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).

Hot Money, Hot Commodities and the US Dollar Carry Trade Part 1

The collapse of the US dollar has passed the point of no return. An abrupt US currency collapse is now very possible. I hope we can see a gradual and orderly decline of the US dollar. But this best case scenario, as Peter Schiff hoped for, is now not likely. Peter Schiff still believes that there is still something that the FED or the US Government can do, to save the dollar. I disagree with him. Peter Schiff obviously does not understand how free market economy works, nor does Ron Paul, nor does Roubini. Jim Rogers is one of the few who understands and how free market capitalism works, and practices it by moving his family and assets to Asia. (President Obama: You still have two jobs to do: Buy the first lady an Iridium ring; and bring Jim Rogers home using Air Force One. That's all you need to have a strong family, a strong presidency and a strong nation. No kidding!)

This brings to me the Hot Money problem that China and other countries face. China has a gigantic foreign currency reserve that is composed mostly of US dollar assets, amid a looming prospect of ever falling dollar; China doesn't want to accumulate more dollars. But hot money keeps flowing in from the outside, smuggled in through Hong Kong, forcing China to print more RMB yuans to absorb the inflow of US dollars. China is not alone. Brazil recently slapped a 2% tax on foreign capital entering the nation's stock and exchange market. Australia is worried, too. Read how China's Commodity Carry Trade strategy of divesting the dollar: part 1 and part 2.

The Hot Money "problem" that China and the world worry about is actually free market principles working at their best. Basic Darwinism dictates that market capital will always go where it wants to go, not where the governments want it to go. Capital wants to get away from the soil that suffocates its growth, and move to fertile lands where it can thrive. Hot money flows out of the developed nations and into developing nations and nations with rich natural resources, because that's where opportunities of grow are.

Government interventions to stop the free flow of money are futile, fruitless and counter-productive; Government interventions to manipulate currencies and commodity prices are equally futile, fruitless, and counter-productive. Free market capitalism always works.

Recently Julian Robert thinks that the US faces Armageddon if the Chinese or Japanese stop buying the US debts, and that both countries maybe forced to sell US debts, due to domestic needs. He was right, except for the Norwegian part. The journalist asked: All the rich Norwegians have moved their money out of the country, so why do you invest there?

Good question! Capital money has its own mind. It wants to escape from hostile environments, and move to lands where it can grow and prosper. Rich Norwegians move their money out of the country because they are taxed to death. There are places where the taxation is less and the opportunity to grow is bigger. Again, government interventions are futile. China's effort to crack down on hot money inflow hardly made a dent. Equally futile was US government's tax cracking down on rich Americans who have foreign bank accounts. Such crack down is futile. If Americans want to move their money out of the country, there are plenty of ways to do it. Voting with feet is a more powerful than vote with a paper ballot. But if that's not enough, one could cast the ultimate vote with the US passport as the ballot ticket, at an overseas US consulate.

Instead of the futile crack down, the US government needs to exam itself in retrospect and ask why Americans are moving money to foreign soil, and what it can do to attract foreign money to come back to US soil. This is the key: When the money is leaving the US soil for foreign land, so are the job opportunities, so are our best investors, our best innovators and our best technical professionals, and so are our nation's future. So what do we have left? A dying US dollar and millions of jobless and hopeless hungry and angry people either sit at home waiting for the government to feed them, or else take to the street.

Peter Schiff believes that to save the dollar, all we need is the FED dramatically hike up the rate, stop money printing, and the US government massively cut spending and raise tax. The basic ideas are right. But if he believes those are realistic or possible, he really doesn't understand how free market works. What works is not what a government does, but rather what a government does NOT do. In China's history, every dynasty that prospered was only because the emperor taxed little and asserted little control of the society.

Great Chinese philosopher Lao Tzu said that governing a great nation is like cooking a small delicacy: You cook just enough so all the original flavors are preserved. If you over-cook then what comes out is anything but a delicacy. Sure America is a melting pot. But President Obama is cooking this melting pot way too hard that not only there is lots of capital spill over, but the melting pot itself is melting!!! Just ask the first lady how to cook!

