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Give Dr. Copper an A+ for Accuracy
They call the red metal “Dr. Copper” because of its uncanny ability to forecast the future direction of the global economy. Well, this year, he has been right again. The sudden sell off in crude has also created some spill over selling in other hard assets. That the long term case for copper is still compelling. (CU), (FCX).
No one has been singing louder the praises of the predictive power of copper prices (CU) louder than me this year. They call the red metal “Dr. Copper” because of its uncanny ability to forecast the future direction of the global economy.
Look at the charts below and it is clear that the eminent professor has been crying “watch out below” since February. Ditto for top copper producer, Freeport McMoRan. It wasn’t until three months later that US GDP growth had suddenly and surprisingly downshifted from 3.1% to 1.8%.
So it is with the greatest interest that I picked up some comments this forming from my old friend, FCX CEO, Dan Adkerson. He believes that the recent weakness in copper is not the beginning of a new bear market, but merely short term profit taking driven by speculators. Chinese tightening has been a drag, which accounts for 35%-40% of global demand. It’s clear that the sudden sell off in crude has also created some spill over selling in other hard assets.
However, Adkerson argues that the long term case for copper is still compelling. The Chinese drive for a higher standard of living is irresistible, and that requires enormous amounts of copper for roads, construction, and shipbuilding. A burgeoning global hybrid and electric car industry is also increasing demand for copper.
Adkerson’s big challenge is how to meet all this demand. The enormous capital requirements and long lead times essential for the opening of new mines means that his company must think not in terms of weeks, months or even years, but in decades. He has no problem making those commitments. FCX already produces 4 million pounds of copper per year. With a current production cost of $1 per pound, it can easily handle the recent decline from $4.70 to $3.92.
there is no doubt that copper has been leading the charge to the downside in this global “RISK OFF”, environment. But when it runs its course, copper and FCX are going to be some of the first positions that I step back into.
To see the data, charts, and graphs that support this research piece, as well as more iconoclastic and out-of-consensus analysis, please visit me at www.madhedgefundtrader.com . There, you will find the conventional wisdom mercilessly flailed and tortured daily, and my last two years of research reports available for free. You can also listen to me on Hedge Fund Radio by clicking on “This Week on Hedge Fund Radio” in the upper right corner of my home page.
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Massive stocks - whether visible ('on warrant' in LME warehouses) or invisible ('off warrant' on the other side of the yellow line in the very same warehouses) - are currently funded not by speculators in search of a transaction profit, but precisely the opposite - 'inflation hedgers' aiming to avoid a loss and motivated by fear rather than greed.
The same situation applies in all of the organised commodity markets, and that is why we have seen a correlated bubble in commodities. This will continue until interest rates leave the zero bound, or the bubbles are popped by speculative spikes (as in oil currently) and demand destruction.
Anyone interested in an authoritative view of the copper market could do worse than read this.
http://www.mineweb.com/mineweb/view/mineweb/en/page96987?oid=114529&sn=2...
Personally, I find Simon Hunt's view of copper demand more convincing than the author's view.
MHFT tries to pander to the crowd to save what little reputation he has left.
Uncanny ability to forecast or dissemble?
Rho correlation coefficient approaching zero for 2001-2011:
http://stockcharts.com/freecharts/perf.html?$COPPER,$SPX
Richard Adkerson is FCX CEO
There were no charts below or on MHFT website
If copper were in roads, they would be torn up like air conditioners, cables and copper pipes
Copper currently targeting +12%, another MHFT fade trade?
http://stockcharts.com/freecharts/gallery.html?%24copper
Follow the link below to find out why the Hong Kong Mercantile Exchange must be seen and understood as an extension of the Chinese government and its long term goals, and consequently, why it will not help create an equitable or realistic price discovery mechanism for gold. Not for now anyway.
http://thesilvergoldhedge.blogspot.com/2011/05/why-hong-kong-exchange-will-disappoint.html
He hit the nail on the head but spead right past it. China's been tightening and has been clear they will continue to tighten thru in 2011. I began shorting it in February based on that alone; now wait for the end of QE. Nice try but yes, it's in bear market.
Chipmunks announcing more 'growth' and accompanying endless prosperity for all is more 'shill- speak'.
China stockpiles lotsa copper, what are they doing with it?
Constructing cities full of vacant buildings. Make-work Keynesianism is supposed to be bullish?
