Saturday, January 21, 2012
More Wind Out Of China's Sails
Writing "sales" instead of "sails" in this post's title might have been a cute play on words, but I don't feel like being all that cute today on the subject of China's continuing disappointments. Manufacturing activity in China continues to slow down. Europe's malaise is hitting China's exporters hard and the eurozone hasn't even fallen apart (yet). The world copper price hasn't responded to this news, so perhaps Dr. Copper has decided to defy commodity analysts' wisdom and become a lagging indicator. Steel futures indicate strong future demand, which no longer makes any sense at all. Dude, like manufacturers use steel and copper, okay? So, like, the prices should be cratering rather than meandering sideways or setting new highs. This kind of action proves the old adage that the only people who make serious money in commodities markets are the brokers of transactions, not the investors going long or short.
The price of FXI hasn't factored in this bad news from China. I'll renew my covered calls but I may be forced to eat a realized long-term loss as the market price went through my calls' strike price. It all depends on how my brokerage calculates the purchase date for which shares will ultimately be sold off. I can console myself with the reminder that the cash I've generated from years of covered call writing has built up a war chest I have yet to deploy. More bad news out of Europe, China, and elsewhere will eventually give me the bargain opportunities I seek. The waiting game is one I can play endlessly.
Full disclosure: Long FXI with covered calls.