Friday, 13 October 2017

A copper-bottomed bet?

It's been a bloodbath for many years in the commodity sector. Many shirts have been lost (a few of mine even, tear-stained ones...). The price of oil is normally one of the key metrics along with gold for assessing asset inflation.

However, gold is only around $1300 an ounce, which whilst double the 2008 low is a long way off the $2000 plus highs. In fact, there has not been much movement in gold at all this year, as compared to say Bitcoin which is rapidly taking shape as the future of independent store of value.

Then we come to oil, off its $30 lows of the post-shale revolution, but still only around $50 a barrel and that is after some small, but actual, production cuts from OPEC. The supply side still looks strong though and this at a time when global non-recessionary GDP growth is de-coupling from the oil price/supply for virtually the first time in a hundred years.

Which leads one to look further afield and this for me is to copper;

Copper looks interesting, the world's biggest miners have been struggling with various geopolitical events and supplies are not increasing that rapidly. The building of China still is eating capacity but the new found desire for electric vehicles also implies a long-term demand surge for the metal that is the core of the electricity transmission industry (of course, Lead/Lithium are looking good too). So demand is growing whilst supply is relatively flat.

I wonder if long-term there may even be a good long/short bet on copper versus oil as the switch away from petrol and diesel cars takes hold over the next five year?


Steven_L said...

I'm not convinced pairs trades are a good long term strategy. If you think copper is a good long term bet then why not just buy some copper miners and add on any dips? Long term I'm revolving into funds as I can't help but trade too much and burn money in fees. Although the Aldermore offer today has given me back a bit of faith in my abilities as a stock picker.

More short term, I've bought some S&P500 call options (2660 strike) again like last year. Hopefully I won't sell too early this year and miss out on a big win.

Volatility is so low these days. Some people say VIX is driving options prices now. I reckon the number of traders shorting VIX ETN's might be having an effect. The way I see it, buying S&P500 options is the way to profit from low VIX. They are mispriced.

Basically, if the index can put on another 4.3% by mid December they expire in the money. They cost jack s**t. If the index is 5% up it's more than a 5/1 shot. 6% is an 11/1 shot. And I bought on the worst possible day, the odds are actually better for anyone buying today.

I've also bought Dec2017 STIRS. There is only one more MPC meeting before they expire (the early November meeting). Even if they raise rates to 0.5% the most the contract will lose is 2 or 3 basis points. The market has it nailed as a near certainty. There's 20-25 basis points on the upside if rates stay at 0.25%.

CityUnslicker said...

SL - BOE won't be raising rates. In fact I need to check if anyone is left on the committee who ever has actually raised them when in situ...10 years now...

Raedwald said...

Sept inflation is out on the 17th ... if it's within a spit of 3% the MPC may try the trick again of *hinting* that a rate rise might be considered. If that does the trick of pushing the £ up to €1.15 for a day or two I shall be happy.

Steven_L said...

I'd always assumed the 'forward guidance' trick was more about hoodwinking people into fixing their mortgages longer term to improve bank profits / stability.

andrew said...

I remember articles in the times about 92 that was full of people who were very pleased with themselves for not owning a house and wondered why any right-minded person would

Of course that was the exact time to buy.

We now sit here smugly predicting that inflation/ int rates will stay low forever.

Hell, dont ask me about market timing - I was calling for a proper house price crash 2005-10

but one day I will be right.

On copper / oil

I very much doubt the prices are negatively correlated.

Anonymous said...

CU - does that mean it's finally time to buy EMED/Atalaya? I remember nearly diving in for a few grand at 11p, then 7p, then 5p ... then 3p.

What was the final EMED share dilution, and then the consolidation? If I'd bought 1,000 EMED shares in 2012, how many ATYM shares would I now hold?

Thud said...

Electric cars much like diesel will be the emperors new clothes when the downside becomes more widly known (power grid, shortage of power points,disposal,low resale)

Electro-Kevin said...

Thud beat me to it.

But copper will still be in increased demand while they try it out, so yes. The original post makes sense.