Dr. Copper Says...
Research for Online Investors

by John Dalt

9/28/11

Dr. Copper, the commodity with a Ph.D. in economics, is telling us all is not well.  Cooper has fallen from $4.22 to $3.25 per pound in the last month. That is 23%, and most of it has come in the last nine trading sessions.  Copper has tried to rally this week but looks to have succumbed to selling pressure.

Copper is telling us the world’s economy is not that healthy.  Healthy businesses need copper for almost everything that gets manufactured.  Electronics, plumbing, wiring harnesses, refrigeration, fungicides, nutritional supplements, some glass and ceramics all need copper.

If we are headed into a recession, history tells us copper could drop as much as 40% before bottoming.  That means we should watch copper for a drop to $2.50-$2.60 as confirmation that “Dr. Copper” is predicting a recession.  Here is a chart of copper for the last three months.

If copper makes it to $2.50 or less the world’s bankers alarm bells are going to go off.  Copper getting cheaper means manufacturing is slowing and prices are going down.  Lower prices sound good to you and I, but to central bankers that sounds like deflation.

All the king’s horses and all the king’s men have been trying to blow air into the deflated balloon of the world’s economy.  Bernanke has pumped over $2.4 trillion dollars of new money out the door of the Federal Reserve.  The “new” European Financial Stability Facility (EFSF) is making plans to borrow money from the ECB to lever their funds five or six times.  We are only one rule away from the ECB starting to print money.

Before this is over, they will…
and Bernanke will bring out QE3.
Count on it if copper hits $2.50

Yesterday late in the afternoon, the Financial Times ran an online article pointing out seven of the eurozone’s seventeen countries want bondholders to take a bigger loss on existing Greek bonds before they vote to increase the European Financial Stability Facility.  Germany and the Netherlands are the most vocal as they say Greece’s credit situation has deteriorated in the last two months.  This article started a slide in the markets that gave back over half of the gains from earlier in the day.

A second bailout for Greece of 109 billion euros was negotiated in June.  Part of that deal was for bondholders to turn in their existing Greek bonds coming due through 2020 in exchange for new European Commission 30-year bonds at a low interest rate.  The banks calculated their losses at 21% on this arrangement.  They agreed to take it as the Greek bonds were only worth what future rescues to Greece allowed in repayment.

Refunding these shorter term bonds took pressure off Greece for the next ten years.  This would allow the country to rebuild their economy without paying principal to bondholders.  Since June, Greek bonds have deceased in value and Chancellor Merkel believes the bondholders should take a larger loss of up to 50%.  This would be more in line with the current market conditions.  You can read the Financial Times article.

You may have heard about the interview Muhtar Kent, Coke’s chief executive, gave the Financial Times.  Mr. Kent’s comments have been widely discussed on TV.  He commented, "In the west, we’re forgetting what really worked twenty years ago.”  He likened China to a well-managed company, “You have a one-stop shop in terms of the Chinese foreign investment agency and local governments are fighting for investment with each other.”

Mr. Kent’s comments about tax policy and politics should wake up Washington.  Do you think they are listening?  He touched on repatriating profits from overseas operations, “A Chinese or Swiss company can do whatever it wants with those funds (earned overseas).  When we want to bring them back, we are faced with a very large tax burden.”  You can watch his interview and read the article at Financial Times.

Quote:
Job creators in America are on strike.---House Speaker John Boehner on CNBC 9/15/11

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.

MarketToday Archive

Back to Top