The 'Seasonality' That Matters Most Today

Protest, unrest, and winter... Natural gas is headed back to a decade-plus high... The 'seasonality' that matters most today... Not all seasons are created equal... Mother Nature is undefeated... What this means for inflation – and the Fed...

You might want to burn your energy bill soon...

Many people are unaware of or misunderstand our energy reality...

For example, roughly 40% of the electricity in the U.S. is generated by natural gas – a fossil fuel extracted from the ground that also heats about half the homes in the country. The other 20% of our electric supply comes from coal, another 20% from renewable sources like wind and solar, and most of the rest from nuclear power.

I (Corey McLaughlin) start with this fact dump today because it is relevant to the research I'm about to highlight from our colleague Brett Eversole. You heard from Brett directly in the Digest last week (here and here) about the potentially lucrative opportunities in the energy industry.

Brett talked mostly about the oil-price boom he's expecting in the years ahead... The world is pushing toward a "green energy" future as it simultaneously faces a supply crunch of current energy sources. Oil is one. Natural gas is another...

This is the stuff – which can be converted into electricity at power plants – that would be flowing through major pipelines in Eastern Europe, had Russia not recently cut off supply to Germany and beyond. In concert, European natural gas prices have surged more than 200% since June. In Germany, costs are up nearly fivefold.

And folks' gas and electric bills have skyrocketed in kind...

Europeans are posting pictures online about them. Some are even burning them (in Italy), and protests are breaking out. Here's one that took place earlier this month in the Czech Republic, where about 70,000 people shouted for a government solution to high prices...

In the U.S., the energy price increases haven't been as severe – yet...

Gasoline prices spiked to an all-time high but have come back down in the past few months.

And the price of natural gas has "only" doubled this year, and it has actually gone down about 20% in the past few weeks. But as Brett shared in today's edition of the free DailyWealth newsletter...

I've got some bad news...

Natural gas prices are nearly certain to head higher from here. And they'll likely hit decade-plus highs just when we need this commodity most.

You see, the prices of certain commodities move like clockwork, Brett explained, because of consistent forces that drive supply and demand throughout the year. As a result, they create remarkably consistent "seasonal" trends. Natural gas is a perfect example...

Natural gas isn't used only to create electricity, but also heat. And a little lady called Mother Nature is about to do her thing. It's going to get cooler in the Northern Hemisphere over the next few months, and winter will be here before you know it.

It could lead to a tragic crisis and social unrest in Europe and beyond. But at the very least, we're getting to the point of the energy cycle where natural gas prices would rise again even in a normal year. As Brett showed today...

Prices tend to increase as we head into winter.

Specifically, natural gas prices tend to rise the most in September and October. Take a look...

This data looks at the last 30 years of natural gas prices. And you can see the clear seasonal trends...

Prices tend to fall at the beginning of the year. They rise a little in the spring, before falling in the summer when demand is low. But then, just as we ramp into "busy season," prices see their largest spike of the year.

This is because prices aren't the highest when most of the gas is consumed or turned into electricity in the middle of winter. They're highest when expected demand is strongest ahead of the winter season...

The typical gain for U.S. natural gas prices in September and October is nearly 20% combined.

But the spike could be even higher this time around, according to Brett, because current natural gas stockpiles in the continental U.S. are 8% lower than last year and 24% lower than the same time in 2020.

The last time stockpiles were this low was 2018. Back then, natural gas prices rose 63% in September and November. Today, U.S. natural gas prices are slightly off their highs from last month but well above levels of the past decade...

Natural gas prices are already up 121% year to date, the highest of any major commodity outside of coal (which is up 145%)... And U.S. natural gas futures traded nearly 5% higher today, just above their short-term 50-day moving average and well above their longer-term average.

What happens 'there' matters 'here'...

Part of the reason for this year's smaller natural gas stockpile is that the U.S. has been exporting significantly more natural gas to Europe than usual to replace its previous Russian supplies. As I shared in the August 25 Digest...

During the first four months of 2022, the U.S. exported 74% of its liquefied natural gas to Europe, compared with 34% the year before. And as of June, the U.S. had sent more gas to Europe than it did in all of 2021.

Higher prices have encouraged shipping energy to Europe, which in turn might lead to more higher prices. That's inflation... and it's part of the reason the world's central banks are trying to slow the economy down and dampen demand for all kinds of goods and services.

Of course, though, maybe the last thing someone wants to give up using in the winter is heat. The same goes for electricity, year-round. As Brett concluded...

According to history, natural gas prices are about to begin a seasonal boom. And it's possible that they could rise 20%, 30%, or even 40% in the coming weeks... hitting a decade-plus high along the way.

This isn't good news for consumers, especially the folks who are already behind on their energy bills. But it could help wrap up an already fantastic year for energy companies, which may continue to earn big profits over the next six months – helped by higher prices.

