What Do Metal Prices Tell Us About The Future Of The Stock Market?

Tyler Durden's picture




 

In short? Nothing good.

As the following chart from Morgan Stanley indicates, metal prices tend to be a good predictive indicator of global industrial production. The disturbing finding is that on a year over year basis, metal prices have just gone materially negative for the first time since the Great Financial Crisis, which means global IP is set to follow...

... this in turn means that the upcoming negative IP print will reverberate across all markets, as IP tends to correlate tightly to Global Manufacturing (PMI) data. More importantly, PMI tends to correlate quite closely to global equities...

In other words, for those who still believe in logical, causal relationships (even in a time of ubiqutous central planning) unless something drastically changes to push fundamental demand of metals higher, one could say that the outlook for equities is not good.

Which in turn boils down to another very simple relationship: either China - the biggest marginal setter of metals prices - stimulates, or the world gets it. And a few trillion yen here and there by the BOJ just isn't going to cut it, especially when the schizophrenic Europeans are deleveraging at the sovereign level with one hand, elsewhere called for some reason "austerity" (was "reversion to the mean-ity" taken?) while demanding that the central bank to pick up the slack by levering up (even as the Fed keeps mum in an election year). Ironically it is precisely the asset bubbles created by monetary authorities that are spilling over into China and forcing it to keep a lid on ultimate demand, which in turn is why those few strategists who still think in 2+2=4 terms are quite skeptical the recent melt up on horrendous European and US economic news will last more than a few days.

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Sat, 04/28/2012 - 11:36 | 2382244 rubearish10
rubearish10's picture

Well, it would be sweet to at least see some market volatility to show even a "threat" that this is true. Otherwise, I'm going Fishing!

Sat, 04/28/2012 - 11:48 | 2382265 Future Tense
Future Tense's picture

How about "what do global debt levels tell us about the future of metals?" Excellent look here at how large the debt problem is and how it will be liquidated, excuse me, monetized:

http://www.ftense.com/2012/04/satellite-view-of-global-economy.html

Sat, 04/28/2012 - 13:37 | 2382402 JohnKozac
JohnKozac's picture

Why pay it off? Just inflate it away as we did after WWII.

Sat, 04/28/2012 - 17:10 | 2382678 AldousHuxley
AldousHuxley's picture

America does not drive metal prices.

China does.

Metal prices go up and down depending on Chinese central bank's monetary policy.

 

Americans are still delusional that they are top of the world when the new world order attemp has failed horribly and now all the slaves are awake.

Sat, 04/28/2012 - 20:25 | 2382887 mind_imminst
mind_imminst's picture

Metal prices are still a good indicator of traditional economic growth, but not the only indicator of the information economy. Software engineers make a lot of money without ever driving the price of base metals one way or the other. A big drop in metal prices surely means negative things ahead, but they do not mean AS MUCH as they used to.

Sat, 04/28/2012 - 22:56 | 2383071 NidStyles
NidStyles's picture

Software engineers don't do shit without all of that silver/gold/copper being used to make those electronic devices they are working on.

 

I swear it's like the logic gap is getting wider with each new generation, none of you seem to be able to understand that there is no single isolated sector. They are all interconnected in some fashion.

Sun, 04/29/2012 - 06:31 | 2383362 Snidley Whipsnae
Snidley Whipsnae's picture

Last I checked no one was garnering calories from software... except the small per centage of the population working on software and being paid for it.

Of course there are those fools that believe that XYZ Pads are edible...

Metals are a far better indicator of future main st economic growth than software. Especially for the 99.9% that are not working on software and cannot afford the constant stream of new toys.

 

Sun, 04/29/2012 - 08:55 | 2383456 blindfaith
blindfaith's picture

dear mind_imminst,

There is a job waiting for you in DC that will make a software salary look like the cheap wages the 99% are learning to live with.

Actually what you have written makes no sense.

Sat, 04/28/2012 - 14:05 | 2382438 Silver Bully
Silver Bully's picture

EXACTLY.

According to this article, gold bugs should fear a drop in equities/global IP.

The $64 trillion dollar question should be: At what point do precious metals decouple from stocks/globalIP/PMI? How would the Fed attempt to stop this? There's also other considerations, such as a certain president's 2nd term to protect. More in depth discussion on when a decoupling could possibly occur would be far more interesting.

 

 

Sun, 04/29/2012 - 06:42 | 2383364 Snidley Whipsnae
Snidley Whipsnae's picture

"At what point do precious metals decouple from stocks/globalIP/PMI? "

Duh... It's happening NOW! What the hell do you believe that China buying crude oil from Iran with gold means?

