Oh no - I'm decoupling!

Stockhouse member hunkers down in Puerto de Luna as U.S. economy slows.

Editor’s note: The following post by gabrielgray appeared on the Minera Andes (TSX: T.MAI, Bullboard) Bullboard at 1:00pm EST on March 27. It has been edited for spelling, punctuation and grammar only, in an effort to make it easier to read. Click on the text link within the post to view it in its original form.

Copper, aluminum, tin, gold and silver are signaling a sea change in the relationships between the world's major economies. Beginning late last year, as the U.S. economy showed signs of slowing down, both precious metals and several key base metals began to rise steadily from their trendlines. This year, as most economists reluctantly agreed that the U.S. was entering recession territory, the metals fully de-coupled and rose into a dramatic spike. They soon corrected sharply, but already are recovering and trending higher.

Gold and silver are generally believed to be rising on inflation expectations as well as concerns over the stability of the financial system. But what about the base metals? Copper futures are supposed to be a particularly reliable indicator for the health of the economy. Why did copper rise from its lows this winter to shoot past $4, and is now near $3.75 and gaining altitude again? If the U.S. is clearly sinking towards negative GDP growth, shouldn't copper be falling instead of rising? There can only be one answer, it seems.

The commodity markets are looking beyond U.S. issues to the horizon of global demand. The copper market has decided that the U.S. is no longer the bellwether of the world economy. The Great De-Coupling is here; copper is trading on the belief that U.S. demand is no longer the main driver for copper prices. Futures are pricing in the likelihood that booming growth in Chindia, Latin America, and other developing regions will offset any slackness in copper demand from a sagging U.S. economy.

It's as if the world economy is one of those long Burlington Northern Santa Fe trains you see (well, I see them, anyway) while driving across the empty wastes of New Mexico. With an engine at the front, and another at the rear, they move goods from Long Beach docks to Little Rock distribution centers. The lead engine used to be the U.S., until it started showing signs of age. So, they moved old No. 1 to the back of the train and hitched the shiny new BRIC engine up front. Things seemed okay for a while, until it became apparent that old No. 1 was dragging things down more than it was helping.

"What's the problem, Scotty?" "I don't know, sir. She's not firing on all cylinders – seems to be some problem with the credit injectors." "Well, we can't drag on like this. We've got a timetable to meet."

So they uncoupled the U.S. engine from the back of the train, and the Great Global Rail Road rumbles on across the sagebrush-studded plain, while old No. 1 slips farther and farther behind.

Unfortunately, I seem to be stuck on old Has-Been, and we're losing steam by the minute. This isn't much fun; all I can see is the butt-end of the world economy disappearing into the distance. Twilight is coming on out here, and the wind is turning chill. Will I have to spend the night with the rattlers and javelinas? Oh, dear... Wait – I see the lights of Santa Rosa up ahead! Santa Rosa has cheap motels and a subway! Maybe we can coast in before this clanking pile of junk dies altogether!

Oh no... it's not Santa Rosa. It's only Puerto de Luna. Nothing but a gas station and a cantina – and behind the bar, Mariela is 59 and really fat. Crap. Cuervo for supper and a cold bed. Why do I do this stuff? I don't have any sense at all.