The Fallacy Of “Dr. Copper” by Todd Sullivan, ValuePlays
Add to his data that US Job Creation remains at a 7yr high.
One of the Truly Great, Big Time and Enormously Misinformed fallacies of our time has been the concept of Dr. Copper as an economic forecaster. This Friday copper hit $2.055/lb and appears to be headed lower. Several years ago I predicted this might occur as the ‘Copper Bubble’ created by China in building its 100’s of unoccupied cities in a ‘build-it-and-they-will-come’ mentality reversed in response to free market pressures. We are seeing this today.
We may yet have more downside or it may stabilize at current levels. I do not really know and nor does anyone else. Copper prices are like any other prices, a perception of future supply and demand by investors and not an actual measure of current Supply/Demand. Yet, a considerable number of advisors and investors still believe that copper prices are the best reflection of global economic activity. They are joined by those who believe the same concerning oil. That neither are true should be evident from the Real Retail and Food Services Sales and Civilian Employment indices as published by the St Louis Fed. As copper and oil prices have fallen, as calls for economic collapse consumed the media and predictions of the DJ Index falling to $5,000 stampeded some from the equity markets, retail sales and employment indicators have marched steadily higher.
What holds as teaching in business schools are concepts like Dr. Copper and oil as economic indicators. They are simply fallacies of the worse kind. Because they have been taught by those society has deemed ‘smart’, ‘intelligent’ and the ‘best minds of our time’ we take these concepts to be truths tested by time. They are not!! These concepts fall apart when examined rationally but the consensus rather than thinking independently accepts the misperceptions of a few.
Dr. Copper is only one of many broad misconceptions which continue to rule investor thinking even with extensive data available to refute it.
The book I am currently working on is about 80% complete with the first draft. I am waiting for the current investment/business cycle to complete before I can add the final touches. At the current pace I suspect that I am still 5yrs-6yrs away from being able to do this. One cannot predict with precision when markets will peak even if one knows how to identify it. What one can do is to see trends developing usually 12mos ahead of market recognition. It is more like reading a novel as it is being written and knowing the general plot line, but one does not know the actual characters who may be introduced or able to predict their specific actions ahead of time. Yet, within the general plot line things have a historical basis even without being able to predict the timing of prices.
This is as it is with Dr. Copper. Those who learn to discern Dr. Copper and other fallacies from actual economic trends will benefit. Those who cannot, won’t.