Thursday, March 3, 2011

It's Too Late Congressman......

Rep. Mike Coffman Demands Action on China’s Illegal Trade Practices

The State Column | The State Column | Friday, March 04, 2011

Rep. Mike Coffman released the following statement:

U.S. Rep. Mike Coffman (R-CO) sent a letter to U.S. Trade Representative Ron Kirk this week demanding he file a complaint with the World Trade Organization against China’s unfair trade policy that limits exports of rare earth elements.  Twenty-eight Republicans and Democrats in the U.S. House of Representatives joined him in signing his letter.
“Rare earths are the key to technological innovation and the growth of green energy jobs.  They are also critical to U.S. national security.  Currently, the world is nearly 100 percent reliant on Chinese exports for these vital materials.  However, China has been reducing its export quotas every year since 2006, and has announced a further 11 percent reduction for 2011,” Coffman wrote in his letter.
Coffman drafted his letter after learning about a recent confidential WTO report which concludes that it is illegal for China to impose trade restrictions on various raw materials.  The WTO ruling was a response to a complaint filed in 2009 by the U.S., Mexico, and the European Union against China’s export restrictions on raw materials vital for making steel and aluminum. In his letter, Coffman argues that the conclusion of the 2009 complaint suggests the WTO would take the same action against China regarding its trade policy on the 17 metals and oxides known as rare earth elements.
“A disruption in supply of rare earths could jeopardize national security, hinder our long-term efforts to achieve domestic energy security, and damage our world-leading high tech industries.  While our nation must act to correct our domestic rare earth supply chain problem, we must also recognize that the lack of a level playing field for trade policy is harmful,” stated Coffman in his letter.

Link to article.....

Land Of The Free.........Food

I was at the grocery store the other day and it took forever to check out because a girl in front of me was using her shiny new EBT (Electronic Benefit Transfer) card to access her SNAP (Supplemental Nutrition Assistance Program) benefits and was experiencing understandable difficulty.  The program helps people in "need" of assistance.  She had to go back into the isles and exchange several items as the ones she picked did not qualify.  All in, I would say she bought a few hundred fiat dollars worth of stuff that she probably will not use.  Then another delay, she had to do a separate transaction for cigarettes, gum, a candy bar and a People magazine.

44,082,324 people are now receiving food assistance.  I would say based on what I have witnessed going on in my rental houses the following can be taken as fact:

  • 25% Are dead or the benefit doesn't make it to named recipient
  • 50% Trade the card for 50% of the face value in cash
  • 20% End up wasting the food (Every time I have a move out they leave tons of food behind)
  • 5% Actually feed their needy family
If the US Treasury Department put this information in their offering memorandums do you think it would effect their ability to finance this behavior by selling 30yr debt at 4.75%?

Are we going to be OK?

This morning I had the following exchange with a successful medical professional:

"Are we going to be ok?"
"What do you mean"
"You know, with the dollar and everything, is it going to be ok?"
"Well, if you hold all dollars I would have to be honest with you that you are probably not going to be ok."

There was a look of confusion and then a subject change.  People just don't understand what is going on in the world.  People in bubbles can't see the bubble, that is a fact.

In 2006 I was invited to dinner at a friend's house in Valrico, FL a suburb of Tampa that is stuffed with tract houses.  They had a bidding war to get their 2,200 ft slice of heaven for around $260,000.  At the time they were just glad to have finally not been outbid on a place.  I remember the neighbors across the street were showering the custom wheels of 2 new Nissans in their driveway with ArmorAll and for some reason that left an impression on me.  In 2007 I was back and the neighborhood news was that the Nissan owners had received a foreclosure notice and had to move quickly.  My friend told me that they had after-market leather seats put in the Nissans, new wheels, tvs etc... and when they moved they took those along with the fans, wiring and fixtures of the house.  The final straw was they emptied the food from the fridge on the floor so it would rot.  As a long time student of human behavior this does not surprise me at all.  What happens is they have credit extended that allows them to live a lifestyle that they can not afford.  More importantly they use the credit as income stretching to 100% of their purchasing power and any slight disruption in cash flow spells disaster for the lenders.  There is nothing inherently wrong with this but when you "mis-price" risk you eventually suffer the consequences.

