An early Lunar New Year holiday will make figuring out China’s markets and economy especially tough this week

The markets are going to be even tougher to read this week than they’ve been lately.

You can blame some of that (although the Greek debt crisis will certainly help) on the Lunar New Year holiday that started on January 21 and stretches until January 29. The Shanghai stock market is closed for those dates. The Hong Kong stock market is closed from January 23 through January 25.

There’s a good chance that the Luna New Year already distorted data last week, especially in the commodities markets. Companies in China, for example, always stock up on raw materials and on inventory in the weeks before the holiday. For example, China cut gasoline exports to a three-year low in December as companies stockpiled fuel for the big surge in travel during the Lunar New Year festival. The month also saw a big surge in diesel imports for the same reason.

If looking at those figures, you drew any conclusions about the direction of the Chinese economy, the likelihood is that you would have been wrong. Read more

Now that’s more like it. When I dropped Kinross Gold (KGC) from my long-term Jubak Picks 50 portfolio http://jubakpicks.com/jubak-picks-50/ on January 13 I said that what I wanted in a gold mining stock was a company with low production costs and rising production. Kinross, I opined, didn’t fit that bill any longer. (See my January 17 post http://jubakpicks.com/2012/01/17/sell-kinross-gold-kgc-in-my-long-term-jubak-picks-50-portfolio/ )

But my replacement for Kinross, Yamana Gold (AUY) does. The company’s cost of production is at the low end for the industry—at $450 a gold equivalent ounce in 2010–and it has one of the best profiles for increasing gold production among gold miners. That’s why I added it to the Jubak Picks 50 portfolio on January 13. (See my post http://jubakpicks.com/2012/01/13/10-stocks-for-10-years-2012-edition-my-annual-update-of-my-long-term-jubak-picks-50-portfolio/ for all the changes to the portfolio.)

Low production costs for a gold mining company largely hinge on the richness of the ore grades in its mines. Read more

Buy Lynas in my long-term Jubak’s Picks portfolio

I added Lynas (LY.AU in Sydney or LYSDY in New York) to my Jubak Picks 50 long-term portfolio http://jubakpicks.com/jubak-picks-50/ on Friday, January 13 (See my post http://jubakpicks.com/2012/01/13/10-stocks-for-10-years-2012-edition-my-annual-update-of-my-long-term-jubak-picks-50-portfolio/ on January 13 for all the changes to the portfolio.) Please note that most of the volume in Lynas is in Sydney. The New York shares are relatively thinly traded.

I can think of three reasons to add shares of Australian rare-earth miner Lynas to a long-term portfolio now.

First, the bubble (if there was one) has collapsed in rare earth minerals so investors can buy into Lynas cheap. Way back in 2009 and 2010 the worry was that China, which produces more than 90% of the world’s supply of rare earth minerals, was slapping on stringent export quotes. With rare earth minerals critical to the manufacture of hybrid cars, wind turbines, flat screen displays, and other fast-growing technology products, the fear was that high technology companies would have to move manufacturing to China to assure a supply of rare earths. That made the stocks of the few rare earth companies outside of China rare and valuable commodities. New York-traded shares of Lynas peaked at $2.57 in April 2011.

But now the global economic slowdown has produced a big drop in the short-term demand for rare earths and has sent prices of rare earth minerals plunging. The average price for the 17 different rare earth minerals fell 46% in the fourth quarter of 2011. The eight rare earths found at Lynas’s Mount Weld mine sold for $193.21 a kilogram in the third quarter, according to Lynas. That’s a big increase from the $31.50 price in 2010 but prices have since dropped back to $103.76 a kilogram currently. For 20112 China has announced that it will keep export quotas unchanged but no one is much riled by that since exporters used only half of the allotted quotas for 2011. New York-traded shares of Lynas are trading near $1.10 today, January 18.

Second, on January 5 Lynas announced that it had completed its application to the Malaysian Atomic Energy Licensing Board for a temporary license for its rare earth processing plant in Gebeng, Malaysia. Read more

Sell Kinross Gold (KGC) in my long-term Jubak Picks 50 portfolio

My ideal gold mining investment would be a company that was expanding gold production and that was keeping costs low.

Kinross Gold (KGC) only fits half that description, which is why I sold it out of my Jubak Picks 50 long-term portfolio http://jubakpicks.com/jubak-picks-50/ on Friday, January 13. See my post http://jubakpicks.com/2012/01/13/10-stocks-for-10-years-2012-edition-my-annual-update-of-my-long-term-jubak-picks-50-portfolio/on January 13 for all the changes to the portfolio. (Today, January 17, shares of Kinross Gold fell 18.8% after the company announced that it would record a goodwill writedown on its Tasiast mine in Africa. Kinross acquired the mine as part of a 2010 acquisition of Red Back Mining. As of September 2011 the project had a book value of $7.1 billion of which $4.6 billion was goodwill.)

For the third quarter Kinross gold reported production of 648,000 gold-equivalent ounces, a 13% increase from the third quarter of 2010. That’s exactly what you’d like to see at a time of rising gold prices.

But production costs soared. Read more

Sell Encana (ECA) out of my long-term Jubak Picks 50 portfolio

The December 2009 split into two companies was supposed to highlight the value of the U.S. and Canadian natural gas assets that EnCana (ECA) kept. (The new company Cenovus (CVE) got the Canadian oil sands and refining assets.) Instead it has wound up emphasizing EnCana’s exposure to a glut in North American natural gas that could keep prices depressed for years.

Now EnCana looks like it has decided to invest in reversing that 2009 split by putting about 20% of its capital budget into developing reserves that are rich in natural gas liquids and oil. Read more