Why Aggressive Investors Need to Revisit Basic Materials

Weve now arrived at a critical juncture in the investing road. Aggressive
high-yield investors must now hold their noses and take the plunge into what has
been forbidden territory during the past year: The basic materials sector. This
is the deepest of cyclical sectors and is made up of the companies that have
some of the ugliest charts around. But if you like a Cinderella story, then this
is the place for you. Earnings season, which is now under way, always is ushered
in by Alcoa (NYSE: AA ), the global aluminum maker and Dow component. It missed
earnings estimates by 1 cent but beat revenues estimates handily , and money
poured into companies, such as AA, that are most leveraged to a global economic
rebound. Thats where some of the biggest potential gains can be captured if the
economy is really turning up and not just giving us another false start. Not to
be outdone, shares of potash fertilizer maker Mosaic (NYSE: MOS ) pushed higher
after cruising through earnings estimates last week. Institutional investors saw
these reports as investment-worthy news subsequently buying related companies
and assets that also could surprise to the upside on earnings. Is this a trend?
Theres no way to tell yet, but the early indications are quite positive. Lets
take a look For starters, optimism is growing that China will orchestrate a
soft landing from its torrid growth rate of 10%-plus, to a more sustainable 8%
GDP in 2012. Also, Chinese interest rates and incentives for lending by banks
are easing, just in time for a pivotal election year for the communist party.
That tight-fisted government needs to add this splash of capitalism to remain in
power while seeking the perfect balance of growth and inflationary pressures
within the worlds largest emerging market. So far, it looks like the Chinese
Finance Ministry will pull it off. The government has no debt, $3.2 trillion in
cash and $6 trillion of OPM (thats other peoples money, as in U.S. Treasuries)
to stimulate the economy and secure currency leverage at the first whiff of
trouble. The bottom line: China has the ball and can do what it wants with
whomever it wants at this point. But youre probably wondering what China has to
do with any of this. Well, Ill tell you