Observations

A subscriber and long time business acquaintance, WH for short, called me a few days ago with a very interesting question. “George, we are a large buyer of natural gas. What is your outlook for this commodity?” he asked.

What a great question! It reminded me of the time when I was teaching Economics for Management. I have always thought that most commodity prices move in the same direction, at the same time. Business cycle forces are the main drivers. Special factors, such as weather, play only a minor role.

My students, with a respectful smile, used to tell me that this was one of my “sweeping generalities”. There was an untold and subtle sense of respect in their words. Their smile was an acknowledgment that they were being challenged by the idea. But they did not accept it, yet.

These thoughts were crossing my mind as I was trying to answer WH’s question on the phone. I asked him for some information on the price patterns of natural gas. His words confirmed what I was thinking. Natural gas began to rise in 1999 and peaked toward the end of 2000 like most other “commodities” such as the price of the commodity money (short-term interest rates), crude oil, the CRB futures index, and copper.

The economy began to slow down quite sharply in mid 2000. After the typical 6 month lag, by the end of the same year, all the lagging indicators started to decline in late 2000 and early 2001 (including natural gas). Their trend is still down.

When will they rise again? These commodities will rise when the economy begins to expand rapidly, as it did in late 1998 and early 1999. Until this configuration becomes a reality -- which I do not expect to be the case in the coming months -- all commodities will remain weak. I do not believe they can move higher in any meaningful way, including natural gas, until business activity booms again. And this is not in the cards any time soon.

I hope WH is satisfied with my answer. It is the best I could do. Good luck, WH, and keep in touch!

(This Observations appeared in the 6/11/01 of  The Peter Dag Portolio)

George Dagnino, PhD
Editor, The Peter Dag Portfolio. Since 1977
Ranked second best gold timer by Timer Digest

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