Caution, Copper Cache
Research for Online Investors

by John Dalt

7/30/09

Copper has been on a run since bottoming at the beginning of the year.  Freeport McMoRan (FCX) has been one of our favorite plays in the SwingTrader and a recommended buy in the Long-Term Portfolio.  Bloomberg has a timely story on current market conditions in base metals.  The 76% rally in copper has occurred because of China buying to build inventories.  They have pulled back from the market in the last thirty days as they may have stockpiled more than they need until the economy recovers.

This could be devastating to FCX, if sales slow and prices start trending down.  To put the importance of the price of copper in perspective, FCX’s second quarter earnings were $588 million, every 10-cent change in the price of copper costs the company $260 million in cash flow.  That sounds like a good warning that FCX could be giving up some of their recent gains.  You can read Bloomberg’s complete story on “Copper Peaking.”

Durable goods orders fell in June by 2.5%, the biggest drop since January.  The Federal Reserve’s “Beige Book” was published yesterday and called economic activity in the Southeast, “generally weak.”  You can read an expanded story on the Beige Book.

I came across some statistics that you may want to keep in mind, when your Congressman or Senator is in the neighborhood next month.

1. Our monthly interest payment on the national debt is now $26 billion and going UP. 
2. Our 2009 deficit is now over $1 trillion, and climbing. 
3. According to Oh! Bama’s budget annual interest by 2019 will be more than $800 billion, probably a lot more. 
4. State budgets are over $500 billion in the red this year. 
5. Unemployment is heading over 10% by fall. 

You might want to ask, “What legislation have you passed to cut spending?”  Or maybe, “What legislation have you voted for that increased spending?”  Or maybe, “When are you up for re-election?” You can research their record ahead of time on the internet, and ask them, “Why did you vote for Bailout, Stimulus, Carbon Tax, Health Care?”, or any combination of the gigantic budget busting socialist programs.

Here is the Senate voting records by bill, and the House of Representative voting records by bill.

I warn you, once you start looking at how these guys vote on amendments and procedures, you will begin to realize they may not be representing their record accurately, to the "folks back home.”

The "blue dog" democrats are just political cover.  After a lot of hand wringing, they have agreed to a compromise.  Did this compromise do anything to stop the takeover of our health care by the government?  NO.  It is hard not to be cynical.  It is amazing that when the public is against a bill solidly, a group is championed to hold back the tide of waste.  They go into secret negotiations, and miracle of miracles in a few days come out with a compromise.  And it looks just like the original bill.  The original authors cry at the changes that were made.  They don't know if they can support it.  The fix is in.

The market is bouncing off 1000 on the S&P 500, we expect a pull back to the mid 900’s on the S&P 500.  The market wants to go higher; a small pull back would allow investors to jump on board.

Last week, several companies (i.e. Ford, eBay and AT&T) reported better than expected earnings and the stock market rallied on the news. While some companies have reported better than expected earnings for the second quarter, others have struggled. Today's chart provides some perspective on the current earnings environment by focusing on yearly S&P 500 earnings. Today's chart illustrates how earnings are expected to have declined over 98% since peaking in Q3 2007.  This is the largest decline on record (the data goes back to 1936). In fact, real earnings have dropped to a record low and if current estimates hold, Q3 2009 will see the first 12-month period during which S&P 500 earnings are negative.

Subcriber Frank C. writes:

I think the reader that cancelled their subscription may have misunderstood, and thought you wrote, "treat and sterilize, then deport."

Thanks to those of you who have already posted questions for “Ask John”, except for C.F. who asked me how to analyze what to do about his friends that were drinking all his profits after work.  I wrote him that this was obviously lack of research on his part before he entered the “trade”, or required a hard “trailing stop loss”.

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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