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Another day, another story about a new 2010 low in natural gas.

The contract for September delivery fell to $3.71 (U.S.) per 1,000 cubic feet Friday, and an intraday price was the lowest since September, 2009.

Natural gas boosters say not to worry: The traditional September price bump is coming as traders begin to think about winter and all the residential demand that that entails. Analysts say, however, that hopes for a quick rebound will be dashed because of continuing oversupply.

"I think it's going to be very difficult to see a pop," says Peter Tertzakian, the chief energy economist and managing director at Calgary's ARC Financial Corp. "There's no question the level of drilling in prolific areas of the U.S. has not let up."

Mr. Tertzakian said there has been a historical rise in September for a couple of reasons. One, it's the most intense hurricane month for the Gulf of Mexico, where many natural gas operations are located. But production in the Gulf has been roughly halved in recent years, giving the area less overall importance.

Two, yes, September is a lead-in to winter, and there have been better forecasts for winter weather that can get the markets excited. Mr. Tertzakian believes the current supply issue will trump any chilly forecast, however.

Production in the United States is at a record high, rivalling 1973, Mr. Tertzakian said. "It's not likely to come down much at all, and it has the potential to rise."

Not only has there been deterioration in the "front month" prices - the futures contract that's soonest to expire - but two-year futures prices have deteriorated as well, from up to $7 per 1,000 cubic feet to about $5.

"The market is definitely sensing in the last nine months there's no shortage of natural gas, now or in the future," he said.

Traditionally, oversupply was met with an equilibrium action where producers scaled back and rigs went home. But Mr. Tertzakian believes a "huge influx of Asian money" has made many operators more interested in taking market share than in their rates of return.

"At some point, the economics will sink in - the question is when," he said. "It's not going to happen in the next two to three months."



Investors seeking a relationship between the U.S. dollar and global equities have been frustrated in this volatile year, with the two sometimes trading in tandem, rather than with the negative correlation one might expect based on their historical relationship.

In the last month, however, says Scotia Capital Inc. currency analyst Sacha Tihanyi, the relationship is "at its most sustained and stable level of strength in the past year" - an almost perfect negative correlation, which means investors have been able to expect that as global equities rise, the U.S. dollar likely falls.

It has not always been so. Mr. Tihanyi studies the one-month rolling correlation between global equities and the U.S. dollar. He says the average correlation from 2002 to 2008 was negative 0.23, suggestion a somewhat weak negative pricing relationship between the two asset classes. From 2008 to the current day, the correlation increased to just under negative 0.70.

Yet there were three occasions in the last 12 months when the negative relationship got flipped and the correlation was mildly positive. One came in December as markets became more optimistic about rising U.S. yields at the same time that there wasn't much of a trend in equities; another came in mid-March to mid-April as equities staged a comeback as the dollar bounced around; and the third came in late June as the dollar declined after the euro zone debt crisis even as equities continued to trade violently within a range.

Mr. Tihanyi believes there's an "acceptably bad" threshold of U.S. economic data that causes stocks to fall and the dollar to rise as traders move away from "the risk trade" (a pretentious way of saying "buying stocks.") "Anything beyond an 'acceptably bad' threshold will actually hurt the greenback as arguments of economic malaise become too much of a hurdle," he said.

An example: Tuesday's "brutal" existing-home sales result hurt both the U.S. dollar and equities. Not so the Aug. 19 Philadelphia Fed Index of economic activity which, while now at a recent low, had a less-disastrous downside miss. In that case, the dollar gained from intraday lows even as equity markets opened down and continued to sell off, Mr. Tihanyi said.

"It seems that bad data helps support the [U.S. dollar]through the risk asset channel, but only up to a point," he said.



Something happens as investors run from stocks to the safety of government debt: Yields on bonds drop, and dividend-paying stocks see their yields increase.

We've reached a point where investors can choose from hundreds of major U.S. stocks with dividend yields exceeding those of Treasuries. Investors get the payouts, as well as upside potential. U.S. government debt, by contrast, can only appreciate so much further as yields shrink, and has a significant risk of capital loss when rates reverse.

"One obvious place to turn in search of yield is the equity market, and the pickings are as ripe as they've been in decades, at least relative to government bonds," say BMO Nesbitt Burns economists Douglas Porter and Robert Kavcic in a recent article, "The Global Hunt for Yield."

We're not at a point where the dividend yield of the major stock indexes exceed government-bond yields, although that did happen in 2009's bear market. Still, the gap remains shockingly narrow, as Mr. Porter and Mr. Kavcic note that the S&P 500 yield is just 0.4 percentage points below 10-year Treasuries, and the TSX yield is just one-tenth of a percentage point below the Canadian 10-year.

According to Standard & Poor's Capital IQ, nearly one-third of the S&P 500 - 158 companies - had a dividend yield in excess of the recent Treasury yield of 2.6 per cent, as of Friday. There are 30 companies in the index offering 5.2-per-cent yields, double the Treasury rate.

"Drilling below the surface reveals ample opportunity for yield-hungry investors to create a diverse portfolio of stocks, with a track record of real dividend growth, which yields more than government bonds," the BMO strategists write.

This, however, could be a short-term phenomenon. While dividends have always been a significant component of return, particularly in this last "lost decade," their nominal level of yield has been depressed ever since the mid-1990s tech-stock boom made capital appreciation super-sexy.

The average quarterly dividend yield for the S&P 500 topped 4.1 per cent in the 1970s and 1980s, but the 1997 saw the beginning of 44 consecutive quarters of yields below 2 per cent. Not even the 2000-02 beatdown pushed yields above the 2-per-cent mark.

Nine of the last 10 quarters, however, have seen dividend yields exceed 2 per cent.





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