Posts Tagged 'Commodity'

Daily “Ways-to-Play” The News Before the Moves 3/31/2010

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4 Reasons to Consider Utility ETFs

There are a gazillion ways to play the energy sector with exchange traded funds, but you’re not just limited to oil, natural gas or solar power. Utilities might be an off-the-beaten path way to invest in the nation’s changing energy picture.

ETFDesk users see this as a potential opportunity to: buy Rydex S&P Equal Weight Utilities ETF (RYU)

buy Vanguard Utilities ETF (VPU)

buy iShares S&P Global Utilities Sector Index Fund (JXI)

buy iShares DJ US Utilities (IDU);

Check out how others are using ETFs to capitalize on this news or add your own opinion

Are Home Prices Cheap?

Analysts at Deutsche Bank attempt to answer the question “Rent of Buy?” in a new research piece out today. While falling home prices and declining interest rates have narrowed the rent-buy gap, home affordability is not high by historical standards.

ETFDesk users see this as a potential opportunity to: sell iShares DJ US Real Estate (IYR);

Check out how others are using ETFs to capitalize on this news or add your own opinion

Long-Term Rates Finally on Verge of Breaking Out

ALTHOUGH THE FED HAS reaffirmed its low short-term interest rate policy, it cannot control long-term interest rates. In fact, the yield on the benchmark 10-year Treasury note has risen from a low of 3.23% at Thanksgiving of last year to its current level 3.87%.

ETFDesk users see this as a potential opportunity to: sell iShares Lehman 20+ Year Treasury Bond Fund (TLT)

sell iShares Lehman 7-10 Year Treasury Bond Fund (IEF)

sell iShares Lehman 10-20 Year Treasury Bond Fund (TLH)

buy UltraShort Lehman 7-10 Year Treasury ProShares (PST)

buy UltraShort Lehman 20+ Year Treasury ProShares (TBT)

sell PIMCO 7-15 Year U.S. Treasury Index Fund (TENZ);

Check out how others are using ETFs to capitalize on this news or add your own opinion

M&A surges in Asia while US and Europe suffer

Mergers and acquisitions boomed in Asia in the first quarter in sharp contrast to a slump in deal volume in Europe and the US, underlining a global shift in activity in the wake of the credit crisis.

ETFDesk users see this as a potential opportunity to: buy Gabelli Global Deal Fund (GDL)

buy IQ ARB Merger Arbitrage ETF (MNA);

Check out how others are using ETFs to capitalize on this news or add your own opinion

Oil in Big Macs: Chart of the Day

The idea for this comparison of Oil to Big Macs, is that a Big Mac is representative of a basket of agricultural goods and thus compares the relative advantage of trading food for oil. Whats interesting about this is that theoretically, it should be a somewhat inflation-adjusted measure of oil prices. As of now it appears agricultural goods is undervalued relative to Oil.

ETFDesk users see this as a potential opportunity to: sell United States Oil Fund LP (USO)

buy ELEMENTS – Rogers International Commodity Index Agriculture Total Return (RJA);

Check out how others are using ETFs to capitalize on this news or add your own opinion

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Daily “Ways-to-Play” The News Before the Moves 3/25/2010

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Man San International (B.V.I) Limited Completes Merger of…

Man San International (B.V.I) Limited Completes Merger of…
Check out how others are using ETFs to capitalize on this news or add your own opinion

Top ten reasons you know China has a financial bubble on its hands

Chancellor includes this blind faith in the 10 signposts of manias and financial crises (very reminiscent of Kindelberger, by the way).

ETFDesk users see this as a potential opportunity to: sell PowerShares Golden Dragon Halter USX China Portfolio (PGJ)

sell iShares FTSE/Xinhua China 25 (FXI)

sellSPDR S&P China ETF (GXC)

sell Claymore/AlphaShares China Small Cap Index ETF (HAO)

sell Claymore/AlphaShares China Real Estate ETF (TAO);

Check out how others are using ETFs to capitalize on this news or add your own opinion

Oil reserves ‘exaggerated by one third’

The world’s oil reserves have been exaggerated by up to a third, according to Sir David King, the Government’s former chief scientist, who has warned of shortages and price spikes within years.
ETFDesk users see this as a potential opportunity to: buy PowerShares DB Oil Fund (DBO)

buy United States Oil Fund LP (USO)

buy iPath S&P GSCI Crude Oil Total Return Index ETN (OIL)

buy United States 12 Month Oil Fund, LP (USL)

buy ProShares Ultra DJ-AIG Crude Oil (UCO)

buy PowerShares DB Crude Oil Long ETN (OLO)

buy United States Short Oil Fund, LP (DNO);

Check out how others are using ETFs to capitalize on this news or add your own opinion

Social Security to See Payout Exceed Pay-In This Year

The bursting of the real estate bubble and the ensuing recession have hurt jobs, home prices and now Social Security. This year, the system will pay out more in benefits than it receives in payroll taxes, an important threshold it was not expected to cross until at least 2016, according to the Congressional Budget Office.