So, it's not like flipping a switch and the lights suddenly come on at full intensity... more like a light dimmer slider that is raised slowly and the light increases.

BTW, if all paper assets drop 90-100% in value while PMs drop ~50%, the PM holders are still wealthy compared to the paper holders.

It's all relative...

Sun, 04/29/2012 - 09:01 | 2383459 blindfaith
blindfaith's picture

And...if 'they' can move and manuliplate the market with HFT stocks & FX trading then why not metals, miners, etc?  I have yet to hear anyone bring this idea up and discuss it.

Just remember, G.Bush put in place that the big financials DO NOT HAVE TO COVER THEIR SHORT POSITIONS if they are underwater.  They have the market rigged, they can drive the car where ever they want.

Sat, 04/28/2012 - 12:07 | 2382292 garypaul
garypaul's picture

testing

Sat, 04/28/2012 - 11:57 | 2382253 Oh regional Indian
Oh regional Indian's picture

PMI is tanking everywhere. The whole 50 basis point cut that has reverberated through India and Brazil in the last few weeks is a clear sign of this. They simply cannot get the pump primed. It's full of holes. Or stuck valves, same result. india is flagging on so many metrics.

Here is a good "feel" based view on metals, similar trend predicted. Some of you may know the Author.

And we should make a move to recognize LH as the Father of the Buy Silver Movement. I was there.

http://lhmarketwatch.blogspot.com/

ori

Sat, 04/28/2012 - 12:19 | 2382302 owensdrillin
owensdrillin's picture

I'm going to follow Mr. Hendrix's example and buy all I can buy if silver goes under $30. If a movement could be started to buy and take delivery, the comex could be put under. It would only take about five billion dollars to buy all the above ground silver in the world right now.

Max, Jim, Turd, SGS, Jesse, James, Eric, Dan, and all other metal bugs should pick a date within the next month and get the ball rolling. If 150,000 people worldwide bought one thousand ounces of physical on a particular date, we could be done with the manipulation. I am going to pick up my monster box.

My vote is the day after Mother's Day, May 14th, 2012. Let the MF's have one last peaceful day on the 13th and then bring the thing down.

Sat, 04/28/2012 - 13:44 | 2382413 Non Passaran
Non Passaran's picture

I wouldn't be surprised if that landed them into jail (manipulators!).

I bought some this week, allocated.

Sat, 04/28/2012 - 18:12 | 2382747 HungrySeagull
HungrySeagull's picture

I am aiming to buy also if it gets around 30.

I think this may be one of the last calm times before the storm.

I am not concerned with 30, 32 or 36 as long we complete delivery and own the required ounces.

Sun, 04/29/2012 - 06:37 | 2383365 Snidley Whipsnae
Snidley Whipsnae's picture

"If a movement could be started to buy and take delivery, the comex could be put under."

All of us that purchase monster boxes or a few silver coins are doing our share...

Sat, 04/28/2012 - 12:27 | 2382310 disabledvet
disabledvet's picture

"beggar they neighbor" indeed. still "the protectionist walls haven't been lifted yet." the stories from Europe are that "Germans are not welcome outside of Germany" in many places. That is a "political wall" if you will...one that puts further downward pressure on prices as "who can afford anything right now." i think Europe is in a VERY dangerous and DEFLATIONARY condition. "They are where they are" because "zee gold must not be zee sold." This EXACERBATES the economic contraction as "the euro is vastly overvalued" or probably more accurately "the Greenback is totally worthless" making anyone else making something similar "uncompetitive." (Sony versus Apple comes to mind.) This equity market is one the best i have ever seen precisely BECAUSE it is TOTALLY RUTHLESS. You mess up in that space...YOU DIE. Unlike anyone here "i have total belief in the expertise of those trading this market." (most of them are if not on Fast Money talking right to ya' btw but certainly know those who actually are trading this thing. And they are watching YOU AND ME btw!) I obviously am not qualified to do such a thing...nor do we trade either. I AM a newsmaker however...probably one of the biggest in country actually...odd beyond belief of course (though no longer welcome on Seeking Alpha. Oooops!.) I would recommend all of you VIEW "contrary to the Zero Hedge ethos of you just walk in this thing and start trading on goobermint news." The market was up all week...but it masked TOTAL ANNIHILATION in certain companies. When your business model involves "profound illegality" strategic enterprises become, well, strategic enterprises. First and foremost is AT&T...which SURGED higher this week. This is a company that had to fight it's way back into the Dow during the Great Depression folks! "They invented Unix" as well and their accounting software which i used back in the early 90's was INCREDIBLE. You know it today as "Linux"...a true competitor to Microsoft Corporation...based out of Sweden i might add "which isn't having any of the currency disasters of the rest of Europe." That is no accident in my book...

