Natural gas out of thin air…Now there’s a good idea
With front month Natural Gas closing at 3140 yesterday, its lowest price in over 2 years, you might be bracing yourself for my annual tirade about the flagrant abuse of customers by the energy cartel that operates in Britain. But you would be wrong.
Well sort of anyway. I can’t help myself from mentioning that in the same week that Nattie traded 3140, a whopping 80% decline from its 2005 peak of 15780, it was reported on the BBC news that this year alone the ever fleeced British consumer experienced a rise in energy bills of a staggering 25.4%. So much for free markets levelling the global playing fields!
Oh well at least the powers that be tell us there is no inflation to worry about, so I am sure we should behave as the reliable unquestioning citizens that we are expected to be and believe all of this utter rubbish.
But hey ho, I promised not to get on my soapbox today, so let’s turn to something a little more positive. I was joking with friends yesterday about how they will be giving away natural gas with cornflakes before long it is so darn cheap. Funnily enough that might almost be the case soon.
How about an unlimited supply of cheap, carbon neutral Natural Gas! Sounds impossible right?
Well think again. Like Steve Austin you will be relieved to know that we have the technology! Better still it is under construction right now. Natural Gas produced out of thin air that does not fill the environment with CO2. What a wild idea.
Here is a very short article I read this morning about powering cars and homes with this cheap, clean, energy.
Click here to download the PDF
Pretty cool stuff I am sure you would agree.
Of course by the time the poor old consumer has access to it, you can be sure it will be much more expensive. As domestic gas supplies continue to demonstrate there is no correlation at all between what we are charged and the true wholesale prices that prevail.
However unlike “Natural Natural Gas” this stuff looks to be available in virtually unlimited supply, so may well be a key component in powering our homes and cars as the impending energy crisis starts to materialise.
About 10 years ago I did drive an LPG car and as a confirmed petrol head I can say that it isn’t as good as the real stuff, but much closer to it than electric is. I am also sure that the technological improvements since then will have been very considerable. So my guess would be that in 2013 when these cars arrive, they will be pretty impressive. We’ll find out soon won’t we!
For the avoidance doubt…Thank you Audi for the use of your article and for letting me share it with my friends.
Disclaimer, risk warning and copyright notice apply to all articles published on this site.
Copyright © Simon Townshend Ltd 2011, all rights reserved
Someone’s hushing up the MF Global affair
…but the time bomb is ticking!
I am intrigued, as well as suspicious, at the lengths that “someone” is going to to suppress this news outside of the USA. How can the 5th (?) largest bankruptcy ever simply not make the news here in England? Yet someone in Sussex has lost a cat and that’s newsworthy? Hmmm.
Half the locals are currently out of business with their working capital frozen and we have all witnessed the collapse in liquidity this month. You can’t take out the biggest player in an industry and expect life to carry on as normal. The American futures industry is basically mothballed until those MFG funds are released and even then there will be no “getting back to normal”. This industry is fundamentally changed by this sorry affair.
Short term market risks
Personally I think the stakes here are far higher than most people realise. I doubt that anyone with accounts at MFG will lose a single cent at the end of the day. However if this takes more than a few more days for the funds to be released back into play in the markets, the potential exists for a massive collapse in the markets in my opinion.
The issue here is not the frozen money. That will sort itself out at the end of the day. The real issue is the principle of segregated funds being sacrosanct including, in particular, the BELIEF that they are so. The whole industry has segregated funds as its bedrock. If the CME drags its heels any further in sorting this out it is gambling not just with viability of the American futures industry but also the stock market and many other markets too.
The slightest hint that segregated funds might not be 100% secure could have the effect on the markets be like a pin meeting a balloon. In 2008 we experienced a run on several banks as scared investors pulled their money out. Imagine that same fear being applied not just to a few banks but to financial markets worldwide! Anyone with a segregated account containing stocks, bonds, commodities, currencies could simply say “to hell with this I’m cashing out!”.
Even spread betting accounts here in England are segregated these days and as far as I can see are the cornerstone of pretty well all investment accounts.
