Use access key #2 to skip to page content.

XMFSinchiruna (27.35)

The Clearest Windows Into Weakness

Recs

15

July 28, 2010 – Comments (7) | RELATED TICKERS: X , NUE , AKS

I haven't been posting my articles in recent days, so I wonder whether Fools have been tracking any of my coverage of the steel sector and what these bellwethers are indicating about the present direction of our domestic economy.

Here is my latest: The Clearest Windows Into Weakness

http://www.fool.com/investing/general/2010/07/28/the-clearest-windows-into-weakness.aspx

Excerpts:

I like to picture an economy as a house of interconnected rooms that are only visible, in sections, through windows from the outside.

Here in the United States, I see four kinds of windows into our present economic house:

Windows into the rooms where a booming housing market once lived have been boarded up for a few years now, spray-painted like those hurricane-battered homes in New Orleans to indicate they are empty.

Upstairs, where windows were blasted off their frames by the implosion of financial derivatives, the rooms are as if frozen in time. These financial weapons of mass destruction remain shut in amid the shadows of crafty balance sheets by the trillions.

Other panes are coated in a film of murky uncertainty and confusion, permitting no light to reveal what's inside. Media punditry, political rhetoric, and misinterpreted data swirl about those rooms in a cacophony of errors.

And then there are the steelmakers. With a reliability all their own, I believe that clear windows into the foundries of a nation's metalsmiths yield more direct insight into the underlying health of an economy than most other vantage points. I believe that sustainable recovery is impossible without the widespread participation of the industrial base, and so I continue to hold vigil outside their window.----

After turning in six consecutive quarterly losses, and after observing a corroborating fall-off in order rates, U.S. Steel (NYSE: X) sees deterioration of its operating performance for the second half. Steel Dynamics (Nasdaq: STLD) conveyed caution in its outlook for the second half, and Schnitzer Steel (Nasdaq: SCHN) foresees deteriorating sales volumes meeting tighter profit margins. Nucor (NYSE: NUE) is the voice in the industry that lays the stark reality on the table. Nucor warns of "the possibility of a double-dip recession, or at minimum a significant slowing of growth."

If you want a rosy, upbeat view of the economy, I believe they have windows for that. From where I stand, however, I am sorry to say I see the fires of American industry growing dim once again.

-----

If you read my SpongeBob piece, I'm particularly interested to know what you thought

Don't Invest Like SpongeBob SquarePants

http://www.fool.com/investing/general/2010/07/23/dont-invest-like-spongebob-squarepants.aspx

 

 

 

7 Comments – Post Your Own

#1) On July 28, 2010 at 2:39 PM, catoismymotor (51.71) wrote:

It is a wise move to use steel as a gauge of economic health. Steel makes up the skeleton of many a buisness today.

Report this comment
#2) On July 28, 2010 at 4:26 PM, dragonLZ (99.59) wrote:

It is a wise move to use steel as a gauge of economic health.

I agree, and here is what I see (on 5 best steel plays):

AKS, Price in Feb. 09: $6.18, Today: $13.91 (return +125%)

CAS, Feb. 09: $7.29, Today: $14.84 (+104%)

WOR, Feb. 09: $8.20, Today: $14.25 (+74%)

X, Feb. 09: $19.67, Today: $44.28 (+125%)

GGB, Feb 09: $5.23, Today: $14.69 (+181%) 

Two more plays worth mentioning:

STLD (+71%) and SCHN (+61%)

Btw., NUE is a stinker (good for dividends and nothing else)...

 

I know most people think stocks will (or are supposed to) always go up in a straight line, and as soon as the market start going down they think that's a sure sign the market will "double dip". 

Well, let me tell you something: Most people don't make money in the market...

Report this comment
#3) On July 28, 2010 at 5:02 PM, rofgile (99.29) wrote:

TMFSinchinuria,

 As a contrast to the steel industry, the construction equipment industry is recovering.  Two stocks I watch, Caterpillar and Manitowoc both beat earnings this quarter.  The margins are improving for Manitowoc's crane sales from last quarter (fantastic), while they are predicting growing revenues in future quarters and raising estimates.

 Construction equipments and cranes reflect increased building, expansion, and activity.

 Steel is a something to watch - but you need to reflect the global production of steel and steel as a modern commodity.  Chinese steel producers are continually ramping up steel production, and their exports are going to kill the US steel industry in an anti-competitive fashion.  The US steel industry is suffering not due to an absence of demand, but a surplus of global supply driven by over capacity in China.

 -Rof 

Report this comment
#4) On July 28, 2010 at 5:44 PM, MegaEurope (< 20) wrote:

Your metaphor is a bit strained.  Especially the part about the windows blown off their frames by implosion into frozen rooms in shadows.

If the windows are blown off then wouldn't the room be filled with light?

Report this comment
#5) On July 29, 2010 at 8:14 AM, XMFSinchiruna (27.35) wrote:

MegaEurope

Nah ... I just forgot to mention that the side of the house holding the derivatives faces the dark side of the moon. ;P

I was happy with the metaphor, but everyone has their oen level of tolerance for such constructs... :)

 

Report this comment
#6) On July 29, 2010 at 9:01 AM, MoneyWorksforMe (< 20) wrote:

dragonLZ,

"I know most people think stocks will (or are supposed to) always go up in a straight line, and as soon as the market start going down they think that's a sure sign the market will "double dip". 

Well, let me tell you something: Most people don't make money in the market..."

Well MOST people are NOT in the double-dip camp. GDP forecasts for the foreseeable future remain very positive in the 2-4% range, even after recently being significantly trimmed. If you're looking to be contrarian, by being bullish, a case to the contrary is more compelling, as your position is more in-line with the consensus of future expectations. 

Report this comment
#7) On July 29, 2010 at 10:00 PM, dragonLZ (99.59) wrote:

Well MOST people are NOT in the double-dip camp.

Well, I disagree...

Report this comment

Featured Broker Partners


Advertisement