New regulatory actions in the futures-backed commodities market could pose problems for a variety of popular oil ETFs, including the largest one – United States Oil (NYSEArca: USO), writes Don Dion for TheStreet. Other futures-backed oil ETFs that may be affected by position limits include iPath S&P GSCI Crude Oil Ttl Ret Idx ETN (NYSEArca: OIL) and United States 12 Month Oil (NYSEArca: USL). (What does the future hold?).

In the beginning of the year, the CFTC made inquiries about the impact of USO’s impact on the oil market after prices rushed to a record $147.27 in July 2008 before plummeting to near $30 months later. The providers of USO responded by expanding the period in which it rolled its contracts and reducing its position in the underlying benchmark. USO escaped further notice as investor interest turned from oil to other investments, most notably  United States Natural Gas (NYSEArca: UNG).

Recent restructuring of PowerShares DB Commodity Index Tracking (NYSEArca: DBC) portends possible regulatory action that could result in size restrictions on all futures-based oil ETFs. DBC’s managers restructured its oil weightings and also included oil futures contracts traded in London to avoid CFTC restrictions. The managers of UNG have been turning to the over-the-counter swaps markets to get some exposure. We could see more of these types of things as regulations come forward. (What are swaps?)

Assets in long-only commodity ETFs don’t appear to have been dented by the increased regulatory oversight of futures-based funds. At the end of October, assets in the funds stood at nearly $65 billion – a 12% increase from August.

Dion suggests that novice traders steer clear of oil funds until regulatory revisions are set and those who purchase shares should keep the size of the investment in check. Another option to consider for investors leery of futures-based funds are ETFs that hold shares of oil companies. (How to invest in oil using ETFs).

When investing in oil or commodity ETFs, it is important to have a strategy in place. For a more detailed explanation of using a trend following strategy, take a look at The ETF Trend Following Playbook.

For more information on oil, visit our oil category.

Max Chen contributed to this article.

Global economies are recovering, however, not at the fast rate commodity markets are indicating. What gives? Oil has become the inverse proxy to the U.S. dollar: as the dollar weakens, the price of oil moves higher. (Is oil in danger of becoming an investment bubble?) With the burgeoning debt piling up in the United States, the dollar looks to be under pressure to move lower for the foreseeable future, explains Steven Halpern for Blogging Stocks.

The futures market is supporting a trend that oil and gas stocks will move higher  in the months ahead, especially since many expect the dollar to remain depressed. (What else is supporting oil’s upward price moves?)

Halpern explains that if energy commodities are moving higher in the current economy, then there’s little on the horizon that would do anything but put more upward pricing pressure on the industry.

Meanwhile, gas prices are inflating as oil surges, too. In the latter part of October, gas gained 14 cents a gallon. Prices now stand at a national average of $2.70. Analysts are attributing the jump to an increase in oil prices.

Will oil and gas continue to remain strong? There are ETFs to represent both sides, but be sure to understand how these ETFs work by reading our special report on leveraged and inverse ETFs. Leveraged and inverse ETFs aren’t meant for long-term use and they’re not suitable for every investor.

For more stories about oil and gas, visit our commodity category.

• Ultra Oil & Gas ProShares (NYSEArca: DIG): up 2.9% over one month

• UltraShort Oil & Gas ProShares (NYSEArca: DUG): up 6.3% over one month

The Dow Jones Industrial Average finally crossed a milestone 10,000 points this month. Though the mark was greeted with cheers on the trading floor, it didn’t stay there for long, and ultimately closed the month below 10,000 and ended the month flat. The S&P 500 lost 2% and the Nasdaq fell 3.6%.

October was largely a month that saw a weakening dollar. This was to the benefit of commodity ETFs, including SPDR Gold Shares (NYSE: GLD), which gained 3.7% for the month. United States Oil (NYSEArca: USO) gained 8.6%.

