Inca Kola New's Otto Rock keeps ranting about LME copper inventory levels (click here): "The LME copper inventory level is not an elephant in the room. It's 470,800 elephants in the rooms."
This has been going on for months. Its long past time for saying that the market is wrong and that copper should not be priced above 3$/lb (and rising) and its time figure out what the market is saying.
Seems to me that there are two possibilities here:
- Copper buyers are insane given that copper, at current prices, is obviously in over supply and they are going to get murdered as soon as reality sets in.
- Something else is going on besides just the supply and demand of copper. Something having to do with what copper is priced in, U.S. dollars.
Here's what I think is going on:
- The ballooning copper inventories means supply exceeds demand. But the copper price (in US dollars) keeps rising.
- To my mind this means that the supply of dollars is exceeding demand faster than the supply of copper is exceeding demand.
- Now, 400,000 tonnes of copper at 6,000$/tonne is 2.4 B$. This means folks with real money think its better to have at least part of their money in copper, even though it is obviously in oversupply, than in dollars. Its a big vote of no-confidence in the dollar. That's how I see it and am placing my bets accordingly (in the anti-dollar, that is gold, leveraged by owning Jr producing gold miners).
Now, I could be wrong and the guys buying copper at current prices are flat out wrong and this is a case of gross stupidity. That could certainly be the case, given the same kind of stupidity that we've seen with real-estate recently (and worthless Internet bubble stocks a year ago). If that's the case at some point the price of copper will collapse. If I see that I'll go short on copper big time, but until then I'm thinking that something very bad is happening with the US dollar that will come out of hiding sometime not too far in the future.
MontyHigh, www.worldofwallstreet.us
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