The Debasement Trade Means a Great Setup For Natural Gas

Our analysis of Secretary Scott Bessent’s extraordinary moves at the U.S. Treasury continues.

A former macro trader himself, Bessent, by his own admission, is telegraphing his moves well in advance. He’s giving traders until September 9 to exit aggressive shorts in Treasury bonds before buybacks ramp up.

As the Treasury buys back bonds, prices “should” rise, and yields “should” fall. That’s the “Treasury twist” we outlined yesterday. The twist also means swapping out Treasury bonds with cash in the financial system.

The so-called “debasement trade” has surged in response. Investors can see that the dollar’s value will be sacrificed to drive yields lower. Gold, silver and bitcoin are back in play as anything-but-government money again.

Now the second part of the trades is occurring across all commodities. And for good reason. You can’t print an ounce of gold. You can’t print a barrel of oil. The real world still needs its building blocks. And they remain priced in U.S. dollars, the currency being sacrificed to satisfy the government’s addiction to debt.

Dialing in further still, one of the “blocks” is natural gas. We’ve been focused on the oil space this year because of the irritating drama in Iran. But on a fundamental basis, natural gas is setting up for a big move higher:

U.S. gas storage is at a decade low, presenting an opportunity for prices to move higher on any surge in demand (Source: Karel Mercx @X).

America is awash in natural gas. It’s been called the Saudi Arabia of natural gas.

Over the past few years, inventories have been drawn down. Today, there are about 25 days of inventory in storage, down from over 50 days during the shale era of peak natural gas production.

That creates a tight supply picture. It wouldn’t take much to spark a move higher. While natural gas can be volatile, low inventories suggest that volatility may be upwards.

And it also doesn’t hurt that natural gas is priced in dollars – the same dollars the Treasury is now looking to weaken as it starts its bond-buying extravaganza.

That may be good news for natural gas companies, as they can convert natural gas into liquefied natural gas (LNG) and export it to Europe, where it sells for about 8 times more.

The Russia-Ukraine conflict is being waged over Europe’s most important gas fields. And climate change policies over the past decade and a half have decimated the efficiency of Europe’s energy grid, particularly in its largest economy, Germany.

Traders call the natural gas trade “the widowmaker” because they often get burned trying to trade macro arguments by price movements in natural gas itself.

But add in the complexity of financing the U.S. government, and the impending sacrifice of the U.S. dollar to make it happen, and natural gas companies look strong right now, even with prices under $3. The first cold snap of the winter season across the Northern Hemisphere could spike the prices to $5.

During the “debasement age,” natural gas is a commodity well worth a quick trade in an industry leader.

Today’s Grey Swan Pro recommendation is a trade in which Bessent’s “debasement trade” meets the “widowmaker” trade in natural gas. But it’s in a company that’s operating well in today’s environment, and should see big gains on rising natural gas prices as we shift out of summer and into the winter heating season.

~ Addison

P.S. This afternoon on Grey Swan Live!,we’re joined by John Hunt of Casey’s Crisis Investing. If you join us, you’ll see firsthand how the fraternity works.

During this week’s Live!, we’ll unearth detail about:

The sovereign debt crisis migrating from Japan to the United States;

The U.S. Treasury’s “Operation Economic Outcast” aimed at isolating Iran from the global dollar system;

What we could expect from the markets as the U.S. midterm elections loom;

Congress’s utter failure in addressing its spending addiction;

And what the subsequent “Debasement Trade” means for “non-government money”, and global resources priced in US dollars…

This is going to be an epic Live! Don’t miss it. John’s even going to tell us about his ongoing affliction: eleutheromania.