Copper - An Example Of Asset Pricing

Hippocratic oaths that price stability has been maintained are perhaps the most often repeated and incredulous lies on the planet. You merely have to look at the nominal copper price over the years.

What you have when certain commodities are worth 10X what they were worth 20 years ago on average and no apparent inflation in consumer goods is called a burgeoning monetary crisis.

Copper does not serve as the best example for adequately priced commodities assets on supply and demand, it serves as perhaps the absolute best example of dilatory and hedonic pricing in the markets.

What looks like some sort of aberrant wave on an ocilloscope, the nominal copper chart normalizes when divided by the gold price. You can see that Copper is trading in its inflation-adjusted norms with a brief bull market from 2001 - 2006. Followed by a triple waterfall crash.

Can the copper price advance still? Yes. Will copper mines give you a return better than inflation in the long run? In a word, no.

Copper is found in disseminated sulphides at a grade and huge up front development cost that would not provide a return beyond inflation. If you include the environmental impact of large disseminated sulphides in sensitive areas, the costs are staggering.

While low borrowing costs may be an advantage, you would have to run huge deficits for long periods with no hope of extricating yourself from debt, especially when Credit Default Swaps are written against the debt.

And yet, this is exactly what the major gold miners are headlong into developing. (not going to touch the oil tar-baby, because its as much of a religion as the housing asset price bubble.)

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-F6