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-- Posted Wednesday, 1 March 2006 | Digg This Article
It was February, 1980, and all through the copper market, not a contract was being sold. The herd was in full stampede towards the hidden gates of bankruptcy, and the drugs addicts were pilfering the copper wiring from every unoccupied house. Then the price hit $2.20/lb and it was rumored that the lights went out in Georgia. Apparently they thought that some miscreant had stolen the copper wiring from the main generators. The salvage yards were ravaged, and not a copper winding could be found. There were no working generators, alternators, or starter motors left, as the copper windings had all been removed! The scrap recycling system had done its job. Silver and gold had already hit their peaks in January of 1980, but the copper price marched on to meet its destiny squaring price and time. The latter part of February saw Copper meet its square of resistance, and it was downhill from there. Copper next squared its support cycle in 1984, with the cash price bottoming at approx. 61 cents. The great silver bulls, the Hunt brothers, were wiped out, and took many brokerage firms went with them.Many of the Comex traders, and retail commodity brokers, were recycled into the insurance, real estate, and stock brokerage industries. The world soon forgot about its little speculative debacle. For everything there is a season,
And a time for every matter under heaven A time to seek, and a time to lose
A time to keep, and a time to throw away ~ Ecclesiastes 3: 1- 8
It’s the end of February, 2006, and copper is square with its all time high. 26 years is ancient history to the majority of the public and their advisors, so the conditions are right for another economic freak show. Will history repeat? Just wait and see! On the surface, conditions are totally different today. 1978-1980 had rocketing interest rates because inflation was rampant. Relatively low inflation, and interest rates so low that they are almost giving the money away is the scenario we find today! Look Ma, no problem. A sobering thought comes to mind. If this is the maximum stimulus the system can deliver, has the Western world been trying to hold up an economy during a major depression? The implications of a non inflationary boom are fascinating, as we have no experience with this script! We only know that low interest rates imply no demand for money. This suggests that the inventories are being liquidated. This would logically imply that we are in a major discontinuity, as predicted by Peter F. Drucker. Time binding has collapsed, as no one has enough confidence in the future to commit funds. Individual planning is absurd when confronting central planning! A big question mark is the outcome of the "carry trade". The carry trade is a creation of central banks that are captive to the belief in "fiscal stimulus". Ambrose Evans-Pritchard informs us that the "carry trade" game is soon over. "The "carry trade" - as it is known - is a near limitless cash machine for banks and hedge funds. They can borrow at near zero interest rates in Japan, or 1pc in Switzerland, to re-lend anywhere in the world that offers higher yields, whether Argentine notes or US" "There are other big forces at work: huge purchases of US Treasuries by Asian central banks, and petrodollar surpluses coming back to the US credit markets. Stephen Roach, chief economist at Morgan Stanley, warns that the carry trade is itself, in all its forms, a major cause of dangerous speculative excess. "The lure of the carry trade is so compelling, it creates artificial demand for 'carryable' assets that has the potential to turn normal asset price appreciation into bubble-like proportions," he said." ""History tells us that carry trades end when central bank tightening cycles begin," he said. Ominously, almost every bank other than the Bank of England is now tightening in unison." The housing market has soaked up much of the available credit by lowering its lending standards. This is long run financial suicide for the lenders and their stockholders, but each generation must experience again the reason for the old rules. This is the great secret of cycles. SUMMARY In theory, a complete consumer economy should not experience a collapse of demand. This is the Federal Reserve’s operating premise. When China and India’s economies begin to cool off, there will be a further drop in the cost of their goods and services to us. This should give the American consumer more discretionary income, and the game will go on! The Federal Reserve may be right, but then no one has ever seen one like this before! This battle can de defined as the planned economy versus the natural cycles. Let the copper cycle be our guide in choosing the correct side, for they are in complete opposition. Copper is one of the key industrial commodities, and will be the first real test of the Megagovernment’s economic theories. If copper does not break into a bear market soon, throw the rule book away, and pray for a quick death! Remember, statisticians will seasonally adjust winter out of Canada, but you will still need a winter coat in the winter! Wayne N. Krautkramer onlypill@cox.net
-- Posted Wednesday, 1 March 2006 | Digg This Article
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