Economy Recovering? This Indicator Seems to Think So!

03/19/09 Categories: Economy

You know, when an economy does start to recover, it’s not widely known at the time. In fact, the news will still be as full of “gloom and doom” as ever even when it starts.

So you won’t know when the economy is turning by listening to the nightly news. So what can you look to?

Well, here is one widely watched economic barometer that institutional investors have used throughout the years. What is it? Copper

Now you may think, “What in the world does the price of copper tell us about the economy?”

Here’s why. Institutions say that “Copper has a PhD in Economics. Why? Because this commodity is so broadly used (in the building of homes and offices for plumbing and wiring to the building of computers and automobiles). You can literally see the broad demand put upon this commodity as the demand starts to “tick up” for these goods.

With other leading indicators “ticking up” recently such as Housing Starts and Building Permits, I took a new look at copper as well to see what I saw. Here’s what it looks like.

Copper breaks its downtrend and heads higher for the first time in almost a year!

copper, commodity, futures, chart

As you can see from the chart above, copper has not only broken its downtrend but also its sideways range and is preparing to head higher. Now how can that happen if there’s not more “copper buying” going on around the world.

On top of this, it seems that crude oil prices have finally stabilized too, and once oil prices finally hold above $50 a barrel again, it should be another “confirming sign” that the global economy has BEGUN the process of turning around.

I say “begun” because it takes time for the U.S. and global economy to be in “full bloom” once again. Therefore, the news will continue to be dire for a while longer.

But what does this mean for you? It means that if you are a long term stock investor, these could be better times to be a buyer (with cash, no margin buying) of ETFs and mutual funds if you have at least a 5-10 year time horizon for the investment.

For the currency investor, it means that you need to be on guard for the “dollar party” to come to an end once the world finally does realize that the global economy is turning. This could help the AUD/USD, NZD/USD and EUR/USD for instance as dollars are sold and commodities and inflation bloom once again. The former two pairs do best when commodities stabilize and boom once again…and the latter does good simply when the U.S. dollar does not do good since it acts as the best “anti-dollar” out there.

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