Copper: Why I hate it.
May 18, 2009
– Comments (6)
The more I think about copper, the more I hate it. No, it never kicked my dog nor made fun of my mom, but it did lose me a bit of money through my investment in FCX, the copper mining giant of the world, a year ago. And I can't see the upside anymore.
My portfolio is still thumbs up on FCX, but that's just a hangover from last year and I'm waiting for it to turn positive so I can close out. When I bought into the copper hype, I bought into the arguments about how it's such a great metal and how it would be tied to the development of China and whatever other countries that were supposed to keep booming even as the US economy keeled over and died. Now I'm having second thoughts.
For one thing, I'm starting to doubt the feasibility of neck-cracking growth overseas. China's projected growth is based on the migration from second tier towns into the main cities, creating megatropolises full of skyscrapers piped/wired with copper all over the place. But of course, migration won't happen if there aren't jobs available. And even though the world economy is getting a bit better (yes, it is!) I think that job growth has slowed enough to make a lot of these townies think twice about moving away for the city life... at least not within the previously projected timeframes, meaning the short term returns on FCX (or copper futures) could be diminished to the point where the opportunity costs of holding FCX at this point would become too high. Additionally, where is all this money going to come from to fund the construction? Is anyone going to buy the CMBSs to build skyscrapers in Shanghai right now? Even if there is strong demand, I think financial constrictions will prolong this whole boom, turning it into a mild simmer. Maybe a slow rolling boil. A flash in the pan? It must almost be lunchtime. Sorry.
I also think that copper is useless if it gets too pricey. Unlike gold, it doesn't have a value due to its shininess (or designation as the world currency; I still don't really understand that one). Its value is strictly in its utility. And though it's useful, it can be replaced by fiber for wiring and plastics for piping (which don't corrode). This would create a price ceiling on copper wouldn't it? A ceiling that can come down if manufacturing costs for its replacements go down.
I have a feeling though that at least some of my assumptions above are faulty. Can anybody educate me as to why I'm wrong?
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