Silence Is Golden

 | Oct 08, 2012 | 11:15 AM EDT
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Can you get ahead of a further slowdown before you get good news? That is what's happening in the iron-ore trade today. Some people are interpreting the China data as positive, even as media pundits readily pan it. Others are saying that the Chinese are doing so badly that they will have to turn on the jets.

I am of two minds for the moment. I am watching, for example, Cliffs Natural Resources (CLF) and Vale (VALE), two iron ore producers that are catching bids left and right because of the China trade. That's terrific because the charitable trust owns Vale.

There is only one problem: If Vale were to report tomorrow, I would expect its earnings to be slashed and the stock to get hammered.

It all comes down to whether the stimulus comes before the companies announce their quarters or after. As long as companies have nothing to say and can't say anything, they can be buoyed by things like the iron ore move and buy the Chinese industrial cyclicals.

Until they speak.

Because once they speak, we are hit upside the head by the negative two-by-four that is earnings. That's one of the reasons Alcoa (AA) is so important. It has the misfortune to have to speak in an environment where I would have expected it to rally into positive China chatter.

The moral of the story? If a Chinese-related play says nothing, based on the Vale/Cliffs maneuver, I expect its stock to trade up.

If it speaks?

Get ready to sell.

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