Dr. Copper Down Big, But Has Bright Future …

Market Roundup
Dow -163.52 to 17,568.40
S&P -22.49 to 2,079.66
NASDAQ -57.78 to 5,088.43
10-YR Yield -0.01 to 2.271%
Gold +$4.70 to $1,098.80
Oil -$0.41 to $48.04

If you think the global economy is OK, then you have to ask yourself why copper — an economically sensitive metal — is down a whopping 46% since its high of $4.65 in February 2011.

The answer is obvious: The global economy is not OK. Yes, China continues to grow, as does most of Asia, but copper demand there — China accounts for as much as 40% of copper demand — is falling. Meanwhile, Europe is in a depression and the U.S. economy is lukewarm, at best.

Moreover, like other tangible assets, there is simply very little investment or speculative demand for copper. Hence the sharp collapse in its price.

Miners with heavy exposure to copper are even worse off. Freeport-McMoRan (FCX) is down 75.4% since its 2011 high. Rio Tinto (RIO) is down 72.05%. BHP Billiton (BHP) is down 61%.

Copper prices have suffered a major decline, but what’s the future hold?

So what’s the future for copper? Still lower. And then, an incredible new future and new bull market for the base metal.

Let me explain: Copper will head still lower because it’s still in the grips of deflation, like virtually all other commodities.

Per my models, long-term major support for copper doesn’t even come into play until the $1.75 level. That indicates the potential for another devastating 28% loss.

A loss that will put copper prices below the cost of production, shakeout and close lots of mines, but also pave the way for a recovery and new bull market.

That eventual bull market, in my opinion, will not be driven by housing demand for copper, its traditional big driver, but instead, a new role for copper in the 21st century: Electric and hybrid vehicles.

Especially copper induction motors, Tesla’s smart choice for its vehicles.

Copper induction motors have more than adequate torque and efficiency, but with a very rugged, durable design. Copper rotors don’t have a drag loss when the motor turns on and they don’t lose their efficiency during high speed or low torque conditions.

Copper rotors are also 25% smaller than an equivalent motor with an aluminum rotor. The superior heat conduction of copper also contributes to cost savings.

Tesla’s high-performance copper rotor motor, for instance, delivers 300 horsepower and weighs only 100 pounds.

So how much copper goes into an electronic or hybrid vehicle? The average car produced in North America has 50-55 pounds of copper in it. In a hybrid vehicle, the amount will double. In a pure electric car, the amount of copper will triple.

Moreover as hybrid and all electric technology advances and the costs come down, you’ll see more and more hybrid and electric vehicles on the roads. And one day in the not-too-distant future, we may all own electrics or hybrids.

So once a final low is in place, copper’s future will look very bright indeed.

Our Readers Respond

Thanks again for all of your comments. Here again I’m highlighting and responding to some of the top ones.

Reader William writes:

“Larry, we’ve been told in the past that the dollar has to be devalued in order for American products to compete worldwide or else American companies and our economy will suffer and decline. Now with the dollar climbing, American companies and our economy are booming and no one even mentions devaluing the dollar. This seems contradictory. What gives?”

My response: You are correct, a weaker dollar boosts exports, while a stronger dollar tends to make our products less competitive and import deflation. What is driving the dollar higher is capital flight from Europe and other troubled areas of the world. That will continue for some time, ultimately dooming our economy as the dollar gets way too strong.

You will hear more and more from the Federal Reserve and the Treasury about the stronger dollar. But they will not be able to stop it from rising.

Ultimately, the dollar will have to be replaced as the world’s reserve currency, by something far more neutral — economically and political — not because the dollar crashes, but because it becomes too strong.

Why? Because most global debt is dollar-denominated. So as the dollar gets stronger, the burden of those debts becomes far heavier. — Larry

Reader Mike asks:

“Larry, the convergence of your cycles is certainly interesting.

But how can you make a huge leap and conclude, so very specifically, from that convergence, that Europe will be the first to go, followed by Japan, and then America will be the last to fall?”

My response: It has to do with cycles, but also the fundamentals. Who has the largest, deepest most liquid markets on the planet? The U.S. does. That’s an advantage neither Europe nor Japan have.

Who has the deepest most liquid currency market? We do, the dollar. Neither the euro nor the yen comes close.

So you can see the order yourself: First Europe, due to its massive debts and ill-designed currency. Then, Japan. Then the U.S. — Larry

From Reader Balu:

“I hear that interest rates could be raised by the Fed either this year or maybe next year. Is it possible to give some ‘possible scenario’ as examples as to how catastrophic the effect will be if the Fed raises the interest rate by say 0.25%?”

My response: It will not be catastrophic. You will see knee-jerk reactions to the downside in most markets. But shortly thereafter, markets that are in bull mode will continue higher. Moreover, a rate hike will be long-term bullish for most commodities and stocks. Keep in mind the biggest bull markets in commodities actually occur with rising rates, not declining rates.

