If you've been suffering through this euro-led meltdown in stocks, as I have, you don't have much to be happy about. Stocks -- particularly the high-beta commodity stocks that I track -- are still fantastic values, but they are being held hostage by a credit contagion overseas and the insecurity of how that will (or won't) work itself out.
But you would not be making a long-term mistake by positioning yourself with high-beta shares at very cheap prices. For instance, copper is telling us to stay the course on commodity trades.
Just look at stockpiles of copper on the LME.
The six-month chart looks like a massive drain of stockpiles, doesn't it? But maybe this is a short-term drop to complete a forwards/physical transfer or a removal of stock in front of the newest physical ETF from JPMorgan about to be launched.
The one-year stockpile chart shows that this isn't a one-time drawdown and that it has been going on for quite a while. In fact, stockpiles are at some very deeply drawn levels, as the five-year stockpile chart will show.
What's interesting about the five-year stockpile chart is that the 200,000 metric tonne region, which we are closing in on, hasn't been breached since 2008, exactly the moment when the economic recovery started and commodity prices (particularly copper) began to boom.
Now, let's have a look at price over the last year.
You'll notice that the $3-per-pound price has been almost religiously protected by the Chinese in the last year, and I expect China to pull out all the stops to do that again. Don't let reports of iron ore contracts being pulled fool you, the Chinese have lots of room for easing and further increases of their own resource stockpiles at the right price. The five-year price chart confirms this.
Again, $3 a pound is the magic line in the sand, and we have never gotten very close to that price with stockpiles at the LME as low as they are now.
We're setting up a fundamentally based monster of a move, based on a bottoming price and real physical stockpile shortage in Europe (and, if you read reports, Australia and South America).
It makes the beaten-down, unrespected, disaster miner trades that continue to suffer some of the most interesting ideas in the commodity space. For example, Vale (VALE), BHP Billiton (BHP) and Glencore are all cheaper than the dirt they're digging.
I'm not saying they can't or won't go lower -- they can and probably will -- but doctor copper is saying that this won't last much longer.
And I always listen to the doctor.