The CME had better be smart enough to realise that they are playing a game of chicken here not just with its own little world but also with pretty well every financial industry you can think of. Hmmmm could that be why this news is being suppressed so heavily? Well in the internet age you can only sit on these things for a limited time. Once it gets out and if it takes hold, be afraid, be very afraid. Man itself is irrelevant. But as a catalyst its potential is enormous.
The money temporarily locked up in MFG isn’t the issue at all. As usual the majority are looking in the wrong direction. If word gets out to the big wide world from this very small circle that we traders all move in, then batten down the hatches.
Longer term implications
So what about the future, after this sorry mess has actually been resolved? My guess is that in years to come we will all be looking back at this event as the time that everything all changed. How big, how fast and how far reaching these changes will be is anyone’s guess. If I was to take my best guess then the longer term implications I can envisage would include these…
- The loss of many brokerage firms who previously relied upon Man for clearing services. Every day these businesses continue to pay their staff and other overheads while their clients are unable to trade. Existing clients are unlikely to refund new accounts and the firms will struggle to find new clients. Every day that the CME fools around rather than just ponying up as it inevitably will have to, is a day closer to the end of the road for otherwise perfectly innocent firms stuck in the middle of this mess.
- The industry will have to get used to the idea that clients will no longer deposit cash with clearing firms who will have to accept unmargined accounts secured via complex structures allowing clients money to be safely housed in banks that the brokers cannot touch. In future the only cash that will pass through the hands of brokers will be amounts representing daily profits and losses sufficient to return the account balances back to zero again. Those who will benefit from this fiasco will be those firms who are first to roll out such mechanisms, already used by small numbers of more highly valued clients, to their whole client base. Those who are slow to adopt such mechanisms will rapidly go out of business.
- A mass exodus of volume away from the fundamentally broken, and never again to be trusted, American futures industry. The European exchanges are the ones likely to hoover up all of this business by developing a more progressive regulatory regime while also providing better proximity to the emerging markets, making them the obvious next step for the global centre of the industry in its natural progression from west to east. I would be very surprised indeed if European exchanges are not already planning mass marketing campaigns and big incentive schemes for next year, ready to take on the wounded beast that the CME will shortly be revealed to be. And let’s not forget that exchange fees in Europe are already a fraction of the extortionate rates charged by American exchanges, plus contract sizes are also much bigger. So putting together very enticing schemes to lure away that volume will neither be difficult nor costly!
- A loss of the hitherto distinct Asian, European and American trading sessions as a more normalised genuine 24 hour market evolves to cater for all timezones from a more natural geographic centre in Europe.
- Lots of new and exciting products to compliment the existing deep, but limited range of markets available in Europe, with lots of volume from very early on in the new products’ life.
- Ultimately the migration of large numbers of traders from the United States to Asia and the Far East, where they can enjoy substantial tax benefits as well as trading whichever of the old timezones that best suits their lifestyles and still operating accounts within the safety of the European regime as it evolves.
Is that all bad?
Absolutely not! There certainly will be short term pain, do doubt about that. But I believe that the short term inconvenience that we are all being put through will soon be surpassed by the benefits of the improvements that will come about as an antiquated industry wakes up and gets dragged into the 21st century triggered by this catalyst that is the Man Financial mess.
Will any of my hypothesis come into being? I have absolutely no idea. But I am sure that 2012 will prove to be a major pivotal moment in the history of this industry. I also believe that whoever it is that is, so far, being effective in burying this major news, knows it too. Well the lid won’t be kept on for very much longer, there is no going back to business as usual, so the next question is what the short term fall out is going to look like before the phoenix arises from the ashes.
Disclaimer, risk warning and copyright notice apply to all articles published on this site.
Copyright © Simon Townshend Ltd 2011, all rights reserved
Politicians love to lie with statistics…
…but don’t overlook their ability to mislead with words!
Finally in Britain we have a government prepared to roll up its sleeves and deal with the horrible financial mess that has been allowed to develop over the last decade. Almost every day on the news we hear about the state of “the deficit”, the 25% public spending cuts and ugly tax rises that are planned to deal with this problem.
