Norilsk Nickel's Strategic Moves and Palladium Super Bull

Russia's Norilsk Nickel, the world's single largest nickel producer who is also responsible for 45% of the world's palladium mine production, made two big strategic moves, one of which escaped everyone's attention except for mine, and another one caused every one's attention but still caught me by a big surprise.

The surprise move is that Norilsk Nickel actually meant it when they said early in the year that they were going to sell their stake in Stillwater Mining (SWC), the only US based palladium and platinum mine, an extremely important strategic asset that Norilsk Nickel acquired in 2004, after going through the trouble of getting two superpower presidents involved in the negotiation, among other things. I could not believe Norilsk Nickel will sell their SWC stake, because Norilsk Nickel and SWC combined gives them the monopoly power of controling more than half of the world's palladium supply. But they did just sell their SWC stake. They acquired their SWC stake for US$100M cash and 877K ounces of palladium, valued at today's market value, their investment did not bring them much profit after all.

What made the Russians change their strategic mind regarding palladium, at a time when palladium price looks spiralling higher by the day? They no longer consider themselves a key palladium supplier to the world in the future?

The Russian riddle is solved when I noticed another less noticed, but much more significant strategic move made by Norilsk Nickel. The story goes back to 2007 when Norilsk Nickel outbid Xstrata to acquire LionOre in an all cash offer worth more than US$6.5B. At the time analysts could not understand why Norilsk Nickel paid such high price for a mining company of limited mineral reserves. The answer became clear only recently, long after the LionOre acquisition, in a Bloomberg news story:

Norilsk Nickel Plans $20 Billion Program to Boost Arctic Output

New Technology

“We’re considering switching from pyro-metallurgy to hydro-metallurgy based on Activox technology,” Muravyov said. Within a year, the company will test whether the technology, which Norilsk bought in 2007 as part of its $6.5 billion LionOre acquisition, will be suitable for Arctic ores. Activox uses chemicals to dissolve nickel from concentrate and then produce the pure metal.

“The cost of applying Activox in Norilsk still needs to be evaluated,” Muravyov said. Installing the technology at all of Norilsk Nickel’s facilities, at a cost of as much as $10 billion, would allow the company to “remove all ecological problems and cut electricity and gas consumption,” he said.

I suddenly had an eureka moment: The Activox Process, originally owned by LionOre, was the real reason for Norilsk acquisition. Norilsk Nickel mine, being one of the top ten most polluted places on earth due to sulphur dioxide and heavy metal emission from the smelters, and facing deteriorating nickel ore grade in coming years, desperately needs this new chemicals based metal producing technology that cuts pollution and production cost drastically.

Except for one catch. Platinum and palladium are very stable and extremely chemical inert metals. Therefore unlike nickel and copper which are easily dis-solved, these two precious metals are virtually impossible to be leached from the mineral ores, using any chemical solution. A demonstration chart of the Activox Process confirms my intuition. The lower left corner of the flow chart indicates that the leach residue, containing the precious metals, are either simply disposed, or be send to alternative precious metal recovery process.

After base metals are extracted, the leach residue would contain virtually all of the original material from the mineral ores: rocks, sands, dirts grinded into fine powder, and wet with all the nasty chemicals mixed in during leaching. It probably contains no more than a few part per million precious metal content. Once again those precious metals: palladium and platinum, are chemically inert and can not be extracted efficiently using any chemical solution. The only way to process them is to use high temperature smelters, which bring back all the air pollution problem and high energy cost, problems that Norilsk wanted to solve in the first place, moving away from smelter based pyrometallurgy towards Activox Process based hydrometallurgy.

The unescapable conclusion is that Norilsk Nickel will become just a low cost nickel and copper producer, and will cease to produce palladium and platinum as byproducts, once they adopt the Activox Process!!! This is true unless palladium and platinum prices are driven to such high levels that it makes economical sense to try to recover the trace amount of precious metals contained in the leach residue despite of the high processing cost!

A technical paper discussing the Activox Process running at the Norilsk Nickel owned Tati plant in Botzwana, written by experts of that plant, confirms my conclusion. The 16 pages technical paper contains not a single word mentioning of either palladium or platinum:

Solvent extraction design consideration for the Tati Activox® plant

This shocking development is very bullish for palladium and is a very good news to fellow palladium investors. We are talking about 45% of the world's supply of palladium removed when Norilsk ceases to produce byproduct PGM metals. Of course, I do not expect this paradigm shift to occur overnight. But shouldn't it be time that precious metal investors leverage the opportunity to hoard the palladium metal and ride the palladium super bull up to the moon, and mean while industry users like GM (GM), FORD (F) and TOYOTA (TM) need to start panic now and build their strategic palladium inventories before it is too late. If 4% of shortage was enough to drive rhodium price from $300-ish to $11000 per ounce, I don't know how high palladium price can go to if we have more than 50% shortage in the global supply!!!

Maybe, just maybe, the recent remarkable surge of palladium price indicates that some investors out there have already figured out what the Activox Process means to Norilsk Nickel and to global palladium supply, and are already quietly loading up while keeping their lips sealed.

Full disclosure: The author has studied global palladium market for a few years and is heavily invested in physical palladium metal, as well as in stocks of the world's only primary palladium mining companies: SWC and PAL. The author has no position in Norilsk Nickel (NILSY.PK).

Eco Emissions - Great Innovation and Huge Demand Potential for Platinum Group Metals

There are eureka moments when you slap on your thighes and ask yourself: "Why haven't I thought about THAT!" The time when I first learned about Eco Emissions is one such moment.

But let me first remind people on the on-going and ever worsening Gulf Oil Spill caused by British Petroleum (BP). Many predicts that the disaster is so bad that a BP bankruptcy is a certainty. That includes Matthew Simmons, author of Twilight in the Desert, who calls for a BP demise in a month. I have high respect for Matthew Simmons but I believe he owe an appology to the world for getting his math wrong, by orders of magnitude. I believe that the fate of BP is now a political issue with Peak Oil implication which goes far beyond the mere fate of one big company. If death of BP means the death of the deep water oil drilling industry, there may be political will to save BP after all. But I will not touch BP either way at this moment as there are too many uncertainties. I will discuss when is best time to buy BP in another article.

The real story: Fossil fuels are bad pollutants, both BEFORE and AFTER they are burned. Before the oil is burned, they could pollute the ocean and kill birds. After the oil is burned, carbon dioxide and sulphur dioxide is emitted to pollute the air and destroy rain forests. But if oil is only partially burned, the pollution is way much worse: it results in emissions containing carbon monoxide, a toxic gas which is several hundred times worse than carbon dioxide in its greenhouse effect; and various nitrogen oxides which kills infants and senior citizens; and worse, particulate matters which are cancer agents which causes millions of deaths per year. The world collectively generates a thousand BP oil spill environmental disaster per year by producing and burning fossil fuels, accumulatively killed many times more people than was killed in WW II.

Incomplete burning of fuel is a big problem, it reduces fuel efficiency and creates air pollution. Scientists have worked relentlessly to solve the problem. The biggest progress of ourse is the global adaption of catalytic converters on automobiles. Using PGM metals, platinum, palladium and rhodium, as catalyst metals in catalytic converters, auto makers like FORD (F), GM (GMGMQ.PK), and TOYOTA (TM) are the largest industry users of PGM. What occurs in catalytic converters is basically after-burning: the incompletely burned fuel is once more burned more thoroughly in the catalytic converters, hence it cuts the pollutant emissions.

