Dr. Copper Says Look Out Below

By Walter Kurtz, Sober Look

The dislocation between US equities and Brent crude (discussed here) is by no means unique. A very similar picture is developing between S&P500 and copper. And as with oil, one can blame it on supply fundamentals, but the reality has more to do with a sharp deterioration in global demand asĀ world economies slow.

Miller Tabak : – Traders often refer to the red metal as Dr. Copper because it is the only one that has a PhD in economics, and tends to be a great leading indicator of economic conditions. If you follow that thesis, and go by recent trends, Copper could be telling an ugly story for equities.

Copper first bottomed in December 2008, while the S&P waited until March 2009. In 2010, Copper made its low for the year in June, vs. July for the S&P. The 2011 peak in Copper was February, vs. May for the S&P. 2012 is almost identical to last year, with Copper again topping out in Feb., while the S&P made its high in March. There are no guarantees that Copper will make a new low for the year, and even if it does that equities will follow, but it certainly bears watching given the historical significance of the relationship.

Copper vs. S&P500

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Sober Look

Sober Look

Sober Look was founded by Walter Kurtz, a New York based hedge fund manager and credit markets specialist.

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  • Bond Vigilante

    That’s one of my favourite indicators as well.

  • http://www.conventionalwisdumb.com Conventional Wisdumb


    So what do you think?

    Assuming that all of the stories of “Chinese stockpiles” of copper (seemingly it is being used as a shadow currency) are true that means demand will continue to fall off and prices have to go lower.

  • Bond Vigilante

    I wouldn’t be surprised to see copper to down say $ 1 or $ 1.50 again. Keep in mind: when a central bank injects “money”” into the system that money will be used for something. And after 2008 that money went into speculation with e.g. copper. And the PBoC increased money supply with some 30% after 2008. No wonder, a lot of chinese speculated on a rise of the copper price. “shadow currency” ? LOL ! Pure speculation !

  • http://www.conventionalwisdumb.com Conventional Wisdumb

    “copper to down say $ 1 or $ 1.50 again.”

    I guess based upon that prognosis, and assuming the S&P follows along we are going to be in for one hell of drawdown in the year ahead.

    How’s your track record? :)

  • Bond Vigilante

    We’ll simply get a new economic/financial crisis and then copper will at some point trade slightly below production costs and that is at about $1.

    And what about a Dow-Gold ratio of 1. Even IF gold would stay at the current level of about $ 1550 then it would mean a Dow of about 1500 as well. Keep in mind that the last time we saw a Dow Jones at 1000 was in the very early 1980s.

  • anon

    Yep China demand certainly is the key for copper – they have been the huge marginal consumer over the past decade.

    If China demand does fall right off I don’t see any reason why copper couldn’t return to its average price during the ’90’s (somewhere around $1/lb)