The widely accepted figure for the UK’s deficit is £149bn. An astronomical figure we all agree, even those who will be most impacted by the spending cuts accept the country cannot go on living on its credit card forever and action is urgently required.
But what are the facts that lie behind the headlines? When we hear the word “deficit” the picture conjured up is that of an overdraft, a loan, a credit card bill. That analogy is then built upon by the way journalists write their stories. People sitting at home watching the news, sucking on their teeth in disbelief at the horror story of the Nation’s debts try to internalise otherwise incomprehensible numbers by thinking of themselves personally in a similar predicament.
Perhaps £149bn of National debt, may create a picture for the individual of they themselves sitting there with £149k on their mortgage or maybe £14.9k on a credit card bill? They think of their personal deficit if you like, being of such magnitude that an easy way out of the hole eludes them. All they know is that somehow in that position they would have to find a way of dealing with their “deficit”.
What’s in a word?
Very sadly what normal human beings have been allowed, encouraged and coerced into understanding the word “deficit” to mean, isn’t exactly the same definition as used by our politicians. For them “deficit” doesn’t mean the whole horrible insurmountable mess. They don’t mean the current credit card balance or the mortgage on the house.
Their version of the word “deficit” refers only to the rate at which the hole is continuing to be dug! The £149bn is only the additional debt being added to the pile this single year. It isn’t the credit card balance at all, just the new spending being added to it. The actual debt is miles worse. The last credit card bill stood at £927bn even before this £149bn started to be spent!
So hold on a minute here. The 25% spending cuts and tax rises are intended to address just the £149bn annual increase in the mess and they don’t even deal with all of that, only a bit of it! They don’t get anywhere near addressing the £927bn racked up over the last decade, which also has to be paid back. We don’t hear about that at all when the discussion centres around just this £149bn figure.
I am sure that the majority of the population genuinely believe that if the £149bn could be eliminated, we would be out of the woods completely. But in reality these 25% cuts and tax rises should only be seen as the first round. There will have to much much deeper cuts and tax rises to follow if we are to deal with the actual problem once the incremental annual increase has finally been sorted out.
There are two other sorry aspects to this national problem too. Firstly the public has been led to believe that we are in this mess because of the financial intervention when the banking system collapsed. Politicians do nothing to defuse this misconception as it channels the public’s fury away from themselves. So they are only too happy to have the bankers blamed for the pain. However the truth is rather different from perception, again. Without the financial intervention the true deficit would stand at £816bn. So £9 out of every £10 of the true deficit has nothing to do with the credit crunch but everything to do with reckless and irresponsible government spending. No wonder the politicians are so happy to see the bankers take the blame for this situation.
Growth?
The second buried fact is perhaps the most worrying of all. In attempting to tackle this tip of the iceberg £149bn annual increase in debt, there is a third key element. Over and above the spending cuts and tax rises there is an assumption of economic growth. This is a big assumption, which is almost certainly flawed. I suspect we don’t hear too much about this as it is probably already known to be flawed, yet the whole £149bn reduction is absolutely dependent upon this. Yet basing your rescue upon growth is about as sensible as relying on a lottery ticket coming good. It just isn’t going to happen. At least you should not be banking on it, more treating it as a welcome surprise were it to materialise.
About 3 years ago a read a new book written by George Soros. Well I say read, it was more like ploughed through with great difficulty as it was probably the most difficult book I have ever tried to read. To the best of my ability I concluded from this a simple message – The world has experienced 60 years of almost uninterrupted economic growth. That period is now at an end and there is no reason to expect any growth at all, on average, over the next decade or two. In fact after such an extended period of growth, there is every reason to expect an extended period of no growth at all (at best!). Traders might like to think of that as a retracement in an uptrend, but on a yearly chart perhaps.
He might be right? He might be wrong? If it was a politician making such predictions it would be guaranteed to be wrong. But like him or loath him, this guy is no fool. Our knowledge of market swings and even plain old common sense also support such a view. So I would certainly not want to be relying on growth to fix the bulk of the country’s financial problems, yet wishful thinking seems to be about all we have left.
