"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.

Wednesday, October 6, 2010

Green Eggs and Ham - The Colonel's Outlook for the Rest of 2010

I would not eat green eggs and ham.
I do not like them, Sam-I-am
Dr. Suess

Morning Miners!

It is 5:45 AM. Grab a cup of hump day coffee and let's see what has Old Miner Woden chuckling. He's looking at this morning's headline photo, "Colonel, these here green eggs were by my diggings. I remember your sidekick taking the picture when you came to visit in the spring of 2007."

If you care to visit Old Miner Woden his camp is on the north-west face of Lone Mountain about 1/4 mile up from the old headframe. He's there every day except "Woden's Day" when he drops by the break room for coffee. Give a holler first or you might be picking buckshot out of your behind.

Gold breaks $1350 - New highs for Silver & Copper

More records after the strike of midnight, pardner:

COMEX gold $1351.0/oz 00:45:00 ET, 10/6/2010 (December contract, most active), new record
COMEX Silver $23.20/oz 17:00:00 ET, 10/6/2010 (December contract, most active), 30-year high (updated later in the day from last high at 00:45:00)
COMEX Copper $3.7895/lb 03:00:00 ET, 10/6/2010 (December contract, most active), 27-month high

Our tireless friends in London have the copper story:

Copper Advances to a 27-Month High on Fed Speculation; Tin Reaches Record (Anna Stablum, London Bloomberg News, 10/6/2010)

The Colonel's Outlook for the Rest of 2010

A faithful reader of the Report asked me for my thoughts yesterday on General Moly (GMO) and the markets. He is the owner of a very successful internet-based company in Seattle, Washington, and an ardent supporter of our Mt. Hope molybdenum project. I replied that GMO was on track and then gave him my thoughts for the remainder of the market year. Since this comment, Freeport-McMoRan (FCX) has posted a new high of $93.48 in early morning trading - a level not seen since the summer of 2008:

"...The markets are a huge mental puzzle lately. Base metals say blue skies globally and domestic bond markets point to Armageddon. I always side with the metals.

I'd watch Freeport-McMoran (it broke $90 today) and oil. If Freeport stumbles and oil heads south from $80, I'm going to put on my winter gear.

Freeport [FCX] was a terrific early warning indicator in December 2008 and again in February of this year. The former presaged the S&P 500 dip to 600 territory in March, 2009; the later, warned of the commodity correction in May-June 2010 even as copper and the S&P went on to post highs in April.

As long as FCX is good I'm bullish for the remainder of the year.

Moly started to look soft but the LME [London Metal Exchange] futures picked up some yesterday. Tight supply seems to be the word for a lot of the metals.

My contrarian nature has me buying the dollar index lately (UUP) just because EVERYONE hates the U.S. dollar. Since the index is euro-dominated this opinion could change with the next hiccup from Europe. UUP [Powershares DB US Dollar Index Bullish Fund] is a trade because the long term prospects for the greenback may not be super-duper. Meredith Whitney has some rather sobering thoughts about state finances in 2011 - is California the next Greece etc.

Cheers to you for running a successful business in this environment! Folks like you will help this country move forward into broad, sunlit uplands (Chrurchill)."

Let's expand a bit more on these thoughts...

Green Eggs and Ham

I'd like to apply the famous Dr. Suess title for his timeless children's book, "Grren Eggs and Ham" to today's markets. Green eggs: This morning the 10-year Treasury is plumbing depths in yield (2.394%) and the International Monetary Fund (IMF) has just downgraded its global growth estimate on concerns about the U.S. recovery:

"Growth prospects for the U.S. took the IMF's largest downgrade, falling to 2.3% in 2011 from a previous estimate of 2.9%. China's growth rate is still expected to fall slightly to a still-steamy 9.6% from 10.5%. The IMF sees euro-zone economies averaging 1.7% growth this year and 1.5% next year -- both improvements on its previous projection, helped by strength in Germany." (WSJ, 10/6/2010)

Our ham for the morning is more daily records for gold, silver, copper and several other base metals. Our Eureka Miner's Index(EMI) has just hit a new high for the year of 294.4.

