Sunday, October 31, 2010

Bubbleium - A New Rare Earth

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 prodution as raw materials for domestic manufacturing.
  • The military see no shortages in rare earth's. 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.

Saturday, October 30, 2010

Gas up with Natgas MLP's

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 ititial 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 and therefore achieve alpha to the market with low volatility.

Friday, October 29, 2010

Update on Silver

My view is silver has already corrected and is ready to complete its measured move from the completed weekly ascending triangle that formed over two years.  But risk management compels me to have my escape plans is place.  The chart below identifies those. 

AEM Reaching All Time Highs

AEM has just reported record earnings, production, and cashflows.  An additional benefit is the currency tailwinds being a Canadian company. AEM is also a low cost producer, which is now optimizing new mines going into production.

My expectation for AEM is to consolidate around these all time highs, and then once it breaks out, a measured move to the $120-$140 area.  AEM is my largest Gold miner position.

Thursday, October 28, 2010

Keep an eye on THM

I like U.S. based gold producers; no currency risks, no political risk (yes, I am being serious) and the U.S. mint must buy U.S. production.  THM is one of those exploration companies that is trying to grow up as a junior miner.  I am a buyer at $7.60.

You may want Santa to put coal in your stockings for Christmas

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.

Wednesday, October 27, 2010

Uranium stocks will go nuclear

For the past two years Uranium prices have been falling, that has been arrested and prices are rising smartly.

Why the sudden and sustained rise?  Obviously part of this is the weakness in the dollar, but that is hiding a larger strategic shift, a shift that has a multi year run in front of it. 

Please read this excerpt from UXC consultants.

"For a long time, the uranium market was dominated by the liquidation of inventories, both commercial and military in origin. As a result, price was depressed and production and exploration efforts were cut back. Over the same period that production was stagnant, reactor requirements were increasing as utilities were able to increase their capacity factors and uprate their reactors. More recently, new demand is emerging from China, India, and Russia, as these countries seek to dramatically increase their nuclear power capabilities.
As a result of these changes, the excesses of the past market have disappeared. As demand increased and supply disruptions appeared, inventories were consumed at a faster rate. Higher prices and higher demand have changed market attitudes from complacency about future supply to concern. In addition to this transition from an inventory-driven market to a production-driven one, the U.S. dollar has depreciated against producer currencies, meaning the price has to push even higher to find an equilibrium level.
The market that we now find ourselves in is like no other in the history of uranium. Production is far below requirements, which are growing. HEU supplies and the enrichment of tails material make up a large portion of supply, but the fate of these supply sources is uncertain. Supply has become more concentrated, making the market more vulnerable to disruptions if there are any problems with a particular supply source. Another source of market vulnerability is the relatively low level of inventory held by buyers and sellers alike."

There is an incredible demand/supply imbalance forming.

Where is all of the demand coming from?

China alone will build 40 MW's of Nuclear generation by 2020.

One thing we know about nuclear power plants is they are long lived assets, and once up and running, are the most cost effective electricity option.  So bottomline, Uranium will need to be purchased regardless of economic cycle.

In my view this is an actionable megatrend, that I intend to ride for the next  four years.  I already posted some trades I expect to make with current positions, but will increase my weightings in new positions, such as URZ and CCJ.

URZ will be a straight purchase of shares, but I am going to play CCJ with options.  I am going to buy the March '12 45's and pay for them with bull put spreads every month the risk reward warrants it.  This is a cheap lotto play, IMO

Let me knw your thoughts on this view.  Thanks Bob

Silver is not tarnished yet.

We are watching the dollar rally and gold getting smacked down today. It is also threatening to fail a swing low.  however silver is making a series of higher highs and higher lows from a test of ts 23.6% fib line.

Silver is still my play for the next down move in the dollar.  I am holding AGQ calls and EXK positions, unhedged.

Tuesday, October 26, 2010

Hi ho silver, away?

As I mentioned before, silver is my commodity of choice for the next move higher.  As you can see from these two charts, silver is showing great resilence. 

Looking at SIL, it completed an island bottom reversal and filled the gap. 

AGQ, is consolidating around a high volume area, and held its 20 EMA.  I reentered AGQ yesterday with an initial position with November 104's.  I will buy December 100's once the volume area is cleared, and the EMA 3 crosses above the 6.

Finally when the dollar fails below 76.13, I will place my final trades, buying SIL and PAAS.

I will update as I make my trades.

Monday, October 25, 2010

Selling put spreads on SLW

Three bullish critieria hit today on SLW.  Swing low is in on SLV, rising relative strength, and my 3/6 EMA has crossed positively.

A low risk trade is for me to sell the November 25 puts and buy the 20's.  For plus $.45 (credit) I am out of the trade if the gap fills and does not bounce off of it.

