Principles of Wealth Preservation Through Physical Assets

Yesterday, barely one week after the fall of Fannie Mae (FNM) and Freddie Mac (FRE), we saw the fall of the third and fourth largest financial institution at the same time. Lehman Brothers (LEH) filed for bankruptcy. Merrill Lynch (MER) sold to Bank of America (BAC) in a hurry. Dow plummeted more than 500 points. We are looking at an un-precedent financial tsunami and it is at times like now that people MUST preserve their wealthy through safe haven investments, or risk losing everything.

When it comes to safe haven investment, people immediate think about physical assets like gold, silver, oil, land, real estate. There is a reason for it. Physical things have intrinsic values. Value of a paper fiat currency, or a stock, can fall to zero. But value of any physical assets can not fall to zero. The intrinsic values of physical assets are the reasons why they preserve wealth during times of financial and economic crises.

It is important to understand why physical assets like commodities have intrinsic values and how are they determined. Without this knowledge you might end up over-paying for something and losing your wealth. Those folks buying gold at the $800+ high in 1980 ended up losing big time and they may never be able to recoup their losses, because they chased the gold maniac and over-paid well above the intrinsic value of gold. Knowing how to measure the intrinsic values is more important as the value of the US dollar is changing dramatically, so the dollar price no longer provides an objective comparison.

To understand how intrinsic values of commodities like gold are determined, a few common misunderstandings must be demystified. Those common misunderstandings include:

A commodity's value is determined by its usefulness, or how much people are willing to pay.

A commodity's value is determined by supply and demand, the more scarce the more valuable it is. The more abundant the cheaper it should be.

Both notions are considered common sense by most people. But both notions are actually wrong if you think them through. Why are both notions wrong? Let me use one example to illustrate why these two notions are wrong. Let's talk about water, potable, drinkable water.

Water, of course is extremely useful and important. Water is needed to sustain life. But yet water is cheaply available. So something useful doesn't necessarily make it expensive.

Water is also abundant. Coca Cola (KO) can produce as much soft-drink as people of the whole earth needs to drink, and much more, there is even competition from Pepsi (PEP) and others. The Saudis can buy as much water as they need. Some one can filter the sea water to produce any amount of fresh water as long as the Saudis pay the right price. But the abundant water is not exactly cheap as dirt. Vise versa, something scarce doesn't necessarily make it expensive, either. Remember I mentioned KO and PEP for a potential short? I believe both companies will survive a severe economic recession or depression. But profits are going to plummet as consumers cut back on discretional spending on soft drinks.

The case of water provides a good example of the intrinsic value of a commodity. A one-gallon bottled water is sold roughly at about the cost to produce and ship it, plus a bit of marginal profit. The reason is very simple: If price of bottled water is too low to be profitable, then no one is willing to produce bottled water and so supply immediately falls, bringing the price back up. But if price is a bit too high, then driven by good profit, competitions will bring in extra production, which brings price down again. This leads to the important principle I want to talk about:

A Commodity's Intrinsic Value Is the Cost of Replacement

In my past articles, I have emphasized the basic economic principle that

Supply and Demand Drives the Price

And now I am talking about that commodities should be valued at the cost of producing them. Have I changed my mind? Am I contradicting myself? No! There is no contradiction. Both principles are valid and they are consistent with each other. The reason these two principles are compatible between them is that the replacement cost, the cost of producing the commodity, is NOT a constant. The production cost itself is driven by supply and demand.

That's because when the demand weakens and the price fall, businesses that produce at higher cost will fail, reducing the supply and leaving only the lower cost suppliers in play, hence the replacement cost is reduced until things reach equilibrium.

Likewise, when demand exceeds the supply, price must go up, and new source of supply where it previous was too costly to produce can now come into play profitably. So this is the case where strong demand drives up price as well as the production cost.

Let's use natural gas as one example. Some predicted that natural gas price should fall and they point out recent US production increase. What they failed to mention is that due to international market competition, LNG (Liquefied Natural Gas) import into USA has collapsed so the increased domestic production can barely make up for the drop of importation. The weekly NG storage number is significantly lower than the level last year, meaning the market has consumed more than the available supply for the past year. Further, almost 100% of the domestic production increase comes from the so called shale gas, a resource impossible to produce in the past and is still prohibitively expensive to produce today. The horizontal wells are very hard to drill and production from each well is very slow. Some estimate that shale gas is unprofitable to produce unless the natural gas price remains at $10 or more per MM BTU. Current spot price is at $7.39.