Peter Schiff believes the FED can still dramatically hike up the rate and stop money printing, and the government can dramatically cut spending and hike tax, in order to save the US dollar. If it was that easy, if a government has the power to salvage its own currency, then why didn't Zimbabwe's President Mugabe do it? Did he not raise interest rate of Z$ dramatically? He has the money printer so he can afford to pay any high interest, right? Higher interest is meaningless if the principal itself, the value of one dollar drops even faster. The FED stops printing money? Who is going to buy our mountains of new issue US treasury bonds, if the FED doesn't print money out of thin air to buy our own debt?

How about the US government dramatically cut spending and hike up tax rate? You can't collect more tax from business that are not profitable, and hence has no tax to pay. Higher tax will force the profitable businesses to move to overseas, reducing, instead of increasing tax revenue. Cut spending? Which part do we cut? I think we should first cut the all the bailouts to the big banks and let them fail? But then do we want a nationwide bank runs and bank failures, and watch FDIC to go bankrupt? How about cut welfare and cut unemployment benefits. Then all the desperate people deprived of livelihoods probably will siege the White House, bringing their empty pots alone, banging and singing, until the resident has to get away on a helicopter.

Let's face reality, Mr. Peter Schiff. When you see the melting pot itself is melting and there's lots of boiling spill over, you are going to tell people that we can still have a great dinner if we do the right thing? NO! You should honestly tell the people that there is no more delicacy for dinner. The people HAVE to go to sleep with an empty stomach. What we can still do, is not to try save the delicacy, but to save the pot, so we can still cook a good meal tomorrow. Of course, Peter, you can not win votes by telling people they will be hungry. But that's the reality.

There is no salvation of the US dollar. But the US economy itself can survive and prosper. There are certain elements of the US economy, no, not the banks, not the Wall Street, but the real productive sections of the US economy, that will survive and prosper. American farmers will continue to produce food that the world needs. Intel (INTC), AMD and Microsoft (MSFT) will continue to produce computer hardware and software that the world needs. Catepillar (CAT) will continue to produce great construction machineries that China and the rest of the world wants. My most favorite mining company, Montana's Stillwater Mining Company (SWC), one of the world's only two primary palladium producers, will continue to produce palladium because the rest of the world still needs palladium, even though the bankrupt GM doesn't want to buy from SWC. Not to mention we have so many of America's world class science and technology products that the world needs from us. Not to mention our best treasure, the US constitution, one of the most beautiful constitution and the envy of the world's poor, tired, suppressed and desperate people.

Yes, the US dollar, a fiat currency, will collapse; No, the US economy itself will not collapse. A good historical precedence is hyperinflation Weimar Germany did not destroy Germany: It still had enough economic and military power to allow Hitler to launch World War Two.

Yes, the US Federal government is bankrupt, as is the FED; But No, the American nation, as well as individual states, will not go bankrupt. California will not go bankrupt. It has a constitution mandated balanced budget until recent years, and it is trying very hard to return to balanced budget, amid the difficult environment of tax revenue short fall and spending needs. It's heart breaking to see people start to talk about the possibility of session of individual states from the nation. But unless the federal government realize its own limit, and live within its limit, I think as we raise to the USSA we could well become the next USSR one day. The US government itself needs a bailout, not just the dollar.

I will discuss in the next part of this article how individual investors can protect themselves and make profit from the downfall of the dollar. Specifically I will talk about equities, commodities and US dollar carry trades, as well as how to use leverage to increase your gain.

Full Disclosure: The author is long precious metal palladium and silver, hold big positions in palladium mines SWC and PAL, as well as SSRI and CDE. I hold shipping stocks like EXM, EGLE, TBSI, DRYS, and natural gas fund UNG. I short the US dollar by holding some long positions in margin brokage account.

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.

Precious Metal Fundamentals - Recent Developments

We live at a time where information, as well as ENTROPY, spreads at light speed. We must be able to use our own intelligence to discriminate and filter out the noise from the internet, otherwise the internet is nothing but a giant trash can. In this world with little trust left in the system, we can no longer trust the authority of any information source. Mr. Bernard Madoff has proven that higher authorities CAN tell much bigger lies for much longer time. Everything we hear must be scrutinized using facts, logic and reasoning. I spotted an internet fraud and developments so far proved me completely right.

