Copper Rallies As Sellside Analysts Turn Bearish

Yeah, you read that headline right. Although "stabilize" might be a better word.

Copper futures are flat to up slightly over the past ten days, and trading higher in Asia overnight, despite brokerage analysts feverishly slashing estimates and price targets for a wide swath of commodities over the past week.

``When you look at how low industrial production numbers have fallen, it makes you want to run to sell this stuff,'' said O'Neill, a partner at Logic Advisors in Upper Saddle River, New Jersey. ``Manufacturing and factory demand is going to fall drastically. I shudder to think what the Christmas season will look like. Copper will have a tough time.''

Copper prices have been cut almost in half since touching a record $4.2605 a pound in May on speculation that the global economy is entering a recession. Banks including Goldman Sachs Group Inc. and JPMorgan Chase & Co. last week forecast 2009 average prices that are as much as 56 percent lower than earlier estimates. Bloomberg

A slowdown in China has pulled the rug out from under bullish forecasts. But as recently as late August Sellside analysts were still bullish, possibly shilling for hedge fund clients who had been caught long and needed to bail:

August 25th
How often can the copper bulls play the China card? If I were them I would be worried about a post-Olympic hangover, but they continue to make their case, conveniently ignoring the collapse in other base metals like lead, nickel and zinc. Copper rose merely 600% this cycle, outpacing the record 225% gain in put in before the Civil War in 1860’s.

But some people are quibbling over the Chinese angle, and are expecting Doctor Copper to eventually crap out.

Chinese demand has boomed because its export machine has displaced the fabrication of metals in the first world. The fact of the matter is that global economic growth in this cycle has been decidedly sub-par.

So what resulted in this boom like no other boom in metals prices? First, it was the derivative tsunami driven by hedge funds. 1440 Wall Street

As commodity analyst Frank Veneroso noted at the time, the metals were DOA:

The price of zinc and nickel have fallen a Fibonacci .618. That’s not a .618 fall from the prior cycle low; that’s a .618 fall from the distance between the peak price and zero. A veteran technician used to say to me, when a price falls off a peak by a Fibonacci .618 of the move off the prior cycle low, the market is finished. Lead, zinc and nickel are finished.

At the moment nearly every commodity traded is rallying in early Asian dealing...as the market does its best to frustrate the commodity analysts who truly “know nothing” in the immortal words of Jim Cramer.

Goldman Sachs has had a particularly awful track record of late forecasting commodities...Goldman flack Lucas van Praag, who is busy defending Goldman’s legacy to the New York Times, is more than welcome to set the record straight if he believes I am mistaken.

Goldman finally caved on their forecasts for crude oil, and their metals analysts threw in the towel last week and cut price estimates across the board.

it is just another business line in which the Goldman mystique is looking a bit tarnished. Author William Cohan, who wrote The Last Tycoons, noted in an interview with the FT last summer that somehow Goldman’s has been able to convince the world they had some sort of special sauce at 85 Broad....

Goldman Sachs is able to attract the best talent, and Goldman Sachs is the most extraordinary PR machine. Somehow they’ve convinced the market that they do things better, more strategically, more tactically, the best advice, the best this and that. It’s not particularly true. It’s not untrue. But they’ve convinced people that they can do that..

Will metal, steel and energy stocks rally going forward? I am not sure about that but we might witness a countertrend rally now that the bears are out in force. Even Julian Robertson recommended shorting copper in a recent CNBC interview, but after watching Tiger Cub Dwight Anderson blow up in spectacular fashion I am not sure Julian and his wunderkinds are in sync with the market.

Yes, it looks ugly out there. But where were the bears in June?

It is tough to spin a positive case for copper or base metals here, but these jokers are the last ones you should listen to. 

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Evan Newmark seems to write about many of the themes I do. Coincidence? Sure but unnerving.

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`Tough’ Christmas for Copper as Demand Wanes: Chart of the Day
Bloomberg

Deutsche Bank Cuts Metal Price Forecasts on Economic Outlook
Bloomberg

Goldman’s Chinese Commodity Thesis Ends
Financial Times

August 25th
Sellside Continues to Shill for Copper Bulls
1440 Wall Street

August 15th
The Rout is On as Speculators Puke Commodities Across the Board
1440 Wall Street
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The content contained represent the opinions of 1440 Wall Street. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author. No Position

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