Monday, March 29, 2010
Copper Breaks $3.50, Moly Pops, Miners Rock
It is 5:57 AM. Grab a cup, this could be a wild and woolly week in the markets. The Report received another good question from the readers which sheds some light on the road ahead (you can ask the Colonel questions too, email@example.com). Last week we witnessed the bond markets take the wheel as we continue to bump our way down the domestic recovery cow trail. You'll remember how a poor showing at three U.S. Treasury auctions sent the key 10-year interest rate soaring (Debt Concerns Move from Europe to U.S.). This is important because low and stable Treasury yields have been a key factor in the Fed's plan to revive our economy. A continued rise in yields means higher mortgage rates, higher corporate borrowing costs and higher interest on rising government debt, all of which burden economic performance.
At the end of last May saw a similar bounce in Treasury yields (Gold Breaks $973 - Beer, Colonel!, 5/29/2010). Stock markets stumbled, the Fed held their ground and eventually Treasury rates drifted back down to more comfortable levels. Stock markets responded by continuing their rally from the 2009 March bottom and everything has been hunky dory (more or less) ever since...until last week.
The reader's question asked whether markets could force the government in a new direction. Darn tootin' is the answer. The more difficult question is whether this is good or bad at this stage of our recovery. I don't know the answer to that one but the equity and bond markets will be voting all week. An interesting twist is that the bond market will be open for a rare Good Friday session so traders can react to the upcoming monthly employment number. Stock markets will be closed and equity traders don't get a chance to be heard until Monday. Employment recovery is key to understanding any battle between the Fed and the markets.
Colonel, can you boil all this market mess down to something that fits in my coffee cup? I'll try but it may not taste too good. Our economy, equity and commodity markets got a big flat tire after the collapse of Lehman Brothers in September 2008. The Treasury rode to the rescue to save banks from failing and the Federal Reserve hooked up an air hose to our tire. Their compressor ran on printed money, government borrowing and lowered interest rates. Our tire "reflated" (as economists call it) and things started to slowly roll again. In the past, interest rates held down too long have led to excessive tire pressure (i.e. "reflation" becomes "inflation") and in the extreme the tire blows off the rim (think Greenspan and the housing bubble).
For our case today, a big hole in our sidewall called "unemployment" keeps the pressure down but the Fed can't stop pumping air in the tire. Until unemployment improves, the Fed has promised to keep rates low for "an extended period" and we'll have enough air in the tire to continue down the trail. This is all fine unless the bond markets start sawing on the government's air hose. If the benchmark 10-year Treasury yields break 4% with more lackluster auctions ahead we may end up with a leaky tire, leaky air hose and, eventually, another flat. Nuts.
On the other hand, last week may have been a blip and interest rates may drift down again as they did last June. If something scary happens on the global stage, foreign investors will return to buying U.S. Treasurys like umbrellas in a rain storm. The ole Colonel will be watching Treasury yields like a hawk buckaroos. This morning the 10-year T-Note is 3.851% already down from last week's flirtation with 3.9%.
Now for a happy note, COMEX copper just broke the key $3.50/lb level in early trading. We haven't been here since early January. Miss Moly and Uncle Nickel are back on the dance floor too. Here is our weekly molybdenum wrap up of last week's price action at the close, Friday (3/26/2010):
Western Moly Oxide (FeMo65) $17.11/lb up 5.3% (the price reported by Infomine and tracked by Base Metals on the General Moly Website)
This is above the Report's "magic number" for moly of $16.50/lb (Molybdenum Bounces Back to Magic Number).
Moly Oxide, Europe (Mo Drummed Molydbic Oxide EU) $17.25/lb (the price reported in the Metals Bulletin)
Here's a 1-month chart of molybdenum and nickel:
London Metal Exchange (LME) Futures Contracts
3-Month (Buyer) $37,000/metric ton $17.01/lb
3-Month (Seller)$38,000/metric ton $17.92/lb
15-Month (Buyer) $37,000/metric ton $17.01/lb
15-Month (Seller)$38,000/metric ton $17.92/lb
Here's a chart of the LME 3-month contract (seller) from the 2/22 launch price to Friday's close:
The difference between Western moly oxide, European moly oxide and the LME 3-month seller's contract is now less than $1, a sign of price stability.
Enough talk, let's walk the walk:
4-WD is OFF - the VIX or "fear index" is below 25, smoother broader markets are still in the cards; metals & miners are good with FCX remaining comfortably above $74; the benchmark 10-year T-Note remains below 4% (what is this?)
The YELLOW light is switched back on our fuel gauge with oil above $80
An ORANGE light is ON for possible adverse regulation/legislation: Miner's claim fee, Miner taxation, Cortez Hills & mercury emissions
Otherwise, all lights are green on the Eureka Outlook Dashboard (upper right, what's this?)
NYMEX/COMEX: Oil is up $2.04 in early trading to $82.04 (May contract, most active); Gold is up $4.1 to $1108.4 (April contract, most active); Silver is up $0.379 to $17.285 (May contract); Copper is up $0.0980 to $3.5010 (May contract); Western Molybdenum Oxide is moves up to $17.11
The DOW is up 64.39 points to 10905.60; the S&P 500 is up 6.86 to 1172.59. The miners rock:
Barrick (ABX) $37.59 up 0.48%
Newmont (NEM) $49.61 up 0.47%
US Gold UXG) $2.69 up 1.93%
General Moly (Eureka Moly, LLC) (GMO) $3.41 up 4.28%
Thompson Creek (TC) $13.05 up 0.46%
Freeport-McMoRan (FCX) $79.18 up 1.36% (a bellwether mining stock spanning copper, gols & molybdenum)
The Steels are up, (a "tell" for General Moly & Thompson Creek):
ArcelorMittal (MT) $43.98 up 1.81% - global steel producer
POSCO (PKX) $116.24 up 0.94% - South Korean integrated steel producer
The Eureka Miner's Grubstake Portfolio is is up 1.39% to $1,324,225.54 (what's this?).
Headline photograph by Mariana Titus