Recently Mazda repeated its claim of their single-nano catalyst technology which cuts usage of PGM metals in vehicle catalytic converters by up to 70%. Their technology uses smaller PGM particles and a proprietary agglomeration prohibition material. As a PGM metal investor I always pay close attention to such news that may bring change to the PGM supply/demand fundamentals. So how much can we believe in Mazda's claim and how soon do we expect an impact on the PGM metals demand?

History is the best teacher! In 2002, Daihatsu, announced that they invented a perovskite based Self-Regenerating "Intelligent Catalyst", which dramatically cut PGM metal usage while making the catalytic converters more durable. The idea was pretty good. Frankly the 2002 Daihatsu claim was much more credible than today's Mazda claim. There were independent researches on the perovskite based self-regenerating catalyst at the time. Now six years later, where is Daihatsu's "smart catalyst" today? Has it leads to any reduction in autocatalyst consumption of PGM metal? Not a zilch! If Mazda's idea of reducing metal particle size could work, it would have been tried long ago. My physics background allows me to conclude confidently that the so called single-nano technology CAN NOT work reliably and durably. I do not believe it until they get an EPA approval.

I am not saying that Daihatsu or Mazda made false claims. But scientific researches and commercial applications are two different worlds. In reality, 99% of research advances never make it into commercial products. Those few that do make it into the commercial world, take a long time to get there, and could still be ultimately rejected by the market, for non-technical reasons. Inventor Thomas Edison got cold water poured over himself when he tried to patent one of his first inventions, a voting machine that can precisely tally up voting results. Why we struggled with hanging chads in 2000? Politicians would rather prefer Diebold.

Why recent PGM thrifting news only came from small Japanese auto makers like Daihatsu and Mazda, but never from bigger names like Toyota Motor (TM), or Johnson Matthey, who is responsible for 1/3 of the world's autocatalytic converters? Mazda is NOT setting its priorities right. Each catalytic converter contains about 4 to 5 grams of palladium, worth about $24 at today's price. How can they cut corners and sell vehicles with sub-quality parts to customers? There were so many complaints about defective catalytic converters that even EPA had paid attention. You think consumers will let you get away with it?

Auto makers should boost the palladium content in catalytic converters and make them reliable and durable. Green cars with reliable emission control should then be exempted from the costly ($60+) annual SMOG tests in California and other states. Consumers will welcome the saving of money and hassle as it is worth far more than the extra cost of PGM metals.

I am convinced that the bullish fundamentals of palladium are even better in 2009. Recently Impala Platinum (IMPUY.PK) updated their estimate of platinum and palladium supply/demand data for 2008. Notice the significant drop of Russian supply? The annual sale of Russian Strategic stockpile palladium, about 1.5M to 2M ounces a year, finally ENDED! Back on June 11, 08, the palladium market knee-jerked when Norilsk Nickel (NILSY.PK) merely suggested the termination of the stockpile palladium sale. Now it really ENDS, how will people react when it becomes widely known? Russia maintains a Defense Strategic Stockpile for its own war time needs, not for selling PGM metals below cost to the world.

In Impala's estimates, recycling accounts for 1.1M ounces of palladium supply in 2008. CPM Group estimated the recycling as high as 1.6M ounces a year. The good news is this supply will also be removed in 2009. A new catalytic converter contains about 4 grams of palladium. An old one has about 2 grams left. Recycling recovers about 75%, or 1.5 grams each, worth about $9 in palladium at today's price. The PGM recycling is a long complicated and costly process. At today's low price there is simply no incentive for recycling. Stillwater Mining (SWC) is better off dropping the PGM recycling business now and concentrate on mining. This can boost the metal's market price as well as unlock large working capital that was locked up in the recycling materials inventory, and hence enhance the company's balance sheet.

