This metal has been mined for thousands of years. Copper has a very high thermal and electrical conductivity. Pure copper is soft and has a reddish-orange color. Most copper is mined from large, open-pit mines. Chile is the top mine producer of the metal, followed by the U.S. Copper is used in electrical wires, plumbing, roofing, and various industrial uses in machines. In many instances, copper is used in place of aluminum because it is a better electrical conductor. Since it is waterproof, it has been used as roofing material. The green color of copper occurs when it is oxidized over a long period of time.
It’s no secret that China is the biggest market for numerous raw materials, such as cement, steel, coal, copper, and oil, along with end-products, such as vehicles and mobile phones.
The growth of the middle class and wages in the country is the vital attraction for companies to go and set up shop there. Credit Suisse estimates the household wealth in the country will double to $35.0 trillion by around 2015, based on achieving sustainable gross domestic product (GDP) growth at or near the current growth rate. Moreover, the government’s strategy to drive domestic consumption will also help to push up the demand for goods and services.
An area in the Chinese economy that I continue to believe has tremendous long-term potential is the auto sector, but the short-term will pose some hurdles due to some buying limits imposed by the government.
The Chinese motor vehicle market is the largest in the world, and it continues to distance itself from the United States. The upward demand for vehicles remains in spite of the government’s efforts to limit vehicle sales in many of China’s largest cities in an attempt to cut pollution.
As a potential market for vehicles, China remains tops. Auto sales surged 16% in November following a 24% jump in October, according to the China Association of Automobile Manufacturers. (Source: China Association of Automobile Manufacturers web site, last accessed December 11, 2013.) About 1.7 million vehicles were sold for an annualized growth of 20.4 million. By comparison, sales of autos increased nine percent in the United States in November to an annualized rate of 16.4 million vehicles, according … Read More
Historically, key stock indices and the price of copper have moved in line with each other. Why? The relationship is very simple: copper is an industrial metal, and when demand for it is increasing (and its price rises), it means companies in the economy are producing and selling more. Investors usually take that as a bullish signal for key stock indices.
But today, we see copper prices and key stock indices moving in the opposite direction of each other.
Below, I’ve put together a chart that shows the action of both the S&P 500 (top of chart) and copper prices (bottom of chart). The chart shows that since 2011, the S&P 500 and copper prices have been moving farther apart.
But the chart of the S&P 500 above doesn’t just show its relationship with copper; it also shows that volume on the S&P 500 has been declining. Look at the bars just below the rising trend of the S&P 500, and you will see I have drawn a line showing a significant decline in volume on the S&P 500—fewer and fewer shares are being traded despite the index trading near an all-time high.
Historically, and like any asset, prices rise when demand rises. But today, we have the S&P 500 moving higher on declining volume—a historical omen for the markets!
And corporate revenue growth (the mainstream focuses on corporate “earnings”) are worrisome, too.
We are in the midst of the third-quarter earnings season. As of October 18, of the 97 companies in the S&P 500 that have reported, 69% of the companies have reported earnings above … Read More
America has a national debt that is nearing $17.0 trillion. The Chinese own a good portion of this debt. The country also has about $3.5 trillion in foreign exchange reserves at its disposal, according to the South China Morning Post. (Source: “Beijing to create forex investment agency,” China Economic Review, August 7, 2013.)
That’s a lot of money that needs to be invested. But according to the article, the People’s Bank of China (PBC) is looking at the development of a new unit that will help to invest the funds. Currently, investing the reserves is the responsibility of China Investment Corporation, which has invested about $480 billion.
What I see is this: the continued movement of invested capital into foreign countries by China is a strategy for diversification and a means by which the country can get its hands on raw materials and intellectual property. We saw this with the acquisition of mining and oil companies in North America, along with major investments in the oil fields and mines in South Africa.
Call it the “Red Invasion,” but I expect foreign acquisitions to pick up going forward, especially with the creation of another agency by the PBC. Of course, China has its eyes on many companies, but receiving approval for the takeovers is another question.
Even the proposed takeover of pork producer Smithfield Foods, Inc. (NYSE/SFD) by Shuanghui International Holdings Limited was met with some resistance, but now it looks like the deal will go through.
While an economic slowdown is looming over the global economy, no one seems to care, as stock markets continue to reach new record-highs—giving investors false hopes of economic growth. But how long can this mirage actually last?
The economic slowdown in the global economy I’m talking about is a worldwide pullback in growth. Take India as the first example. According to India’s Central Statistics Office, the Indian economy is growing at five percent—its slowest pace in a decade! The director general of the Confederation of Indian Industry was quoted late last week as saying, “With no visible pick-up in any key levers of the economy, the situation remains grim.” (Source: Mallet, V., “India records slowest growth in a decade,” Financial Times, May 31, 2013.)
China, the second-biggest economic hub in the global economy, is facing headwinds, as its economy is growing at its slowest pace since 2009. Japan has undergone the largest per-capita quantitative easing program in history (its debt-to-gross domestic product [GDP] is running above 200%), and that country is back in a recession.
The unemployment rate in the eurozone was reported last week at 12.2% for April. It was 12.1% in March. The unemployment rate in Spain stood at 26.8 % and in Portugal, it stood at 17.8%. (Source: Eurostat web site, May 31, 2013.)
And industrial metal prices, which are supposed to be a leading indicator, are all heading downward.
Take a look at the chart below of the Dow Jones-UBS Industrial Metals Index. This index provides an overall picture of the performance of industrial metals.
Chart courtesy of www.StockCharts.com
Since the beginning of the … Read More
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