That said, it’s all about timing. As we head into 2017, the relationships between interest rates and markets and between different asset classes will change dramatically. — Larry

Best wishes,

Larry

Other Developments of the Day

BulletSales of new U.S. homes tumbled in June, indicating less robust strength in the industry than had been expected. Sales fell to 482,000, a 6.8% drop and the weakest pace since November. Previous reports had shown steady growth amid better jobs figures and low interest rates. “There’s no question the housing sector kicked into a higher gear in the second quarter, but this might be a dose of reality that the acceleration is not as sharp as it had looked,” Ward McCarthy, chief financial economist at Jefferies LLC, was quoted by Bloomberg as saying. He added, however, that the outlook remains positive.

BulletPublishing company Pearson said it will sell its Financial Times unit to Nikkei, Japan’s biggest private media company, for $1.3 billion in cash. Nikkei has promised to uphold the FT’s editorial independence. The price tag made for one of the biggest deals ever for a newspaper.

BulletThere’s been another shooting, this time at a movie theater in Lafayette, Louisiana. Police say 59-year-old John R. Houser fired 13 times, injuring 9 and killing two. The shooting occurred only a few hours after President Obama filmed an interview with the BBC lamenting that it was “distressing” how the U.S. lacked “common-sense” laws to tackle gun violence.

BulletIn a move that will impact anyone (read: everyone) with health insurance for years to come, Anthem (ANTM) has agreed to buy Cigna (CI) for $48 billion in a move that will create the largest U.S. health insurer by membership. It still faces scrutiny by antitrust authorities.

BulletCheers to Jeff Bezos, whose fortune just ballooned by $8.05 billion (not a typo), after Amazon blew away second-quarter estimates and shares of the company surged 20 percent. The rise in the share price gave Amazon a larger market capitalization than Wal-Mart (WMT).

What are your thoughts on the news? Are the gigantic health-industry mergers good or bad for consumers? Will premiums continue to rise because of the reduction in competition? Should antitrust authorities step in to prevent such mergers, or let the free market handle the situation itself? Use this link to share your thoughts over at the website.

The Money and Markets team

Larry Edelson, one of the world’s foremost experts on gold and precious metals, is the editor of Real Wealth Report and Supercycle Trader. Larry has called the ups and downs in the gold market time and again. As a result, he is often called upon by the media for his investing views. Larry has been featured on Bloomberg, Reuters and CNBC as well as The New York Times and New York Sun.

Comments 23

Rusty July 24, 2015

Consolidation never helps the consumer.......only stockholders. Yea, consumers are also stockholders, so maybe it's a wash for those of us who are investors. The little guy gets to pay for the loss of competition when the big boys merge. Just look at the airlines. This was baked into the ACA cake by our corrupt government. Always talking about looking out for the middle class and always acting to enrich their campaign contributors/lobbyists . Another reason why TRUMP is resonating with the public.

Bernard J. Sieben July 24, 2015

I have been holding my bullion as you have recommended In the RWR but I am concerned that if the Dollar tops and Gold is pegged to the dollar, will there be a way to protect the value of my investments?

Fred 151 July 24, 2015

Looks like gold has hit a temporary bottom today and wants to rally for a while before heading down again. Nothing goes straight down all at once but we might re-test this temp bottom.

Nicholas Kitt July 24, 2015

Dear Larry, You mention that the dollar to come down will eventially have to be replaced as the Reserve Currency,will the IMF ADMIT CHINA this October to a basket of currencies Known as SDR'S and give China's currency a new status as a global reserve currency???

Houston Chef July 24, 2015

Consolidation is just a bump in the road on the way to a single payer system, the ultimate goal. Don't you just love the savings that ACA has brought, aren't you loving it that you can still keep the doctor that you have used for years, and how efficient the system has gotten. The doctors don't like it, the patients don't like it, the taxpayers don't like it, but big government loves it!

Fred July 24, 2015

Larry, Is there a website on which we can monitor the current and historical capital flow into U.S. markets from specific countries?

Troy July 24, 2015

Larry, I fear that the harsh terms that Greece has had to swallow will give pause to other European countries in similar financial shape. Doesn't this buy more time for the Euro? Japan is even more debt troubled. Might Japan default on its debt first? Would the re-militarization of Japan to defend against the rise of China impact their economy?

KEN July 24, 2015

lLARRY, In your answer to reader Mike, I didn't see a word about China or the yuan. If the dollar ever is replaced as the world's reserve currency -- which I hope that I won't live to see -- my money is on the yuan. If we wait 40 years or more, India's rupee also jumps ahead of the yen and euro. And if we actually accept the deal that Kerry negotiated, the Iranian currency looks like a winner in the medium term. And if we keep our blinders on for the next few years, the as-yet unnamed currency of ISIS may be the big winner. So many scenarios, so little information.