But catalytic converters do not solved all problems: They do not improve the fuel burning within the combustion chamber and hence do not improve fuel efficiency. More over, ocean traveling ships are currently not required to be equipped with catalytic converters, although there are pending new regulations which may finally impose such requirements on ships and also on gasoline-operated lawn machines.

This is going to change big time, thanks to a startup company called Eco Emissions Systems, founded only in 2008. The idea is simple: just directly introduce the catalyst in the combustion chambers of diesel engines! Doing so makes the fuel burn more thorough and hence improves engine efficiency. It also means less pollutants are emitted into the air. The technology is already there: platinum metal can be use to make nano-solutions containing tiny particles of the metal. The liquid can be turned into moist and injected into the diesel engine combustion chamber through the air intake. The catalyst contained in the moist then meets the fuel and promote the thorough burning, resulting in great savings of fuel cost. A simple idea worth billions of dollars.

At roughly 10% or more fuel savings, a typical dry bulk ship could save $1M per year just in fuel cost. For a shipping company like DRYS, EXM or EGLE, applying the technology on a fleet of 40 ships means a saving of $40M per year. That is a huge boost of their financial bottom line.

Too bad I did not come up with the idea early enough: Eco Emissions Systems already patented the idea globally and they stand to rip huge profit from the patent. Their stock symbol is ECMZ.PK or ECMB.OB. They are already well into business as their systems are being tested on a Holland America cruise ship, before being expanded to the whole fleet. I can see Royal Caribbean Cruises (RCL) and Carnival Corp (CCL) expressing interest soon. According to their web site, the company already has more than $132M documented product demands and that was in 2009, a mere one year after the founding of the company. I can see they grow much bigger! Who would not like the idea of saving cost?!

I would like to come up another novel idea which might be worth billions of dollars as well, but instead of patenting it I would give it out for free to big oil companies like BP, XOM and CVX: Why not simply add the platinum containing nano-solution to the diesel fuel itself, and hence achieve the same fuel efficiency improvements, without the need to retro-fit existing diesel engines to modify the air intake system? This way, their diesel fuel products will be more competitive. But then I guess the big oil may not like the idea: they want consumers to pay higher prices for oil and burn more fuels, not less. But if an idea can save consumers money, it will catch on like wild fire, regardless whether big oil like it or not.

Where is the investment opportunity here? The Eco Emissions technology, and similar technologies that put PGM catalysts directly into fuel combustion chambers can create huge demand for the PGM metals! Even though only a small amount of platinum is consumed, consider the fact that the world consumes one cubic miles of oil per year while producing no more than a cube of 8 feet worth of platinum annually, this new demand on PGM metals could mean paradigm shift in the global supply/demand picture, sending the prices skyrocketing.

How do you invest in this opportunity? Venture capitalists might want to talk to Eco Emissions Systems and get a good gauge what their growth potential is. For average investors, it's time to hoard physical platinum and palladium, and invest in two physical metal backed ETFs: PPLT and PALL. More leveraged play would be investing in stocks of platinum and palladium mining companies, like South Africa's Anglo Platinum (AGPPY.PK) and Impala Platinum (IMPUY.PK). Some one keeps refering Norilsk Nickel (NILSY.PK) as a palladium play. But even though I keep mentioning Norilsk Nickel as the world's largest palladium producer, they are a nickel play, not a palladium play, as palladium is only their by-product.

Of course, my most favorite PGM play remains Stillwater Mining (SWC) and North American Palladium (PAL). They are closer to home in North America, and they are the world's only primary palladium producers. SWC recently published a market study, A Case For Palladium, which documents how various factors, like the termination of the decades long Russian government palladium stockpile sales, and ongoing South African electricity crisis, could create a ten year bull market in palladium.

More than 95% of my 401K retirement account is invested in SWC and PAL, mostly SWC. I keep hearing people calling me crazy on that. One day they will know it's crazy not to have a big chunk of that stock in your portfoio, knowing the huge potential in palladium. Cold Fusion which uses palladium was considered a crazy idea to begin with, but it's now getting more and more acceptance in the mainstream. Peak Oil is still considered a crazy idea by most, but it is a looming reality right now right this moment. All great investors were called crazy at certain point of their investment career. Warren Buffett was called crazy putting all his eggs in just one busket, purchasing that bankrupt textile mill no one heard about. He was crazy. But the company by the original name which is now known globally is totally out of the textile business and into quite something else. You know the rest of the history of Berkshire Hathaway (BRK-A and BRK-B).

Full Disclosure: The author is heavily invested in SWC and PAL and own palladium metal bullion coins. The author also owns shipping stocks mentioned: EXM and EGLE. The author currently has no position in BP or other stocks mentioned and has no connection to Eco Emissions Systems other than learning it from the news.

Unwinding of Currency Swap = Looming US Dollar Crisis!

The Daily Gold blogger Harvey Organ reports that ECB and other Central Banks are terminating the currency swap with the US Federal Reserve Bank as of Feb. 1, 2010. How they are going to unwind the currency swap is something very interesting to watch. It could finally trigger the long expected US dollar crisis: Collapse of the US treasury market and the US dollar itself.

In a currency swap, two central banks print their own currency out of thin air and swap them in a zero interest loan according to the exchange rate. Then after a period of time, they return the loaned currency to each other. For example the FED will loan US dollars to Bank of England (BOE) while BOE loans British Pounds to the FED. Upon the end of currency swap agreement, they unwind the trade by the BOE returning the US dollar, and the FED returning the British Pounds.

The question is how they are going to be able to unwind? The total swap is believed to be as high as US$500B. Some say as high as US$2T. If the central banks merely locked up the cash in a vault, they could easily return the money. But that would defeat the whole purpose of currency swap. Instead of being locked up in a vault, the swapped currency must have been SPENT in some way. Then the question is how do they get the money back if it is already spent, sold out or otherwise given away?

For example I long suspected where did the British get the money to buy US treasuries over recent times? According to latest official data, UK's holdings of US treasuries was up $145.1B in 12 months, while China's holdings went up only $76.4B.

Where did the UK get the money to buy US treasuries? Unlike China which earns US dollar from its trade surplus against the USA, The UK has a huge trade deficit against the USA. It spend US$2 buying US goods for each US$1 it earns selling products to the USA. Where did they get the US dollars to purchase US treasuries? If it was not from trade balance, it must be from the give out by the FED, in the name of currency swap. It cost UK nothing to print British pounds and then exchange for the dollar, just like it costs the FED nothing to print the dollars.

In a sense, FED is secretly buying our own debts through foreign hands, via the currency swap agreements!!!! Now, how is the currency swap going to be unwinded? What magic are they going to pull this time, asn the BOE has already SPEND out the US dollar in buying US treasuries. It does NOT have the money to return to the FED.

Likewise, probably the FED does not have the money to return to BOE either. They must have spent out the British Pounds as well as other foreign currencies, in repeated attempts to sell foreign currency and buy US dollars, to support the dollar, in recent times.

It's going to be fun to watch how the unwinding can be done. If my speculation is right, BOE must sell its holding of US treasuries to raise US dollar to unwind the loan, and the FED must also need to sell dollar and buy British Pounds to unwind its loan as well. Both would be fatal blow to the value of US treasury and US dollar.

Time to run to precious metals as your financial safe haven. Don't run to euro, as the eurozone is crumbling down. Don't run to Japanese yen. Japan has an even worse debt problem. When Japan collases under its debt it must sell US treasuries to salvage its own currency, which will trigger a domino effect leading to the fall of the dollar. The only thing safe are precious metals and commodities.

But unlike most other precious metal bugs I will not tell you to run to gold, or silver. Every one talks about gold as if it is the only safe haven. When every one talks about one thing, be careful. The world is not in shortage of gold. The world has plenty of gold that could easily lasts a couple thousand years if we do not produce gold any more. Warren Buffet famously critized gold by saying that you dig out the metal from the ground, and then dig another hole to hold up, and have to pay armed guards to watch it, what for?

I am also questioning the wisdom of silver investment. Silver bugs have been calling for silver shortage for years. But I never see any solid data to back up the claim of shortage. If there is no shortage, if a precious metal's price is only supported by investment demand, then there is a problem because anything that is purely supported by investment demand, is by definition a bubble, the investment demand could easily turn into investment supply in an instance.

The only good precious metal investment, must be one which is based on REAL industrial shortage, not by the hypothetical investment demand. If there is an industrial shortage, the price MUST go up regardless what investors believe. And price movement due to real shortage, on the other hand, can create solid and reliable investment demand. Such precious metals will provide the best performance way much better than gold.

The only two precious metals I see solid data to support a supply shortage case, are platinum and palladium. Of course my favorite is PALLADIUM. My most favorite mining stocks are Stllwater Mining (SWC) and North American Palladium (PAL), the only primary palladium producers. Russia's Norilsk Nickel (NILSY.PK) is world's largest palladium but they are mainly a nickel producer. South Africa's Anglo Platinum (AGPPY.PK) and Impala Platinum (IMPUY.PK) produces by-product palladium. Watching Platinum Today on related PGM metals news, and KITCO for price movements.


The parabolic price rally of palladium in the past one year, a performance that is far better than gold, silver and platinum, has vindicated my conviction on a palladium bull case.

Why palladium? FOUR things make palladium extremely bullish:

1. Termination of Russian government palladium stockpile sale, due to stockpile depletion.

2. Looming South African electricity crisis could strike again any time, just like two years ago.

3. Launch of ETF Securities physical palladium fund (PALL) in the US market.

4. Long term potential of palladium used in Cold Fusion, make it a must have strategic metal.

I have discussed these points in many of my past articles which I will not repeat. I merely needs to point out that Impala Platinum's PGM Supply Demand data confirms dramatic reduction in Russian palladium supply, as the stockpile sale has ended. There is now a big strictural deficit. Read more detailed discussions on GIM forums.

I do not have to cover the recent launch of ETFS platinum and palladium funds, either.You can see the powerful price surge of palladium recently, and read what fellow SA contributors have to say:

Why Gold ETFs Should Be Afraid of Platinum Cousins
Platinum and Palladium ETFs: Dare They Outshine Gold?
Platinum, Palladium ETFs Are a Home Run
Pent-Up Demand Is Behind Platinum Fund's Success
New ETFs Off to Roaring Start
Don’t Blame Platinum, Palladium ETFs

Sadly, even though people have caught attention to platinum and palladium. There has been absolutely NO mentioning of the end of the Russian palladium stockpile sale, and how palladium rallied from $300 to $1100 in 2000 merely because of a FALSE rumor related to the stockpile sale. Nobody mentioned the South African electricity crisis either, even it triggered quite a rally in PGM prices in early 2008, and another South African electricity crisis is looming again in the near future. Please read the background discussions.

And yet most people don't even know about platinum and palladium. All they know is gold gold gold, silver silver silver.

Let them have gold. I want to have palladium. And I can not own enough stocks of SWC and PAL. I have been predicting and advocating for a super bullish palladium rally for almost two years. No one paid attention until it really happens.

But this is just the start! The real fun will begin when auto makers realize what's going on in Russia and South Africa, and start to panic hoard. If it were not for the foolishness of major industrial user like TOYOTA(TM), GM and FORD (F), rhodium would never see gigantic price swings from $300 to $11000. Shouldn't industrial users acquire and keep a plentifully large stockpile when rhodium was at $300, so they do not need to pay $11000 an ounce a few years later? They never learn.


Full Disclosure: The author is heavily invested in palladium mining stocks SWC and PAL, and own PALL. The author owns silver mining stocks like CDE, SSRI, PAAS but have no interest in ETF funds GLD and SLV, as I do not trust their gold and silver holdings.

The Russian Checkmate on Platinum and Palladium Is Looming!

The palladium bull case is getting better by the day, as the Russians are finally going to make their checkmate move, tomorrow:

Russia to launch platinum, palladium futures trade
MOSCOW, April 14 (Reuters) - Russia's RTS exchange will launch trading in
platinum and palladium futures contracts from April 15, adding to existing
contracts on gold <0#gdrts:> and silver <0#svrts:>, the exchange said on Tuesday.

The contracts are initially for three and six months and will be settled in cash based on the morning fixing on the London Platinum and Palladium Market, RTS said in a statement.

This is an interesting move, in light of recent news that ETF Securities physical platinum and palladium funds will be traded in the US market, which I believe is very bullish. A new Russian platinum and palladium futures market is the ultimate Russian Checkmate, and the best thing I can hope for, on top of all bullish factors in palladium. Norilsk Nickel (NILSY.PK) must have played a key role in pushing for the new PGM futures market, as they are the world's largest palladium producer. Let me explain why.

Granted, the Russian PGM futures contracts will be cash settled so there is no physical metals demand. But precisely because it is a paper market with no physical limit, it can send the metal prices to unimaginable high levels. The Dutch Tulip Mania happened precisely because cash settled paper derivative contracts, instead of physical flowers, were traded.

A cash-settled PGM futures market has no physical limit and allows more participants, both on the long and short side. Once the longs and shorts established their positions, each side will do their best to move the settlement price to their benefits. As the settlement price is decided by the platinum and palladium spot price, there is huge incentive to manipulate the narrowly traded platinum and palladium spot market for profit.

When a thinly traded physical metal market is manipulated, more often than not, the long side will win, by cornering the market. The short side has limited quantity of physical metal available to sell to depress the price, while the long side can bid for as many ounces as their cash allows them! It is almost a sure thing the longs will win and the shorts will lose. The longs could only lose if they are too greedy and killed by margin, or if they do not have enough capital to bid and drive up the thinly traded physical metal spot market, or if their counter-parties, the shorts, could not perform and could not pay up on the terms of the contracts.

How thin is the spot market of platinum and palladium? The annual supply and demand of each of the metals is roughly 7 million ounces, the bulk of which are contracted out between suppliers and users, leaving no more than one million ounces of each metal available to be sold in the spot market in a year, or roughly $1.2B in platinum and $0.23B in palladium, at current prices. Those are pocket changes in today's financial markets where trillion dollars of trades are conducted every day. Any hedge fund could easily corner this market for profits.

I believe this could be the start of a Russian Checkmate in palladium and platinum. Investors should now position themselves by acquiring any physical platinum and palladium they can find in the market, and by loading up shares of two primary palladium producers, Stillwater Mining (SWC) and North American Palladium (PAL), and maybe some South African PGM producers as well: Anglo Platinum (AAUK), Impala Platinum (IMPUY.PK), Platinum Group Metals (PLG), and Anooraq Resources (ANO).

