How China’s New Money Policy Will Effect Natural Gas
- The Opposite of Resource Investing
- An 18% Gain with CHNG
- A 1000 Year Old Profit Stream
Given that my job is to focus on investments based on tangible assets, it's somewhat outside of my area of expertise to wade into the muck of foreign exchange. You might say that trying to lever your capital and make gains on the price swings of currency fluctuations would be the opposite of resource investing.
Resources need to be produced by the sweat and sometimes blood of someone's brow, whereas world currencies, for the most part, are based on nothing but a government's ability to print them. Ben Bernanke doesn't shed a single drop of sweat, and certainly no blood, when he prints another $1 trillion into existence. And you can bet he doesn't shed a tear for those folks unfortunate enough to hold dollars when he turns on the printing press.
So I'm somewhat loathe to discuss currencies - but they do have a real effect on the price of resources - so I must.
And to prod me along, I received a very relevant and tough question yesterday after my long-winded self congratulatory issue on my correct natural gas call.
Sidney Y writes in:
"Yes you said natural gas would move higher.
What about China Natural Gas (NASDAQ: CHNG)? It is currently in the mid-$7s. Its 52 week spread is mid-$6s to mid-$15s. How do you view the yuan revaluation relative to the direction of this undervalued resource?"
Sidney is really asking two questions.
How will China's currency revaluation affect the price of natural gas?
What do I think of CHNG as a way to benefit from rising natural gas prices and/or a revalued yuan?
I've talked before about the huge expense of storing natural gas, which is why most natural gas is delivered by pipeline direct to consumers. Whether it's for home use or for industrial use, it's probably getting delivered by pipeline.
If you have a gas stove, you've probably seen the gas line coming into your house. That gas line comes from an even bigger pipeline, which in turn, eventually will lead you to the producer.
So, until and unless there's a pipeline built to Eurasia, it's not likely that North American natural gas prices will have a significant effect on Chinese natural gas prices. There's no world price for natural gas, so any currency fluctuations between the dollar and the yuan will have little if any impact on natural gas prices.
As for question #2 - I should note that Sidney is asking about a company that's been in the Small Cap Investor Pro portfolio. I'm kind of stretching the rules here, but I talked it over with Chief Investment Strategist Ian Wyatt, and he's okay with me sharing the name of this company here because it's been in the portfolio for over 12 months. It's been a bumpy ride, but Ian's subscribers are up over 18% on this stock over the past year.
I liked this company back when Ian picked it in May of last year, and with a floating yuan, I like it even more.
This company provides natural gas in an area of China that's been vital to trade, travel and commerce for thousands of years: the Silk Road.
It borders some of the most populated areas on the planet, and it provides pipeline natural gas to residential and commercial consumers as well as liquid natural gas to more than 30 automobile fueling stations. China is leading the world with over 100,000 natural gas fueled vehicles, and this company is in the middle of the action.
But Sidney isn't asking about their fundamentals - he's asking if the company will benefit from a revalued yuan.
I remind you that this company is publicly traded and can be bought and sold by anyone with a regular brokerage account here in the United States. The company doesn't sell a single cubic foot of natural gas here, or anything else, but they're publicly traded, and they have SEC filings like any other company on the NASDAQ.
I believe that this company's dollar denominated shares will benefit from an appreciation in the yuan. If you think about buying this company's assets today with dollars that will be revalued at a lower price later, you can see how I might come to this conclusion.
But I'm uncharted waters with this kind of currency speculation. I like this company because of its fundamentals. If the currency revaluation helps, that's great, but it's CHNG's natural gas business that excites me.
If you have any insight into how the currency fluctuation might play out, please send me an email at editorial@resourceprospector.com.
Good investing,
Kevin McElroy
Editor
Resource Prospector
