Was Last Week's 'Wilt' a Start of the Much Anticipated Correction?

Source: Seeking Alpha, Jeffrey Saut (6/23/09)

". . .we have become increasingly constructive on natural gas over the past number of weeks. . ."

So the question this week is, "Was last week's 'wilt' the start of the anticipated correction?" Interestingly, while the "cap weighted" S&P 500 was only down 2.6% for the week, the "equal weighted" S&P 500 was down 4.1%. The implication is that the decline was broader than the much-watched indices suggest. In fact, of all the things we monitor only aluminum and natural gas (Henry Hub, spot month) rose on the week, by 0.06% and 11.51%, respectively.

As readers of these comments know, while we think crude is pretty extended in the short-term, we have become increasingly constructive on natural gas over the past number of weeks even though that goes against the opinion of our energy analysts. Coincidentally, our friend and Director of Research for Investment Management Associates, Inc., Vitaliy Katsenelson, sent me this email on Friday:

Six reasons why natural gas is a better investment than oil:
Reserves deplete faster than oil (in general).

Oil / natural gas ratio: the price of oil divided by the price of natural gas is at an all-time high (or close). This ratio stands at 17 (historically it has been at about an 8 or so). Natural gas prices will go up, oil will decline, or both. Also, natural gas is not a good hedge against the declining dollar (it is for the most part a domestic commodity) and storage capacity is more limited, thus not as admired by speculators as oil. This explains in part why it lagged the spectacular performance of oil of late.

At $4 natural gas, it is uneconomical to develop and look for new reserves.

No OPEC competition, LNG (liquefied natural gas) imports are uneconomical at these prices.

Politically more favorable than coal.

After emission caps are implemented natural gas will become a cheaper alternative than politically and environmentally unfriendly coal.

Obviously we agree.

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"China's export quota could be opportunity for Canadian miners"

Mexico: Gold's Next Powerhouse Player
Source: Marc Davis, BNW News (11/03/2009)

As the world's key gold producing nations struggle mostly in vain to replenish dwindling below-ground supplies, Mexico is bucking the trend in a big way.

Where Have All the Gold Mines Gone?
Source: Brent Cook, Exploration Insights (04/14/2009)

Given the declining global gold production, mining companies’ demand for reserve replacement and the acute dearth of new gold discoveries, there is no doubt that real economic discoveries will be exceptionally valuable. . .the opportunity for stellar profits is the best it has probably ever been. Identifying the few successes, however, will require vigilant and constant technical assessment of geology and drill results, always with an eye to mine economics.

Congo Completes Mining Review, Says Majors Quit Talks
Source: Reuters (12/20/2008)

"Review process is extended an additional 45 days to allow six companies to return to the negotiating table for direct talks with government ministers."