Earnings season was a largely encouraging one. The number of better-than-expected reports outnumbered the worse-than-expected ones by a ratio of about 6:1. But there are still big concerns about consumers: spending dropped 0.5% in September. As long as consumers aren’t spending, the recovery could be long and difficult.

To view our full performance report, click here.

For full disclosure, Tom Lydon’s clients own shares of GLD.

At the end of September, U.S.-listed ETNs held $6.9 billion in assets, compared with the $697 billion held in ETFs, writes Matt Hougan for IndexUniverse. (What are ETNs?)

There are three key advantages they enjoy:

• When ETNs first came to the market, the investment vehicle proved to be popular among investors who were looking for access to difficult-to-target markets, such as commodities and certain foreign markets. Investors flocked to funds such as the iPath MSCI India (NYSEArca: INP) and iPath Dow Jones-UBS Commodity Index ETN (NYSEArca: DJP). There are ETFs that target these areas now, but ETNs still cover certain areas not yet covered by ETFs.

• ETNs promise perfect tracking – an investor receives the full return of the benchmark, minus costs. Commodity ETFs on the other hand do show some tracking errors. Any tracking error in an ETN is borne by the issuer; tracking error in ETFs are borne by the investor.

• ETNs also have the benefit of being treated like a zero-dividend stock for tax purposes. This means that you don’t pay taxes until you sell, and holding a commodity ETN longer than a year only costs an investor 15% long-term capital gains taxes when sold. Futures-based commodity ETFs are treated like futures, which means gains are marked-to-market each year and investors pay taxes on gains at 60%/40% long-term/short-term capital gains tax rate. Be sure to consult your tax professional for advice. (Are you ready for the taxman?)

A deterrent for ETNs investing is that they are unsecured debt notes. The ETN’s value depends on the credit of an issuing bank – if the bank bankrupts, you’re out of luck. Most ETNs, however, offer daily redemptions at net asset value. Potential ETN investors should note that the CFTC’s plans for regulation in the commodities market could force some ETNs to close down, but this remains to be seen. (Differences between ETNs and ETFs)

For more information on ETNs, visit our ETNs category.

Some of the more heavily traded ETNs include:

• iPath DJ AIG Lead TR Sub-Idx ETN (NYSEArca: LD): up 128.9% year-to-date
• iPath DJ AIG Sugar TR Sub-Idx ETN (NYSEArca: SGG): up 57.7% year-to-date
• iPath Dow Jones-AIG Commodity Idx TR ETN (NYSEArca: DJP): up 16.2% year-to-date
• iPath MSCI India Index ETN (NYSEArca: INP): up 82.4% year-to-date
• iPath S&P GSCI Crude Oil Ttl Ret Idx ETN (NYSEArca: OIL): up 16.1% year-to-date

Max Chen contributed to this article.

U.S. consumer sentiment declined this month while Americans continued to worry about their finances and paying down their debts. Despite the drop, sentiment is higher than it was a year ago at this time, reports Steven C. Johnson for Reuters. Most consumers felt that their financial situations  had worsened in October for the 13th consecutive month. It’s the longest and deepest decline in the survey’s history. (Can bargains be found in luxury ETF?)

Consumer spending in September also dropped by the largest amount in nine months. This comes despite a government report showing that the economy grew 3.5% in the third quarter and shows how shaky the economy still is. (The GDP report). Economists fear the consumers are going to continue cutting back, making for a rocky road to recovery, reports Martin Crutsinger for the Associated Press.

• Vanguard Consumer Discretionary (NYSE: VCR) is down about 0.5% this morning

President Barack Obama said today that the stimulus plan created or saved about 650,000 jobs. The numbers are the first solid look at how the program has impacted the economy, CNN Money says. Administration officials say that 3.5 million jobs will have been created or saved by the time the program comes to a close.

Chevron (NYSE: CVX) reported that its profits slipped 51%. The oil giant was able to boost revenues by increasing its oil production by 11% in the third quarter, the Associated Press reports. (Five factors benefiting oil ETFs).

