Marc Faber: Why Industrial Commodities Will Continue to Fail

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.

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Disclosure: No positions at time of writing.

This entry was posted in Actionable Ideas, Aluminum, Asset Allocation, Commodity ETFs, Commodity Futures, Commodity Producers, Copper, Industrial Metals and tagged , , . Bookmark the permalink.

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4 Responses to “Marc Faber: Why Industrial Commodities Will Continue to Fail”

  1. Maxver2000 says:

    Faber is always waiting for things to fail. As our former Governor used to say ” If you sit by the river long enough, a body will come floating by”.

  2. [...] The dreaded fiscal cliff is always a looming pressure for investors, as it is all about timing your entrance and exit to certain asset classes. Let’s not forget about QE3 and the threats of future inflation, as that will certainly spark some added interest for commodities. For those of you who buy in to Faber’s theory of profit taking or even of his recessionary claims, we outline three ETFs to either take profits from, or keep a close eye on in the coming weeks [see also Marc Faber: Why Industrial Commodities Will Continue to Fail]. [...]

  3. [...] The IMF noted that growth in Chinese aluminum demand will likely slow from 14% in 2011 to 8.5% in 2012, causing many to approach the commodity and its related stocks with caution. Since the recession began in 2008, industrial metals have had a hard time bouncing back given a tumultuous housing sector and an uncertain future for emerging markets that had once exhibited dominant growth quarter after quarter [see also Marc Faber: Why Industrial Commodities Will Continue to Fail]. [...]

  4. [...] There is quite a difference between the two. The CU currently holds a portfolio of 27 stocks involved in the mining of copper and other metals. The ETF has net assets of approximately $39.82 million and an average daily trading volume of roughly 16,100 shares. Some of the large mining companies contained in the fund’s portfolio are Rio Tinto plc (NYSE:RIO), Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) and Southern Copper Corp (NYSE:SCCO). The index components are reviewed quarterly [see also Marc Faber: Why Industrial Commodities Will Continue to Fail]. [...]

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