EQT Corp Up 49.1% Last Week; Inflection Point Is Here

EQT Corp Up 49.1% Last Week; Inflection Point Is Here

Mar. 17, 2020 8:54 AM ET|About: Antero Resources Corporation (AR)EQTSPYUNGXOMSummary

EQT Corp, the largest dry natural gas producer in the U.S., gained 49.1% last week.

Many natural gas equities had stellar performance weeks, while SPY dropped 9.5%, and historic volatility engulfed the markets.

Looking through the volatility, the inflection point is clearly at hand.

Introduction

There has been historic volatility in the financial markets.  That is not hyperbole, as the chart of the $VIX shows below.

In fact, even though the SPDR S&P 500 ETF (SPY) declined 9.5% last week, we have seen daily price moves, on a regular basis, that exceed that move.

In this swirling sea of turmoil, one sector that I have extremely bullish on stands out.

Specifically natural gas, and more specifically, the historically downtrodden natural gas equities, which have both been contrarian trades and investments even for contrarians.

Dry natural gas prices rose 9.4% last week, the United States Natural Gas Fund (UNG) rose 10.7% last week, and the largest dry natural gas producer in the United States, EQT Corp (EQT), rose 49.1% last week.

Macro Is Turning Sharply To Favor Natural Gas

Anybody that has been reading my work knows that I have been extremely bullish on natural gas prices and natural gas equities.

Why?

In a nutshell, both lower 48 dry natural gas production and liquids production are rolling over, as the charts of my colleague Lothar Grall illustrate.

(Source: Lothar Grall, The Contrarian)

Keep in mind, this data is from the EIA’s Drilling Productivity Report, and production was already in decline for dry natural gas and rolling over for liquids before COVID-19 became a full blown pandemic, and Russia and Saudi Arabia got into a full scale oil war.

The latter has cratered crude oil prices, and effectively rendered obsolete the primary bearish natural gas thesis, which was that unending associated dry gas production growth would forever impair dry natural gas prices.

Natural Gas Equities Have A Contrarian Surge

Again, last week, with the SPDR S&P 500 Index down 9.5%, the largest natural gas producer in the United States, EQT Corp (EQT), surged higher by 49.1%.

That is a monumental move, in a week of historical market volatility, and adding to the narrative, many of the leading dry natural gas producers had a strong week of relative, and absolute, price performance.

As this narrative begins to flow through to market participants, there is potential for extraordinary gains, perhaps even a generational wealth opportunity, as I wrote about in an article highlighting Antero Resources (AR) recently, in some of the largest dry natural gas producers in the table above.

On this note, much beleaguered Exxon Mobil (XOM), which is widely ridiculed for their XTO energy purchase in 2009, which gave them greater natural gas exposure, could get a material, unexpected (by many market participants) boost from higher dry natural gas prices.

Closing Thoughts – Take Advantage Of What I Think Is A Historic Opportunity

Many always ask me how I had a year like I did from November of 2008 to November of 2009.

The answer was really simple.

1. Have an accurate bigger picture macroeconomic view.

2.  Identify opportunities that are mispriced by the markets.

3.  Take advantage of the panic selling.

Fortunately, for market participants today, we have all the ingredients necessary for one of the great contrarian inflection points of all-time.

For members of my research services, I have published several recent pieces quantifying the historical volatility and the opportunity as follows:

Chronicling Another Historic Day In The Market & Putting Together A Buy List

Another Historic Market Day This Week – Chronicling Black Thursday & Looking Forward

Chronicling A Historic Day In The Stock Market & A More Historic Day In The Energy Market

(Note: Members can click on these articles to access.  Also, the first article is still being distributed).

Somewhat unbelievably, we have had three historic days in the stock markets in the past six trading sessions, really four historic days counting Friday’s big gains, so the volatility is incredible.

Seeing through all of this volatility, there are clear inflection points at hand, and the relative and absolute opportunity right now is as big as I have seen in my 25 year plus personal and professional investment career.

