Marc Faber, who shares the moniker “Dr. Doom” with Nouriel Roubini, has made a name for himself not only from his intelligence, but also from his outspoken and often controversial views. Faber has recently predicted a 100% chance of a U.S. economic recession and says that he is simply waiting for things to fail. To put things lightly, he is something of a bear, as he often points out the faults of the economy or singles out failing sectors. It seems as though he has done it again, but this time with industrial commodities, namely industrial metals [for more industrial metals news and analysis subscribe to our free newsletter].
Commodities like copper, steel, aluminum, and others have struggled as of late given the shaky economic indicators from around the world. Faber notes that “industrial commodities will remain under pressure due to the fact that the Chinese economy is slowing down considerably”. While it is important to realize that the Chinese are intentionally subduing some of their growth; it has been a rising issue for investors around the world for some time now. China’s GDP growth has been dropping for nearly two years, worrying many that this dominant emerging market is beginning to slow down.
Of course, slowing down still holds a growth rate of more than 7.6%, a figure that looks quite robust when set next to the U.S. growth rate of just 2.3%. But the shrinking figure is still worrisome, as China is the one of the world’s largest consumers and producers of industrial metals like copper among others. If China were to cut its demand prospects from something like copper or steel, it could have devastating impacts on the commodities themselves, according to Faber’s theory. Below, we outline several options to make a play on Faber’s prediction [see also Why Bill Gross Thinks The Fed is Ruining The Economy].
- DB Base Metals Fund (DBB): This product invests in futures for aluminum, zinc, and copper, with each commodity receiving an equal weight. The fund has roughly $315 million in assets and trades nearly 90,000 times each day.
- DJ-UBS Copper Total Return Sub-Index ETN (JJC): For those looking to single out copper exposure, this fund will be the most popular option. JJC invests solely in front-month copper futures and trades more than 55,000 every day [see also Three Commodities to Bet With Buffett].
- Rio Tinto (RIO): Rio is one of the largest mining firms in the world, giving you an indirect exposure to a firm whose revenues will be directly impacted by the prices of the commodities they extract. The company’s main outputs are iron ore, copper, coal, and aluminum among others.
Disclosure: No positions at time of writing.