Kotok: Avoid XLE For Now

December 04, 2013

Of course, we also track an array of exchange-traded funds, such as XLE, that expose investors to the various components of the energy sector. There are selected Master Limited Partnerships (MLP) that also enable investors to participate strategically in various components of the energy sector.

This sector of the stock market has been trading somewhat heavily.

It is doing so because of the correlation that exists between the energy price and the prices of energy-sector securities, which are influenced by energy prices.

Jim Roemer, a Sarasota-based meteorologist and consultant on commodity prices, notes there is one wild card now in the forecast. In a recent writing, he mentioned the change in polarity of our sun.

He observed how it is happening earlier than expected and how the transition comes in a year in which weather patterns are setting up for what might be a very cold winter in North America. There is a link that describes the polarity issue.  We are suggesting it as a very quick study for readers.

We find this notion of changes in solar polarity fascinating. It introduces a whole new dimension into the debate over global warming, cold versus hot weather, and the dynamics that generate our weather.

There are a lot of things in our solar system that we do not understand and are just learning about. The influences of the sun are only partially observed and understood. We may encounter such an influence this winter.

Roemer thinks there is a chance that cold weather will cause a spike in natural gas prices as consumption rises rapidly in response.

At Cumberland, we are underweight in the energy sector because we see the trend of falling prices.

Our allocations are below market weight. We expect that the dominant price trend in oil is downward, though we do have to be prepared for short-term shocks, whether from the sun or from geopolitics.

We recall the shock 40 years ago when war in the Middle East spiked the oil price from $3 to $12. Certain things never change: We must always be prepared for the unpredictable.

Wildcards aside, however, our bullish view on stock markets does not extend to the oil patch.


Cumberland Advisors is a registered investment advisor based in Sarasota, Fla. Founded in 1973, the firm has clients all around the U.S. and several foreign countries. It manages about $2.2 billion of fixed income and runs separately managed equity accounts built solely of ETFs. Contact Cumberland at 800-257-7013 or at http://www.cumber.com/.

 

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