I have been watching Colossus Minerals (CSIMF.PK) since it was first pitched by Mr. James West, publisher of Midas Letter. I wasn't totally convinced by James West's pitch so I never bought. But I encourage the readers to do their own DD to decide if it is good.

Are industry users of PGM metals aware of the looming Russian Checkmate? Auto makers like General Motors (GM), Ford (F) and Toyota (TM) must immediately prepare themselves for the extreme PGM price volatility and possible supply disruption as the Russian PGM futures start trading on April 15, 09. They must purchase and accumulate a strategic stockpile to safeguard their supply, or they will lose, as investors who act promptly will become winners.

Full Disclosure: The author is heavily invested in SWC and PAL, and own positions in AAUK and ANO. I do not own positions of other stocks mentioned. I own other positions unrelated to discussion in this article, like shipping stocks EXM, EGLE, DRYS, TBSI and GNK; precious metals stocks SSRI, PAAS; and ETFs like USO, UNG and SLV.

How to Save The US Economy Part Two

The global credit crunch has brought virtually all economic activities to a grinding halt, except for one which is booming: Piracy from Somali. But even the pirates, despite of their lucrative and booming business, can not get a loan from CitiBank (C) to expand their fleets. I predict the pirate business will collapse as there will be no more ships to hijack: With BDI Shipping Index dropped to 666 on 12/04/08, cape size ships (100K+ tons) are leased for only $2,345 a day, a 99% drop from $234,000 a day just 5 months ago. Ships are now better off laid at harbors than to fight the pirates. Is BDI = 666 a sign of Armageddon for the world?

I think there is big hope in global economy and there is little hope in the US economy. I actually started to aggressively buy shares of Dry Ships (DRYS) near its recent lows, around about $4. Many ironic things happen for reasons. During the WW II, non-Christian China extended helps to the European Jews escaping from Hitler by letting them come to Shanghai without a visa, while Christian western nations kept their doors shut. Today, the communist China which Jim Rogers called "the best capitalist in the world", is coming to the rescue of the world's capitalism, by doing the right things. Today the man with a Muslin middle name could save America!

China's aggressive plan to boost spending and stimulate domestic demands will save and revitalize the global economy. Based on its huge population basis, China's per capital consumption of many basic things are still far below even global averages and hence have a lot of rooms for growth. With 1/5 of global population, China consumes 1/12 of the world's oil, owns 1/28th of the world's passenger cars, Read "China Eats the World" to get a better picture what Chinese demand means for the world. China's relentless economic growth amid global resources depletion is the fundamental basis for a long period of commodities bull, regardless any temporary set backs. As China turn its economy from one which is export oriented to one that's domestic consumption oriented, the demand on global commodities will be stronger, not weaker. There is a good reason that well over half of China's overseas investments are in the mining sectors.

But the Americans people will have to wake up and do right things to save the US economy. We either succeed, or we will be marginalized and become irrelevant as the rest of the world moves forward, leaving America behind. I voted for Obama as I hope he is humble enough to listen to humble people like me instead of special interests. He needs a lot of helps to get his job done. I am willing to do what I can to help him, but only if he listens. Obama is calling all Americans to contribute ideas. I know exactly how to save America from an economic collapse so I am hoping that my ideas can make it into his ears in some way.

My first help to Obama is helping him with his difficulty in picking a proper inauguration gift for his wife. Obviously Obama must have thought about a rhodium ring, but then backed off the idea. I think he was smart to have considered rhodium, and wise to give it up.

There is no better indicator of the health of global economy than the commodities sector. As I discussed, rhodium was the brightest star in the commodity boom, haven raised from $300 to $10000 per ounce. But rhodium was also hit hardest, having fallen to $700-ish recently. The rhodium price swing is just too much change even for Obama, and it surely will raise public eyebrows that you purchased the perceived most luxurious precious metal during hard times.

Obama should buy Michelle an Iridium Ring. Iridium, just like rhodium, is a PGM metal. The noble metal iridium is just as rare and precious as rhodium, but it is much humble than rhodium. Iridium price never experienced the glory and then the collapse of rhodium. Out of all noble metals, iridium is the noblest one: Its melting point is 500 degrees higher than platinum; It's the most corruption (corrosion) resistant metal in nature, and extremely hard. The character of iridium is so precious and unique it is a perfect expression of an eternal bond and commitment, a perfect fit for a gift to our next First Lady. Iridium is the second densest element in nature and the most dense one is Obamium (oops, Osmium). Some say the densest is Bushcronium, an element that like they say in Texas, is all neutron and no proton. Unlike rhodium's freefall from glory, iridium is a phoenix raised from ashes.

So President-elect Obama, be sure to buy a custom made iridium ring for the first lady as it is a perfect symbol in defining your presidency and your character, and a daily reminder to yourself that American people deserve an Obamium that's different from Bushcronium.

The root of America's economic problem is we create too little and spend too much. We live beyond our means, which is unsustainable. We created one debt bubble after another to pop up the system and continue reckless spending and accumulation of debt, only to make it worse. We must head directly to the problem of over-spending and under-producing. The budget must be balanced, but it can NOT be done by tax hike or spending cut. The solution must be found outside conventional thinking. We need some revolutional thinking to solve the problem.

1. Stop throwing trillions of dollars at financial institutions. They are blackholes and anything thrown at them makes the blackholes grow bigger. Soon the blackholes will be big enough to swallow America in one swoop. Let them fail! What's good of banks if they are not lending money out? I can lend my money to my neighbor without a bank's help!


2. Get rid of the Federal Reserve System; get rid of IRS; get rid of personal and business income tax. This gets rid of the need for people to file annual income tax return. If there is no income tax to pay, then there can not be any tax fraud or tax evasion.


3. Tax consumptions, NOT incomes or profits. The government provides public services and protections so people can go about their lives. If you are consuming more goods and services, you are likely also using more government services so you need to pay more tax.

The third point is the most important point: Tax on consumptions, not on incomes or business profits. Is this unfair that billionaires like Warren Buffet who lives a modest life could end up paying little tax compare to his fortune? Not at all! If a billionaire spends his fortune on luxuries, he will surely pay the consumption tax for it. But if he re-invests his fortune to expand business and create more jobs and do all kind of good things to the economy, and at the end of day he donates the bulk of his fortune to charities that promote the well being of the society, why should he pay more tax beyond what he pays for his own personal consumption?

California's current budget woe is a good example why it's bad idea to tax on business and personal incomes. During bad economic times, when the government desperately needs to spend more money, the tax revenues dry up, as individuals lose jobs and businesses are not making profits, hence paying no tax. The government then has to tax the remaining profitable businesses even harder, driving them out of business as well, or driving them out of state. Likewise, on the national level, businesses are moving operations to overseas and bring away jobs with them. Rich people migrate to foreign countries and even denounce their US citizenship. Capitals are flowing out; cheap foreign goods are flowing in. The whole reason of the downfall of the country is the irrational tax and spending system.

President Obama's job No. 1 is to bring America's Most Famous Fugitive back home! Not the terrorist, but a true patriot and believer of free market capitalism, named Jim Rogers, he openly confessed to have sold almost all of his US assets and dollars, sold his house, sold all furniture: sofa, bed, tables and chairs, and moved to Singapore. He is a billionaire refugee as he sees no hope left for the country. Send Air Force One to bring him home! Offer him a good job and he might be helpful to salvage America. Likewise, use people like Peter Schiff and Karl Denninger. They have good ideas what's wrong and how to fix things.

