Copper and lumber predicting severe downturn in economy, real estate and eventual stock market collapse
Joe Weinman
Nov. 26, 2006

Copper prices normally predict the economic growth especially the manufacturing sector. The lumber price shows the state of real estate market in the next year. They are ahead of the economy and real estate market by approximately 10 to 12 months. Copper topped out six months back. Lumber entered a long term decisive bear market twenty months back.

Lumber and copper has fallen together every time when stocks and real estate crashed sown due to economic weaknesses. That is exactly what is happening now. The effect on stock can be severe because of budget deficit and lack of further fiscal and monetary ease.

One factor is different this time. Recent tax policies have made divided paying stocks a good tax shelter compared to years before the new dividend tax rule. No wonder Dow made a new high while the Nasdaq went nowhere. Traditionally the divergence is bad. This time it can be an exception. It dividend paying stocks are treated as bonds; a light recession where some companies reduce or eliminate dividends will cause severe crash in the stock market. Copper and Lumber prices are predicting a recession in 2007-2008.

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