"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.

Tuesday, December 29, 2009

Fearless in 2010?

Morning Miners!

It is 6:47 AM. There's a little new snow on the ground; grab a cup, warm up and let's see if we can solve a puzzle. Like Alice in Wonderland, the ole Colonel is becoming "curiouser and curiouser" about the markets lately. We had a terrorist attack on an airline recently that now appears tied to Al Qaeda and the markets hardly took notice. In fact, over a period of months fear seems to have disappeared from investor's thinking as the broader markets inch ever higher. On September 11 of this year the Report looked at a "fear index" often used to gauge investor sentiment:

Viva Las VIXas! Don't Worry Be Happy (The Eureka Miner's Market Report, 9/11/2009)

The choice of reporting date was coincidence but now eerily prescient given the close call of Flight 253. As we discussed then, the so-called "fear index" is actually the "Chicago Board Options Exchange Volatility Index" or simply VIX. Here's a quick overview from that article:

"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."

OK, so if we look at the VIX today it should give us some idea of what's in store for the first month of 2010. Here is the "curiouser" part; this morning's value is below 20 sitting at levels not seen since the latter part of August 2008. On a daily basis, the Report looks at the VIX to determine how rough the road ahead will be on the Eureka Outlook Dashboard. We say if the level is less than 25, smooth market conditions are expected. For the last several days we've been below 20...Hmm.

To give this some perspective it's worth repeating the chilling VIX levels from recent history. As reported in September, here are some key events during the 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")

I just checked and the VIX this morning is 19.7. Buckaroos, I don't have a solution to this puzzle but I just bought a little gold on the dip for safe-keeping just in case. Gold has returned to its 1-year trend line which may be as good a place as any to put a little glitter under your mattress.

My dog, Loquita, just chased away the cheshire cat. Don't worry be happy!

Enough VIX in Wonderland, let's walk the walk:

4-WD is OFF - the VIX or "fear index" remains below 25; smoother road market conditions expected to continue (what's this?)

Yellow light is ON for possible adverse regulation/legislation: Cortez Hills & mercury emissions

Otherwise, all lights are green on the Eureka Outlook Dashboard (upper right, what's this?)

Oil is down $0.49 in early trading to $78.28 (February contract, most active); Gold is down $7.7 to $1100.2 (February contract, most active); Silver is down 0.320 to $17.240 (March contract); Copper is down $0.0370 to $3.2995 (March contract); Molybdenum is steady at $12.25.

The DOW is up 8.46 points to 10555.54; the S&P 500 is down 0.43 points to 1127.35. The miners are mixed:

Barrick (ABX) $39.79 down 1.80%
Newmont (NEM) $47.44 down 0.77%
General Moly (Eureka Moly, LLC) (GMO) $2.16 up 0.47%
Freeport McMoran (FCX) $82.52 up 0.88% (a bellwether mining stock spanning gold, copper & molybdenum)

The Steels are mixed, (a "tell" for General Moly):

Nucor (NUE) $46.13 down 0.99% - domestic steel manufacturing
ArcelorMittal (MT) $46.60 up 1.99% - global steel producer
POSCO (PKX) $130.80 down 0.31% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is down 0.35% to $1,290,094.30 (what is this?).


Colonel Possum

Headline Photograph by Mariana Titus

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