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The U.S. Supply Shortage Nobody Is Talking About

by | Jul 27, 2021

Media headlines are all over the place again, with more attention placed on mask policies and the Olympics than genuine investment concerns.

Source: CNBC

I’m not sure why the headline on Chinese stocks didn’t make it higher on the page, given that it looks like reasonable advice.

Bloomberg fared a little better in terms of coverage, calling out the China factor more prominently, noting the underperformance of Apple and Microsoft prior to earnings, and mentioning how inflation data is worsening for manufacturers…

Source: Bloomberg

But apparently nobody in the financial media has noticed the one inflationary force tearing up summer markets.

Natural gas — prices for which have been up as much as 70% in the past three months.

Source: Bloomberg

Some of that run is of course due to hot summer temperatures causing an increase in cooling demand.

But more importantly, it has drawn down inventories into the middle of their 20-year range.

Source: Bloomberg

In a normal year, that wouldn’t be a big issue.

But in a year after COVID-19 shut in a ton of production, replacing it is going to be a problem.

Rig counts for the United States’ most productive region — Appalachia — are near all-time lows, despite the recent uptick in prices.

Source: Bloomberg

And without the biggest player pumping up storage at scale, there are those who are worried we won’t have enough gas to make it through winter.

That’s a big deal.

U.S. Natural Gas Prices Hit $4… and They’re Going to Go Higher

Commodity inflation shouldn’t be a surprise topic to this audience… We’ve been talking about it for a year. 

In fact, our plays on digital commodities Grayscale Bitcoin Trust (OTC: GBTC) and Grayscale Ethereum Trust (OTC: ETHE) have worked out pretty well, gaining 15%, 31% and 19% over just a few short weeks.

They’re overbought here, and crypto ranges are compressing, so let’s go ahead and take them off, with the idea to buy back in later.

Instead, I want to roll one inflationary commodity class into another one.

Let’s place a quarter stake apiece the United States Natural Gas Fund (NYSEArca: UNG) to gain exposure to the physical commodity, and Appalachian Producer Range Resources Corp. (NYSE: RRC) to gain exposure to an operator.

Both are down today, and we prefer to buy on weakness.

After all, we should all know by now that the way to beat inflation is to own the assets that are inflating.

All the best,

Matt Warder

WRITTEN BY<br>Matt Warder

Matt Warder

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