On recycling, more than 1M ounces of palladium supply are removed. Mining production also dropped significantly. Norilsk Nickel estimated the 2009 palladium production to drop to 2.6M ounces from 3.0M as they now mine the nickel rich and palladium poor minerals to reduce cost, as well as process third party nickel concentrates which contain no palladium. North America Palladium (PAL) shut the mine down earlier, removing another 0.280M ounces supply. South Africa also saw about 10% drop of palladium production, or 0.25M ounces. Stillwater Mining (SWC) also expects reduced production in 2009.

When you add up all the supply disruptions and halt of Russian stockpile sale, despite of a 5.3% drop in auto catalyst demand, we are looking at an unprecedented palladium deficit in 2009, far bigger than in any other precious metals. And we haven't added in potential investor demands! Who wouldn't want to buy some palladium if you know what's going on!

The collapse of PGM prices in recent months was NOT due to fundamentals; rather it was due to investment funds as well as big auto makers were forced to liquidate their precious metals holdings to raise cash. Especially General Motors (GM). Auto makers normally keep 6 months of PGM metals supply to weather any supply shocks. When GM struggled for its survival, it had to sell its PGM inventory at cheap prices. Now that GM says it can expect to survive without more government money. It's time for GM to rebuild the inventory in light of the looming shortage.

Palladium has by far the strongest fundamentals and the best potential for an explosive rally, among all precious metals. I still believe that due to the huge above ground inventory of gold, and the current price above the intrinsic value of production cost, the yellow metal has little room to gain in real value. Gold is a liquid and stable currency, but has no investment value if you are looking for gains.

I like silver better than gold. Silver is mostly a by-product metal so the supply is price-inelastic. As a safe haven investment, silver is more appealing to Joe-Six-Packs as it is more affordable, while gold is more appealing to rich people due to its high density of value. Most people on the GoldIsMoney forum believe silver is more bullish.

But none of the silver bugs even presented specific and quantitative data on silver supply and demand so I want to have a closer look. Photography usage of silver, which traditionally accounts for 1/3 of the demand, is now diminished as digital cameras replace analog ones. Sterling silverwares like spoons and goblets are also going into history. Industrial demand saw some increase in recent year but is uncertain as the global economy goes into recession.

The biggest uncertainty factor is silver jewelry. Silver jewelries are low end cheap jewelries. They are those cheap bling-blings you pick up in a mall or a grocery store when you happen to have a few extra dollars and you just like what you see. So in a sense silver jewelries are discretional spending items and are vulnerable in a slowing economy.

The high end jewelries made of gold, especially platinum and palladium are different from silver. They are rarer, and are more likely purchased as some special gift rather than casual spending. No one would buy a silver earring or necklace as an engagement gift, for example. Your fiance(e) will expect a diamond ring made of platinum, palladium or white gold. People will not tender their platinum wedding bands to pawn shops for cash, but they are perfectly happy to toss out old silver jewelry pieces.

Unlike PGM recycling, which is complicated and costly, recycling from scrap silver jewelries is simple and inexpensive as the materials contain high concentration of silver. Silver recycling remained at near constant high level over the past years, regardless of silver price. The PGM metals are different as low PGM prices discourage recycling and reduce the supply.

I believe silver remains bullish due to investment demand. But due to uncertainties in industry demand, I recently reduced my silver mining stock holdings in SSRI, PAAS and HL, and concentrated more on palladium mining stocks, SWC and PAL. The continued strong rally in Baltic Dry Shipping Index (BDI) shows I made the right call on the shipping sector. So I continue to hold large positions in shipping stocks, like EXM, EGLE, GNK, OCNF and DRYS.

Full Disclosure: The Author is heavily invested in palladium mining stock SWC and shipping stocks EXM, EGLE, GNK, OCNF and DRYS. I also hold positions in PAL, USO and OMG.

The Real Supply and Demand of Oil and Other Commodities

The market irrationality has reached a new record. Spot price of the crude oil free falls to $31.41 a barrel (WTI Cushing Spot) two days after OPEC cut production by 2.2MB per day and made clear that they wanted to see $75 oil and will continue to cut if necessary. As OPEC vowed to keep cutting until they see $75 oil, oil should go up, but it actually went down. What gives?

