In yesterday’s statement on monetary policy, the Federal Reserve decided to reassure markets that interest rates are likely to stay at “exceptionally low levels” at least through the middle of 2013. Three members dissented and preferred not to commit the Federal Reserve to a specific date. This dramatic change in the language to lock the Fed into very loose monetary policy for at least another two years was yet one more reminder of why I am focused on using a crash in commodities as a golden opportunity to build out a portfolio in physical assets. (See “Preparing for Profits in a Resource-Constrained World” for an explanation of the approach).
The strategy remains to start building positions in commodity-related names that erase all their QE2 gains under the assumption that such a discount is near the maximum loss before the Federal Reserve (and/or other central banks) attempts some new stimulative measures. Regardless, these are all longer-term bets on resource scarcity in the face of rapid global population and economic growth.
On August 7, my first two such trades triggered: EWZ, the iShares Brazil ETF, and Alpha Natural Resources (ANR), a metallurgical and thermal coal company (see “‘Commodities Crash’ Triggers First Trades: Alpha Natural Resources, iShares Brazil ETF“). On August 8, two more trades triggered: Vale SA (VALE) and EWA, the iShares MSCI Australia Index Fund ETF.
Here is a list of additional, non-agricultural commodity stocks that have lost their QE2 gains, most of them on August 8. I break these out into names that are currently on the strategy list, shorts, stocks not on the strategy list, and “special recognition” stocks. I will cover agricultural stocks another time…
On the List:
Peabody Energy (BTU)
Century Aluminum Company (CENX)
Stillwater Mining Co (SWC) – sold off 22% on July 11 after reporting earnings guidance and announcing a risky and expensive acquisition of a copper mine in Argentina. It has been tempting ever since, but I have so far resisted.
Southern Copper Company (SCCO)
Thompson Creek Metals Company (TC)
Vale SA (VALE)
Walter Energy Incorporated (WLT)
Shorts:
Cameco Corp (CCJ) – first lost all QE2 gains in June. I have covered my short and am left with near worthless calls I bought as a small hedge. (My technical indicator flashed extreme oversold on Monday, encouraging me to close most bearish positions.)
Special Materials/Commodity Recognition – Cement and Granite:
Eagle Materials (EXP) – the latest cement stock to lose all its QE2 gains. Almost all cement stocks have collapsed.
Granite Construction (GVA) – seven-year lows!
Not on Original List:
Aluminum Corp of China Ltd (ACH)
Arch Coal (ACI) – I prefer BTU
James River Coal Company (JRCC)
Penn Va Resource Partners LP (PVR) – juicy 7.9% dividend
Rio Tinto Plc (RIO) – got “close enough” before sprinting 12% higher on Tuesday. I prefer VALE and BHP Billiton Limited (BHP)
Be careful out there!
Disclosure: I am long EWA, EWZ, ANR, VALE.
Source:seekingalpha