The Great Copper Crash of 2012

San Francisco Hard Assets Investment Conference 2011 Online Preview

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 July top, the red metal has collapsed a shocking 31%.

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 plumbed new depths this week. 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 over the past two weeks, 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.

From the Diary of a Mad Hedge Fund Trader. The Mad Hedge Fund Trader, John Thomas, will talok about rare earths on Monday, Nov. 28, during the San Francisco Hard Assets Investment Conference, and Tuesday, Nov. 29, during the Hard Assets Rare Earths Investment Conference.

About the Author
The Mad Hedge Fund Trader

John Thomas writes the Diary of a Mad Hedge Fund Trader

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