Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Gold Price Drops Amid Stimulus and Poor Data - 21st Jan 21
Protecting the Vulnerable 2021 - 21st Jan 21
How To Play The Next Stage Of The Marijuana Boom - 21st Jan 21
UK Schools Lockdown 2021 Covid Education Crisis - Home Learning Routine - 21st Jan 21
General Artificial Intelligence Was BORN in 2020! GPT-3, Deep Mind - 20th Jan 21
Bitcoin Price Crash: FCA Warning Was a Slap in the Face. But Not the Cause - 20th Jan 21
US Coronavirus Pandemic 2021 - We’re Going to Need More Than a Vaccine - 20th Jan 21
The Biggest Biotech Story Of 2021? - 20th Jan 21
Biden Bailout, Democrat Takeover to Drive Americans into Gold - 20th Jan 21
Pandemic 2020 Is Gone! Will 2021 Be Better for Gold? - 20th Jan 21
Trump and Coronavirus Pandemic Final US Catastrophe 2021 - 19th Jan 21
How To Find Market Momentum Trades for Explosive Gains - 19th Jan 21
Cryptos: 5 Simple Strategies to Catch the Next Opportunity - 19th Jan 21
Who Will NEXT Be Removed from the Internet? - 19th Jan 21
This Small Company Could Revolutionize The Trillion-Dollar Drug Sector - 19th Jan 21
Gold/SPX Ratio and the Gold Stock Case - 18th Jan 21
More Stock Market Speculative Signs, Energy Rebound, Commodities Breakout - 18th Jan 21
Higher Yields Hit Gold Price, But for How Long? - 18th Jan 21
Some Basic Facts About Forex Trading - 18th Jan 21
Custom Build PC 2021 - Ryzen 5950x, RTX 3080, 64gb DDR4 Specs - Scan Computers 3SX Order Day 11 - 17th Jan 21
UK Car MOT Covid-19 Lockdown Extension 2021 - 17th Jan 21
Why Nvidia Is My “Slam Dunk” Stock Investment for the Decade - 16th Jan 21
Three Financial Markets Price Drivers in a Globalized World - 16th Jan 21
Sheffield Turns Coronavirus Tide, Covid-19 Infections Half Rest of England, implies Fast Pandemic Recovery - 16th Jan 21
Covid and Democrat Blue Wave Beats Gold - 15th Jan 21
On Regime Change, Reputations, the Markets, and Gold and Silver - 15th Jan 21
US Coronavirus Pandemic Final Catastrophe 2021 - 15th Jan 21
The World’s Next Great Onshore Oil Discovery Could Be Here - 15th Jan 21
UK Coronavirus Final Pandemic Catastrophe 2021 - 14th Jan 21
Here's Why Blind Contrarianism Investing Failed in 2020 - 14th Jan 21
US Yield Curve Relentlessly Steepens, Whilst Gold Price Builds a Handle - 14th Jan 21
NEW UK MOT Extensions or has my Car Plate Been Cloned? - 14th Jan 21
How to Save Money While Decorating Your First House - 14th Jan 21
Car Number Plate Cloned Detective Work - PY16 JXV - 14th Jan 21
Big Oil Missed This, Now It Could Be Worth Billions - 14th Jan 21
Are you a Forex trader who needs a bank account? We have the solution! - 14th Jan 21
Finetero Review – Accurate and Efficient Stock Trading Services? - 14th Jan 21
Gold Price Big Picture Trend Forecast 2021 - 13th Jan 21
Are Covid Lockdowns Bullish or Bearish for Stocks? FTSE 100 in Focus - 13th Jan 21
CONgress "Insurrection" Is Just the Latest False Flag Event from the Globalists - 13th Jan 21
Reflation Trade Heating Up - 13th Jan 21
The Most Important Oil Find Of The Next Decade Could Be Here - 13th Jan 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Natural Gas ETF/ETN, A Small Example of Acceptable Fraud

Commodities / Natural Gas Mar 16, 2010 - 11:35 AM GMT

By: Adam_Brochert

Commodities

Best Financial Markets Analysis ArticleI have been keeping an eye on natural gas and I love the way the chart looks right now for a trade. But trying to find a way to play it without going into the futures market exposes the problems with our current financial markets. The fraud is too prevalent and the instruments are too opaque. I don't want to invest in natural gas stocks, but rather I want to invest in natural gas itself as a trade.


For those who don't think it should be easy to trade paper versions of commodities, I don't disagree. It can create dangerous price swings in things vital to the economy and to life itself. But this is a different issue altogether.

