Wednesday, August 19, 2009
Dashboard Lights for Eureka
It is 5:51 AM, grab a cup and let me introduce you to a new feature for the Report. If you'll look directly to your right there is a Eureka Outlook Dashboard with five indicator lights. Today we're all green. The five lights represent aspects of Eureka's near term future that we've talked about before (Back to Basics for Eureka's Outlook). Admittedly there is a mining emphasis here but some of these lights directly impact other important aspects of our local economy, namely ranching and farming. Let's list them again and then come up with some trip levels that would turn a green light to a warning color (yellow or red):
Commodity reflation intact
Stable credit and equity markets
Low inflation for the next 6-12 months
Positive trend for gold and molybdenum prices
Continued investor confidence in Barrick and General Moly
Our old friend copper is probably one of the best metals to gauge whether commodity reflation is alive and well. For example, domestic demand for copper will grow as our housing industry recovers. It's still a little early to call that but China's demand for copper and other raw materials has caused a surprising rise in prices in the global markets. If copper drops below $2.50 we've got a "yellow" light and any movement below $2.00 is a definite "red". There is also danger on the upside for certain commodities such as oil since they can put a hole in your wallet and drive production costs for our miners. We're near a tipping point with oil at $70. If we start heading for $80 this summer (i.e. reflation turning to inflation), the ole Colonel will turn on a check engine light. There is some room for debate here but you can be sure that if I turn on a light other than green, we'll talk about it that morning. You can be the judge of whether we pull the car to the side of the road or keep on cruising.
Credit and equity markets appear to be stabilizing after a bruising start this year. At the end of each month, the Report looks at national averages for consumer credit (home mortgage, car loans etc.) as well as savings rates (money markets, CDs). We always bring John Wayne along for these articles to keep the financial scalawags on their toes (The Duke Returns, Recession Heads for the Backdoor). If anything goes south in the between time, you can bet I'll throw up a color other than sage brush green.
The stock markets are beginning to be a little dicey after a healthy run up from March. I'm keeping the green light on as long as we stay in a range (i.e. S&P 500 trading above 970). If things start to drop out (S&P below 970), Katy bar the door! The Colonel prefers the S&P 500 to the Dow Jones simply because 500 of America's best companies is a more reliable gauge of economic health than 30.
Inflation is nothing to worry about for the near term (6-12 months). Whether all our money printing leads to hyper-inflation someday is another story and you can bet I've got my eye on both. The unadjusted Consumer Price Index (CPI) was just reported to be down 2.1% from last July so for now, we're solid green buckaroos.
Molybdenum has been a champ lately coming up steadily from a sub-$8 low in March to $18.25 presently. General Moly has a calculation on their Website that shows that once Mt. Hope is in production their operational cost estimate is $5.32 per pound assuming $80 oil. For good measure, I'd like to see moly stay above $16.50 for a green light (Moly Hits Magic Number, Dr. Doom Speaks to Miners). For gold I'm still a bull although there are some downward pressures arising which will be discussed in a future blog. For now let's say a green light stays on for any price above $920 (roughly the year-to-date average).
Investors have been kind to both Barrick (ABX) and General Moly (GMO) this spring and early summer although there have been some downturns in share price lately. For green lights, I think we need to keep ABX above $30 and GMO above $2. The Eureka Grubstake Portfolio is a good barometer for overall investor confidence in the commodity space since it represents 12 companies that directly or indirectly contribute to Eureka's future (The Eureka Miner's Million Dollar Grubstake). Let's keep the Portfolio in the black for a green light (i.e. greater than the original $1,000,000 investment).
All green pardner, any color changers? Let's walk the walk:
Oil is up $1.31 in early trading to $72.40 (October contract); Gold is up $5.2 to $944.4 (December contract, most active); Silver is down $0.220 to $13.740; Copper is down $0.0760 to $2.6855 (September contract); Molybdenum holds at $18.25
The DOW is down 9.90 points to 9208.04; the S&P 500, down 1.47 points to 988.20. The miners are mixed:
Barrick (ABX) $33.56 down 0.30%
Newmont (NEM) $39.12 down 0.28%
General Moly (Eureka Moly, LLC) (GMO) $2.52 down 0.40%
Freeport McMoran (FCX) $60.55 up 0.13% (a bellwether mining stock spanning gold, copper & molybdenum)
Steel stocks are down, (a "tell" for General Moly):
Nucor (NUE) $45.30 down 1.26% - domestic steel manufacturing
ArcelorMittal (MT) $34.83 down 0.09% - global steel producer
POSCO (PKX) $91.42 down 0.274%- South Korean integrated steel producer
The Eureka Miner's Grubstake Portfolio is down 0.05% to $1,062,797.37