Australian Investment Blog

The Copper Price implies no economic recovery on the horizonGood morning everyoneOverviewThe financial press often refers to copper as "Dr Copper" due to its historically unique ability to forecast economic trends so with it falling another 13% this month concerns are rising!This relationship makes sense because copper is used in most sectors of the economy e.g. homes, factories, electronics leading to the base metal being view as a reliable economic indicator. We currently have a slowing Chinese economy in the mix which has an enormous influence on the copper price but not as much on the US / European economies; hence perhaps the ‘Dr Copper’ effect might be diluted from a world perspective this time around.Nevertheless, it is the Chinese economy and base metal prices that have a profound effect on the Australian economy and related share prices.Turning to the MarketsMarket Matters has been, and remains, bearish copper since Market Matters began, targeting sub 150 - still 25% below today's prices - see chart 1. This prediction was based on concern over China going forward and a very bearish technical chart pattern.Obviously this was a big call when copper was trading close to 350 as was the call for BHP to fall from the mid $30 region to around $20 BUT never underestimate what the market can do!Interestingly, Copper, the BHP ADR market and Newcrest Mining (NCM) long term charts all have very similar "false breakout" characteristics that have a high statistical negative ramification- see charts 1, 2 & 3.The Market Matters call has not directly made money but the 100% avoidance of the resources space apart from the occasional trade and a very recent aggressive BHP play has saved an enormous amount of money and stress.