ETFDesk users see this as a potential opportunity to: sell iShares Lehman 20+ Year Treasury Bond Fund (TLT)

buy PowerShares DB Base Metals Fund (DBB)

buyPowerShares DB G10 Currency Harvest Fund (DBV);

Check out how others are using ETFs to capitalize on this news or add your own opinion

Water: The Next Hot Commodity

cool chart (link), puts in context just how little fresh water there is available to drink.  Water will be the next scarce resource (and in many places it already is)

Water as the next hot commodity?

WaysToPlay Water:

1) PHO  PowerShares Water Resource Portfolio

Interesting to note, since PHO’s inception in Dec ’05, it has outperformed the broader Utilities Index (XLU) and crushed the S&P 500 (SPY):

Source: www.etfdesk.com

2) PIO  PowerShares Global Water Portfolio

3) CGW  Claymore S&P Global Water Index ETF

The Big Energy Trade: The WidowMaker

A bold trade is unfolding in the energy markets, dubbed the “Widowmaker.”  Traders play the spread between gasoline and heating oil, as seasonal demand shifts with the warming weather in the Northern Hermisphere.  There seems to be larger bets on the market this year, as hot money is entering the trade.  The trade is known as the “widowmaker” because of its volatile and unpredictable nature.  However, traders are making larger speculative bets in gasoline after an unusuasly cold winter and an expected sharp increase in gasoline demand this summer.

From Reuters:

“The hot money is on gasoline this season and a lot of hedge funds have bet on it,” said an oil products trader at a bank and a regular widowmaker trader. “Seasonality is back because of run cuts and because it’s been such a cold winter. There is a belief that demand for gasoline will be very good this year because it is not as connected to the recession as distillates,” the trader said

The risk of course, is that gas prices stay below heating oil, like in 2008 when record high oil prices slashed demand for motor fuel. The Chart belw shows a shap spike in the spread in the summer of 2005, 2006, but a huge fall in 2008.

Gasoline vs. Heating Oil Spread

Source: Hard Asset Investor

 

WaysToPlay the WidowMaker?

Long UGA  United States Gasoline Fund, LP

Short UHN  United States Heating Oil Fund, LP

track this trade over time:  http://www.etfdesk.com/headline.aspx?hId=2379

The Gas/Heating Oil spread has rallied sharply since the depths of the financial crisis.

Over the past year, the long UGA/short UHN  strategy would have gained about 20%.  Not suprisingly, these funds track the movements of the Oil funds closely, so essentially the Long/Short trade is a hedged Oil position.

Source: ETFDesk.com

UHN started trading on 4/9/2008, since then USO has fallen 54.91%, but the Gas/Heating Oil ETF Long/Short is up 19%. Notice that during the depths of Oil price declines in late ’08, Gas prices fell further.  As Oil (USO)  has recovered, Gas (UGA) has outpaced both Oil and Heating Oil (UHN).

Source: ETFDesk.com

 

 

Daily “Ways-to-Play” The News Before the Moves 3/9/2010

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Germany: The Unnamed Co-Conspirator

The markets and, seemingly, most Europeans have very little sympathy for Greece. The situation it finds itself in today is its own doing. Yet the risk of financial contagion is forcing Europe to do much soul searching in the same way the US policy makers did when it came to taking over AIG.

sell iShares MSCI-Germany (EWG);

Check out how others are using ETFs to capitalize on this news or add your own opinion

Botched banks

America’s commercial banks remain fragile

sell KBW Regional Banking ETF (KRE);

Check out how others are using ETFs to capitalize on this news or add your own opinion

The Zweig Total Return Fund, Inc. 19A Notice

The Zweig Total Return Fund, Inc. 19A Notice

buy Zweig Total Return Fund (ZTR);

Check out how others are using ETFs to capitalize on this news or add your own opinion

Delayed buying sees sugar drop

Sugar prices plunged 11 per cent this week, as countries including Egypt and Pakistan delayed buying.

sell iPath Dow Jones AIG Sugar Total Return Sub Index (SGG);

Check out how others are using ETFs to capitalize on this news or add your own opinion

Japan Deflation Battle to Push Yen Lower Versus Rivals

NEW YORK–The Bank of Japan’s fight against deflation is fueling bets that investors will once again use the yen as the preferred currency to fund the purchase of higher-yielding assets.

sell Rydex Japanese Yen Trust (FXY);

sell iPath JPY/USD Exchange Rate ETN (JYN);

buy ProShares UltraShort Yen (YCS);

Check out how others are using ETFs to capitalize on this news or add your own opinion

Daily “Ways-to-Play” The News Before the Moves 2/18/2010

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More Americans Considering Community Banks

Bailouts and bonuses have many Americans frustrated with big banks. Some consumers think these giant institutions have lost touch with customers and basic good business practices. They’re so fed up that they’re holding these behemoths accountable by moving their money to community banks.
Check out how others are using ETFs to capitalize on this news or add your own opinion

Soros More Than Doubled Gold ETF Stake in 4th Quarter

Feb. 17 (Bloomberg) — Billionaire George Soros’s Soros Fund Management LLC more than doubled its holding in the biggest gold exchange-traded fund in the fourth quarter after bullion advanced 8.9 percent to a record.