As Brett has been sharing recently, if you're looking for a part of the market where profits could absolutely soar in the years ahead, look no further than the energy sector. As he says, the unfolding energy crisis is much bigger than even seasonal trends.

You can hear all the details directly from him here.

Now, to be fair, I am typically skeptical of 'seasonality'...

This might get me in some trouble. Some Wall Street veterans, maybe even some of our colleagues, might stop reading right here and tell me I'm missing something. I might be... That's OK.

"Seasonality" – the belief that what the stock market has done in past seasons, months, or weeks says something significant about what will happen in the present – has always been a hard sell for me.

Here's just one recent example...

I'm an active reader of "FinTwit" (finance-focused Twitter users), and every day I see lots of posts from folks I follow or that Twitter's algorithms serve up to me. Heading into April of this year, probably two-thirds of these "experts" were suddenly sharing statistics about how April was the best month, historically, for stocks. They were implying the same would happen this year.

I'll quote Ryan Detrick, then the chief market strategist at LPL Financial. He wrote at the end of March after the benchmark S&P 500 Index fell 13% over the first two months of 2022, then rallied to finish the first quarter roughly 5% below all-time highs...

The big question is can the near-term strength continue?

The good news is stocks really appear to love April. Not only is it the best month on average since 1950, but it has also been higher an incredible 15 of the past 16 years as well.

Not this time, though. Make it 15 out of 17, which is not helpful for anyone invested this year. The S&P 500 finished this April down 9%.

And heading into this month, a lot of these same people were now talking about how September is one of the worst months for stocks. So far, stocks are up (though remember, many indicators still show we're in a bear market).

Herein lies an important distinction when talking about seasonality. Not all seasons, months, or weeks are created equal, even if they arrive in the same order every year... You have to consider the context of what's going on and if factors outweigh the dates on the calendar.

To this point, Mother Nature is undefeated...

So, certain seasonal patterns are compelling to follow – like the prices of essential commodities such as natural gas. The prices actually reflect real supply-and-demand cycles that are tied to big trends that the Federal Reserve can't manipulate – like the weather.

As I was putzing around in my gas-powered car over the weekend...

On the way to pick up some food (another essential), I was listening to a financial discussion on the radio. The host and his guest were talking about how the "tipping point" for electric vehicles had maybe arrived... maybe.

Then, after the segment, a news update broke in with some notes about what was going on, as of yesterday, with the war in Ukraine and energy supplies. And given the idea from Brett today, a thought struck me that I think is worth sharing here...

In "normal" winters, the price of natural gas goes up. Now, Russia has cut off a big chunk of supply to Europe and – since we've been shipping more to Europe than ever before – Americans are ending up with less supply, too.

If anyone is betting on "official" inflation numbers to get close enough to 2% – central banks' stated goal – over the next six months, that's a risky play.

Energy costs make up about a third of the consumer price index ("CPI"), the headline inflation number. Incidentally, we will learn the latest CPI reading for August tomorrow morning.

We wouldn't be surprised if the CPI shows inflation lower than it was in July. We've all seen the big numbers at the gas station drop in the past three months. But inflation is not going back to "normal" anytime soon, including this winter.

Prices to heat hundreds of millions of people's homes are about to go up... right when many people can least afford it.

It's Time to Get Rich

Robert Kiyosaki – who has written a new book, Capitalist Manifesto – says the big crash he has been predicting is here. But as he tells our editor-at-large Daniela Cambone, now is also the time to get rich. He shares what assets he's interested in today and what to avoid...

Click here to watch this episode right now. And to catch all of the videos and podcasts from the Stansberry Research team, be sure to visit our Stansberry Investor platform anytime.

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In today's mailbag, more thoughts on student-loan forgiveness... a thank-you note... and an extension of a metaphor that Dan Ferris shared in his latest Friday essay... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"Just went to my 50-year college reunion last night. Not one person is excited about the Biden student loan forgiveness s***! Because most if not all have already busted their asses to pay their [loans] off. They want to know why they have to pay for Biff's keg parties at the frat house when he is making three times the money they are..." – Paid-up subscriber Lee D.

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"Dan love your writing, analogies, and metaphors! Road kill is quite prevalent in central Wisconsin where the corn fields of the south mix with the lakes and forests of the north, so I found your analogy very interesting. Here, we have different scavengers since vultures find it too cold. We have bald eagles and crows. The deer dead on the road are the fraudulent companies. I liken the eagle to government trying to clean up the mess and the crows to the people involved in the fraud or just 'VC'.

"Crows work together to distract the eagle who guards the kill, so they can sneak in there and get a chunk of meat (money). The auto drivers are investors and Stansberry is driver education teaching us how to avoid hitting a deer. The trailing stop loss, after the capital loss (car damage) of hitting the deer, is rural Wisconsinites taking all the fresh meat home with us to minimize our loss and getting out before the eagles and crows get involved!

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All the best,

Corey McLaughlin
Baltimore, Maryland
September 12, 2022