The Incredible Doctor Copper
No, he’s nothing like DR. Pepper, Dr. Scholl, or Doc Marten.
”Doctor Copper” is an investing genius. The term Doctor Copper is stock market lingo for this metal that is thought to have a "Ph.D. in economics" because of its ability to predict turning points in the global economy. Because of copper's widespread applications in most sectors of the economy—from homes and factories to electronics and power generation and transmission—demand for copper is often viewed as a reliable leading indicator of economic health. This demand is reflected in the market price of copper.
Copper is an incredibly important tool that may be used as a predictor of future economic activity. This is because copper is used in so many industries. The Copper Development Association (CDA) estimates that copper’s annual production is used 46% in building construction, 21% in electrical, about 16% for transportation with the last 17% used in consumer products and industrial machinery/equipment. And, with wind power generation starting to take hold, clean energy requires tons of copper for motors, generators and wiring.
How good a leading indicator is Dr. Copper? Check out this comparison of the price of copper (dark blue) and the S&P 500 (light blue):
So, what’s Dr. Copper saying today? Here are some recent headlines:
"Dr. Copper" Sounds the Alarm Again! Copper-to-gold Ratio Hits New Low in Over Two Years. From that story: “The Copper-to-gold ratio has long been regarded as an important barometer of investor sentiment and can reflect changes in macroeconomic activity. The ratio was recently at its lowest level since early 2021, suggesting a recession may be imminent. Historically, the "copper-to-gold ratio" has been a leading indicator of nominal interest rates and future economic growth...”
Non-ferrous metals wilt, Dr Copper also under the weather. “Prices of key metals such as copper… …have turned weak and continue to do so. Copper prices are down by about 10 percent from a year ago... …China is to blame for much of the recent fall as...”
Doctor Copper calls in sick in China as metal makers cut production. A slump in demand for the red metal, nicknamed Doctor Copper for the correlation between its consumption and the economic health of a country, highlights troubling signs that China's economy, the world's second largest, is failing to return to its pre-pandemic output.
So, what does this mean to us?
Well, not a tremendous amount, except that it’s an interesting fact. And, when you hear about the price of copper declining, your “spidey sense” may tell you that softer economic times may lie ahead.
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When government - in pursuit of good intentions - tries to rearrange the economy, legislate morality, or help special interests, the cost come in inefficiency, lack of motivation, and loss of freedom. Government should be a referee, not an active player.
- Milton Friedman
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