In summary, buy what is cheap, and buy into the panic, as the cheapest valuation equities with the best future return prospects will often rebound ahead of a bottom in the broader equity market.

Specific to my research services, I am offering a 20% discount to membership (I am extending this through March) to “The Contrarian” (past members can also direct message me for a special rate), the lowest price point since the founding members price, where we have a live documented history dating back to late 2015.

Additionally, I am offering a limited time 50% discount for the first 10 new members (I expect these slots, some of which I view as a stepping stone to “The Contrarian”, to fill up fast as they have done previously) to a host of research options, including a lower price point. If you subscribe to a premium option (I have had one concierge slot open up), I will set-aside time for a personal phone call to get up to speed. To get these offers, go here, and enter coupon code “opportunity” without the quotes.  Either way, once you sign up, I will follow-up with a welcome email within a day.

Reach out with any questions via direct message (I enjoy the dialogue at market inflection points).

Via my research services, or another avenue, please do your due diligence, and take advantage of what I believe is a historic inflection point, which I believe will supersede 2000-2002 in the growth-to-value rotation.

WTK

P.S. Resilience is perhaps the most important ingredient to be successful in life, and in the markets. Keep that in mind right now.

Disclosure: I am/we are long AR, EQT, UNG, XOM, and short SPY in a long/short portfolio.

Additional disclosure: Every investor’s situation is different. Positions can change at any time without warning. Please do your own due diligence and consult with your financial advisor, if you have one, before making any investment decisions. The author is not acting in an investment adviser capacity. The author’s opinions expressed herein address only select aspects of potential investment in securities of the companies mentioned and cannot be a substitute for comprehensive investment analysis. The author recommends that potential and existing investors conduct thorough investment research of their own, including detailed review of the companies’ SEC filings. Any opinions or estimates constitute the author’s best judgment as of the date of publication, and are subject to change without notice.

EQT Corp Finished Up 49.1% Last Week

The largest natural gas producer in the United States had a remarkable week in the middle of market turmoil.

For the week, with the S&P 500 Index (SPY) down 9.5%, EQT Corp (EQT) rose 49.1% for the week.

Natural gas (UNG) prices also rose 9.4% for the week.

Meanwhile, oil prices (USO) declined 23.1% for the week.

Bigger picture, price action is telling us that major inflection points are at hand. Best of luck to all.

Volatility Is Above 2008 High Levels As Dow Jones Industrial Average Has 2nd Worst Percentage Decline

Volatility Index Sets New Highs

This is just a short post to document something remarkable.

Volatility is actually above 2008’s high levels.

With the Dow Jones Industrial Average (DIA) posting is second worst percentage decline ever, and a cluster of recent days on the worst performing days list, perhaps the jump in volatility amid the COVID-19 pandemic should not be a surpise.

Adding to the narrative, the S&P 500 Index (SPY) posted its third worst percentage decline day ever.

Ultimately, volatility is opportunity, and this elevated volatility will not be around forever. Thus, I think market participants should be making their shopping lists for what to own on the long side.

The Signal Event Is Potentially Here

I originally wrote this Monday morning, February 24th, before the market opened here, however, I want to post here for archives.

The Signal Event Is Potentially Here

Feb. 24, 2020 7:08 AM ET|2 comments |About: SPDR S&P 500 Trust ETF (SPY), Includes: AAPLAMZNBACBAC.PABAC.PBBAC.PCBAC.PEBAC.PKBAC.PLBAC.PMBML.PGBML.PHBML.PJBML.PLBRK.ABRK.BCC.PKC.PSCMCSACPRJCVXDISFBGOOGGOOGLHDINTCJNJJPMJPM.PCJPM.PDJPM.PFJPM.PGJPM.PHKOMAMRKMSFTOPEPPGQQQTTBBTBCUNHVZXOM

Summary

  • I have been waiting for a long time for a set of events to end the virtuous melt-up, fueled by passive and ETF fund flows.
  • Coronavirus could be the black swan that causes a reversal of these fund flows.
  • Non-correlated equities with low index representation stand to benefit disproportionately.

