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Is the Stock Market stable or complacent? 230418

A little more than a month ago the Banking system was “collapsing”.  Today the Market volatility index (VIX) is at about a 17 month low, reflecting stability. 

So…is this the calm before the storm?  Or is everything just hunky-dory?

Despite all the Talkinghead pontification, no one knows, especially not ChatGPT.  We’re at an inflection point.

Let’s remove some of the headline emotion from our economic perspective.  Consider the price of copper, which is an essential industrial metal and thus a good generic barometer of the global economy. 

Note the below chart that tracks copper’s price over the past nearly quarter century.  Like the global economy, it fluctuates widely, generally corresponding to the rhythm of the business cycle.

Since the excesses of the Pandemic, everyone’s perspective has been skewed towards high inflation.  That’s evident in the price of copper, which is up some 30% since 2019. 

BUT…copper is down 17.5% since its 2022 peak; down 11% since its 2011 peak; and flat if you had purchased it back in 2006.  This is in NOMINAL terms, so on an inflation adjusted basis, today’s copper price is comparatively inexpensive to the extremes of the past nearly two decades.   

The point is that prices fluctuate, often to extreme levels.  Prices of all things…commodities, precious metals, stocks, bonds, real estate, fiat currency, crypto…EVERYTHING

On the chart, to give some perspective to copper’s long term price trend, I’ve penciled in ~6.5% annual growth rate.  Consider that as an indication of global inflation…a lot higher than the “official” government number…but not Weimar’esque.  And I would also suggest that it’s not an indication of a failure of the economic system but rather part of a resilient strategic monetary policy. 

So…despite all the recent and past US$ devaluation, in real terms, today’s copper price is in line with a consistent 6.5% inflation rate.  And pretty much in line with the 10 year trend.  I think that can also be generally extrapolated to the overall condition of the global economy…consistent inflationary growth.

Copper (global economy) looks to be at an inflection point…it could go up or down.  Either way, it’s not going to ZERO nor INFINITY.  It will continue to fluctuate around a norm.  Money can be made by trading the trend.  But for now, the trend isn’t in evidence.  The Market’s personality is more schizophrenic than usual.  Therefore, I think it’s prudent to continue to patiently wait for some clarity, especially since from a valuation standpoint, there appears to be much more downside than upside.  (Nothing is “cheap” right now…nothing.)

Confused?  You should be.  That’s the nature of the Market.