Friday, June 13, 2008

Inflation Continues to Climb/What to Buy Now

Inflation numbers in today. I don't think anyone who lives in the "real world" is surprised to see these numbers climbing. With inflation levels rising, this is all the more reason to invest in equities. But not just any stocks now. I do think most of the downside is out of financial stocks. But, I'm still not a buyer. I think earnings have eroded and will continue to be weak for at least a few quarters. I don't like to buy stocks in companies that aren't performing. I've tried it before with little success. Financial stocks will get a "stabilization bump", but I think they'll drag for awhile after that, and thats not what we're looking for as investors.

I started a stake in Brazilian mining company Companhia Vale Rio Doce (RIO). I'm going to just call it RIO. The stock recently dropped off after they announced they were issuing some stock and are preparing for an acquisition. Maybe Freeport Mcmoran, maybe Alcoa. While I don't typically like to see stock issued, as it dilutes value of current shareholders, I believe they are building a company that will be unrivaled in this industry, with the exception of a potential BHP Billiton-Rio Tinto merger. I'm impressed with the long term contract RIO signed with ArcellorMittal to supply iron ore for their steel business, which is strong. I'm also looking to enter a position in ArcellorMittal as well.

Its been a tough couple of weeks for investors, but I think we'll continue to stay in the trading range I've talked about. I'm buying when we hit the lower end of this range, which we're close to now. I think as summer wears on, even though the consumer will have issues, the market will stabilize and start to move higher.

Have a great weekend!

Disclosure: Long RIO

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