Copper, the metal that tells the fortune of the economy, may be on the fritz, with important implications for the global economic recovery.
iPath Copper ETN (JJC), a debt instrument that tracks the Dow Jones-UBS Commodity Index Total Return position in copper. JJC gained 13.95% in the two weeks ending July 24, an impressive run that bested many equity indices.
The two main theories for the rebound are Chinese growth and inflation, and the intertwining of these two ideas. Chinese banks loaned a staggering sum of money in recent months and it has fueled GDP growth as well as speculative buying of commodities, equities and real estate. China's central government also wants to diversify away from the U.S. dollar, and natural resources are a good way to "short" the dollar.
Furthermore, Chinese investors want to diversify away from the Chinese yuan. While the Federal Reserve's inflation met a stone wall of credit-sated consumers and businesses, in China credit flowed out of the banks and M2 advanced at a 28.5% rate in June. Moreover, in the U.S. inflation concerns often come from outside the mainstream, but in China even government economists have issued inflation warnings.On the other hand, Simon Hunt, chairman of Simon Hunt Strategic Services, says that investors have shipped copper into China for storage purposes and this does not show up in the reporting system. If that's the case, investors may be misreading copper imports into China as industrial demand rather than speculative demand. For some investors, it doesn't matter as long as someone is stockpiling commodities in anticipation of greater inflation, but as I've argued in the case of interest rates, inflation fears can stop inflation in its tracks.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV