Paging Dr. Copper, A Long Term Investment Opportunity, Front Lines China Perspectives and More!

by Addison Wiggin & Ian Mathias

  • Dr. Copper offers dismal diagnosis… popular metal slips into bear market

  • Chris Mayer reveals “one of the great investment opportunities of the next decade”

  • Nations of the world flee to American Treasuries… one surprising country that’s increased U.S. bond holdings nearly sevenfold

  • Frank Holmes on how much (and what kind) of gold you should own right now

  • Plus, Addison’s first hand report from the Beijing gold market

 

  Today’s a good day for a checkup from “Dr. Copper.” The useful metal has “a Ph.D. in economics,” the kitschy saying goes. If the world starts using less — in their homes, their electronics, etc. — a fall in copper demand should precede a global slowdown. It’s used in damn near everything, after all. So if prices are down, that has to mean something… right?

Yesterday, the copper spot price fell below its 200-day moving average. We don’t like to give the charts much attention, but this is one of those breakdowns of support that gets a lot of people excited. At barely $3 today, it’s also 60 cents off its year-to-date high.

In other words, copper just slipped into a bear market. If his Ph.D. still carries any clout, the world might follow suit.

  Perhaps even more telling, commodities in general have taken quite a hit.

The CRB index, which covers most of the major commodities, is at a seven-month low. With the exception of a few precious metals, May’s been a terrible month for commodities.

  You wouldn’t guess that in Beijing, Chris Mayer reports.

“We hit the streets yesterday to start getting a look at street-level economics. We visited a Carrefour hypermarket. Carrefour is the big French retailer and the world’s second largest. It was also one of the early birds to crack China, opening its first store in 1995. Today, it has over 150 stores and is a multibillion-dollar business.

“The hypermarket we visited was typical for China, but huge by U.S. standards. We visited one on a late Sunday afternoon. There were 54 checkout counters, and all but one were open. Every open checkout had a line five or six deep. You see for yourself here:

Watch the short video here.

“It was an amazing sight. All that talk of the Chinese middle class — well, you can see the idea in action here as bluejeans-wearing shoppers in sneakers pack the aisles.

“Carrefour’s hypermarkets are a kind of Wal-Mart operation that sells everything from fresh meat and produce to deodorant and air conditioners. We saw Crest toothpaste, set off in its own display area as if were designer perfume or something.

“The name ‘Carrefour’ means ‘crossroads.’ And this store was certainly a crossroads of Western-style consumerism meets Chinese tastes and sensibilities. The aisles were brightly lit and wide and all the world’s brands seemed to be on the shelves. Yet we saw tanks of live fish and fresh-cut meat. It also had the feel of an indoor street market, with people barking out sales and offers like street hawkers.

“We also visited an IKEA, which was similarly mammoth and packed. And our local contact here told us that on a Saturday, or in the middle of the day, these places would literally be elbow-to-elbow jammed with people.

“It speaks to one of the great investment opportunities of the next decade: catering to the emerging middle class in China, India and Indonesia.”

Chris is doing his very best to prepare his Special Situations readers for such a reality. You can follow along, right here.

  The Chinese have also regained their appetite for American debt. After taking a six-month hiatus, the Chinese government was once again a net buyer of U.S. Treasuries in March, says yesterday’s TIC report. They bought quite a bit, too… almost $18 billion in one month.

We’re not at all convinced this is an “all clear” for U.S. debt, but rather a Chinese acknowledgement that for the time being, consistent return of such a large sum of money is hard to find anywhere else. The infamous “flight to safety” is back en vogue, and in the grand scheme of things, U.S. debt is still an intensely desired commodity:

What’s up with Canada, eh? We’ll have to look into that… Canadian holdings of U.S. Treasuries went from $11 billion to $76 billion over the last year.

  No surprise, that demand has pushed the U.S. 10-year note yield down to a paltry 3.4% today. That’s roughly the lowest it’s been all year.

An opportunity, we say. We spelled out specific ways for you to short the U.S. Treasury bond — half of our Trade of the Decade — in the last issue of Apogee Advisory. We included an array of funds for the “Buy Japan” side of the trade, too. Get the details here.

  Gold, of course, is a flight to safety of its own. The spot price has drifted down alongside its resource brethren this week, about $30 off its record high, to $1,218 as we write.

“Gold is charging up to new highs,” writes Investment Symposium favorite Frank Holmes, “so it’s no surprise that the level of interest in this financial asset is charging up as well. Last week, I did interviews with CNN, CNBC, USA Today and Reuters, and in most cases, a specific question came up – ‘Should people be buying or selling gold right now?’

