They say that copper is the only metal with a PhD in economics. If this is true, than it is probably worth listening to right now. In the graphic above, I've added a few markers to help guide us through a common pattern we notice when assets bottom in price. What we see here is a large initial move from a downward/sideways price trend. Now, copper has spent the better part of 9 months doing nothing but moving sideways. Since asset prices typically move in a stair-step fashion, the price move in the prior year would be considered the initial move. Since it is usually most profitable (but also riskiest) to get in early, I would be paying attention here.
There are broader economic implications at work here as well. Copper is considered a "base-metal" versus, say gold or silver which are considered "precious-metals." Observing the price behavior copper as well as other base-metals, such as nickle or aluminum, can give investors clues about the coming direction of the economy. Since price is usually a better predictor of the news than the news is a predictor of price, I find it critical to simply watch price and shut out the news.
A further upward move in the price of copper and other base-metals could be telegraphing that strong economic growth is in our future. This economic thesis is, well, let's just say a bit non-consensus right now. I find most individual investors fairly pessimistic about future economic growth. And really, who can fault them. If one reads the newspaper or watches the news, these media outlets have certainly created quite a stir. Again, this is why it is so important to watch price. It is really the only thing that pays you. So if copper is really a harbinger of good news, this should have major implications on asset allocation strategy right now. It is just what the good doctor ordered!
Cheers!
P. Franklin, Jr.
July 14th, 2017
All opinions and estimates included in this communication constitute the author’s judgment as of the date of this report and are subject to change without notice. This communication is for informational purposes only. It is not intended as an offer or solicitation with respect to the purchase or sale of any security. This information is subject to change at any time, based on market and other conditions. Any forward looking statements are just opinions – not a statement of fact.
Investing may involve risk including loss of principal. Investment returns, particularly over shorter time periods are highly dependent on trends in the various investment markets. Past performance does not guarantee future results.