Wednesday, October 11, 2006

Alcoa: A Canary in the Coal Mine?

Alcoa will probably pressure the Dow this morning as they kicked off earnings season with a very poor miss. The story here - lower prices for their product and higher production costs - might be a consistent theme among commodity plays in the coming quarters.

As "weakness in its downstream business related to softening in the housing construction and automotive markets" hampered results I'd be scouring the markets for other stocks that serve housing and auto markets to look for shorts, attractive puts or calls to write.

From a more macro perspective, I am a believer that the scenario facing Alcoa is going to be increasingly pervasive across all facets of the US economy. Weak demand will hamper pricing, while inflation (it's real despite the government's assertions that ex-inflation there is no inflation) is going to really start pushing Cost of Goods up for many companies.

Alcoa is the most recent example of this scenario but it won't be the last.


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