Friday, September 11, 2009
Viva Las VIXas! Don't Worry Be Happy
It is 5:46 AM, grab a hot cup of Raine's TGIF coffee. Don't worry be happy! There is good cause to be happy this week; gold crossed $1000 retreated a bit but is back over that mercurial mark this morning on the London Exchange, General Moly not only broke $3 yesterday but closed at $3.35, Barrick is looking stronger than ever after its de-hedging announcement Wednesday and the broader markets are at their highs for 2009. You'll notice the Colonel has put us back into 2-Wheel Drive on the Eureka Outlook Dashboard to your right (what's this?). All lights are green except for some recent weakness in molybdenum setting a yellow light for Gold & Moly Prices and a pesky threat of adverse regulation on mercury emissions. We'll close on thoughts about molybdenum.
What's up? September and October are historically the worst months for stock markets. We're just into that period by eleven days but things are looking up. The answer is simple, fear has left the marketplace. How do we know this? There is actually a "fear index" traded right along with soy beans, stocks, bonds and anything else brought to markets. It is called the "Chicago Board Options Exchange Volatility Index" or simply VIX. The VIX is often referred to as the "fear index" because it is a measure of market volatility. When there are wild swings in the markets, we say the volatility is high; when day-to-day price fluctuations are small, we say the volatility is low and markets are stable.
The VIX represents one measure of the market's expectation of volatility over the next 30 day period. It is derived from S&P 500 index options which investors buy and sell to defray risk. A high value corresponds to a more volatile market and therefore more costly options. Options are like insurance, when the rates go up you can bet someone is expecting a hurricane in the investment world.
To give this some perspective, the ole Colonel dug into a little recent history. Here are some key events during the current recession and the corresponding values of the "fear index":
03/17/2008 VIX=35.6 Collapse of Bear Stearns
09/15/2008 VIX=31.9 Collapse of Lehman Brothers
10/23/2008 VIX=96.4 Highest VIX, fear of a run on the banks
03/09/2009 VIX=51.3 S&P 500 March closing low 676.53 ("the bottom")
09/02/2009 VIX=29.6 S&P 500 recent low (994.75 close)
09/09/2009 VIX=24.3 S&P 500 new high (1,033.37 close)
09/10/2009 VIX=23.6 S&P 500 new high (1,044.14 close)
I'd say any VIX number below 25 is a pretty fearless environment. Of course, what replaces fear in markets? You got it buckaroos...GREED! I think you should still be happy but a cautious happy is always best. The one thing that has worried the Colonel lately has been a softness in the metals (except for precious metals). Copper is still below $3 and molybdenum has been a wilting violet lately. I thought It might be a good idea to compare moly with nickel since both are used in the manufacture of steel. Here is a one month chart:
Interestingly, molybdenum and nickel have roughly followed each other down. There was a blip up on nickel yesterday and maybe we're seeing a bottom in both metals (one data point is a stretch to make such a conclusion!). I'd say nickel and moly trending up coupled with copper north of $3 would indicate smooth roads for markets and global recovery (at least for the time being). Certainly stock prices for General Moly and the steelmakers are feeling no pain right now. Even POSCO has its mojo back which is a great sign for GMO.
Enough bubbly-bubbly, let's walk the walk:
4-WD is OFF (the VIX or "fear index" is low)
Yellow light is ON for declining molybdenum price (less than magic number: $16.50)
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 $0.48 in early trading to $72.42 (October contract); Gold is up $12.0 to $1008.8(December contract, most active); Silver is up $0.180 to $16.850 (December contract); Copper is up $0.0060 to $2.8825 (December contract); Molybdenum sits at $15.15.
The DOW is up 10.36 points to 9673.84; the S&P 500, up 2.85 points to 1046.99. The miners are singing with Elvis:
Barrick (ABX) $38.70 up 1.84%
Newmont (NEM) $47.20 up 2.34%
General Moly (Eureka Moly, LLC) (GMO) $3.20 down 4.48%
Freeport McMoran (FCX) $70.70 up 2.08% (a bellwether mining stock spanning gold, copper & molybdenum)
Steel stocks are dancing too, (a "tell" for General Moly):
Nucor (NUE) $47.35 up 0.68% - domestic steel manufacturing
ArcelorMittal (MT) $40.09 up 4.18% - global steel producer
POSCO (PKX) $99.95 up 1.40% - South Korean integrated steel producer
The Eureka Miner's Grubstake Portfolio is up 0.77% to $1,208,762.88(what is this?).
Headline Photograph by the ole Colonel