[Beginning of Cramer's verbatim comments for this segment...]

Jim:        Tonight, with natural gas jumping a huge 15% in one day, I get a chance to meld my crusade for natural gas as a national bridge fuel with my Jihad against financial products... the Exchange-Traded Funds that don't do what you think they'll do... I'm talking about the weapons of mass financial destruction... like the SKF, the UltraShort Financial ProShares that I think really brought down some very good banks and cost you, the taxpayer, maybe tens of billions in bailout money... and also instruments of financial self-immolation... ETFs that hurt you because you probably think you're buying something that you're really not.

What's the product of this unholy union?...

It's the United States Natural Gas (UNG) ETF... and that is the subject of tonight's Sell Block...

For weeks, I've been talking about the potential of natural gas as a transition fuel to get us away from oil and, even worse, out of the filthy clutches of the coal industry... cutting carbon emissions by 28.5% if we use it to fuel our cars... 40% if we burn it instead of coal...

Natural gas is plentiful... We're sitting on top of 238 trillion feet of proven reserves here in the United States, and it grows all the time... 1.8 quadrillion cubic feet of probable, possible and speculative reserves... enough to supply the U.S. with energy for more than... yes... a century at current levels of consumption... And, remember, a lot of this has been found in just the last three years.

Now I have told you... this could be sobering... I have told you about the coal industry, with its huge Congressional market share... Oh, excuse me... I forgot my role as a diplomat and elder statesman... I meant mindshare, has been standing in the way of natural gas, holding out the oxymoronic proposition of "clean coal" via carbon capture, as an alternative... I've got to tell you, that's like hoping for the tooth fairy instead of going to the dentist... given that it will take at least a decade before the technology even exists.

We had a terrible trade deficit number today... I was really bummed out... As an American, I feel bummed out about this... the gap between imports and exports increasing 16% to $32 billion. I need you to think how quickly we could close that gap, if we replace foreign oil with domestically-produced natural gas.

With natural gas, we have the transportation infrastructure, and can easily build more pipelines, and put a lot of people to work. It's a viable transition fuel to help reduce our dependence on the Middle East... to create jobs... fight climate change... while we wait for wind and solar to become... well... how about "commercial." I mean, what's not to like?

Now, let's have a little lesson here...

Apparently, the coal industry clowns... and their Congressmen... their favorite Congresspeople in the House of Representatives... Well, what are they up to? They don't care for natural gas. They like coal best.

I've been kicking around some names for them... what they are... and I've got it. They're the pro-black-lung, pro-dirty-skies coalition... not the Rainbow Coalition, because you won't be able to see any rainbows if these guys win out...

They obviously disagree with me because they marginalized natural gas in the latest energy bill. Luckily, the Senate is more natural gas friendly... and they could make changes to the bill that might benefit the natural gas industry, because what's good for natural gas - like GM of yore - is good for America.

You'd think then that the natural gas ETF, like UNG, would be a great way to invest in the adoption of natural gas as a bridge fuel. If you believe Washington has the political will, or that the natural gas industry finally has the lobbying clout to make this happen, why not buy an ETF that purports to let you own natural gas? After all, the price of this dirt-cheap commodity should start to rise once it's embraced as a transition fuel.

So why not buy this ETF?...

You probably think I endorse it... Well, forget about it!... Sell, sell, sell, sell, sell, sell, sell!...

First of all, UNG could be in big trouble, something that my ETF gurus at TheStreet.com, Don Dais and his wife, Carolyn pointed out to me today. At the moment, UNG is trading at an absurd 11% premium to its net asset value - the price of natural gas - because it's halted new share creation... essentially making it a "closed-end fund." You can only buy from other shareholders, not the ETF manager.

But now that the regulators are cracking down on these futures-based commodity funds, something that I think is fabulous, that premium could disappear in an instant, and you would lose money just as fast.

