Global Copper Market Still Signaling Growth

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Posted: Feb 21, 2018 9:33 AM
Global Copper Market Still Signaling Growth

Every quarter I do a webinar presentation and conference call for Kingdom Advisors where I am Resident Economist. I look back at market data and then use that market data to get some handle on what the economy will be like in the future. In other words, I use markets to form a forecast. Why do I do it that way? Because I believe that in a multitude of counselors there is safety, which is the way King Solomon put it. These days people call it 'the wisdom of crowds'.

The basic idea is that experts can never know as much as everybody else put together. As Hayek argued, markets are superior to central planning precisely because most of the knowledge about the world is out in the world, and being observed by the people participating in it. Local entrepreneurs and managers are observing and reacting to their customers who know more about their own intentions than anyone else possibly could. If people buy more houses, then builders build more houses and plumbers buy more pipe and pipe manufacturers buy more copper (or PVC) and copper companies notice that sort of thing, and even look out into the supply chain to anticipate it. Copper moves up in price. No planner could have known that as well as the people in the supply chain could have.

That's why humble economists (a commodity in greater demand than supply) call copper "Dr. Copper" -- that commodity is a better forecaster of economic growth than any actual human PhD. My own analysis shows that copper remains the best forecaster among the commodity group of global economic output.

Copper predicted the Great Recession of 2009. It also signaled the global recession of 2015. This global contraction was unnoticed by global elites who are tied to artificially propped up financial markets for their livelihood, but definitely noticed by the working classes who launched a global populist revolt in response to it. Since the election of Trump, copper has generally been signaling more global growth, moving from roughly 18k dollars per ton, to above 26k at the peak and down into the mid-24k zone recently.

The following video explains precisely how I use copper prices to develop an outlook on the global economy:

As you can see, as of the beginning of this year, market participants were signaling increased optimism about global output. Since the beginning of the year prices have gone down roughly a fifth, but still even after that sell-off are roughly a 3rd higher than when Mr. Trump was elected.

It is very important to keep in mind that while markets might be smarter than economists, they are still made up of people and people are still fallible. Seven billion people know more than several thousand who work in economic forecasting shops, but no human being really knows the future. In addition, markets can become subject to crowd mania, which can drive irrationally high bubble pricing or terribly depressed panic pricing. The data show that markets such as copper (and in future pieces we'll look at stock and bond markets too) generally get the direction of the future economy right, but tend to go to far, overreacting to booms and busts.

You can read more of Jerry's financial analysis at Vident Financial.