Investment Contrarians

A Warning for the Stock Market You Should Be Aware Of

By for Investment Contrarians |

A Warning for the Stock Market You Should Be Aware OfWhile many investors are concerned about the global economy, the stock market continues to move up. Some might be feeling left out of the party. When it comes to getting a feeling of what’s happening in the global economy, starting with the basic raw material commodity firms is a good first step. The global economy depends on mining stocks to extract valuable inputs, such as iron ore, that go into making things, such as steel. If the global economy starts to slow down, less demand for the final product means that mining stocks will receive lower prices for the extracted materials.

BHP Billiton Ltd. (NYSE/BHP), one of the world’s largest mining stocks, announced that it is not approving any new projects until June of 2013. The company went on to include a delay of its massive $20.0-billion Olympic Dam mine in Australia. With a massive decrease in income to $5.5 billion for the first six months of 2012, ended June 30, as compared to $13.1 billion in the year-earlier period, the company and other mining stocks are feeling the pinch from a slowing global economy.

With China, being a major buyer of raw materials, now slowing down rapidly, the future is not bright for mining stocks of basic commodities, at least not in the short term. The company states that costs that are continuing to rise and buyers are reducing the level of orders for iron ore, copper, coal, and nickel among other base materials.

This is on top of reports that inventory levels are soaring in China. Basically, the economy appears to be grinding to a halt. This could become significantly worse if these conditions are not worked off. The global economy will feel the stark effects of the number two economy encountering a slowdown. This will most likely mean even lower raw material commodity prices, hitting mining stocks.

 

Chart courtesy of www.StockCharts.com.

 News of the halt in expansion is a good thing; mining stocks realize there is going to be less demand, therefore, they should expand at a lower rate to supply the market with fewer materials. With the stock sitting near the 200-day moving average, one should be cautious, as that has been an area of resistance in the past. If demand continues to dry up from a weak global economy, you’re left with mining stocks selling raw materials at lower prices.

While this is only one company out of many mining stocks, because of the size of BHP and the breadth of commodities it is involved in, I think it is a good barometer of the global economy. If company management thought that the global economy was on the verge of turning around, rest assured BHP would be expanding to meet this demand. But, according to BHP, it doesn’t see the global economy expanding, and I think this cautious tone should be heard by all investors. Mining stocks in materials such as iron ore and copper will most likely languish until the global economy shows signs of turning around.

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  • Samuel Reich

    Look cash flow and earnings of trucking firms in latest quarter and the Baltic Dry index. Most of the trucking firms had a decline in financials. The Dry index is at about 666 down from 2100 about 11 months ago.

    If there is a decline goods transportation expect it in whole ecconomy soon.

  • Ahn

    , the brekor that I use is oanda. I use this brekor mainly because it allows smaller lot sizes which allows me to be very flexible with my exposure.My recommendation- do not trade with less than 50k account. Do not trade live until you have risk capital (money that you will not need or regret losing) or minimum few years on paper accounts.Forex research is a huge topic. Do not fall for technical analysis, it works in some situations, but the best bet would be to read the prices correctly via price patterns and timing. Do not trade during non farm payrolls or during tokyo and NY lunch hour. Trade during the overlap of US UK sessions for best liquidity. Watch for inflation levels, what central bankers say (and if what they are saying is just a warning or if they are serious about it).For example you would want to monitor the japanese central bank decisions right now because their currency is strong enough to make their bank sell it to lower the price to keep exports competitive. For CAD, watch for gold prices (oil is their major export). ect.FINALLY: the only way to make money in forex safely is with law of large numbers in terms of capitalization. You have to have an account upwards of 50 mil, so this is not a get rich quick thing. The real money lies in market making and dealing.