People still don't 100% understand how this works but they are slowly getting it.  What they don't get is that the US Government is behaving exactly like the family from the example above.  The country is living on HELOC loans backed by inflated assets and using the proceeds to get after-market leather seats put into their leveraged Nissan 300z.  The longer the credit is available the more this behavior permeates every part of life.  The country is on a 3day mediocre Carnival cruise to Nassau eating 6 meals a day.  This will end.

It will not be pretty when it ends and the foreclosure notice arrives in the nation's mailbox.  The equivalent to the first "missed payment" or initial shock wave is going to be loss of reserve currency status.  This is a problem.  People will not understand though.  They will respond with "patriotism" and convince themselves that they are still the best.  Patriotism is an emotional concept and blinds you by reducing your ability to objectively study your surroundings and make good decisions.  The economics are not in your favor if you are a worker and even worse if you are a saver.  This notion that there is something wonderful about a nationality needs to go because NO ONE is immune from economic law and while this might upset you today you will see one day that you can not avoid the consequences of your behavior you can only prolong their eventual outcome and make them worse.  

To protect yourself from the effects of this behavior you might want to consider exchanging some of your American currency for an alternative.  If you would like to study currencies and make valuation decisions go ahead.  For me, most developed nations seem to be packing their balance sheets to the rim with debt so I look for another option.  Gold is money, there is no room for debate on this issue.  It always has been and always will be money.  It, along with silver, is the only thing that takes tremendous effort to procure and can not be duplicated.  That is why government officials who survive off of their ability to issue debt that they do not have to pay back hate gold.

Wednesday, March 2, 2011

US Mint Suspends 1oz Silver Eagle Production

The US Mint is required by law to produce a sufficient quantity of silver and gold coins to meet public demand.  The following is pasted from their website:

American Eagle Silver Uncirculated Coin
Production of United States Mint American Eagle Silver Uncirculated Coins continues to be temporarily suspended because of unprecedented demand for American Eagle Silver Bullion Coins. Until recently, all available silver bullion blanks were being allocated to the American Eagle Silver Bullion Coin Program, as the United States Mint is required by Public Law 99-61 to produce these coins “in quantities sufficient to meet public demand . . . .”
Although the demand for precious metal coins remains high, the increase in supply of planchets—coupled with a lower demand for bullion orders in August and September—allowed the United States Mint to meet public demand and shift some capacity to produce numismatic versions of the American Eagle One Ounce Silver Proof Coin.
However, because of the continued demand for American Eagle Silver Bullion Coins, 2010-dated American Eagle Silver Uncirculated Coins will not be produced.
The United States Mint will resume production of American Eagle Silver Uncirculated Coins once sufficient inventories of silver bullion blanks can be acquired to meet market demand for all three American Eagle Silver Coin products.

I can imagine how a quick glance at the price chart on silver would cause a novice investor to feel that silver is "overpriced."  If possible, try to remind yourself that you want to own things that have a price chart with a line going from the bottom left to the top right, and remember that the trend is your friend.

There is nowhere near the quantity of silver available in the market needed to meet current demand.  $35/oz will look cheap when the average market participant finally stops hitting the snooze button and realizes this.

Also as a follow-up to my piece yesterday, one of the "blue chip" silver producers released earnings far exceeding analysts expectations, increased planned production and announced decreased per/oz operating costs and the stock is only up marginally.  Considering we are at another 30yr record high price today I have to assume that the herd is still staring at their Netflix and Apple stock down on the week thinking, "I'll hold on to this so I don't have to take a loss."

Maybe $40/oz will do the trick.  I think we will soon see what the number needs to be to cause some sellers to show up in the market.

Tuesday, March 1, 2011


I have received some emails that are causing me to think I might not have properly explained the silver market for new readers.

Gold is a monetary instrument that effectively stores value.  In times like this you would purchase physical gold in order to preserve purchasing power.  Central bankers kept in power by politicians desperate to keep their power have only one enemy and that is a sound currency or unit of account.  If you must purchase a gold ETF please consider CEF or PHYS as alternatives to GLD as they hold proven allocated metal and I believe very strongly that there could be problems with the authenticity of GLD's holding,  When a more certain alternative exists you should consider it strongly.

