March
25, 2002; Sooner Than Expected Strength in Natural Gas and Oil Futures
Six-year
natural gas price advanced 5% to $3.83 from $3.65 in the past week (see Chart).
Six-year oil price advanced 1% to $22.74 from $22.41.
Six-year natural gas moved above six-year oil on a 6:1 heating
equivalency basis.
This was supposed to be the time at the end of winter
when natural gas crashed down, not up. The
surprise is a sign of strength that investors should not miss.
Though we can no longer buy natural gas the commodity or natural gas
producer stocks at the lows of recent weeks we now have favorable momentum.
Some investors are willing to miss a bottom of indeterminate duration or
price level in favor of committing when a new up trend is established. We think the positive direction is evident now.
The trend has already been strong enough that it can absorb moderate
setbacks without changing direction.
If we read a favorable direction for stocks from
futures, the question still remains where are futures ultimately headed?
After all, there is not a lot of volume of trading in natural gas for
delivery in April 2007, one of our data points, for example.
Because no one knows the future, a diversified portfolio ought to be
invested in growth with protection from inflation and deflation.
After two decades of relatively benign inflation, we think most investors
should ratchet up their inflation protection for the next decade while also
maintaining deflation protection and growth exposure.
Energy investments offer a lot of inflation protection, a little
deflation protection in some cases and moderate growth.