
When Dr. Copper (CU), the only commodity with a PhD in economics, suddenly collapses from a heart attack, risk takers everywhere have to sit up and take notice. Since the 2011 top, the red metal has collapsed a shocking 35%.
So called because of its uncanny ability to predict the future of the global economy, copper is warning of dire things to come. The price drop suggests that the great Chinese economic miracle is coming to an end, or is at least facing a substantial slowdown. This dark view is further confirmed by the weakness in the Shanghai index ($SSEC) which has been trading like grim death all year. Will China permabear, Jim Chanos, finally get his dream come true?
It?s a little more complicated than that. Copper is no longer the metal it once was. Because of the lack of a consumer banking system in the Middle Kingdom, individuals are now hoarding 100 pound copper bars and posting them as collateral for loans. Get any weakness of the kind we have seen this year, and lenders panic, dumping their collateral for cash.
The high frequency traders are now in there in force, whipping around prices and creating unprecedented volatility. You can see this also in gold, silver, oil, coal, platinum, and palladium. Notice how they seem to be running the movie on fast forward everywhere these days? Because of this, we could now be seeing an overshoot on the downside in copper which may never actually materialize to this extreme in equities or other asset classes.
Watch Dr. Copper closely. At the first sign of any sustained strength, you should load up on long dated calls for Freeport McMoRan (FCX), the world?s largest producer, which also has been similarly decimated. The gearing in the company is such that a 50% rise in the price of copper triggers a 100% rise in (FCX).
So what is copper telling us today? The longer term charts show a prolonged bottoming process. If this holds, we could be seeing the early days of a resurgence in the global economy. Just get Syria, Egypt, the debt ceiling crisis, and the taper out of the way, and we could be in for a major run. That is a tall order. But just to be safe, I am buying long dated calls in the next major dip in (FCX), which may have started today.
A Penny for Your Thoughts on Copper?
Global Market Comments
August 27, 2013
Fiat Lux
Featured Trade:
(THE TECHNICAL/FUNDAMENTAL TUG OF WAR),
(SPY), (INDU), (IWM),
(AND MY PREDICTION IS?.),
(TESTIMONIAL),
(THERE ARE NO GURUS)
SPDR S&P 500 (SPY)
Dow Jones Industrial Average (INDU)
iShares Russell 2000 Index (IWM)
Global Market Comments
August 26, 2013
Fiat Lux
Featured Trade:
(RIDING WITH TREASURY SECRETARY JACK LEW)
Global Market Comments
August 23, 2013
Fiat Lux
Featured Trade:
(HOW US JOB LOSSES WILL END),
?(FXI), (PIN), (EWY), (VNM),
(OPTIONS FOR THE BEGINNER)
(BRING BACK THE UPTICK RULE!)
iShares China Large-Cap (FXI)
PowerShares India (PIN)
iShares MSCI South Korea Capped (EWY)
Market Vectors Vietnam ETF (VNM)
I strongly urge readers of this letter to log on to Amazon and by a copy of Options for the Beginner and Beyond by W. Edward Olmstead. Options contracts offer investors a wonderful instrument for minimizing risk, while maximizing the upside, and I am going to recommend many more such strategies in the future.
So, if you want to have the slightest idea of what I am talking about, get yourself some grounding in this important field by reading this book. You don?t have to be a math genius to figure this stuff out, and the risk reward benefits are great.
Olmstead, a math professor at Northwestern University, starts out with a basic Options 101 course, going into the merits of puts and calls. He catalogues the exchanges where they are listed, and the vast number of products that can be traded, including stocks, bonds, commodities, currencies, and precious metals.
He goes into the mundane, but important details on the administration side of things, such as settlements. For the more technically inclined, he launches into options theory pricing, and goes into the origins and utility of the Black-Scholes equation. We learn about the arcane world of what traders call ?the Greeks?, the deltas, thetas, and vegas of individual positions. He then launches into basic option strategies, like call and put spreads, ratios, straddles, strangles, collars, and condors.