There is 17 times as much silver in the earths crust as gold.  Silver has industrial uses but is also a monetary asset.  The silver gold ratio based on price is over 41 today, as compared with 17 in the earth.
The COMEX, a division of the NYMEX, is the primary physical commodity exchange.  Major banking institutions have been allowed to manipulate prices on this exchange by selling short using contracts that are not backed with physical silver.  This is called "Naked Short Selling" and they can do it but if you do it you will be in trouble with the government who's job is to protect them by keeping you out of their way.
These banks have now been backed into a corner in this trade and there is report of the COMEX being liable for delivery of 7 times the silver that they posses, causing the banks to offer 25% premiums for cash settlement of liabilities.  This is only the tip of the iceberg.  You don't need to spend a lot of time "solving" this problem in your head just make the obvious trade.

Here is how to view the silver trade.  Physical silver is great.  It is hard to store but get over it.  Buy some 1,000oz blocks and make an ottoman out of them or something just do whatever you want but get some.  It is in such short supply right now that you might have to wait up to 6wks for delivery.  So, am I making my point yet about where the price is silver is headed?  Also, if you have not realized that the large banks who are short might be managing one of the "physical" silver funds that your inept broker is trying to sell you then maybe you should do some more reading before making the purchase.  If you must purchase a physical silver EFT please consider PSLV as a fully allocated alternative to funds that are managed by the shorts.  Your broker will likely not be familiar with this fund.  Consider asking said broker to read about the fund before making a final decision.  

Silver miners often the most aggressive way to play rising silver prices.  Here is a simple example of how you can drink upstream from the herd in this trade.  Look at a miner's cost of extraction per ounce.  Lets say ABC Co, is pulling silver from their Mexican mine at $9/oz with no debt and the stock has not moved with the price of silver.  You want to get in front of this trade because they are selling that same ounce onto the market at todays price.  I am simplifying this as there can be issues with the company selling their future production at a fixed rate causing them to miss part of the price rise.  There also can be debt considerations, management problems and shareholder dilution just to name a few of the issues that come up in the mining business.

There is an easy way to mitigate these issues.  Pick a couple of blue chips as a base then take the rest of your capital allocated to silver miners and spread it equally over a basket of smaller companies once you have done sufficient homework.  These smaller companies are where your gains come from.  For example, I bought a South American silver miner that had no debt and an $8/oz extraction cost last November just after Thanksgiving.  I bought these shares on the pink sheets because I did not have access to the Canadian exchange.  They have since listed on the AMEX and the shares have risen from $2.07 to $4.65 today.  I am still bullish on the shares because every ounce of silver they produce is more valuable every day in dollar terms.  I can only equate it to running a factory selling 1,000 widgets a day and you are in a period where there is an extreme shortage of widgets and the price continues to rise.  Mining costs are typically 25% energy related so that cost component is rising but not in proportion to the value of what is in the ground.  Your small miners that are well picked will benefit from large producers desperate to fill their pipelines.  In a takeover frenzy you want to be the hunted not the hunter.

Best of luck and don't over think this obvious trade.

Sprott Double Barrel Silver Issue

Sunday, February 27, 2011

Rare Earth Elements Update

As previously discussed on this site, Rare Earth Elements are still the most misunderstood sector in the market today.  We have also discussed that they remain trapped in Phase 3 of their Super Major Bull market run.  If you reference these posts you will be reminded of the quota cuts implemented by China, the gatekeeper to the worlds available rare earth supply.  The cuts are starting to hurt.
The chart below is a mix of elements that are being produced at one major Rare Earth mining operation.  Every deposit is different so this is not a specific template for all rare earth projects.  I watch this price mix every week and the rise has been staggering.  They just updated the pricing as it is already Monday down under.  The price of their mix has increased 27% in a week!

Rare Earth OxideDistribution200720082009Q3 2010
 Q4 2010
Lanthanum Oxide25.50%3.448.714.8823.6752.4992.10
Cerium Oxide46.74%3.044.563.8823.0552.6295.10
Neodymium Oxide18.50%30.2431.9019.1255.8181.38156.00
Praseodymium Oxide5.32%29.0529.4818.0354.3778.62140.50
Samarium Oxide2.27%3.605.203.4014.4036.5895.10
Dysprosium Oxide0.124%89.10118.49115.67281.54287.85460.00
Europium Oxide0.443%323.90481.92492.92585.31611.54800.00
Terbium Oxide0.068%590.40720.77361.67593.38620.38 800.00
Av.  Composition11.5914.8710.3216.0262.18112.26

This weekend I was reading an article on the new F35 Joint Strike fighter.  The US regime has gift wrapped press releases about this "amazing" plane.  Would you be surprised to know that the F22 Raptor is the preferred plane by insiders but not available in the desired quantity due to the amount of Rare Earth Elements necessary to produce the plane?
So, as we approach Phase 4, the market capitalization of viable rare earth mines will explode.  I believe that sovereign entities will desperately attempt to secure these vital elements.

