Commodities – Page 107 – Slope of Hope with Tim Knight

Slope of Hope Blog Posts

Slope initially began as a blog, so this is where most of the website’s content resides. Here we have tens of thousands of posts dating back over a decade. These are listed in reverse chronological order. Click on any category icon below to see posts tagged with that particular subject, or click on a word in the category cloud on the right side of the screen for more specific choices.

Bubbleium – A New Rare Earth (by BKudla)

By Bkudla - 15 years ago (01, Nov 2010 9:46:48 AM)

Rare earth's are all the rage these days, thanks to China. Everywhere you read, you hear China is going to corner the market and bring Western Civilization to its knees. Although it is pretty shortsighted allowing China to control 97% of the production, all is not what it appears. First some facts:

The rare earth marketplace is $2 billion per year.

The anticipated growth rate for the rare earth markets is speculated to be 9% per year.
The United States requires approximately 5% of the metal produtcion as raw materials for domestic manufacturing.

The military see no shortages in rare earths. From Bloomberg last week. "The U.S. Defense Department has concluded that China’s monopoly on rare-earth materials, used in military hardware such as missile guidance and radar systems, poses no threat to national security, according to a person familiar with a year-long study by the Pentagon."
There are no export controls on the sale of value added products from China, made with these materials.
By 2012-13, The Lynas mine in Australia will be producing, and it is likely that MolyCorp will be, as well.
The Market capitalization of Molycorp (MCP) is $2.6 billion, and Rare element Resources (REE) is $266 million. Lynas Corp (LYC:AU) $2.4 billion.
The Market Cap of all Rare Earth companies are $10 billion.
Annualized stock price appreciation since mid August for REE and MCP is 1,200%
Molycorp needs to secure additional financing equal to its original investment of $250 million.

Based on the above facts, this is a bubble, market caps exceed the entire industry annual production by 5x. These mines will not have any pricing power once they are up and running. Remember, China can control the price of these metals downward, as well as upwards.

I sold my position in REE last week and have no intention of buying Molycorp, until they have completed their dilutive follow-on offerings and the insider lock up periods end. I will evaluate them, then.

This is a rollercoaster I do not wish to ride.

www.arum-geld-gold.blogspot.com

Bearish Setup Collapses (by Springheel Jack)

By springheel_jack - 15 years ago (01, Nov 2010 4:48:43 AM)

Well there was a very nice bearish setup building in the second half of last week, but it needed to break downwards on Friday really, and it didn't. Further damage has been done over the weekend and little or nothing remains of that setup this morning.On the ES 15min chart the H&S pattern obviously never completed, and I see a triangle that has broken up indicating to the recent high. I also have a possible rising channel that could take us well over 1200:

There is still major resistance at the level of the recent high, but the overall technical picture is so bullish that we may not see a retracement there. If breached there is an argument that the SPX IHS may play out to the 1244 target before we see that retracement. One of the key things that I've been watching that suggested that we would see a retracement earlier is USD, where we've seen a significant bounce off rising support. That too is in trouble, though we haven't seen a new low yet. Overnight however EURUSD has returned to touch the top of the current declining channel, and there is a very significant chance it may break. If it does then the USD bounce is most likely over:

GBPUSD is a lot less important than EURUSD in terms of USD direction but on GBPUSD we have seen a new rising channel form, and that has topped overnight at the most likely upper channel trendline. We may see a retracement on GBPUSD now, but a fresh rising channel has now been established, which is a serious concern for any USD bounce:

JPYUSD is already making fresh lows and seems is in a declining channel with Yen making fresh highs. Yen has been very strong in recent months and JPYUSD is now close to challenging the all time low set in 1995:

Copper has been divergently weak in recent days and has not yet recovered. I was very interested to see that last week's low was a bounce off the upper trendline of the rising wedge that broke up at the beginning of October:

Overall the immediate picture here looks weakly bullish to me and we no longer have a pattern setup to suggest that an interim top has already been made. If EURUSD breaks up from the declining channel the picture will look much more bullish and I'd then be expecting a break up with confidence through 1200 on SPX. For the equities short side it was also discouraging to see that silver futures made a new high over the weekend, breaking the recent downtrend and boosting the gold/silver ratio, which is also bullish.

