Thursday, May 28, 2009
Where's the Duke When We Need Him?
It is 5:42 AM and we have a beautiful pink sky over Diamond Valley. Across the pond, spot silver prices just broke $15.00 at 13:42 London time with an impressive spike up. Exactly eight hours ahead in a land far away, something "unexpected" has occurred. What the tarnation is going on buckaroos? In the days of the Wild West, at least in the movies, our heroes like John Wayne would come in every once in awhile to clear the prairie of evil-doers and scalawags. Today, there are no shortage of scoundrels in financial markets and far too few heroes to set things straight.
Let's start with the word "unexpected". When used in the context of markets, especially bear markets, grab your Model 94 and take cover. Unexpected occurred yesterday when the 10-year Treasury Note yield jumped above 3.70%, a level last seen in November. So what? The 10-year note is key in setting mortgage and other consumer credit interest rates which the government has been working like the dickens to keep contained. The Fed has gone beyond cutting rates to directly purchasing such financial assets such as mortgage-backed securities, as well as printing new money to buy Treasury notes for the first time in half a century. Yikes!
All of this effort is to reflate housing and get us back on track economically. So who screwed up the plan yesterday? The Bond Vigilantes! Folks, I'm not making this up, that's what the group of investors are called on Wall Street that have declared war on Congress and the Federal Reserve's policy of flooding the world with dollars to beat the recession. Yesterday, they flexed their muscles by bidding up yields on T-Notes which killed the recent rally in the stock market dropping the DOW 171 points. The ole Colonel is willing to bet this morning's pop in silver is a metallic reaction to the first shots fired in a financial range war. My problem is that I can't tell good guys from bad guys in this movie!
Let's keep track of this brouhaha and watch where interest rates (that affect you and me) go in the next month. Today's national averages (WSJ, 5/28/09):
Money Market 1.33%
5-year Bank CD 2.73%
30-yr mortgage, fixed 5.09%
15-yr mortgage, fixed 4.71%
New-car loan, 48-month 7.48%
Home-equity LOC, $30K 5.79%
The Report will compare these in June, stay tuned.
Enough talk, let's walk the walk:
Oil is up $0.40 to $63.85 (July contract); Gold is up $5.8 to $961.0 (August contract); COMEX Silver follows London Spot up $0.265 at $15.130 (July contract); Copper is up 0.0155 to $2.1365 (July contract); Molybdenum holds at $10.25.
The DOW is down 13.46 points to 8286.56; the S&P 500, down 0.49 points to 892.57. The miners are on fire:
Barrick (ABX) $36.93 up 2.44%
Newmont (NEM) $47.33 down 3.18%
General Moly (Eureka Moly, LLC) (GMO) $1.85 up 3.35%
Freeport McMoran (FCX) $51.11 up 2.37% (a bellwether mining stock spanning gold, copper & molybdenum)
Steel stocks are screaming (a "tell" for General Moly):
Nucor (NUE) $43.06 up 3.18% - domestic steel manufacturing
ArcelorMittal (MT) $32.36 up 5.54% - global steel producer
POSCO (PKX) $80.83 up 3.80%- South Korean integrated steel producer
The Eureka Miner's Grubstake Portfolio has gone in the black, up 2.18% to $1,002,795.13 for a gain of $2,795.13.