In today's "Faber Report", David took a closer look at a sharp decline in the price of one of the hottest commodities of 2006. Find out what it is and which mining deal he's watching closely as a result.
Today on "Squawk Box" David Faber said he's watching copper closely because the metal has taken quite a beating lately. It had an incredible run through much of 2006 – mostly due to demand from China.
Where is it headed? Could it go to $2.50 or even lower? (That seems to be a critical juncture).
“The key is M&A activity and the purchase of copper producer Phelps Dodge by rival copper producer Freeport-McMoRan ,” explained Faber.
(Freeport-McMoRan said in November it had agreed to buy much larger Phelps Dodge for about $26 billion in cash and stock to create the world's largest publicly traded copper company.)
This is a deal with enormous leverage – for every 10 cent change in the metal – there’s as much as a $500 million dollar change in income for the combined company.
“Stevie Cohen at SAC Capital (a hedge fund manager famous for huge returns) is saying he will stand in opposition to the deal,” added Faber. “Because he believes there’s a higher price out there.”
David Faber will be keeping an eye on the deal and whether copper is an issue for the economy.