Monday, June 15, 2009
Positive Signposts for Eureka County
It is 5:54 AM and I just opened a new can of Folgers, grab a cup and let's kick start the week. There have certainly been a lot of challenges in the last year for all of us. Will we look at the headline pictures in several months and laugh that gasoline prices at $2.57 were the good ole days in the middle of some pretty bad ole days? Prices on the rise again and inflation on the distant horizon are all reasonable concerns but shouldn't overshadow some of the good things in the works for our County. As we approach the middle of the year, I thought it might be good to reflect on some of the positive signposts on our road to economic recovery. Here's a few to get started:
Friday, we looked at the rise in key metal prices for the past 6-months. Since Eureka is a commodity sensitive economy, the rise in gold and molybdenum prices bodes well for our major mining interests. Moly bumped another nickel Friday to $10.55 and although gold appears to be in a pullback, I'm sticking to my prediction that it will break $1050/oz by Christmas. Dennis Gartman, the "Commodity King", said on CNBC business news Friday that gold could drop to $880 this summer before rebounding. He also noted that there appears to be a major "mystery seller" when gold approaches $980. The Report will watch for this key level; I'm betting we break it and intend to add some gold when we're in the summer slump. For miners, the race will be metal price versus the rise in oil which pushes production cost. Much of the recent run up in oil is speculative money, a fall back to supply/demand fundamentals would be a welcome sign. Let's see if there is a decent pullback from $72 oil in the next month or two.
Stabilizing Credit and Equity Markets
The big market event last week was the pop of 10-year Treasury notes to nearly a 4% yield. The government has threatened to buy Treasurys with freshly printed money to maintain low interest rates for the consumer including mortgage rates. The good news is they didn't and normal market forces returned the yield to 3.739% by the end of the week. This is a very positive sign for the credit markets and inflation down the road. What about the stock markets? Given Friday's close this is where we've come since the beginning of the year compared to gold:
DOW Jones: 8,668.39 to 8,799.26, up 1.51%
S&P 500: 903.25 to 946.21, up 4.76%
GLD (gold ETF): 85.9 to 92.17, up 7.30%
That's not bad considering where we've come since the March lows (e.g. S&P 500 up 41.9% from an intraday low of 666.79, 3/6). There is a thought that the equity markets have rebounded too quickly and a correction is probable this summer/fall. I believe this to be true but if we can just return to Friday's close by year end we can claim a positive 2009. Throwing in a 2.66% dividend, flat from here would give you a 7.42% return for the year on the S&P 500. I'll talk a little bit on how to buy the broader markets for us old timers later this week, the Colonel's buying on a downturn.
If you've got some positive signposts to brag on, give me a holler. Tomorrow we'll add some more!
Enough talk, let's walk the walk:
Oil is down $1.25 to $70.79 in early trading (July contract); Gold is down $6.8 to $933.9 (August contract); Silver is down $0.550 at $14.325 (July contract); Copper is down 0.0680 to $2.3055(July contract); Molybdenum is smiling at $10.55.
The DOW is down 206.40 points to 8592.86; the S&P 500, down 22.35 points to 923.86. The miners are down:
Barrick (ABX) $33.55 down 1.29%
Newmont (NEM) $42.20 down 1.21%
General Moly (Eureka Moly, LLC) (GMO) $2.54 down 8.96%
Freeport McMoran (FCX) $56.66 down 3.16% (a bellwether mining stock spanning gold, copper & molybdenum)
Steel stocks are down (a "tell" for General Moly):
Nucor (NUE) $46.30 down 2.53% - domestic steel manufacturing
ArcelorMittal (MT) $33.40 down 4.81% - global steel producer
POSCO (PKX) $83.55 down 2.86%- South Korean integrated steel producer
The Eureka Miner's Grubstake Portfolio is down 3.33%.