Tough to Believe in This Mineral Rally

 | Aug 08, 2013 | 1:49 PM EDT
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It's tough to believe in this mineral rally -- the one being produced by better action in coal, and by a better-than-expected quarter from Vale (VALE). The reason it was better than expected, of course, was that the-end-of-the-super-cycle-wish-club believes losses have to kick in soon.

The cross-currents are everywhere in this group. The Baltic Freight Index has been dropping in small but steady increments for weeks now. But copper seems to have put in a bottom. Lots of coal capacity has been taken out, with much iron ore shuttered. (Thank you, colleague Matt Horween, for keeping that data and its meaning in front of me.)

However, we still have the grinding, halting, fits-and-starts Chinese economy, and the commercial and infrastructure spend is still depressed in the U.S. Given all this, it doesn't look like steel-making coal is about to see a resurgence any time soon -- although steel-use capacity is hanging in there.

To me, the picture isn't resolved. There isn't enough strength in this economy, there's too much weakness in China and we're seeing only nascent strength in Europe. But the upside is, arguably, that this is about as bad as it can get. Because if the U.S. turns around and Europe turns around, you can handle anything but a downshift to 5% to 6% from China. Of course, Brazil and India are grim. Remember the BRICs (Brazil, Russia, India and China)? They are proving to be a huge drag vs. the U.S., and even against the once-moribund Japan.

The Action Alerts PLUS trust owns Joy Global (JOY), Timken (TKR) and Vale, and the action in these certainly is encouraging. But we still have a backdrop of negative articles about coal (endless, aren't they?) and the need for some area to lean on if you are short. These factors make the group an uncertain battleground that could lead to a quick spike on good news -- but a reversal of these meager gains on bad news remains very much in the balance.

Random musings: The Tesla (TSLA) story continues to confound the bears as this most-hated stock of a most-hated company just hasn't produced the pitfalls that were supposed to happen. The lack of "clean" financials, I contend, doesn't matter. After all, demand and love are both there in spades, just as they are with Netflix (NFLX) and Amazon (AMZN) the two other cult stocks.

Away from this, I, like everyone else, continue to like the new team at Groupon (GRPN), which remains Exhibit A in the recognition that CEOs matter.

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