JPMorgan Tinkers with Another Metal Market
December 08, 2010
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RELATED TICKERS: JPM
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You have to hand it to JPMorgan. They clearly live by the motto: "go big or go home".
This time, it's copper:
http://www.fool.com/investing/general/2010/12/07/the-worlds-copper-cauldron-boils-over.aspx
The mystery trader … revealed
Even as the bank fields investor lawsuits and looming regulatory scrutiny over alleged manipulation of the silver market, JPMorgan Chase (NYSE: JPM) is back in the limelight, this time involving copper.
The London Metal Exchange (LME) raised eyebrows recently when data revealed a single unidentified trader had amassed a copper position equivalent to at least 50% of the exchange's available supply. The mystery trader's $1.5 billion move to corner a significant chunk of above-ground global supply turned up the heat on a copper cauldron that was already steeping with a looming global supply deficit.
Over the weekend, the plot thickened as London newspaper The Daily Telegraph cited a confidential source identifying JP Morgan Chase as the mystery trader behind this cuprous coup. Now, it just so happens that JPMorgan Chase is preparing to launch a new, "physically backed" copper ETF along the lines of those wildly popular precious-metals vehicles like the SPDR Gold Trust (NYSE: GLD). As one LME trader put it: "The story is that they're positioning themselves in front of the ETF."
From the infamous Hunt Brothers debacle of the late 1970s, to the widely observed oddities in silver during the price collapse of 2008, the obvious problem inherent in any one entity controlling a dominant stake in any commodity market is that it renders that market susceptible to price manipulation. Even though I am invested in copper, and I stand to gain from further price increases that may be triggered by dwindling physical stockpiles, I consider this dominant market position a patently unhealthy development for financial markets.
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The bullish double whammy
In constructing my own investment theses within the materials sector, my focus is always honed first and foremost upon this long-term secular trend that has clearly dominated these markets over the course of the past decade. Incorporating the broader rise of emerging (and in some cases fully emerged) markets, persistent demand for metals-heavy gadgets like smartphones, the nascent revolution toward greener energy solutions, and of course the dominant underlying trend of deteriorating purchasing power in the world's major currencies, I continue to invest with confidence in base metals like copper.
When a financial giant moves into a specific commodity with a position of this magnitude -- however unwelcome such potential market-tinkering may be -- I perceive the development as further insurance behind the continuity of the trend in play. I believe copper is going higher, and I encourage Fools to participate. Whether one prefers to target a single quality small-cap play like Taseko Mines (AMEX: TGB), or cast a wider net with the Global X Copper Miners ETF (NYSE: COPX), I see a red-hot future for red-metal investors.
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