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Hard to ignore copper price


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#1 nimblebear

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Posted 04 January 2007 - 02:04 PM

from CBS Market watch: NEW YORK (MarketWatch) - A sell-off in commodities -- from copper to crude oil -- over the past few sessions is telling some veteran market watchers that a slowdown in economic growth, likely one of considerable magnitude, is already underway. In the last two sessions, commodity prices seem to have fallen off a cliff. Copper futures, which tumbled 7.7% on Wednesday, were down another 2% on Thursday. Crude oil prices were down more than 2%, following a 4% drop in the previous session. In fact, everything from grains, base metals, livestock, and cotton has been selling off over the past few sessions, notes Dennis Gartman, editor of the investment newsletter The Gartman Letter. "In all, it was an unseemly start to the year [for commodities]," he wrote Thursday. But why would this signal an economic slowdown? Most commodities are used in the production of industrial goods. When producers start demanding fewer raw materials, it becomes noticeable in commodities prices much earlier than in official economic statistics, explains Barry Ritholtz, chief market strategist at Ritholtz Research & Analytics. Copper, in particular, is often used as a reliable economic indicator because of its widespread use in production. "Copper is the metal with a PhD in economics," Ritholtz said. "It's used in the wiring of homes and offices, in plumbing in construction, and it's also a key component in electronic goods. When it softens, it means we're making fewer homes, offices and computers." A fast-falling housing market and cutbacks in automobile production already took a toll on the economy in 2006. Growth as measured by gross domestic product slowed from 5.6% in the first quarter, when it was boosted by a post-Hurricane Katrina recovery, to 2.6% in the second quarter and to an as yet-to-be-finalized estimate of 2% in the third quarter. The manufacturing sector contracted in November and barely grew in December, while retail sales over the holidays have investors wonder whether consumers are starting to feel pinched. See full story. Similarly, the big drop in oil prices in recent months is raising concerns. Besides being used in the production of plastics found in many finished goods, oil is also used for the transport of goods across the globe, Ritholtz points out. Many market strategists look to transportation indices, such as the American Trucking Association's Truck Tonnage Index as another indicator of U.S. economic health. That index plunged 3.6% in November after a 1.9% drop in October, and is at its lowest level since 2003, the ATA reported. "November 2006 marked the single worst month for for-hire truck tonnage since the last recession," said ATA Chief Economist Bob Costello. "Both the month-to-month and year-over-year decreases indicate that the economic slowdown is in full gear. Yet, few investors have picked up on most of these signals. In fact, the Dow Jones Transportation Average ($TRAN : Dow Jones Transportation Average which is also often used as one of the economic indicators for the stock market, began to rebound in late December. That's mostly due to gains in airline stocks, such as Continental Airlines Inc. (CAL : Continental Airlines Inc and AMR Corp. which have risen thanks to falling crude oil prices, helping offset weakness elsewhere in the Dow Transports, according to Ritholtz. Shares of parcel companies such as FedEx Corp. and United Parcel Services Inc. , along with freight transporters such as C.H. Robinson Worldwide Inc. While the market is debating whether the Federal Reserve will cut interest rates later this year to stave off an economic slowdown, few are paying attention to the signals being sent by commodities. "One would have to admit that the recent slide in copper's price seems worrisome, yet there has been little discussion in the media about why this might be happening or its implications," said Richard Bernstein, chief investment strategist at Merrill Lynch, in a recent note. Merrill metals analyst Vicky Binns is predicting that copper could fall an additional 30% in 2007, while sector strategist Brian Belski lowered his rating on the materials sector to an underweight on Wednesday. Merrill Lynch chief economist Dave Rosenberg, meanwhile, has noted that should the economy rebound in the first quarter, it would prevent the Federal Reserve from cutting interest rates as early as the market was hoping. "Dave is quick to point out that such a delay by the Fed will inhibit the economy's growth path through the remainder of the year," Bernstein said. "Perhaps that is what Dr. Copper is already seeing. "Regardless, one should be concerned that observers now seem to be ignoring Dr. Copper as though he (she?) has only a bachelor's degree," the Merrill strategist said.
OTIS.

#2 hiker

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Posted 04 January 2007 - 02:30 PM

you long or short FCX now? just curious as a followup to our posts yesterday...

Edited by hiker, 04 January 2007 - 02:31 PM.


#3 Chilidawgz

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Posted 04 January 2007 - 02:36 PM

This is exaxtly what you want to see from the charlatans and shysters on CNBC and marketwatch:

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