Gas Up with MLP’s (by BKudla)

By Bkudla - 15 years ago (30, Oct 2010 11:03:36 AM)

By nature, I am a trend guy. I spent most of my corporate career looking at the future and divining trends. I invest/trade the same way. In the energy field, this country has only two good, domestic options in its energy future; natural gas and nuclear. Nuclear has reached recognition stage and is now catching a bid, and I wrote on its bright future in prior posts.

Natural gas is still trying to balance supply and demand, and prices continue to fall on average. I view this as a cyclical problem and have already positioned myself accordingly with SJT and LINE. Why? Contrary to popular media opinion, the Northern Hemisphere is in a cooling trend, this pressures stockpiles, Natural gas can be converted to Ag Chemicals which is going to start a major buying move as farmers have underapplied fertilizers to save money, now yields are suffering, a weak dollar will make oil less attractive against domestic Natural Gas, and the clean energy movement will force companies and utilities to move to natural gas.

Linn energy has already Tripled from my itial purchase price because they are astute hedgers and have more oil in their mix. San Juan Basin is an American pure play, mostly Natural gas producer and is slowly rising every month. A third player I am watching and now will start buying is PVX, Provident Energy out of Canada. They produce and ship liquid natural gas. I like the chart, and it is looking at breaking out again.

These MLP's pay between 6.5%-9.4% monthly distributed dividends, so I get paid on these while I await gas prices to catch a bid.

I buy a little each month (LINE have a full position) as the RSI7 comes off the bottom.

www.arum-geld-gold.blogspot.com

Rare Earth – A Long Term Investment

By Tim Knight - 15 years ago (29, Oct 2010 2:27:19 PM)

Rare earths are a group of at least 15 elements within the Lanthanide series (see Wikipedia for a good overview: http://en.wikipedia.org/wiki/Rare_earth_element). These elements are relatively abundant in the earth's soil but are found in higher concentrations in certain locations. For those of you who like chemistry – I’ve highlighted them in yellow:

Demand. The use of rare earth elements in modern technology has increased dramatically over the past years. Rare earth elements are now incorporated into environmentally-friendly technologies (e.g. compact fluorescent lighting, hybrid cars, etc.), new digital devices (iPods, iPads, disk drives, etc.) and various military/industrial applications.

Supply. China controls 95% of the global rare earths market, with 45% of the global supply coming from China’s Baiyun Obo mine in Inner Mongolia. In recent years, the Chinese government has shuttered a number of other rare earth mining operations and imposed a range of export restrictions on rare earths, with the aim of ensuring domestic supply is sufficient to meet expected domestic demand (or for monopolistic control- you decide).

Given the tightness of supply and the belief that new demand has recently strained that supply, there is growing concern that the world may soon face a shortage of the rare earths.

Bubble? The Investopedia article (linked below) notes that “although rare earth prices could stay high for a while (mines do not open overnight), new digging and new alternatives are likely to put an expiration date on this bull market.”

My current favorite stock on this space is Lynas Corporation www.lynascorp.com (see the ZH article, below)- I believe them to be significantly undervalued medium-to-long term. Lynas trades under the symbols (LYSCF) for the common, and (LYSDY) for the depository receipts.

July to October this year looks a little too exponential for my taste, so I’ll be waiting for a significant pullback.

In addition, I’m also watching a rare earth ETF that began trading today: (REMX) from http://www.vaneck.com/funds/REMX.aspx. I like the weighting:

I might go with my eggs in the same basket philosophy and consider REMX when that time comes.

Put Some Coal in Your Stocking (by BKudla)

By Bkudla - 15 years ago (28, Oct 2010 10:16:37 AM)

These coal stocks seem to be firming up nicely. A very cold winter is expected across the Northern Hemisphere this winter, and as the dollar continues to weaken, you may want to ask Santa for two lumps.