Tuesday, March 24, 2009

A Beatiful Science Dream Came True On The 20th Anniversary!

Two news items make the bullish case for precious metal palladium stronger.

First, a 20 years old beautiful science dream is finally confirmed this week. The breaking news quickly spreads through the global Medias. Read it here, here, here and here. On the 20th anniversary of the initial Fleischmann-Pons announcement of the original Cold Fusion, and on the same University of Utah campus, scientists from the US Navy SPAWAR lab presented their experimental work that convincingly proved that Cold Fusion is real, at the annual American Chemical Society meetings.

This news brings renewed hope that we may finally have a virtually inexhaustible new energy source to replace the world's depleting fossil fuels, cut carbon emission (Secretary Steve Chu are you listening?), and overcome the world's looming Peak Oil energy crisis.

I have previously discussed the connection between Cold Fusion and palladium. Cold fusion relies on palladium as the metal has a unique property: its extreme affinity to hydrogen and deuterium helps the deuterium nucleus to get closer and fuse into helium, releasing lots of energy. I have followed cold fusion developments, and tracked the research of Pamela Mosier-Boss and colleagues at SPAWAR. I also mentioned the Arata public demo, the first successful public demo, in a previous Seeking Alpha article. Read the heated debates in the comments.

For the first time, the SPAWAR discovery is accepted as real, as no one, not even the skeptics would question the credibility of the experiments any more. The remaining controversy is in the interpretation of the observations. To any one who knows physics, it's conclusive that nuclear reaction must have happened, as neutrons and gamma rays are detected.

No wonder the news quickly spread through the global Medias in less than 24 hours! I can not emphasize enough how important this break through means to humanity's energy future! I immediately called my Congress representatives but found out that they have already noticed the story, and have printed copies sitting right on their desks!

How many investors immediately realize the connection between palladium and cold fusion, and are quick to seize one of the best investment opportunities in a generation?

How many politicians realize the EXTREME DANGER if the cold fusion technology falls into the wrong hands? It can be developed into a new energy source, or a new thermal nuclear bomb! The research can be done with a couple million dollars, the materials are readily available: palladium and heavy water. Such a horrible weapon can be easily smuggled in undetected. There is no radiation. No suspicion could be raised as the heavy water is perfectly drinkable and the palladium is merely a precious metal! A terrorist could also pull a "Cold Fusion Bomb" hoax and the threat must be treated as credible, as we have no way of discrediting such a hoax if we do not grasp the Cold Fusion technology ourselves!

I urge people to contact elected politicians and urge for support of the Cold Fusion research, not only to secure our energy future, but also to prevent this potentially dangerous technology from falling into the wrong hands!

Now back to palladium. One Russian news story makes the metal extremely bullish, in the immediate future. The news suggests that Norilsk Nickel (NILSY.PK), the world's largest nickel and palladium mine, may run out of cash and could be on the brink of shut down. A Norilsk Nickel shut down will have a huge impact on the global supply of nickel, palladium and platinum, as they supply 20% of the world's nickel, 45% of palladium and 12% of platinum. Their shut down could immediately send prices of all three metals flying in the ensuring panic of shortage, particularly palladium.

The latest news that Russian Deputy Prime Minister Igor Sechin was inquiring about Norilsk's finances knocked the stock (NILSY.PK) down as much as 14%. Mr. Sechin demanded an explanation of the 86 billion rubles (US$2.6 billion) share buyback and other matters.

At the end of August, 08, Norilsk Nickel launched a controversial stock buyback program to buy back 7,947,000 shares at 6167 Roubles per share, or 49 billion Roubles (US$2B). The buyback proceeded even as some share holders fought against it in court, denouncing the program for depleting the company's cash reserve and push it to the brink of bankruptcy.

Then on March 11, 09, Norilsk announced that they are re-selling the buyback shares for a mere $355M, getting only 18 cents back on the dollar. It's absolutely hilarious! As commodities collapsed, companies are suspending dividends, issue new shares and do all they can to raise and preserve cash liquidity. But Norilsk Nickel threw cash away in a meaningless stock buyback, and then had to re-sell the shares for a fraction of the cash. WHY?

This story and the Russian Government investigation of Norilsk Nickel finances imply that they could be in a deep financial mess concealed to the public, and that they are desperate for cash, as their mining operation is losing money heavily at current low nickel and copper prices (my estimate is a loss of $0.5B to $1B per quarter). If they run out of cash, they must shut down the mining operations. It will send the palladium price to the moon when that happens.

To seize the opportunity, you can buy any physical palladium metal you can find. Better yet, buy shares of Stillwater Mining (SWC) and North American Palladium (PAL). These two are the only primary palladium producers in the world. You can also buy South African PGM mining companies, like Anglo Platinum (AAUK) and Impala Platinum (IMPUY.PK). Palladium metal can be bought from APMEX and PAMP or other precious metal dealers. I am trying to talk with SWC and PAL to see how they can help average folks to acquire physical palladium more easily for investment.

The FED has unleashed the nuclear option: US debts monetization. It means mass printing of money and inevitable collapse of the US dollar. It makes a compelling case for owning precious metals to safeguard your financial security: Gold, Silver, Platinum and Palladium. I will talk about outlook of US dollar and how to survive the hyper-inflation in the next articles.

Looking at the fundamentals of supply and demand, palladium beats other precious metals hands down. Again I want to caution people against buying Gold ETF (GLD) and Silver ETF (SLV), as I do not see convincing evidences that physical metals actually exist to back these two ETFs, and the silver bars serial number list contains lots of red flags to be trusted. If you like silver, you'd better owning physical silver or silver mining stocks like SSRI, PAAS, HL and CDE.

Some thought on what looming hyper-inflation would do to banks. I believe that NO BANK can survive the hyper-inflation, regardless of how sound their balance sheets look. The reason is simple: Why would any one leave money in a bank if the currency is losing value rapidly? All banks will fail if people are withdrawing cash en mass. But please do NOT rush to your bank to withdraw your cash tomorrow. I do NOT want to cause bank runs. You still have enough time to gradually and orderly withdraw money from your bank and put the money into precious metals and other valuable physical assets.

I am looking for short opportunities in all bank stocks. Jim Rogers said he was shorting JP Morgan (JPM), which looks to be a good choice. Some other bank names come to consider: Bank of America (BAC), Citibank (C), Wells Fargo (WFC), Bank of New York (BK). All banks ultimately will fail or be nationalized. There is absolutely no investment value in any bank. Bottom line: There can be NO healthy banking industry without a sound monetary system, just like no fish can live without water. But too many people have already shorted banking stocks. In light of the on-going short squeeze in financial stocks, it is better to wait patiently a little longer, before entering short positions in banking stocks at higher price levels.

Full Disclosure: The author is heavily invested in SWC and PAL, and shipping stocks like EXM, DRYS, EGLE, TBSI, GNK, NM. I own silver mining stocks SSRI, PAAS and HL. I do not currently have short positions in banks but am waiting for opportunity to short.