In search for an answer, people blame it on "the oil demand has collapsed". Global oil demand did NOT suddenly collapse in the two days after the OPEC announcement. Look in a mirror for the answer. Yes that says you! Every one bet on raising oil after OPEC cut. The market ALWAYS fools most of the people most of the time, logical or not. Fundamentals work in long terms, not in short term moves. If you bet on short term moves, try to bet against most people, instead of bet on fundamentals.

Has the global oil demand collapsed? US oil import in October actually surged. Read the EIA provided weekly US oil import data. In the week ending Dec. 19, total US oil imports were 12.780M/day, versus 12.907M/day in the same week a year ago. That's only a 1.0% drop. Consider the surging oil demand in China, Russia, India, the global oil demand probably sees a slight increase or at least remain flat.

Do not forget Peak Oil. The world's top ten oil fields are all in steep production declines. Mexico's Cantarell Oil Field is declining more than 33% a year! According to Matt Simmons, Mexico, our 2nd largest oil supplier, will CEASE to export oil by the end of 2009.

The free fall of oil completely defied logic. I did purchase some USO a bit too early after the OPEC decision. Judging from what happened to other commodities, oil price may continue to drop to such low level that most oil producers can no longer make a profit. At that point people may finally be convinced that oil producers will cut production for real, instead of cheating on the OPEC production quota.

The fundamentals of commodities supply and demand can not change in just a few months. As I discussed before, the global credit crunch resulted in forced liquidation of global supply chains, as every one liquidate their inventory to raise cash in order to survive. The inventory sales flood the market to create a false over-supply situation while supply destruction is playing out at break-neck pace as unprofitable mines are shut down.

Due to the credit crisis, global commercial activities are brought to a grinding halt due to lack of credit. The global shipping industry is hit hardest. Read my analysis on what happened in the shipping industry and why I bought shipping stocks like DryShips (DRYS) near the low. If you followed my past articles, you know I have followed DRYS for a long time but never bought before. I believe DRYS could be like the coal stock JRCC I picked up around $4 last year, gaining some 15+ fold from the low in a matter of a few months!

BTW I continue to call for people to sell JRCC and other coal stocks (ACI, ANR, BTU, CNX, FCL and FDG) at any good rally. The US coal market is now a bear market. Coal is long term bullish but short term bearish. Obama's Global Warming team doesn't help coal either. I knew Steve Chu when I attended his seminar on his laser atom trapping research, two years before he was awarded the Nobel Prize in Physics. I am sad a brilliant physicist was tricked by the Global Warming Hoax. He was too occupied to spend 10 minutes scrutinizing the global warming claims using his basic physics training. But in any case, the coal sector is not going to be a happy sector for a while. Mr. Secretary Steve Chu, please spare a few dimes to the Cold Fusion research scientists, you know, as an experimental physicist, no one could continue to do the same experiments for 19 years, unless there really IS something in it. Cold fusion is real science and humanity's best hope of overcoming the energy crisis due to fossil fuel depletion.

We need to make a distinction between the aberration caused by the credit freeze up, and the real fundamentals of supply and demand. The credit freeze up only has a temporary effect in halting global goods movements and suppressing or delaying demand. It can not last long. Governments around the worlds are printing fiat money like crazy and injecting huge liquidities to get the credit moving again. There are clear signs it's starting to work. Banks are NOT in the business to hoard cash. They are in the business of taking in deposits and then loan money out to earn the spread of interest rates. If banks do not resume regular business soon, the whole banking industry will disappear from our society. That is not going to happen.

The real supply and demand is no where near a catastrophe. World Bank predicted a 2% drop in international trade next year. MasterCard reported a 3% y-o-y drop in US gasoline purchases. US Census Bureau reports a 4.4% increase of goods exports and 3.9% increase of goods imports in October, compare with last year. The scariest number is Japanese government reported a 26% drop in export to the USA in a recent month. Well dah?! Japanese count numbers in Japanese Yen, the same US$ amount is now 23% lower in Yen compared with a year ago. So Japanese export in US$ terms probably dropped a mere 3%. Every one is shouting "demand destruction" but how many actually dig into the data and scrutinized the facts?

