Morning Thoughts – Cold showing up

Weather models have gone nuts cold. If January/February contracts don’t get into the $3.2 to $3.5 range in the next week, there is something wrong. Storage is still at a surplus to the 5 year average, and something about power burn getting chipped away at by renewables. Even at that, if cold really does show up that is being forecasted right now, the storage surplus may very well be gone around the start of 2021.

It’ doesn’t really matter how it happens, as long as the storage surplus turns to a deficit. Using gas faster than it is being produced is what spurs prices. The market does get complacent or anti-anticipating at times. More so in the last few years.

I will be holding my positions, except maybe KOLD. Not because of any change in the market. I got a notice yesterday afternoon that my Hard to Borrow rate on KOLD went to 49.5%. This is the interest rate I pay to short KOLD. It had been staying below 5%. So I go from paying less than 50 cents a day to over $5 a day in interest to short KOLD. I’m not interested in the trade anymore if this is the case. I have a feeling a big player either shorted KOLD or got out of a long trade in KOLD, leaving the broker exposed to having to go out and pay a lot to find more shares to borrow. The interest rate could drop back today, or I could also get “called in” meaning they cover my position in order to give the shares back to whom they were borrowed.

My positions as of pre-market 12/2/2020

So I will ride this today for a bit with what I’m holding. I may just cover the KOLD trade and buy more UNG. I’ll call the broker and ask if the interest rate has dropped closer to the end of the day, if it has not and they are showing signs that I may get called in, I will drop the KOLD trade and just pick up a corresponding amount of UNG. Otherwise I’m holding what I have for one more day.

Good Luck


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