Demand for industrial metals is tepid elsewhere. Is anyone going to build any more houses in Spain or Ireland? How is Japan doin? I'd go long lead, not copper ...
Everyone in Japan is going to need a new lead suit ...
Short Uranium while 'Ur' at it.
QE and 'pocket stimulus' has not had the growth effect that was promised, only increasing moral hazard and (default) risk with credit distortions everywhere. The high oil prices have sucked profits out of every (real - not finance) business over the past six months. Not bullish at all.
These posts would at least have amusement value if it were not for the intolerable vanity "No one has been singing louder the praises of the predictive power of copper prices (CU) louder than me" and name dropping " I picked up some comments this forming (sic) from my old friend, FCX CEO, Dan Adkerson". Jerk.
The Chinese investors are sitting on Warehouses full of copper that they are using for loan collateral. The JPM "corner" is to be the next silver strategy as the silver shorts are facing headwinds. The JPM "corner" is just paper, not physical. The Copper maket should be avoided like the plague.
copper plated bulls...
I'm not sure what charts MHT is looking at since he posted no charts but, looking at the FCX chart...it does not look very promising to me in the short, medium or long term. The daily chart might se a little bounce but the weekly looks to be setting up for freefall.
On the weekly charts, what sticks out most to me are: the 10 week MA is about to cross below the 40 week MA and test the 100 week MA. If you look back three years on the charts and see what happened last time this event took place...well...it doesn't take a genius to see it. 42.50 will be critical support...if that fails 40.50 is the last li8ne of defense...once that goes...expect panic selling...and all that comes with it.
No charts.
MHT and Robo have very similar DNA - great at observing what happened and like many "pundits" conclude the performance of said asset a result of their keen observations with no proven ability, beyond extrapolating the existing trend or casualty, to MAKE A PROBABLISTIC ASSESSMENT ON FUTURE PRICE TRENDS.
I guess this might help a rookie that copper leads the economy or the old saying sell in May and go away . One would be better off following Jim Rogers who can spot a trend before it happens. For a hegefund seems lazy and unoriginal way to sell the fund .
Does copper predict the bottom of bear markets, or just the top of bull markets?
Remember these two rules we recited in nursery school: "Every bull market has a copper roof." or "If copper rallies, the stock market falls."
So no one read the OP's article carefully? No one is surprised at:
"FCX already produces 4 million pounds of copper per year."
This is a trivial amount of copper. So the company's cost is $4 million a year for copper production?
Try billion instead of million.
There are a lot of doomers reading this site. I think they would mostly predict that copper production will crash when the economy crashes (because of the massive amount of debt, peak oil, etc).
Have 200 contracts sept. JJC 40 and 45 puts here thanks.
GRAMMAR
Reading that piece gave me a headache...
Dr Copper does not give 2 shits about how your grammar is composed. He only cars about the economie.
Quit reading after the "blame the speculators" statement.
If specs are the only reason for coppers fall and then we are back to boomtown USA again...that would imply silver and gold are going much higher due to the massive amounts if money printing that will be required to get there...
It is ALL and only about credit expansion AND the use or lack of use that will determine the next decade..
Full Disclosure concerning madhedgefundtrader. I went to his site and saw this from his May 20 blog..."The commencement speaker at this week’s graduation ceremonies at the University of California at Berkeley just so happened to be Robert Reich, Bill Clinton’s Secretary of Labor, and an old friend of mine, who now a distinguished professor at the Goldman School of Public Policy."
Hmmm....Dan(?) Adkerson, how about Richard "Dick" Adkerson. At least get his name right.
Ummm . . . thesis is a bit confusing. Doesn't sound like much alpha here.
Dr. Copper's PHD is in economics not monetary policy so are you saying that after a market crash we should buy Copper or an economic one? If it's an economic crash, when will it be over? I guess Dr. Copper will tell us but wont it be too late to buy Copper by then?
If the thesis is 'buy Copper after the makets crash', my response would be that many -- maybe all -- assets will be compelling after a crash. What makes Copper any better or worse?
If the thesis is Copper outperforms because Chinese are getting richer, you lose me. That works for all commodities, and isn't the Chinese crash one of the main things we are all worried about. Are you saying there will be real economic growth in China after a market crash? Why are they raising interest rates How will we know when their economy is back on a sustainable growth path?
