Friday, August 21, 2009
Slow And Easy or Texas Hold'em?
It is 5:44 AM, clean cups are on the hook and there's some Raine's TGIF coffee brewing in the pot. The dog days of summer just got a little more exciting buckaroos. Early today gold popped to $955 and Brent crude oil to $74.25 on London's spot and futures exchanges. We'll check in a minute to see how that ripples over to our own markets this morning. The story of gold and oil in the next several months will tell us a lot about what's ahead for Eureka as we wipe away recession mud from our windshield. A gold rally makes us smile but oil on a tear could rip a whole in our wallets and push production costs for miners. I heard an economist say yesterday that the best single indicator for recovery is the future price of gasoline.
There are few fundamentals that support higher oil but there is a lot of easy money chasing barrels hoping for a sharp rise in global demand. That's the River Card pardner in a giant game of Texas Hold'em. In our new Eureka Outlook Dashboard, the Colonel is turning on the "Check Engine" if oil gets above $80 (to your upper right, what is this?).
The Turn Card has been on the table for most of the year and its the Ace of China. There is little debate that the quickness and efficiency of China's stimulus plan has lit a fire under commodity prices and helped buoy Asian countries as well as our own. The big question is whether this boom will last for the world's third largest economy or will it just become a paper tiger? Why should we care in Eureka?
Here's an example of a tiger that can walk right down Main St. Reuters reports from Mumbai, India, that after a months long rally to a 10-month high last week, the price of benchmark hot-rolled coil in China plunged nearly 8 percent. Hot-rolled coil is used in the early stages of steel production then cut to customer defined form factors such as steel sheets. China makes half the world's steel and its neighbors, such as South Korea, are integral to the process. A blip in Chinese steel demand is directly felt by suppliers such as South Korea's POSCO and POSCO is a 20% investor in Eureka Moly's Mt. Hope Project. Get the picture pardner?
In isolation, a price fluctuation in an obscure foreign metal market isn't anything to lose sleep over (and please don't). What is catching some attention is a coincident collapse in China's stock market of 20 percent in just two weeks sparking worries that it may signal underlying economic weakness in China. The domestic Shanghai Exchange crumbled before our own stock market crash last year so some claim it to be a leading indicator for things to come.
The ole Colonel is far from convinced but I will watch the stripes on this kitty cat. There is an equally convincing argument that the Shanghai stock market is highly speculative, barred from foreign investment, comprised mostly individual Chinese investors and subject to all manner of government shenanigans. I'm not ready to hang my predictive hat on anything that flaky-shaky. The good news has been a slow and easy uptrend in our own markets as our stimulus plan is finally gathering steam. I'll watch them all for you buckaroos, it might be a game of Texas Hold'em but Eureka has some great hole cards. If the price of molybdenum keeps rising, I'm purring like a kitten.
Here kitty-kitty, let's walk the walk:
All lights are green on the Eureka Outlook Dashboard (upper right, what is this?)
Oil is up $0.95 in early trading to $73.86 (October contract); Gold is up $12.2 to $953.8 (December contract, most active); Silver is up $0.275 to $14.155; Copper is up $0.0985 to $2.8400 (September contract); Molybdenum is cruising at $18.25
The DOW is up 135.65 points to 9485.70; the S&P 500, up 16.00 points to 1023.37. The miners are doing cartwheels:
Barrick (ABX) $34.87 up 2.14%
Newmont (NEM) $40.96 up 2.30%
General Moly (Eureka Moly, LLC) (GMO) $2.60 up 2.36%
Freeport McMoran (FCX) $64.08 up 2.97% (a bellwether mining stock spanning gold, copper & molybdenum)
Steel stocks are a-steeling, (a "tell" for General Moly):
Nucor (NUE) $47.05 up 0.94% - domestic steel manufacturing
ArcelorMittal (MT) $36.65 up 4.14% - global steel producer
POSCO (PKX) $95.33 up 0.54%- South Korean integrated steel producer
The Eureka Miner's Grubstake Portfolio is up a whopping 2.19% to $1,103,086.03 (what is this?).