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Who's Smarter? Dr. Copper Or Mr. Market

Tyler Durden's picture




 

Copper is often referred to as the PhD of commodities for, as JPMorgan's Ken Landon notes, "When companies ramp up production of various products, whether during or in anticipation of economic recovery, they demand more cooper." Gold, however, he adds, "is not sensitive at all to business-cycle demand. Its price is driven by the monetary environment." While Bloomberg's chart of the day prefers to take the short-term (last few weeks) view of the world to justify a bullish equity market call, we prefer to look at longer-term cycles and the message is extremely clear - manufacturers are anything but confident, are doing anything but buying copper in anticipation of demand, and despite gold's recent fluctuations it is anything but implying that the world's grand monetary policy experiment is slowing down. What we see from this chart is yet another clear fundamental divergence between Dr. Copper's take on the global economy and the US equity market's nominal recovery.

 

 

Chart: Bloomberg

 

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Mon, 12/24/2012 - 12:48 | 3093065 rahbii
rahbii's picture

Dr. Copper being JPM?  Might as well ask for a lobotomy.

Mon, 12/24/2012 - 13:30 | 3093201 happycrow
happycrow's picture

Probably.  Still better than us uneducated schmucks in flyover country who don't know how any of this works -- I see a chart like that, I've no IDEA how to make any money from it. 

A guy was on here a few days ago ranting about how people wouldn't take a slow and safe consistent 2% returns....us guys not in the market who don't speak the lingo or how to do THAT?  Jesus, if somebody defined all the terms and showed me how to make a slow and steady 2%, I'd be baking him Christmas cookies and sitting on his mailing list for life.

So as a layman all I get from this is:  the economy's still in the poop-house, keep deleveraging across all spectra as fast as humanly possible.  What else are guys like me missing?

Mon, 12/24/2012 - 13:54 | 3093264 TheBigTree
TheBigTree's picture

The only thing you need to know is BTFD!!!!

Tue, 12/25/2012 - 23:53 | 3095659 jeff montanye
jeff montanye's picture

since 1940, the S&P 500 has achieved an average annual total return of 14.5% in weeks where it was above its 200-day moving average as of the prior week’s close, and just 4.4% when it was below its 200-day moving average (only slightly more than the 4.2% average Treasury bill yield during that time, and with deep drawdowns usually concentrated in this partition). By contrast, since 2009, the S&P 500 has achieved an average total return of just 5.4% annually when it has been above its 200-day average, versus 36.7% when it has been below. Put another way, advancing trends above the 200-day average have repeatedly failed, making limited net progress overall, but declines have been halted and often breathtakingly reversed with each intervention. This pattern also reflects an unfinished cycle, the completion of which is likely to significantly damage the appeal of reflexively “buying the dip.”

http://www.hussmanfunds.com/wmc/wmc121224.htm

Thu, 12/27/2012 - 10:58 | 3098775 happycrow
happycrow's picture

Thanks, Jeff.

Maybe I'm just more ignorant than I thought I was, but isn't "buying the dip" no different than the old saw about averaging your losses?

Mon, 12/24/2012 - 13:55 | 3093266 UNCOMPROMISED
UNCOMPROMISED's picture

"how to make any money from it."

Hint: stay away from it. Use the chart as a high level navigation tool. Capital preservation wins when the metal has such high recovery and recycle properties. Divert attention to higher grade metals that people and .govies tend to hord.

Tue, 12/25/2012 - 17:43 | 3095247 monogratis
monogratis's picture

What you can glean from this chart is that people are either buying a) more gold, b)less copper, or c) into a stock bubble.

Or a combination of all three.

It doesn't tell us much except it reinforces what is already pretty apparent

Mon, 12/24/2012 - 14:52 | 3093421 scatterbrains
scatterbrains's picture

Overlay JJU (aluminum etf) along with copper and it confirms copper's lack of enthusiasm for Benny's schemes.  You'd have thunk with all the great car sales that JJU might  do something... anything.

http://fiatflaws.blogspot.com/2012/12/hard-assets-vs-fluffy-paper.html

Mon, 12/24/2012 - 22:53 | 3094104 ball-and-chain
ball-and-chain's picture

The smartest seems to be the Ivy League Mafia.

