Friday, June 12, 2009
Sailors Shouldn't Ride Horses
It is 5:57 AM and life is great in the Great Basin! What a day we had yesterday. Early in the morning the Colonel sent a posse into the Valley of Federal Debt to rescue Mr. 10-year T-Bill from a band of ruthless Bond Vigilantes only to find a successful auction of the 30-year long bond. There were rumors that a Sultan or Chinese agents were buying our debt like crazed coyotes; yields stabilized and the equity markets rallied. The Eureka Miner's Grubstake portfolio jumped 2.15% to a 0.61% rise in the S&P 500. These auctions of Federal debt will occur every two weeks for some time and I am beginning to wonder if I really care.
When markets get this confused the ole Colonel is reminded of Dennis Gartman's sage advice, "Metals have a PhD in Economics!" Gartman is known as the "Commodity King" and I believe he's got this one right on. After all, my mission is to help you decide whether current market events point to a sustainable recovery or a head fake in a downward trend. Bond traders are too squirrely for this ole boy and I think it is time to get back to basics: cowboys shouldn't sail boats and sailors shouldn't ride horses.
So what are the metals telling us? I have included three 6-month charts from InfoMine for copper, molybdenum and gold. Looking at the trend lines, I'd say things are looking up for Eureka County regardless of bond trader shenanigans. Copper has been our canary in the global recovery mineshaft and still soars like an eagle. Let's see what the CEO of Freeport McMoran has to say:
NEW YORK, June 10 (Reuters) - Global copper inventories are still low and although metal prices are rising, there is not yet enough demand to increase production, the chief executive of Freeport-McMoRan Copper & Gold (FCX) said on Wednesday.
"Even though we have gone through a worldwide recession, copper inventories globally are very low," Richard Adkerson told the RBC Capital Markets mining conference in Toronto.
"The anomaly is that there has been a dramatic drop in prices, but still there is a tight physical marketplace. That is positive for copper," he said in comments monitored via a webcast in New York.
And this from the Wall Street Journal yesterday:
COPPER: Prices ended on a muscular note amid the weakening U.S. dollar and technical considerations, coupled with strong Chinese import data and general demand bullishness. Thinly traded Comex nearby June copper rose 7.8 cents, or 3.3%, to $2.4380 a pound. The most active July contract also rose 7.8 cents, to $2.4450
That doesn't sound too gloomy-doomy. Molybdenum has also reaped the benefits of the recent rally in steel stocks. There is a nice bathtub formed with a sub-$8 low in April followed by the pop to $10.50 this Monday. No, we're not at the 2008 $30 plus levels but the reversal is very encouraging. The rise in General Moly (GMO) stock to nearly $3 means somebody is buying the global recovery story.
My last metal Eco-101 whiz-kid is gold. The Colonel still holds to his prediction of $1050/oz before this Christmas although there has been a pretty good pullback in the past few days. This afternoon (London time, that is), spot gold dropped to $938. The Colonel is buying a chunk if we we get to $920 or below in the summer doldrums ahead.
Feel better? I'm buying beers for the posse that bravely rode the Valley of Federal Debt. We ain't going back into that territory for some time buckaroos.
Enough talk, let's walk the walk:
Oil is down $1.20 to $71.48 in early trading (July contract); Gold is down $23.7 to $938.3 (August contract); Silver is down $0.663 at $14.830 (July contract); Copper is down 0.0750 to $2.3700(July contract); Molybdenum is happy camping at $10.50.
The DOW is down 17.99 points to 8752.93; the S&P 500, down 5.61 points to 939.28. The miners are down:
Barrick (ABX) $33.80 down 2.48%
Newmont (NEM) $42.54 down 3.56%
General Moly (Eureka Moly, LLC) (GMO) $2.77 down 3.48%
Freeport McMoran (FCX) $59.64 down 1.29% (a bellwether mining stock spanning gold, copper & molybdenum)
Steel stocks are down (a "tell" for General Moly):
Nucor (NUE) $47.48 down 3.04% - domestic steel manufacturing
ArcelorMittal (MT) $35.24 down 3.43% - global steel producer
POSCO (PKX) $85.78 down 0.22%- South Korean integrated steel producer
The Eureka Miner's Grubstake Portfolio is down 2.27%.