Must reading for any investor is the classic book, Extraordinary Popular Delusions and the Madness of Crowds, a groundbreaking study of crowd psychology by Scottish journalist Charles Mackay. First published in 1841, it’s the bible for contrarians.

Mackay would take a dim view of the herd mentality that currently reigns on Wall Street. The Dow Jones Industrial Average, the S&P 500, and the NASDAQ all hit record highs last Friday, before modestly retreating on Tuesday.

As stocks continue to march higher despite today’s geopolitical and economic dangers, they’re proving an old Wall Street adage: bull markets climb walls of worry.

This expression refers to the stock market’s tendency to climb when investor fears don’t materialize. The wall of worry reflects a maturing cycle, when potential upside still exists but weaknesses start to appear in the fundamentals.

This month, the S&P 500 breached seven records in 12 days. And yet, according to research firm FactSet, fourth-quarter corporate earnings are on track to decline by 2.1%, representing the fourth straight quarter of earnings declines. Investors have climbed to lofty heights, but they’re in danger of losing their grip.

The writing on the wall…

Political risks are usually easy to ignore, but not this year. We face a contentious 2020 election, made more uncertain by President Trump’s impeachment.

As I write this column Wednesday morning, I have cable television news droning in the background in my home office, so I can stay abreast of the Senate’s impeachment trial of Trump. The rancor today in the Senate reflects a nation divided.

Wall Street is shrugging its shoulders at impeachment, but don’t underestimate the possible damage to your portfolio of political chaos in Washington. Events could snowball out of control and provide a trigger for the long-delayed stock market correction.

Investors are dangerously complacent right now. Euphoria last week over the U.S.-China “phase one” trade deal was a stark example of crowd mentality. As I’ve previously written, I view the deal as a sham that’s designed to placate Wall Street.

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The deal commits China to certain goals that the country is unlikely to attain and does nothing to address the underlying structural problems in U.S.-China trade.

Don’t simply take my word for it. An influential economist at Yale University recently told CNBC that the phase one trade deal is “hollow,” “flawed” and “ridiculous.”

Many onerous tariffs remain in place and their harmful effects already are showing up on corporate top and bottom lines in fourth-quarter operating results. Investors can live in a fantasy world for only so long, before reality catches up with them.

According to a recent report by Moody’s Analytics, the trade war so far has cost 300,000 American jobs. At the same time, tariffs have slowed China’s economy. No one wins in a trade war.

Another ignored risk is Brexit. Investors have concluded that Britain’s planned departure from the European Union is no longer a worry. That’s wishful thinking.

The United Kingdom is scheduled to exit the EU on January 31, 2020, the latest deadline after Brexit “D-Day” was delayed three times. The UK and the EU have negotiated a transition period which could be extended until December 2022, provided both sides agree. Many details of Brexit remain to be ironed out.

Regardless of the specifics of an eventual agreement, leaving the EU will cost the UK plenty in the form of lost economic activity. Brexiteers routinely complain about fees paid to Brussels, but those amounts seem tame when put in the context of Brexit’s damage to Britain’s economy.

A Bloomberg Economics analysis found that that economic losses due to the UK’s decision to leave the EU have already reached £130 billion, an amount that’s projected to rise to £203 billion by the end of 2020.

Since 1973, total UK payments to the EU’s budgets amounted to £215 billion when adjusted for inflation. The level of those payments were the cornerstone of the Leave case for Brexit. But now it seems as if the divorce itself will cost almost as much as 47 years of payments. And that damage will extend beyond 2020.

The research firm Statista released a chart on January 20 that tells the story:

Collectively, the EU is the world’s second-largest economy, in nominal terms, after the United States. In addition to tariff relief, the EU allows free movement among its 28 member countries for employment and commerce.

The June 2016 referendum for Britain to leave the EU, combined with London’s lack of planning for that eventuality, represents a striking example of self-inflicted national damage.

One of my personal heroes is Winston Churchill, who did more than anyone to save Britain and Europe during World War II. As British lawmakers devolve into disarray and childish name-calling over Brexit, Churchill must be spinning in his grave.

Britain is the world’s fifth largest economy and our closest ally. Hard or even soft Brexit could trigger a chain reaction in Europe, with collateral damage reaching across the pond to Britain’s cousins in America.

The red metal’s time to shine…

Despite pulling back on Tuesday, stocks continue to hover at all-time highs. Corporate earnings growth has slowed but valuations are excessive. In pre-market futures trading Wednesday morning, all three major U.S. stock market indices are poised to open higher. The herd blindly marches on.

Brexit, impeachment, negative earnings growth, the trade war…they’re all potential triggers for a crash. But don’t exit the stock market. Instead, look for “defensive growth” plays that confer profits with a hedge.

One defensive growth sector that’s poised to rise this year is commodities. My colleague, Dr. Stephen Leeb, is an expert on commodities. His prognosis for this asset class is bullish.

Dr. Leeb also is a contrarian and nobody’s fool. He’s the chief investment strategist of Real World Investing and The Complete Investor. As he points out in an Investing Daily article published this Wednesday:

“For investors, if we are right about the world continuing to be driven by commodity-hungry developing economies, which are major consumers of commodities as well as producers, commodity prices are in a long-term uptrend.”

In particular, Dr. Leeb thinks copper prices are about to go through the roof. Copper is vital for building construction, power generation and transmission, electronics, industrial machinery, and transportation vehicles. Copper wiring and plumbing are mainstays of heating and cooling systems, appliances, and telecommunications links.

We’re surrounded, every day, by the practical uses of copper. And therein lays an investment opportunity. The modern world can’t function without copper, but Dr. Leeb asserts that the world is running dangerously low on supplies of the red metal.

It’s Economics 101: When the supply of a crucial commodity is diminishing and demand is exploding, prices are primed to soar.

However, the investment herd isn’t paying attention to copper, which means it’s your chance to act. Want to score outsized gains in what promises to be a difficult year for the broader markets? Click here for Dr. Leeb’s latest copper play.

John Persinos is the managing editor of Investing Daily. You can reach him at: mailbag@investingdaily.com