. I’ve lived in Florida most of my life, so I’ve never done either.

I’m sure my toes will be frozen numb by the end of it. But it should be A LOT of fun either way. I’ve even been tasked from some of my Florida friends to send them some snow in the mail so that they can have a semi-white Christmas.

As long as those cabins aren’t already sold out (it’s not looking too good) I’ll definitely be able to do that for them. Heck, I may go spend the day there even if I don’t get a cabin just for the fun of it.

Have a great week and stay warm,

Sincerely,

Charles Delvalle

Co-editor
Strategic Investment

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