Friends Don't Let Friends Gamble on the Weather

One last note ahead of this Argentina trip… as I have disclaimed before, sometimes there are 2 or 3 notes in a week, and sometimes you might not hear from me for 2 or 3 weeks. These days there seems to be a lot to think about, a lot to write, and a lot to trade.

There is a speculative thesis that I have been meaning to write up but have been (and still am) hesitant to discuss openly. Today’s note is going to be a notable departure from my typical macro-oriented commentary. It is the sort of subject that gets any serious investor laughed at, and it will not surprise me to see a raft of subscriber cancellations on the back of it. On the other hand, as the About section of this website states, “this blog serves as a diary, a forum to meet interesting people, and an environment to test and exchange ideas and gather feedback.” Given that objective, and the fact that I sized up this position substantially over the past week, I would be remiss if I didn’t at least mention it.

Yes… the trade is natural gas. And no, it’s not your typical longer term thesis. By now most of us are aware that the US LNG buildout is going to create significant opportunities for US shale players to slowly but surely arbitrage the gap between Henry Hub and more expensive TTF (Europe) and JKM (Asia) LNG in the coming years. There is substantial value still on the table with US natural gas equities even after the recent rally — particularly with the unhedged players — and the equities are looking through any near-term concerns precisely because the longer-term bull case is coming into focus.

No. I’m talking about something truly degenerate here. I’m talking about betting on the weather. And as the title of this note suggests, most people should stop reading now. But a thesis is a thesis. I will look pretty much anywhere for an edge, and I think there is a mispricing in the market that I want to take advantage of, although I have already written the position to zero because that’s what you do with lottery tickets. If you decide to do anything more than read this note, you should think of any speculation the same way — a zero that should not and probably will not work out. With that extensive disclaimer out of the way, let’s dive in.