Monday, February 1, 2010
Trees Do Not Grow to Heaven
They have in Turkey a drink called coffa [coffee]...This drink comforteth the brain and heart, and helpeth digestion - Bacon
It is 5:54 AM, let the ole Colonel pour you a Monday cup of coffa to kick off a new month in this still new year. This morning's quote comes from Sir Francis Bacon English philosopher, statesman, scientist, lawyer, jurist, and author. Although his accomplishments were many, bringing coffee to the attention of the western world in my opinion is one of his finest. How could we face Monday mornings without it!
We certainly drank a lot of coffee in the break room last week as we watched the metals and miners get crushed by a haul truck of heavy economic overburden. In all fairness, we witnessed a pretty amazing run-up in both last year as the global economy struggled to regain its footing. Copper price alone rose 140%. There was bound to be a pullback, pardner. Alex Heath, head of base metals and RBC Capital Markets, puts it this way:
"It's just a change in sentiment really...I don't think anybody was under any misapprehension that metals had got ahead of themselves in terms of actual demand and growth ... Trees do not grow to heaven."
You can read the entire article from the Toronto Globe and Mail:
Copper drops on concerns over China (The Globe and Mail, 2/01/2010)
There is another interesting piece on the fate of metals drawn from observations by the VM Metals Group based in London:
2010: A gap year for metal prices - VM Group (MineWeb, 2/01/2010)
A common theme in both articles is a mixed hand for metal prices in 2010 with China as the wild card. VM has the following forecasts for some of the metals we watch daily in the Report:
Gold - $1,050/oz-$1,150/oz
Silver - $16.00/oz-$18.00/oz
Copper - $7,300/t-$7,475/t ($3.3182/lb - 3.3977/lb)
I am presently working on my own price models and will have a outlook for February posted soon.
Let's close with a related contribution from Sir Francis Bacon which forms the basis of modern science. It is called the "scientific method":
A scientific method consists of the collection of data through observation and experimentation, and the formulation and testing of hypotheses.
Many of us that watch the markets also apply the scientific method. With all manner of number crunching and fancy charts we develop hypotheses about the future of prices. The problem with our pursuits is the "science" behind the behavior of markets. Unlike apples falling from trees governed by the law of gravity, our subject of study involves people as well as things.
People driven by fear and greed as well as rational sense can wreack havoc on any sensible laws of physics. Our apples often fall up as well as down although both the trees and apples of markets respond to some manner of "gravity" in the long run; our trees don't grow to heaven, our apples don't fall to the stars. Let's see what direction metals fall in 2010, this morning they appear to be thankfully falling up.
Enough talk, let's walk the walk:
4-WD is ON - the VIX or "fear index" has dropped below 25 but the Colonel is going to expect rougher markets to continue until we see several days of lowered VIX levels (what's this?)
Yellow light is ON for cautious investor confidence in the metal and mining sectors
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 up $0.90 in early trading to $73.79 (March contract, most active); Gold is up $12.9 to $1096.7 (April contract, most active); Silver is up $0.280 to $16.470 (March contract); Copper is up $0.0245 to $3.070 (March contract); Molybdenum is steady at $15.00
The DOW is up 65.67 points to 10133.00; the S&P 500 is up 8.99 points to 1082.86. The miners singing in the mineshaft:
Barrick (ABX) $35.90 up 3.10%
Newmont (NEM) $44.86 down 4.67%
US Gold UXG) $2.35 up 5.38%.
General Moly (Eureka Moly, LLC) (GMO) $2.36 up 0.43%
Thompson Creek (TC) $12.17 up 4.91%
Freeport McMoRan (FCX) $69.74 up 4.57% (a bellwether mining stock spanning gold, copper & molybdenum)
The Steels are mixed, (a "tell" for General Moly & Thompson Creek):
ArcelorMittal (MT) $40.41 up 4.47% - global steel producer
POSCO (PKX) $116.78 up 3.39% - South Korean integrated steel producer
The Eureka Miner's Grubstake Portfolio is is up a healthy 3.18% to $1,208,378.43 (what is this?).
Headline Photograph by Mariana Titus