Oil Quarrels with Copper


–Pay no attention to the rising oil price! Move along. There’s nothing to see here. That’s it…just move right along to the next note. Thank you…please keep moving…now…please.

–The oil price certainly got moving overnight. New York crude futures put on 8.6% at one point in U.S. trading. West Texas Intermediate hasn’t caught up with Brent crude, which is still trading around $108. But it’s a warning sign: when a large global exporter of oil devolves into civil war, it puts a premium on reliable energy supplies.

–Not everyone is worried, mind you. John Lipsky from the International Monetary fund told Bloomberg, “It’s unlikely it [the higher oil price] would make a substantial change in the global economic outlook.” The IMF reckoned the global economy would grow by 4.4% this year with oil prices averaging $95 a barrel, or just above where Nymex crude closed on Tuesday.

–Maybe the laws of economics are different on Planet Lipsky. But here on Planet Reckoning, when producers and consumers must pay more for energy, it means they have less to spend on cheeseburgers, blue jeans, iPhones, and tickets to Lady Gaga concerts. Higher energy prices slow down growth, full stop.

–Because of space and time limitations in the Daily Reckoning, we can only ever give you a superficial analysis of the energy market. Fear not! We’re going to break with tradition and write a more detailed analysis of the energy market, from a geopolitical perspective. But not today. Look for it on the weekend.

–Also, our securities analyst extraordinaire Greg Canavan happens to be in St Kilda today. He tells us he’s completed a balance sheet review of the four largest energy companies in Australia. His report on how they stack up is going out later today to readers of Sound Money. Sound Investments. Early next week we’ll have more to tell you about it.

–For now, feast your eyes on the chart below. It shows oil (the black line) and copper (the red line) marching down the aisle of prosperity hand in hand, cheek by jowl, over the last three years. But ever since autocrats started toppling in the Middle East, oil’s had cold feet. Or is it hot feet? Either way, the oil price has spiked while the copper price has noticeably come off its all-time highs.

Oil and Copper take a break from each other

–The Stock Doctor (Diggers and Drillers editor Dr. Alex Cowie) is busily finishing his latest report today. So we couldn’t dig an answer out of him about what he thinks this chart is telling you. But we’ll have a crack. It’s telling you to beware benign GDP forecasts. When oil goes up and copper goes down, it’s a negative indicator.

–Will it persist? That depends on how big the oil shock is. And THAT depends on other, more political factors, which is why we’re analysing the issue more fully for you on the weekend. Stay tuned.

–Chapeau (hat tip) to the Stock Doc, by the way. Today’s Australian reports that tight inventories on the London Metals Exchange have driven tin prices to record levels. Tin in the spot market has nearly doubled from $16,000 per tonne in June of last year to over $30,000/tonne last month.

–In August and September of last year, Alex doubled up on the tin story with two recommendations. Both are still open positions and both are up around 40%. He began his exposition on the dynamics of the tin market thusly:

I want to introduce you to one of the most overlooked metals in the commodity complex this month. On a price basis, it’s been a star performer.

Yet it doesn’t attract much attention at all.

That’s just that I way I like it though. It gives you a chance to take a good look at the dynamics of the market without rushing. In this case, the dynamics are very strong. The supply side is constrained; a situation that tends to put upward pressure on prices. The demand side is strong too. The recent price action tells this story well.

If you’re able to find a low-cost producer of a metal with these kinds of dynamics—and you’re able to buy that company before it’s been fully ‘de-risked’—then you have a chance to make very large gains as the company moves closer to production.

As I’ll show you now, I think this is exactly the opportunity you have this month’s recommendation which is a small company with big plans.

–Emphasis added is ours, in order to show you Alex’s modus operandi when researching Australian resource stocks. We can’t say what he’s writing about this month. Last time we even mentioned the sector he was investigating; there was a flurry of speculation (and buying) on popular share tipping message boards. But D&D readers should find out the latest by the end of the week.

–“Why do you publish the letters of people who criticise you?” a friend asked over dinner last night. “It seems like a bad idea.”


–“Because. You openly allow someone to ridicule your business model and personally challenge your credibility.”

–“So what?”

–“Well, aren’t you worried?”

–“About what?”

–“About…what people will think?”


–“Why not?”

–“Because…people are going to think whatever they’re going to think. All we can control is the quality of our work. And there’s no hiding in our business model. We only stay in business if enough people think our work is valuable.”

–“Please explain.”

–“Well, we make forecasts and predictions. They are either wrong or right. We pick stocks. They either go up or down. People lose money or make money. It’s totally transparent and unambiguous. Our only source of revenue is subscription income. If our readers were unhappy with the quality of our investment ideas, or thought we were conducting business in a dishonourable way, we’d go of business. Word would get out. No one would trust us.”

–“Okay. But why give space in your publication to people who don’t like your ideas?”

–“Because it’s good for business. The sooner that someone realises they don’t want another perspective on the world, the sooner we can both stop wasting time. What we do isn’t for everybody. It’s not  designed to be for everybody. The newspaper is designed to be for everybody. We’re not a newspaper. We’re a  newsletter, written by real people who are not objective and trying to be neutral. We’re not reporting the news. We’re trying to tell you about the stories WE think matter in the financial world that could make or lose you a lot of money.”

–“That sounds risky. If you’re wrong you’ll look stupid.”

–“Of course taking a well-researched position is risky. But life is risky. You can’t de-risk it no matter how hard you try. So if you’re going to be in the investment markets and take risk, you might as well go in with your eyes wide open and find some advantage over everyone else. That’s what we’re after.”

–“Why didn’t you just tell him that?”

–“Good idea.”

Dan Denning
Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.

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