Cramer predicted a worst-case scenario for these names: They could lose all the gains they’ve seen since April 2005. That means Vale [RIO 20.96] drops 68%; U.S. Steel [X 93.69] 50%; fertilizer stocks like Potash [POT 140.26], Mosaic [MOS 77.01] and Agrium [AGU 66.65] could fall 80% to 90%. But this is only if you believe that the rise of these stocks was due solely to the increased value of commodities and not any growth by the companies themselves, he said.
So what’s it going to take to stop this? The world’s central banks – U.S., Europe, even China – have to cut interest rates. Industry consolidation would help, too. A rate cut in China might revive that country’s appetite for commodities, and that would mean investors would be getting a great discount on all these stocks right now.
If China doesn’t come back, Cramer said, “the commodity collapse has the potential to bring down the whole market.”
Cramer is one of those CNBC clowns that almost everytime get it wrong. If Cramer thinks the commodities are going down, its a bullish sign. I bought RIO today at 21.09$ and KGC at 12.01$ hoping to see a turnaround soon. Both RIO and KGC have been hammered lately and provide much safer bet to go long.
5 day chart for RIO shows 17% drop. Is the pain over ? No one knows. The trend is definitely going lower, but I believe its time for some bounce back.
6 month trend shows RIO bleeding…..no end in sight…..can that trend change ??
As for KGC, gold is going through a huge correction. Market manipulation has lead to jump in the dollar. Upward movement of the dollar looks short-lived, driven due to lower oil prices and Freddie/Fannie news bringing in global investors. Hurricane season and world politics can easily send the oil prices roaring upwards. Housing has not bottomed. Inventory levels are still high. Job losses make it even more difficult. Foreclosures are still reaching record high levels. This can turnaround in a flash causing dollar to take a dump and gold to go higher.
6 month trend of KGC looks ugly too. It has experienced huge price drops. Is this the bottom ?