Stock Ideas 
Editors Picks These Companies Don’t Care What Bernanke Does
Editors Picks These Companies Don’t Care What Bernanke Does 
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China Telecom Corp. (CHA:NYSE) Here’s the secret that no one wants you to know: One simple technical indicator called the Death Cross can give you sensational profits on falling stocks. What is a Death Cross? Basically, it’s when a stock’s 50-Day Moving Average drops below its 200-day Moving Average… and price with it. |
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| These Companies Don’t Care What Bernanke Does |
| Tuesday, 11 December 2007 | ||||||||
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Dear Reader, The phone woke me from a dead sleep. It was the middle of the night. For Ning Shao, however, it was right before his lunch break. I had known Ning Shao for almost 10 years, ever since he interned in the Baltimore office I worked in. He had moved back to China six years before and we had stayed in touch. When he sent me news about his second child (his first was born in the U.S.), I was happy for him. I was also impressed that he had circumvented China’s one-child rule. When he sent me news about his third child, I couldn’t believe it. I congratulated him on his rare accomplishment. Ning Shao emailed back that there were many exceptions to this rule. Actually, there aren’t. There was only one explanation: he had become extremely well connected. And now he was calling from Shanghai to ask for help. He was looking for 1,000 tons per month of iron sand. It’s used to make steel, he explained. He told me Indonesia was exporting this stuff to China, but it wasn’t nearly enough. Could I get a hold of some in the next week or two? To tell you the truth, it wasn’t something I was familiar with. My company at the time (about five years ago) wasn’t’ trading metals or minerals. But I told him that I’d see what I could do. We got lucky. It only took a day to find three suppliers. It was now just a matter of fixing a price and putting the stuff on a freighter. I thought the hard part was over and called Ning Shao with the good news. Little did I know what I was getting myself into. You see, each day the price for iron ore sand was hitting new highs. And I thought that that would be more than enough incentive for our buyer to lock into a price quickly. Boy was I wrong. Our Chinese customer wanted to pay current prices. Our Indonesian suppliers wanted to charge what the stuff would cost on the day it was sent out or delivered. I’ve been in the middle of these tussles over shipping and pricing terms before, but never in a market moving so quickly. It took us another 48 hours to get the Chinese buyer to agree to terms, but by that time the iron ore we booked had gone to another buyer. And that set a pattern we couldn’t solve. As fast as we nailed down a price, another buyer would swoop in before us and grab the cargo. After a half-dozen deals fell through, we called it quits. Now let’s fast forward to the present. China is trying to put together a bid on Rio Tinto (BHP Billiton already has one). And why not? China is sick of being at the receiving end of rising commodity prices. It’s had a close-up view of how lucrative these markets are. And it would love to get a bigger piece of this action. China hates being a buyer in a seller’s market. BHP and Rio Tinto joining forces would be the worst of all possible worlds. China would be at the mercy of a seller’s market dominated by a single supplier. I don’t blame China for wanting in on this business. If you can’t develop a BHP or Rio Tinto, the next best alternative is to buy one. I’ve seen up close how suppliers make a killing from panicked buyers in shortage situations. Can you imagine a more simple business model? These suppliers don’t have to worry about technology upgrades, branding, packaging, or chasing after customers. They just dig, mine, and sell at ever-increasing prices. But, surely, it can’t be that easy for the huge global miners, right? Listen, they may have their problems. But in the end, it still comes down to selling what they mine to customers desperate for their stuff. BHP told me over the phone that costs are rising, bottlenecks aren’t going away at the main ports, and several projects are experiencing cost overruns. “And the profit outlook?” I asked. “Couldn’t be better,” they told me. Big and small companies alike don’t have to be perfect when they’re selling more and more products into markets suffering from shortages. And the bigger the shortage and the longer it’s expected to last, the more forgiving these markets are. For BHP, I wanted to stay focused on the only thing I needed to know. Is a bunch of clowns or crooks running the company? Or is it on the verge of doing something monumentally stupid?
Because, I figured, only something illegal or incredibly dumb could prevent BHP from succeeding in a big way, I ended up recommending BHP to my readers. And it has gained 88 percent to date. A lot of companies will be feeling the pinch in the coming months, as the economy struggles to regain some traction. But these companies figure to do well. This is the age of shortages. And it’s not ending soon. Good Investing, AMG P.S. To let me know what you thought of today's article, send an e-mail to: This e-mail address is being protected from spam bots, you need JavaScript enabled to view it
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