• PowerShares Dynamic Energy Exploration & Production (NYSEArca: PXE) is down nearly 2% this morning; Chevron is 5.5%

For more stories on energy, visit or energy sector page.

• Low interest rates. The great increase in global money supply has fueled oil-intensive growth and consequently, pushed up oil crude prices, comments Martin Hutchinson for Money Morning. Many countries have kept interest rates low, and they don’t expect to change it anytime soon. (More money being reinvested into commodities).

• More cars. China and India’s burgeoning auto industries are producing an expected 11 million and 2.5 million cars, respectively, while Brazil’s auto sales surged 20% in September. This translates into increased demand for oil.

• Weak U.S. dollar. The price of oil and the dollar historically have an inverse correlation; oil is priced in dollars, so as it weakens, oil becomes cheaper for foreigners. As the U.S. government takes on more debt, investors are predicting a further depreciation of the dollar. (Oil trading without the dollar)

• The economy. Some believe the worst is over, and oil will soon benefit from a more active economy with higher energy consumption, remarks Dave Mock for The Motley Fool.

• Scarcity. Oil bulls argue about a “peak oil,” where the peak of global oil production will finally be seen. Oil, like other commodities, is a finite resource.

There are several ways to play oil. Some ETFs hold shares of major oil companies, such as Exxon Mobil (NYSE: XOM) and Chevron (NYSE: CVX). These companies range from oil exploration, to refining, to production. Examples include:

• PowerShares Dynamic Energy (NYSEArca: PXI): up 32% year-to-date

• SPDR S&P Oil & Gas Exploration & Production (NYSEArca: XOP): up 32.5% year-to-date

There are also oil ETFs that hold futures contracts. ETFs that hold futures give investors the chance to capitalize on oil prices without having to worry about rolling over contracts or taking delivery. For more information on oil, visit our oil category.

• United States Oil (NYSEArca: USO): up 19.2% year-to-date

• PowerShares DB Oil (NYSEArca: DBO): up 40.2% year-to-date

Max Chen contributed to this article.

The economy grew 3.5% in the third quarter, its best performance in two years. Spending on homes and new cars, as part of the “cash for clunkers” program, contributed to the growth, reports Jeannine Aversa for the Associated Press. What it means going forward is in doubt, because if unemployment continues to rise it will hamper consumer spending. (A holiday shopping ETF?)

This week, the job markets got a reprieve: claims fell more than forecast to their lowest point in seven months, reports Courtney Schlisserman for Bloomberg. It was also the biggest drop since July. Companies appear to be cutting fewer jobs as signs of an economic recovery emerge.

Treasury Secretary Timothy Geithner spoke today about financial reform and said that new legislation will not lead to bailouts. The Obama administration wants laws that would give federal regulators to power to identify and monitor major banks so they can be wound down before collapsing, reports Anne Flaherty for the Associated Press. The law is intended to prevent putting the government in a position where it needs to decide between a big rescue or allowing the bank to fail. (How to harness the financial sector recovery).

A slew of earnings came forth this morning:

• Procter & Gamble (NYSE: PG) reported their first-quarter earnings, which were better than expected.  Profits were off 1%, but Procter & Gamble has pledged to be aggressive in winning back market share.
• Exxon Mobil (NYSE: XOM) said its profits dropped 68% in the third quarter. While the results were the best of the year so far, but Exxon has not reported such low quarterly profits in four years. Energy Select Sector SPDR (NYSEArca: XLE) is up 1.5% this morning; XOM is 21.4%.



• Motorola (NYSE: MOT) had an unexpected third-quarter profit, thanks to narrowing losses in its cell phone division. It was their second consecutive quarterly profit this year. (Four reasons to watch global telecom).
• Kellogg (NYSE: K) benefited from brand loyalty, which delivered a 6% boost to its profits last quarter. More consumers are eating at home, and they view Kellogg’s cereals as a staple. PowerShares Dynamic Food & Beverage (NYSEArca: PBJ) is up about 1% this morning; Kellogg is 5.2%.

