Monday, August 17, 2009
Shoot-Out at the O.K. Corral
It is 6:45 AM, my coffee is on the floor and bullets are whizzing through the windows. It took a while to reach the keyboard but the "incoming" has kept the Colonel down. We've got a broad global sell off buckaroos and that keeps life interesting. Commodities including gold and oil are taking a thumping and markets from China to Europe are down 2 to 3% (checkout the bottom of this blog for real time global market updates). The Eureka Miner's Grubstake Portfolio fell more than 5% losing the readers over $50,000 in early morning trading.
Am I worried? Hell no, pardner! We've been looking for a correction for sometime. Coming up some 50% from our March lows, it is time for a little reality to return to the markets. Here's how I see it. There are few places for money to go to find a decent return nowadays. As you may have noticed money markets and 1-year certificates of deposit (CDs) offer sub-1% returns. Corporate bond rates have fallen from their highs and Treasurys are pretty dismal (10-year, 3.5%). This has caused investors to pour money back into commodities and stocks. A good example is the recent rise in oil prices; there are no fundamentals that support $70 oil with inventories sloshing around in anchored in ships and brimming in storage tanks around the world. Stock prices have got a little heady too as folks ignore bad news and pile in on any positive indications that the recovery is underway.
So is there any good news? Of course, the broad consensus from economists is that the recession is nearly ended or behind us already. We won't know for sometime and few of us will feel like things are better until job growth turns positive which is months away. The markets may overreact in the down direction but central banks, by keeping interest rates low, have set a floor for how low things can go. The truth is that money will return to the riskier asset classes (commodities and equities, see note below) as long as they are the only place for significant reward.
The ole Colonel nibbled at a few stocks this morning on the dip in energy and waste management (ECA & WM). If gold gets down near $920 it might be a good time buy a chunk and watch for Barrick (ABX) in the low $30 range and Caterpillar (CAT) below $40. If General Moly sags below $2, I'm backing up the truck!
Don't worry, be happy. Don't expect things to drop too low or soar too high for some time to come.
I hear some more shooting over by the corral, let's walk the walk:
Oil is down $2.03 to $65.48 (September contract); Gold is down $14.3 to $934.4 (December contract, most active); Silver is down $0.667 to $14.055; Copper is down $0.0735 to $2.7625 (September contract); Molybdenum bravely holds at $18.25
The DOW is down 187.80 points to 9128.46; the S&P 500, down 23.28 points to 980.81. The miners looking for cover:
Barrick (ABX) $32.61 down 3.86%
Newmont (NEM) $39.27 down 3.35%
General Moly (Eureka Moly, LLC) (GMO) $2.36 down 12.27%
Freeport McMoran (FCX) $59.67 down 6.25% (a bellwether mining stock spanning gold, copper & molybdenum)
Steel stocks are getting hammered, (a "tell" for General Moly):
Nucor (NUE) $44.27 down 5.32% - domestic steel manufacturing
ArcelorMittal (MT) $33.51 down 5.58% - global steel producer
POSCO (PKX) $90.85 down 5.24%- South Korean integrated steel producer
The Eureka Miner's Grubstake Portfolio is down 5.41% to $1,039,249.66 losing $59,437.44 so far today!
Note: Commodities are traditionally not considered an "asset class" like stocks and bonds. In the last several years, however, institutions and individuals have poured money into commodities as if they were an investment asset. Even China has stockpiled raw materials like copper this year to hedge against their vast dollar reserves. If the dollar declines, commodity prices rise and the stocks they hold grow in value. From the Colonel's point of view; if it walks like a duck, squawks like a duck it probably is a duck (possibly a hanging duck in China).