Karl July 24, 2015

Larry, All of Obama's promises about affordable healthcare are quickly disappearing. The premiums and deductibles for most plans are higher than before Obamacare became law, and they continue to rise -- just recently Oregon and/or Washington state announced that next year's premiums will rise 25-30%. This week the Washington Examiner has an article about how the health insurance industry is capturing the federal government, so that its policies will favor the big corporations at the expense of almost everyonwe else. Paraphrasing the Examiner: "America's Health Insurance Plans, the industry's largest lobbying group elected Marilyn Tavenner as its CEO. Before joining AHIP, she led the Centers for MediCare and Medicaid under Obama, where she was tasked with implementation of ObamaCare--writing the rules regulating the same insurance companies that she now represents as a lobbyist. The Tavenner news busts another myth--that the law was supposed to rein in the insurance industry. In reality, Obama went into business with the insurance industry. During the push to overhaul the healthcare system, Obama abandoned a plan to create a government-run insurance plan to be sold alongside the privately-administered plans on ObamaCare's exchanges. ... during the next decade the federal government is projected to spend $700 Billion in subsidies for people to buy insurance -- something the industry will enjoy. Ain't it great to be an American taxpayer?!?

david maxwell July 24, 2015

Larry,do you still predict the dow to quickly go to 35,000 after our next correction in the markes? thank you.

Wanda Riggle July 24, 2015

As a seventy-year-old housewife, I'm trying to understand how the government could legally take my husband's 401k and retirement? I realize in Cyprus the gov. took 40% of any savings over one hundred thousand dollars. How can we protect my husband's 401k? Thanks,

David (archives2001) Clumpner July 24, 2015

Larry, I hear u saying two different things. First I get your urgent warning of a crash on Oct 7th this year and then I hear u talking about a supposed collapse BY 2017. What gives??? My personal opinion is the major crash is coming in Sept, as early as the weekend of 9/11 to the 16th. If not then, Sept 23-24 is the next window and the final one will be Sept 28-29, the end of the current 4 Blood Moon Tetrad. btw, I'd LOVE to see a debate between you and Harry Dent. His predictions are finally coming thru in spades.

J July 24, 2015

Larry: your convergence of cycles is very intriguing. I'm wondering why you think it will happen on Oct 7, not any other day/month? Is there something big event on Oct 7 which will trigger the convergence?

Will July 25, 2015

What else does copper have to hang its hat on besides electric and hybrid cars? When the economy recedes and the dollar weakens as we are told it will, then will the population really continue to support the subsidies and will the population be able to afford this more expensive mode of transport? Will subsidies be needed to install a vast system of recharge stations, or will the electric car be tethered to an invisible electric cord? Will the additional power supply be derived from clean fuel (such as solar) even in locals of extended overcast?

Alok Jain July 25, 2015

Larry Sir : I have started reading your articles three months ago & it is only because of your advice I did not invest in gold and silver.Thank a lot for saving my money. Can you throw some light on Indian equity markets during the upcoming financial crises. Thanks once again . Regards Alok Jain From India

Yuan July 25, 2015

Hi Larry, I have a fair bit of Australian banking stocks. Should I get out of them? Regards yuan

$1,000 gold July 25, 2015

great insight by larry into how the electric car will affect copper's future. i have to say, larry is first on the block i've heard talk about this, so credit where credit is due. maybe larry can put his genius to work and decipher the effect the electric car will have on utilities companies, as the gas pump will someday soon be replace by an electric plug in my garage. frankly though, solar and battery backup could soon meet all our energy needs and we may see utilities suffer massive declines.

mike July 25, 2015

hi larry I enjoy your analysis but hard to make an overall decision. is cash the king. should i buy real estate, some believe because of chinese currency status one should buy gold and silver. let say you have 200 thousand dollars cash that you can invest what would be the best choice.

Heidi July 28, 2015

mike go and find a real person that is qualified to advise you for the future .

Andrew July 26, 2015

with reference to your prediction that from 2015-2020 , Europe ,Japan and finally US will encounter sovereign debts crisis of unprecedented scale , I remembered you mentioned about Dow( DJI ) hitting 31000 . Correct me if I am wrong , are you saying that Dow Jone index will have a major major correction during these 5 years period followed by a new historical high after all these crisis are over , meaning starting 2020, DJI will be at the bottom and slowly making its way up to 31000 ? Your view please, many thanks !

Bill July 26, 2015

Larry, What percent of all copper sold goes to auto production and buildings,homes?

Jeff Platenik July 28, 2015

Larry: I really enjoy your insights. You seem Spot On and I agree with your predictions. I cannot afford your new subscription at this point in time. I have a question...you discussed in your conversations that two of the safest investments are Real Estate and Stocks where one holds the physical Stock Certificates I have a self directed IRA what is your advise as to how to keep this as a"Safe" investment? Thank you very much for your time and excellent advise. Jeff Platenik

Radek July 30, 2015

Larry ,can you elaborate on Eastern European currencies like Czech corona and also their real estate ? Thank you Radek