"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.

Friday, August 5, 2011

"I Can Finally Breath!" Jobs Report - More ROLAIDS® Please!

Markets on the hook

*** BREAKING NEWS *** Commodity King Dennis Gartman just announced on CNBC Business News that he has reduced his gold position by one-half. Gartman has been accumulating gold denominated in euro and pound sterling since April.

Morning Miners!

It is 5:26 AM. Break out the Raine's Red Label TGIF coffee, the Colonel's buying. After this market week, we're brewing double-strong...

"I Can Finally Breath!" Jobs Report

I just watched the monthly employment numbers roll in on CNBC Business News. After two really lousy reports the bar was set pretty low for the July data. Fortunately, the nonfarm payrolls surprised to the upside adding 117,000 more jobs and the headline unemployment number dropped a thin flat washer to 9.1%. There were further losses in government jobs but the private sector added 154,000 new folks which included healthy gains in the manufacturing sector. CNBC economist Steve Liesman remarked, "Not good, but we didn't fall off a cliff." Diane Swonk, chief economist with financial services firm Mesirow Financial, was more upbeat exclaiming, "I can finally breath!"

After horrific market carnage yesterday, a worse report today would have been bad news indeed. The not-so-great news is that 125,000 jobs or more a month is required to really move the needle on overall unemployment. Europe goes into the weekend with an escalating sovereign debt crisis so next week could be exciting. You know things are bad across the pond when finance ministers interrupt Europe's sacred August holiday to address the solvency issues of the profligate peripheral countries. Have a restful weekend, we may need it.

More ROLAIDS® Please!

It is rough to see the DOW lose more than 500 points in a day and then wake up to a London Metal Exchange headline that reads, "Base metals crash to multi-week lows, risk aversion sell-off sustained." The broader markets are now open and the S&P 500 is headed lower falling 7 points to 1,193; better than yesterday's 60 point downdraft but not enough buoyancy from the labor report to offset the new worries emanating from Europe. The Eureka Miner's Index(EMI) has just set a new low for 2011 (see below). Nuts.

During the May-June market malaise the ole Colonel dreamed up two market ROLAIDS® just in case things started to head back down the mineshaft:

A Market ROLAIDS® for the Day (Eureka Miner, Thursday, June 16, 2011)

S&P, Gold, Copper, Moly Down; Another Market ROLAIDS® (Eureka Miner, Thursday, June 23, 2011)

Let's see if this medicine works. I combined ideas from both blogs into a single defensive portfolio that includes gold (GLD), the U.S. Dollar Index (UUP) and a double-short on the material sector (SMN). You can review the purchase dates and rationale in the referenced reports. Here is the bottom line as all three are presently trading (6:57 PDT) in today's down market (profits are since purchase):

Gold (GLD): value $6,459.60 profit $563.40, up 9.56%
Dollar Index (UUP): value $1,471.43 profit $0.35, up 0.02%
Double material short (SMN): value $1,712.88 profit $219.96, up 14.73%

Total Portfolio value: $9,643.91
Original Investment: $8,860.20
Profit: $783.71 or 8.85%

It's never a bad idea to hedge a little when dark clouds are on the market horizon. Please do your own research, double-short strategies are akin to hauling nitro in the buckboard. Have a good'un.

[UPDATE for Market ROLAIDS® : Commodity King Dennis Gartman just announced on CNBC Business News that he has reduced his gold position by one-half. Gartman has been accumulating gold denominated in euro and pound sterling since April. Since the ROLAIDS® portfolio is "Gartman-inspired," we will take profits on one-half of our positions. Sell price $21.262 (UUP); $161.19 (GLD); $22.29 (SMN)]

Daily Market Roundup

Enough talk, let's walk the walk:

Eureka Miner's Index(EMI)

This morning the Eureka Miner's Index(EMI) is above-par at 124.45, down from yesterday's 186.24 and below the 1-month moving average of 271.96. The EMI is down from the high of January 4th and sets a new 2011 low today at 124.45. The 1-month moving average broke its troubling downtrend on July 5th, trended up for awhile but is now dangerously trending down.

The EMI gives us the market temperature for the factors that have the greatest impact on mining in Eureka County. The record high for the EMI is 816.78 set 01/04/2011; the low was set 6/7/2010 at 50.7. An EMI of 100 is the boundary between hot and cold markets for the metals & miners.

200-day averages are used in the EMI to normalize current mining company share price and are updated monthly. Upper and lower trend lines are updated weekly.

Gold Value Index (GVI)

The Gold Value Index (GVI) is below-par at 88.89, up from yesterday's 86.02 and above its 1-month average of 80.47. This is another new high for 2011 breaking above the old record of 86.02 set August 4th. Today's Value Adjusted Gold Price (VAGP) is $1,559.9/oz or $99.6/oz below the current COMEX gold price.

Although gold prices have been on the rise, the GVI has trended down since 6/7/2010 when it had a value of 100; gold regained value recently reversing the trend, moved sideways for a time and and is heading back up with vigor.

The GVI gauges the value of gold in relation to oil, copper and silver independent of currency. These three commodities were chosen for relative value comparison because 1) oil is a common cost element for all miners, 2) copper has proven to be a reliable proxy for global growth and 3) silver is a precious and industrial metal that now competes with gold for investment and as a hedge against fiat currencies.