Where Are We?

When I was 22 I went to Montana and completed a training course in order to become a certified elk hunting guide.  When you hunt elk in northwestern Montana it can be a multi-day process.  Usually mules are used to travel into the mountains and then the foot work begins.  You will at times sit on a ridge and scan another mountain with high powered binoculars.  Once a herd is spotted you will go on foot down one mountain and up the other trying to cut off the herd.  This can be an all day process.  A large part of the training involved keeping your bearings during this foot journey.  The path looks entirely different at the top of the mountain because once you have descended into the forest every tree looks the same.
The best way to orient your mind is to remember that every pair of mountains has a small stream that marks the low point, that stream flows down as well so if you can use that as your basic map you can usually survive.

Today there is a serious danger of getting caught in the trees as an investor.  Let's take a look at the silver market in the is context.  I watch the front month silver contract all day and am currently fascinated by this market yet it remains bearish or neutral in the public mind.  One of the factors that has me spellbound is that many of my friends are now patiently waiting 4-6 weeks form delivery of physical silver.  Also, the silver market is deep into a state of backwardation.  I am also catching wind of refiners having tremendous trouble getting their hands on silver.  Let's look at the weekly action in this market. Week ending close as per

  • 2/4/11 $29.14 up 4.03%
  • 2/11/11 $29.91 up 2.64%
  • 2/18/11 $32.66 up 9.19%
  • 2/25/11 $33.38 up 2.20%
The metal itself is up 19.17% over this time time period.  There is a massive shortage of silver and whoever is short is facing a huge problem.  I believe simple economics is working in favor of the longs.  It is important to control some physical silver and seek an alternative to the JPM managed etf considering JPM is the largest short in the market having inherited the Bear Sterns hedge book.  
Also, I will not go into detail but silver miners have possibly the best series of economic factors one could possibly imagine working in their favor and the stocks continue to not recognize this.  It is important to pick your miners and take positions BEFORE the market wakes up.  Please see my post on phases of markets to explain why.

Oil markets are also fascinating.  I posted a piece on oil prices rising on 2-20-11 on our previous blog.  Since that time prices have risen nearly 20%.  If you insist on reading the Wall Street Journal to stay informed you will be reading a history book.  The world uses approximately 83,000,000 barrels of oil a day.  That figure will drop some but not enough to offset the effects of rising prices.  The propped up dictatorial regimes supported by their merchant banking friends are losing power by the day.  As your local Starbucks Barista celebrates while asking for a 30% tip for making you a cup of coffee you may want to tell him he better be glad he rides a bike to work.  These rebel regimes that he cheers for will be very difficult to negotiate contracts with and they also tend to be terribly inefficient.  Also, any surviving regimes must demand higher prices in order to suppress uprisings.  What can I say about this market?  It blows my mind how misinformed the average petroleum consumer is and then I remind myself of the difference between education and experience.  The former comes from reading instruction manuals and the latter from not reading them and learning from the experience.  The American society is about to receive an expensive dose of the latter.  Let's hope they can survive.

As I look for the economic signposts and make decisions I try to go with the easy and obvious trades so that I can stay employed.  I was reminded by a good friend that if you lose all of your capital you are no longer a capitalist.  When I look at the economics behind the silver market, the oil space, the infancy of the uranium boom, the gold miners, the massively overbought debt markets and the ongoing currency war I see many opportunities to profit.

Try to focus on the view from the top of the mountain and when you must venture into the trees try not to lose site of the map you saw at the top.

The Era of No Jobs...

As previously stated, I have a strong aversion to discussing political topics.  The main reason is that these engagements use a large amount of energy and produce no measurable result.  Instead I enjoy focusing on economics as I look for signposts that help me find direction.  The factors that are keeping unemployment high are more a result of simple economics than politics. is the premier accurate reporting service for Actual government statistics if the massaged federally released numbers are not working for you anymore.  They say that U-6 unemployment is over 22%. I was visiting a ranch yesterday here in Florida and noticed a strawberry field with two guys working in it.  There was a giant sign pictured below that was of interest to me.  Managing this field is less about getting the fruit picked and more about following all of the government rules.  I wonder how much of the $4.99 per package is related to this red tape?  Also, are we really benefiting from it?  I would take the $3.99 package that the farmer can profitably produce without worrying if a federal labor inspector is going to issue a citation for one piece of paper not being on this board.
As previously stated, I have a strong aversion to discussing political topics.  The main reason is that these engagements use a large amount of energy and produce no measurable result.  Instead I enjoy focusing on economics as I look for signposts that help me find direction.  The factors that are keeping unemployment high are more a result of simple economics than politics. is the premier accurate reporting service for Actual government statistics if the massaged federally released numbers are not working for you anymore.  They say that U-6 unemployment is over 22%.
I was visiting a ranch yesterday here in Florida and noticed a strawberry field with two guys working in it.  There was a giant sign pictured below that was of interest to me.  Managing this field is less about getting the fruit picked and more about following all of the government rules.  I wonder how much of the $4.99 per package is related to this red tape?  Also, are we really benefiting from it?  I would take the $3.99 package that the farmer can profitably produce without worrying if a federal labor inspector is going to issue a citation for one piece of paper not being on this board.

Example of a Society in Decline

originally posted 2-25-11

Diabetic's discrimination lawsuit against restaurant is hard to swallow

A Ca-Shi owner Jay Oh
Jay Oh, owner of A Ca-Shi restaurant in Studio City, says he would go broke if he allowed customers to skip the rice in his all-you-can-eat offer. (Lawrence K. Ho, Los Angeles Times / February 16, 2011)

A Studio City sushi restaurant is taken to court by an all-you-can-eat customer.

David Martin was in the mood for raw fish, and he liked the deal offered by a Studio City sushi restaurant: all you can eat for $28.
He took a seat at the counter and started ordering. But it turned out that Martin didn't really want sushi, which includes rice; he wanted all-you-can-eat sashimi, which is just fish. He began picking the seafood off the top and leaving the rice.
Restaurant owner Jay Oh told Martin that if he wanted the all-you-can-eat price, he'd have to eat the rice too and not just fill up on fish. Martin replied that he has diabetes and that he can't eat rice.
Oh said he offered to prepare sashimi for Martin. Two orders of sashimi cost $25, or $3 less than the all-you-can-eat sushi deal. But Oh said Martin declined the offer.
Martin left the restaurant after being charged a la carte prices for the sushi he'd already ordered plus $1 for a cup of green tea.
Two weeks later, Martin filed suit in Los Angeles County Superior Court. It seeks at least $4,000 in damages for the "humiliation, embarrassment and mental anguish" Martin says he suffered after being discriminated against "on the basis of his disability."
Discrimination, or shakedown?
Oh says it's the latter, and is determined to go to trial, even if the eventual legal cost tops the $6,000 Martin subsequently demanded to make his lawsuit go away.
"I have to fight this," Oh told me over green tea at A Ca-Shi Sushi before the dinner rush. "Why do I have to give this person money? I didn't do anything wrong."
Martin couldn't be reached for comment. But his attorney, Stuart E. Cohen, said that "we are not after money, but a change in A Ca-Shi's thinking and policy."
"I would rather like to see A Ca-Shi succeed on a level playing field, not a discriminatory one," he said.
I should note here that I have Type 1 diabetes and I can sympathize with the frustration Martin feels in not being able to eat anything he'd like. This is a difficult disease to manage, requiring willpower and discipline.
That said, I'm with Oh on this one.
If it's Oh's policy that you eat everything you're served if you want the all-you-can-eat price, then that's the policy. If you don't like it, don't go there again. Or pay the a la carte price and eat whatever you want. Or order the sashimi for goodness' sake and don't make such a fuss.
"The rice is part of the all-you-can-eat sushi," Oh said. "If you only eat the fish, I would go broke."
Martin says in his lawsuit that he has Type 2 diabetes, which means his body still produces insulin but doesn't process it well. A Type 1 diabetic, by contrast, no longer produces insulin and must inject thehormone before every meal to keep blood sugar levels under control.
Many people with Type 2 diabetes, including Martin, take pills to treat their condition and often try to limit their intake of carbohydrates, such as carb-heavy rice.
Unlike him, I do have to inject insulin before I eat, but that doesn't stop me from enjoying sushi, pasta, pizza or other foods bulging with carbs. I just dose correctly for the meal. Rice will harm a diabetic only if the diabetic chooses to be harmed.
More to the point, I expect no special favors because of my illness. If a restaurant doesn't serve what I want — all-you-can-eat sashimi, say — I go somewhere else.
Yes, diabetes is officially classified as a disability. But it's not debilitating. I've met plenty of other people in wheelchairs or with seeing-eye dogs who cope with far greater challenges than I face. And I seldom hear them complaining about being discriminated against.
You play the hand you've been dealt.
Cohen, Martin's attorney, said his client "has frequented numerous sushi bars and not once has he ever been demanded to eat rice upon explaining that he is diabetic." So go back to those places.
The only thing Martin has proved with his lawsuit is that he has problems accepting other people's quite reasonable rules. The fact that he offered to drop his suit in return for a payout of $6,000 isn't exactly the hallmark of a civil rights champion.
The next hearing in the case is scheduled for Feb. 25. Oh's lawyer, Joyce J. Cho, said she's filed a motion for the lawsuit to be dismissed because it lacks legal merit, but she expects the case to eventually come to trial later this year.
Meanwhile, Martin's attorney said he intends "to reach out and work with the American Diabetes Assn. to create local directories of diabetic-friendly or not-friendly establishments."
Perhaps I can help. In my experience, there's no such thing as a diabetic-friendly or not-friendly business.
Just friendly and not-friendly diabetics.