They can get away with every crime known to man.

Look at Corzine.

He's actually allowed to steal money.

How the hell does that happen?

Graduates from elite institutions just make the laws up as they go along.

It's like a friendly circle jerk.

http://www.angrysinner.blogspot.kr/2012/12/yesterday-i-hiked-five-miles-...

Tue, 12/25/2012 - 16:31 | 3095139 DonFromWyoming
DonFromWyoming's picture

Generally a comment like the one about the Ivy League Mafia being in control of the strings of power is right on the money.  However, Corzine graduated from the University of Illinois a few years before I did, and was a member of a plain old Greek letter fraternity that was no different than any frat in the late sixties (think Animal House).  An elite school/education?  Not.   Maybe he's the exception that proves the rule?

Tue, 12/25/2012 - 23:30 | 3095634 jeff montanye
jeff montanye's picture

true enough.  however he is a dishonors graduate, gangsta cum lewd, of goldman sachs and the u.s. senate.  that counts more.

Mon, 12/24/2012 - 12:49 | 3093071 buzzsaw99
buzzsaw99's picture

there is no recovery but gold got ahead of itself too imo

Mon, 12/24/2012 - 12:51 | 3093080 rahbii
rahbii's picture

gold got ahead of what?  it's a non-printable currency.  

Mon, 12/24/2012 - 12:56 | 3093091 buzzsaw99
buzzsaw99's picture

I know, anyone who is bearish on gold here is a troll. stfu buzzsaw, i get it. continue with circle jerk as before bug bitchez.

Mon, 12/24/2012 - 13:25 | 3093183 JustObserving
JustObserving's picture

anyone who is bearish on gold here is a troll

None are so blind as those who will not see the daily manipulation of gold and silver.

Keep on repeating "We have free and fair markets for gold and silver in the US".  At least you will convince yourself.

Mon, 12/24/2012 - 15:39 | 3093538 boogerbently
boogerbently's picture

Manipulation until the sovereigns are done buying. Then, profit (and fiat value) will only be made when they allow it to rise. The higher, the better.

Mon, 12/24/2012 - 13:28 | 3093196 rahbii
rahbii's picture

no troll....but maybe a little misinformed.  Are you bullish on digital one's and zero's?  Or do you prefer a tangible asset with NO credit risk?  Would you like a bottle of water, or a digital picture of one? 

Mon, 12/24/2012 - 17:26 | 3093700 buzzsaw99
buzzsaw99's picture

straight to the moon without a pullback ever. to the moon, party like it's 1999 bitchez. I will come back to mock you at a later date rahbii.

Mon, 12/24/2012 - 19:50 | 3093914 Cunnial
Cunnial's picture

When Uncle Sam comes a knock'n on your door for your shiny, hope you've gone long Smith Wesson chap... But keep on buy'n AU bitchez.... About as smart a plan as bennie and his merry band of printers.

Tue, 12/25/2012 - 22:49 | 3095590 sun tzu
sun tzu's picture

You really think uncle scam will come knocking at 100 million doors and search the house? Maybe if they hire enough TSA goons

Tue, 12/25/2012 - 23:41 | 3095646 jeff montanye
jeff montanye's picture

there is always the stock of companies that mine gold and silver.  currently attractively priced vs. bullion:

http://online.barrons.com/article/SB500014240527487043796045781855808359...

Mon, 12/24/2012 - 12:58 | 3093101 101 years and c...
101 years and counting's picture

non printable?  rofl!  GLD prints to shares every day.

Mon, 12/24/2012 - 13:28 | 3093197 rahbii
rahbii's picture

WTF is gld?  Is it shiny? 

Mon, 12/24/2012 - 14:44 | 3093393 hound dog vigilante
hound dog vigilante's picture

GLD is not Au.  

Tue, 12/25/2012 - 23:43 | 3095647 jeff montanye
jeff montanye's picture

only if you own a whole lot of gld and make them deliver the au to you.  imo the chinese do; maybe soros too.  good way to get some without moving the price much.