Don’t be a lemming
There may be an acceptance of tough times ahead, but there does seem to be a general consensus that the worst is now behind us. Where this confidence is founded I can’t quite figure out. From what I can see this is far from over. In fact we don’t seem to have even finished the hors d’oeuvres yet.
As traders we are always getting bearish at the end of major bull markets and always getting bullish at the end of major bear markets. In many ways it is our purpose in life to be taking the opposite view to that generally accepted by the public. That is how we outperform the crowd over the long run. Perhaps we are just wired differently? Not to accept what we are told, to be forever suspicious? The minute a room full of people agree with my view on the market, I know I am on the wrong side.
So I like being different, confrontational some might think, holding views that go against the grain. There is supposed to be safety in numbers, but never forget the money is with the minority! When people tell me “you have been way too pessimistic in the last few years” I have to tell them that 30 years ago I was a superbull. You would never have found a bigger optimist at that time – a time where there was nothing to be optimistic about (mass unemployment, 3-day working week, power cuts, rubbish piling up in the streets etc.).
Markets move in cycles, life moves in cycles. That always has been the case and always will be. No I don’t buy into all this tripe about recovery that the masses are happy to swallow. The facts simply point in a very different direction for the moment. Once we really get into the pain of sorting out this mess, once the 25% spending cuts look like small beer, when there is real fear and desperation on the streets, when there is nothing to look forward to…then I’ll be bullish again. I also know we will see the S&P back to 1650 and way beyond in the future. I expect and hope that is in my lifetime, it just isn’t likely to be any time soon.
Disclaimer, risk warning and copyright notice apply to all articles published on this site.
Copyright © Simon Townshend Ltd 2010, all rights reserved
Rip-Off Britain – Chapter 2
I feel its time again to have another moan about my gas bills. If you were reading my articles a little over a year ago you will probably remember my last rant on this subject. At the time the wholesale price of Natural Gas had been in long term decline and was actually at its lowest price for 7 years, having FALLEN by over 75%. Yet mysteriously we, the consumers, were facing bills escalating wildly out of control over these same years. I wasn’t happy about it.
If you missed that article but these astounding facts interest you, here is the link: http://simon-townshend.com/2009/05/rip-off-britain
I heard on the news a few days ago that the gas prices we consumers have witnessed more recently are due to the weakness of the Pound. So the excuse seems to have evolved rather over the last year – maybe a few people with more influence than me started taking an interest in this market that so few people ever look at?
Needless to say when you compare the price of a Dollar (the currency in which Natural Gas trades) today to its price a year ago you notice something else that’s rather intriguing…A year ago a Pound bought you 1.5 Dollars. Today it buys you errr 1.5 Dollars! In the period in between the Pound has been STRONGER, not weaker, actually maintaining 1.6 to 1.7 for the majority of that time. So that was a pretty feeble excuse then. But maybe it served its purpose and diverted unwelcome attention away from the true wholesale gas price.
What will they think of next? Actually I have a sneaking suspicion that the next excuse will in fact revert back to the “terrible rises in the wholesale gas price”. The fact that these rises , if they do in fact happen, will come from an unbelievably low base will no doubt be overlooked as the con unfolds.
Why do I think this? Well over that last few weeks the Natural Gas market has actually bottomed and is now starting a very pretty well behaved new uptrend. How far it will rise is anyone’s guess but when you see just how far it fell over recent years, a very substantial rise is by no means out of the question:
The real question on my mind is if my own gas bills were able to rise during the biggest fall in real gas prices in recent history, what the heck will happen to them now? I fear we already know the answer to that!
On a slightly more positive note – my fund members and SIR subscribers have been long this market for the last few weeks and we plan to not only hold onto the existing position but to add to it at every opportunity if this new uptrend develops as it has the potential to. So “They” may have really shafted us on the way down, but at least we are somewhat hedged against the next round of shenanigans that no doubt will start to become newsworthy over the coming months. 
I dont know about you, but I am getting more than a little bored of being treated like a mushroom by the powers that be.
