Meyrick, really interesting idea. If I understand you correctly, you are saying that China's economy is changing such that it will not be using as much copper going forward per unit of GDP growth. Given the slowdown in the property market there, that would be consistent, but given the expansion of industrial capacity for EVs, solar panels and other aspects of the electrification efforts, that doesn't make sense. certainly, the PBOC's rate cuts this week and the CNYs reaction are not that consistent, but remember, CNY is a managed currency. It doesn't seem hard to believe the PBOC manipulated the renminbi in order to demonstrate its stability to the rest of the world who might use it in trade.
Clearly this has been an impressive correction in copper, however, you know as well as I that overbought markets frequently turn to oversold and so this has room to fall further. generically, I like the long copper short CNY trade, but it feels like it will take a long time to play out, and is subject to so much interference by China's government on both sides of the trade.
arguably, the long-term supply/demand equation continues to look bullish for copper as no new mines are being dug and the quality of ore currently being mined continues to diminish. but that, too can take a very long time to play out. I have a feeling that copper is for very patient capital.
Thanks Andy. We’ll see how the trade pans out. As the famous macro trader Groucho Marx said: “ f you don’t like my pairings, I have others.” Copper vs. a load of systematically rich members of our Base Universe-such as GBP or EUR. Which is another way of saying I’m fairly agnostic about the origin or real-world associations of different markets. In my experience the links between markets are evident long before the narrative explanation is agreed upon. And while I acknowledge the CNY is a managed currency, we automatically take account of the degree of management in our calculations.
I recently saw a chart that showed how commodites (big universe for sure) have historically fallen just before a recession. As they bottom, the recession begins and commodites begin a new wave higher. Thanks Meyrick. Good stuff.
Meyrick, really interesting idea. If I understand you correctly, you are saying that China's economy is changing such that it will not be using as much copper going forward per unit of GDP growth. Given the slowdown in the property market there, that would be consistent, but given the expansion of industrial capacity for EVs, solar panels and other aspects of the electrification efforts, that doesn't make sense. certainly, the PBOC's rate cuts this week and the CNYs reaction are not that consistent, but remember, CNY is a managed currency. It doesn't seem hard to believe the PBOC manipulated the renminbi in order to demonstrate its stability to the rest of the world who might use it in trade.
Clearly this has been an impressive correction in copper, however, you know as well as I that overbought markets frequently turn to oversold and so this has room to fall further. generically, I like the long copper short CNY trade, but it feels like it will take a long time to play out, and is subject to so much interference by China's government on both sides of the trade.
arguably, the long-term supply/demand equation continues to look bullish for copper as no new mines are being dug and the quality of ore currently being mined continues to diminish. but that, too can take a very long time to play out. I have a feeling that copper is for very patient capital.
thanks for a very thoughtful look
Thanks Andy. We’ll see how the trade pans out. As the famous macro trader Groucho Marx said: “ f you don’t like my pairings, I have others.” Copper vs. a load of systematically rich members of our Base Universe-such as GBP or EUR. Which is another way of saying I’m fairly agnostic about the origin or real-world associations of different markets. In my experience the links between markets are evident long before the narrative explanation is agreed upon. And while I acknowledge the CNY is a managed currency, we automatically take account of the degree of management in our calculations.
I recently saw a chart that showed how commodites (big universe for sure) have historically fallen just before a recession. As they bottom, the recession begins and commodites begin a new wave higher. Thanks Meyrick. Good stuff.
Thanks @judwoodworth. I 'm not sure if the retracement signals a recession. It does look unusual.