Phases of a market move

originally posted 2-24-11

Most people say there are 3 phases in a market move: 
1.  Pioneering investors begin buying
2.  Steady accumulation by progressively savvy investors
3.  Parabolic mania phase
This might be true.  The longer I am in the business of risking capital the more I believe there are 5 phases in market moves.  What has led me to this is being forced to head into battle with virtually no outside direction.
So, through my experience I have come to believe that psychology is so present in markets and decisions that it could be 80% of what I do.  I am going to lay out what I believe are the 5 phases of a move and then apply them to one sector that I believe is currently well positioned in phase 3 of 5.
1.  Unawareness
2.  Awareness
3.  Denial
4.  Acceptance
There has been some press lately about Rare Earth Elements.  I must inform you that most of this press is dangerously untethered to the truth, or reality.  To make money you need to be in sync with reality.
Phase 1 was in place for maybe 10 years.  Unocal was in the news in the early 2000’s as China made a bid for it.  Luckily someone in the state department was awake and blocked the sale.  Unocal owned Mountain Pass which is now the primary asset of Molycorp NYSE:MCP, America’s only near term rare earth element project.  This qualifies as phase 1 because once I lay out the importance of REEs to the modern society you will see that people should have been protesting in the streets as China would have controlled 100% instead of 97% of world production!  (They control an estimated 35% of world supply)
Phase 2 arguably began in the summer of 2010 when China drastically cut export quotas on the elements.  Also, I thought we may have teetered back into Phase 1 when the fishing boat incident was reported as such when really Japanese mafia smuggling is one of the biggest threats to China’s 100% lock up of these elements.
Phase 3 is where we are today.  I have seen numerous stories about these elements not being rare, substitutes being available, recycling programs being designed, new products in development that do not require the elements.  ALL of these assertions are false and a cunning attempt to keep you from being properly positioned in this trend. 
Phase 4 will arrive at some point, I suspect sooner rather than later.  China has cut export quotas so furiously that I suspect the effect of this action will shove us forcefully into this phase.  Just to illustrate the importance of these elements, every military fighter, smart bomb, fuel cell, windmill turbine, iPhone and television needs these materials to exist.  It is possible to make them without rare earths but to do so would take away the ability to make them smaller and more efficient.  For example, rare earths make magnets that are many times stronger than traditional designs and heat resistant which allow the small fins in guided munitions to function.  This phase, acceptance of the reality, will cause the equity value of companies with viable projects to soar to currently unimaginable heights as governments will pay any price to secure these vital elements.
Phase 5 THE PLUNGE!  Time for you to sell!  When you are in a Shoney’s and you hear a guy next to you with a Bluetooth in his ear talking about a new rare earth company watch out.  If you can quickly determine that he was day trading in 1999, flipping condos in 2007, selling his scrap gold in 2010, and yield hunting using the Etrade municipal bond screener in 2011, immediately get in touch with your broker and sell every holding related to the sector and take a mental vacation.  You have just participated in one of the best bull market moves of your lifetime.
How do you pick a good stock?  Well, the world uses 100,000 tons a year of this material today and 97,000 of those tons are supplied by China and if you haven’t noticed we are at war with China.  They have slashed the quotas, some say down to 30,000 tons a year.  This is not a typical war but a very sophisticated power struggle between a debtor and a creditor.  The creditor wants to acquire as many hard assets as possible and challenge the debtor on many fronts.  The debtor is dreaming that he has the power that existed before he levered himself many times over in exchange for plastic toys and cheap television sets.  If you were the creditor and you controlled 97% of the current supply of a critical element, think of how you would behave.  Then you will have some clue as to what their next moves might be.
Now assume that the demand will increase at 10% per annum which is reasonable as new technologies are being created constantly that require these elements.  Then make a timeline of expected projects, their cost and estimated time to market.  Next pick the projects with the best deposits (i.e. there are 17 elements some more valuable than others see prices here and notice price trends!  Also, be aware that you are wading into the mining business so do your best to avoid guys standing over a hole with a laptop making press releases and doing share offerings.  Finally, understand that you will want to sell sometime in phase 5 because at some point in the future new supply will meet and exceed demand and valuations will collapse.   That is not an immediate concern though.
Good luck, you will need it! 

