• XHTML Valid
  • CSS Valid
  • XML Feed
  • RSS Comments
  • Wordpress.Org
  • Powered by Technorati
  • Finance Blogs - Blog Top Sites
  • BlogBurst.com

Cutest Video Ever!

View my page on PickensPlan

Visit PickensPlan

Opinion: China Earthquake Trades

Ok, the market is downright giddy today post-expiration.  Either giddy or short busting as many people, including a few I work with, seemed to think this 1410 level on the S&P would be serious resistance.  I thought so too, but technical levels are just guidelines.  This is definitely a living example of how high skepticism in rallies fuels rallies higher.  Haven’t posted in a while so thought I’d opine on two points I think are relevant to this current rally:  the China Earthquake and the current industrial/commodities leadership sectors.  The lack of postings lately is due to some uber-intensive research I’ve been doing, but I’m reluctant to recommend long ideas while the market is so hyperactively giddy or, as Pete Najarian on Fast Money says, giddy-up (when the market is giddy, it goes up…simple!).

China Earthquake Trades
Some of you might find the concepts I’m going to throw out here inconsistent or contradictory, to which I say, please, have a flexible mind and be able to think with just a tiny bit of complexity.  LONG TERM (5-10 years), and medium term (next year or so), industrials and commodities IS the place to be, and nowhere else.  Mark my words.  The replacement of “ing” in the word DEVELOPING nations with “ed” is the biggest opportunity of our lifetimes.  Not just the BRIC (Brazil, Russia, India, China) countries but also importantly the Mid East as well as Southeastern Asia and parts of South America like Colombia.  So, if you’re not going to cash out your investments in the next year or so, this doesn’t concern you.

For the traders/short term investors, I believe traders are assessing the ginormous earthquake damage in China wrong and I am a strong seller into the earthquake-rebuild commodity rally.  There’s nothing wrong with trading this rally as long as you realize there is no fundamental support for the rise in commodity prices just because of the earthquake rebuild.  First, it doesn’t even seem like China is halfway done with the rescue operations and people are speculating how much commodity demand there’ll be for the rebuild.  One thing I’ve learn is that traders and this market is impatient, but large physical events like an earthquake recovery takes years.  Yes, the rebuild will be there and will suck up a lot of commodities, but that will be months if not years in the future, at which point we’d lave long lost the A.D.D. attention span of the market.  I’m guessing that within a week or two, traders will be looking at the rescue operations still going on slowly and demand for metals might actually drop as factories in the region are all out of action.  Traders will see this as their theory not playing out and sell the overbought metals.  Once we clear out these dummies, then I’d add to my long term positions, but not before.

The China demand for metals will be there, just as the airplane demand is there, but people still sold Boeing (BA) shares as the delays pushed the plane deliveries out further into the future.  This is happening right now, which is why everyday I wake up grateful for this opportunity to buy Boeing 787-plays like Precision Castparts (PCP) for cheaper than I could have at this time if Boeing were already on schedule to deliver planes this year rather than next.  I believe the exact same scenario will play out with commodities and China: the pent up demand will be that much greater with this earthquake rebuild as people are correctly anticipating- it’s just a bit further out into the future than most people can patiently wait for…which gives the rest of us the perfect “buy the dip” opportunity.

Next: Point 2- Is a Commodities/Industrials Led Rally Healthy?

**Disclosure: I own shares of PCP** 

One Response to “Opinion: China Earthquake Trades

Leave a Reply

For spam filtering purposes, please copy the number 2128 to the field below: