The precipitous decline in the price of copper over the last three days has dramatically increased the “pucker factor” for global financial markets as an increasing number of traders are taking copper’s price plunge as a cue to sell other assets.
Recall that copper is the metal with a PhD in economics since its use is so widespread and, as a result, its price provides important signals not just about the supply and demand of copper but of the health of both local economies and the global economy. Right now, it’s not saying anything positive about China or the world.
This CNBC report says the plunging price may be “acting as a fire alarm for the global economy” and fire alarms going off are never good. Even if it’s a false alarm, it’s highly disruptive over the short-term and, right now, it’s keeping people from buying stocks.
Bloomberg says iron-ore prices are also tumbling and that steel companies are teetering.
The real problem here is not the metal or the economy – it’s credit – and both copper and iron-ore have been widely used as collateral for sometimes dodgy loans from China’s enormous shadow-banking system that also appears to be teetering.
None of this sounds good…