Mon, 12/24/2012 - 12:49 | 3093073 101 years and c...
101 years and counting's picture

"chart of the day"  must not be very many good new charts out there since you could have pulled this up at any point since mid 2010.

Mon, 12/24/2012 - 12:51 | 3093077 Cognitive Dissonance
Cognitive Dissonance's picture

Pretty much all markets separated from reality sometime in 2010.

<Reentry is gonna be a bitch. Houston, we (all) have a problem.>

Mon, 12/24/2012 - 13:17 | 3093163 csmith
csmith's picture

"...sometime in 2010."

 

Yes. Nominal GDP went on its merry way and the real world flatlined.

Mon, 12/24/2012 - 14:05 | 3093282 UNCOMPROMISED
UNCOMPROMISED's picture

I can't wait until the carbon markets become the primary drivers of all economic activities. That's the plan, you do know.

1) Destabilize all world markets
2) Global currency, .gov
3) Replace Energy based economy with Carbon based economy.

 

Mon, 12/24/2012 - 12:50 | 3093078 Cookie
Cookie's picture

Outstanding observation

Mon, 12/24/2012 - 13:02 | 3093110 JustObserving
JustObserving's picture

There is no Mr Market anymore.  It is Mr Fed.  Mr Fed has printed $2.5 trillion and will print at least $3.06 trillion in the next 3 years.  Mr Market is a myth like Santa or free markets.

Mr Fed controls every market.

Mon, 12/24/2012 - 13:03 | 3093120 Winston Churchill
Winston Churchill's picture

Because its worked so well for the BoJ ?

Emperor Ben has no clothes,no matter what the commentators say.

Mon, 12/24/2012 - 13:15 | 3093153 JustObserving
JustObserving's picture

How can you compare BoJ with the Fed?  The Fed is infinitely more powerful and controls the BoJ.  The Fed also has HFT and many large US banks at their behest, JP Morgan is an example.

The emperor may be naked but he has the precious metals markets, the Treasury market  and the stock markets by the balls.  The BoJ has been impotent to move the Japanese stock market for over two decades now.

Mon, 12/24/2012 - 14:21 | 3093329 Winston Churchill
Winston Churchill's picture

Until he doesn't.

Its not tenable to continue to be the reserve currency with only 20% of world GDP.

Strip out Fed,Govt. and financial innovation(fraud) from that and its 12%--14% of world

GDP.

You can have all the aircraft carriers and nukes you like,but short of destroying the

whole planet "what is unsustainable will cease".

All that exported inflation will be returning. Its just a matter of when ?

Mon, 12/24/2012 - 22:24 | 3094060 Solarman
Solarman's picture

I'll preface by saying I hate the Fed and our current path, but to think that the FED is out of power at 20% of GDP does not understand the leverage we have with the sea lanes and the food market.  If push came to shove we can hunker down.  Our biggest competitors cannot.  People will have to take our dollars to eat, or to mmove their goods.

I fear this will take some nasty turns.  China and Asia is screwed.  They cannot feed themselves and their energy comes from 1,000's of miles away, past our ships, sub, drones, and hyperdrive bombers and missles.

Europe is an afterthought.  Our hemeisphere is fine resource wise.

Life will get interesting.

 

Tue, 12/25/2012 - 09:14 | 3094415 Winston Churchill
Winston Churchill's picture

Contol of the sea lanes is illusory.

The US naval doctrine is geared for the last world war.

There is a word for the US cariers,and its "targets'.

Modern diesel electric boats are quite capable of taking them out quickly,let alone

alone the purpose built missles designed to sink them.I've watched dedicated

skippers penetrate the defensive anti sub screens with ease.

If drones and tech were the answer how come we didnt win in Iraq and Afghansitan ?

Its all boys with their toys.The bottom line is nukes.If Asia is starving to death do you really think

they will hesitate to use them against a country that has already deployed  them against civilians ?

Realpolitik.

