Tuesday, June 16, 2009
The Road from Eureka to Yekaterinburg
It is 5:52 AM, the coffee is hot and we're packed to do some traveling eastbound. Tucked away in the Ural mountains of Russia is the historic city of Yekaterinburg, namesake of Tsar Peter the Great's wife Empress Catherine I. It is also where nobility came to a bloody end when the royal family was executed by Bolsheviks during the Russian Revolution. Yekaterinburg is deep in the heart of Russian copper mining country and this week hosts the first summit meeting of the so-called BRIC group — Brazil, Russia, India and China.
Why is this important to Eureka, Nevada? The BRIC countries comprise 15% of the world economy and remain for the most part on a solid growth path even in the shadow of a global downturn (see note 1 below). Equally important, the BRIC holds 40% of the world's currency reserves. Coupled with a voracious appetite for raw materials, they are exerting increasing influence on the fate of the US dollar. Dollar denominated commodities are at the center of Eureka County's economy so it is important to watch the actions of these powerful emerging economies.
Yesterday, the Russian minister, Alexei Kudrin, said his country had "full confidence" in the U.S. dollar and it was "too early to speak of an alternative" reserve currency.
Today Russian President Dmitry Medvedev seemed to contradict his minister in a speech to the summit. He said that the world needed new reserve currencies, "We have to consolidate the international monetary system, not only through the consolidation of the dollar but the creation of new reserve currencies."
Interestingly, the Kudrin comment contributed to Monday's pop in the dollar, drop in gold and sell off of dollar-denominated commodities. The Eureka Miner's Grubstake portfolio (a measure of Eureka's future economic health) dove 4.7%, the largest daily drop since its inception.
In early morning trading, the direction of the dollar, gold and commodities is back on the rise. Can this be attributed to the Medvedev speech? This is debatable since there are other factors (e.g., positive housing and PPI news) that are also moving the markets. The ole Colonel will say that the goings-ons in Yekaterinburg are something to watch as carefully as a rattler in the sage. Even less comforting was the surprise appearance of President Mahmoud Ahmadinejad at the summit today. His attendance had not been expected due to the post-election turmoil in Iran. What's this joker doing there anyway? (see note 2)
OK, let's close on a happier note with another positive signpost for Eureka County:
"Tuesday's [Producer Price Index or PPI] data suggest that while deflation risks may be waning amid rising oil prices, the falling U.S. dollar and apparent stabilization in the economy, there is little evidence that inflation is taking root." (WSJ, 6/19/09)
Enough feel good stuff, let's walk the walk:
Oil is up $1.47 to $72.09 in early trading (July contract); Gold is up $7.2 to $934.7 (August contract); Silver is up $0.150 at $14.180 (July contract); Copper is down 0.0155 to $2.2695(July contract); Molybdenum got another little shove up to $10.58.
The DOW is up 10.21 points to 8622.34; the S&P 500, up 2.73 points to 926.45. The miners are mostly up:
Barrick (ABX) $33.81 up 2.77%
Newmont (NEM) $42.30 up 1.73%
General Moly (Eureka Moly, LLC) (GMO) $2.48 up 0.41%
Freeport McMoran (FCX) $55.10 down 0.07% (a bellwether mining stock spanning gold, copper & molybdenum)
Steel stocks are up (a "tell" for General Moly):
Nucor (NUE) $47.97 up 4.85% - domestic steel manufacturing
ArcelorMittal (MT) $33.47 up 2.10% - global steel producer
POSCO (PKX) $85.51 up 2.96%- South Korean integrated steel producer
The Eureka Miner's Grubstake Portfolio is up 1.58%.
Photos from Google Earth and Associated Press
Note 1: The aggregate GDP 2009 growth for BRIC is estimated to be +3.4% with a global GDP contracting more than 2.0% over the same period. The ole Colonel used the IMF GDP dollar estimates for 2008 derived from purchasing power parity (PPP) calculations together with GDP predictions for each country cited in the latest Economist (June 13, 2009). For the number geeks, here are my calculations:
Brazil 2008 GDP $1.98T down 1.5% in 2009 = $1.95T
Russia 2008 GDP $2.26T down 5.0% in 2009 = $2.15T
India 2008 GDP $3.29T up 5.0% in 2009 = $3.45T
China 2008 GDP $7.92T up 6.5% in 2009 = $8.43T
BRIC Total 2008 = $15.45T
BRIC Total 2009 = $15.98T
BRIC aggregate growth 2009/2008 = 3.4%
Note 2: There is at least a marginally valid reason for Ahmadinejad's attendance. This first BRIC summit occurs together with the ninth annual Shanghai Co-operation Organisation (SCO) which brings together Russia, China, Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan. India, Pakistan, Iran and Mongolia have joined as observer members. I count more foxes than chickens in this hen house!