And if the thesis is there will be more Green cars in the future so by Copper, you really lose me.
I subscribe to the KISS theory of investing. Keep It Simple, Stupid. Copper is a better predictor than investible asset, let's stick with that. I'll leave investing in it to the PhDs who know what Copper is going to tell us before it tells us.
By the way, the Chinese Govt has just begun an official crack down on the private use of Copper as money , so one of the demand drivers is being curtailed. Yes, Copper is the main metal average Chinese can afford as a paper money substitute so the Gold/Silver story there looks to be the beneficiaries if -- big IF -- they are allowed to get richer.
Assuming you are in the US, or in another fiat-failure economy, wouldn't holding some copper be a low cost addition to your physical supply, assuming you have the space for it.
I read the Chinese move you mention above as an indication that they are trying to suppress the price of copper, and stop people from using it for its ''other'' practical purpose: ie money.
I'm going to stay long real money, even if its just a few old pipes in my garage
Agreed on money point. Howeverr, when it comes to flogging its peasants, the Chinese government usually succeeds at what it tries to do. So the 'demand for copper as money' story in China seems to ending rather than beginning, i.e. one less demand driver.
We live in a world where so much money is floating around that a single bank, JPM, can hold 90% of the copper supplies. I don't think copper is saying anything but the era of the mega bank speculator with unlimted funds has only just begin. As long as there is no banking reform that keeps banks from speculating with deposits and or free government money, they have no need to make loans or do anything except speculate. The markets are now so small compared to the money supply, why loan money so someone else can take advantage of it?
Does the Morgue hold 90% of supply, or do they own 90% face value of the global market in paper?
Physical, bitchezzzz!
They own too much.
http://www.zerohedge.com/article/single-trader-jp-morgan-holds-90-lme-copper
Sure, they own all the copper sitting in a vault in London
How much could that be? You have to go to the bulk storage facility, right?
There is copper everywhere. Check under your floors, in your TV, even ask the mailman (though you better ask him soon, cause he might not be coming round much longer).
I am right there with you on copper supplies. I am just making the point that market is lopsided with bank money speculation. In fact, look at this chart of copper prices in Weimar:
http://www.nowandfutures.com/images/weimar_copper1914_1923.png
As you can see, as soon as the system lurched to a halt, the oversupply of copper overran the speculators. But not in gold or silver:
http://www.nowandfutures.com/images/weimar_gold_silver.png
JPM copper speculators suffer from the "I want to outsmart the market" syndrome. Something as plentiful and industrial as copper is a poor inflation hedge. But they want to get cute and attack hard money PMs while hedging for inflation with copper. Nothing is different. If you print a bunch of money, gold and silver go up. If your economy collapses, copper demand goes down. If you print a bunch of money and your economy collapses, gold and silver go up while copper goes down.
Those are cool charts, thanks. I agree that copper is not a good hedge against inflation for long term means, but it can be effective for short term bouts of inflation, which is what we have seen lately. Because it is currently such an industrial metal (and linked on the consumer end to discretionary and non-essential products or products wherein it can be replaced by other substances or metals) and because it is historically non-monetary (tertiarily monetary at best), and because it is so abundant but must be mined, I think its best role is probably monitoring credit expansion. When credit expands (even more than money supply), copper increases because consumers have "more" discretionary spending power and business have more customers; but when credit constricts, consumers cut back and businesses slow down.
As a side note, be sure to whisk your egg whites for that lemon meringue pie topping in a copper bowl if you want to do it right---no cream of tartar! Copper is unique in its ability to do denature the protiens in eggs whites and make the best meringue, so when the great lemon meringue pie bubble happens, you'll be ready.
IF FCX has a production cost of about 25% of the current market, you can expect that there will soon be a great supply of copper available. Soon meaning a couple of years. There is not a world shortage of copper reserves to mine. The shortage is of the mines developed to deliver the reserves to market. The copper situation is a reflection of supply and demand created by actual higher useage of the metal. To the extent that money printing ecourages additional building and car buying, it does impact the metal price in the short term. The effect is entirely different than for the gold / silver metals.
Very interesting stuff. thx.