Prep for This Weekend's Cocktail Parties

originally posted 2-23-11

Maintaining an objective view on markets and a social life can be difficult.  If you like interacting with others you are forced to put yourself directly in the middle of a dust storm of mental clutter and useless thoughts driven by emotion.  This can be dangerous if you are in the business of risking capital.  I am going to attempt to cover a few topics that might come up this weekend at a party that you may reluctantly attend.  This way you can be tethered to reality and Monday you will not be tempted to go long NFLX on margin and buy a 1.5% apr CD at your local bank.
“I Sure Am Glad Libya Is Finally Getting A Chance At Democracy”
This is a good one, and it might come up.  You may be temped to respond with, “Yeah, I hate paying for gas with $100 and getting change back, it will be nice when gas is $5 so I don’t have to deal with loose bills anymore.”  This is not appropriate though, keep it to yourself.  There are better ways to respond.  Try this, “Do you think that Libya’s access to the Indian ocean will be helpful in opening the country to trade?”  See how many incorrect geographic statements you can get the other person to agree with before you give in to the urge to throw yourself from the second story window.
“It Is So Sad That They Are Screwing Those Teachers In Wisconsin”
This is coming up for sure.  Just agree with them.  There is no explaining that the government there is spending $615 more than they are taking in for every man woman and child in the state.  You read that correctly, that is just the DEFICIT, not the whole budget or the pension issues the state is facing.  You will want to make comments like, “Why don’t they just give all those teachers a new Cadilac while they are at it?” but don’t.  This will leave you branded as insensitive.  A better response would be, “I know, I heard that the governor has the money but would rather give it to his friends so they can remodel the Packers stadium.”  This is better because there is just no reasoning with these people.  Also, who keeps buying the states bonds?  I still can’t figure out how the states are financing this out of control behavior.
Anyway, here are some other stories that you surely missed if you were busy trading the parabolic rise in oil and silver this week (we alerted you to both well in advance of their liftoff).
  • Charlie Sheen has a new girlfriend 
  • Lohan to get jail time in plea deal 
  • Alyssa Milano expecting first child
  • The Bachelor is down to 3 women
This should get you through any extremely boring situations.  You can always install a link to The Kwan Box on your iphone for emergency relief. 

