The Global Bull Bets on “Dr. Copper”

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.

Your Rydex Inverse Government Long Bond Strategy Inverse (RYJUX), Market Vectors Double Short Euro ETN (DRR) and short CurrencyShares British Pound Sterling Trust (FXB) all ended the week lower. And you were stopped out of the PowerShares DB Commodity Double Short ETN (DEE) for a 5.8% gain, after having sold half of your position for a 22% gain a few weeks ago.

On the flip side, your position in Brazil’s Petrobras (PBR) now is up 24.4% in the past four weeks, with the options almost having doubled. And your bets on gold through the SPDR Gold Shares ETF (GLD) and the PowerShares DB Gold Double Long ETN (DGP) are up 4.2% and 8.6%, respectively.

This week’s Global Bull Market Alert pick is a bet on “Dr. Copper” — “the commodity with the Ph.D. in Economics” — through the iPath DJ AIG Copper TR Sub-Idx ETN (JJC). Here’s why I think “Dr. Copper” is set to soar over the coming months.

Copper is used in everything from electronics, piping, roofing, and cookware to musical instruments, fire extinguishers and biotech compounds. As a result, its price movements have been a reliable leading indicator of the health of the global economy. And look behind doom and gloom headlines, and you find that demand for copper has been rising steadily. Since bottoming in December, the price of copper has risen 28% in 2009, after plunging 54% last year.

In particular, China’s imports of unwrought copper, refined metal and copper alloy for the first two months of the year surged 53.5% from a year earlier. China’s State Reserve Bureau (SRB) has been purchasing copper at much higher than expected levels. Now, rumor has it that the SRB may raise purchases to 1 million tons from 600,000 tons, easily turning the projected global surplus of 350,000-400,000 tons this year into a deficit.

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Copper also is positioned to benefit the most from China’s $585 billion stimulus package. And with building work in China accelerating from March thanks to warmer weather, the effects of Chinese demand are being felt as far away as London. Since late February, London copper stockpiles have fallen over 50,000 tons. And last Thursday, copper topped $4,000 per ton for the first time since November.

With JJC now trading above its 50-day moving average, copper is at the beginning stages of a full-fledged uptrend. There also have been numerous bullish spikes in JCC’s trading volume. JCC normally trades about 30,000 shares a day, but recently there have been several days where a quarter of a million shares traded hands. Some major players are hopping on the copper bandwagon.

So buy copper through the iPath DJ AIG Copper TR Sub-Idx ETN (JJC). This ETN follows the price of copper on a one to one basis. Place your stop at $21.90. There are no options on this one.

Portfolio Update

Market Vectors Double Short Euro ETN (DRR) fell sharply in the past week as the euro soared against the U.S. dollar after the Fed’s announcement on quantitative easing. With the European economies under increasing pressure, and with fewer policy tools at Europe’s disposal to take its economy out of recession, I expect that the euro will resume its downward trend against the U.S. dollar. Although DRR is near its stop price, I am keeping it at a BUY.

Your short position in the CurrencyShares British Pound Sterling Trust (FXB) suffered this week, as the British pound sterling soared against the U.S. dollar.

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I believe that the British currency will resume its downward trend once the weakness in the British economy comes back to the fore. Remember, the Bank of England has embarked on a program of quantitative easing that is much bigger as a percentage of the United Kingdom’s economy than the Fed’s own efforts. Continue to short FXB.

SPDR Gold Shares ETF (GLD), with inflation fears creeping back into the market place, hit $94.77, before correcting and ending the week up 2.5%. GLD remains a BUY.

The iShares iBoxx $ High Yield Corporate Bond (HYG) ended the week slightly up, after rallying up to the $68.50 level earlier in the week. This is a bullish play on the bounce in the market, and it also carries a double-digit percentage yield. HYG remains a BUY.

Petrobras (PBR) rallied another solid 7.35% last week, breaching the $32 mark for the first time this year. You’ve already sold half of your July $30 call options for a 48% gain. With the oil price breaching $50 for the first time in 2009, this Brazilian oil giant and George Soros favorite continues to be a BUY.

The Rydex Inverse Government Long Bond Strategy Inverse (RYJUX) was hit hard by the Fed’s unexpected announcement of quantitative easing, falling close to 8% on Wednesday. But with the Fed’s program focused on the short end of the curve, and with the Congressional Budget Office calculating that the Obama deficits will be worse than originally announced, RYJUX remain a BUY.

P.S. Gain the knowledge and insights you need to make smart investment decisions at the most important investor gathering in 2009. Join me for this year’s Money Show Las Vegas, May 11-14, 2009 at the Mandalay Bay Resort and learn how the experts are finding profitable opportunities during the market crisis and how to position your portfolio for safety and growth. To register FREE, call 800/970-4355 and mention priority code 012653 or register online!

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Although I had mentioned the possibility in yesterday's Global Stock Investor hotline, the announcement by the U.S. Federal Reserve that it is embarking on a formal program of "quantitative easing" by planning to buy $300 billion of U.S. Treasuries caused genuine "shock and awe" in global financial markets.

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