Tue, 12/25/2012 - 22:53 | 3095594 sun tzu
sun tzu's picture

The Chinese and Russians can easily wipe out our aircraft carriers. There is plenty of oil and gas in Central Asia for China, Japan and Russia. The Chinese could stand losing 500 million people. Can we stand losing 150 million people?

Mon, 12/24/2012 - 22:30 | 3094066 seataka
seataka's picture

I bet it will be when the first aircraft carrier goes down.

"If God is on our side he will stop the next war" Bob Dylan
http://www.youtube.com/watch?feature=player_embedded&v=3eKEe3VzA4Y

Mon, 12/24/2012 - 13:24 | 3093184 edb5s
edb5s's picture

Your user name is perfectly apposite.

Mon, 12/24/2012 - 13:03 | 3093118 Glass Seagull
Glass Seagull's picture

Looks like the S&P500 vs. 10-yr. yield chart.

 

Ben, you've broken the cornerstone of capitalism (a well-functioning market system).  Happy Hanukkah.

 

 

Mon, 12/24/2012 - 13:08 | 3093131 francis_sawyer
francis_sawyer's picture

Industrial metal ~ schmendustrial metal... Who needs manufacturing any more when all Benny has to do is print more joobux?...

Mon, 12/24/2012 - 13:10 | 3093134 r101958
r101958's picture

The 'BS Gap' is an apt name. Or the 'Perception vs Reality Divergence Gap'. Pair this up with the BDI and you have a home run!

Mon, 12/24/2012 - 13:17 | 3093157 MichiganMilitiaMan
MichiganMilitiaMan's picture

"Paging Dr. Gold, Paging Dr. Gold, Code Blue world economy"

Mon, 12/24/2012 - 13:16 | 3093159 Flakmeister
Flakmeister's picture

Chart porn of the highest degree...

Mon, 12/24/2012 - 13:27 | 3093193 edb5s
edb5s's picture

What exactly is the calculation used in this chart for copper to gold?  Every other copper to gold ratio I can find is below 1.  What am I missing here?

Mon, 12/24/2012 - 13:44 | 3093239 negative rates
negative rates's picture

That peoples confidence in their ability to retire, depends on the S&P being above 1400. 1399 and I'm workin for another year mentality, or changing my retirement plans. The more you cross over that threshold, the more old people fall as they try to juggle their finances, just ask Hillary, she forgot about that portfolio nobody but her and her advisor knew about. Oh well, shadow banks.

Mon, 12/24/2012 - 14:58 | 3093441 onebir
onebir's picture

Maybe it's based on the values of copper & gold futures contracts; the different amounts in each contract affects the ratio...

(That said, it doesn't work for Comex contract specs; 25000 lbs copper @$3.54/lb vs 100 troz gold @$1659/troz.)

Mon, 12/24/2012 - 13:33 | 3093214 Oldwood
Oldwood's picture

Convergence is trepidation whereas divergence is euphoria. Emotion driven markets rule! You have to BTFD when its down and jump on the bandwagon when its going up. How can you possibly go wrong? Fundamentals are for old fogies.

Mon, 12/24/2012 - 13:56 | 3093268 bugs_
bugs_'s picture

deflation takes a licking and keeps on ticking.

Mon, 12/24/2012 - 14:20 | 3093325 max2205
max2205's picture

The thought process is if we can keep the market up till the economy gets better then the market will continue to go higher. It might not

Mon, 12/24/2012 - 14:32 | 3093356 eddiebe
eddiebe's picture

Smart really doesnt matter anymore. What matters is being able to suck on Benny's ....

Mon, 12/24/2012 - 14:32 | 3093357 larz
larz's picture

we all can agree with the good doctor but can you help me with timing?!??? when?!!!!

Mon, 12/24/2012 - 15:05 | 3093464 Steve in Greensboro
Steve in Greensboro's picture

Probably no divergence if you compared copper/gold to S&P/gold.

Mon, 12/24/2012 - 15:13 | 3093485 sablya
sablya's picture

Wrong, there is an obvious divergence even without gold in the picture.  Here is a weekly chart comparing $copper to $SPX

 

http://stockcharts.com/h-sc/ui?s=$COPPER&p=W&b=5&g=0&id=p23892619436

 

Mon, 12/24/2012 - 16:44 | 3093637 AynRandFan
AynRandFan's picture

Isn't the fall-off in CU demand due to the overbuilt housing markets in China, Vietnam and the rest of SE Asia?  If so, what is the connection to the S&P 500?