Don?t let these terms scare you off. It is really much easier than it sounds. In fact, you will be kicking yourself once you find out how easy it is. In order to buy the book at a discounted price and give yourself a genuine trading edge, just click here.
Global Market Comments
August 22, 2013
Fiat Lux
Featured Trade:
(WHY I SOLD OIL),
?(USO), (UNG), (UUP)
(SALUTING THE ?OLD BREED?)
United States Oil (USO)
United States Natural Gas (UNG)
PowerShares DB US Dollar Index Bullish (UUP)
Global Market Comments
August 21, 2013
Fiat Lux
Featured Trade:
(WHY YOU SHOULD BUY THIS DIP),
?(SPX), (IWM), (INDU),
(THE BIPOLAR ECONOMY),
(TESTIMONIAL)
S&P 500 Index (SPX)
iShares Russell 2000 Index (IWM)
DJ Industrial Average (INDU)
Corporate earnings are up big! Great! Buy! No wait! The economy is going down the toilet! Sell! Buy! Sell! Buy! Sell! Help! Anyone would be forgiven for thinking that the stock market has become bipolar. According to the Commerce Department?s Bureau of Economic Analysis, the answer is that corporate profits account for only a small part of the economy. Using the income method of calculating GDP, corporate profits account for only 15% of the reported GDP figure. The remaining components are doing poorly, or are too small to have much of an impact. Wages and salaries are in a three decade long decline. Interest and investment income is falling, because of the low level of interest rates and the collapse of the housing market. Farm incomes are up, but are a small proportion of the total. Income from non-farm unincorporated business, mostly small business, is unimpressive. It gets more complicated than that. A disproportionate share of corporate profits are being earned overseas. So multinationals with a big foreign presence, like Intel, Oracle (ORCL), Caterpillar (CAT), and IBM (IBM), have the most rapidly growing profits and pay the least amount in taxes. They really get to have their cake, and eat it too. Many of their business activities are contributing to foreign GDP?s, like China?s, more than they are here. Those with large domestic businesses, like retailers, earn less, but pay more in tax, as they lack the offshore entities in which to park them. The message here is to not put all your faith in the headlines, but to look at the numbers behind the numbers. Those who bought in anticipation of good corporate profits last month, got those earnings, and then got slaughtered in the marketplace. Caveat emptor. Buyer beware.
What?s In the S&P 500?
Has the Market Become Bipolar?
Global Market Comments
August 20, 2013
Fiat Lux
Featured Trade:
(I?M BACK!)
I sit here at Virgin Atlantic?s upper class lounge at London?s Heathrow airport, awaiting their transcontinental nonstop service to San Francisco, listening to Bach?s Sonata No.1 in G Minor on my headphones. I am returning from a two-month tour of Europe that was highly informative, exciting, and even mind expanding. The proof is the ten new pounds that I am packing under my belt.
Living in the US, all I hear about are America?s weaknesses and the strength?s of foreign countries, mostly China. Traveling abroad, one is barraged with admiration for our country?s strengths and endless mewling about their weaknesses. So to look at the United States objectively, it is necessary to spend a certain amount of time abroad. This I did in spades.
It was first class and five stars all the way. I?m talking palaces, presidential suites, and Michelin three star restaurants. My credit card is worn out, the magnetic strip a mere fragment of its former self, and shall be retired to stud when I get home. PayPal is laughing all the way to the bank. As for my travel blazer, it needs to be shot and buried, being far beyond the reach of even the most diligent dry cleaner.
My global strategy luncheons in London, Amsterdam, Berlin, Frankfurt, Portofino, Mykonos, and Zermatt were a blowout success. Several venues required rebooking to larger facilities to accommodate greater than anticipated numbers.
It appears that a 37% return in a year when everyone else is tearing their hair out is a real crowd draw. All went away with a broadened view of the world, and I picked up some first class intelligence. It was well worth the investment for all.
The adventures came fast and furious. I picked up a new fedora at Locke & Co., just down St. James Street from my old office at The Economist magazine, the firm that supplied Lord Nelson of Trafalgar and all the kings and queens of England with their fine hats. Tea at the Ritz is a people watching experience par excellence.
