Tuesday, October 11, 2011

News vs Fact

Most people read a newspaper under the assumption that experts were consulted for its production. They believe that the journalist is rigorously focused on revealing the truth at any cost. Everyone remembers Woodward and Bernstein as they fought for justice uncovering the Watergate scandal.

Nothing could be further from reality.

The news business is complicated. The structure of many reporting organizations is built on the backs of A-student English majors constantly trying to please an editor bent on ensuring they don't take his job. This editor answers to an owner who wants to maintain good standing in his social circle. Many times an article impacts members of that circle or their business interests. As our good friend Bill says, "Follow the money in order to find the truth."

Let's focus for a minute on those A-student English majors. If you have not had the pleasure of speaking with one of these exceptional creatures be sure to do so before handing over $250 for another annual subscription. The overwhelming observation is that they often have no business or investing experience. The logical question is why would anyone chose the reporters' take on a subject over their own intuition in making an investment decision?

We have covered this subject ad nauseum on this site. The newspaper should be used for what it is. Try to read the paper like a wealthy industrialist. Scan headlines looking for insight into how the public is being swayed from one emotion to the next with no grasp on how to predict future events.

The trick to making money in an investment is first to accurately and objectively perceive reality. Next, you must study the incentives in place for society. Finally, capital must be placed in sectors that are dislocated due to peoples' inability to think.

Let's have a look at this cleverly titled piece on rare earth elements. Notice that the editor has requested your attention be directed to the red arrows depicting dramatic losses.

The situation appears to be gloomy for investors yet hopeful for consumers. There is only a slight concern noted in the final paragraph that we might not be able to produce military equipment but surely they will legislate a solution for that.

Consider again those red arrows at the top of the page. They were placed there to inspire a certain feeling in the reader. We felt that a 6 month price chart for each element would be a more accurate portrayal of the facts:

We have thus edited this headline to offer a more accurate portrayal of the current reality:

"After dramatic correction rare earth prices still shockingly high due to Chinese dominance"

Where will the free world find a solution to this problem? Over 95% of current rare earth demand is met from material produced in China. Even as Western producers scramble to achieve production the core problem persists. The current slowdown in China and the bear market in stocks has combined to create a stunning downdraft in the valuations of companies developing rare earth deposits. Even considering these circumstances, 3-4 hard rock mines will be required to meet demand.

The trick to making money in this sector is to see through the clutter and spin in search of facts. If your stock broker is unable to provide coherent direction for your capital with respect to this sector please contact ksircapital@gmail.com to purchase a copy of our comprehensive report. This actionable report highlights the realities of the market and suggests that capital be placed directly in front of this wave before it hits land.