When the regulators came for Deutsche Bank's DXO... that was a double-long oil ETF that had halted new share creation, and was also trading at a premium to its net asset value, the good people at Deutsche Bank shuddered (closed) the fund, and that premium vanished. The right thing to do guys...

If the Commodity Futures Trading Commission decides to make UNG's life difficult, it could go the way of DXO... it redeems its outstanding shares, and that 11% premium goes away, really damaging your investment if you own this thing. You could lose money in the blink of an eye.

And, even without regulatory pressure, there's an inherent problem with owning a fund like UNG. Remember, this is really a Sell Block name...

Like the United States Oil ETF (USO), the USO, that I've already imprisoned in the Sell Block, the UNG actually doesn't own natural gas. It just purports to. The company put out a prospectus, they made it very clear, but no one read the prospectus.

Now, what I want to know about this one?... Is there any room on death row in the Sell Block? No, I'm putting this one in the Green Mile of investing...

When you buy this, you're not buying the commodity. You're mostly buying a fund that owns near-month natural gas futures contracts. The problem with that?... At the end of the month, the fund rolls over these contracts into the next month's contracts. So, at the end of September, it'll trade in its September natural gas futures contracts for October ones. It's going to swap them.

It sounds complicated, I know. It sounds like Wall Street jibberish... So let me make it simple...

The way UNG operates... when natural gas prices are going higher... when future natural gas is worth more than future natural gas, then it loses money every time it rolls these futures contracts forward.

You think you've got a fund that's tracking the price of natural gas but, instead, you own something that's leaking money as it tries to roll a bunch of futures contracts uphill.

What a terrible piece of paper this is...

I like wallpaper... No, I like toilet paper more...

Even if natural gas prices have moved higher, the UNG could lose enormous amounts of money for you, rolling these contracts forward. In the summer of 2007, even though natural gas spot prices increased by 1%, UNG lost 12% of its value... mostly from losses from rolling its futures contracts forward.

As long as you think natural gas prices are going higher in the future... that's a situation called contango... the UNG is, by its very nature, going to do worse than the commodity. That's a travesty! A travesty for people about what they expect will happen...

Over the last three months, natural gas prices are down 12%. Oh, here we go... you're down 20% if you owned the UNG. How about since the market's generational low on March 6th? Natural gas, down 18%. UNG, down 31%.

I think the better way to play natural gas is to own the stocks. We've had the CEOs of a lot of great natural gas companies on the show lately... We've had XTO Energy Inc. (XTO), we've had Devon Energy (DVN*), we've had Anadarko Petroleum (APC), we've had Apache Corp. (APA), and we had LINN. If you want one with a big yield, any of these make more sense than the UNG. My charitable trust owns Devon, on ActionAlertsPlus.com, which I've been buying... I bought all the way down... and, when natural gas rallied to over $3 today - a gigantic 15% gain - all of those stocks exploded. So did the UNG. What a great time to sell it, and swap into the real natural gas plays.

If you insist on buying an ETF, you buy the stock ETF equivalent. That's First Trust ISE-Revere Natural Gas ETF (FCG). It owns the actual stocks of natural gas companies. That I'd abide by. It's up 7.9% in the last three months... 85% since March 6th. Natural gas stocks have powered higher, despite the falling price of the commodity.

If you don't want to pick one, go for that... But here's the bottom line...

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The Bottom Line!:     I'm very angry about this. I think natural gas is the way of the future; it's the bridge fuel that we need. But you have to know how to play it and, first and foremost, that means knowing what to avoid. The United States Natural Gas (UNG) is another ETF that doesn't quite do what you think it does... and could be in danger as the regulators finally start to do their jobs... which means it's definitely no way to play increasing natural gas prices. Please, please, please... avoid this ETF or sell it. You just got a big move (up) here, and I think it's a huge mistake. The whole thing shouldn't exist. I think it should be shut down tomorrow. Don't hold your breath please. Just sell the UNG.

[verbatim recap]

[end of segment]

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