Sunday, October 24, 2010

A couple of steel stocks look interesting.

A couple of steel stocks caught my attention this weekend.  SID had a nice hammer on the lower band of the rising trendline with rising RSI. 

POSCO also is firming up along a similar trendline.  My final confirmation for either of these is a cross of 3/6 EMA.

TT channels look large enough for a decent run.  Our stop area seems well defined along thalower trendline.

Saturday, October 23, 2010

Hammer time on gold and silver

Both gold and silver formed hammers on Friday. These hammers formed right a fib support lines and in the case of GLD, there isaddtional support of a rising trendline connecting the prior high peaks before the breakout.

I personally was expecting a pullback to the 38.2 area and was hedged completely until I saw the strength coming back in on Friday.  I am now only lightly hedged.  I am watching the EMA 3/6 for a bullish crossover to give me more comfort.

I am already in all of my gold positions, but will lift my remaining hedges on that cross.  Silver is where I will get more aggressive.  PAAS showed nice strength on Friday, and I will buy this stock and AGQ, when AGQ hits my buy target in the 95-96 area.

A break of this support area will force me to rehedge and wait again for a buy signal.  I don't think we will need to wait long though, the market will render its verdict on the G-20 meeting next week.

Uranium stocks are over heating?

The uranium stocks have just completed a spectacular run, and it sure looks like they are going to retrace some of their gains.  URRE is sporting a bear flag and declining RSI.  I am expecting this flag to break and look for a retrace to the 38.2 line.  I own this stock and would add to at that price.  A break of the 50 line would cause me to rethink my position.  If I am wrong, I suggest adding onto when the high is taken out. 

DNN looks like the strong stock in the sector, and I would make additional purchases above $2.25.  I own this one, as well, and it is showing no signs of any weakness. 

UEC gapped down this week but held its 38.2 line.  A break here can take it down to the 61.8  line and the intersection of the rising trendline., and CCJ is consolidating.

Friday, October 22, 2010

AGQ will be my levered silver vehicle for the next run higher.  I will scale back in above this price (red line). $95.50-60 area.

I like that it held the 20EMA, but will wait for that price level.  I also like to use the EMA 3/6 crossover as an additional signal.

My target for SLV is $30 which puts AGQ into the 150 area.

Hedging oil by going long refiners?

I am always looking for ways to hedge oil prices.  Typically I buy SCO, DUG, and/or ERY.  But I am I am intrigued with Calumet. It pays out $1.84/unit on an annualized basis, or approx. 8.7% dividend yield.

It tends to strengthen as USO stalls and falls.  My view is oil will not run up as I expect the metals and miners will.

I will make my first buy where indicated on the chart.

Iamgold firming up?

I like the second test of the gap on IAG.  I already own it, but the upper trendline, would be my stop if I was trading it.  For me, I will sell calls on it, on that break.

Watching GOLD for an entry

Randgold Resources has been hit pretty hard on the gold/miner retracement.  At the time of this post it has held the 61.8% trendline.  I am going to scale in at this level (if it holds today) with December calls, the 105's.  I will pay for them with the November 85/90 put spread.

My trade is in, Calls at $1.30 debit and sold Puts at $1.00. Net $.30 debit.  I am out if it breaks the upper rising trendline.

Thursday, October 21, 2010

Follow the yellow brick road

Just as Dorothy and her companions started their journey to find OZ, I am starting this blog to educate everyone on the value of owning hard assets.  A seismic shift is coming to our world, it is the end of fiat money and the supremecy of financial assets.  Fiat money is based solely on the Governements desire and ability honor its debts. However over the past one hundred years the value of our currency has eroded over 97%, I hardly call this honorable.  But now we are at a stage where the financial alchemy is starting to have some deleterious effects on our economy and our standard of living.  Those entities that have invested in the financial asset method of running our economy have run the debt up so high, they are left with one choice, monetize. Owning hard assets give you a fighting chance to reserve and grow your wealth.

My focus for this blog will be first to educate on what I consider hard assets and as one of my passions is the stock market and trading/investing, I will introduce you to companies and stocks I follow and the trades I am making. 

As you can imagine I think gold is the king and is the once and future money, however there are many categories of assets I will pontificate on.  These include;
  • Silver
  • Platinum and Palladium
  • The rare earth metals
  • Uranium
  • Grain markets
  • Oil and gas
  • water
I have investments in all of these categories of real assets, and in my view, the run in these assets have just begun.  All of these assets offer their own unique advantages and have cycles that do not necessarily overlap or are affected by the same correlations to currency and/or economic growth.

Please join me on this quest and let's pull away that curtain.