I'd agree with you 100% if, and only IF, there were markets driven by fundamentals and futures were traded by those who mine/use the metals involved. When the cost of money to speculate is above zero we might have normal speculative action. Until then there is no sure bet on any of the industrial or precious metals. The charts you post are great. I wonder what other factors were at work then as opposed to (or similar to) now. Can we be assured that similar action will take place in this era? What similarities or differences were there in government intervention in markets? It's a new age of information and speed of arbitrage!
on Sun, 05/22/2011 - 10:26
#1299920
Sure, they own all the copper sitting in a vault in London
How much could that be?
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Considering they sold off how many 100's of tonnes of Gold? they have at least that much more room for copper.
I wonder if somebody at Barrick knows something we don't know?
Copper bitches?
or, Copper bitchezzzzzzzzzzzzz!
The peasant's money
I'm actually kinda worried about being viewed as a bankster in 20 years.
All of us with the precious should be, since we are the holders of real money
IMHO, copper will be one the best bartering materials for daily necessities like eggs.
Sure as hell beats a trillion dollar piece of tp
As digital currency is ubiquitous, I’d be surprised if we ever see true metal currency used again for everyday transactions..- maybe in ma and pa joints that keep abreast of exchange rates. Possibly those who accumulated PM’s before the coming reconciliation will fund their digital accounts with revalued PM’s
There might be a nice premium though, for US nickels minted before they turn them into zinc.
BTW, keep in mind that copper is used for brass. At the rate things are going in this world, there will continue to be a healthy market for brass (and lead).
I think we have already seen the failure of digital currencies. That is basically what we have right now, albeit ones that occasionally like to moonlight in their physical paper form amongst the plebians. I would vigorously fight any attempt to replace our failed digital/fiat system with a new digital currency. Just like you can't trust your physical gold in someone else's vault, you can't trust your binary digits in someone else's database.
Well, it's all about faith and confidence. If enough people lose it, physical will prevail.
There isn't much faith and confidence left on my side of the fence.
I agree, I have many pounds of pre 1982 copper cents. It's a great way to save money and a hedge against inflation. I am always bemused when the teller looks at me strange when I actually request pennies in my change. I tell them I will take copper, (or even zinc) any day of the week over paper!
Well done...I wonder why these pieces are still in circulation... Where can you sell the stuff?
Well as I understand things, even many silver coins were still in circulation up until the early 1980's though they were several times their face value even back then. Canadian and American one cent coins made 1981 or earlier (and some US 1982 cents) are composed of 95% copper and 5% tin. Technically, they are illegal to melt or export in quantity but if many ZH'ers are right and the dollar collapses I doubt melting or burning a dead currency would remain illegal.
I couldn't agree more; sequestering copper pennies is a great idea. I was just mentioning this the other day on a ZH thread because I got an email from Gainesville Coins advertising a new 1 av-oz copper round for "just $1.48 over spot!" Of course, spot copper is in pounds, and it is back over $4/av-lb, so an ounce of copper is just about $0.25---but if you want to give Gainesville $1.78, they'll send you a very cool-looking 1 av-oz copper (then you're paying a hefty 592% or so premium, or about $28.48/av-lb for $4/av-lb copper).
The MUCH better idea is to sequester the little red ones; they are already worth more than twice face value: $1.55 in copper pennies contains 1 av-lb of copper (they are 95% copper), so as long as copper is above $1.55/av-lb, then you are in the money; if it is not, then they are still worth $0.01, so you even have a floor. Copper is currently $4.09/lb, so a 1 cent copper penny is worth 2.6 cents right now (a copper penny contains 2.9 gm copper)
You can get easily get 245 lbs of copper pennies into an Arrowhead jug (so that you can roll it around without a handjack), and don't fill it all the way because it will be exceedingly heavy if you do: copper weights 559 lbs/cubic ft, or more than 9 times as much as the same volume of water, so while that 5-gallon jug only weighs 42 lbs if filled with water, it would weigh over 373 lbs if filled with solid copper. 245lbs is more manageable, and that is about 36,000 pennies (or $360). When/if copper breaks $10/lb, then those pennies are worth well over 6-times face value, which would make it worth $2,272.
Remember, a pre-64 silver coin is worth 25-times face value right now (and 1964 wasn't that long ago). I don't think copper will get to that level simply because it is SO much more abundant than silver, but I can easily see a day were twenty-five or thirty copper pennies will get you a dozen of eggs, or a couple loaves of bread.
a red dog of the female kind