About Me

Retired chief investment officer and former NYSE firm partner with 40 years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!

Thursday, September 05, 2013

Basic Materials Stocks

This group is driven by expectations regarding global economic momentum and the pace
of industrial commodities prices. Performance relative to the broader market has really
suffered over the past two years reflecting subpar global growth momentum and a
weakening of sensitive materials prices which reflects the slow growth and falling
capacity utilization. With evidence in hand that the global economy has recently been
firming up, the group has began to do better against the stock market. Basics Vs. SPY

The improving relative strength of the smokestack companies reflects investor bets that
the economy is set to do better. But note that the supply / demand balance for the industry
does not favor dramatic output pricing leverage as it did over the 2003 - 2008 period
when rapid industrial expansion paced by China gobbled up excess capacity. Investment
in basic materials such as copper has been catching up. Over the past year, popular
industrial commodities indices are up about 8%. That is pretty mild, but is still better
than the inflation rate.

Trading wise, sensitive materials prices have been getting a favorable play as the year
closes out and winter sets in (Companies set manufacturing schedules for the year ahead).
The relative strength of this group has been in a pronounced downtrend since mid - 2011
but is closing in on a possible positive reversal. Keep an eye on it.

Here is the 15 year track record for the XLB spdr against the SPY. XLB Long Term  

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