Disclaimer, risk warning and copyright notice apply to all articles published on this site.
Copyright © Simon Townshend Ltd 2010, all rights reserved
A couple of quick notes (3 actually)
Thank you
Firstly I would like to say a big thank you to everyone who wrote in following the “Friends and Quinto” interview. We received lots of thanks and praise as well as many questions and suggestions. I’m simply unable to reply to everyone individually, but didn’t want anyone to think I was ignoring them. So please accept this rather impersonal message as a thank you. I had already agreed to do a second interview and to elaborate on the topics discussed. Now we will also use this as an opportunity to answer several of the questions that were asked following the first interview.
A closely guarded system
The second point I wanted to make concerns an amazingly profitable trading strategy. I have thought long and hard over several months about sharing this, but have now decided to reveal it to subscribers to this newsletter. It was developed by a head trader at a well known bank. He was so successful with this strategy that he retired at the ripe old age of 28! He never revealed his secret to his former employer, nor to the traders he managed at the bank. Needless to say I feel somewhat privileged to have had this explained to me and hence my reluctance to share it. This strategy has been on my mind a lot for the past few weeks as I gather information together for my end of year review and planning exercise for next year.
I think you will be very surprised at this strategy and you will also understand why the gentleman concerned flat out refused to tell his employer how it worked. The next couple of articles I write for you will give you this strategy for you to consider yourself. This is powerful stuff indeed and in sharing this I need to protect the trader’s identity and that of the bank he worked at. So I will email this exclusively to my newsletter subscribers. There will not be a back up copy on the server. It will not be reproduced on my website nor anywhere else open to the public. I know this will be great material that you very well might adopt some or all of for yourself. In sharing this with you I ask just one thing in return – that you keep this strictly to yourself. Please do not share it with others and do not reproduce it anywhere. As you know I am not sensitive about most of my articles, but with this I am going right out on a limb so please work with me on this. OK, this will be with you by Christmas.
Recession – second dip coming?
On a completely different theme, I will pass on a summary of a chance meeting one of my fund partners had with a guy he sat next to on a plane this week. This chap is a director of a global ports operator, the largest in world actually. Inevitably the conversation turned to the economy and an interesting fact was unveiled. He said that they knew the meltdown would be bad when in Q3 last year, normally stable port volumes “suddenly fell off the edge of a cliff” to use his exact phrase. Now I am no economist, nor do I believe in forecasting of any kind. However I cant think of a better barometer of economic activity than freight volumes passing through the major ports around the world.
The dramatic decline varied from country to country of course, but overall volumes suddenly dropped 30-40% almost overnight. We all know what followed and its not a huge leap of faith to accept that there might be a link between the two. Actually it makes perfect sense doesn’t it, even if in an unscientific and unsophisticated way?
Anyway activity levels stabilised after that, although fell well short of recovering. Until last month that is. “Last month volumes fell straight off the cliff again.”
If that is true (not that I have any reason to doubt it) it may give us a bit of a heads up. I am not saying it will or it wont, as I just don’t know. But if we get into the New Year and things suddenly start turning south again, it wont come as any great surprise, at least not to our little group.
Disclaimer, risk warning and copyright notice apply to all articles published on this site.
Copyright © Simon Townshend Ltd 2009, all rights reserved
Follow a plan, whether it works out or not
Summertime is upon us once again; a time when things usually quieten down in many markets and also in our work. So far this summer that is certainly not the case.
I took off the second half of July from normal daily trading activity to concentrate on preparing for our forthcoming S-I-R trading signals service whilst Colin, my good friend and website guru, set about the task of starting to build the site and delivery mechanism needed for this service to operate smoothly and efficiently.
It was a great plan, upon which we both made a start. But like all good plans what actually panned out wasn’t exactly what was envisaged!
Colin’s work got off to a great start. Then the inevitable glitch materialised in the form of the hosting company not setting things up entirely as promised, creating considerable delays whilst they fixed it. Fortunately people like Colin always have a lengthy pipeline of work so he did not lose this time, but our project progressed less quickly that it might have without this external delay.
