"The history of Eureka lies in its future." - Lambert Molinelli, 1878


The author/editor of the Eureka Miner owns common shares of local mining stocks, General Moly (GMO) and Newmont Mining (NEM); together with benchmark miner Freeport-McMoRan (FCX). Please do your own research, markets can turn on you faster than a feral cat.

Friday, October 30, 2009

The Colonel's Outlook for Year's End

Morning Miners!

It is 5:27 AM and my favorite day of the month. The Report brings the Duke back at the close of each month to walk the walk in the savings and credit markets so the reader can track progress as we ride down the Recovery Trail. Nothing like a little John Wayne persuasion to keep those financial nere-do-wells in line.

Before we go there, grab a cup of that famous Raine's TGIF coffee and let me tell you why the Colonel is cautiously optimistic for the remainder of 2009.

1) September and October are traditionally the worst months for stock markets. Many expected a severe correction, it didn't happen. Today looks like a bruiser but we have come a long, long way from the March lows (e.g., S&P 500 at 1,050 is up 58%)

2) We are nearly through "earnings season" when corporations report their financial status for the last quarter. There was much pessimism about these results but overall most companies beat expectations; productivity is up, costs are down. Top-line revenue growth will continue to be a challenge but there are signs the consumer is coming back to life.

3) The DOW Jones and S&P 500 saw big rallies in this period but have returned to roughly where they were at the beginning of earnings season. For the ole Colonel, "flat" is good. I was getting a little worried about too much exuberance before the economy gets a better footing. Let's have stable (up and down) markets for the time being before trying a moonshot to pre-recession levels. I'm a happy camper if the year closes near October's highs, somewhere around DOW 10,000 and S&P 1100. Gold above $1000/oz would be nice too, let's say $1080 or so.

4) October is the last month the government plans to print money. The cessation of "quantitative easing" will allow free market forces to again establish key interest rates. Watch the 10-yr Treasury note, if you're planning to buy a house you might want to make a move soon.

5) Our poor old greenback showed some signs of life this week. Someday we need a strong dollar to sustain recovery. It is said that a weak dollar promotes growth but lowers our standard of living in the long run. Presently, a weak dollar helps U.S. exporters (think Caterpillar) and dollar strength equates to down markets (Whistling Dixie...What is a Weak Dollar?). This Fall, the dollar index hit 52-week lows as the stock markets enjoyed 52-week highs.

6) Some fear has returned to the markets (the VIX is currently north of 25, what does this mean?) and a little fear is good for stability. Central Banks are starting to remove stimulus around the world and there will be less easy money chasing commodities and equities. Markets returning to fundamentals with less speculation is not all bad. This market relation is in play presently: FEAR = Stronger Dollar = Weaker Equities = Falling Commodity Prices

7) Even though fear is now moderating greed, copper remains above $3 and the steel makers recovered from a beating earlier this week although they are down again today. Copper and steel demand are good indicators that global recovery is on track. Oil moving above $80 is worrisome but has seen some downward pressure lately.

8) The Commerce Department reported a U.S. gross domestic product (GDP) yesterday of 3.5% that beat economists expectations. Future GDP estimates will no doubt decline as the stimulus wears off but that is fine as long as we can sustain enough growth to stay in recovery mode. Larry Summers, economic adviser to the President, stated that something around 2% in 2010 was adequate to achieve "escape velocity" from planet recession. This morning Dr. El-Erian, CEO of Pimco, disagreed with the White House assessment and warned of rough times ahead after the "sugar rush" of stimulus has worn off. He did state that countries east and south of New York have better "initial conditions" for recovery (think Asia, Brazil, India). Domestically, El-Erian sees a struggle between a "a FED that pushes investors to riskier assets" and a "difficult 2010". He may be spot on but I'm always a little suspect of bond investor outlooks. Pimco is the world's largest bond dealer and they often do quite well when times are bad. I'm an eternal (but seasoned) optimist and will go with the "escape velocity" metaphor for now. Stay tuned buckaroos.

