Market Roundup
Dow
17,447.94 (-254.28)
S&P
2,045.97 (-29.03)
NASDAQ
5,005.08 (-61.94)
10-YR Yield
2.32% (-0.02)
Gold
$1,083.40 (-$1.50)
Oil
$42.93 (-$1.27)
You know how much a pound of “Dr. Copper” went for earlier today? $2.17. You know the last time the red metal was this cheap? July 2009, at the tail end of the Great Recession.

How about a metric ton of zinc? Try just under $1,600, the least since that same time … and down more than 26% year-to-date. Aluminum? Nickel? They’re plunging, too.

Just take a look at this chart of the London Metal Exchange Index. It tracks the performance of six base metals, including all the ones I mentioned earlier as well as tin and lead. You can see that it has weakened significantly since mid-2014 and is rapidly slumping toward the 2009 recession lows.

BaseMetals Down, down, down.

Then there’s crude oil, a commodity that markets pay very close attention to. It broke below $42-a-barrel today. That’s a level we haven’t seen since three days after the stock market suffered its late-August mini-crash.

What’s going on? Start with lousy demand in China when it comes to base metals. As I mentioned yesterday, industrial production rose only 5.6% there last month. That was the slowest since 2008 in a country that’s responsible for about 40% of global copper demand, the most of any single nation.

When it comes to oil, the Organization of Petroleum Exporting Countries (OPEC) just noted that the world’s developed economies have a whopping 210 million excess barrels of oil on hand. That’s the highest in at least a decade, and greater than the 180 million barrel surplus they had in the depths of the Great Recession.

But I believe this is indicative of a much bigger, much broader issue. We’ve seen trillions of dollars, euros and yen worth of global QE. We’ve seen negative interest rates in some countries, and promises of even more action every few months.

Yet global growth remains anemic, with many countries mired in recession. And as I just noted, the “stuff” that goes into all the products we use is getting cheaper and cheaper by the day.

“Think about what this says for the real world.

Forget the asset markets for a minute. Think about what this says for the real world. It suggests we face very serious growth problems, despite years of easy money and artificial puffery in assets. I don’t see how anyone can spin that as bullish, though I’m sure many on Wall Street will try!

My advice? Same as it’s been for the past six months. Grab profits. Cut losses. Pare down overall exposure. Raise cash. And selectively hedge or target downside profits from vulnerable companies, sectors, and asset classes.

I just made two new moves in my Interest Rate Speculator service, for instance, even as one of the large European banks I previously targeted came within a couple of pennies of hitting a fresh, multi-year low today.

F-Copper Pipes Dr. Copper is ailing.

In the meantime, what do you think about the commodity rout? Should we be concerned, or is it just a hiccup? Does the price of zinc, copper, lead, or tin matter to you … or would you rather just stay focused on stocks that have been working, like Amazon.com (AMZN) and Facebook (FB)?

Any additional thoughts on what these moves say (or don’t say) about the global economy? Let me hear about them at the Money and Markets website if you get some time today.

Our Readers Speak

Are the markets facing a day of reckoning soon … or are we off to the races for the remainder of 2015 and beyond?

Reader John E. said: “I have a short position which expires 11/13, and these last couple of trading days have been a rough ride with the immense volatility. Shorting the market isn’t for everyone, indeed, there are days I’m one of those people.

“That said, I’ve got my money on the table and your points are all cogent and to the point. I believe investors fall into three camps in this market: Hold on for a bumpy ride … hedge your positions … or sell what unrealized gains you have and put into a 1 basis point money market. It beats getting slaughtered if you have a shorter-term investment horizon.”

Reader Billy was even gloomier, saying: “The MACD or breadth problem of the market is yet another in a massive number of canaries in the coal mine that point directly to a bond, currency, and lastly a stock market crash right around the corner. Many of us who have been looking at the markets for literally decades have never seen the conditions as bad as they are today from a macroeconomic, fundamental, technical, cyclical, demographic and geo-political standpoint on a worldwide basis.”

But Reader Paul R. countered by saying: “I’m not so glum as some who are speaking out. My portfolio is mostly mutual funds that lean toward technology. My horizon is long term, no day trading. Portfolio performance has been okay, but not spectacular.

“I believe that the U.S. stock market will weather the stormy periods as it always seems to, dropping periodically and eventually coming back and setting new higher records, stronger than before. I’m staying optimistic; for long-term investment, there’s no better place than the U.S. stock markets.”

As for the underlying economy, Reader Richard highlighted one of the key challenges out there – slumping trade around the world. His take:

“Going with this trend, Maersk — the world’s largest shipping company that delivers 15% of world shipping — just laid off 4,000 workers, or 17% of their workforce. Third-quarter profits were down 61% and the CEO said their forecast is down for the coming quarter.”

Here in the U.S., Reader Jim highlighted the challenges we face domestically by saying: “I have a small business. The various levels of government are taking half of my net now. Then I have mounting compliance costs. I am taxed directly and then indirectly by having the currency debased.

“This cannot continue or there won’t be any small business. All I hear is that I am selfish and not giving enough. Where does it end? I don’t need the help of either party. I need them to leave me alone.”

Thanks for the different perspectives everyone — on both the markets and the economy. I’ve made no secret about my concerns on both fronts. I’m also continuing to highlight what’s going on “behind the scenes” in both stocks and bonds because they raise very serious questions about the health of the markets for the rest of 2015 and beyond.

We’ll see if that approach ultimately proves to be right or wrong. But I wouldn’t be as vocal as I have been if I didn’t believe there were very real reasons to do so. In the meantime, you can add more to the discussion by using this link.

Other Developments of the Day

● Sending money to a friend may get easier in the next several months, if Apple (AAPL) has its way. The tech giant is developing a person-to-person money transfer system that would eliminate the need for cash or check payments, and would function over Apple smartphones and iPads.

Several banks already offer similar services, and they’re gradually gaining in popularity. It’s unclear how Apple would make money from its offering at this early stage.

● Puerto Rico is all but broke, and running out of options to cover payments on its $70 billion in debt. The U.S territory’s government has to come up with $720 million to make debt payments over the next couple of months, and it’s also struggling to cover everything from salaries to retirement benefits. Potential aid packages remain stalled in Congress, and the clock is clearly ticking.

● Kurds and Yazidis launched an offensive in northern Iraq to cut off ISIS forces from their Syrian supply lines. By raiding the town of Sinjar and taking control of a highway in the region, the U.S.-backed forces hope to isolate the city of Mosul and the ISIS forces that took it over some time ago.

● The European Central Bank keeps hinting it will take more action in December, but today, the stock market didn’t much care. Both European and U.S. shares came under pressure anyway.

Some of that is because the real world keeps intruding on the fantasyland central bankers live in. The British aircraft engine maker Rolls Royce Holdings PLC (RYCEY) warned of weaker demand, causing its shares to plunge a whopping 19% — the worst one-day drop in 15 years.

But could it also be because investors realize that cutting interest rates further into negative territory, or buying European municipal and state bonds in addition to national debt, will just be another useless step in a process that obviously hasn’t done anything to boost inflation or growth? After all, if the previous round of Euro-QE “worked,” why the heck would the ECB need to do more of it just 18 months later?

Have you used person-to-person money transfer systems, and if so, what do you think of them? Will more Euro-QE accomplish something even as previous rounds haven’t? Do you think the latest assault on ISIS will push the terrorist group back? Feel free to weigh in on those or other stories online.

Until next time,

Mike Larson