Olympics Ending Should Boost Commodity Driven Stocks

Remember the opening ceremonies of the Olympics when the Tai Chi drummers performed in perfect unison? China chose that display as a metaphor for the powerhouse that economy has become: "We can control masses of people to perform precisely and powerfully." Investors should take note; that reality will strongly affect the markets.

China's economy has grown at a blistering pace over the last few years ravenously eating a larger share of the world's commodities. The early part of the year saw startling rises in copper, oil, iron, and dry bulk shipping rates. A few months before the Olympics, China shut down in order to cut pollution for the Olympics. It was as if one conductor silenced a billion drummers all at once. Multiple provinces around Beijing closed industrial production, cars were stopped and orders for commodities dropped precipitiously. It is no accident that commodities across the board have plummeted right before opening ceremonies. Copper dropped 70 cents a pound, oil down $30 dollars a barrel, the BDI dropping 3000 points.

But the Olympics are ending this week. The Chairman is about the wave his baton and restart the drumming. Expect, as China comes back on line, copper, iron, oil and other commodities to feel increasing demand. This should bolster Freeport-McMoRan (FCX), Genko (GNK), Dryships (DRYS), Transocean (RIG), BHP (BHP) and most commodity driven stocks.

Disclosure: Author holds positions in RIG, GNK, DRYS and FCX.

Comments

[Alphameister:]

Agree completely! I also have major positions in DRYS and RIG.

2008 Aug 20 10:50 AM

[timfogl:]

Damn, I hope you are right. I need some up ticks for a change. Hopefully Olympic medals headlines will be replaced by precious metals headlines..UP.

2008 Aug 20 11:36 AM

[midty:]

I too agree... but what time frame after the olympics? weeks , months, qtrs? I would think orders have already been placed for these precious dry products ... placed but not shipped.... BDI better bump soon or the world recession looks to be more of a reality than most believe

2008 Aug 20 03:43 PM

[fullofhope:]

The shutdown was only for factories in the Beijing area. Probably a small proportion of overall Chinese industrial production.

2008 Aug 21 10:00 AM

[Owen:]

Is the end of the Olympics a surprise? Wasn't it scheduled years in advance? And if so, wouldn't it already be discounted by the market? Are industrial purchasing managers and commodity traders obliged to sit on their hands until after the closing ceremony?

Tying commodity prices to sports events makes as much sense as tying them to moon phases.

2008 Aug 22 06:05 AM

[Invisible Hand:]

The commodity story is starting to unravel. The markets are starting to price in weaker global GDP growth for the next 3 to 6 months which is manifested by the stronger dollar/weaker euro and weaker gold. Europe is starting to show cracks in their growth rates which may weaken the U.S. export market. The U.S. export market has helped ease some of the pain from the weaker retail and housing markets. With a stronger dollar and a poorer Europe, this engine of growth for the U.S. may be in jeopardy. STeel demand in China is also slowing;BaoSteel recently reported that they will be decreasing prices for steel in the near term due to declining demand.

2008 Aug 26 11:26 PM

[Socialism c...:]

False premise! Noone, not even the Chinese oligarchy (hegemony?) can just wave a wand to jumpstart an economy. The real questions you should be asking are whether the big increases in Chinese demand were temporary to begin with - for building Olympic infrastructure, and if now that demand is simply not there. *If* the Chinese economy was just taking a breather during the Olympics...do they really stop importing the commodities they need for their longer-term production outlook? Considering the huge demand we had been seeing...I doubt that is feasible. I'm very much afraid this is not an Olympic breather, but a cyclic downturn in Chinese (and global) demand. Bummer, since I am long FCX and RIG, like many of you. But I'm not going to sit around wishing on a star. As Cramer says, hope has no place in the markets!

2008 Aug 27 04:29 PM