In my April 2 post http://jubakpicks.com/2012/04/03/cyclical-stocks-had-a-great-first-quarter-but-a-bad-march-are-they-trying-to-tell-us-something/ on the great first quarter turned in by cyclical stocks—and the lousy March–I said that in general I don’t see much to tempt me into putting money into cyclical stocks before first quarter earnings season (which starts on April 10) and before we get some resolution of big macroeconomic questions on growth from Europe and China.

In general.

But I also said that I’d make an exception for fertilizer producer Potash of Saskatchewan (POT) and I promised to explain why.

Part of the reason is the March 30 report on corn plantings from the U.S. Department of Agriculture that projected a 4% increase in acreage planted this year from the 2011 level. A second report on corn stock inventory showed inventory on March 1, 2012 of just 6.01 billion bushels, down 8% from the March 1, 2011 inventory levels. The corn stocks level of 6.01 billion bushels was below the consensus of 6.15 billion bushels.

The two reports add up to more planting—which means more seed and fertilizer and pesticides purchased by farmers—and to higher prices as stocks fall before the actual harvest.

But part of the reason is specific to Potash. Read more

Talk is cheap. Especially when you’re in the middle of an oil price war.

So Saudi Arabia’s oil minister Ali al-Naimi, certainly didn’t expect global oil markets to send the price of crude tumbling just because he said “I think high prices are unjustified today” in a March 20 press conference in Qatar.

That’s why he paired talk with action—or at least with talk of the actions that the Saudi’s had taken. Saudi Arabia had an extra 2.5 million barrels a day of production capacity that it could bring on line; Saudi oil storage reserves around the world were full; and a newly hired fleet of super tankers were on their way to the United States.

But Ali al-Naimi must have been disappointed in the market’s reaction to this salvo. On the day the price of Brent crude, the European benchmark, fell just $1.59 a barrel, or 1.3%, to close at $124.12. Brent crude is up, as of the close on March 20, by 15% in 2012.

One day’s battle doesn’t decide a war, certainly, but the Saudis have pulled out their big guns and they didn’t make much of an impression.

Is there anything Saudi Arabia, or the governments of Europe and the United States, can do to stop oil from moving higher? Or have the speculators won a free hand to drive up oil prices—and the price of gasoline–until the day they decide to take their profits?

Let’s start by looking at what the Saudis did and why those actions didn’t impress the global oil market. Read more

India’s tax increases another reason gold is weak (for now)

For the second time this year, India, the world’s biggest buyer of physical gold, has increased its tax on gold imports. On January 17 the Indian government doubled the tax on gold and silver. The newest move will raise the tax from the 2% rate set in January to 4%. (The most recent tax increase covers gold bars and coins and platinum. The tax on silver remains at 2%.)

In 2011 Indian purchases of gold bullion hit a new record at 969 metric tons. Gold futures in India climbed 32% in 2011, far exceeding the 10% increase in global gold prices.

Indian gold importers anticipated the tax increases and the slump in buying that higher prices would create by cutting their imports of gold in the fourth quarter of 2011. Imports fell by 44% in the fourth quarter as jewelry and investment demand fell by 44% and 38%, respectively, according to the World Gold Council.

The announcement of an increase in the tax on gold came in a speech announcing the government’s proposed budget for the fiscal year that begins on April 1. The 50% rise in gold imports, Finance Minister Pranab Mukherjee said, was one reason for the sharp deterioration in India’s current account deficit. (India, unlike China, runs a current account deficit and is dependent on inflows of overseas capital to keep its accounts in balance.)

Indians have a history of slowing gold buying when prices rise—for a time. Read more

Update Freeport McMoRan Copper & Gold (FCX)

Freeport McMoRan Copper & Gold (FCX) has been a laggard in the rally of the last few days. Oh, the stock was up yesterday, March 8—1.3% at the close—but that trails the performance of mining stocks such as Goldcorp (GG), up 1.7%, and BHP Billiton (BHP), up 1.5%. Today the shares finished off 1.8%.

That because Freeport McMoRan and every other mining company that operates in Indonesia has a country-specific problem today. A new government regulation announced bars foreign companies from owning more than 49% of some mines.

Limiting ownership to 49% would be a big blow to companies such as Freeport and Newmont Mining (NEM), which climbed just 0.4% today.

But the decree leaves open the question of exactly which mines it would apply to—making it hard to judge the impact on specific companies. Read more

It looks like the rally in shares of Thompson Creek Metals (TC) is over, put to an end by the company’s own fourth quarter earnings report on February 27. The stock had climbed from $5.93 on November 25, the start of the current market rally, to $9.36 on February 3. Today shares closed at $7.29.

I don’t own molybdenum miner Thompson Creek in my 12 to 18 month Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/ anymore (having sold it out of that portfolio on May 4, 2011) but the stock is still a member of my long-term Jubak Picks portfolio  http://jubakpicks.com/jubak-picks-50/.

In the long-term I continue to like the stock as a way to play the growing global demand for molybdenum, a key ingredient in high-strength steel alloys. But I wouldn’t buy more or start a new position just yet.

This quarter is a good reminder that for a mining company growing sales isn’t all that counts. Read more