Introduction

We are potentially on the verge of an historic capital rotation from growth to value, sparked by black swan catalysts that nobody envisioned a short time ago.

Building on this narrative, on February 6th, 2018, I wrote one of my most popular articles published on Seeking Alpha titled, “Be Prepared For A Crash – Part II“, and in the article, I specifically investigated the lack of price discovery in the markets, as passive, ETF, and dividend growth fund flows were largely price insensitive and valuation insensitive in their endless buying.

Today, that virtuous, seemingly never ending cycle has the potential to work in reverse fashion.  In Steven Bregman’s words, all that was needed was a signal event to jump start a golden age for active investors, and we may have one transpiring in real time. 

The Signal Event Could Be Happening Right Now

In a September 21st, 2017 article I authored for members of The Contrarian, titled, “Investment Philosophy – A Golden Age For Active Investors Awaits“, I pontificated on how there was very little price discovery in the market.

To illustrate this point, I referenced several quotes from Steven Bregman, president and co-founder of Horizon Kinectics, who presented at James Grant’s October 4th, 2016 Investment Conference.

Here is the first set of quotes I referenced:

“A golden age of active investment management awaits only one signal event, Steven Bregman, president and co-founder of Horizon Kinetics, told the Grant’s conference-comers on Oct. 4. A collapse of the index/ETF bubble is that intervening disaster. To hear Bregman tell it, no crash would be so well-deserved

He called the exchange-traded fund excrescence the world’s biggest bubble.

“It has distorted clearing prices in every sort of financial asset in every corner of the globe…,” asserted Bregman. “[I]t has created a massive systemic risk to which everyone who believes they are well diversified in the conventional sense are now exposed.”

I could not agree more with the statement quoted above, and these price distortions have increased at an exponential rate from 2017-2019, and early into 2020, as crowded trades have become more crowded.

Conversely, the “Have Not” equities have been shunned to an even further degree, creating the most bifurcated market that I have seen in my 25 plus years actively investing and speculating.

A Historic Capital Rotation Is On The Horizon

Once passive, ETF, and index fund flows reverse, the disproportionately beneficiary equities, think the leading market capitalization index favorites, are going to be the equities that are hurt most by the reversal of fund flows.  Conversely, out-of-favor equities that have been shunned, will actually benefit, as long/short funds reduce gross market exposure, and net buying, at least net relative buying will head to these equities.

On this note, here are the 25 largest components of the SPDR S&P 500 Index ETF (SPY), which have all been buoyed by never ending passive fund flows.

  1. Microsoft (MSFT) – 5.0% weighting
  2. Apple (AAPL) – 4.8% weighting
  3. Amazon (AMZN) – 3.2% weighting
  4. Facebook (FB) – 1.8% weighting
  5. Alphabet Inc. Class A (GOOGL) – 1.6 % weighting
  6. Alphabet Inc. Class C (GOOG) – 1.6% weighting
  7. Berkshire Hathaway Inc. Class B (BRK.B) – 1.6% weighting
  8. JPMorgan Chase & Co. (JPM) – 1.5% weighting
  9. Johnson & Johnson (JNJ) – 1.4% weighting
  10. Visa Inc. Class A (C) – 1.3% weighting
  11. Procter & Gamble Company (PG) – 1.1% weighting
  12. Mastercard Incorporated Class A (MA) – 1.1% weighting
  13. UnitedHealth Group Incorporated (UNH) – 1.0% weighting
  14. Intel Corporation (INTC) – 1.0% weighting
  15. Bank of America Corp (BAC) – 1.0% weighting
  16. AT&T Inc. (T) – 1.0% weighting
  17. Home Depot Inc. (HD) – 1.0% weighting
  18. Exxon Mobil Corporation (XOM) – 0.9% weighting
  19. Walt Disney Company (DIS) – 0,9% weighting
  20. Verizon Communications Inc. (VZ) – 0.9% weighting
  21. Coca-Cola Company (KO) – 0.8% weighting
  22. Merck & Co. Inc. (MRK) – 0.8% weighting
  23. Comcast Corporation Class A (CMCSA) – 0.7% weighting
  24. Chevron Corporation (CVX) – 0.7% weighting
  25. PepsiCo Inc. (PEP) – 0.7% weighting

Personally, I think the top weighted companies on this list, which dominate the S&P 500 Index, and the Invesco QQQ Trust ETF (QQQ), have a chance to sell-off dramatically, if a true capital rotation takes hold from growth to value.

