Albert Edwards of Société Générale is one of the longest-tenured strategists of global securities markets around. He’s very smart. He foresaw the problems that would result in the peripheral EU countries from the very beginning. He predicted long ago the current condition of globally low interest rates and slow growth, which he dubbed the “ice age.” It took a more uplifting spin by marketing juggernaut Pimco, which called the situation the “new normal,” before the idea gained wide acceptance.
In some sense, Mr. Edwards’ predictions are …well, predictable. He’s almost always bearish.
He’s currently listening to “Dr. Copper,” whose price has been falling since the beginning of the year. Mr. Edwards likens today’s situation to that in 2007, when a swoon in the red metal (it ultimately lost 2/3 of its value) presaged recession.
Why is copper so important? Its use is highly economically sensitive. It’s tubing and wiring in building construction; it’s the guts of an electric power generator; and a new car can contain up to a hundred pounds of it.
Recession in the back half of 2013 wouldn’t be pleasant. Monetary spigots around the world are already wide open. Fiscal loosening takes a long time to have an effect–and, ex the EU, dysfunctional legislatures are unlikely to agree on anything positive in any event. So for the first time since WW II, we’d just have to take our lumps.
is this right?
I’m not sure that Mr. Edwards is correct, though, about what’s causing the copper price to fall this time. A tripling in the price of copper since 2006 has caused new mine projects to start up and existing mine production to rise steadily. I haven’t been able to find good statistics for recycled copper, another important source of supply, but I’m confident that it’s up as well. As a result, a market that was chronically short of supply has recently turned into one where supply is now slightly ahead of demand. Hence the price fall. Unlike 2007, my view is that Dr. Copper is swhispering that supplies will be plentiful from now on, not that demand is drying up.
Europe is cheap
By the way, Albert Edwards has another big insight. This one is bullish. So, coming from a bear, it’s well worth listening to.
He thinks European stocks are startlingly cheap. Copper is telling him that world economies are going to hell in a handbasket over the next eighteen months, so the timing isn’t quite right today. But if–like me–you think he’s getting the wrong message from Cu, they’re worth taking a look at now.