In recent weeks, I have been a buyer of late cyclical stocks, including energy, materials, and industrials. Within the energy space, I've really been interested in natural gas plays. I saw a chart that came across my desk this morning from Jason Trennert at Strategas Partners that made natural gas appear even more interesting as a reflation play.
The chart shows that the ratio of crude oil to natural gas prices is at a fifteen year high and more than two standard deviations above the norm. Essentially, it shows that natural gas simply has not kept pace with the recent run up in oil prices. Incidentally, energy stocks haven't kept pace with the rise in oil either.
Part of the reason for the difference, I believe, is that oil has become an important currency (a store of value) in its own right. When you think about it, all nations, developed and developing, have a need for oil, perhaps more so than even the dollar. This likely explains part of the unusually wide disparity between natural gas and oil prices. Even so, I still think natural gas should eventually benefit from the upturn in the value of crude.
In another note, there is an excellent article on the Roth IRA conversion/reverse conversion process in today's WSJ. If you can qualify based on income, then converting part of an existing IRA/IRA rollover to a Roth Ira by paying taxes today may be a smart long term move and one that can also be undone to give you the best possible tax benefit. Check out the article here.
Finally, Pepper and Salt, WSJ 6/11/09.
