War Room 31 July 2012 Commodities Schizophrenia
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Transcript of War Room 31 July 2012 Commodities Schizophrenia
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War Room 31 July 2012
Commodities Schizophrenia
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War Room
•Monthly macro discussion
•Using tools in context
•Update on HiddenLevers Features
•Your feedback welcome
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Commodities Schizophrenia
I. Nat Gas + Coal: A Tale of Two Electricities
II. Oil Prices – Mid-year Pulse Check
III. Agricultural Commodities = Winner!
IV. Scenarios
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NATURAL GAS + COAL: A TALE OF TWO ELECTRICITIES
HiddenLevers
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Nat Gas + Coal: A Tale of Two Electricities
Nat Gas overtaking coal in 2012 as biggest resource for electricity generation
source: US Energy Information Administration
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Patriot Coal Takedown – Taste of Things to Come?
Coal demand declines in 2012:
• Competition from nat gas
• Milder weather in US
• Weaker industrial demand (China + Europe)
• Tougher environmental rules
• Wind + solar getting cheaper
• Oversupply from bad planningPCX Coal ETFs
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Natural Gas + Coal – Carnage in both camps
Neither Coal Miners nor Natural Gas Drillers have been good investments
source: HiddenLevers
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Nat Gas Opportunity – Utilities, not Drillers
Gas and Electric companies rock- lower prices for Nat Gas + Coal- Usually offer a nice yield
Source: HiddenLevers
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HiddenLevers
OIL PRICES – MID YEAR PULSE CHECK
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Oil Prices – Iran + Europe tug of war2012 – strange days for oil prices
Jan – Feb• Rhetoric from Iran + US + Israel drives
prices to 110usd• Election year in all three countries
Mar – Apr• Banks make ridiculous upside calls on oil• Oil fades as saber rattling fades
May – Jun• Oil crashes – Euro dies, US Dollar lives• Europe is a way bigger deal than Iran
July• US decoupling in tact – sluggishly
improving econ data• Oil + USD rising together• Rhetoric returns – Romney in Israel• Trading on QE expectations
78usd
Source: HiddenLevers
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Oil Prices – HiddenLevers gets it right in Jan 2012
slide from Jan 2012 War Room – Got Oil?
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AGRICULTURAL COMMODITIES = WINNER!HiddenLevers
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Agro Commodities – Bucking Trend
Source: HiddenLevers
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Big Cap Food - Bright Spot in Commodities
Source: HiddenLevers
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Agro Commodities ETFs – Choose Wisely!
click to get live chart
Dude, where’s my alpha?
Benchmarking Agro ETFs 6m performance
• Agro Commodities Lever +22%
• iPath Pure Beta Agro (DIRT +27%)
• UBS E-Tracs CMCI Agro (UAG +15%)
• PowerShares DB Agro (DBA +4%)
• PowerShares Global Agro (PAGG +2%)
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Long Agro? – Try Consumer Staples over Commodity Funds
Benchmarking Agro Funds1y performance
• Agro Commodities Lever +8%
• Fidelity Advisor Consumer Staples B (FDBGX +10%)
• Vanguard Consumer Staples Index Adm (VCSAX +11%)
• ProFunds Consumer Goods UltraSector (CNPSX +8%)
no no no maybe yes
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COMMODITIES SCHIZOPHRENIA - SCENARIOS
HiddenLevers
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Climate Change: Will We Adapt?
Guidance
1. Agro commodities prices skyrocket due to decreased supply and increased global population
2. CPI rises with food prices, and consumer confidence is negatively impacted
3. GDP growth could slow to standstill, based on subpar legacy infrastructure
4. DOD budget rises to cope with rise in global conflicts over resources
Guidance
1. Agro commodities prices rise, but less quickly
2. Manageable CPI rise, consumer confidence not heavily affected
3. GDP growth rises due to investments in infrastructure and durable goods
Both Scenarios:1. Agricultural Commodities rising2. CPI rising - inflation
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HiddenLevers – Product Update
• Macro Profile - Improved
• Scenario Impact Widget
Coming soon:
• iPad App (beta)
• Big Screen Presentation (beta)