The Value Adjusted Gold Price (VAGP) is a level that supports current oil, copper & oil prices based on historical commodity norms. If the daily COMEX gold price is below the VAGP, then gold is undervalued; if above, overvalued.

Daily Debt Crisis Watch

July 26th we introduced the Debt Crisis (DCI) Index to track the debt squabble in Washington and its impact on the bond, equity, currency and commodity markets. The Report will now carry it forward to track the bigger picture of domestic and global sovereign debt worries (note 2).

The DCI is computed in the mornings and at the market close Friday in much the same way we do the EMI & GVI indices. Today, the DCI has a value of 190.3 up from yestrday morning's 143.6. Our benchmark is 100, the value of the DCI on July 22nd; a bigger number suggests a worsening impact on markets (note 2). This Report has identified an elevated level surpassing 200 is time for serious concern. We are closing in fast!

Daily Oil Watch

Latest Nevada Fuel Prices

On February 1st we identified North Sea Brent crude oil as a good barometer for the developing crisis in the Middle East and North Africa (MENA). It is now above $110/bbl with a large spread from the North American benchmark, Western Texas Intermediate or "Texas light sweet crude", traded on the NYMEX (see note 1). The Report normally follows the latter but will track both until things settle out in the region.

Here are the key front-month contracts as of this morning:

NYMEX light sweet crude $86.98
ICE North Sea Brent crude $108.72
Spread (ICE- NYMEX) = $21.74 (Yesterday, $20.58)

Here are the November contracts* with a narrower spread:

NYMEX light sweet crude $88.00
ICE North Sea Brent crude $108.70
Spread (ICE- NYMEX) = $20.58 (Yesterday, $19.74)

* NYMEX futures contracts have rolled forward, we now show September and November for a 2-month look-ahead

Prices are off their crisis highs and we have $100+ Brent and $85+ NYMEX in November favoring high oil prices throughout the summer and into late fall although there are definite signs of weakening prices. My December prediction that we would see NYMEX $100/bbl oil before the Fourth of July came true on February 23rd.

Eureka Outlook Dashboard

4-WD is ON - The miners are on back on rough roads; The VIX or "fear index" is above 25; in early morning trading, bellwether Freeport-McMoRan (FCX) is below its 200-day moving average of $52.88 and 150-day moving average of $53.29 (our new key levels, 07/28 update); 10-year Treasurys are safely below 4% preserving a low-interest rate environment.

The GREEN light is turned back on for Commodity Reflation with copper trading comfortably above $3.50/lb

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

The YELLOW light is turned on for Inflation Watch The Federal Reserve phased out buying Treasurys June 30th (aka QE2) but will maintain low interest rates for now

The ORANGE light is turned back on for Investor Confidence with investors adverse to commodity-sensitive equities

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, R&R Partners parts ways with Nevada Mining Association, Obama budget includes mining royalty , Mineral commission fights consolidation, Democrats seek to repeal mining tax from the constitution, Rhoads, Ellison oppose repeal of net proceeds tax, Proposal could change net proceeds tax, 'You get to deduct WHAT???' Nevada lawmakers ask gold miners

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

Commodity Market Morning Update

NYMEX/COMEX: Oil is up $0.35 in early trading at $86.98 (September contract, most active); Gold is up $3.2 to $1659.5 (December contract, most active); Silver is down $0.161 to $39.270 (September contract, most active); Copper is down $0.0350 at $4.2005 (September contract, most active)

Western Molybdenum Oxide (Infomine) is $14.97; European Molybdenum Oxide (Bloomberg) is $14.75; LME cash seller is $14.97, LME moly 3-month seller's contract is $14.97

Stock Market Morning Update

The DOW is down 29.67 points to 11,354.01; the S&P 500 is down 6.98 points at 1,193.09

Miners are mixed:

Barrick (ABX) $47.08 up 1.88%
Newmont (NEM) $56.20 up 3.23%
US Gold (UXG) $6.27 up 4.67%
General Moly (Eureka Moly, LLC) (GMO) $4.13 up 2.23%
Thompson Creek (TC) $8.15 up 0.37%
Freeport-McMoRan (FCX) $47.36 up 1.20% (a bellwether mining stock spanning copper, gold & molybdenum)
Quadra FNX (TSE:QUX) $13.60 down 0.67%
Timberline Resources (TLR) $0.68 unchanged

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

ArcelorMittal (MT) $26.12 up 2.79% - global steel producer
POSCO (PKX) $103.29 up 1.23% - South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is up 1.68% at $1,626,604.36 (what's this?).


Colonel Possum

Note 1 - West Texas intermediate (WTI), also known as Texas light sweet, is a type of crude oil used as a benchmark in oil pricing and is the underlying commodity of New York Mercantile Exchange's (NYMEX) oil futures contracts. The price of WTI is often referenced in North American news reports on oil prices, alongside the price of North Sea Brent crude (source: Wikipedia)

Note 2 - The impact of the U.S. debt ceiling debate affected investment decisions for weeks before its resolution August 2nd. The quality of U.S. fiscal plans going forward will determine if there is a credit downgrade in the wings. Global sovereign debt issues have been an overhang on markets for many, many months starting with the Dubai crisis in late November, 2009 and spreading to the euro-zone in 2010-2011.

Headline photograph by Mariana Titus

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

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