Over the weekend, between the kids' soccer games and swim practices, I read through some of the works of Charles Farrar Browne (1834-1867). Browne wrote under the pen name Artemus Ward. He is known as a great American humorist. He was also an inspiration to Mark Twain.
Browne writes about his travels through America's West. And in that portrait is a country on the move. There are gold and silver mines and prosperous boomtowns sprouting up everywhere.
There are also panics and banks busting up and worries about the currency. At one point, Browne writes, "They've got a panic up this way and refuse to take Western money. It never was worth much." So you did business in gold or silver pieces. Or you gave a man something he could use: corn, oats, honey, butter, animal skins, whiskey and the like.
Some things just never change. Cycles in finance are as inevitable as the changing of seasons. It's just that in finance, you can have snow in July and summer heat in December. Cycles in finance are inevitable, but the timing and duration of its seasons follow no laws and obey no precedence.
In a recent issue to my subscribers, I wrote about a great opportunity in natural gas. Natural gas is in the dumps. And that is a good reason to own some. Cycles self-correct, and for natural gas, it is already in the works.
In a recent Wall Street Journal had an article on how low natural gas prices are bringing in fresh demand from utilities. They are switching from coal, which is more expensive and comes with the added threat of new and as-yet-undefined carbon regulations. Natural gas production gives off about half of the carbon dioxide as coal. You can also build natural gas plants more quickly than coal plants. Natural gas is also cheaper to move. A matchup of natural gas versus coal is like the Lakers versus the Magic. It's not much of a contest.
Power companies are upping the investment in natural gas. Already, coal-to-gas swapping has created incremental demand of 3 billion cubic feet per day.
The consensus is we'll have cheap gas for years. The firm Wood Mackenzie says natural gas prices won't recover until 2015. That's a pretty good crystal ball they got over there at Wood Mackenzie.
I think that prediction will be wrong.
Over the weekend, too, I read an interview with Joe Rosenberg, the smart chief investment officer at Loews Corp. He has made a number of timely calls, including jumping on fertilizers in 2002. Today, two of his favorites include natural gas and gold.
He called natural gas "one of the cheapest commodities in the world today and ― I would daresay ― one that over the next 10 years will be a very, very attractive commodity." I agree with Rosenberg. Cheap commodities have a way of becoming dear after a time.
The way to own natural gas? Rosenberg says: "The best way to own natural gas is to have very long-term reserves of natural gas in the ground ― and not worry about it." Another way to play the rise in natural gas production is to buy the top stocks that do the drilling and make the equipment.
One other area Rosenberg likes is gold, for all the reasons you'd suspect. You don't want to own dollars, or yen or even euros. As Rosenberg says, they are all "ugly currencies." Where do you go to store wealth? More and more people are looking to gold.
In particular, the biggest potential buyers of gold on the planet are thinking more and more about gold. That would be the Chinese. Rosenberg says, "I've never been a gold bug, but I certainly have felt in the last four or five months the same desperation that the Chinese must feel. I think eventually they'll come around to the same conclusion: We've got to own gold."
They are already putting that conclusion into action. The Chinese have doubled their gold holdings this year.
In some ways, the rising gold market is also the result of a self-correcting cycle. In this case, it's the profligate spending and borrowing of the U.S. government. The rising gold price is a reflection of a weakening and overpriced dollar. As big as the monetary and fiscal stimulus has been, I suspect this is a correction that will go on for some years. The result is a continuation in the bull market for gold, but with renewed urgency this time around.
So there you go: natural gas and gold, two commodities for the next 10 years.
More on the Adventures of Charles Farrar Browne
Though it does not have much to do with finance or the markets, I want to share one other story about Browne and the America of old.
In Browne's time, America was a hustling country full of hard-charging adventurers. It was a country of great open spaces and untapped wealth. What we sometimes forget is just how big this country was when you had to cross it by stagecoach. One of the more memorable of Browne's tales is his journey from Salt Lake City to Atchison, Kan.
He sets off on Wednesday afternoon on Feb. 10, 1864, via the Overland Stage line. There are four passengers. When they set out, there is the snow on the ground. That night, they stop at Weber station, 30 miles from Salt Lake. There they meet James Bromley, an agent for the Overland Stage line, who Ward comments is better known in the plains than Shakespeare. The next morning, they set out again.
They pass on through Echo Canyon to Hanging Rock Station. The snow is deep. They camp under a cold, moonlit sky, brew coffee and eat roast chickens.
Then it is on to Yellow Creek Station the next day. The way station is just a barn and the station keeper a "miserable, toothless wretch." The adventurers stay a night and press on.
They finally reach Fort Bridger on Saturday the 13th. They stay a night. The next day, they push on into what is then Idaho Territory. The snow is gone. The roads are soft sand. Dust is everywhere.
Eventually, they reach the summit of the Rocky Mountains on midnight the 17th. The weather turns very cold. Ward and his party have to walk some as their stagecoach suffers a breakdown. Ward recalls wistfully one of the campaign promises of Gen. Fremont in the election of 1856 ― finding a better path across the Rocky Mountains. Fremont lost.
The party has some difficulty crossing the Rockies. Ward writes: "I wrung my frostbitten hands on that dreadful night, and declared that for me to deliberately go over that path in midwinter was a sufficient reason for my election to any lunatic asylum, by an overwhelming vote."
The party loses one of its members, a young boy traveling alone who succumbs to the cold. The boy's fare is paid through Denver. They bury him the next morning at the foot of the mountains. Ward wonders about the boy: "Some poor mother is crying for her darling who will not come home."
The party trudges on. On the 20th, they reach "Rocky Thomas' justly celebrated station at 5 in the morning." There they have the best meal of the trip ― a breakfast of hashed black-tailed deer, antelope steaks, ham, boiled bear, honey, eggs, coffee, tea and cream.
On the 21st, they stop in Latham and breakfast. "We are now in Colorado," Ward writes "and diverge from the main route here and visit the flourishing and beautiful city of Denver, where I lecture." Ward, as did Twain, Josh Billings and other writers of the time, booked speaking engagements across the country to make extra money. They called them "lectures."
On March 1, Ward and his party reach Julesburg, Colo. "We are in the country of the Sioux Indians now, and encounter them by the hundred."
The party presses on. Finally, they reach Kansas. They pass through the reservation of the Otoe Indians, who, Ward writes, "long ago washed the war paint from their faces, buried the tomahawk and settled down into quiet, prosperous farmers."
They rattle into Atchison on a Sunday evening, March 6. It is 26 days since they left Salt Lake City. Everyone is happy and relieved that the trip is over. "Lights gleam in the windows of milk-white churches, and they tell us, far better than anything else could, that we are back in civilization again."
A tough way to travel. Think about that the next time you're stuck in an airport for a few hours!
Enjoy your Independence Day, and I'll write you again soon.
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