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Dr. Copper Sends A Deja Vu Warning Signal

Tyler Durden's picture




 

While the world's attention has been focused on a precious metals' slide and a 'dire' 2% correction in stocks, another metal has been sending some ominous signals. So-called Dr. Copper is down 5.5% this week dragging it to negative for the year and highly suggestive (see 2011 and 2012 charts below) of a pending slide in US equities.

The reason for stocks to extend their losses, we believe, comes back to the little known fact that China is the marginal inflation center of the world. When global inflation gets too hot, it will tend to hit China first/hardest given its high food-weighting and energy demand; China then, subtley mind you, complains to the Big-5 Central Banks and an implicit tightening occurs - which then fades global stocks as the liquidity pump dries up.

As we noted recently, the Chinese never had a strong equity tradition and instead the trillions in deposits ($14 trillion last) is mostly going to fund loans used to buy homes (and marginally away from gold). However, the PBoC is clearly nervous and took matters into their own hands - with the largest liquidity withdrawal (tightening) on record in the last week (net repo redemptions). Perhaps, as we have seen again and again, with liquidity all there is left to create 'growth', Dr. Copper's credentials are worth paying attention to.

 

Longer-term, Copper vs Gold (perhaps - growth vs fiat) points to a different picture for stocks...

 

 

But in the short-term, we have seen this picture of Copper and Chinese stocks leading US equities into a downturn twice before since the 2009 lows... and each time, US equities caught down soon after...

 

But the reason appears to be China's clear signal to the world that it won't stand idly by and enable inflation importation - whether for fear of an 'arab spring' like reaction or more simply a bubble-popping need to slow things down... It appears for now, China has taken that latter route with the largest 'net' liquidity withdrawal on record of CNY910bn this week or around USD150bn - as seen in the lower two panes of the chart below...

 

It would appear, just as when inflation reared its head last year, tightening has taken place with the massive easing before hand flowing from stocks and gold (blue and yellow in the chart above) at the margin to real estate... last year this marked the bottom in gold as inflation fears sent the marginal Chinese buyer back into the precious metal - and the levels are around the same this time also.

 

Charts: Bloomberg

 

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Fri, 02/22/2013 - 14:47 | 3267612 SilverIsKing
SilverIsKing's picture

 

 

Yesterday

Up is Up

Down is Down

Left is Left

Right is Right

 

Today

Up is Down

Down is Up

Left is Right

Right is Left

 

In conclusion, we are fucked but only a few of us know it.

Fri, 02/22/2013 - 14:53 | 3267636 max2205
max2205's picture

Good thing Ben is sustaining the markets or we'd be in serious shit

Fri, 02/22/2013 - 15:00 | 3267658 Dr. Richard Head
Dr. Richard Head's picture

So climbing the wall of worry leads to a copper plated fall of reality?

MUST PRINT MOAR!

Fri, 02/22/2013 - 14:48 | 3267614 buzzsaw99
buzzsaw99's picture

Anything silver can do copper can do better, and, it is sold by the pound.

Fri, 02/22/2013 - 14:50 | 3267625 schoolsout
schoolsout's picture

you sure about that?

Fri, 02/22/2013 - 15:41 | 3267771 McMolotov
McMolotov's picture

It makes a really shitty mirror.

Sat, 02/23/2013 - 10:44 | 3269700 blindfaith
blindfaith's picture

readers did not get you drift.  Copper predicts the future.  Copper runs the world, not silver.  When copper drops, you are given fair warning that something is wrong with the world economies.  Someone somewhere will always have a need for copper before silver.

Fri, 02/22/2013 - 14:51 | 3267632 Fuh Querada
Fuh Querada's picture

The vise is tightening around the Chinese scrotums.

Fri, 02/22/2013 - 15:09 | 3267686 disabledvet
disabledvet's picture

What was the name of that Japanese dude who was long with 1,000 tons in a warehouse somewhere again?

Fri, 02/22/2013 - 14:54 | 3267643 otto skorzeny
otto skorzeny's picture

it's getting to be not worth the effort to go rip it out of the walls of foreclosed homes.

Fri, 02/22/2013 - 15:01 | 3267664 Joe Davola
Joe Davola's picture

I'm sure it's coincidence, but whenever there are stories on ZH about copper price falling there is an increase in the number of local news stories about copper thefts.

Fri, 02/22/2013 - 15:08 | 3267683 otto skorzeny
otto skorzeny's picture

I know -right?  this meth doesn't pay for itself

Fri, 02/22/2013 - 15:12 | 3267698 localsavage
localsavage's picture

Sleep is over rated.

Fri, 02/22/2013 - 15:24 | 3267734 otto skorzeny
otto skorzeny's picture

so are teeth and brain cells-I'm down to my last few of both

Fri, 02/22/2013 - 15:55 | 3267830 SheepDog-One
SheepDog-One's picture

Ray knows....rip out your trailer home copper piping for liquor money!

Trailer Park Boys: Ray needs liquor money - YouTube

Fri, 02/22/2013 - 17:25 | 3268179 HomeBrewPrepper
HomeBrewPrepper's picture

You didn't build that.

Fri, 02/22/2013 - 17:30 | 3268201 HomeBrewPrepper
HomeBrewPrepper's picture

You didn't build that.

Fri, 02/22/2013 - 14:59 | 3267657 Sutton
Sutton's picture

Time for Ben to buy more bonds.

Fri, 02/22/2013 - 15:01 | 3267663 Motorhead
Motorhead's picture

Charts, bitchez!

Fri, 02/22/2013 - 15:07 | 3267682 W74
W74's picture

Declining prices in copper means people aren't building/repairing homes, no new factories are being build, no new machines, not too many products and basically just a bell weather for all.