In my case, just prior to leaving for my hideaway in the French Alps where I planned to have uninterrupted peace to concentrate on my work, I got involved in discussions with a potential new investor. There is nothing new in that of course except that this particular investor has the potential to increase the size of our fund dramatically should his company decide to go ahead with the planned investment. This would be our first (and probably last) institutional investor and anticipating the due diligence process that would follow, I realised that preparing for this was by far the most important use of my time.
So I ended up working like a dog for 10 days and it was very productive. Unfortunately it bore little resemblance to the work I had plannned to do.
I think there is a very real lesson in all of this. There are some wonderful advantages to working in this business, which in my opinion include these very important ones:
- There is no commuting or daily grind to contend with
- You choose your working hours, location and surroundings
- You only work with a few carefully chosen and often part-time colleagues
- The business can be grown tenfold without any change in staffing levels or overhead costs
What other business can offer this? Especially this ability to grow without incurring additional costs, indeed volume discounts if anything reduce costs!
But the downside is that you don’t have the corporate organisation around you to delegate to and your carefully laid plans sometimes get completely thwarted. Personally I think the benefits far outweigh this disadvantage. However, you have to be willing and able to be flexible when such unexpected events derail your plans. This can be frustrating beyond belief but you cant just dig in your heels and say “no” like someone with a conventional job could.
With fixed and limited hours available you have to re-prioritise the items in your “to do list”, which you can be certain you will never reach the end of!
You also have to keep working to a plan, even in the knowledge that the plan may sometimes have to be modified. Just like a trading plan sometimes has to be developed and allowed to evolve in a controlled manner from its original incarnation. With a good plan you have a good chance of reaching your ultimate goals, just not necessarily exactly how you had anticipated getting there. However without a plan you can be pretty sure you wont get there at all.
(As an aside our S-I-R strategy ended July in fantastic form and an updated performance chart has been posted to the website: www.Simon-Townshend.com/trading-signals )
Disclaimer, risk warning and copyright notice apply to all articles published on this site.
Copyright © Simon Townshend Ltd 2009, all rights reserved
Rip off Britain
Have you ever felt that you were being conned but not been able to quite put your finger on why you felt that way?
Well that was just how I felt when I received my last energy bills recently. Both the gas and the electricity bills were the largest we had ever received. No doubt we have all watched the news on and off over the last few years talking about rising energy costs, how scarce gas is becoming, how our suppliers are having to increase bills due to the spiralling wholesale prices etc etc.
Like me you may well have fallen for the sob stories and not looked into it any further? Taken for granted that we are being told the truth? With my bills hitting all time highs I just knew I was being ripped off and decided to look a bit harder. If you read any further you had better be prepared for one heck of a shock!
Here are the annual statistics on retail gas prices from the “Department for Business, Enterprise and Regulatory Reform”, showing the dramatic rise in prices we have all witnessed in particular over the last 3 or 4 years. This chart doesn’t even show the record breaking monster bills we have all been paying in 2009.
Wow with those sorts of price rises there surely must have been terrible rises in the wholesale gas price over the last few years. Those poor energy companies must have really been getting their margins squeezed, trying to absorb as much of the price rise as possible so as not to pass it all onto us angry consumers. I almost felt sorry for them struggling to operate in an environment with such runaway prices.
What a sucker!!! Those feelings instantly gave way to pure anger when I looked at the wholesale gas prices over the last few years. Imagine my surprise when I realised that gas prices:
- Are at their lowest level for 7 years
- Have fallen in the last year from 14 to just 3.5 (don’t ask me what the units are, but that’s a 75% fall whatever you measure it in!)
- Were at their highest in 2005 and rapidly fell from there
The true cost of gas has been going down just about as fast as our bills have been going up! We have been right royally shafted, swallowing all that hype hook line and sinker! Thanks for nothing Britain. Caveat Emptor!
Disclaimer, risk warning and copyright notice apply to all articles published on this site.
Copyright © Simon Townshend 2009, all rights reserved.
Friends and Partners