Given the current extended levels of growth versus value, there is a ripe opportunity for an epic price reversal.

Looking at the above, look how steep the price reversal was in 2000-2002, with the growth to value relationship reversing on a dime, and moving straight in the other direction.

Could the same thing happen today?

Yes, is my unequivocal answer, partly because the in-favor investment strategies and trades, think passive, ETF, and dividend growth fund flows, are even more popular today on a relative basis than they were in the late 1990’s, as almost every registered investment advisor in the U.S. has shifted to some form of passive indexing.

Wrapping up, coming from a value investment background, I have seen many of my peers ground to dust, and legendary value investors essentially take their ball and go home. Personally, I have more significant scars from this time frame than any other.

The collective price action and collective investor response is very reminiscent of Julian Robertson closing his Tiger Funds near the exact peak of the 1990-2000 bubble, an investment landscape that had seen Warren Buffett routinely criticized. Of course, this was followed by a massive reversion-to-the-mean trade from 2000-2002, and really 2000-2007, where value investing handily outperformed.

Building on this narrative, during 2000-2002, the S&P 500 Index lost roughly 50% from peak-to-trough, while many value stocks, including REITs, like Realty Income (O), which was loathed at the time, but loved today after roughly two decades of out-performance, surged higher, even with the broader market struggling mightily.

With that last thought in mind, consider what investments are loathed, and loved, today.

In closing, for the value investors that are left today, the odds seem insurmountable, however, the opportunities, particularly on a relative basis, are as big as they have ever been.

To get an idea of how I am positioning for this opportunity, since we are past there, in my opinion, I am offering a 20% discount to membership (I am extending this through February) to “The Contrarian” (past members can also direct message me for a special rate), the lowest price point since the founding members price, where we have a live documented history dating back to late 2015..

Additionally, I am offering a limited time 40% discount for the first 5 new members, repeating a successful promotion from earlier this month (I expect these slots, some of which I view as a stepping stone to “The Contrarian”, to fill up fast as they have done previously) to a host of research options, including a lower price point. To get this offer, go here, and enter coupon code “february 2020” without the quotes.

Reach out with any questions via direct message.

Via my research services, or another avenue, please do your due diligence, and take advantage of what I believe is a historic inflection point,

WTK

P.S. Resilience is perhaps the most important ingredient to be successful in life, and in the markets. Keep that in mind right now.

Disclosure: I am/we are long BAC, C, xom, and short AAPL via put options and spy in a long/short portfolio.

Additional disclosure: Every investor’s situation is different. Positions can change at any time without warning. Please do your own due diligence and consult with your financial advisor, if you have one, before making any investment decisions. The author is not acting in an investment adviser capacity. The author’s opinions expressed herein address only select aspects of potential investment in securities of the companies mentioned and cannot be a substitute for comprehensive investment analysis. The author recommends that potential and existing investors conduct thorough investment research of their own, including detailed review of the companies’ SEC filings. Any opinions or estimates constitute the author’s best judgment as of the date of publication, and are subject to change without notice.

How Low Can U.S. Interest Rates Go?

As coronavirus fears spread, potentially triggering the signal event that ends the seemingly never ending, passive fueled price insensitive and valuation insensitive buying binge, how low can U.S. long-term interest rates go?

U.S. longer-term interest rates seem to already be pricing in a worst case, low growth, low inflation environment forever scenario.

Said another way, maybe the market is not prepared for a different investment landscape developing.