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Take the Money and Run From Copper, Says Dicker

Take the Money and Run From Copper, Says Dicker

It's an old saw on Wall Street that the price of copper foretells the fate of the global economy. As a critical component in wiring, pipes and a fistful of other construction related products, copper is purchased in advance of any major industrial project. Increased copper demand pushes prices higher slightly ahead of or at least coincident with economic expansion, but traditional economic measures like GDP don't show up until months after the fact.

As a sign of their respect copper's tendency to lead economic news and a sly jab at economists copper traders bestowed an unofficial PhD in economics on the metal making it Dr. Copper. Unfortunately for copper bulls the doctor has been in failing health for the better part of two years.

After dropping for most of 2013 copper finally found a recent low near $3 early last summer. With prices up some 10% from the lows the question is whether copper is leading a robust period of economic growth or if the industrial metal has lost its predictive power after the gigantic emerging market and China bubble skewed the supply/demand equation.

Related: Emerging Markets Surging as Investors Buy Global Growth Story, Says Bob Doll

"It's become a total proxy for the Chinese trade and that's what causing some of the bounce," says Dan Dicker of OilPrice.com. He notes that traders with the guts and luck to buy companies like Vale (VALE) have been rewarded with huge gains over a short period of time. That's the good news. The bad news is Vale is still down 25% for 2013 and it's unlikely to make up the lost ground anytime soon even if the economy keeps chugging.

The problem is supply is overwhelming any demand pickup. Dicker sees demand growing by over 2% in 2014 but production is set to rise more than 5%. You don't need a PhD in economics to know that supply outstripping demand means lower prices.

The takeaway is the copper rally is giving shareholders an opportunity to gracefully exit their positions. "If you've had a Vale or a Freeport (FCX) and caught this move my advice is to take the money and run."

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