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Katchum
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Albert Sung is the author of Correlation Economics, monitoring breaking economic news on a day to day basis. He started investing in 2008 because of the economic crisis and holds a masters degree in chemical engineering. Previously, he worked several years as a process engineer at Ashland, a... More
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Correlation Economics
  • Copper Is Setting Up For Take-Off 5 comments
    Jan 29, 2013 12:11 PM | about stocks: CUPM

    Dears, I'm getting increasingly excited with the prospects in the copper market. The contango has yet steepened again, while the copper price is still in an uptrend (Chart 1 and Chart 2). Once the copper contango goes back into backwardation (red dots go down), the copper price will surge.

    The copper price trend is in an ascending phase (Chart 2) and that tells me that stocks will rise (along with gold). Bonds will suffer greatly as the USD will plunge.

    You can bookmark this post and remind me in a month from now.

    (click to enlarge)
    Chart 1: Copper Contango
    (click to enlarge)
    Chart 2: Copper Price

    Stocks: CUPM
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  • ...so in your model the copper price is a leading indicator of stock prices...and backwardation inevitably comes after contango driving copper prices up. Mmm I had more respect for your analysis before this one...
    29 Jan 2013, 03:37 PM Reply Like
  • Author’s reply » We'll see in time if this correlation is correct. It's an experiment.
    29 Jan 2013, 04:12 PM Reply Like
  • copper prices are not correlated to stock prices historically, but to copper supply and demand, so good luck with the experiment, I like more your bitcoin/gold idea :)
    30 Jan 2013, 09:53 AM Reply Like
  • Author’s reply » Maybe not historically, but recently it is correlated. Copper is the life blood of the economy and stocks are the economy.
    30 Jan 2013, 12:32 PM Reply Like
  • Katchum:
    stocks usually forecasts the economy better than economists, but the copper price is driven by a lot of other factors, so using copper prices to bet where stocks are moving is a dangerous proposition:
    QE driven monetary expansion of the dollar, and its cousin the Yuan, and soon the Yen, just taxes consumers more, as they have to pull back discretionary spending to pay for higher commodity costs induced by copper, oil and other correlated input price increases. So the benefits of higher stock prices are soon negated by higher commodity prices, which hurts consumers, sentiment, and the economy, and this causes the stock markets to sell off, and we are right back to where we started: relying on more QE programs to stimulate the economy once again. The policy has been proven a failure by the very need to be continually artificially propping up the economy: Europe, US and China`s end use markets and manufacturing are weaker. Any economic gains in the stock market as a result of the treasury purchases juices up oil, metals and farm prices, so commodity prices are inflated by the policy, not by fundamental commodity demand. Commodity supply shortages as with copper now are exacerbated, because there is not enough bank money to fund copper mines project finance when investment demand for commodities is propelled beyond commodity industrial uses as is happening now. The initial increased benefit of higher stock prices is overtaken by the negative side effect of higher commodity prices.
    31 Jan 2013, 08:59 AM Reply Like
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