The red light district in Amsterdam has gone tourist, with families perusing the bikini clad ladies of the evening in the bay windows, who are now mostly from Russia. After a major cleaning job, Rembrandt?s Night Watch looks even better than it did when I first saw it 45 years ago. The international flower market performed a logistical masterpiece that would have done the founders of the original Dutch East India Company proud.
The city of Dresden was a cultural gem long outside my reach in the old communist East Germany. The shadow of the mass firebombing that killed most of the population in 1945 is ever present. Looking at the crown jewels of the Saxon kings, it is easy to understand from where the anti tax movement sprung.
It was an emotional moment for me riding my bicycle across the site of the former Berlin Wall. Where machine guns once threatened, a million flowers now bloom. My deluxe accommodations at the Hotel Adlon were the old wartime Gestapo headquarters. That is a vast improvement over the dilapidated student dormitory where I stayed in the sixties, which, remarkably, is still standing. Goering?s solidly built Air Ministry still exists just down the street, an Art Deco tour de force. Scouring the city?s vintage shops, I managed to score an Italian embroidered suede alpine jacket that fit perfectly for only ?8.
My free afternoon in Frankfurt?s botanical gardens saw me curiously exploring such oddities as barrel cactus, cholla, and octillo, the kinds of flora we have in abundance in the deserts back home.
Portofino, on the Italian Riviera, was beautiful to look at, but was plagued by European summer vacations crowds that are typical for this time of year. One only hoped that the competing Russian oligarchs attempting to maneuver their mega yachts into the village?s tiny harbor didn?t break out into a shooting war. Watching a pod of dolphins race with the bow of our own ship made it all worth it.
The worst nightmare of the trip was the check in at budget Meridian Airlines for the flight to Mykonos. It was me and 200 hard partying Italian kids. The seats were jammed so close together I nearly suffered a double amputation (see photo below). It was so disorganized I barely made the flight. Better to leave the Italians to food, fashion, and race cars, than to running airlines and cruise ships.
With Italy in its third year of recession, the bargains in Milan were to die for. The children are outfitted for the next two years. I even bought clothes for people I didn?t like, and shipped them home in suitcases bought at 50% off. Only the 100 degree heat and the clouds of mosquitoes drove me away from a longer stay. There?s nothing like flaunting death in a taxi racing to the airport at 100 miles per hour tailgating the car in front by ten feet.
Mykonos was the first ?sit on the beach and do nothing? holiday I?ve enjoyed in many years. But I still got a lot of writing done between racing around the island on a beat up quadracycle and the girls dancing on the tables.
I finally made it to the top of the Matterhorn in Switzerland, all 14,800 feet of it. Knock that item off the bucket list. What I hadn?t bargained for was the rescue effort I got involved in on the way down. More on that in a future piece. Zermatt is a fantasy destination that I will keep returning to every year to climb as long as I live. Having just bagged my 45 year pin from the tourist bureau, can I shoot for 90?
I completed my journey by climbing the highest mountain in Wales, Mount Snowdon. The weather was perfect, rare for this part of the world. I took it as a good omen for the future. Scaling rocky crags, the view of the lakes and the Irish Sea was breathtaking. By then I was just plum worn out from traveling, and longed for my own bed and the morning edition of the San Francisco Chronicle, even one soaked by the sprinklers. California wine is looking pretty good right now, with the fall harvest fast upon us.
I return with a new lease on life, my batteries recharged, and chomping at the bit. It doesn?t hurt that my Trade Alert performance is tickling yet another all time high, up 92% since inception two and a half years ago. I?ll get some new Trade Alerts out soon to throw the hard core traders among you some red meat. It is going to be a very good year.
Many thanks for all your support. You, the readers, make it all worth it.
I?m on the plane now, two hours into the Atlantic. Below are the endless glaciers and snowfields of Greenland. I?ve made it all the way to Bach?s Partita No. II in D Minor. Iceland is in our rear view mirror. The stewardess is asking me to make room for my steak and cabernet. So that?s it for now.



