“That’s a tough one. The monetary turmoil in Western Europe and some early signs of inflation create the right conditions for gold to continue its run, and while we see higher prices in the long term, it’s difficult to predict what might happen in the here and now…

“Our experience shows that whenever you have deficit spending, rapid money supply growth and negative real interest rates (inflation rate higher than nominal interest rate), gold will perform exceptionally well in that currency. Right now, we’re seeing massive deficits, negative real interest rates in the U.S. and a worldwide debt problem that is projected to get bigger.

“We have long recommended, based on regressional analyses, that prudent investors consider an allocation to gold — not to get rich, but as a way diversify assets and protect wealth. Our suggestion is a maximum 10% allocation — half to bullion and the other half to gold equities or a good gold fund that invests in unhedged gold stocks.”

If you’re looking to add some bullion to your portfolio, don’t forget that today is the very last day we’re broadcasting our latest online seminar. It’s on gold coin investing, including “one untapped gold market no one’s talking about.” Check it out here.

 

   The U.S. stock market is taking a deserved breather today. After a volatile few weeks of trading, the market is floating slightly higher as we write on little “new news.” Major data points today are generally good: Producer price inflation fell 0.1% in April, while housing starts increased 5.8%.

 Chinese stocks, on the other hand, remain volatile. The Shanghai Composite plunged 5.1% Monday, only to rebound 1.4% early this morning. Still, the index is a good 25% below its recent high… a good ol’ fashioned bear market, it seems.

Heh, did they know we were coming? Addison and Chris have been pinging your editor with emails and instant messages all day with updates and reactions. Rest assured we’ll put them to paper soon… stay tuned. 

 

  “Just a clarification,” a reader writes. “Your 5 Min. Forecast yesterday stated that in silver, ‘Traders bought silver up to $19.73 an ounce late last week, a record high in dollars.’

 

“The ‘recent’ high was about $21 in March of ’08. However, this isn't even at 50% of the all-time high in 1980 of about $50 per ounce, which coincided with the prior longtime high in gold over $800. With gold around $1,220 today and silver around $19, something is way out of whack… which is why some people believe silver has a lot more upside than gold. Time will tell.”

The 5: You are correct. Silver’s $19 range is a yearly high, not a record one, as we wrote in haste yesterday. Thanks for following up.

  “The only ones that see the euro in trouble right now are investors, economists and some politicians in the USA,” writes a reader, who we presume is from euroland.

“While also decrying the euro’s drop publicly, most economists and investors in Europe are actually not concerned very much at all, because a lower euro is already helping countries like Germany to increase their exports. The George Soroses of the world and American hedge fund managers shorting the euro are actually hurting the U.S. much more right now by driving export business from a (relatively) stronger dollar to a weaker euro. The Germans, including my company, are just smiling over this right now, and Germany’s export numbers from April already prove the theory.

“When the euro was introduced, it was close to the exchange rate it is today, and it was then considered fairly valued. The last time the exchange rate was over $1.40, the ECB was looking into ways to lower it in order to support exports. Those American crisis mongers are doing the EU actually a real favor right now. Whether they realize that, I am not so sure. It may be a long time before the ECB starts to intervene, as Rob Parenteau suggested in his comments yesterday. Don’t think anything will happen before parity.

“Thanks for an otherwise fantastic 5.”

The 5: Our pleasure. Here’s Rob’s take on your letter:

“My forecast is ECB intervention fails and we go to [dollar/euro] parity. But that does not help German exporters, who export 60-70% of their goods to the eurozone and Europe at large, where fiscal retrenchment will ensure revenues plunge as domestic private incomes plunge on higher taxes and lower government expenditures.

 

“So great, they get a larger share of a dramatically shrinking pie, and probably stir up some protectionist backlash from trading partners at the same time. Pollyanna, or however it might be pronounced in Germany, please wake up and the smell the coffee.”

Cheers,

Ian Mathias

The 5 Min. Forecast

P.S. "We toured the gold market in Beijing this morning," writes Addison scantily from his investment expedition in China. "On the first and second floors of the building there was jewelry, trinkets and things made out of gold. The place was mobbed… early on a Tuesday morning. On the third floor tucked neatly in the back was a counter sitting in front of a digital ticker marking the gold spot price.

“The sign in Chinese indicated it was the ‘Gold Investment Window.’ You could purchase bars up to 50 ounces right at the counter and walk out of the store with them. We asked if they took AMEX — none of our crew had thousands of dollars in the local currency. Nor did we have a local bank account, although those are apparently easy to get.

"We don't accept any foreign credit cards," came the reply.

"Why not?" we asked a manager.

"No reason."

"Guess that makes sense," Joel Bowman of the Daily Reckoning reasoned. "They have 50-ounce bars of gold. Why would they trade that for a promise to pay with more promises to pay from the U.S. government?"

For more insights on gold from Addison, check out his latest online presentation with First Federal’s Nick Bruyer. Today is the last day the “webinar” will be online, so if you want to check it out, it’s now or never. Don’t forget, it’s free… watch here.

rspertzel

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