Monday, May 10, 2010
"Shock and Awe" Strategy Lifts Metals & Miners
It is 6:00 AM sharp. Grab a cup of Monday brew and let's get to work. The hoof steps you hear are the cavalry coming to rescue us from a European financial abyss. As reported by the Wall Street Journal in the wee hours of the morning:
"The European Union agreed on an audacious €750 billion ($955 billion) bailout plan in an effort to stanch a burgeoning sovereign debt crisis that began in Greece but now threatens the stability of financial markets world-wide." (WSJ, 5/10/2010)
Coordinated with the United States and the International Monetary Fund (IMF), the cavalry ride from across the pond was described by Eswar Prasad, a former senior IMF official:
"The European countries and the IMF are putting together a 'shock and awe' strategy involving massive amounts of money to convince markets that they can handle any sovereign debt problem in Europe..." (WSJ, 5/10/2010)
Sounds like the ole Hank Paulson "bazooka" approach to me. Remember Hank's famous explanation of TARP at the 7/15/2008 Senate Banking Committee hearing, "If you have a bazooka in your pocket and people know it, you probably won't have to use it."
History will report the efficacy of all these rescue plans but in this morning's trading it's worth better than a 3.5% bounce in the copper spot market - one of the hardest hit metals by the present sovereign debt crisis:
COMEX oil jumped more than $2 on the news heading towards $80 territory at $77.17. This is one of those rare moments the ole Colonel applauded a move up in the slippery stuff. What about gold? It has moved down from its lofty Friday high of $1215 on the COMEX (June contract) but appears to be stabilizing around $1200 on the COMEX and London spot exchange.
As safe haven players bailed out of gold, silver notched up to $18.5 which gives new hope to breaking the $19 level before Memorial Day (the Colonel's bet, note 1). The broader markets are now open, the DOW is up more than 400 points, the S&P 500 is up a healthy 4.61% and the Eureka Miner's Grubstake Portfolio (what's this?) has added $64,574 for a 4.86% morning move.
So just how scary was last week? The VIX or "fear index" is still above our threshold of 25 bouncing around in the 26-28 range this morning. It is probably too soon for an "all clear" but I am switching our Stable Market and Investor Confidence lights back to GREEN from YELLOW on the Eureka Outlook Dashboard.
To give the "fear index" some perspective, last week's peak level ranks #3 with the other noteworthy calamities of the Great Recession:
05/07/2010 VIX=41.9 10:25 AM, Friday - European sovereign debt crisis
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")
Phew, hope to get below 25 soon buckaroos - that was a scary ride!
Miss Moly was cool as a cucumber during all of last week's drama:
Western Moly Oxide (FeMo65) unchanged at $17.75/lb (the price reported by Infomine and tracked by Base Metals on the General Moly Website)
Moly Oxide, Europe (Mo Drummed Molydbic Oxide EU) $17.25/lb (the price reported in the Metals Bulletin)
LME Futures Contracts
3-Month (Buyer) $38,000/metric ton $17.24/lb
3-Month (Seller)$40,000/metric ton $18.14/lb
15-Month (Buyer) $38,000/metric ton $17.24/lb
15-Month (Seller)$40,000/metric ton $18.14/lb
Here is a chart of the LME 3-month contract (seller) from the February launch to the present:
Enough bazooka-talk, let's walk the walk:
4-WD is ON - rough roads in the marketplace; the VIX or "fear index" is in 26-28 territory; metals & miners are looking better with benchmark FCX trading in the $70s but still below its 200-day average of $75 (our new warning level), 10-year Treasurys are safely below 4% preserving a low-interest rate environment
The GREEN light returns for Stable Markets with the VIX below the 30 level (what's this?)
The GREEN light returns for Investor Confidence with the possibility of a >10% correction in the broader markets possible but less likely
The GREEN light remains turned on our Fuel Gauge with oil below $80 (although this may only be a brief respite)
A ORANGE light is ON for possible adverse regulation/legislation: Mine Safety Violations, Miner's claim fee, Miner taxation, Cortez Hills, mercury emissions &
General Moly Mt. Hope Water Rights
Otherwise, all lights are green on the Eureka Outlook Dashboard (upper right, what's this?)
NYMEX/COMEX: Oil is up $2.06 in early trading to $77.17 (June contract, most active); Gold is down $10.3 to $1200.1 (June contract, most active); Silver is up $0.114 to $18.565 (July contract); Copper is up $0.0895 to $3.2340 (July contract)
Western Molybdenum Oxide sits at $17.75, LME moly 3-month seller's contract sits at $18.14
The DOW is up 432.07 points to 10812.50; the S&P 500 is up 51.20 to 1162.08. The miners are happy campers:
Barrick (ABX) $43.29 up 1.10%
Newmont (NEM) $53.92 up 0.99%
US Gold (UXG) $3.42 up 4.59%
General Moly (Eureka Moly, LLC) (GMO) $3.82 up 12.4%
Thompson Creek (TC) $12.23 up 7.93%
Freeport-McMoRan (FCX) $72.50 up 7.62% (a bellwether mining stock spanning copper, gols & molybdenum)
The Steels are happy too, (a "tell" for General Moly & Thompson Creek):
ArcelorMittal (MT) $37.40 up 10.65% - global steel producer
POSCO (PKX) $108.21 up 6.32% - South Korean integrated steel producer
The Eureka Miner's Grubstake Portfolio is is up 4.86% to $1,393,762.82 (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
Note 1: Friday morning's gold/silver ratio was 67.9; this morning it has fallen back to 64.6. We were in 63 territory before last week's crisis giving silver some headroom to move up to $19/oz if gold stabilizes around $1200/oz.
Headline photograph by Mariana Titus