Friday, May 15, 2009
Markets and Mormon Crickets
It is 6:23 am and we've got a terrific weekend looking at us! There will be a super-duper car show and sale in Eureka on Main Street (HWY 50) and tonight Patrick Ball is coming to the Opera House. This is a great show; I've seen it before and plan to be at the door with my sweetheart at 6:30 pm sharp to buy tickets. If you see me there, give the ole Colonel a hey-howdy! Checkout the "Eureka Opera House" link on the right of this page for more details.
In the meantime grab a cup and let's talk markets and Mormon crickets.
The oddity of rising oil prices in a declining global economy has dominated the market news this week. The latest theory is a whooper-dooper so put on your seat belt. First let's cover some basics. There are only two forces that move markets; the law of supply and demand and the law of fear and greed. The first is pretty simple. If you want a widget and they are in short supply, the price goes up. If folks are sick and tired of seeing all the widgets at WalMart, the price goes down to clear the shelves.
The market influence of fear and greed is a little harder to understand and has all the logic and predictability of one million Mormon crickets crossing Highway 50. Greed creates price bubbles, fear blows them out quicker than a Tonopah low. The good thing is that the net effects of fear and greed are zero in the long run as markets return to the fundamentals of supply and demand eventually (i.e. cricket infestations don't last forever).
OK, is that it? Not quite, markets behave as described in the absence of government meddling. Throw those jokers in and a third force pops up: the law of unintended consequences. Now we're ready for our whooper-dooper ride to the nuthouse.
U.S. Treasury Bills are a typical a safe haven for investors and countries. In good times, China bought T-Bills to finance all the widgets we wanted but couldn't afford. They had a bunch of our dollars and socked it away in our Treasury notes to get a reasonable interest rate.
When times got tough the Fed dropped their interest rate target to stimulate a sick economy, when they got to zero they stopped. Their next hat trick was to buy our own T-Bills with freshly printed money. That's called quantitative easing in economic parlance; counterfeiting, if you and I do it. The idea was to keep interest rates so low that folks would move their money away from safe havens and put it back into the sick economy. How cool!
Unfortunately, one of the destinations for all this newly emboldened money was crude oil futures and up went the price of oil. That doesn't help anyone except the bad guys! Here's how the Wall Street Journal tells the story this morning:
"Oil is really floating on cheap money. Quantitative easing is, as intended, pushing investors toward riskier asset classes such as equities, high-yield debt -- and crude. Investors in oil funds push up futures prices, making it profitable for others to store crude and sell it forward; another reason inventories are high. When these are liquidated, crude prices will likely fall fast, absent a "V"-shaped economic recovery, which looks unlikely. Indeed, in supporting commodities prices at the expense of consumers, central-bank policy risks unleashing stagflation, not reflation." WSJ (5/15/09)
Time to leave the nuthouse, let's walk the walk:
Oil is down $0.46 at $58.16 (June contract). Gold is up $1.8 to $930.2 (June contract); Silver is stays below $14 at $13.960; Copper is down 0.010 to $2.0160 (July contract); Molybdenum is up again to $10.25.
The DOW is up 55 points to 8387.00; the S&P 500, up 2.83 points to 895.90. The miners are down today:
Barrick (ABX) $33.76 down 0.35%
Newmont (NEM) $43.06 down 0.61%
General Moly (Eureka Moly, LLC) (GMO) $1.60 down 0.03%
Freeport McMoran (FCX) $45.86 down 0.25% (a bellwether mining stock spanning gold, copper & molybdenum)
Steel stocks are mixed (a "tell" for General Moly):
Nucor (NUE) $39.60 up 0.20% - domestic steel manufacturing
ArcelorMittal (MT) $25.94 up 0.39% - global steel producer
POSCO (PKX) $80.71 down 0.56%- South Korean integrated steel producer
The Eureka Miner's Grubstake Portfolio is down 0.61%
See you at the Opera House!