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What does dr. Copper say? Investing and politics

Despite rising inflation copper prices have been declining.

Higher interest rates are putting pressure on emerging markets and their $19 trillion of debt.

However, the best investing opportunities usually arise when things are not good.

I was really bullish on copper when it was around $2 per pound a year ago but now I am not that bullish anymore as it is above $3.
Now, in the long term I am still bullish as the metal is the key for the electric century we are entering as we slowly leave fossil fuels behind but something we must keep in mind related to portfolio exposure and copper related investments is that copper can be extremely volatile which makes copper miners even more volatile.

Copper is usually named dr.Copper due to its predictive capacities in forecasting economic growth and inflation. As copper has lots of applications a rising global economy will increase the demand and the price of it due to the fact that supply is inelastic over the short term. On the contrary, a slowdown in economic demand will quickly negatively affect its price.
Now, if we retake a look at figure 1, copper prices didn’t really go up in 2018 despite inflation being higher and the global economy supposedly doing fine. It is not down much for the year, just 6% but if the negative trend strengthens it might be an indicator of a general economic slowdown.
One of the main reasons for such a slowdown are higher interest rates that have already started to put pressure on some parts of the world. As always, the pressure will be first felt in emerging and frontier markets due to their speculative nature as investors rush into them when things look fine but are fast in selling at the first sign of trouble. As those financial markets are shallow, any kind of instability or interest rate increases is immediately felt.

Is the $19 trillion in debt an issue for emerging markets?

In the last 10 years, emerging markets have really taken advantage of low interest rates and abundant liquidity and their total debt increased from just $5 trillion to $19 trillion. Investors in developed countries were desperate for any kind of yield due to zero or negative interest rates while emerging markets were happy to borrow due to positive economic expectations.

The problem lies mostly in sentiment as always. If interest rates increase fast, investors that have rushed into those markets will get scared of the short term negative trend, pull their money which could make it hard for companies and governments to refinance their debt.
Capital outflows further put pressure on exchange rates, lower the value of financial assets and an emerging or frontier market could quickly see its luck change.

The point is that this puts pressure on global economic growth, demand for products and services and sooner or later this is felt first on financial markets and consequently also on other global economies.
Apart from all of the above there is also politics that play a role.

Politics

According to the WSJ, president Trump is putting pressure on Europe to drop the support for the Nord Stream 2 pipeline that is supposed to bring cheap gas from Russia into Europe. The point is that Russian gas through a pipeline is cheaper that U.S. gas that has to be liquified in order to be shipped to Europe.
According to U.S. and European officials the WSJ journal reports how in order to prevent an Atlantic trade was Trump is putting pressure on Germany to cut its support for the project. This has several implications for us investors.
The first is that when politics get involved you cannot make decisions based on natural economic forces as things get distorted.
The second thing is that economic forces usually prevail in the long term as the value of natural resources as gas is, sooner or later comes out. So, in the Gazprom case, watch what is going on and take advantage of the volatility. If some things are certain, Gazprom has value but for sure the stock price will remain volatile.

Conclusion

There will always be economic risks ahead and one must look at them to manage portfolio exposure. Nobody can time a crash or a recession and the only thing we can do is manage our exposure. Therefore, after 35 years of best ever stock market returns one might think about diversifying and managing risk rather that chasing returns.

source

STOCK MARKET NEWS – POLITICS AND INVESTING #buy #homes in the #USA #realestate

The young lions lack and suffer hunger; But those who seek the Lord shall not lack any good thing. – Psalm 34:10

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Comments

  • Sven, im not sure if you can say supply for copper is fixed. there have been studies by Teck and mckenzie that predict a surplus of copper supply this year and the next followed by a deficit which bodes well for copper prices in the future. a drop in copper prices does not necessarily mean a slow down in the economy, it could be we are experiencing a surplus in copper supply or inventories. Btw aside from nevsun, what are you favorite copper producers?(i know you made videos on hudbay and lundin, curious if you had other miners)

  • It's actually silver that has the highest electrical conductivity. It's just that copper is significantly less expensive which is why it is used (plus it is still highly conductive).

  • Why can't Germany use both pipeline gas from Russia and LNG from the US? It would give them more leverage with their suppliers.

  • The funny thing with trumps comment on nordstream is that it was built to be less dependant from others because before it was russian gas too but it was lead through smaller eastern countries who threatened to cut off west europes gas supply on a regular basis whenever they felt unsafe becauae of russia…

  • What now! I have 2 rooms full of copper pennies but can't take to bank w/o rolling into paper rolls and junk yard wants to not only weigh but also have to sort out for them so they can see it is actually copper. Oh well maybe Incan find gumball machines —-oops how much do they machines cost now aday?

  • hmmmm …….Sven what is your opinion on silver? I think the gold to silver ratio is pretty far apart and silver has the highest conductivity which I think is important for electronics. What is your thoughts?

  • Higher interest rates – I can get a one year CD that pays 2.25%. So hard to resist. 🤑

  • CHK has been on the receiving end of the recent oil and gas prices. The company is tremendously undervalued despite it's heavy debt load. This last week alone has brought 50% returns. Definetly one to keep an eye on.

  • Hi Sven , any thoughts on Marc Brunner and his ventures .

  • Gazprom – not sure I can work out the discount needed for my intrinsic value. Due to the risk! My calculator doesn’t go up that high. Sven, You have a PhD in working in emerging markets, did it have a section called “what to do when everyone is a gangster ”?

  • Forget any political aspirations Sven. Hard logic based on fact is not exactly the currency of their realm.

  • If we like it or not, politics influences investment environment a lot. Politicians usually prefer popular, myopic solutions which win elections but mess up economy in the long run. They are an interesting anomaly in this world which is getting more and more sophisticated.

  • The German finance minister said yesterday, that USA wants to promote their lng which is more expensive and that is understandable but Europe has to go with the better option… The way I see it, Gazproms value is enormous. It can go down 50% but it can also be a 10 bagger. A lot of the negative factors are already priced in.

  • China gave the US a bone with the trade-problems.

    It's funny that an entire world is basically doing whatever Trump say or does. You can't buy Russian gas, you need to buy or little more expensive gas.

    I don't trust Iran, so no one can trade with them. Including you Europe!

    Everybody is taking advantage of the US so every deal is bad, cancel everything and do it again.

  • Sven for your research platform, do you have any specific goal- Like 1 million in 10 years? Etc. Do you also share insights as to how and why you pick a particular stock you pick? Do you also show your real time portfolio and its performance.Thank you for all you do Seen. Could you do a stock Analysis on Essent Group (ESNT) a private mortage insurer?

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