Cramer: China's Absence Is Killing Commodity Plays
09/10/08 - 11:53 AM EDT
Jim Cramer
This was originally published on RealMoney. It is being republished as a bonus for TheStreet.com readers.
It's China, stupid. We have to stop kidding ourselves that the only reason commodity plays are going down is because of selling by hedge funds. Sure, it's exacerbating and speeding it up and taking it to levels where it may not even matter whether China exists, but it is all China, or more specifically, the absence of China. Take steel. An article in the Financial Times about steel consumption last week stated point-blank that it is going to slow "markedly" in the second half of this year. When you combining tight central banks in Europe -- totally as ridiculous as the tight money in the U.S. while it was obvious what was going to happen -- with China missing from the steel market, you get U.S. Steel (X Quote - Cramer on X - Stock Picks) down into the $80s pretty fast, because you get an inventory buildup quickly, and that leads to an endless series of price cuts as the world was going full-tilt not that long ago. U.S. Steel benefits because at least it didn't lock in sky-high iron ore prices --sell that Cleveland-Cliffs (CLF Quote - Cramer on CLF - Stock Picks) if you are still in -- but still how do you value a company that could have its earnings cut in half? That's how steel trades. Now take Alcoa (AA Quote - Cramer on AA - Stock Picks). How tempting it was to think about buying this one now that Ospraie is getting out of the picture. But what happens if China stops buying aluminum? Gregg Greenberg had an excellent interview with the Molson Coors (TAP Quote - Cramer on TAP - Stock Picks) CEO last week -- you have to watch these news-making interviews [click the video player below] -- and he was kind enough to bring management along, which confirmed the falling price of aluminum. The Chinese ain't buying. So the commodity hedge fund that blew up was just wrong anyway.Molson Coors CEO Bubbly |
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