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  • Why a pull back is coming for copper.
    A while back I wrote a blog about why the market will pull back, this was when the market was at 10100. Then I wrote another blog about why the market will return above 10,000 early last week. Now, I believe there is a real possibility for a pull back in copper for three reasons.

    1: Copper import by China just decreased by 34% (I'm not sure how to link text lol www.bloomberg.com/apps/news), it's inventory is rising. If the only consumer, who for the year has been taking in copper for months

    2: BDI has been on the increase. This is a dubious one and not very apparent at first, after all, how could BDI increase be bad for copper? If anything it should be good. The problem is, conventional wisdom says that dry bulks are always destined for China. In reality there is little to stop Chinese investors to ship the other way around, which in turn drives up shipping activities. There was a huge jump in BDI yesterday, even more than usual, and this is right after talks of China may need to re-export their inventories, so one can't help but wonder if this is indeed happening?(www.chinadaily.com.cn/bizchina/2009-11/1...;We won't know right away of course because these shipments won't arrive at their destination quick enough.

    3: The nature of copper. Yes we'll always need copper, and infrastructure boom like the one in China is important for copper. While supply is tight (assuming it is) for now, at some point China will stop building new buildings at such rapid speed and merely maintain and upgrade, much like the U.S now, which will ultimately reduce demand. Of course, this won't happen for at least a decade if not more, but one can't help but wonder what happens to copper in the very long term (since the sentiment is that copper is bullish in the medium to long term, despite the current slump). More over, more than 80% of the copper ever mined is still in use, because copper is recyclable (and is frequently stolen for just this purpose), and as prices goes up and up, one might wonder just how big an impact scraps will have.

    All this is assuming that supply is tight, which it isn't, as can be seen by the LME stock approaching 400,000, almost twice the level before last year's meltdown, signal comfortable supply margins. One tend to forget that while China has been the undisputed driver of copper demand, there was competing demand from much of the world as well. Until new housing constructions come back, which it won't, since there's still a lot of empty inventories sitting out there, as can be seen from the latest new housing report disappointment despite the increased sales in existing homes. The problem is that existing homes do little to improve copper demands, and new houses are not being sold. Yes, the housing credit has been extended, but the feds have admitted that people are not buying new homes or upgrading, they're scooping up foreclosures. It is hard to imagine people who have lost homes will be able to afford new houses anytime soon (Especially for those unemployed), so the housing credit is probably enticing future home buyers to buy now, meaning less buyers in the future for new houses, and new constructions will struggle for quite sometime into the future. What's that saying again? The housing sector is the foundation of an economy? I would like to see how long the recovery lasts without a foundation, and George Soros would too (online.wsj.com/article/BT-CO-20091015-71...), and this was the guy who broke the bank of England (ironically, England is still in the recession, but one wonder if anyone has really emerged).


    Disclosure: I own shorts in Teck Cominco (TCK.B), a mining company.
    Nov 11 4:16 AM | Link | Comment!
  • The case for solar
     Solar has been one of last year's melt down's biggest loser, with even
    first solar (FSLR), one of the most established companies in the
    sector plummeting around 75%. Yet, Solar was also one of this year's
    biggest winners. While the technologies sector led the way in
    recovering, with nearing 60% in gain year to date, most solar
    companies have exceeded the gains comparing to the technologies sector
    as a whole. This was especially the case for Chinese solar companies.
    However, is it all smooth sailing from now on?

    First let's look at the industry as a whole: The industry couldn't
    possibly be in worse luck, it seems waves after waves of bad luck has
    hit the industry, the latest being of course the cut in solar subsidy
    in the world's largest solar market, Germany. Worse yet, the market had fallen more than 2% from the early morning gains on Friday (Which I predicted on my blog), which dragged down high risk stocks such as solar significantly.

    There are definitely some woes out there, the subsidy cut, the supply glut, the cheap oil... Wait, did I say cheap oil? Yes I did. People often think that natural gas is more relevant than oil, as they're both clean alternatives to oil. As natural gas price goes up, solar becomes more attractive and follows. This had been the case last year, but not so this year. Why? Because Oil is a substitute to green energies, so as oil becomes cheaper people are more likely to use oil than BOTH natural gas and solar power, which are still less efficient than oil despite being less harmful to the environment. As a result, it is possible to see a rise in natural gas price, which had been depressed for far too long, but see no rise in demand for solar, as oil continues to stay at a relatively cheap price.

    Then there's the economy and housing. Solar is a direct beneficiary of housing booms, and right now much of the developed world, especially the United States, has stalled in the real estate front. There is, however, one bright spot: China.

    Various solar companies such as Yingli green (YGE) and Trina solar (TSL) have signed various huge contracts both domestic and abroad, and the Chinese government have and will continue to subsidize the solar sector for three reasons.

    1: Pollution in China is becoming an increasingly visible problem, and greener alternative is not optional.

    2: Green energy technologies are still in it's infancies, and China has long wished to become a technological leader. Green energy offers one very real opportunity for China to establish itself internationally, which it has, and will continue into the foreseeable future.

    3: There is a huge market for solar in China, and spending in solar could spur that domestic demand they so desperately seek to break free from depending so heavily on exports.

    In addition, while it is true that Germany is currently the largest solar market, China will have the greatest potential in the future. There is currently an infrastructure boom going on in China, which inevitably benefit solar companies as a green emphasis is placed on future projects. so is Solar a buy? Yes, and especially Chinese solar companies.

    Personally, I like Yingli green energies, though I do not own any. The price is currently just above the 50 day moving average of 12.50, and the current market has been depressing the stock on a number of woes. However, with the exception of earlier this year, this stock has stayed above $10 as this is the IPO price in 2008, so as it goes down the incentive to sell diminishes. This can be seen in the last two pull backs along with the market in early July and late August.

    YGE is currently very much a market follower with a lot of volatilities (high beta), which offers high potentials for short term traders. However, it's long term prospect is also relatively rosy, having beaten estimates in the previous quarter and received positive praises from various analysts. Note however that the stock had declined despite the positive surprise due to the huge run up and market pull back, as well as a fall in margin.

    For the short term trade, an entry point between 12-12.5 on monday's opening weakness could offer some potential (but risky) short term gains, depending on Monday's market conditions of course, while long term investors should watch for a potential drop to 9-10 in the upcoming months.

    Disclosure: I have owned a significant amount of YGE until Monday, and I have also owned a put option until this Friday. I currently have no position in YGE, though I may add more in the Near Future. I do not own FSLR or TSL.
    Oct 25 5:08 AM | Link | Comment!
  • Update
    I've decided to post only research grade articles/blogs (If the editors don't like it) and buys/sells at the end or mid trading day (So I can tag it to the stock as a track record) on seeking alpha from now on, but my trading thoughts are still on my blog at blogspot. Also, I did sell YGE ealier today, but I;ve rebought them at erm, 12.49? It's a little hard to say because of the glitch I mentioned earlier, which did save me thousand odd dollars, for more details visit my blog. I also picked up Drys and reshuffled IBKR, see blog. I may still talk about stocks on stock talk, however. I now own 10,000 YGE (Tho I thought I'd bought 11).
    Tags: YGE, DRYS, IBKR
    Oct 16 1:38 PM | Link | Comment!
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