The most notable divergence of the last few weeks has been the oil/copper divergence. Prior to the MENA crisis the prices of both assets were highly correlated as investors bid up prices in anticipation of stronger economic growth. But the divergence sent a clear message – oil was now worrying investors about future growth prospects and copper was taking the brunt of the beating.
In the last few days another divergence has appeared – equities are now diverging from copper prices. Since the beginning of QE there has been a near 1:1 correlation in both assets, however, in the last few days this has entirely broken down as copper declines 10% from its highs and the equity market levitates.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.
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