buy streetTRACKS Gold Trust (GLD);

Check out how others are using ETFs to capitalize on this news or add your own opinion

Contango Can Kill Commodity ETF returns: ETFDESK Provides Alternatives

Contango is a phenomenon in the futures market where, in simple terms, the price to deliver a commodity in the future is higher than the spot price, or far future delivery is higher than shorter future delivery. It is exemplified by a upward slowing forward curve. The issue is magnified in future funds like USO, where contracts need to “rolled” into more expensive future contracts.

buy Oil Services HOLDRS (OIH)

sell United States Oil Fund LP (USO)

buy First Trust ISE-Revere Natural Gas Index Fund (FCG)

sell United States Natural Gas Fund, LP (UNG);

Check out how others are using ETFs to capitalize on this news or add your own opinion

A Mechanical Approach to Merger Arbitrage

Merger arbitrage is a popular hedge fund strategy that can generate attractive risk-adjusted returns with low correlation to equity markets. Typically, merger arbitrage funds (both hedge funds and mutual funds) use fundamental analysis to select the deals in which they participate. Our research shows that the universe of target companies creates positive excess returns relative to the equity markets and that owning a broad cross section of deals exposes the portfolio to the positi

buy IQ ARB Merger Arbitrage ETF (MNA);

Check out how others are using ETFs to capitalize on this news or add your own opinion

Muni Threat: Cities Weigh Chapter 9

The economic slump, however, is forcing debt-laden cities, towns and smaller taxing districts throughout the U.S. to consider using Chapter 9. As their revenue declines faster than expenses, some public entities are scrambling to keep making payments on municipal bonds. And that is causing experts to worry about the safety of securities traditionally considered low risk.

sell iShares S&P National Municipal Bond Fund (MUB);

Check out how others are using ETFs to capitalize on this news or add your own opinion

Small Reactors Generate Big Hopes

A new type of nuclear reactor—smaller than a rail car and one tenth the cost of a big plant—is emerging as a contender to reshape the nation’s resurgent nuclear power industry. Three big utilities, Tennessee Valley Authority, First Energy Corp. and Oglethorpe Power Corp., on Wednesday signed an agreement with McDermott International Inc.’s Babcock & Wilcox subsidiary, committing to get the new reactor approved for commercial use in the U.S.

buy iShares S&P Global Nuclear Energy Index Fund (NUCL);

Check out how others are using ETFs to capitalize on this news or add your own opinion

HHS Warns of Double-Digit Increase in Health Premiums

Proposed premium increases by Anthem Blue Cross for Californians purchasing their own coverage set off a wave of criticism and forced the company last week to announce a postponement. Now, the Health and Human Services Department says similar pressure on premiums is being felt in at least six other states.

buy iShares Dow Jones U.S. Healthcare Providers Index Fund (IHF);

Check out how others are using ETFs to capitalize on this news or add your own opinion

Do Commodities Still Provide Portfolio Diversification?

Do commodities still provide adequate diversification with the equity market?  It is an interesting question, especially in today’s context.  Since the financial crisis began in 2008, we’ve seen many asset classes move largely in tandem.  In particular, commodities and equities have moved in near lock step for the past year and a half.  Both fell sharply in late ’08 and early ’09, only to rebound for much of the rest of ’09 and now stay largely flat since the start of the fourth quarter of 2009.

In 2006, Gary Gorton and K Geert Rouwenhorst published an influential paper on the correlation between commodities and equities.  They researched 45 years of performance and noticed that commodities performed well when equities returns underperformed.  They concluded that commodities were a great way to broaden portfolios and spread risk. The research found that commodity futures, with Treasury bills as collateral, offered the same return as equities over the period of 1959 to 2004.  The research also found that historical risk in the commodities market was “relatively” low compared to that of equities.

However, since 2008, correlation between the S&P 500 (SPY) and the  S&P GSCI (GSG) commodity index has risen to nearly 0.8.  This has thrown into question whether commodities provide adequate diversification.

Source: ETFDesk.com

However, highlighted in a recent article in the Financial Times, the authors of the study are sticking to their guns. Although the past two years have shown a higher correlation between commodities and equities, over the long term commodity returns match those of equities, but with a negative correlation.

“You can argue whatever you want about the last three years, two years, one year, six months,” says Prof Gorton, 58. “That’s not how we do research,” he says in an interview with the Financial Times.

Source: Financial Times

Interestingly, the research also found that commodities track “unexpected” inflation quite well.  As more investors and managers fret about future inflation and below normal equity returns, it might just pay to increase portfolio holdings towards commodities.  For those investors that want to take a diversified approach to commodity investing, opposed to outright speculating on prices Gold, Oil, etc,  consider broadly diversified ETNs such as:

DJP iPath Dow Jones-AIG Commodity Index Total Return ETN

Source: ETFDesk.com

DBC PowerShares DB Commodity Index Tracking Fund

Source: ETFDesk.com

GSG iShares S&P GSCI Commodity-Indexed Trust


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