Tuesday, April 20, 2010
There's an Exogenous Deer in My Headlights!
It is 6:01 AM, sit down and have a cup with the ole Colonel. There are few things in life more abundant than words to explain the unexpected. When something comes out of left field to interrupt our daily lives - news reporters, politicians, theologians and scientists waste no time showering us with words to explain the unpredictable and sometimes, the unexplainable. Economists are particularly adept at this since there are few things harder to predict than the outcomes of a global economy. They have two great words in their semantic toolbox: "exogenous" and "endogenous".
If you encounter a deer on your moonless trip to Ely, an economist would declare that misfortune an "exogenous event". If you run out of gas on the same trip, they'd call that fup-dup an "endogenous event". In the first case something out of your control occurs to influence the outcome of your activity. You may know that deer crossing the highway in these parts is a common danger but it is doubtful that you included that possibility in your trip preparation. Did your really plan to drive slower than 75 mph as a precaution? No.
For the latter case, having a full tank of gas should be in everyone's plan when leaving in any direction from Eureka. Our Highway 50 didn't get the name "Loneliest Road in America" for nothing. If you run out of gas that's your damn fault, pardner.
OK, so what's your point with all these 50-cent words Colonel? I'm sneaking up on what sets the price for metals, precious metals in particular buckaroos. Let's tweak one of our new words for starters. Our economist friend would say that gold has "endogeneity" if the demand and supply are known and price is set as the two forces reach equilibrium. If a gold producer sells all his bars to a gold consumer manufacturing jewelry in India; supply meets demand and after a little dickering, the price is set. Endogenous bliss.
Ah, if life were so simple. Nowadays, the price of gold has as much to do with exogenous events as any simple law of supply and demand. This past week a vilified Goldman Sachs, a debt-ridden Greece and a volcano in Iceland (Gold, Goldman, Greece & Eyjafjallajökull) had more to do with a slump in gold prices than hard-nosed gold buyers in Mumbai. Exogenous terror.
So how about some good news? Goldman Sachs just reported eye-popping profits for the last quarter, Greece had a successful debt auction to raise €1.95 billion and limited flights are now leaving Europe to brave the Eyjafjallajökull ash cloud. And guess what? The price of gold is recovering, a return to endogeneity my friends. Here is spot gold on the London Exchange this morning on the the news:
The markets are now open over here and it looks like a good day for the metals and miners. Enjoy it while it lasts, I doubt Goldman and Greece have left the headlines for long. What did we learn today? Not much really unless economist-talk helps you fall to sleep at night. The next time you want to take a longer lunch you might want to tell your boss that an "exogenous event" prevented your prompt return.
By the by, there is a new twist on mercury emission in our state - something to read on that long lunch:
Proposed EPA rule aims to reduce U.S. gold mine mercury emissions by 73% (Mineweb, Dorothy Kosich - RENO, 4/19/2010)
I've updated the mercury emission link below for the "adverse regulation/legislation" warning light which remains ORANGE.
Enough talk, let's walk the walk:
4-WD is OFF - smoother markets return; the VIX or "fear index" has moved back down to the 16s far below 25; metals & miners are recovering with benchmark FCX comfortably above $74, 10-year Treasurys are safely below 4% preserving a low-interest rate environment (what's this?)
The YELLOW light is switched back on our fuel gauge with oil above $80
A ORANGE light is ON for possible adverse regulation/legislation: Mine Safety Violations, 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 $1.20 in early trading to $84.33 (June contract, most active); Gold is up $4.9 to $1140.7 (June contract, most active); Silver is up $0.204 to $17.935 (May contract); Copper is up $0.0375 to $3.5345 (May contract); Western Molybdenum Oxide sits at $17.25, LME moly 3-month seller's contract remains at $18.14
The DOW is up 22.07 points to 11114.12; the S&P 500 is up 7.02 to 1204.54. The miners are happy except for Newmont:
Barrick (ABX) $39.51 up 0.95%
Newmont (NEM) $52.10 down 0.23%
US Gold (UXG) $3.11 up 2.98%
General Moly (Eureka Moly, LLC) (GMO) $3.63 up 1.40%
Thompson Creek (TC) $13.44 up 3.07%
Freeport-McMoRan (FCX) $81.62 up 1.01% (a bellwether mining stock spanning copper, gols & molybdenum)
The Steels are happy too, (a "tell" for General Moly & Thompson Creek):
ArcelorMittal (MT) $44.14 up 1.80% - global steel producer
POSCO (PKX) $119.50 up 1.65% - South Korean integrated steel producer
The Eureka Miner's Grubstake Portfolio is is up 1.53% to $1,420,271.61 (what's this?).
Write Colonel Possum at firstname.lastname@example.org for answers to your questions or to request e-mail updates on the market
Headline photograph by Mariana Titus