As I discussed, the modernization of China, India etc. is the fundamental driving force behind the global commodities bull cycle. This transition has been going on for some 30 years and can go on for decades more, as the per capital consumption of many raw materials and goods in China is still far below even the global averages. Read "China Eats the World". China's current highway mileage is worth about ONE INCH of highway per person. There is a gigantic demand of steel and cement if China provides its citizens at least one finger or one foot of highway.

The basic demands come from basic human needs. During bad economy times, people cut spending on luxuries but continue to demand on things that are essential. So let's exam what is luxury and what is necessity in the people's lives. First let's not confuse luxury with expensive items. Something expensive doesn't necessarily make it a luxury, and something cheap doesn't mean it is a necessity. This is important to keep in mind.

Drinking Coca-Cola is a luxury; driving a car to work is NOT; Brushing your teeth with tooth paste, rinse your mouth using mouth rinse liquid, or using shaving creams while shaving, is a luxury; but visiting a dentist for dental cleaning or a dental crowning, is a necessity. Watching big screen TV is a luxury, but owning a computer to surf the internet, is essential. Living in a 5-star hotel is a luxury, but living in a place with roof over your head, is absolutely essential.

Companies that produce "luxury" items should be considered good short target now, particularly those big blue chips stocks few thought about shorting. In early August, 08 I called for shorting soft drink companies like Coca Cola (KO) and Pepsi (PEP) as I believe soft drinks will become non-essential luxury items. These two stocks have moved down a bit but they are still good long term shorts.

Now come to think about it, do people really need to use an ever growing amount of toothpaste, mouth rinse liquid or shaving creams? Even Albert Einstein did not use shaving cream. He just used warm water. I am thinking about shorting related stocks like Colgate-Palmolive Co. (CL). With a saturated market and shrinking profit margin, it's ridiculous that CL is priced at more than twice its annual sales and 15 times its book value. The short ratio seems to be low so CL may be a good long term short. On similar consideration maybe one should also consider Procter & Gamble Co. (PG) as a possible short. The difference is PG's is at a more reasonable 2.83 times book value, and it is well diversified into a lot of different products. So I will be cautious and want to do more DD before shorting PG.

Three things in life are absolutely essential: eating, living and moving. Eating is of course the most important. However there is a lot of room in cutting eating cost, without cutting nutrition. People will cut on non-essential and unhealthy processed food, and rely more on cheaper fresh food. One example is potato chips and pop corns. Why would any one eat these junk food? Frito Lay came to mind but it's part of Pepsi Co (PEP). Any one can recommend a good snack food producer to short?

There is much less to be compromised in living. For 99.99% of Americans not living under a roof is unthinkable. You either own a home or rent a home, one way or another. Surprisingly, the majority of the home builders, like DHI, CTX, LEN, RYL, are still around today. People either own a home, or have to rent one. So if people are not buying houses, then there must be a booming rental market and a booming business building rental units. Is it time to buy home builders as many of them seem to have gone up from their lows? I am skeptical. We need to see at least half of home builders go out of business to remove enough excessive capacity, before the remaining ones can return to profitability. There are so many good things to buy now. It's not time to go into home builders yet.

I see even less room to be compromised on moving. The mobility is an essential human needs more important than eating and living. In the Great Depression movie "The Grapes of Wrath", the family lost everything and they had little to eat. But they kept their family truck, which allowed them to move to California, find a job and find a place to live. Without a four wheels car you are reduced to just two legs. Without two legs and you are reduced to two wheels. That's how important mobility is.

Car ownership is an essential part of American lifestyle. You need a car to go to work or go shopping. Even if you do not have a job, you still need a car to move around looking for jobs, or go get some help, or to move to a better place. Has the global auto demand collapsed? Not by a long stretch! Just look at the global oil consumption. The Big Three US auto makers, particularly GM, are at the mercy of government help now. But it is a problem of the Big Three unable to compete with foreign auto makers, not a problem in fundamentals of the global auto industry.