In the stark dichotomy between bond and commodity markets, I do side with the metals but will cautiously monitor Freeport for any signs of weakness. At the end of January this year the report threw up a red flag on FCX, Freeport "Broken", Miners in Correction:

"The fate of Freeport is important because it is often considered the bellwether of mining stocks by the investment community. Yesterday on CNBC, Dennis Gartman, the Commodity King, declared Freeport 'technically broken' and saw rocky roads ahead for metals and miners in the near term. A stock that is technically broken is expected to fall further based on its chart performance even if the company's fundamentals are positive." (The Eureka Miner's Market Report, 1/31/2010)

The metals & miners did recover and new highs were set in April only to be dashed by the severe May-June commodity correction. In retrospect, I believe the early FCX stumble saw beyond the April rally.

If FCX stays happy, the Colonel remains optimistic for the remainder of the year; if not, we'll take our lesson from recent history.

Earlier this year I predicted we'd see 1,251 on the S&P 500 before Christmas. I'll stick with that although we may see a pullback prior to a post-election/Christmas rally. The level 1,251 is important because it was the entry point for The Great Recession Bear Market (i.e. 20% down from 2007 highs). If FCX breaks down before Santa, the ole Colonel may be buying a lot of readers a lot of beers. The S&P 500 is at 1160 as I write this morning's blog, 91 points to go.

In my comment, the Colonel isn't cheering for higher oil prices but a downturn could be a bearish sign since copper and oil are reliable proxies for global growth. It's always good to spread your bets so that's why I'm buying a little dollar index for safe keeping.

Finally, the Churchill quote is from his famous "Finest Hour" speech and does apply to anybody brave enough to meet a payroll these days. It may be the "finest hour" for every American small business when we look back on these most difficult days.

Daily Market Roundup

Enough prognostication, let's walk the walk:

The Eureka Miner's Index(EMI) is above-par setting a new record at 294.37, up from yesterday's 266.46 and a long way from the 6/7/10 low of 50.7. Today's number is above the lower trend level of 257.22 and very comfortably above support at 186.51. The 1-month moving average is 227.28. The old 2010 record high for the EMI was 274.66 set Friday, 9/24/2010. Remember an EMI greater than 100 is good times (or at least better times) for the metals & miners relevant to Eureka County.

Eureka Outlook Dashboard

4-WD is OFF - improving roads in the marketplace; The VIX or "fear index" is below 25; metals & miners are on firm timber with bellwether Freeport-McMoRan (FCX) in the low-$90s well above its 200-day average of $74.59 (our new warning level, 10/01 update); 10-year Treasurys are safely below 4% preserving a low-interest rate environment but there is still some deflationary caution now that we are sub-3%.

The YELLOW light is turned back on for Commodity Reflation. Although copper is trading above $3/lb, the 10-yr T-Note is below 3.00%

The GREEN light is turned on for Stable Markets with the VIX below the 30 level (what's this?)

The YELLOW light is turned on for Inflation/Deflation Watch as the Federal Reserve resumes buying back Treasurys and the 10-yr T-Note remains below 3.00%

The GREEN light is turned back on for Investor Confidence as investment returns to the equity markets but the bond markets still signal trouble ahead

The YELLOW light is turned 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 , General Moly Mt. Hope Water Rights, U.S. House committee debates miner workplace safety bill

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

Commodity Market Morning Update

NYMEX/COMEX: Oil is down $0.19 in early trading at $82.63 (November contract, most active); Gold is up $5.4 to $1345.7 (December contract, most active); Silver is up $0.138 to $22.875 (December contract, most active); Copper is up $0.0265 to $3.7530 (December contract, most active)

Western Molybdenum Oxide is $15.00; European Molybdenum Oxide is $15.05; LME moly 3-month seller's contract is $15.42, LME cash seller is $15.20

Stock Market Morning Update

The DOW is up 12.33 points to 10957.05; the S&P 500 is down 0.37 to 1160.38. Miners are still rocking:

Barrick (ABX) $47.77 up 0.95%
Newmont (NEM) $63.81 up 0.22%
US Gold (UXG) $5.19 up 0.38%
General Moly (Eureka Moly, LLC) (GMO) $3.74 up 1.08%
Thompson Creek (TC) $10.90 up 0.09%
Freeport-McMoRan (FCX) $92.08 up 0.99% (a bellwether mining stock spanning copper, gold & molybdenum)

The Steels are up (a "tell" for General Moly & Thompson Creek):

ArcelorMittal (MT) $33.40 up 0.48% - global steel producer
POSCO (PKX) $118.97 up 0.52% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is is up 0.54% to $1,567,424.83 (what's this?).


Colonel Possum

Write Colonel Possum at colonelpossum@gmail.com for answers to your questions or to request e-mail updates on the market

Headline photograph by Mariana Titus

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