The government is playing an increased role in everything.  We the people are now the proud new owners of Obama Motors.  The government is playing an increasing role in running the banks and they are holding interest rates artificially low.  The new health care proposal, termed “Obama Care,” could drastically increase the budget deficit and lower the standards of health care.  And more recently they have proposed increased regulation of the commodity futures markets. History shows us that the policy of the government running everything usually does not bode well for an economy. In an environment like this, investors might consider how they can benefit from this move away from capitalism so that they can protect and profit from excessive government regulation and intervention. 

When thinking of how one can benefit from increased regulation and intervention, there are a few markets that come to mind. Natural Gas has been in the headlines lately as the government intends to limit positions in commodity markets, in particular - energy commodities.  This is despite the government’s study in 2008 that indicated there was no proof that speculators were in fact behind the rise in commodity prices. United States Natural Gas Fund recently stated that it will be reducing its positions in the futures markets to adhere to proposed Federal limits.  The talk of position limits and other measures has helped caused the recent spur in selling. Natural Gas has fallen about 80%, year over year, to a 6 ½ year low.  This is partially due to a drop in industrial demand and the record production coming online from the growing shale supplies. 


Natural Gas Futures – Weekly



However, one thing is for sure; Natural gas is unusually cheap and the potential for a strong rebound over the next several months is possible. This could be caused by numerous factors, including a short covering rally, a hurricane, an unusually cold winter and a sharp drop in the currently excessive inventories.  As Allen Brooks of PPHB explained:

“Analysts have become much more confident about a recovery in natural gas prices during the second half of the year as they believe the current reduction in the rig count will result in a fall of 1.5 billion cubic feet per day to as much as 4.0 billion cubic feet of gas production by the end of the year.  This production fall would essentially eliminate the estimated current surplus over demand.”

The following chart represents the Natural Gas to Crude Oil ratio going back to 1970.  Although not represented in the chart, the current ratio is now close to 19.  This level has only been seen twice in the past 33 years as experienced in the Gulf War and the Iranian revolution.


Exhibit 5  Natural Gas Prices Cheapest Since 1970s



One might consider using the threatened regulatory actions to establish positions in Natural Gas and other commodities.  If position limits and regulatory issues are a problem, investors might consider moving their assets offshore to gain exposure to similar markets around the world.  Of course, this would need to be done within the lines of the law.   

If you are interested in learning about several other markets where regulations have created potential opportunities, feel free to call me at 312-479-2077 or email me at jared.irish@archerfinancials.com .


Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. The views and opinions expressed in this letter are those of the author and do not reflect the views of ADM Investor Services, Inc. or its staff.  The information provided is designed to assist in your analysis and evaluation of the futures and options markets.  However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright © ADM Investor Services, Inc.