To The Moon

Is there delusion in the copper market? // Commodities continue to mean revert // Resilient Bitcoin

Welcome to another 64 people who subscribed to the Commodity Report during the last week, bringing the total subscriber count up to 2.649.

Is there delusion in the copper market?

Inventories of copper in warehouses run by exchanges such as the LME do not provide a complete picture of copper stocks in the supply chain since many industrial users will hold their own reserves of the metal. But visible stocks can have a significant influence on sentiment in the market.

It’s just striking how negative the financial markets are about this industry, yet the physical market is so tight. The general macro view is very disconnected from the underlying physical fundamentals of the copper market.

I think the critical aspect for investors here is that even while visible copper inventories are extremely low, the slowing economic growth component is providing a solid drag on copper prices at the moment and probably also going forward until we see signs of improving economic momentum again. Also important to know, the correlation between copper inventories and the futures price is not good and, therefore, not a good correlation indicator to use! More data points are needed to judge a commodity’s price than “just” the inventory data.

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Commodities continue to mean revert

To the outside world, it may seem paradoxical that commodities are falling across the board when there are still so many unresolved fundamental issues in their respective sectors, not to mention energy and food crises in most regions of the world. But it makes perfect sense.

The fundamental data points can be as bullish as they are. If demand destruction becomes visible and there is less demand for goods, this directly impacts the pricing of commodities. This is basic economic thinking.

If you believe, as we do, that we are in a long-term commodity bull market, which is cyclical, then such sell-offs offer enormous opportunities. Because these cyclical downturns, which are based on flattening growth, are coming to an end. (Chart by @MacroOps)

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Resilient Bitcoin

Despite all the headwinds the “ultra” high beta asset is currently facing, the price of bitcoin has been hovering near the $19.000 mark since June.

Here is another handy chart highlighting the “most crowded” traded currently, according to the monthly BofA survey. Long USD continues to be the consensus. Time to challenge it?

Last but not least, I went through this week’s cover stories and found this one. The sentiment is still too bullish at the moment.:

https://twitter.com/lukaskuemmerle/status/1583726289063936001

This week look out for the following:

• Flash PMI data, as well as Treasury Sec Yellen’s speech on Monday
• CB Consumer Confidence and Richmond Manufacturing Index on Tuesday
• (Hopefully, Chinese economic data on Wednesday, as the release is still delayed)
• ECB rate decision in Frankfurt on Thursday
• Core PCE Price Index on Friday

Till next Monday, Lukas

If you have any questions in the meantime, please feel free to contact me via Twitter or Mail.

(The Commodity Report is not investment advice)

The Commodity Report #74 was originally published in InsiderFinance Wire on Medium, where people are continuing the conversation by highlighting and responding to this story.