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Tuesday, August 10, 2010

THE MARKET LOVES THE "CONTRARIAN'S COMMODITY"


Early this year, we began recommending oil's clean cousin, natural gas. Natural gas is used to produce fertilizers, plastics, and various chemicals. It's also a major source of fuel for firing electrical power plants and heating homes.

We call natural gas the "contrarian's commodity" because huge new domestic gas supplies have come online recently… which has sliced the price of "natty" by more than 60% since 2008.

Our thesis is not that a big rally in natural gas is in the cards… simply that the fuel is done falling and the situation for natural gas prices is getting "less bad." This allows our preferred vehicles for gas investment – U.S. royalty trusts – to pay out fat distributions.

As you can see from today's chart of royalty payer San Juan Basin, the market likes this idea. Since our recommendation, San Juan has enjoyed a steady uptrend… and has kicked off large monthly yields… all the while producing a commodity at blown-out levels. We love it when a plan comes together…

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