New home sales had an unexpected 3.6% drop in September. Waning effects from the government’s tax credit for first-time homebuyers are being blamed for the decline, reports Alan Zibel for the Associated Press. September’s decline was the first since March. SDPR S&P Homebuilders (NYSEArca: XHB) is down more than 3% this morning. For more stories on real estate, visit our real estate category.

The Treasury Department and the GMAC, the former lending arm of General Motors, are in talks for a third round of taxpayer-funded aid. The Treasury mandated that GMAC raise another $11.5 billion after stress tests, but the lender has had to go back to the government for more cash, Reuters reports.

ConocoPhillip’s (NYSE: COP) announced its third-quarter earnings fell 71% from a year ago. The company blames lower gas and oil prices along with poor refining margins, reports Isabel Ordonez for Dow Jones Newswires. Exxon Mobil (NYSE: XOM) and Chevron (NYSE: CVX) are expected to report lower earnings tomorrow and Friday, respectively. Vanguard Energy (NYSEArca: VDE) is down more than 2% this morning; ConocoPhillips is 6.6%; Chevron is 13.1%; and Exxon is 19.5%.

Durable goods orders in September climbed, which is being hailed as a favorable sign for U.S. manufacturing. The 1% jump is the fourth increase in six months, reports Greg Robb for MarketWatch.

For more stories on oil, visit our oil category.

For the third consecutive month, home prices rose in August. The Standard & Poor’s/Case-Shiller index showed the prices rose 1% from July in 20 major cities. Prices are still down 11.4% from a year ago, reports J.W. Elphinstone for the Associated Press.

Consumer confidence fell in October to 47.7, the second-lowest reading since May. Analysts had expected a reading of 53.1. Any reading above 90 indicates the economy is on solid footing; a reading above 100 indicates solid growth, reports Ashley M. Heher for the Associated Press. Fewer jobs, lower salaries and a gloomy business climate are bringing shoppers down and keeping them reluctant to spend. Retail Select Sector SPDR (NYSEArca: XRT) is down nearly 2% this morning. (A holiday ETF?)

BP (NYSE: BP) reported a bigger-than-expected profit in the third quarter, even though lower oil and gas prices put a dent in its earnings. BP met its target by cutting costs by $3 billion. WisdomTree International Energy (NYSEArca: DKA) is up 1.5% this morning; BP is 8.6%.

United States Steel (NYSE: X) posted its third consecutive quarterly loss, thanks to the global economic downturn, which has depressed steel demand. The company did note that production and shipments rose from the second quarter and that a narrower loss in the fourth quarter is expected. Market Vectors Steel (NYSEArca: SLX) is down nearly 2.5% this morning; United States Steel is 5.1%. (Where steel and copper are going).

Oil had been above $80 a barrel for much of the morning, but dropped back below that mark as the dollar continued to gain against the euro, report Donna Kardos Yesalavish and Geoffrey Rogow for The Wall Street Journal. PowerShares DB U.S. Dollar Bullish (NYSEArca: UUP) is up about 0.5% this morning. (Read our currency report for more on currencies and ETFs).

The market’s dip is also being attributed to analyst downgrades of banks and concerns that Bank of America (NYSE: BAC) will have to sell shares in order to payback bailout money it received from the government, reports Rita Nazareth for Bloomberg. The Financial Select Sector SPDR (NYSEArca: XLF) is down more than 2% this morning.

Verizon Communication (NYSE: VZ) reported this morning that its third-quarter profit fell less than expected, by 9%. Gains in the company’s wireless division helped offset slower-than-expected growth in its FiOS television service, says Sinead Carew for Reuters. Vanguard Telecom Services (NYSEArca: VOX) is down more than 2.5% this morning; Verizon is 20.3%.

For more stories on telecommunications, visit our telecommunications page.