Sat, 04/28/2012 - 14:29 | 2382468 Bananamerican
Bananamerican's picture

translation?

Sun, 04/29/2012 - 14:12 | 2383755 akak
akak's picture

I think the "disabled" portion of his handle tells one all they need to know.

Sat, 04/28/2012 - 12:36 | 2382321 Sudden Debt
Sudden Debt's picture

And allover, tax revenue is dropping like a pig.
And countries can't do budget cuts or this shit turn even worse.

So....

Printing... And keep on printing... Untill there's no more tomorrow....

Sat, 04/28/2012 - 20:31 | 2382893 WolfePaq
WolfePaq's picture

ORI- you mentioned some time ago a good place to buy PM and it was in scottsdale if i am not mistaken... who was that???

Sat, 04/28/2012 - 11:42 | 2382256 razorthin
razorthin's picture

I agree.  The correlation is high.  This could be July of 2007 right now.

Sat, 04/28/2012 - 11:46 | 2382260 Printfaster
Printfaster's picture

You must be joking.

Metal prices are bottoming and when that does the market rockets.

Who are you really Tyler?  Punch drunk Joe Palooka?

Sat, 04/28/2012 - 12:34 | 2382314 disabledvet
disabledvet's picture

there CAN be correlation...but i agree..."there is no inflation." Those trading off that simpleton thesis were exterminated this week. Next up! "The yield hungry investor." Greek yields are still well in excess of 20 percent! "Shall we buy"? Or shall we stay with "gold's worthless yield of zero" as "yields plunge globally."

Sat, 04/28/2012 - 11:46 | 2382261 Oquities
Oquities's picture

if the chinese can fill up their empty cities with japanese fleeing fukushima's coming spent fuel meltdown, then new empty cities can keep the metals in demand and the world economy safe.  disaster capitalism, bitchez!

Sat, 04/28/2012 - 11:49 | 2382266 xtop23
xtop23's picture

Awww Krugman would be so proud.

Sat, 04/28/2012 - 12:39 | 2382330 Sudden Debt
Sudden Debt's picture

Not bad, it would save china's real estate bubble. But I don't think the japanese will want to and the chinese won't stand for it that all these japs invade their country once more.

Sat, 04/28/2012 - 13:19 | 2382379 Oquities
Oquities's picture

i thought my sarcasm might be too subtle, so i threw in the "disaster capitalism bitchez" part for clarification.  since neither were enough, i'll state outright - this was sarcasm!

Sat, 04/28/2012 - 13:51 | 2382418 Will To Live
Sat, 04/28/2012 - 12:52 | 2382344 Sudden Debt
Sudden Debt's picture

-

Sat, 04/28/2012 - 11:47 | 2382264 Stochdoc
Stochdoc's picture

Your analysis is too short term.  Go back to the early 1980s and tell us what happened.

Sat, 04/28/2012 - 11:51 | 2382270 akak
akak's picture

"Metals" is pretty vague.

Which metals are being referred to here --- base, or precious?

It would hardly be logical to lump both categories together.

Sat, 04/28/2012 - 11:54 | 2382273 alexwest
alexwest's picture

good point too ..thanks

alx

Sat, 04/28/2012 - 12:43 | 2382335 disabledvet
disabledvet's picture

gold. the other interesting area is "rare earth metals." once it was revealed that China had a 90 percent monopoly "the stock of molycorp came public and has done nothing but go up" until it collapsed. http://seekingalpha.com/symbol/mcp?source=search_general&s=mcp my guess would be the Obama administration's push for "battery powered everything." ye olde "kickback via bookdeal" thing usually results. stick with the natural gas space..."the government hates it which means there's no corruption in it." makes for clean tech...LITERALLY.

Sat, 04/28/2012 - 12:56 | 2382347 Sudden Debt
Sudden Debt's picture

PM's will also drop hard. It's just paper remember.
To fucking bad That I crashed my car last friday.... Second time in a year.... There go the savings again...:(. Otherwise I would be catching this drop and buy more.
But I do realize that you've got to have enough cash on hand to because I've got like 7k in my checking account left and now I need to take a loan for a freaking car... And just now the metal prices drop so selling some is out of the question..l shit this all sucks....

