As I recall, back in December I spoke about the chance of the Dow Jones hitting 11,000. It was roughly the same time that I mentioned my targets for the price of oil (initially 110 and then upped to 125). So far one has exceeded my expectations the other is probably forthcoming to a similar degree. So what else can investors expect?

Well I think the mining sector has issues that are both positive and negative. So far there is still a huge run-up in commodity prices that is keeping many companies in the black that otherwise wouldn’t. Anglo Platinum out of South Africa is one such example though there are others. But this run up won’t last too much longer.

One of the main factors helping many mining companies has been the fact that supply has been cut. Energy shortages, most notably in South Africa but also in North America and Chile, forced supply down artificially helping to boost prices. But that is a problem that has been in the works of being fixed since the 1st quarter. Once it is done supply will rise to meet the growing demand and be a signal for profit taking.

Another factor to consider it the American economy. Mining companies eked out a mere .2 percent profit so far this year, though only one other group in the S&P 500 also held a profit. As costs for fuel continue to rise that profit margin is evaporating. Add in a decrease in demand due to cut-backs, and then an increase in supply and you have strong sell signals.

Of course there are still companies in the group that have room for these problems like Marathon Oil and Newmont Mining Corp. Marathon is only trading around 7.5x earnings and Newmont was the 9th best stock on the Philadelphia Stock Exchange Gold & Silver Index. Some analysts like Brian Barish of Cambiar feel they have not caught up to the surging resource prices and thus are worth owning.

So what is the net result? It’s no easy answer but since I expect a run up in heating oil and crude oil prices as the 3rd and 4th quarters hit, plus a continued bear market in the U.S. driving Gold and precious metals, my belief is that mining stocks will outperform most markets into the 2nd quarter of 2009.

Now that doesn’t mean profit, nor does it mean that other factors like who wins the U.S. Presidential race won’t affect the final results. But I think the odds are likely to favor all the mining stocks even if their books aren’t perfect. Its food for thought, take it as you will.

Labels: American economy, Anglo Platinum, Brian Barish, Dow Jones, election coverage, Marathon Oil, mining stocks, Newmont Mining Corp, Philadelphia Stock Exchange, S and P 500, South Africa

Sometimes markets act swiftly. In America we have seen that since Monday, with the Dow Jones hitting correction territory and just 2 days later now resting up at 13,289. That’s a huge point swing, but when you consider China, it’s not that big a move.

Those that like distressed stocks, and have a feel for international markets may want to take a look. Of course the words of the reputable Warren Buffett should be heeded when he stated investors should be “cautious”. Why is the Chinese stock market in distress and Mr. Buffet advising caution? Because China is going through its own market bubble right now.

While you may not have heard this in the news, China had prices increase 4x in the past year. Beyond impressive growth without question. But the bubble is bursting now with massive recalls and particularly high valuations.

“Shares in the index trade at an average 44 times earnings, according to data compiled by Bloomberg. The MSCI Asia Pacific Index and the Standard & Poor's 500 Index are valued at 17 times profit.”

Because of these pressures China has now officially gone into a bear market having dropped 21% in a single month. And some feel this is not the bottom.

“Yan Ji, an investment manager in Shanghai for HSBC Jintrust Fund Management Co., which oversees the equivalent of about $517 million. ``What we have seen now is only the start.”

So the question is, is this the feeding ground for international bears feasting on shorts as the pressure mounts, or is it an opportunity for savvy bulls picking and choosing their targets? As with any market in turmoil, there is no easy answer.

China is seeking to slow the 11% growth of that nation; Chinese brokerages are being encouraged to invest overseas to the tune of $34 billion. The last bear market lasted 4 years and caused the Chinese market to drop 50%, before rising 5x in its wake.

And some are optimistic, like

“It's far too early to talk about a prolonged bear market as domestic demand is still strong,'' said Leo Gao, who helps manage the equivalent of $2.3 billion at APS Asset Management Ltd. in Shanghai.”

Well overall one thing can truly be said, without risk there is no reward. But to know whether you are leaping without looking is important as well. There is no question that there is money to be made with China stocks. Just make sure you know where you have placed your footing.

**This can be seen at China Stocks Blog where I am a contributing author.**

Labels: APS Asset Management, bear market, Bull market, Chinese stock market, Dow Jones, HSBC Jintrust Fund Management, Leo Gao, MSCI Asia Pacific Index, Shanghai Composite Index, Warren Buffett, Yan Ji