Fri, 02/22/2013 - 15:34 | 3267767 Umh
Umh's picture

a wether or other male sheep that leads the flock, usually bearing a bell.

a male sheep castrated before sexual maturity

Fri, 02/22/2013 - 15:39 | 3267787 McMolotov
McMolotov's picture

Sounds pretty baaaaaad.

Fri, 02/22/2013 - 16:24 | 3267932 Winston Churchill
Winston Churchill's picture

Its very informative to look at the copper price 1929/38.

I know I will be junked again for saying this but silver is todays copper,

I expect them to move in tandem and follow coppers history back then.

I own silver,but I think gold will be the real wealth preserver when SHTF,

which is looking more like it could well  be this year,but next year for sure.

Fri, 02/22/2013 - 15:16 | 3267684 VonManstein
VonManstein's picture

Funny how TAO arcx china real-estate ETF if is topping weekly.

Nice analysis Tyler

I think miners and metals rip next week. I thought it may start today but seems subdued still. 27th next week is an interesting date for PMs

 

Fri, 02/22/2013 - 15:09 | 3267688 Ying-Yang
Ying-Yang's picture

Copper is talking now... saying "Get back down here S&P"

Thanks, your charts are hard to ignore.

Fri, 02/22/2013 - 15:24 | 3267710 JustObserving
JustObserving's picture

instead the trillions in deposits ($14 trillion last) is mostly going to fund loans used to buy homes (and marginally away from gold)

Where do you get marginally away from gold?

Complete BS.   The Chinese consumers are buying less than 1000 tons a year of gold.  That is under $50 billion a year on $14 trillion in deposits.  That is just 0.35%.

If Chinese were buying 1% of their deposits, it would be considerably more than world production.

Besides, property values in China are stratospheric.  The land value in Beijing is considerably more than $20 trillion.  So the Chinese are buying 0.2% in gold in total per year of the land value of only one city in China.  All data shows Chinese consumers buying more, not less.

Fri, 02/22/2013 - 15:29 | 3267751 SKY85hawk
SKY85hawk's picture

Wasn't it 1981 when the Japanese stopped buying Real Estate?

Fri, 02/22/2013 - 17:06 | 3268101 DosZap
DosZap's picture

The Chinese consumers are buying less than 1000 tons a year of gold

Add the Chinese Gv't to that number please.(that WE know of, and never will), until they decide to back the Yuan with it.

Sat, 02/23/2013 - 03:02 | 3269428 Caggge
Caggge's picture

How would the Chinese Gv't back the Yuan with gold? They will let someone audit their supply? Maybe they will just tell people how much they have. Who would trust the audit of their gold? Who would trust what they ever said?

Fri, 02/22/2013 - 15:34 | 3267763 SilverMaples
SilverMaples's picture

Mr. Credit, Cpt. Emerging Markets, Prvt. Oil, Ms. Currencies (except JPY), Lord Gold, Sir Silver and Dr. Copper are all saying the market is totally overbought on a risk-on risk-off analysis. But what is market risk nowadays? Running out of paper? 

Fri, 02/22/2013 - 15:34 | 3267764 earleflorida
earleflorida's picture

remembering copper clad aluminum?  

oh my... the inverse of it all 

Fri, 02/22/2013 - 15:44 | 3267801 Frank N. Beans
Frank N. Beans's picture

my copper clappers are getting clobbered

Fri, 02/22/2013 - 15:54 | 3267833 Glass Seagull
Glass Seagull's picture

 

 

Not another one of those upside-down rallies again!?!?

Fri, 02/22/2013 - 15:56 | 3267836 Rustysilver
Rustysilver's picture

All the copper has been stolen from vacant homes in CT.  Only tar shingles are left.

Sat, 02/23/2013 - 11:17 | 3269729 earleflorida
earleflorida's picture

is there any way we can recycle those tar shingles into shredded feathers? 

..., tarring and zoster'icing the politicians!

Fri, 02/22/2013 - 15:58 | 3267846 SheepDog-One
SheepDog-One's picture

Bernank and his Global Central Bankers can keep pushing on wet noodles all they like, I dont really give a fuck anymore!

Fri, 02/22/2013 - 16:03 | 3267857 Agstacker
Agstacker's picture

I've been buying nickels at the bank for their copper content, the composition will probably be changed to steel by next year.  

Fri, 02/22/2013 - 16:10 | 3267875 davidsmith
davidsmith's picture

Dr. Copper was hauled off to the gulag.  He's a zek.

Fri, 02/22/2013 - 16:12 | 3267882 thismarketisrigged
thismarketisrigged's picture

who is ready for the fed pump at end of day?

 

what a bunch of fuckers

Fri, 02/22/2013 - 16:30 | 3267950 Clowns on Acid
Clowns on Acid's picture

Hey Tyler, if Copper prices go any lower, the fund managers will buy the housing builders as their cost base would be declining.

There is no indicator that can change the fact that the Fed (and BOJ) are committed to printing.

Even the "sequester" is being sold as a 1 time event that will only slightly impact equities. Not enough to negate the free money impact however.

Fri, 02/22/2013 - 16:38 | 3267992 rsnoble
rsnoble's picture

The FCX chart has strong support at $30, we break that look at below.  Trendline wise it's been in a downtrend for 2 years.

I think this is all related to the bs coming up in 2 weeks.  With shit selling off in advance it could rebound.

Yeah I know, a lot of help lol.  I'm just calling levels.  Truthfully it should bounce at $30 but it's looking weak and may rollover thereafter.

Billions are made off these signals before you start crying too much.

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