The current credit crisis forced many people to delay buying new cars, but it also means a strong pent-up demand to come back soon. Historically, due to the skyrocketing oil prices and inflation, auto demand collapsed in early 1980s and GM stock hit a low in mid 1982. But just a little over a year later, in 1983, US auto sales reached a new record high as consumers who delayed car purchases found they still need a new car when the old car breaks down.

I believe it is in America's best national interest, as well as in the interest of the consumers, to keep the Big Three alive and keep the competition alive, and the vehicle prices low. But I do NOT advocate buying GM stocks as an investment. There is no reason to believe they can pay off the huge mountain of debt and pension obligation, and start to make profit any time soon. So there is no reason to invest. Both the longs and shorts in GM stocks right now are just gambling against each other, trying to pick a few dollars from each other's pocket.

We should invest in companies that have been indiscriminately hit hardest, but are financially strong and have good future prospect of profitability. The best sectors to be in right now are mining companies and bulk shipping companies. The shipping sector should rebound sooner and stronger than anything else, due to the pent-up shopping demand from the goods stockpiled on harbors waiting for credit letters. That is why I started massively purchasing shipping stocks like DRYS and EXM. There are others, like DSX, EGLE and GNK.

But my best favorites remain the by-product rare metals, palladium, and cobalt. Both metals are critical both during peace times and during war times. Stillwater mining (SWC), America's only palladium mine, remains my biggest holdings, although DRYS now catch up to be my No. 2. Another palladium mining company to own is North American Palladium (PAL). I also own a significant stake in OM Group (OMG), the world's dominant cobalt chemical company.

You've got to like palladium and cobalt because both metals are mostly by-product metals, and supply of both could be interrupted by a single-point-of-failure, which is very real. I talked about a possible Russian Checkmate. Norilsk Nickel (NILSY.PK) could suspend unprofitable production due to low nickel price, hence cut off 45% of the world's palladium supply.

Now it seems things at Norilsk are playing out in better favor of palladium than I thought! Norilsk resumed the US$2B stock buyback. That leaves them $2B less in cash and closer to a liquidity squeeze that will force them to shut down the unprofitable mine soon. Norilsk also announced production cut. Nickel production in 2008 cut to 298K tons from planned 300K tons, and reduces to 290K to 305K tons next year. The cut in palladium is much more dramatic, from a planned 3.05M ounces to actually 2.764M ounces in 2008, and 2.61M to 2.62M ounces production next year. Why the production cut in palladium is much bigger than nickel?

Norilsk explained there are two reasons for lower palladium production:

Reason 1: they will reduce local mineral ore production and purchase third party intermediates (metal concentrates) to supplement nickel production. Nickel concentrates purchased from third party will contain no palladium, only nickel.

Reason 2: much lower PGM content in the ores. Norilsk's mineral reserve statement shows that the nickel rich part of ores actually contain less palladium (2.91% Ni and 7.41g/t Pd) while the nickel poor ores contain more palladium (1.19% Ni and 11.92g/t Pd) . If they seek to reduce capital expenditures, they will produce the ores rich in nickel and poor in palladium. Using the content ratio of the richest nickel ore, if Norilsk's polar region nickel production is 225K tons, then the palladium production will only be 1.922M ounces, versus the normal 3.05M ounce.

It's end of December now and the annual Russian government stockpile palladium shipment has NOT showed up in Switzerland. Maybe the Russian palladium stockpile sale has finally ended for good. It's in Russian's strategic defense stockpile. There is no reason to sell at current low palladium price. The Russian Government has taken effective control of Norilsk Nickel, and will support the mining company by buying up its metal products.

What better support can the Russian Government extend, than to simply buy up Norilsk's palladium production and re-stock the nation's defense stockpile? In doing so they can bid up the global price of palladium to over $2000 an ounce, which means a cool extra $6B per year for Norilsk, a money they desperately need right now.

These numbers and facts continue to convince me that Stillwater Mining (SWC) is the best mining stock I can own for the next 5 years. That is the reason I continue to hold a dominant position in this mining stock, America's ONLY producer of the strategic PGM metals.

Full Disclosure: The author is heavily invested in SWC, DRYS, OMG and PAL. I currently have no position in GM, KO, PEP or CL.

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.