Copper & Kierkegaard

Kierkegaard was right – the self is a relation. This is what consciousness is – a self relating to itself.

But Kierkegaard’s version of the self wasn’t porous enough.

We are more a sieve than a box… More like conductors of the electric waves of others’ influence flowing continually through us.

You and I are complex, compound and conductors of waves from without. Becoming and un-becoming.

It is because we live and move and have our being in this tidal tempest of compounding relations that we may encounter ourselves anew time and again.

So hello to you. Perhaps you and I have the opportunity to be more ourselves today than we have in the past.

Copper is our conductor of choice across industry. So copper price is a common proxy for the global economic outlook. Put the price of copper in co-relation to other commodities and financial assets and you compound your macroeconomic understanding.

The most famous relation is the ratio of copper to gold price — think of it as the useful rock vs the pretty rock. When the global economic outlook is robust - the ratio tends to go up - copper outperforms gold.

When economic uncertainty increases, the ratio goes down with gold outperforming.

This is an oversimplification of course - but a more useful one than any headline in the press.

Here’s what that ratio looks like since the global financial crisis:

Two things I want to call out. You’ll notice that even though we have experienced overall global economic growth from 2021 until now, the biggest importer and consumer of copper – China – has slowed economically. China and the US have an outsized effect on copper prices and can skew this ratio.

The other thing to note is that the ratio has been moving meaningfully higher since the beginning of this year.

Now let’s compound this copper-gold relation by putting the ratio into relation with other assets - this is where it gets really interesting.

Look at world semiconductor sales (red) vs the copper-gold ratio (blue) below (both visualized as moving averages). They are highly correlated, and you can see that right now (looking far right on the chart) copper price has some catching up to do.

Taken by itself, this correlation doesn’t mean much. But then look at copper-gold (blue) vs Latin American stocks (red) and broad emerging market stocks (yellow). You can see the high degree of correlation among all three – and that here too - copper has some catching up to do.

And you’ll notice the same dynamic with copper-gold (blue) vs the 10 year US Treasury yield … historically highly correlated with a recent de-coupling (since mid 2022) setting up a potential catch up in copper price.

All of this put together frames a bullish outlook for copper and the global economy. There’s a big caveat though, that Jason Perz noted on the Holy Macro show with the brilliant Kashyap Sriram Research on Friday… positioning in copper futures is totally lopsided… i.e., waaaay too booolish.

Below the following copper futures price chart you’ll see a horribly alienating set of green, red and blue squiggles.

Horrible, but informative - that green squiggle shows that speculators are balls long copper right now. As price has gone up - more and more traders have piled into the trade. That sets us up for a major air-pocket-sudden-liquidation event like the one we saw last summer. A sudden 20-25% drop is totally in the cards.

But the primary trend is higher and we are long.

Last chart and a different ratio: here is copper price set against oil price for the last 5 years. Even with the recent moves higher in oil, copper prices have stayed strong. If this chart rolls over and oil starts outperforming copper, the odds of stagflation increase.

Have a great week,

-Andy

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