Mongolian Goat Herders and the Price of Copper

Morning Miners!

It is 6:41am, the coffee's hot and there is a lot coming at us this morning from Mongolia to taxpayer money growing cobwebs in our biggest banks. Let's kick off this morning with two bits of news to set the global stage:

"Falling demand for cashmere among recession-hit shoppers in the West is cutting into earnings among nomadic herders in Mongolia, whose goats produce the soft fiber used in high-end sweaters, scarves and coats. The result: herder loan defaults." (WSJ, 4/20/09)

"Lending at the biggest U.S. banks has fallen more sharply than realized, despite government efforts to pump billions of dollars into the financial sector." (WSJ, 4/20/09)

Nuts! The first item might have passed as an amusement a year ago; today, it is one more sign of how connected our future is to the fate of others on a global scale. There are more questions surfacing about China's economic recovery and I'll close on how the Mongolian goat herder's fate might affect the price of copper.

The second quote gets the ole Colonel's hackles up. Bank of America reported handsome profits today, people are getting jammed on credit card fees and the credit crisis rolls on. Eric informed me the Great Basin Bank in Elko belly flopped last week. Nuts!

For the past few weeks we have talked a lot about the meteoric rise of copper futures relative to other commodity prices (e.g. oil and gold, see the Colonel's charts below). Much of this has been attributed to a recovery in China's demand for raw materials given their recent stimulus and infrastructure plans. Now, there is concern that other weakness in their economy (goat herder sitting on a pile of unsold cashmere) could derail their grand plan:

"Is this recovery V-shaped, with China set to return quickly to the high-level growth of recent years? Or is it more W-shaped, as a government spending-led recovery this year peters out and China's longer term structural issues resurface?"
(WSJ, 4/20/09)

Our old friend copper may provide the answer in the next few months:

"Bill O'Neill, a principal with commodity-advisory firm Logic Advisors, said that copper may be 'overextended' based on global fundamentals and that prices may be no higher than now or even modestly lower in three months. 'Looking a year out, things could certainly improve in the U.S. and Europe and we could see higher levels,' he said. 'But we're in a period here between now and middle of the third quarter where prices might stall.'" (WSJ, 4/20/09)

Lots to think about buckaroos, the ole Colonel will try to sort it all out. In the meantime, keep your spirits up. There's still gold in them thar hills, Fear is back and gold prices are up today!

Enough talk, let's walk the walk:

Oil dropped over $3 in early trading to $49.15; the dollar ("Dixie" or .DXY) is kicking butt on nearly everyone again (the euro dipped below $1.30), up 0.82% to 85.905. The commodity index (.CRB) is down a healthy 2.22% to 220.84.

Gold jumped $11.6 to $879.5 (June contract); Silver is back over $12 at $12.060; Copper pulled back $.067 to $2.127; Molybdenum still lolly gags below $8.

The DOW is down 203 points to 7,928.54; the S&P 500, down 24.3 points to 846.11. Gold Miners are one of the bright spots except for General Moly which is falling off a small butte:

Barrick (ABX) $28.49 up 3.49%
Newmont (NEM) $39.33 up 3.13%
General Moly (GMO) $1.47 down 16.48%
Quadra (QUA.T) C$5.60 down 8.65%
Freeport McMoran (FCX) $40.34 down 7.05% (a bellwether mining stock spanning gold, copper & molybdenum)

Steel is also getting killed by the goat herder (bad news for General Moly):

Nucor (NUE) 41.91 down 5.10%% - domestic steel manufacturing
ArcelorMittal (MT) 25.99 down 11.42% - global steel producer

Cheers,

Colonel Possum