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The Great Copper Crash of 2012
When Dr. Copper (CU), the only commodity with a PhD in economics, suddenly collapses from a heart attack, risk takers everywhere have to sit up and take notice. Since the July top, the red metal has collapsed a shocking 31%.
So called because of its uncanny ability to predict the future of the global economy, copper is warning of dire things to come. The price drop suggests that the great Chinese economic miracle is coming to an end, or is at least facing a substantial slowdown. This dark view is further confirmed by the weakness in the Shanghai index ($SSEC) which plumbed new depths this week. Will China permabear, Jim Chanos, finally get his dream come true?
It’s a little more complicated than that. Copper is no longer the metal it once was. Because of the lack of a consumer banking system in the Middle Kingdom, individuals are now hoarding 100 pound copper bars and posting them as collateral for loans. Get any weakness of the kind we have seen over the past two week, and lenders panic, dumping their collateral for cash.
The high frequency traders are now in there in force, whipping around prices and creating unprecedented volatility. You can see this also in gold, silver, oil, coal, platinum, and palladium. Notice how they seem to be running the movie on fast forward everywhere these days? Because of this, we could now be seeing an overshoot on the downside in copper which may never actually materialize to this extreme in equities or other asset classes.
Watch Dr. Copper closely. At the first sign of any sustained strength, you should load up on long dated calls for Freeport McMoRan (FCX), the world’s largest producer, which also has been similarly decimated.
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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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I read your article and I thinl that you're totally right with this, but sometimes we can't do anythinh to change the situation. Service auto
lol "Hurry up, because our software limits the number of subscribers, and we are running out of places."
Yeah, I hate when my software that I design limits the amount of money I make.
well the good news Madd Hatter is your Macro tent dwellers will be able to steal more from construction sites since it's so cheap
apberusdisvet,
its not about gold mining.
stocks to flow, yo. Huge stocks. Its all mostly been mined - it just sits there. And it will until these currencies get there act in gear and value it properly - then it will flow.
I still miss Leo Kovlivakilas.
Leo was getting too many pins; couldn't keep the hot air in.
A little late to the party there, MHFT?
Initially thought the headline read "Great COPTER Crash..." and got all excited that Bernanke was dead!
Wait, hang on. Are you saying the Chinese are using metals as collateral? What a bunch of dirty terrorists!
The price of copper or demand for copper can predict the future of the global economy. I think everyone here already knew that. The rest of the article is gibberish.
Less copper mined; less gold produced as a byproduct; somewhat bullish for gold, dontcha think?
Uh, no. Gold is the by-product of gold mining.
-Chumblez.
Gold is a by-product of many copper mines.
"Individuals hoarding 100 pound bars........"
What a crock of cockamamy bullshit.
"The price drop suggests..." way to go out on a limb. Are YOU calling the end of the Chinese economy or just preparing to deflect blame?
"Copper is no longer the metal it once was." Sure it is. Still 100% Cu. Still used for the same things today as it was last year, or last decade. You think a few 100 lb bars of loan collateral in the Middle Kingdom are determining the price in the open market?
HFTs are causing volatility. Thanks for the news flash.
So at the first sign of strength in copper, I should load up on FCX calls because FCX is a proxy to copper. I like how you put the burden on the reader to determine the "first sign of strength" we wouldn't want you to put your balls on the line.
all dick, no balls
can i please join the macromillionaires mentoring program?
Yes. Please send me all your money and I will let you in.
"...calls for Freeport McMoRan (FCX), the world’s largest producer..."
Codelco produces far more copper than FCX. If this tool does not even know that how can anybody seriously take advice from him, let alone pay for it.
From what I can tell from his writing, the only copper company he has even heard of is FXC. Back in early 2009, he was writing articles about how Barrick was a great way to invest in gold. Various commentors pointed out they had hedged their output, but he carried on anyway.
Frankly, if anyone pays for his advice, they're an idiot.
What's the cost of production of copper today? I know many times in recent history copper fell below the cost of production.
A few decades ago, it was 60 cents a pound, plus the value of other metals, like gold.
I've commented before that there have been quite a number of copper thefts from construction sites and various homes/businesses in the area. The most interesting were the fools who stole the ground cables at a local substation - the cost of production for them was on the order of 5-10 + $50k for the utility's cost of repair.
Even though copper prices may be down, it's still high enough for thieves to consider it a worthwhile opportunity.
I'm definitely seeing it in the criminal courts. Most of it young kids who USED to have a job in construction
This should be mandatory viewing for anyone considering stealing sub-station copper:
http://message.snopes.com/showthread.php?t=54615
There's a reason those cables are thick.
Infomercial.
It is not just because of a lack of consumer banking system in the Mid East that there is copper hoarding occurring. The hoarding is also occurring in Asia.
We are entering a period of unprecidented currency weakness - worldwide - and copper is a most useful material to act as a repository of weatlth. If it were not for this fact, it would be easy to agree that copper prices are likely to decline.
Throw in that currency crises also result in much higher oil prices and fuel shortages pushing alternative energy which is almost all electricity-based (copper) then the equation is even more complicated.
Throughout history, the three monetary metals are copper, silver and gold - coincidentally, they are all three in a row in the periodic table.
The copper price is too complicated to call in the near term. Longer term, it seems there are factors pointing to a substantially higher price.
Not the Middle East. Madhedgefundtrader wrote "Middle Kingdom" which has long been a name for China, whether empire or Communist state. There was no mention of the Middle East. Yes - captain obvious, hoarding is occuring in Asia. He wrote about it in the article.
You are right on middle kingdom - my bad.
BTW, should have mentioned it is not just Asians hoarding metals. JPM and Goldman have established a worldwide metals warehousing business.
Maybe they are getting into metal after getting the majority of their clients into paper.
See:
Goldman and JPMorgan enter metal warehousing - Financial Times
Metal Warehousing Pays Off For Goldman Sachs - Forbes
Goldman's Secret Cash Cow: Detroit Warehouses Full of Metal ...Still PUT time. Might buy some $10 calls next year.
please leave mad hedge fund tool