Why Jim Rogers would call China the "Best Capitalist in the World" is quite striking. Thirty years ago China was a completely different world. In 1978, China was on the brink of catastrophic social, economic and political collapse, after ten years chaos of the Cultural Revolution destroyed the country's remaining economic infrastructures. To Americans today it may sounds like an ideal society: "bankruptcy" and "unemployment" were phrases never heard about as they simply did not exist in a socialist system. Are we going in the direction of socialism if we now bail out every one and no failure is allowed?

Deng Xiao-Ping changed China and the world forever. He visited America to learn how free market capitalism works and why is it successful. He adopted Dr. T.D. Lee's suggestion and started a series programs to send Chinese students to study in America, including the CUSPEA which I personally benefited from. More importantly, he started some experimental special economic zones to invite overseas investors to come and open businesses, promising full support of the government in all means possible, relaxed labor laws, prohibition of labor unions, and not a penny of the business profit shall be taxed. The only tax is a low, symbolic land usage tax. It was quite controversy at the time, because how could any communist allow a capitalist come and open a sweatshop to rip off local workers, and get off with the profits and not paying a penny? But it worked; capitals flowed in, first in trickle and eventually like flood. China's economy prospered. The rest is history.

Exactly thirty years later, President Obama needs to pay a return visit to China and learn how the Chinese succeeded in the economic reform and how America can benefit from it. Things can be turned around quickly; stop taxing any business profits, then capitals from all over the world will flood into America and open business here and create jobs at home. When Americans have good jobs and they don't need to pay income tax, they will have more money to spend and create more consumption tax for the government. Wouldn't it be wonderful?

In light of current economic crisis, I am hoping for the best and preparing for the worst. So my investment strategy reflects both possible outcomes. I am hoping that somehow my humble words can make its way to some one close to Obama, and somehow indeed he is persuaded to buy an iridium ring for the first lady, and some how the iridium metal will get him interested in the rest of the noble metal family, particularly palladium. Mr. Obama needs to know that America is blessed with a world unique palladium mine in Montana: Stillwater Mining (SWC), and that palladium enable cold fusion, a physics discovery which is being suppressed by the establishment science camps, but which could bring to the world virtually inexhaustible cheap new energy source. He needs to take cold fusion seriously, as it is the best solution to the looming global energy crisis and bring about long lasting global peace.

Short of a quick cold fusion break through, America needs to rely on its own natural resources. We have a tremendous amount of coal. But vehicles burn oil, not coal. There is a chemical process that turns coal into synthetic fuel; it needs cobalt, which is in the same family as rhodium and iridium! Iridium's little sister is rhodium; rhodium's little sister is cobalt. I hope any day Obama sees his iridium ring, he thinks about cobalt and how it can contribute to America's energy future. We need biofuel. But we first need lots of fertilizer to grow biofuel efficiently. We need platinum, palladium, rhodium in making chemical fertilizers. All these metals are critically important to a nation's survival and prosperity, both during peace time and during war times.

On the night that the auto bailout failed in the Congress, let's pray for America's tomorrow. Let's hope that Obama is truly a leader who can listen to the people and can bring about change in Washington as well as change in Wall Street. GM might only have days if not hours to live as market confidence in its survival has now been lost. Let's hope President Bush can do one last thing right before he goes home: Use executive power to bail out GM immediately. Meanwhile Obama should promise Bush that he will be pardoned if he exceeded his legal authority in directly bailing out GM, as it is in the national interest to protect millions of jobs. Stop the bipartisan finger pointing already. We have only one America and one future for our children.

Full Disclosure: The author is heavily invested in SWC and PAL, two palladium mining companies, in OMG, a cobalt chemical company, and in DRYS, a dry bulk shipping company. I have no GM position either way.

Last Chance to Save the United States of America From Collapse

Congratulations to our President-elect, Mr. Obama. It's fitting that an African American shall take up America's top job to salvage this country from an imminent political, social and economic collapse. Closer ties with Africa, a land blessed with rich natural resources, might provide the best opportunity we desperately need to save America and continue our prosperity!

Circuit City (CC) bankrupted. General Motors (GM) could be next and Ford (F) is not much better. Mean while we are bailing out AIG (AIG) for the second time (or maybe the third time) in just a few months as it seems to be just another growing black hole. And who will bail out the Federal Reserve Bank or the US Government itself?

If you read my past articles, you know my favorite precious metals are palladium and platinum. PGM metals used in catalytic converters in vehicles account for half of global demand. Am I concerned about these two precious metal's future prospect?

I am not concerned at all, not only because PGM metals are precious metals and hence are safe haven investments just like gold and silver, not only because PGM metals have strong demand in emerging new applications especially in alternative energy sectors like fuel cell, hydrogen economy, bio-fuel, and coal-to-liquid, but even within the auto sector, the global demand continue to remain strong fundamentally.

Enron collapsed a few years ago. Did we stop using electricity at the time? No. Do you stop buying auto insurance if AIG goes out of business? No. More than ten years ago, the last American owned TV manufacturer went out of business or was acquired by a foreign entity. It did NOT stop Americans from watching too much TV today, either.

The downfall of the US auto industry is a completely separate story from global auto demand, just like a sunset of US based TV manufacturers did not mean a sunset of consumer demand of TVs and other electronics. It simply means that the US auto industry is no longer competitive in the market place against foreign auto makers like Toyota (TM) and Honda (HMC). Businesses go bankrupt even during good economic times, if they can not compete. But I truly feel sad about the current status of the auto industry and other manufacturing infrastructure of this nation.

From a fundamental point of view, the global auto demand is expanding even as the world enters a period of severe economic recession. IEA recently revised the projection of global oil demand in 2008 and 2009. The lowered projection is 86.5M barrels per day for 2008, which is still 0.5% higher than 2007, and the projection for 2009 is 87.2M barrels a day, yet higher than 2008. Higher oil consumption must mean higher vehicle demand.

Let's do some simple calculation. One barrel of oil produces roughly 19.5 gallons of gasoline and 9.2 gallons of diesel, totalling about 28 gallons of road vehicle fuel. If global oil demand is 86M barrels a day, that's 880 billion gallons of fuel consumed per year. An average vehicle drives 150,000 miles during its lifespan and consumes fuel at a rate of roughly 20 MPG, so lifetime consumption of fuel is 7500 gallons. So 880 billion gallons per year means the world is wearing off vehicles at a rate of 117 million per year. That is the expectation of global new vehicle demand in the next few years, versus current 70M auto sales per year.

China just announced a 4 trillion yuan ($586B) stimulus plan to transition her economy to one based on domestic consumption demand rather than on exportation. Chinese demand on commodities, goods and services will be insatiable even as her growth slows down, because China's population is just huge and the per capital consumption is still at a very low level comparing with global average, leaving plenty of room for growth.

October auto sales in China increased 8.37% over last year. For the first ten months, auto sales were 5.67 million, which is 6.8M annually. There are only 40M passenger cars in China. These numbers are incredibly low considering China's 1.3 billion population. Global average ownership of cars is roughly one car per 6 persons. China has one car per 33 persons. China today consumes 8M barrels of oil a day, still less than half of global average. Using the rough numbers above that correlates to 11 million vehicles wear off per year in China. So China needs 11M new vehicles a year just for replacements, not to mention new ownerships. I will not be surprised if auto sales in China double or triple in the next 5 years.