Gold Tooth Saves Life

originally posted 2-23-11

Gold tooth may have saved New Orleans shooting victim
Published: Tuesday, February 22, 2011, 7:24 PM     Updated: Tuesday, February 22, 2011, 10:42 PM
 By Danny Monteverde, The Times-Picayune 
Walter Davis may have been saved by the shiny, gold skin of his tooth.
waltdell_davis_crop.jpgWaltdell Davis  
Davis was shot this month during an argument with his younger brother about drugs, according to New Orleans police. The bullet that was meant for him, Davis told paramedics, ricocheted off a gold tooth and saved his life.
According to police, Waltdell Davis, 20, shot his brother with a .22-caliber Smith and Wesson revolver on the afternoon of Feb. 7. The argument began after Walter Davis smoked his brother’s marijuana, police told the Uptown Messenger, a neighborhood news website.
After the argument, Walter Davis, who is 22, went inside the family home in the 3300 block of Second Street in Central City to take a nap, according to police.
A short time later, Waltdell Davis woke his brother and they began to fight, according to the police report. Waltdell drew his revolver and fired at Walter, who was hit in his upper lip.
Paramedics took Walter Davis to Interim LSU Public Hospital where, doctors told police, the only thing found was a bullet fragment near Davis’ left nostril.
Attempts to contact Walter Davis were unsuccessful Tuesday evening.
As implausible as it might sound, dentists say the gold tooth could have helped Walter Davis survive.

Gold = Capital Preservation & Silver = Capital Creation

originally posted 2-22-11
Submitted by Jeff Clark of Casey Research
Why I’m Buying Silver at $30
The silver price has bounced 27% since January 28, a huge advance for a measly 16 trading days. It’s already soared past its 2010 high and was selling for less than $16 this time last year, a double in 12 months. So, is it pricy? Or should we ignore the run-up and keep buying?

I’ve read a few articles that say we should expect silver to drop to the $25 level, and one pinpointed $22. Others, of course, see bullish tea leaves for the near term and believe it’s headed higher. Of those that assert silver will decline, most believe it will be temporary, though one writer claims the bull market in precious metals is over (I think he’s a holdout from the gold-is-a-bubble camp).

These authors could be right about a near-term decline, but I’m less concerned with what the price does this month or even the next few months, and more focused on where it’s likely headed over the next few years. Caution: the chart ahead may cause excitement.

While there are lots of reasons to be bullish on silver, what everyone really wants to know is how high the price can go. Here’s one hint, based strictly on historical price performance.

Silver rose an incredible 3,646% from the November 1971 low of $1.32 to its January 21, 1980 high of $49.45 (London PM fix prices). Our current advance, through February 4, is 596%. At $30, silver would have to climb over five times to match the last great bull market. If it did, the price would hit $160.89 per ounce (from its bottom of $4.295 on March 30, 2001).

You’ll also notice silver has a record of outperforming gold in these two bull markets. In spite of the price dropping 26.9% in 2008 (while gold gained 5%), the metal has outrun its yellow cousin by 38.6% since their respective lows in 2001.

Gold advanced 2,333% in the 1970s; it’s currently up 430%. If it matched the last run, the price would hit $6,227.26 per ounce, a return of four-and-a-half times the gold you buy today.

From solely a historical price perspective, the chart certainly suggests we’ve got a long way to go with both metals. The question is if the fundamentals support such price advances (show me a healthy dollar and no threat of inflation, and we’ll talk), but my point for the moment is that there is an established precedence for the price of these metals to climb much higher. And just as important, to keep one’s eye on the big picture.

So, yes, I’m buying silver at $30, in part because I think the potential for enormous gains is high.

However, I’ll add that I’m not draining my cash account to do so. I think it’s important for the precious metals investor to always be in the game, but given silver’s volatility and the precarious nature of most markets right now, prudence suggests we keep some powder dry as well.

Let’s say one of the soothsayers noted above is correct and silver temporarily falls to $25. If you snag it at that level, your endgame return would be 543%, vs. the 436% gain from $30 (excluding premiums and storage costs). That’s more than another 100% gain on your original investment.

But how does one buy silver not knowing if the price will plummet or soar? For example, silver could take off from these levels, never to see $30 again, leaving those of you waiting for a sell-off out of the market. Or it could sink to $25, making investors who went all in now regret they didn’t wait for a better price. Or it could trade sideways until, say, next fall, leaving both parties uncertain and on the sidelines.

In my opinion, there’s a one-word answer to the question. It solves all dilemmas – it keeps you in the market, while simultaneously letting you buy at lower prices if that occurs. It lets you build your position bigger and bigger without the worry of whether you’re getting a good price.

That one-word verb is, accumulate. Or in the vernacular made popular in the ’80s by the financial planning community, dollar cost average. In other words, buy a little now, buy a little next month, etc., until you have a position sufficient in size to fight off inflation and any other economic woe we’re likely to encounter over the next few years.

So my advice is, buy, hold, repeat. Because if our silver market ends up looking anything like that left bar in the chart, you may regret not having bought at $30, too.