Friday, May 7, 2010

China's "Sure Thing" Mentality

Chinese Slowdown Tarnishes Metals

"I can't in any way subscribe to a China crash scenario – even in real estate," says Jonathan Auerbach, managing director at the institutional brokerage Auerbach Grayson. "There's a sort of knee-jerk reaction when copper is down 10% in the last three days. But it got hammered along with all the other base metals, and that doesn't mean that China is going to stop buying it."

The following scenario is inconceivable to him.

February 17, 2009
The big rise and great fall of base metals!

Now, there are no takers for the base metals in the market. China, India and other buyers have reduced imports for these metals and the inventories are piling up at several ports across the globe.

The result is simple. A crash in prices. Already within corrective environments, the stock panic has bled the base metals to dangerously unhealthy levels. Copper, zinc, nickel, lead, and aluminum have seen declines of 69%, 77%, 84%, 78%, and 61% respectively from their recent highs.

Is it even remotely possible that Auerbach Grayson could be somewhat biased in their analysis?

Auerbach Grayson

Auerbach Grayson & Co (abbr: AGCO) is a New York-based stockbroker that deals predominantly in the equity of non-US based companies, catering to institutional investors.

Here's a chart showing copper's annual price from 1913 to 2008 (adjusted for inflation).

As of today, copper trades at $3.13 per pound. It now sits at pre-crash levels. I remain deflationary.

Kitco: 5 Year Copper Chart

Source Data:
USGS: Historical Copper Prices
BLS: Historical CPI-U

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