Mon, 12/24/2012 - 15:11 | 3093481 aminorex
aminorex's picture

If you pushed this chart back to 1990 copper would look overextended and the market underpriced.  It's all in the timing, folks.

Mon, 12/24/2012 - 15:12 | 3093484 All Out Of Bubblegum
All Out Of Bubblegum's picture

Sounds like a good time to buy copper. Metals will go through the roof when the paper balloon pops.

Mon, 12/24/2012 - 21:51 | 3094027 Go Tribe
Go Tribe's picture

Local coin shop is now selling copper bars. Ridiculous I think.

Mon, 12/24/2012 - 15:39 | 3093540 ensomnoledge
ensomnoledge's picture

 

Check out 1998 to 2000.  Market rallied while copper initially languished.  Cu:Au not a perfect indicator.

Tue, 12/25/2012 - 22:56 | 3095600 sun tzu
sun tzu's picture

Didn't the market eventually crash in early 2000?

Mon, 12/24/2012 - 16:01 | 3093576 fuu
fuu's picture

Fuck you Ken Landon.

Tue, 12/25/2012 - 03:17 | 3094321 Yen Cross
Yen Cross's picture

 Fuu you have balls/

Wed, 12/26/2012 - 10:26 | 3096011 fuu
fuu's picture

I don't really like JPM.

Mon, 12/24/2012 - 16:39 | 3093634 AynRandFan
AynRandFan's picture

CU/AU ratio, meaning simply that copper prices have not advanced as fast as gold.  That has nothing to do with whether the S&P 500 is overvalued or whether economic growth is stalled.

Mish mash.

Mon, 12/24/2012 - 16:46 | 3093639 AynRandFan
AynRandFan's picture

A much more interesting question would be why have gold prices not responded to QE Infinity and QE4evr.

Mon, 12/24/2012 - 16:47 | 3093641 PeteJE
PeteJE's picture

These constant coorelation charts here are meaningless.  (not to say we aren't already in a bear that started first week of Oct. 2012).  Its just these charts make me laugh as it looks like there is meaning in them, when there isn't really any; either one of those lines could converge to find your parity back and acting like you know which one is "wrong" is a really stupid way to approach market prediction.

 

Mon, 12/24/2012 - 16:48 | 3093642 TWSceptic
TWSceptic's picture

But I thought Mr. Bernanke could print prosperity? I guess if he just prints faster it can work, no?

Mon, 12/24/2012 - 17:46 | 3093737 Never One Roach
Never One Roach's picture

What is the price of PMs doing in Japan? Abe has promised serious printing so we should see a serious rise in PMs priced in yen, yes?

Mon, 12/24/2012 - 19:59 | 3093931 one_fell_swoop
one_fell_swoop's picture

OVERLAY TWO CHARTS. IMPLY OUTCOME.

Tue, 12/25/2012 - 16:46 | 3095176 Venerability
Venerability's picture

I thought I posted this already, so if someone removed it for propaganda purposes, they should be very ashamed:

Rash of strikes by copper workers in Latin America. Major one began yesterday, in fact.

Ergo, Dr. Copper looks pretty darn good, no matter what the rest of the Commodity Complex is doing. 

 

 

Tue, 12/25/2012 - 16:48 | 3095178 Venerability
Venerability's picture

Zero Hedge needs to police this, if some posters are hacking into the site and deleting posts because they don't jibe with their propaganda push.

Tue, 12/25/2012 - 18:07 | 3095281 the_market
the_market's picture

Copper warehouses especially in China, the world's largest copper importer, are already filled due to the cheap prices. So where should a sudden copper demand come from? I'd say the relationship shown in the graph is not systematic...

Tue, 12/25/2012 - 21:36 | 3095514 pfairley
pfairley's picture

'Doing anything but' ...double negative creativity.... doesn't make it better writing.

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