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March 1, 2009 Dear Friend, We visited specialty metals producer Carpenter Technology on February 26th, finding most of its facilities idle. It characterized aerospace fasteners and medical markets as its only stable end markets, and illustrates the broad capital goods erosion as the U.S. steel industry runs at 41.8% of capacity. Japan's 12% GDP decline led with export declines created a more than 4% dollar appreciation against the yen, much to the dismay of gold investors. Silver and palladium fell 10%, gold 6% and platinum 1%. It is ironic that the collapse in world trade, much of which did not help the U.S., sideswiped the gold market so badly as the dollar appreciates as autarky (absence of trade) unfolds. America's open markets and historic free trade preferences may not have helped us. Copper inventories fell for the first time in 14 weeks, though not too much. Many industry commentators cite Chinese, Korean or other Asian stockpile buildups. Clearly global demand is down 10% or more, but we wonder if scrap or mine supplies have fallen more than expected. We maintained our $60 per ADS price objective and reiterated our Overweight rating on BHP Billiton, whose costs fell nicely in the second-half with the weaker A$ and lower energy. It benefits from the firmness in Chinese steel output in its iron ore unit in particular and, while earnings will fall and aluminum, nickel and perhaps even copper operations may lose money, its earnings appear better and balance sheet more formidable than most. It may have opportunities to make reasonable acquistions from other companies in distress. We added Allied Nevada Gold, a Minnesota geology overview and invited UTS Energy (assuming its shareholders reject Total S.A. on March 30) to our March 31, 2009 metals conference roster. "Outmigration" is evident in various Latino enclaves here in New Jersey. Guatemala, El Salvador, Ecuador and other consulates literally buy the plane tickets home for their nationals unable to find work. Day laborers no longer congregate in large numbers at the usual places as few jobs are offered, and housing was a particularly large user of such workers. Times are hard, official unemployment data understated and "population growth" may not benefit housing demand, autos, appliances or consumer nondurables. It is possible that half of the illegal or undocumented population representing a few percent of our population goes home. Faithfully, John C. Tumazos |
Copyright © 2008 John Tumazos Very Independent Research,
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