The global commodity bull cycle will continue if you understand the impact of China's demand growth. Global consumption of many raw materials can easily exceed available supply by a large margin, even if China's per capital consumption only reach where global averages are!

No wonder we see ever increasing Chinese influence in Africa. Africa is blessed with some of the world's richest mineral resources, especially South Africa, owning over 90% of the world's PGM metal reserves and virtually every spieces of mineral resources, missing just a few. China is also blessed with mineral riches. China is rich in more than half of all known mineral spieces, especially in rare earth metals and tungsten, antimony, indium, etc. But China doesn't have much base metal reserves. China has zero reserve in PGM metals and very little in cobalt, metals of critical strategic importance. What China doesn't have, Africa has plenty. And what about USA? We are the world's capital of helium. We have plenty of coal. That's about it. America desperately needs to develope good relationships with Africa and South America, if we want to be prosperious in the 21st century.

Upon his inauguration, President Obama needs to first pay visit to China, second to Africa, and third to Russia. America, now the world's top debt nation, needs to be bailed out by the world's emerging economic power houses. We can not afford to be a superpower any more as we are not self sufficient and can not survive on our own any more. We need a peaceful and co-operative world to help us. President Obama must prevent an Iranian War or World War Three from breaking out, during his term(s). Prosperity comes from peace, not from aggression.

Now coming back to the US auto industry. Is there still hope in the Big Three, GM, Ford and Chrysler? I think the fundamental demand of autos from US consumers is still there. The current credit crunch means a consumer may not be able to get an auto loan. But it does NOT destroy the auto demand, merely postpones it. If I see a vehicle break down on the roadside, or a vehicle crashed on the highway, I am pretty sure that within less than 24 hours, a certain auto repair shop or a new car dealer will see a new customer come to their doors for business, regardless of how many credit cards the customer may have. The mobility needs can not be eliminated. The question is will the customer come to a Toyota (TM) dealer or a GM one.

There might still be some hope if GM can adapt itself to meet customer's demand, but I don't think it can do it alone. It needs a government bail out. I am against using tax payer money to bail out private enterprises. But it is in our vital national interest to bail out the US auto industry to preserve jobs and our manufacturing basis. The current GM shareholders must be wiped out. GM must go bankrupt, then the government must immediately come in to help the bankruptcy re-organization and give the auto maker a second life.

Full Disclosure: The Author is heavily invested in SWC and PAL, two palladium mining companies, as well as in OMG, a cobalt chemical company. The author does not have a position in GM or Ford, and does not intend to buy or short either.

True Safe Haven Investments: Inflation or Deflation?

Is it deflation, stagflation, or hyperinflation, in the current global economic crisis? That's the quadrillion dollar question investors must get right. This article will answer that big question but it is also meant to be a sequel to part one and part two of the serial articles talking about valuations of physical and non-physical assets as well as currencies. Please read the first two parts of the articles if you have not. It's critical to understand valuation of commodities and currencies first, before the big question of inflation versus deflation.

Recently, as the credit crisis unfolds, we saw the worst commodity price plummet in history, while the US dollar index rallied amid the unfolding financial crisis. Many people wonder that the commodity bull market has ended as the global economy enters a recession. Their reasoning is that due to credit squeeze, people cut back on spending as they could not borrow any more.

Such notion is wrong. While people looked at the weaker demand side, they failed to notice the destruction on the supply side! On the consumer spending side, people are NOT cutting back in TOTAL spending. Actually people are squeezed to spend every dollar from their monthly income, just to keep heads above water. More and more people are living from paycheck to paycheck, meaning they have to spend every dollar of they take in, and have nothing to save. They might be forced to cut spending on some specific items and spending more money on other things. The total spending in dollar terms is up.

Recent commodity price plummet is NOT a fundamental change in the supply/demand relationship. Fundamentals do not change abruptly in just three months.

The real reason is that the global credit crunch squeezes out inventories in the supply chains, causing a temporary and false supply surge, depressing the price. Such price depressing effect is only momentarily. It will be corrected violently to the bullish side once the false surge of supply is exhausted and the effect of supply destruction becomes evident.

In any commodity market, besides the supply side and the demand side, there is a long supply chain connecting the supply and the demand. In different parts of the supply chain, there are sizeable stockpiles of the materials. Under normal supply, the stockpiles at different parts of the supply chain will buffer out supply disruptions and ease out price shocks. That's why when a commodity is in adequate and abundant supply, the price will be flat.

However, stockpiling materials requires operational capitals. Often time money tied up in inventories is credit provided by banks, in the form of so called commercial papers. Things work fine if the credit market is healthy and adequately funded.

Unfortunately in a credit crunch, borrowing money is expensive or virtually impossible even for good businesses. Faced with a liquidity squeeze, businesses must raise cash for operational needs or to merely service debts. That means selling off inventories and cut spending in purchase of raw materials and equipments. When producers cut spending in productive activities, the supply destruction is in the pipelines!

Not only corporations are selling, hedge funds invested in commodities are also selling like there is no tomorrow. Every one is liquidating everything to raise cash and stuck the money in safes. That is absolutely foolish! While governments around the world are printing astronomical amount of money out of thing air, people are hoarding the funny papers in their pillows? We are in the making of a Weimar Republic on a planetary scale, and you hoard the fiat money?

When businesses at all levels suddenly sell off the inventories and at the same time halted purchase of new feedstock materials, prices are depressed prompting more sell offs. This leads to the false illusion of supply surplus, while hiding the fact that production of further supply is being suffocated. It's an extremely dangerous situation, as it could lead to a sudden onset of supply disruptions just as every one cheer at cheaper prices, without realizing that the supply chains have been squeezed empty.

My wife told me the best sell always happen right before a store goes out of business! When you go shopping this weekend and enjoy the lowest prices you haven't seen in a long while, you'd better ask the manager when will the next delivery truck arrive, or will it arrive at all! It's economic 101, all businesses are for profit. No one can operate at loss sustainable.

What do you expect when the supply chain stockpiles are depleted? There is no longer a buffer to absorb supply disruption and price shock. The market will suddenly discover that the supply has dried up. So the price will rally violently, in an extreme volatile way. That is what I predict will happen in all commodities in the coming weeks, including oil, food grains, and metals.

The market of platinum and palladium metal (PGM) is probably a good case study. About half of these metals are used in making the catalytic converters on vehicles. To reduce the risk of price volatility and supply disruptions, auto makers normally maintain a stockpile of PGM metals worth about 6 months to one year's consumption. Jack Lifton from Resource Investors described a very interesting case when one man's attempt to modify that inventory level caused dramatic reaction in the tightly traded rhodium and platinum market.

I am a big fan of palladium and platinum investment due to these metals bullish prospects. After the headline news of South African electricity crisis in early January caused the platinum and palladium prices to shot up, they stayed at the relative high level till the end of June. And then, at the onset of global financial crisis, they plummeted in a free fall fashion, all the while South Africa's PGM production continue to suffer from tight electricity supply. What gives? Who is selling? Every metals analyst is puzzled by the mind boggling fall of platinum and palladium.

The Big Three US auto makers, General Motors (GM), Ford (F) and Chrysler are facing a severe liquidity squeeze. They have been aggressively reducing inventory levels for months. When you are in a liquidity crisis, you sell whatever asset you can sell quickly to raise cash. The most liquid asset, of course, is the platinum and palladium precious metal stockpile.

In the narrow platinum and palladium spot market, when inventories from auto makers were sold out, it creates a lot of downward pressure. If industry users are selling, speculative hedge funds will be selling as well. The only buyers therefore must be the value-based long term investors. A recent Resource Investor article by Nathan Becker also provided explanation that hedge funds have to sell their precious metal hoardings due to liquidity squeeze.

I agree with Nathan Becker mostly but I must point out that he only considered the demand side and failed to recognize the damage that low metal prices may inflict on the supply side. No one can produce metals at heavy loss sustainable. Businesses must scale back production or shut down, if they can not make a profit. Anglo Platinum (AAUK) is currently producing at an average cost of US$1250 per ounce basket PGM metal (60% of Pt, 33% of Pd and 7% Rh) while the current market price of the PGM basket is only US$778 per ounce. It's only a matter of time before South African producers must start to reduce production if the prices do not improve to profitable level soon.

Last week's market plummet creates one of the rarest buying opportunities in our times for savvy investors with cash at hands ready to buy. How often do you get to go to an out of business sale and pick up things at prices far below their cost? Nickel is on out of business sale, copper is on out of business sale, grains like wheat, corn and rice are all suddenly on nose bleeding out of business sales. Grab them while you can. It may not be there tomorrow.

Do you think mining companies and farmers can continue to sell you nickel at $5.00 a pound, wheat at $5.53 per bushel, corn at $3.84 per bushel, and expect to continue the business at all selling things well below cost? It's the same out of business sale like what your wife told you!

The absolute best out of business sale is the palladium, metal of the 21st century, currently at $185/ounce bid. Gold mines are every where, silver is mined everywhere. But only four places in the world produce significant amount of platinum and palladium: Norilsk Nickel (NILSY.PK) in Russia; the Bushweld Complex in South Africa; Stillwater Mining (SWC) in USA; and North American Palladium (PAL) in Canada.

None of the four palladium producers are operating at a profit at current prices of nickel, platinum and palladium. They must each or together decide to slash production to boost metal prices, or face eventual bankruptcy. Any of these four have enough leverage power to boost metal prices on their own, and I believe there will be strong will to do that, as no business wishes to operate at a loss if they have a choice.

That is reason enough for investors to purchase physical palladium at current price, as there is a virtual guarantee the price must go up to reflect real cost, regardless of industry demand. 1980 was a good historic example when auto industrial demand of PGM metals collapsed, but investment demand still pushed the metals to all time high, together with gold and silver.

Out of the four, Norilsk is in bad shape and is most likely to slash production, due to low nickel price, now stands at $4.93 per pound versus the high of $25 per pound last year. There are also huge political pressures to shut the mine down to clean up the environmental catastrophe.

But South Africa is in a much worse shape as Rand dropped nearly 20% in one day versus US dollar. When a country's currency can drops 20% in a day, it's pretty much a broken and bankrupt country. The light of South African will go out, so will the light for that country's PGM mining industry. I previously pointed out that ESKOM, SA's electricity company, has to keep borrowing money and burn lowest quality trash to keep operation going. Now the global credit crunch means they have lost the ability to borrow. It's soon before it all blows up.

South Africa blowing up, as hinted imminent by the Rand's 20% one day drop, means removal of 85% of world's platinum and 35% of palladium supply! You can not have a more bullish story than that, on any other commodities. Stillwater Mining (SWC), with their palladium sale protected by a hedge floor price well above current market, is the best to weather out current market and best to leverage the coming bull market in palladium and platinum.

The only other metal that is even close to the bullishness of palladium/platinum, is the metal cobalt. There are strong and rapidly increasing industrial demands due to alternative energy applications, and due to the need of more drilling equipments in the oil/gas industry, and due to the metal's strategic importance in military applications. I wish to dedicate one article just to talk about cobalt. But suffice to say for now I consider cobalt a better physical metal to buy than silver and it should appreciate at least 10 fold relative to silver. Like PGM metals, 90% of the world's cobalt supply is concentrated in one country, Congo, which has been in years of civil wars and the conflict looks like flaring up again. So the supply is vulnerable while the demand is strong and growing. That's a perfect making of a bull market.

The best cobalt play I found is a stock called OM Group (OMG) (Oh-My-God). It is current a very decent buy at ridiculous low valuation. If you know any other cobalt play, or know places other than BHP Billiton (BHP)'s Cobalt Open Sale that I can buy physical cobalt, tell me!

Now, back to the US dollar. We are creating trillions of dollars out of vacuum and throw them into a blackhole. Make no mistake; it is inherently hyper-inflational. It's a big dilemma the whole planet is facing today. Short term it is about liquidity preservation or die. A little bit longer term it is about valuation preservation or die. Hoarding fiat currency while new money is created out of thin air preserves liquidity but loses value. Hoarding physical assets preserves value but reduces your liquidity.

I think we will see a very sudden and abrupt switch from a false US dollar rally caused by every one hoarding the cash, to a hyper inflation scenario where every one wants to spend out the cash as fast as possible. In physics it's like a high pressure and high temperature phase transition. The credit will go straight from solid ice to rapidly expanding vapor, skipping the liquid phase altogether, blowing everything out. The phase change will come imminently and suddenly, so be prepared for it!

A few side notes: I called for shorting Coca Cola (KO) and Pepsi (PEP), now it looks like I was right. I called for selling coal stocks like ACI, ANR, BTU, CNX, FCL, FDG, JRCC repeatedly since June 20th and I continue to make such call as I see the US coal market is now bearish. I can see JRCC drops to near $10 or even below. Continue to watch DRYS as it is a good indicator of the global economy.

Full Disclosure: The Author is fully invested in SWC and PAL, and is also heavily loading OMG recently. I am also buying SLV, GLD, SSRI, PAAS, SIL.

Peak Oil and Alternative Energy Investments

Peak Oil is for real and it is already upon us. The phrase "Peak Oil" now frequently occurs in main stream medias nowadays, as the oil prices are skyrocketing. As I drive my Prius to work each day, I noticed the gasoline price is going up 5 or 10 cents a day recently. Who wouldn't notice the skyrocketing gasoline price? 99.99% of the people have noticed the raise of gasoline price. But I believe less than 0.01% of the people really truely understand peak oil, a very simple yet hard to accept concept.

I believe there are less people who can understand Peak Oil Theory, than people who can understand Einstein's Relativity Theory. Einstein published his theory in 1905. By 1912, it was already well accepted and his name became a household name. In 1956, King Hubert published his Peak Oil Theory, a pure and simple mathematical derivative of any presumed limited natural resource. Today, half a century has passed, and the point of Peak Oil has even just passed, but Hubert Peak is still treated as a crackpot theory by some of the best educated people on this planet. As for the Malthus Theory, an even simpler and purer mathematical derivative. It's been two centuries but it is still being treated as an absolute hoax. I wish to find another occasion to talk about Malthus, since the topic is just too emotionally stressful, especially when it's put together with Peak Oil.

Humans are incredibly stupid animals, when the rational thinking is jeopardized by emotional rejections, especially by emotions of greed, fear and utter unbelief when a vast amount of interests is involved. Warren Buffett had long discovered that Mr. Market could never think straight or rationally. Mr. Market either over-valuate something, or under-valuate it. He keeps oscillating between the two extremes. That's the basis why it is possible for an investor to overcome the emotions and make profit by defeating the irrational Mr. Market.

All of the world's biggest giant oil fields are in steep decline: No. 1 Guawar in Saudi Arabia; No. 2 Mexico's Cantarell; No. 3 in Kuwait; and No. 4 China's Da Qing. Shortly after the crackdown of the Gang of Four, which ended the Cultural Revolution, a period of ten years of utter political craziness that turned the mentality of one billion people upside down, I remember that China vowed to discover ten more giant oil fields each as big as Da Qing. No one ever thought about the question how we could find ten Da Qings, if there was none exist in nature for people to discover in the first place? Again when the population thinks as a group, the intelligence level is extremely and hopelessly low. We as individuals may think we are smart, but as a group, we are often incredibly foolish.

The depletion at Cantarell is shocking even to experts who know about it. Daily production drops to 1.07M barrels recently. A year ago it was 1.57M. Two years ago it was 2M barrels a day. People in denial of Peak Oil, those so called economists who recently predict oil to fall back to below $100 a barrel really need to take a closer look at Cantarell and the depletion at other giant oil fields. When supply can not be raised, there must be demand destruction to forcefully reduce demand down to the level of available supply. I don't see oil demand destruction at current price level yet. If people can spend $20K to buy a new car, they can surely afford $4 a gallon or even $10 a gallon to use that car, or even $20 a gallon. On a side note, there is an interesting article about the Bakken Formation.

But people surely are responding and trying to cope with the reality of ever increasing gasoline prices. According to GM, Ford, Toyota, Sales of fuel efficient cars are booming, while those of big trucks and SUVs are falling. I am seeing more and more Toyota Prius on the roads. If you are about to buy a new car lately, I urge you to buy a Prius now, before the big wave. At a 66.6 MPG fuel efficiency that I personally achieved, Prius is the best of the breed. The production is constrained by raw material supply. Global annual automobile sale is 70M, but Toyota only recently reached cumulative one million sales of Prius. Hybrid vehicles like Prius can never become a main stream commuting vehicles due to the global resource constraint.

That brings me to the topics of hybrid electric vehicles, fuel cells, battery technologies, and a few of my favorite base metals. Hybrid cars like Prius use a 50 kilograms battery package called NiMH to store and re-use energy. Toyota is also developing a plug-in hybrid, which may require a battery package almost ten times as big for practical range of driving without gasoline. I estimate 60% of the mass of NiMH is the metal nickel. That's 30 kilograms of nickel per Prius. One million such cars would cost 30,000 tons of nickel, whose global annual supply is roughly 1.5M tons. So Prius hybrid batteries along consume 2% of global nickel production. 20% if annual hybrid sales reach 10M. Much higher when plug-in hybrids go to mass production soon. I will be the first to buy a plug-in hybrid. We are talking about the equivalent of 50 cents per gallon gasoline if we can re-charge from the electric grid.

Toyota, Nissan and Volkswagen all announced recently they are buiding new factories to produce NiMH battery packs for hybrid vehicles. All these of course will translate into greater demand of the nickel metal. That's bullish for my favorite mining stock, PAL, North American Palladium, which produces nickel as a main metal byproducts. The battery fever of auto makers even caught the attention of Jack Lifton at Resource Investors. Read what he had to say.

The coal stock JRCC has been super bullish! I meantioned JRCC before and recommended it. I had watched it since early 2007 and when it dropped to $4 I loaded it up big. But I sold it right before it reached $8 a share, because I thought a correction may come. The correction did came two days after I sold, and brought it all the way down to $4.76, almost erased the gain completely. But I wasn't in a position to buy at that time, I never bought back. I thought those folks who did not sell at $8 and saw it drop back to $4-ish must felt the hurt. Today JRCC reached $40+, a 3 year target that I gave JRCC. I am the one who hurts. Lesssons learned!

I don't understand it! JRCC released a Q1, 2008 loss much worse than expected and worse than last year, due to higher cost, and the share price rallied from $22 to $40 after the bad news. All those folks who was watching then and would not touch $4 JRCC with a ten feet pole, now fight hands over fists to pay $40 a share. Long term coal should be bullish. But I am skeptical how much of recent coal rally is due to real shortage, and how much is speculative buy by the funds.

Mean while, PAL reported a Q1, 2008 profit of 16 cents per share, far better than expectation, on top of that they reported world class high grade drill result, even the VP was saying this was a good result no one else has seen. And now after some initial excitement, PAL falls right back to where it closed before the May 12th earnings release, $5.22 a share.

Another stock I missed is ENER. I discovered ENER when I was researching about tellurium. I liked it and made a bullish call on it but I thought it was a long term play. Recently ENER reported a Q1, 08 profit of 17 cents per share, versus 14 cents loss last Q. ENER rallied almost 75% to more than $61 since the good news! ENER is a good company to own on two critical technologies, the tellurium based ovonic materials, and its NiMH battery technology, which is now hot for hybrid vehicles I just meantioned. I have no doubt ENER share price should go to triple digits and beyond. But I would wait for a significant pull back to buy. Progress of technology developments takes time.

Comparatively PAL also reported a similar 16 cents per share profit in Q1, 08, same as ENER. I don't understand why PAL still only deserve $5.22 a share, while ENER deserve $61.30 a share, almost 12 times more expensive for the same amount of profit per share. Buying $5.22 a share PAL is like day time bank rubbery! In a previous article I point out two extremely bullish developments for platinum and palladium: the termination of Russian palladium stockpile sale; and the ongoing electricity crisis in South Africa.

Latest SA government statistics (see page 9) show that South African PGM metal production in March, 08 dropped 28% from March, 07 due to the ongoing electricity crisis. The march production is even worse than January, when a 5 day mine stoppage due to electricity crisis caught the attention of the world. South Africa produces 85% of the world's platinum and 35% of palladium, so if they lose 28% that's a huge shortfall. The metal prices must go up dramatically soon, as South Africa is entering winter, when the electricity demand is high. Higher metal prices will immediately impact PAL's quarterly result, as they are totally unhedged.

So why people have not rushed in to buy PAL at $5.22? Must be the same people who avoided to touch a $4 JRCC with a ten feet pole.

Most market participants surely are stupid. But I feel even more heart breaking for folks who bought into the hype of FSLR. Please read my past articles. I wrote about FSLR's vulnerability in tellurium. My tellurium article has been cited and quoted all over the internet. And none of the folks holding FSLR shares even feel uncomfortable about the tellurium vulnerability, or even bother to give FSLR a call and demand an answer? I currently hold no FSLR short position only because I think the PGM metals sector, the PAL and SWC stocks, will give me more profit potential than shorting FSLR. Two recent developments in FSLR's tellurium supply struggle are shockingly disturbing, in my opinion. One is a recent FSLR job posting which revealed a secretive Tellurium Initiative Department. Another one is this news item I discovered, which is pretty interesting because FSLR is obviously interested in a potential poor grade gold mine in Australia just because there might be 59 grams tellurium per ton of ores. I will stop here at the facts and reserve my own opinions till next time. Let people speculate on their own. What I don't understand is if you like solar players, why don't you buy more legitimate silicon based companies like LDK, TSL, JASO, CSIQ, ESLR? At least these companies have a bright future. I am all for solar energy, but using tellurium to generate a few watts of electricity is a waste of precious natural resources.

P.S. The author is heavily invested in SWC and PAL stocks, and has hoarded physical tellurium metal to speculate on the price.