One-Armed Bandits and $71 Oil

Bloomberg News/Landov

Morning Miners!

It is 5:43 AM and the ole Colonel is back from his road trip. While pushing a lot of highway under my floorboard, an occasional stop at a filling station reminded me that slot machines aren't the only one-armed bandits in this state. That's right pardner, the gas pump sucked a lot bigger hole in my wallet than my last trip a month ago. I know we are entering driving season and gas prices are expected to rise, but as prices crowd 3-bucks there must be something else happening besides an increase in real demand.

What's going on? More and more folks that trade commodities are believing that the global economy is truly on the mend, plain and simple. After flirting with $70 oil last week, the NYMEX light crude futures closed above the seventy mark and opened in Asia this morning above $71, a 2009 high:

"Oil has soared as traders cheered news showing the worst of a U.S. recession is likely over, and brushed off data -- including a 9.4% unemployment rate in May -- that suggest crude demand will remain weak.
'I wouldn't be surprised if we're testing $80 in a week or two,' said Gerard Rigby, energy analyst with Fuel First Consulting in Sydney. 'The momentum right now is too strong.'
Prices have also been bolstered by a weaker dollar and expectations that large fiscal-stimulus spending could spark inflation." (WSJ, 6/10/09)

The Colonel admits that he cheered rising oil prices earlier this year since reflation in oil and metals (e.g. copper) were leading indicators of global recovery. It seemed that oil in the $45-$50 range wouldn't push production costs over the edge for miners who benefited from the higher price of their end product. When oil headed for $60, I bet that oil would return to $52 before $62 and the readers won a beer (see The Colonel's Beer Derby in the lower right column for other commodity bets).

Let's see how crazy things have got in just three months. One indicator of pump prices are the futures contracts for RBOB gasoline on the NYMEX. RBOB (pronounced R-Bob) stands for Reformulated gasoline Blendstock for Oxygen Blending. RBOB is a mouthful of grits but serves as a useful measure of gasoline wholesale prices. Here's the action:

NYMEX RBOB gasoline (July Contract) 3/11 $1.2676 low; 6/10 $1.9940 57.3% increase
NYMEX Crude Light Oil (July Contract) 3/11 $46.25 low; 6/10 $70.70 52.9% increase

And compared to the dollar and gold over the same period:

NYBT US Dollar Index (June Contract) 3/11 89.50 low; 6/10 80.01 10.6% decrease
COMEX Gold (August Contract) 3/11 $897.2 high; 6/10 955.8 6.5% increase

(Note: most active contracts quoted for 3/11/09 intraday low (high) and 6/10 early morning trading)


There is an old saying that you run with the market you have and not the one you think should be. Does a 10% drop in the dollar and signs of global recovery justify 50% increases in the price of RBOB gasoline and light crude oil? Stay tuned buckaroos and watch out for them one-armed bandits at the filling station!

Enough talk, let's walk the walk:

Oil is up $0.69 to $70.70 in early trading (July contract); Gold is up $1.1 to $955.8 (August contract); Silver is up $0.040 at $15.180 (July contract); Copper is down 0.0195 to $2.3460(July contract); Molybdenum sits smiling at $10.50.

The DOW is down 9.68 points to 8753.38; the S&P 500, down 2.61 points to 939.82. The miners are mixed:

Barrick (ABX) $35.79 down 0.91%
Newmont (NEM) $44.38 down 1.14%
General Moly (Eureka Moly, LLC) (GMO) $2.68 up 1.13%
Freeport McMoran (FCX) $59.29 down 0.56% (a bellwether mining stock spanning gold, copper & molybdenum)

Steel stocks are mixed (a "tell" for General Moly):

Nucor (NUE) $47.09 down 1.40% - domestic steel manufacturing
ArcelorMittal (MT) $34.70 up 0.06% - global steel producer
POSCO (PKX) $81.11 up 0.19%- South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is up 0.27%.

Cheers,

Colonel Possum

Barrick Price Targets Raised

Good Afternoon Miners!

The ole Colonel just got off the road and normal daily reporting will start up tomorrow.

Here is some good breaking news on Barrick (ABX) Price targets:

UBS $47 from $44, 6/9
Macquaire $48.50 from 46.25, 6/8

To put this in perspective, Barrick is up 43.1% from its March intraday low of $25.54 to a closing price of $36.56 (6/8). A $47 price would be an 84% move.

See you tomorrow,

Cheers,

Colonel Possum

The Barrick Report, General Moly Breaks $3.00

Morning Miners!

It is 6:00 AM sharp. What a beautiful morning for some good mining news! Yesterday, Barrick presented at the Goldman Sachs Basic Materials Conference in New York. Pardners, this is one of the best reports on the future of gold as well as the health of a major Eureka County miner that I have read in quite some time. You've got a reading assignment! Check out their presentation, the link is on the Barrick homepage listed under the Miner's Corner to your right. While Barrick was impressing the Materials Conference, General Moly (GMO) nearly made the $3.00 mark closing at $2.96. This morning GMO broke $3.00 in early trading. That deserves a Colonel Yee-ha!

I'll be on the road again Monday so no Report until Wednesday. We'll chew a bit on the Barrick data when I return. Between road trips we've accomplished a lot thanks to terrific reader input:

1) The Report launched the "Rancher's Corner" for Eureka County farmers and ranchers.
2) The reader's have made nearly $100,000 from their $1M investment in 12 companies that directly or indirectly influence the future of mining in the County. Checkout the Eureka Miner's Million Dollar Grubstake, (yesterday's close $1099,093).
3) The Report expanded the local weather link to include climate information and the weekly Nevada Drought Monitor. You can find all of this under the "Local Weather and Climate" section under the sky picture to your right.
4) There is a new "Reader's Tips - Hot Links" below "Discover Eureka, Nevada" for reader inputs and upcoming events.
5) For us old timers, The Report kicked off its first article for retirees or those of you that are close to going fishing. This will be an ongoing feature to help you hang on to and grow your precious retirement savings. The ole Colonel has just added an "Old Timer's Corner" with a ready link list to retirement articles. Look under, you guessed it, the picture of an Old Timer Miner to your right.

Let's together make this the best Internet source for daily market news and events that affect our County! Keep sending the Colonel your ideas and inputs.

Enough talk, let's walk the walk:

Oil is down $0.15 to $68.66 in early trading (July contract); Gold tumbles $23.6 to $958.7 (August contract); Silver follows, down $0.705 at $15.190 (July contract); Copper is down 0.0405 to $2.2485605(July contract); Molybdenum holds at $10.25.

The DOW is down 22.11 points to 8728.13; the S&P 500, down 5.83 points to 936.63. The miners are mixed:

Barrick (ABX) $35.98 down 4.44%
Newmont (NEM) $45.15 up 4.83%
General Moly (Eureka Moly, LLC) (GMO) $2.99 up 1.01%
Freeport McMoran (FCX) $55.65 down 1.21% (a bellwether mining stock spanning gold, copper & molybdenum)

Steel stocks are mixed (a "tell" for General Moly):

Nucor (NUE) $46.03 down 0.60% - domestic steel manufacturing
ArcelorMittal (MT) $34.95 up 0.52% - global steel producer
POSCO (PKX) $81.36 down 0.26%- South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is down 2.20%.

Cheers,

Colonel Possum

A Little Advice from Mark Twain

Morning Miners!

It is 5:36 AM, clean cups are on the hook and the coffee is hot. The ole Colonel is going to chat a bit with the old timers this morning but the young folks are welcome to stay in the break room, there might be something here for everyone. I was sitting on my favorite bench in front of Raine's Market the other day with my faithful sidekick, Loquita. By the by, if you're having a difficult day go sit there a spell, I swear that bench has magical qualities for soothing the soul. I must ask Scott about its history, maybe it has been there since the old Kitchen Market days.

A reader of the Report passed by with two great questions for the Colonel. We're both retired and neither of us are looking forward to returning to the salt mines if we can avoid it. The first question was about the recent rally in the stock market (can it last?); and the second, about the possibility of debilitating inflation in our future. These are important concerns even if you're not retired but getting close to going fishing.

I am reluctant to give anyone advice on what they should do with their money but am not shy about telling you what I'm doing. I'll leave the advice part to Mark Twain who once remarked, "I am more concerned with the return of my money than the return on my money." This is such a sage quote that it was repeated by Will Rogers during the Great Depression and is sometimes attributed (incorrectly) to the famous British economist, John Maynard Keynes. Keynes is important to my story because he had the radical idea that governments should spend money they don't have in hard times to save the ship. More on that in a moment.



Last Fall, it was not unreasonable to fear a massive run on the banks. That didn't happen and I'm convinced our government will sell George Washington's false teeth on E-Bay before they allow that to occur. The Colonel had money in two failed banks, Silver State in Henderson and Washington Mutual, and it was quickly returned by the FDIC. Kudos to Sheila Bair.

That covers the "return of my money" part, what about the "return on my money"? I once explained a conservative approach to investing to a young buck and he remarked, "If you're not making double-digit returns in the stock market, you're an idiot!" I have often wondered how that feller fared in 2008.

I believe there is too much emphasis on getting big returns on your investments especially for older folks. You hear all sorts of crazy stuff like, "you must get at least a 7% return or inflation will eat your life savings away." Talk like that pushes people into the stock market and some poor souls lost 40-50% of their dough last year. Let's face it, even with the recent rally, we're still in a bear market and will probably stay there for a while longer. My rule-of-thumb is no more than 10% of your savings should sit in stocks during such times and no more than 20% in the best of times.

Don't fret too much about your lousy CD returns at the bank for now. Remember it is the difference between yield and inflation rate that counts. Few people complained when inflation was 3% and CDs yielded 5%. Presently inflation is zip (and there is a chance the economy could deflate) so that lousy 2% CD is just fine.

Inflation down the road is a big concern since the government has been borrowing and printing money like A-students in John Keyne's Eco-101. If the economy rebounds and the government can quickly reduce all this funny money at the proper time, books will be written for decades about their success. If their timing is off; books will be written for decades about their failure and the return of double-digit inflation.

Gold is still the best hedge against inflation and it is a wise move to include some in your portfolio. The standard rule-of-thumb is no more than 10% but if things start spinning out of control, I might head a little north of that number. Gold is threatening $1000/oz lately so I'd wait for a good pullback this summer to buy. The ole Colonel will stick to his prediction of $1050/oz by Christmas. These were my thoughts April 6 in the Report:

"Gold stumbled another $20 in early trading to bring us to solid 8-handle country at $877.9 (June contract). Am I discouraged? Hell no. The Colonel bought a little chunk Friday and I'll buy a little more if we fall further. Does anyone really believe there won't be any inflation down the road?"

If we fall back to $920 it might be time for another little chunk.

Have I answered my good friend's questions? There will probably be a good dip in both the stock markets and gold this summer but probably not at the same time. Low rate CDs are good for now but I wouldn't commit to more than a 6-month to 1-year CD at these low yields. Buy gold a little bit at a time on pullbacks, sleep tight at night and join the Colonel on the Raine's bench if you're feeling a little stressed out.

Enough old timer talk, let's walk the walk:

Oil is up $1.66 to $67.78 (July contract); Gold is up $8.0 to $973.6 (August contract); Silver up $0.200 at $15.510 (July contract); Copper is up 0.0365 to $2.2485(July contract); Molybdenum holds at $10.25.

The DOW is down 36.17 points to 8639.11; the S&P 500, down 1,74 points to 930.02. The miners are mixed:

Barrick (ABX) $37.17 up 1.72%
Newmont (NEM) $46.70 up 0.60%
General Moly (Eureka Moly, LLC) (GMO) $2.60 down 3.08%
Freeport McMoran (FCX) $54.51 up 1.58% (a bellwether mining stock spanning gold, copper & molybdenum)

Steel stocks are mixed (a "tell" for General Moly):

Nucor (NUE) $44.15 down 1.30% - domestic steel manufacturing
ArcelorMittal (MT) $33.58 up 0.09% - global steel producer
POSCO (PKX) $81.00 down 1.85%- South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is down 0.14% at $1,061,862.

Cheers,

Colonel Possum

The Drought Down Under

Morning Miners!

It is 5:52 AM and the ole Colonel just watched a pink sky over the Diamond Valley turn to gray. If we were sailors, we'd be taking warning and that's the theme of this blog for what may lay in store for the future of Eureka County's water supply. I am not an alarmist but it is often helpful to look ahead, anticipate the worst and be happy when things turn out better than expected. By now, you may have had a chance to look at the Nevada Drought Monitor link in the Local Weather & Climate section to your right below the sky picture. This information is supplied by the Western Regional Climate Center with updates every week. Presently most of the County is "abnormally dry" or drought level zero (D0). Our southern border with Nye County is "drought-moderate" or level D1 and a bit further south, Nye is experiencing "drought-severe" or D2. The scale goes up to D4 which is time to trade your horse for a camel and watch for happy buzzards.

The Colonel has been anxious to do this piece but a ton of market news got in the way earlier this week: soaring stock prices, $70 oil and gold rapidly approaching the mythical $1000 mark. I think that is typical of most water supply discussions, there is always something else to talk about until it is too late. Ironically, climate change induced water shortages may someday become a much larger impediment to global recovery than the price of oil.

As I said yesterday, local folks are quite familiar with the impact of water on their livelihoods and it seems that good planning is already underway. There is a second water tank under construction for the township and discussions on water were at the forefront during a recent Natural Resources Advisory Commission Meeting I attended. It might be helpful to look at a region of the world that is already experiencing extreme drought.


Many rural areas of Southern Australia are similar to Northern Nevada; they have ranchers, farmers and miners. Unfortunately, they are experiencing the worst drought in over a century. Let's set the stage for further comparison. Australia has states like we do in the U.S. and there are three big ones in its southeast corner: New South Wales (NSW), South Australia to the west and Queensland to the north. I like to think of the more populous NSW as California; and South Australia, as Nevada. Together they share with Queensland a vast water resource called the Murray-Darling Basin. The Murray and and its tributary, the Darling, are large rivers that flow north to south and reach the Southern Ocean in South Australia near the state capital of Adelaide.

Although California/Nevada have a different topography, one thing is as true in Australia as in the States: when there is a water shortage guess who gets the shaft (or perhaps more appropriately, the mineshaft)? The more populous Queensland and NSW comprise four-fifths of the Murray-Darling water resource. Farmers, especially cotton and rice growers in those upstream states account for 83% of the basin's consumed water. You can imagine why it could be approaching "lock n' load" time near the more rural areas at the drying mouth of the river. Government officials just warned Adelaide that there might not be enough water for over one million people to meet "critical human needs". Can you imagine getting that news flash from Carson City?

In fairness, our Humboldt River Basin doesn't directly compare with the Murray-Darling system. However, the High Sierras do their share of grabbing water for the Golden State and there is always that straw that keeps coming our way from a very thirsty Las Vegas. The Humboldt River Basin River Water Authority reports that in 20 years, the population it does serves has more than doubled with further stresses from industrial and mining use. Even with these differences in comparison, it is not unreasonable to assume that an extended drought in the West may very well result in conditions now found in South Australia.

So what are folks doing down under? Here's the good news; the farmers in Adelaide are not stringing up their upstream neighbors, instead they are working together. In the face of crisis it seems innovation and cooperation are saving the day until the drought-breaking rains come. The growers at Langhorne Creek near the mouth of the now salty Murray have formed a company to build a pipeline to secure water from a cleaner (less saline) point on the Murray further east. Australia has devised an interstate water-trading scheme to allow South Australia to buy water from distant farmers in NSW. They have in turn switched to less thirsty crops and keep the difference in store for Adelaide. The wine growers in Adelaide have also discovered new drought resistance vines that still produce quality wine. How's that for turning water to wine buckaroos! There may be lessons here for our county and Nevada my friend although I don't expect too many wine growers in Diamond Valley.

I'll close with another possible turn of events for Australia. There have been recent torrential rains which have brought havoc but also water to this dry land. Eric sent me this picture of submerged haul trucks in an Aussie open pit mine.



Enough dancing in the rain, let's walk the walk:

Oil is down $1.48 to $67.07 (July contract); Gold is down $5.5 to $978.9 (August contract); Silver is down $0.145 at $15.810 (July contract); Copper is down 0.040 to $2.22565(July contract); Molybdenum holds at $10.25.

The DOW is down 84.43 points to 8656.44; the S&P 500, down 13.57 points to 931.17. The miners are down today:

Barrick (ABX) $37.07 down 2.16%
Newmont (NEM) $47.62 down 1.65%
General Moly (Eureka Moly, LLC) (GMO) $2.54 down 5.22%
Freeport McMoran (FCX) $54.95 down 3.39% (a bellwether mining stock spanning gold, copper & molybdenum)

Steel stocks are also down (a "tell" for General Moly):

Nucor (NUE) $45.22 down 4.56% - domestic steel manufacturing
ArcelorMittal (MT) $34.13 down 6.13% - global steel producer
POSCO (PKX) $83.40 down 3.01%- South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is down 3.13%.

Cheers,

Colonel Possum

Information for this article was derived from the article "In Need of a Miracle", The Economist, 5/9/2009.

General Moly Price Target Raised to $3.35 from $2.00

Morning Miners!

It is 5:41 AM and the sun just winked at the Diamond Valley. Before we return to this week's water story, a few comments on breaking news. At 7:41 AM (ET) this morning, National Bank raised its price target for General Moly (GMO) from $2.00 to $3.35 after an amazing rally yesterday that brought a closing price of $2.64. That gets a Colonel Yee-ha! This follows yesterday's good news in the broader markets:

"The Dow Jones Industrial Average jumped by 221 points after data on U.S. manufacturing, construction spending and personal incomes further solidified investors' growing belief that the economy is stabilizing. The S&P 500 surged to its highest level so far this year, powered by gains in its industrial, consumer-discretionary and energy sectors." (WSJ, 6/1/09)

What about metals? The Report regularly looks at copper prices to monitor the health of the global recovery, check this out:

"Strong stocks, a weak dollar, better-than-forecast economic data and technical chart buying combined to send copper to its strongest level since October.'We have the best of all possible worlds,' said Sterling Smith, vice president at FuturesOne." (WSJ, 6/1/09)

A little different tone than this March buckaroos! The Eureka Miner's Million Grubstake Portfolio had a 5.09% daily jump for a net gain of $101,934 since its kickoff May 10th. If the Grubstake is a barometer for Eureka County's good (or bad) fortunes, it looks like we are at least pointed in the direction of better times.

And all of this whirlwind of happy news on the day after General Motors entered bankruptcy and imminent expulsion from the DOW Industrials! What would my poor daddy say? Strange times indeed.

The Report looks at global trends to see what's coming next for Eureka County. We did two articles on the Canadian dollar (Loonie) and Australian dollar (Aussie) rallies to forecast the recent rise in gold price and fall in the U.S. dollar. The articles were tongue-in-cheek but illustrate the importance of looking at other commodity-sensitive economies to gauge what might pop out from behind the sagebrush:

Eureka Looney Tunes (5/19/09)

Is There a Loonie Aussie in Your Future? (4/9/09)

Besides being resource-rich countries, Canada and Australia for the most part have a similar rule-of-law, governance and capitalist philosophy to our own. This makes them particularly good choices for economic comparisons as opposed to say Venezuela with a popularly elected nut case dictator who got his economics degree from Havana U.

Tomorrow we'll examine the water crisis in Australia to understand what might be in the cards for Nevada in the coming years.

Enough talk, let's walk the walk:

Oil is down $0.49 to $68.09 (July contract); Gold is up $3.00 to $983.0 (August contract); Silver up $0.060 at $15.795 (July contract); Copper is down 0.0185 to $2.3005(July contract); Molybdenum holds at $10.25.

The DOW is down 2.57 points to 8718.87; the S&P 500, down 0.39 points to 942.48. The miners are resting after yesterday:

Barrick (ABX) $37.25 up 0.57%
Newmont (NEM) $48.11 up 0.25%
General Moly (Eureka Moly, LLC) (GMO) $2.64 down 0.07%
Freeport McMoran (FCX) $57.69 down 0.74% (a bellwether mining stock spanning gold, copper & molybdenum)

Steel stocks are down (a "tell" for General Moly):

Nucor (NUE) $46.40 down 1.23% - domestic steel manufacturing
ArcelorMittal (MT) $35.95 up 7.26 down 0.44% - global steel producer
POSCO (PKX) $85.11 down 2.82%- South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio is up 0.09% to $1,102,880.5 for a daily gain of $946.76.

Cheers,

Colonel Possum

1960 Chevrolet Impala photo by Taringa

The Future of Water in Eureka?

Morning Miners!

*** 7:07 AM UPDATE ***
GENERAL MOLY JUMPS OVER 20% TO $2.63

It is 5:34 AM and a bit gray outside. The ole Colonel has waited until the first of June to say this: May was a weird month. Now, I’m not complaining that there wasn’t snow to shovel from a freak but not infrequent Memorial Day snow storm. My sweetheart of 31 years has a birthday on the 9th of May and I can remember barbecuing a rack of ribs in the snow a few years back for her birthday party. The sun room project last May brought on every element of weather in Mother Nature’s bag of tricks after the roof was off; high wind, rain, sleet and yes, snow. More than one Eureka old timer has commented to me that this has been a May like no other in recent memory. There has been the occasional afternoon thunderstorm but it seems trustees have used more water washing county vehicles than rain has wet our sage.

“Wait a darn minute!” some of you are no doubt saying, “The sage is green, there was a ton of snow in April and it rained like the dickens last night!” You're right and that makes my first point: local weather and climate are like markets, fickle and unpredictable. There does, however, seem to be something changing in our global climate as average temperatures creep steadily upwards in recent years. Without entering the debate of man-made versus natural cycle, there is little argument that global warming threatens future water supply in nearly every region of our globe.

Water is central to economic activity in Eureka. For miners it is always in the way of the next strike; for farmers and ranchers, there never seems to be enough. The Eureka folks that work on the ground (or below it) know these issues first hand whether it be a lower water table at Devil's Gate or the dewatering plan for Mt. Hope. The mission of this Report is to take a higher altitude view and peek at what might be coming at us in the future. One way to do this is to look at other commodity-sensitive economies that are dealing with extreme water issues today. Australia is a good example as they struggle with the worst drought in over a century. This week, we will look at some of the water shortage impacts in South Australia.

Before closing, please notice that I have expanded "Local Weather" (to your right) to include links to the Western Regional Climate Center and their Nevada Drought Monitor. From now on we'll call this section "Local Weather & Climate".

Enough talk, let's walk the walk:

Oil is up $1.11 to $67.42 (July contract); Gold is down slightly $0.5 to $979.8 (August contract); Silver up $0.155 at $15.765 (July contract); Copper is up 0.0680 to $2.2655(July contract); Molybdenum holds at $10.25.

*** BREAKING NEWS ***
General Motors and Citigroup will be removed from the DOW Industrials effective June 8. GM filed for Chapter 11 bankruptcy at 8:00 AM (ET) this morning.

The DOW is up 156.99 points to 8657.32; the S&P 500, up 18.30 points to 937.44. The miners are kicking butt:

Barrick (ABX) $38.43 up 0.92%
Newmont (NEM) $49.43 up 1.15%
General Moly (Eureka Moly, LLC) (GMO) $2.55 up 19.72%
Freeport McMoran (FCX) $57.41 up 5.47% (a bellwether mining stock spanning gold, copper & molybdenum)

Steel stocks are doing cartwheels (a "tell" for General Moly):

Nucor (NUE) $45.44 up 3.48% - domestic steel manufacturing
ArcelorMittal (MT) $35.59 up 7.26% - global steel producer
POSCO (PKX) $86.30 up 2.87%- South Korean integrated steel producer

The Eureka Miner's Grubstake Portfolio rips, up 4.55% to $1,096,278.05 for a daily gain of $47,709,09!

Cheers,

Colonel Possum