As someone who had a bad experience in the UNG natural gas ETF a few years ago, I decided to look around this morning in the ETF/ETN universe. I wanted to see what was available to retail investors who believed the price of natural gas was heading higher and wanted to make a bullish bet on the natural gas price. First, let me show you a 30 month daily chart of natural gas with my thoughts and comments:

Now, here are the illustrious trading instruments in natural gas for those who want to place bets on the price of natural gas. The following charts are all 30 month daily charts and are plotted using a log scale. First up, the UNG ETF:

How about the Claymore Canadian Natural Gas ETF (ticker: GAS.TO):

Perhaps the iPath Dow Jones UBS Natural Gas Subindex Total Return ETN (say that ten times fast...) with ticker GAZ will be kinder to retail investors:

I guess the only way to get around this problem is to use leverage and boost gains. Perhaps the Horizons BetaPro NYMEX Natural Gas Bull Plus ETF with its 2x leverage can overcome the slippage these products have:

Now, let me just preempt all the arguments people will make about these charts and these gains. First, there are issues with the way futures contracts are rolled over, there are issues with expenses, there are issues with the daily tracking method and there are currency-related issues when looking at the Canadian products. The vehicles are for day trading, not investing. Blah, blah, blah.

The bottom line is this: 99% of people who act so smart about these ETF/ETN products were burned by at least one of them at some point. Whether it was due to the leverage, the misunderstanding of how the daily price moves don't track well over a period of more than one day or the futures contract rollover issues in the case of commodity products, it's hard to make money on some of these products even if you guess correctly on what the underlying price will do. Every one of these products screws more than 90% of those who try to use them to bet on higher natural gas prices.

In other words, these products are for sophisticated investors but are marketed to the retail public. This small example in one corner of the investment universe shows how much the odds are stacked against the retail investor. The promise/hope of riches keeps many of us coming back to the casino for more, but the house (in aggregate) always wins in the end.

This is exactly what happened in the housing market. Yes, it takes two to tango and yes, people were trying to get rich by speculating in housing. But who gave them that opportunity and why? Why were down payments waived? Why were mortgages designed to explode after a few years created in the first place? Why were the least sophisticated market participants put into the most exotic products with the least chance of performing? The answer, of course, is greed. When both parties are greedy in a financial transaction but one party is sophisticated and educated and the other isn't, guess who usually wins?

Our federal government not only allowed this fraud to occur while they witnessed it, they actively participated in it. Thru the government-sponsored housing agencies, the housing bubble was made much worse than it should have been and houses were made even more unaffordable for those who didn't want to speculate on home prices. Now, by buying lousy mortgage paper and re-financing loans that should be allowed to fail, the government puts our currency at risk so that private banks can stay afloat. Those who want increased government regulation don't understand that the government aided and abetted the financial fraud and is still doing so to this day. The rules are already there to prevent such idiocracy, so its not a question of passing new laws and bills with expensive pork attached.

Right now, the SEC is intentionally ignoring the fraud in such ETF/ETN instruments as those above related to natural gas. These products are way too sophisticated for retail investors, but man, they sure do make Wall Street a lot of money and we all know who pays the campaign bills. The CFTC is ignoring the manipulative short positions in the Gold and silver markets because it is in collusion with the financial firms engaged in this illegal market manipulation. Don't worry, no one sees it coming so we can all act surprised when it blows up and we give more taxpayer money to our financial masters and government agencies to bail them out.

The fraud is too prevalent to allow a sustained stock market advance from current levels. When you can't believe a balance sheet, how can you invest? When the government is complicit in massive fraud on a scale that makes hardcore cynics blush, how can you trust in the stability of markets? When secretive and opaque markets are allowed to be used to raid entire countries, who is really in control?

The best most retail investors can do is to buy and hold whatever is in a secular bull market. Currently, the only decent looking bull market around with an opportunity for significant long-term gains is in Gold. That's right, a shiny piece of metal that doesn't taste very good when you try to eat it. Gold works when confidence in the paper promises of apparatchiks and teflon Wall Street dons evaporates. The carnival barkers would prefer you stay in the casino so that they can finish their financial rape job on you. The choice is yours. When the Dow to Gold ratio gets back to 2 (or even less than 1), will you have any money left to invest in the sound, cash-producing companies left standing?

Visit Adam Brochert’s blog: http://goldversuspaper.blogspot.com/

Adam Brochert
abrochert@yahoo.com
http://goldversuspaper.blogspot.com

BIO: Markets and cycles are my new hobby. I've seen the writing on the wall for the U.S. and the global economy and I am seeking financial salvation for myself (and anyone else who cares to listen) while Rome burns around us.

© 2010 Copyright Adam Brochert - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules