Price of Natural Gas Strongly Shifts Upward (UNG, UNL, NAGS, GAZ)
China consumed 550 million cases of liquor last year and India 150 million cases. And their taste for the good stuff is growing in leaps and bounds as the more affluent from both countries come back from trips to the West with a taste for good liquor.
According to Thomas Russo of Gardner, Russo and Gardner, who manages about $5 billion in assets (most of it in European companies with big exposure outside Europe), the names to play to get in on this enormous market are Ricard Pernod, Diageo and Brown Foreman.
Russo said in a Barron’s article last week that Ricard Pernod has less than 1% of the Chinese market and it accounts for 15% of their earnings.
All three companies have been investing heavily in both China and India to capture a share of what promises to be a huge growth story for some time.
Brown Foremen is all about Jack Daniels. According to Russo, 25 years ago Jack Daniels sold five million cases a year in the U.S. Now it still sells five million is the U.S. and six millions cases outside of the U.S.
And if that isn’t big enough, the beer market in Sub-Saharan Africa dwarfs liquor in Asia.
Africa drinks, I hope you’re sitting down, 400 million barrels of beer a year, 400 million! Yet, only 90 million is bottled, the rest is home made.
The names Russo likes there are Heineken and SABMiller. Heineken makes 25% of its profits in Africa and SAB makes 35% of its profits there, as well. Both companies according to Russo have lots of room to grow. 310 million barrels a year of growth!
Natural Gas Runs Like Crazy
Natural gas was up 17% in one week and it looks like the excess supply in the system is finally beginning to evaporate and prices are in for a run to the $4-to-$6 area this year.
Last week natural gas numbers showed a smaller-than-expected increase in inventories, and that ignited a buying frenzy.
Pushing the run-up is the expectation that more utilities will switch to natural gas from coal and, with electric demand expected to rise 20% this year, gas futures are in play.
The number of producing gas wells has been reduced by almost a third this year alone and the expectation of a hot summer, which will add to demand for cooling and push the demand for electricity even higher, will drive prices even more.
Adding to the shift in gas sentiment is the news that natural gas could see broader use as a transportation fuel. One of the biggest roadblocks to its use in cars has been tank storage. Natural gas needs larger and heavier tanks in cars, and that poses all kinds of problems.
3M and CHK are working together to develop a natural gas storage tank for cars that will be 10% to 20% lighter than current tanks and will hold 10% to 20% more gas.
And the University of Missouri is working on a tank solution that’s made out of corncobs turned into charcoal briquettes. Early tests have been very positive.
Of course, if more gas vehicles were sold the cost would naturally come down for what has been a significantly more expensive vehicle than the conventional gasoline powered car.
All in all, the natural gas story is developing exactly as industry experts have predicted and it promises to be a huge long-term growth story.
You need to be in on this one for the long haul.
Finally, the SITFA
This week it comes to us from MarketWatch’s David Weidner, who after 15 years of covering Wall Street is leaving. His last article was called, So Long, Suckers! A real slap in the face to most of Wall Street
The final article was a collection of lessons learned while covering the money business. Some are worth noting.
First, a stock is only worth what someone is willing to pay for it.
Forget PEs, revenue, earnings and all the rest, especially technical analysis; it doesn’t work. If someone paid $10 for a stock, it’s worth $10 and no more. Ask the FB investors who got in on the IPO.
Merger and acquisitions may be necessary evils of our modern business world, but they almost never pan out. Too often they cost jobs, efficiency, eliminate competition, disrupt business and make customers miserable. Halleluiah!
Finally, on the positive side, Wall Street may be corrupt and it may reward thieves, but it’s vital to the success of this country. Every entrepreneurial effort in the history of this country and practically anything of any worth is here because someone was willing to take a risk with their money and they did it and are continuing to do it on Wall Street.
How true! But it does seem like there are more thieves there than usual.
In addition to being funny at times, this is really a worthwhile, quick read and I highly recommend it.
United States Natural Gas Fund (NYSEARCA:UNG)
The United States Natural Gas Fund LP (NYSEARCA:UNG) is an exchange-traded security that is designed to track in percentage terms the movements of natural gas prices. UNG issues units that may be purchased and sold on the NYSE Arca.
The investment objective of UNG is for the daily changes in percentage terms of its units' per unit net asset value ("NAV") to reflect the daily changes in percentage terms of the spot price of natural gas delivered at the Henry Hub, Louisiana as measured by the daily changes in the price of the Futures Contract on natural gas traded on the NYMEX that is the near month contract to expire, except when the near month contract is within two weeks of expiration, in which case it will be measured by the futures contract that is the next month contract to expire (the "Benchmark Futures Contract"), less UNG's expenses.
iPath DJ-UBS Natural Gas TR Sub-Idx ETN (NYSEARCA:GAZ)
The Dow Jones-UBS Natural Gas Subindex Total Return (NYSEARCA:GAZ) is a sub-index of the Dow Jones-UBS Commodity Index Total Return and reflects the returns that are potentially available through an unleveraged investment in the futures contracts on physical commodities comprising the index plus the rate of interest that could be earned on cash collateral invested in specified Treasury Bills. The index includes the contract in the Dow Jones-UBS Commodity Index Total Return that relates to a single commodity, natural gas (currently the Henry Hub Natural Gas futures contract traded on the NYMEX).
On August 21, 2009, Barclays Bank PLC announced the temporary suspension of further issuance of the iPath® Dow Jones-UBS Natural Gas Subindex Total Return ETN (the "GAZ ETNs") (view press release). On May 18, 2012 Barclays Bank PLC published an investor guidance notification regarding the recent persistent and material premium in the trading price of the GAZ ETNs in relation to their intraday indicative value. Due to likely continued fluctuations in this premium, Barclays Bank PLC believes that the GAZ ETNs will not track the price of the underlying natural gas futures index in a consistent manner and therefore are currently not suitable for most investors (view press release).
Teucrium Natural Gas Fund (NYSEARCA:NAGS)
The Teucrium Natural Gas Fund (NYSEARCA:NAGS) provides investors unleveraged direct exposure to natural gas without the need for a futures account. The Teucrium Natural Gas Fund was also designed to reduce the effects of contango and backwardation. As a result of the diversified futures structure the Fund has also been specifically designed to reduce the cost of rolling the investment when compared to other funds that hold only a single month.
The investment objective of the Fund is to have the daily changes in percentage terms of the Shares’ Net Asset Value (“NAV”) reflect the daily changes in percentage terms of a weighted average of the following: the nearest to spot month March, April, October and November Henry Hub Natural Gas Futures Contracts traded on the NYMEX, weighted 25% equally in each contract month, less the Fund’s expenses. This weighted average of the four Henry Hub Natural Gas Futures Contracts is referred to as the “Benchmark,” and the four Henry Hub Natural Gas Futures Contracts that at any given time make up the Benchmark are referred to as the “Benchmark Component Futures Contracts.”
United States 12 Month Natural Gas Fund (NYSEARCA:UNL)
The United States 12 Month Natural Gas Fund LP (NYSEARCA:UNL) is an exchange-traded security that is designed to track the movements of natural gas prices. UNL issues units that may be purchased and sold on the NYSE Arca. The investment objective is for the daily changes in percentage terms of its units' net asset value ("NAV") to reflect the daily changes in percentage terms of the spot price of natural gas delivered at the Henry Hub, Louisiana, as measured by the changes in the average of the prices of 12 futures contracts on natural gas traded on the NYMEX, consisting of the near month contract to expire and the contracts for the following 11 months, for a total of 12 consecutive months' contracts, except when the near month contract is within two weeks of expiration, in which case it will be measured by the futures contract that is the next month contract to expire and the contracts for the following 11 consecutive months (the "Benchmark Futures Contracts"), less UNL's expenses. When calculating the daily movement of the average price of the 12 Benchmark Futures Contracts, each contract month is equally weighted.