Friday, September 25, 2009
Is Dr. Doom Right Again?
It is 6:27 AM, a little late for the Colonel but we had to make coffee the old fashion way this morning. The Bunn blew a heating coil and it was back to paper, funnel and water on the stove. At least we're pouring boiling water on that famous Raine's TGIF coffee. Hey, here's a tip. Next time you go there to pickup your own TGIF, ask Scott for their red label brand. I think it has a little more zing for closing out the week than his standard blue label. Give him a hey-howdy from the ole Colonel!
If you have been following lately, you may have tired from all the attention I've been giving metals. They may hold the key to the health of global recovery but the message has been a toughie to read. While gold has gone up and the dollar weakened, most metals have remained pretty soft. Yesterday we looked at the base industrial group and there seemed to be some signs of life. That read probably springs from the my eternal optimism more than any startling break to the upside. Today's news doesn't help. Thanks to MineWeb, I found an interesting article on copper in yesterday's China Daily:
Shanghai copper prices fall
Here's some thoughts from Yingxi Yu, analyst at Barclays Capital:
"We are seeing early signs of demand picking up in the world outside China, but I won't say that there is conclusive evidence that this is happening at a pace that is significant...Our view is copper is well supported, but to drive the next leg of the rally, it's going to take much more than China and the dollar."
According to this article, China's apparent copper demand fell 13.9 percent in August from July, following a slide in imports by the world's top consumer of many base metals. The China Daily notes further:
"Analysts expected the drop in Chinese copper imports after record purchases in the first half, but had anticipated demand elsewhere would pick up fast enough to offset the slack.
LME copper stocks have climbed around 30 percent from early July to 331,775 tons on Tuesday, while inventories of the industrial metal surged to more than five-year highs at 104,248 tons in Shanghai last week." (China Daily, 9/24/2009)
Ouch. This reminds me of what economist Nouriel Roubini (aka Dr. Doom) told miners at the Diggers and Dealers mining conference in Western Australia earlier this August. You may remember that he earned his moniker by predicting our present economic plight several years ago with nearly 100% accuracy. We covered his remarks in the Report (Moly Hits Magic Number, Dr. Doom Speaks to Miners):
"In the short term there has been a massive stockpiling of commodities by China," Dr. Doom continued, "My concern is that China might have accumulated an inventory of commodities that is probably excessive to the growth of their own economy."
"The risk in the second half of this year is that the rate of accumulation in China must slow down -- one of the factors that a downside correction in commodity prices, however modest, may occur."
Here we are buckaroos, well into the second half of the year and the metals picture isn't all that rosy. If copper truly is our biggest canary in the global recovery mineshaft, it looks like she might be taking a break at the bottom of her cage. Fortunately, Roubini predicts a rise in commodity prices next year. Molybdenum, a byproduct of copper mining, took another small notch down to $14 yesterday. Ironically, moly hit $16.50 when Dr. Doom was speaking to miners down under. I stuck my neck out yesterday and made a beer bet that it would return to that level before Christmas (Where Do We Go From Here? Ask the Metals). Will the Colonel be buying Dr. Doom a beer? Stay tuned.
Gold is getting battered again today.
Enough gloomy-doomy, let's walk the walk:
CAUTION: 4-WD is ON (the VIX or "fear index" pushes above 25 for the second day, off-road conditions for markets possible what's this?)
Yellow light is ON for possible adverse regulation/legislation (mercury emissions)
Otherwise, all lights are green on the Eureka Outlook Dashboard (upper right, what's this?)
Oil is up $0.32 in early trading to $66.21 (November contract); Gold is down $10.2 to $988.7 (December contract, most active); Silver is down $0.245 to $16.050 (December contract); Copper is up $.0035 to $2.7130 (December contract); Molybdenum drops to $14.00.
The DOW is down 23.43 points to 9684.01; the S&P 500, down 3.90 points to 1046.88. The miners are mixed:
Barrick (ABX) $36.06 down 1.01%
Newmont (NEM) $42.86 down 0.97%
General Moly (Eureka Moly, LLC) (GMO) $3.12 up 1.63%
Freeport McMoran (FCX) $68.26 down 0.23% (a bellwether mining stock spanning gold, copper & molybdenum)
Steel stocks are down, (a "tell" for General Moly):
Nucor (NUE) $47.08 down 1.57% - domestic steel manufacturing
ArcelorMittal (MT) $37.17 down 2.70% - global steel producer
POSCO (PKX) $101.65 down 1.72% - South Korean integrated steel producer
The Eureka Miner's Grubstake Portfolio is down 0.49% to $1,180,349.71(what is this?).
Headline Photograph by Mariana Titus
Roubini photo: Reuters