Copper and oil

Copper price keeps falling. Overproduction in the past, together with the slow down of US economy led to current oversupply is part of the reasons. However, do we believe business investment in the US remains strong and likely to stay strong? does the market in general believe the US growth will back on trend in the 2^nd half of 2007? do we believe the decoupling of the US and non-US? do we still believe the growth of China and India will stay sustainable in the coming year? Investment in Japan and Europe also seems not too bad. So, will the copper demand continues to drop due to US slows down? I really don’t know, but seems market concensus diverges with the drop in copper price currently. If we think past to mid 2005 is the trend, and after is a bubble, currently we are almost close to the trend.

Like the copper price, oil price is also falling. Are they in different dynamic? I am not an expert on commodity, but there are a number of research pieces arguing that our economy now are less dependent on oil than in the past. One news from the NY times said that “The energy used for each dollar of gross domestic product in 1980 was almost 70 percent greater than it is today”. This is probably the same in other developed countries. On the other hand, I don’t know if there is such improvement in copper efficiency, probably so, but in a smaller extent. I don’t know if we can use fewer coppers for the construction, but I would guess these two commodities should have different dynamics.

Suppose the oil price continues to fall, or stop rising, my biggest concern is how the oil exporting countries will do. There are two things almost sure will happen. One is they will buy less US treasuries. Two is they will use their capitals to buffer their economy, which means they will recycle less of their existing US treasuries. So, the future of $...