Friday, June 13, 2014

Iron Ore Bubble

The parabolic move started in 2004. It seems like a consequence of the China construction bubble, which ran out of steam a couple years ago. China is slowly being revealed as a fraudulent house of cards.

So what happens when the iron ore price retraces back down to historical levels, the way burst parabolic bubbles always do?

Let's look for some companies that are levered to iron ore/steel that trade in the U.S. and are optionable!:

Walter Energy - produces and exports metallurgical coal for the steel industry
Arch Coal - thermal and met coal
Peabody Energy - thermal and met coal
Cliffs Natural Resources - produces iron ore and metallurgical coal
Teck Resources - copper, met coal, other metals and minerals


theyenguy said...

The Finviz Chart of the Coal ETF, KOL, shows that it traded lower this week to the middle of a broadening top chart pattern, also known as a consolidation pattern.

Soon, the price of the Coal ETF, KOL, will drop like a rock.

It will diinvestment out of the Coal Mining and other stocks that will cause economic deflation as these natural resource stocks.

Out of economic chaos, a new form of government will emerge, that being regional fascism, as leaders meet in summits to renounce national sovereignty and announce regional framework agreements which establish regional pooled sovereignty, and appoint regional statist leaders to oversee the factors of production for regional security, stability and sustainability.

Anonymous said...

If you are considering shorting, take a look at Fortescue on the ASX. It's heavily in debt and heavily leveraged to iron ore prices.

Also look at royalty trusts like Mesabi and the other one. There are set dates where the royalties terminate. Unfortunately the two royalty trusts are expensive to borrow.

(I am terrible at predicting commodity prices, so I'm not shorting anything iron ore related.)

James said...

I'll second anon's recommendation of Fortescue. It's a high-cost producer with a lot of debt, and Interactive Brokers has a borrow on the stock.

VALE is another relatively high-cost producer with the bonus that it's controlled by the Brazilian government:

I think shorting AUD/USD will be a great trade over the next few years as iron ore prices collapse and the Australian housing megabubble deflates.

My only worry is that all of these things are beaten down (CLF down 86% from its 2011 high!) and could see a big squeeze.