The Big Picture - Macro Perspective on the Capital Markets, Economy, Technology, and Digital Media

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“Dr. Copper is telling us that while the U.S. equity markets are being priced by such frivolous things as U.S. holiday retail sales, the global economy is experiencing a deceleration in growth [that will become evident] in the first half of next year.”
-Jason Schenker,  chief economist at Prestige Economics.

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Those of you who believe that markets provide more insights than economists, strategists and pundits — and there is lots of just cause for holding those views — may want to take a closer look at what is coming out of copper market.

For the most part, it is negative economic expectations:

“Despite a raft of good news—rising employment in the U.S., stronger growth in the euro zone and monetary easing in China—”Dr. Copper” believes the global economy is in poorer health than many think.

Among hedge funds and other money managers, bets that copper prices will fall have outpaced positions that would profit from a rise for 11 consecutive weeks. That is known as a “net short” position, and traders said its persistence in the futures market is reminiscent of a similar move that occurred in August 2008 ahead of the financial crisis.

The belief that prices will continue to fall—futures are down 4.6% since late September and have lost 20% year to date—points to expectations for lower demand for copper. The metal’s widespread applications in manufacturing and construction have earned it the moniker Dr. Copper because changes in price tend to augur changes in the economic cycle.”

Note that S&P500 is up since October, while Copper (December delivery)is down 0.6% over the same period . . .

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Source:
Copper Bets Flash a Warning
TATYANA SHUMSKY
WSJ, DECEMBER 8, 2011
http://online.wsj.com/article/SB10001424052970204319004577084682908714066.html

FusionIQ’s Kevin Lane notes:  Copper as seen on this weekly chart through last tick has broken two supports first near $ 50.00 (red line) and second (green line) near $ 46.00 – this free fall on volume is more indication that the market believes we are in a recession given copper’s ties as an economic metal.

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Copper Trend (2008-11)

Source: FusionIQ

Doug Kass points us to this chart (from “Fast Money’s” Steve Cortes) depicting copper’s price with the S&P 500.

Source: Bloomberg

click for ginormous chart

Source: Bianco Research, LLC
Charts Of The Week, September 21, 2011

Funny how the war in Libya and the price of Oil have slipped off the radar. Here is a quick reminder of the significance of revolution in this Oil rich country:

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Source: Libya Oil Exports
WhoWhatWhy, August 31, 2011

Its a slow holiday week, and with the end of August on us, we can have a little fun with the maps below from floatingsheep. They have mapped the price variants of marijuana across the country. Yellow = more expensive, Darker green = lower price. (There are no controls indicated for quality of product or THC density).

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A Caveat: The analysis was based on data from the Price of Weed, a user-managed source that tries to paint a geographic picture of ganja cost. We can assume the folks who use that site perhaps might not always be the most reliable sources.

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Source:
Price of Weed Flowing Data, August 29, 2011

Given the spike in copper and oil (but not gold), perhaps its time to take a look this long term chart of commodities:

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Source: BLS, FactSet, J.P. Morgan Asset Management.
Data reflect most recently available as of 6/30/11.

Source: JP Morgan funds

Click to Enlarge:

Source:
The World By Its Resources,
Awesome Info Graphics, August 17, 2011

click for larger graphic

Recalculated with base of 100.

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Gold! Are a new class of investors treating it like Treasuries?

The evidence: A stunningly high correlation of Gold to 20+ Year Treasuries (Symbol: TLT) from July 21 through August 16 is 0.89. Over that period, Gold is up 12.3%, while Treasuries up 11.8% (not counting today’s spasm).

Contrast this to a correlation of 0.5 over the periods July 21, 2009 – July 21, 2011 and it appears Gold and Treasuries are now behaving as one and the same, moving in lockstep fashion. Of course, Treasuries are a much broader and deeper market, and a move in Bonds represents trillions of dollars of activity, versus Gold, which is orders of magnitude smaller.

Perhaps investors who might otherwise flock to Treasuries during risk-off modes are now flocking to Gold? After all, S&P cannot downgrade a metal…

Source:
Michael A. Gayed, CFA
Chief Investment Strategist
Pension Partners, LLC

Michael A. Gayed, CFA is Chief Investment Strategist at Pension Partners, where he structures portfolios. Prior to this role, Michael served as a Portfolio Manager for a large international investment group, trading long/short investment ideas in an effort to capture excess returns. In 2007, he launched his own long/short hedge fund, using various trading strategies focused on taking advantage of stock market anomalies. Michael earned his B.S. from New York University, and is a CFA Charterholder.

One of the more interesting things you will read this weekend is the Sunday NYT Magazine’s spread on legendary investor Jeremy Grantham. GMO’s chief strategist discusses quite a few topics ranging from investing to global warming to commodity plays to doom & gloom. (Yeah, I have a few words in it).

There are a number of parts of this article I find intriguing, but I found the issue of framing particularly fascinating. In the US, the issue of Global Warming generates a paltry response — but reframe the question as one of finite resources, and everyone pays attention. Its as if we Americans have become the Ferengi of the planet, obsessed with profit and trade and swindling people into bad deals.

Regardless, the article is rather compelling. I’ll skip my excerpt and point you to the framing discussion:

“Having missed a once-in-a-generation legislative opportunity to address climate change, American environmentalists are looking for new strategies. Grantham believes that the best approach may be to recast global warming, which depresses crop yields and worsens soil erosion, as a factor contributing to resource depletion. “People are naturally much more responsive to finite resources than they are to climate change,” he said. “Global warming is bad news. Finite resources is investment advice.” He believes this shift in emphasis plays to Americans’ strength. “Americans are just about the worst at dealing with long-term problems, down there with Uzbekistan,” he said, “but they respond to a market signal better than almost anyone. They roll the dice bigger and quicker than most.”

Not that it’s always easy to derive usable market signals from Grantham’s letters. Ben Inker, GMO’s head of asset allocation, told me: “Just because he’s right and we know something’s going to happen doesn’t mean that we have a brilliant way to make money on it right now. In this industry people want to be right this quarter. Often, they read the letter, and they’re wondering, What would we do about that?”

But among the ways investors might respond to limited resources, beyond simply trying to grab up a lot of what Grantham calls “stuff in the ground,” are many that also address climate change: for instance, investing in farms and forests managed for the long haul, or in companies that retrofit buildings for energy efficiency, build ultralight vehicles or develop non-hydrocarbon-based power.

“There’s an 80-20 overlap between sensible behavior on resource limitation and sensible behavior on climate change,” Ramsay Ravenel, the executive director of the Grantham Foundation, says. “A lot of his audience isn’t that receptive to messaging on the world’s environment going to hell, but they are receptive to resource limitation.”

Fascinating stuff.

The entire article is well worth a read . . .

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Source:
Can Jeremy Grantham Profit From Ecological Mayhem?
CARLO ROTELLA
NYT, August 11, 2011
http://www.nytimes.com/2011/08/14/magazine/can-jeremy-grantham-profit-from-ecological-mayhem.html?_r=2&ref=magazine&pagewanted=all