Sat, 04/28/2012 - 15:36 | 2382542 smiler03
smiler03's picture

Buy a secondhand car. €2000 should get you something perfectly reliable and economical, but not so good if your "image" requires a newer one.

Which is more important, "image and depreciation", or PMs?

Sat, 04/28/2012 - 16:31 | 2382633 Diogenes
Diogenes's picture

I thought in Europe you didn't need a car?

If you write them off at the rate of 2 a year you might want to rethink the whole driving thing. Or at least take a defensive driving class.

Sat, 04/28/2012 - 16:31 | 2382634 deepthoughtless
deepthoughtless's picture

Follow the asterisk in the first chart. "IMF Base Metals"

Were it gold or silver, I think we'd see slightly better than -5% price appreciation for the past 20 years.... :)

Sat, 04/28/2012 - 11:51 | 2382271 walcott
walcott's picture

The Russians have landed. Crack out the Vodka.

Sat, 04/28/2012 - 12:03 | 2382286 xtop23
xtop23's picture

I was wondering about that myself - Conducting drills with Russian military on US soil hrmmmm.

Government worried they might need to have foreign troops fight a proxy war because many of our military would give them the finger?

 

Sat, 04/28/2012 - 12:59 | 2382351 Raymond Reason
Raymond Reason's picture

I've said all along the Russians are the greatest fear of the US-Israeli-UK alliance.  This is the first act of cowering/schmoozing with many more to follow. 

Sat, 04/28/2012 - 18:14 | 2382751 HungrySeagull
HungrySeagull's picture

You gotta be shitting me.

Then again... OMFG.

Sat, 04/28/2012 - 11:53 | 2382272 alexwest
alexwest's picture

##metal prices tend to be a good predictive indicator of global industrial production

where ??? in theory yes.. but there must be lag.. metals need to be digged, extracted, produced , shipped...

what i see is : loosely simialar charts.. thats all..

copper used to be first to turn around.. why? cause housing is most important thing people buy,++ it takes time to plan/built/etc.. so IT WAS GOOD FORWARD LOOKING INDICATOR.. no more.. housing is fucked here 4ever..

#2
and from mathematical standpoint waht we see is spread.. well for every extreme value of spread you cant tell that worst component bottomed, and best is turning down.. it could be quite opposite...

spread is bottomed,and now worst compoment is going to catch up.. its called reversion to mean..

well ,,summing up BULLSHIT AS USUAL

alx

Sat, 04/28/2012 - 12:05 | 2382291 l1b3rty
l1b3rty's picture

The Dollar Vigilante says that in the near term, three months, things will stay where they have this year so far. Others say 1660 gold is a big turning point.

http://silvervigilante.com

Sat, 04/28/2012 - 12:26 | 2382307 jarboejl
jarboejl's picture

Don't forget the mother of all correlations - the muppets-to-muppet master ratio. As we know, there aren't many "suckers" in this market, so I'm cautious at moments like this when fundamentals are divorced from market pricing AND Wall St. hasn't been able to get Ma and Pa in the casino doors just yet...

Sat, 04/28/2012 - 12:43 | 2382334 Doña K
Doña K's picture

Ma and Pa are either unemployed, on welfare, filed for disability, on food stamps, homeless and those who have a little learned to stay out. The only market participants are the 401k, IRA automatic deduction invested people who work hard and have no time to know the truth. they only see their portfolio once a quarter and since it does not look bad, they stay.

Others who are still in the market are gamblers who think that they are smart enough to defeat the system, just like in a casino. But you get better odds in a casino and the rules do not change.

If you are still in the market, you are either delussional (just like our central planners), a masochist or high on coke or psychoanaleptics.  

Hoard gold and silver and sit tight mates.

Sat, 04/28/2012 - 12:46 | 2382339 disabledvet
disabledvet's picture

"inside information" Dona. They know...what YOU know..."and trade off that." FAR safer. I would tax that btw..."not adding value to the system" as they say.

Sat, 04/28/2012 - 13:08 | 2382364 Raymond Reason
Raymond Reason's picture

 

"If you are still in the market, you are either delussional (just like our central planners), a masochist or high on coke or psychoanaleptics."

Or you are an "optimist".  The same person that enables State Lotteries to be viable.   

Sat, 04/28/2012 - 18:16 | 2382753 HungrySeagull
HungrySeagull's picture

Pity the slaves who know nothing of 401k's while grinding out the day's quota.

Two slaves rowing where 5 once rowed as the great Galley of the State adds on above.

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