A Nostalgic Disaster
Reminiscent of its steep drop during the Great Depression, U.S. Steel has made exactly zero progress since its jaw-droppiung crash in 2008. Much like the coal stocks, the inferences drawn from this price action center around the notion that the global economy is nowhere close to the kind of green shoots recovery many had argued. Of course, the S&P 500 is still above 1300, and many other stocks and sectors have seen incredible performances off the major March 2009 bottom.
Despite that, I keep coming back to charts like these and try to make sense of them. We know they are clear laggards and can only be viewed as bottoming plays, rather than as healthy momentum names.
My late-night question to you, as an open thread, is this: Whether this chart of X is more indicative of where the global economy actually stands, of if a stock like the surging WMT is a better indication? Mind you, I will trade price and respect the technical structure of the market above all else. But I do think about these things, too.
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23 Responses to A Nostalgic Disaster
Out of all the commodities, only coal and steel get hit this badly. Coal is supposed to be replaced by natural gas in US but overseas should be able to replace that lost demand. Steel…just bad economy. Hard to explain why these two are the hardest hit beyond those often cited reasons. Maybe these two industries overexpanded themselves like the shipping industry a few years back?
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Reminiscent of that multi-year Shanghai Composite index you posted the other day.
Indeed both charts trace the story of an erroneous belief in an infinite Shangri-La of growth, coming quickly from the China region. In the middle of the past decade the steel story and the China story were highly correlated.
When looking at the Steel complex I find that a robust sense of what is occurring can be had by following three equities, US Steel, Nucor (NUE) –which many consider a better company, and the SLX, the steel industry ETF. Note that SLX has low and erratic volume; but on average it helps to smooth out an impression of the industry as a whole.
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Union labor is the difference. God save the donk WMT employee on foodstamps and sec 8.
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It is not just coal and steel. The american dream is dead bullshit retail sector is not union and the stocks are ripping. Just a guess.
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we have an intensely dichotomous market here… “certain” stocks, big blue chips that certainly won’t go broke, are being bid (VZ comes to mind), “uncertain” stocks are being sold into oblivion (NOK comes to mind, financials, cyclicals).
People are in the market, and its supporting the major index values, but the overall market is quite a bit lower than those major index values would suggest.
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X isn’t necessarily a barometer of the world economy, per your question, but a barometer of this dichotomous market.
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Money is hiding picking winners and losers, but the losers predominatley have huge pension fund liabilities.
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valid point. …
one of these days, not too long from now… those pension funds will be in the 1st inning of the next secular bull market. That won’t hurt.
HOWEVER, wetting of the proverbial bed may occur before then due to henious market acitivites related to the Europeans failing to do the ONLY thing that can help europe, which is… create euros.
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ANR has no pension fund liabilities according to ValueLIne – still axed.
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How about the shippers too(DRYS EXM GNK TBSI etc etc) that damn Greek bastard popandru or however the fuck u spell his last name(owner of dryships…George popandru) need to get their shit together.DRYS is an absolute fraud, it’s ridiculous.. Old news…
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Smart money is buying Greece, I can’t imagine how they aren’t. Down 90%. I’d love to find a market down 90% that wasn’t a “buy of a lifetime” long term play.
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Interesting post. My thinking is along the lines that material names like $X just simply ran way higher than what the fundamentals would justify, like technology stocks before dot com bubble. Still today, people think material/commodity names are the sexiest way to invest, shunning consumer oriented names. When this mindset goes away, then the stocks can put in a sustainable bottom.
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Might a positive vote next Wednesday help start the bottoming of the coal stocks? http://www.renewablesbiz.com/article/12/06/momentum-builds-inhofe-announces-date-utility-mact-vote
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Both coal and steel are tied to the slowdown in China. We export coal to China, and there’s a massive glut of all things made in steel. This is a signal of hard landing in China. The fact that WMT is moving up suggests that the US consumer and worker are stronger than we currently believe. The fact that the US is now actively switching over to nattty is exacerbating an already dire China picture.
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Adam and Eve double bottom wit 09 lows?
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Wow, some of you guys and gals really over think it.
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Full Disclosure: I am a structural engineer
Something I never see discussed is the evolution in building materials and design practices. Yes, steel is and always will be a large part of my tool kit for design, BUT, in the last decade I have seen a massive transition away from steel due to cost. Most of my designs are either reinforced concrete or prestressed. Yes, reinforcing steel is in the concrete, but it is a minor amount. So, demand for new construction can go up, but that doesnt mean Im ordering steel!
Just a voice from the inside. There are obviously other factors at play here, but it is an angle that is probably missed by most.
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Interesting
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that is an interesting comment about materials. nice.
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Steelmaking met coal has held up well so far; electricity generating thermal coal has been crushed by natty. As for X, the Chinese have eaten their lunch. I do not mean to pimp to hard, but seems many would do well to keep up with the fundy on a blog like mine.
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I was going to comment that X is not a good choice (as Daniel said); MT or NUE would be better indicators. Better run, more aggressive – but looking at their long-term charts not much of an improvement compared to X.
Maybe the future is we all sit around at home 24/7, telecommute 2 hours a day, the rest of the time spent playing with our iPhones. While the world crumbles around us. No cars, no roads, no office buildings. Automated factories, automated farms. 100% service economy. I’m not the first to make these dire predictions, but I believe it could happen.
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That’s a very inetersting question, Chess. I don’t know the answer, but here’s what I’m thinking:
X is a proxy for early stage of the cycle of industrial production (investment component of the GDP) whereas WMT is a proxy for price-sensitive segment of the consumption component of GDP. Neither of them can be considered a proxy for global economy, in my opinion.
I would then interpret the charts as telling me that investors expect lack of growth and deflation: 1) despite low 10-year yields the investment growth is not picking up (X), and 2) consumers are pressing the prices down (WMT).
Ironically, this makes the argument for QE3 (or any other stimulus) even stronger and therefore reinforces the bullish thesis.
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Great thread, guys. Thanks!
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