OK it's time to grab the Duke and checkout the savings and credit markets. The Report started this check last May in the blog, Where's The Duke When We Need Him?. Here are today's national averages compared to last month's numbers (WSJ Market Data, 10/30/09):

10-yr Treasury Note 3.420% vs 3.291%, up
Money Market 1.07% vs 1.11%, down (52-wk low, 1.07%)
5-year Bank CD 2.70% vs 2.71%, up (52-wk low, 2.59%)
30-yr mortgage, fixed 5.32% vs 5.29%, up (52-wk low, 5.06%)
15-yr mortgage, fixed 4.65% vs 4.66%, down (52-wk low, 4.52%)
New-car loan, 48-month 7.12% vs 7.36%, down (52-wk low, 6.57%)
Home-equity LOC, $30K 5.77% vs 5.74%, up (52-wk low, 5.03%)

It is discouraging that money market rates made a new 52-week low and CD rates have stalled after slowly inching up. Good news for home buyers with continued low fixed rate mortgages. The 10-yr Treasury hovering around the mid-3% range tells us that Uncle Ben is still doing a pretty good job in keeping interest rates low and the credit markets stable. As we noted for several months, Ben is keeping savers on the Slim-Fast plan.

Let's checkout the Eureka Miner's Million Dollar Grubstake. At the market close yesterday, the readers (yup, that's you) made $1,195,069.16 ($191,322.97 last month), that's a 19.5% return on your money since we started May 10th. General Moly has fallen from number one position but is still in the top three stocks. Here's the top four out of twelve stocks:

Freeport-McMoran (FCX) up 50.9% (last month, 31.9%)
Caterpillar (CAT) up 44.4% (30.2%)
General Moly (GMO) up 31.0% (72.8%)
ArcelorMittal (MT) up 25.1% (31.9%)

Here's the bottom four (worst first):

Nucor (NUE) down 5.4% (last month, up 7.4%)
Newmont Mining (NEM) down 1.8% (down 0.1%)
Barrick Gold Corp. (ABX) up 8.8% (no data for comparison)
ConocoPhillips (COP) up 9.4% (down 3.6%)

Copper breaking $3, strong steel performance in Asia and a positive international outlook for Caterpillar have kept FCX, CAT and MT in the top four although steel makers got whacked pretty hard this week. Oil has broken $80 and natural gas is north of $5 helping our two energy companies. EOG Resources left the worst four and ConocoPhilips has gone from a negative to positive return. Barrick (ABX) dropped to join Newmont (NEM) in the basement although they still enjoy a positive return.

Enough talk, let's walk the walk:

4-WD is ON - the VIX or "fear index" is above 25 ,off-road market conditions are expected to continue (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 down $0.89 in early trading to $78.98 (December contract); Gold is down $1.9 to $1045.2 (December contract, most active); Silver is down $0.090 to $16.565 (December contract); Copper is down $.0170 to $3.0125 (December contract); Molybdenum is steady at $11.75.

The DOW is down 93.86 points to 9868.729; the S&P 500, down 11.19 points to 1054.92. The miners are mixed:

Barrick (ABX) $35.79 down 3.55%
Newmont (NEM) $43.30 up 0.70%
General Moly (Eureka Moly, LLC) (GMO) $2.32 down 3.73%
Freeport McMoran (FCX) $76.12 down 2.62% (a bellwether mining stock spanning gold, copper & molybdenum)

Steel stocks are down, (a "tell" for General Moly):

Nucor (NUE) $40.21 down 2.52% - domestic steel manufacturing
ArcelorMittal (MT) $34.38 down 4.23% - global steel producer
POSCO (PKX) $104.98 down 3.23% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is down 2.26% to $1,168,061.36 (what is this?).


Colonel Possum

Headline Photograph by Mariana Titus

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