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Aluminum Prices Hit A New 4 Month High...

Since mid May, when the devastating earthquake hit producers in the central Chinese province of Sichuan, aluminum has extended its impressive run up (yes, this is inflationary).

In London this morning aluminum prices shot up to 4 month highs. See the charts below.

Here is a quick recap of some of the major data points that have been keeping this market on its toes:

May 11 - Sohar Aluminum's Oman smelter goes operational
May 12 - Sichuan earthquake
May 15 - Rusal announces construction of new 750,000T smelter in Taishet is underway
May 26 - Rusal announces expansion of Irkutsk smelter -170,000T annual increase operational in Q4
June 4 - Varanus Fire
June 19 - China reduces oil subsidies, $50T cost increase projected
June 26 - Chalco indicates problems with Saudi smelter project
June 26 - Rio Tinto postpones new $2.7B smelter start in South Africa indefinitely due to Eskom's inability to support a new facility (Rio's 3 existing smelters there running at diminished levels with blackout interruptions)
June 27 - Tat and Nalco announce plans to build a new $3B plant in South Africa
July 7 - Chalco announces lowered output at two Shanxi facilities due to electricity shortfalls
July 7 - NDRC approves new Yunnan Aluminum facility in Wenshan with annual capacity of 800,000T and expansion to add 700,000T at Chalco's existing Zhengzhou smelter.

Andrew Barber
Director
Research Edge, LLC

Watch What They Do, Not What They Say...

South Korea's new President (Bak) didn't waste any time and fired his minister of finance last night, alongside 3 other cabinet ministers. Why? The -10% decline in the Korean Won...

In conjunction with the change of their lineup, the South Koreans issued explicit rhetoric that the government felt the need to take "stern action" to strengthen their currency.

I'm assuming Hank Paulson took note.
KM

Buy Japan? Not Yet...

I get a lot of questions about Japan, and whether or not I think it's cheap, and/or if the activists are going to continue to prevail against Japanese corporates.

Yes, Japan is cheap, but cheap assets can get cheaper; particularly if you don't have an asset specific catalyst in mind.

The Nikkei closed up +0.92% overnight at 13,360, and I'd have to see a close above the 13,537 line in order to get more constructive on the region.

Fundamentally, the Bank of Japan assured us overnight that things are worsening in 8 out of their 9 economic regions. My old friend inflation was cited as the primary reasoning for dampening growth.

The March 2008 lows on the Nikkei remain a lot lower. Be careful out there if you're trying to be the Buffett of Asia.

It is global this time, indeed.
KM

(Chart courtesy of stock charts.com)

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Mexican Shorts Are Working...

On 6/18 I wrote a note titled "Shorting Mexico", and the Mexican Bolsa has dropped -4.3% since. This is the beginning of the decline in Mexican Equities. Do not mistake it for the end.

The Mexican Bolsa Index has outperformed plenty of country indices globally since the "its global this time" Wall Street peak. Since October 18th, 2007, Mexico has only lost -14% of its value. Given their GDP's extremely high historical correlation to US GDP, and my GDP outlook for the US altogether, this remains one of the more precarious looking country's on my dashboard.

KM

(chart courtesy of stockcharts.com)

Brazilian Equities: Definitely Broken Now...

Despite the fact that Brazil is trading up over +2% this morning, the Bovespa Index remains broken from a quantitative perspective. I'll need to see a closing price over the 61,644 line before I start to give this country the benefit of the doubt again.

As of Friday's close, the Bovespa has fallen -19.2% since May 20th when the entire "Fast Money" community was buying everything Latin American, from fertilizer to food stocks. There is big time risk in running with this "me-too" crowd. Respect it; manage it.

KM

(chart courtesy of stockcharts.com)

Buy Taiwan? Not Yet...

While this morning's macro data out of Taiwan was encouraging, my greatest fear here is that too many people got levered long this trade too early. I am waiting to buy the Taiwan ETF (EWT) on a down day, closer to $13.11.

Taiwan's June export growth # this morning came in better than expected at +21.3% year over year versus +20.5% reported for May.

New capitalism and trade friendly President Ma is one of the main reasons consider that Taiwan will be able to grow off of China's back. Timing this investment, as with all those we make, remains critical.

KM

(chart courtesy of stockcharts.com)

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