My expectation is that demand for steel will surprise analysts to the upside as these stimulus plans start kicking in.  In fact, we have already seen some minor firming of steel prices in China, as well as a solidifying of bulk shipping rates.  Further helped by a weaker dollar and zero interest rates, commodity prices will rebound from this year’s weakness.  This will enable analysts to actually abandon their “end-of-the-world” scenarios for commodity prices as the prospects for higher-negotiated prices increase.

We already are seeing increased actions by the Chinese government, which has continued to drop interest rates and bank reserve requirements, and has increased support to consumer lending, as well as the housing sector.  In China, more than any other large economy, government action is crucial, and the direction is in favor of higher economic activity. 

At this very low valuation and with a very loose global monetary policies almost certain to give it a tailwind, BHP’s stock has already found some buyers at lower levels and has been able to cross its exponential 200-day moving average to the upside for the first time in this bear market. 

It’s a proven fact that recessions are the best times to pick up cyclical stocks for the long term.

No question about this: the recession will end someday.  Many, including the International Monetary Fund (IMF) and myself, expect a pick-up in activity in the second half of 2009.  And stocks typically run some six months ahead of the economy. 

Even as we are getting horrible economic news in the fourth quarter, as the full effect of the global paralysis is revealed in economic metrics, we should note that stocks vary according to the second derivative of profits:  In other words, they respond to changes in the rate of profit growth (or contraction).

Right now, market projections in general and in BHP in particular, factor in the full effect of a horrible fourth quarter. But if the first and subsequent quarters, although still bad, are “less bad” than this current quarter, the stock could actually rally from here, while still in the midst of bad news. And this process, while not linear, and mired with confusing volatility, should deliver strong profits.

ACTION TO TAKE: Buy BHP Billiton Ltd. (NYSE ADR: BHP). This is roughly the right time for an investor to pick up BHP shares for the long run, especially ahead of the so-called “January Effect,” if there is one this year. However, the uncertainties remain daunting in terms of commodities pricing, government policies and the global economy.  So it is a good idea to stagger the purchases over the next three months by buying half of your position before yearend and the other half on weak days in the first quarter.  I would wait on most of the others, other than Vale (NYSE ADR: RIO), given their weaker financial position, lower margins and more exposure to price drops in commodities. (**)