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Energy Plays to Keep Your Portfolio Warm This Inflationary Winter

Jim Collins sees rising inflation and a flattening yield curve leading into an economic danger zone.

TheStreet’s Jim Collins sees danger in the Federal Reserve’s latest actions and has ideas for how to steer clear.

“There is nothing worse for stocks than rising interest rates. Full stop,” Collins wrote recently on Real Money.

Of course, “it’s the shape of the yield curve itself that matters, not the absolute level of yields,” Collins noted. “Flat is bad for lenders, and if the Fed is going to raise interest rates and the bond market is going to ignore it and keep bidding down yields on the 10-year U.S. Treasury then we have an environment that is clearly contractionary.”

The biggest loser in that scenario is the banking system. “Powell is telling you to lighten up on the Financial Select Sector SPDR Fund  (XLF) - Get Financial Select Sector SPDR Report and maybe even take a shot with some of the short Financial ETFs, such as ProShares Ultrashort Financials  (SKF) - Get ProShares UltraShort Financials Report and ProShares Short Financials  (SEF) - Get ProShares Short Financials Report,” Collins wrote. “Protection is always good.”

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Here in the U.S., Collins is all about energy plays to fit the bill as the Fed grows more aggressive.

“Oil prices aren't going down any time soon,” he wrote. “This is exacerbated by the actions of the COP26-addled governments in the West to demonize the hydrocarbon industry. Supply is being artificially restrained. So hold onto Exxon Mobil  (XOM) - Get Exxon Mobil Corporation Report and Chevron  (CVX) - Get Chevron Corporation Report, keep adding Equinor  (EQNR) - Get Equinor ASA Report, the Norwegian giant I mentioned in my last Real Money column, and know that natural gas is often a by-product of the production of crude oil.”

The world just doesn't have enough natural gas for this winter.

“If you think that natural gas prices will recover and you are not afraid of the insane volatility in that contract -- un-affectionately known by energy traders as "the widowmaker" -- then take a shot at United States Natural Gas Fund  (UNG) - Get United States Natural Gas Fund LP Report,” Collins said.

“UNG has been absolutely monkey-hammered in the past six weeks on warmer-than-expected early winter weather in the U.S., but I think a reversion to the mean is due. Also, don't forget that the markets are setting up unfathomable arbitrage spreads to ship natural gas from the U.S. Gulf Coast to Europe and Asia, so stick with Cheniere Energy  (LNG) - Get Cheniere Energy, Inc. Report and Portfolio Guru favorite Flex LNG Ltd.  (FLNG) - Get FLEX LNG Ltd Report.”

Get more trading strategies and investing insights from the contributors on Real Money.