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By Ian Wyatt, Daily Profit |
RTP | Dec 11, 2008 |
*****Will $14 Billion Do It?
*****Commodity Rally
*****Daily Profit Stocks
Stocks rallied again yesterday, even as word that the House approved a bailout for the auto industry.
Yesterday, I suggested that stocks may sell off on the news of yet another bailout. They didn’t. But the terms of the bailout weren’t released until after the close of trading, I believe.
If so, the fact that the bailout money, all $14 billion of it, is less than half of what the Big 3 wanted, may yet have an influence on trading. Pelosi called the bill that still needs to be passed by the Senate "tough love." I’ll admit I find it very creepy when Pelosi says tough love.
*****I think Chrysler was the one that said failure to save them would lead to Depression. GM’s promised 3 million lost jobs if they fail. So I guess now we’ll have half a Depression and only 1.5 million more unemployed. I guess that’s progress.
*****Speaking of unemployment, Rio Tinto (NYSE:RTP) announced 14,000 job cuts yesterday. That’s 12% of the workforce from one of the biggest mining companies in the world. Investors loved the news, sending the stock up $21 or 30% on the day.
Rio’s news seemed to spark a rally across the board for commodities. That reminded me of a blurb I read from Jim Rogers recently. If you don’t know Jim Rogers, you should look him up. The man is phenomenal investor and is very candid. He called the rally that sent stocks like Rio Tinto up +500% from 2004 to 2008.
Anyway, Rogers recently said that he believes the fundamentals for commodities remain unimpaired. That means, basically, that supply will continue to fall behind demand.
It’s difficult to tell now that the world is undergoing recession and manufacturing is shrinking. Heck even China isn’t building as much. But that will change. And news like this massive layoff from Rio Tinto may actually make for an even more bullish case for commodity prices.
By cutting its workforce, Rio Tinto is effectively taking a certain amount of production off-line. That means less supply. Once credit markets get back on track, new construction and manufacturing, to a lesser extent, could come roaring back, outing even more pressure on commodity prices.
Or, if recession lingers, stimulus plans that involve infrastructure spending, like those in the works for both China and the U.S., could have the same effect.
In that light, it’s conceivable that the rally for Rio Tinto is about more than just cost-cutting.
******The rally we’ve been enjoying has produced some nice gains for the stocks we’ve discussed here in Daily Profit. Questcor (Nasdaq:QCOR), Emergent Biosciences (NYSE:EBS) and Graham Corp. (NYSE:GHM) have all advanced. Even Chesapeake Energy (NYSE:CHK), by far the most volatile, is back to break-even or so (I’d have to check the timing on my recommendation there). If you were fortunate enough to grab Chesapeake when it was down around $10 recently, you’re doing great.
Of course, I’d love to hear from any readers who bought these stocks. But I’m more concerned with keeping the gains and taking profits on these stocks before the markets reverse.
As you know, I expected the current rally. And while I’ve discussed the possibility that the markets have hit bottom, I don’t want to be misunderstood. Yes, the markets made a short-term bottom. But I don’t think we’ve seen the last of the downside.
I’ve repeatedly said I don’t think the market is priced for 9% unemployment. That means, at some point, negative news will start driving stocks lower. If I had to guess when, I’d say January 2. That’s often a good time for sell-offs to begin.
I’m content to let Daily Profit’s current stock positions run. But I do advise stops, and we will be looking to take profits sometime in the next couple of weeks. I’ll keep you posted.
*****Registration for Stock Summit 2008: Profits After the Fall opens to the public today. We’ve already filled our first 500 spots, so I’ve made arrangements with my ISP to let more of you in the door. But with the number of investors who are signing up every day, I can’t guarantee you’ll get to sit in for Benson’s profitable insights unless you register now.
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Commodities sure went bust in a hurry didn’t they? I’m not too worried though, I got out with some profits from commodity stocks.
My guess is that this is a good time to consider scooping up some copper and nickel plays on the cheap with money I don’t need for five years. The commodities bull market will rage again once the US is clearly out of recession and China turns on the factories again.
What about gold? Where do you see it headed? During the past few months it’s not reacted as everyone would have thought? As a store of value are it’s days over?