More over, from an energy equivalence point of view, one MM BTU natural gas is equivalent to 6.5 barrels of petroleum. So current price of natural gas is equivalent to only $48 per barrel oil, even though it is a cleaner fuel. Comparing with petroleum, natural gas is now in an extremely oversold condition. Using the principle that commodities should be priced at the production cost, which is at least $10, I am seeing United States Natural Gas Fund (UNG), is an excellent buy here and I see it less affected by turbulence in the general market. I bought UNG at around $33 myself. I also call for buying NGAS as it is an unconventional natural gas play, with a nice ticker name others are jealous for.

Let me come back to the topic of safe haven investments. The most important feature of a safe haven investment is not to make money, although that will be nice, but the main goal is to protect and safeguard your wealth. It must be something physical, with intrinsic value that does not fall, and is under your control and disposal. Safe haven assets are something you accumulate and you are not supposed to sell at any price, until time is getting real bad. And then these hard assets you own will protect you and your family. It's like buying a gun for your self-defense, do you buy it one day and then sell the gun next week, thinking that as you were not in danger that you do not need it any more? No! You buy and just own a gun indefinitely if you want protection. It's the same principle for safe haven assets.

Trading paper futures contracts, buying one day and selling another day and gambling on daily charts, like hedge funds are doing, is NOT safe haven investment. Safe haven assets are physical asset you just acquire while they are still cheap, and hold on for rainy days, as such, suitable physical assets to acquire must not only preserve and grow in value, but they must be easy to store, transport and safeguard as well. This leaves very few suitable options. You can not store coal, oil, natural gas or even helium in your backyard. The only practical things to consider are gold, silver, platinum and palladium. Even silver is considered too bulky in comparison with other precious metals. But for average Joes who do not have a lot of net worth, silver is perfect as a safe haven asset.

In near term, I am bullish in precious metal producers; I am bullish in natural gas and in crude oil. But I am now bearish in coal. I called for the coal producer, JRCC, at $4, and then called for taking profit in JRCC at $60+. My calls were perfect. I called for JRCC to reach low $20-ish and it is here today. The bullish sentiment in the coal sector is still too strong. But the fundamentals of the US economy does not support a bullish US coal market. If a large amount of US coal is shipped to Europe we might continue to see a coal bull market. But the dry bulk shipping rate is collapsing, as reflected in the stock price of DryShips (DRYS). The falling dry bulk shipping rate show there really isn't a lot of coal being shipping around the world. If investors are hoarding coal in their backyard, it might provide additional demand. I have not heard any one hoarding coal at home, though.

I am seeing JRCC to continue to fall to low double digits, in the $10 to $12 range. If you are in JRCC, or in other US coal players like ACI, ANR, BTU, CNX, FCL, ICO, MEE, PCX, dump them on the next rally up. It's no longer time for a coal bull market. There are better bullish investments some where else.

The best commodity bull plays right now, are precious metal producers. This is especially true as many precious metal players are now at ridiculously low prices. It's a basic supply and demand thing. A big part of the demand now comes from investment demand. If you look at the big picture, that investors large or small must now purchase physical precious metals as safe haven assets to protect themselves. The argument of investment demand now supercede any argument regarding the industry demand, because the investment demand can be orders of magnitude larger than industry demand.

Once again, physical commodities provide protection of value because their intrinsic value is the replacement cost. They can not fall below that replacement cost for extended period of time, because when it happens, it quickly kills off the supply, and then the price is brought back up. The intrinsic value also goes up as production cost goes up due to inflation and high material cost.

So which precious metals provides the best value protection as well as the best potential for gain, depends on its current price relative to its replacement cost. Gold I think is the worst. Gold's current price allows most of gold producers to be comfortably profitable. The huge above ground gold stockpile means there is no lack of gold even if many producers go out of business. So gold does not provide very good bottom price protection here. On the up size, there is currently enough incentive for new gold project to be developed, bringing extra supply to the market. So that limits the up side potential as well.

Silver is better than gold because current silver price is unprofitable for many primary silver producers. Current silver price just does not provide incentive for new silver supply to come online. Further, according to USGS, the world's remaining silver resource will be depleted in about 13 years at current production rate. So silver has very limited down side here and much greater up side than gold. I have recently purchased silver players like PAAS, HL, and SIL.

But I think PGM metals, platinum and palladium, provide best of all worlds. PGM source is pretty much limited to South Africa, Russia and two North American producers, Stillwater Mining (SWC) and North American Palladium (PAL). South Africa, by far the dominant supplier, producing 85% of the world's platinum and 35% of palladium, saw PGM production collapsed due to the country's electricity supply crisis, which is a long term problem with no solution in sight. In August alone, their PGM production falls by 32.8% from a year ago, while the 2007 production was also down significantly from 2006 level.

The investment community has completely ignored South Africa's electricity woe and production fall, while totally exaggerated the demand set back in the auto catalytic converter sector, and in the jewelry sector. In my last article, I point out that diamond demand is actually booming. That alone point to a higher jewelry demand of platinum and palladium. A loose diamond can not be worn. It must be set in a precious metal setting, platinum and palladium.

Investors also forget that their own purchasing of the physical PGM metal constitute a physical demand, on top of any industry demand. At current prices of $1120 per ounce platinum and $230 per ounce palladium, this is pretty much a bottom price which is already below the replacement cost. None of the South African PGM mines can make a profit producing platinum at $1120 per ounce. Do you know it takes 20 tons of hard rock ores and 5 months of total processing time to produce just one ounce of platinum?

Regardless of the precise industry demand figure, if the market does not begin to pay a better price, South African PGM producers will have to cut back production so the price will boost. That alone is a strong argument for investors to purchase platinum at current price. I wonder why the South African PGM industry would not shut half of their mines down to help alleviate the country's electricity crisis, and make much greater profit from half of the production. It seems they are not worried about weak demand or over-supply at all as they see the purchases are strong. They would rather worry about potential demand destruction if they do not strive to produce as much as possible to supply the market. Nothing can be more bullish when the main suppliers tell you that they worry about not having enough supply, instead of not having enough demand, when the platinum price is already so low.

Platinum's sister metal, palladium, should be a better buy than platinum because it is currently only 1/5 of the price of platinum. Historically the prices of the two were close to each other, as these two metals are inter-changeable in many applications. Industry users tend to use more of the less expensive metal, reducing the price gap over time. Palladium, being mostly a byproduct metal, except for that only SWC and PAL produce the metal as main product, is way much less price elastic in the supply, hence it has more explosive price rally potential. Palladium coins are now rare and hard to find. You should buy any palladium coin you can find with a decent premium. Of course the better buy would be the producers themselves, stocks of SWC and PAL.

How do you decide on the valuation of these two palladium producers, SWC and PAL? Look at historical price figure. The performance of the two tracks each other at roughly a 3:2 ratio, with SWC being about 1.5 times the price of PAL. The price of PAL collapsed in November, 2007 after a catastrophic secondary offer diluting the shares and provided an excellent short target to the naked shorter. Same story as what happened to Hecla Mining (HL) recently.

Consider that SWC still has lots of proven and probably mineral reserves, 23 million ounces worth of PGM metals, and they have hardly touched the tip of the iceberg of the gigantic stillwater igneous complex, and that there is opportunity to expand into the bullish chromium sector, while PAL's current mine is near depleted and they have yet to develop the rich Offset High Grade Zone. I think I would put a fair price ration between SWC and PAL at roughly 5:2.

Nevertheless, both companies are strong buy on the palladium play. Both stocks have been heavily shorted and heavily manipulated. The high outstanding short interests can not be safely unwounded, even at current low prices. Both companies have a very strong and patient majority or near majority stake holder behind them.

Behind PAL is billionaire investor George Kaiser, who own nearly 50% stake for many years, presumably because he believe palladium has an extremely bullish future. If Mr. George Kaiser wants, he can easily lift up global palladium price single handedly.

Behind SWC is an even stronger player, a 54% stake holder, Russia's Norilsk Nickel (NILSY.PK), the largest palladium producer in the world. They took all the trouble to acquired SWC to control over 50% of the world's palladium supply in the first place. Their strategic aim is clear: dominance of the global palladium supply, not for charity to the humanity, but for maximum profit. The Russia can name the palladium price any way they see fit if they want to. They have not taken any action to boost palladium price so far. But I guess a Russian checkmate is just a matter of time. They do not acquire SWC just to supply the world with dirt cheap palladium at a price far below cost.

I really can not see a market more bullish than that! And I really can not comprehend why so few investors can see what the Russians are up to. Time to buy some SWC and PAL. This will be an investment of a lifetime. Mr. George Kaiser has been waiting patiently for nearly 10 years so I think I can wait for a few more months. I am hoping that SWC or PAL suspend palladium sale at the spot market because it makes no sense for any company to sell products at a heavy loss. They could even buy back palladium at spot price! Even Gold Corp (GG) has suspended an unprofitable mine due to current gold price. If either SWC or PAL suspend sales or buy back palladium from the spot market, a lot of fun could happen fast. The global palladium market is so narrow that any one might squeeze the supply and pump up price.

P.S. The author is heavily invested in SWC and PAL, and hold long positions in HL, UNG, NGAS, PAAS and SIL.

The Brightest Stars in the Commodities Boom Part Two

Wow, what a slaughter in the coal sector on Wednesday, July 2nd, 08, as coal spot price plummeted nearly 10% in one day! I have warned on June 20 that there was something not right in the coal sector. The coal rally has gone too far too fast. The basic numbers of supply and demand does not warrant such a strong coal rally. I warned folks invested in coal stocks to take profit now, and move to other, more bullish commodity sectors. It's been proven correct and timely. Coal stocks peaked on June 23, right after I issued the warning.

Let's survey the damage: JRCC closed at $62.14 on June 23rd, and at $44.15 on July 3rd, a drop of 28.95%; NCOC went from $10.55 to $6.39, a drop of 39.43%; PCX went from $145.99 to $126.73, a 13.19% drop; MEE went from $93.38 to $75.46, a 19.19% plummet. In one day July 2nd, BTU dropped 9.3%; ACI saw a 17.2% haircut; ANR slashed 16%; CNX -14.6%; FCL - 11.7%; FDG - 12.7%; ICO - 19.7%. What a catastrophe in this whole sector. I believe coal is bullish long term. But there is no fundamental justification for coal price to triple in just 6 months.

Almost all traders focused their attention to NYMEX coal future trade, or Australian Newcastle Port coal spot price, which continues to climb up at scary pace to this day! But on a typical day about 20 contracts for any particular month are traded on NYMEX, with each contract worth 1550 tons. In a typical week about 2 million tons of coal is loaded to ships docked at the Newcastle Port. Those numbers are a drop in the bucket comparing with the scale of global coal supply and demand, which according to BP is over 3 billion tons a year, or nearly 6 billion tons according to other sources.

What people don't understand is that the global coal market is largely a LOCAL market. Shipping coal half an earth away is too expensive and getting ever more so with skyrocketing oil price and extremely tight global dry bulk shipping capacity. Good luck for any major US coal producers to sell thousands of future contracts on NYMEX when the daily trade volume is only 20, or find enough ships to shop the bulk of their production to Europe. They really can't rip profit from current high spot price either buy selling futures contracts, or by shipping a considerable portion of their coal production overseas. If they do, they merely collapse the NYMEX futures market, or simply drive up the dry bulk shipping rate to sky high levels that force international coal buyers to stay back. Good fortune to the Aussies, though. Producing only 6.9% of the world's coal, they are nevertheless the world's Saudi in coal, with 75% of their coal production exported in the first place.

Global coal exports can NOT expand significantly due to the bottleneck of global dry bulk shipping capacity. The Europeans might be so desperate that they are willing to buy coal at $200 a ton and want to import more. But they will not pay $200 a ton at Virginia harbors. Instead they probably pay $60/ton to Americans and then pay $140/ton to the Panamans (the ships). So if you really believe the global coal export market is tight, sell your coal stocks and buy dry bulk shipping stocks like DRYS, DSX. The bottleneck of coal market is NOT coal production, but coal shipment across the oceans. Don't be misled by the coal spot price at shipping ports!

I insist on looking at commodities at their basic supply and demand numbers, and future trend, and how elastic or inelastic the supply and demand responds to price changes. I don't think coal is the best long term commodity play judging from all I see.

In last article I mentioned the spectacular price rally of the PGM metal, rhodium, on a mere 4% shortage. Let's look behind reasons for rhodium's its stellar performance as it gives us a perfect example what makes a superstar in the commodities boom. I will then talk about prospect of PGM demand in the auto industry in light of the auto sales drop recently. Finally I will talk about another spectacular minor metal called cobalt.

According to Johnson Matthey's Platinum 2008 Yearbook, annual rhodium supply in 2007 was 822,000 ounces, while demand, net scrap recycling, was 856,000 ounces. The net shortage was only 34,000 ounces, or 4% of the demand. Such an insignificant shortage was enough to drive rhodium price to $10000 per ounce in 5 short years! So what is rhodium used for, and why it's so price inelastic?

Rhodium has two unique characters among the PGM metals. First, it's the most rigid and has the highest melting point among PGM metals. Second it is the only one that facilitates chemical reactions involving nitrogen, while being the only one strong enough to resist even the nitric acid. These two characters make rhodium virtually indispensible in all its applications.

Biggest demand of rhodium, over 81%, is usage in auto catalyst converters to neutralize the harmful nitrogen oxides (which are responsible for the acid rains) into harmless nitrogen, a role neither platinum nor palladium can play. There is no replacement possible and there is only so much auto makers can do to reduce the rhodium loading. If sub-standard catalyst converter is used, the vehicle may fail to meet the emission control standard after a few years of usage, so replacement will be required and it actually ends up increasing the rhodium demand.

Rhodium is also used as catalyst in a number of very important chemical processes, including the Ostwald Process to produce nitric acid, and the Monsanto Process that produces acetic acid. Nitric acid is the basis of the nitrogen fertilizer industry and a whole family of many chemical products. Acetic acid is the basis for a whole family of chemical products we see in our daily life, including wood glue that holds our furniture together, and plastic soft drink bottles.

Rhodium alloyed with platinum is also used in making high quality glass, including glass used in LCD displays, like computer monitors and big screen LCD TVs. High purity rhodium is made into the crucibles used in the production the high quality optical fibers used in high speed computer networks. The crucible is essentially just a container for the fused glass. So why must it made of pure rhodium and not any other metals? Because the fused silica material in the optical fiber used in long distance computer networks are extremely pure and extremely transparent. It's more transparent than even the air. This allows light to travel many kilograms in the optical fiber without much attenuation, enabling long distance communication using the light signal. In making such material of extreme purity, crucibles made of almost any thing would dissolve just a tiny bit into the fused silica, hence induces impurity and renders the material useless. Only rhodium, the toughest of all PGM metals, is perfectly rigid and inert, with very high melting point, and does not induce impurity into the material.

Without rhodium, computer fiber optics networks would not be possible, production of nitrogen fertilizers would not be possible, a lot of synthetic materials would not be possible to make. You look around yourself, 60% of all the stuffs we use everyday have something to do with rhodium in one way or another. Don't you think then such a magical, indispensible noble metal really should be worth more than ten times the price of gold?

Without gold, life on earth goes on and nothing much has been missed, without rhodium, half of the world's population would not survive because there will be no nitrogen fertilizers to boost food production to feed the hungry population. Without rhodium, companies like Monsanto (MON), Agrium Inc. (AGU), Potash Corp (POT), DOW Chemical (DOW) will have to shut down a major portion of their businesses. That's the whole reason why rhodium, at a mere 4% supply shortage, can reach such astronomical price level, US$10000 for one troy ounce.

The lesson from rhodium: A commodity that is in shortage, and that increased production is unlikely, and that is absolutely essential and indispensible in critical applications, will likely be one of the brightest stars in the commodities boom.

Most rhodium is produced in South Africa and Russia. But one of my two favorite palladium producers, Stillwater Mining Inc. (SWC) in Montana does produce 4,000 ounces of rhodium a year, and recycles about 28,000 ounces from spent catalyst converters. These are not trivial numbers consider that each 100 ounces of rhodium is worth one million dollars!

I have talked in the past that due to the ongoing South African electricity crisis disruption the supply of PGM metals, platinum and palladium; imminent depletion of the Russian government stockpile of palladium; increasing requirement of these metals in auto catalytic converters; emerging new applications of these metals; more over, due to strong investment demand, platinum and palladium will be extremely bullish in the next few years. The best way of leverage the platinum and palladium bull will be to buy the stocks of PAL, North American Palladium, and SWC, Stillwater Mining.

But first I need to address many people's concern that slowing US auto sales and slowing jewelry demand may hurt PGM metals demand. My viewpoints are that you need to study the details to get the accurate picture:

1. Auto sales in China, India, Russia and other emerging countries are booming and the increase more than offset the shortfall in the US market. China's passenger car sale increased 17% year over year. Combined with commercial vehicle sales China's auto sale now exceeds 10 million unions per year. The foreign auto sales in Russia are growing at 54% annual rate. GM reported record Q1,08 auto sales in Europe. Looking globally, the demand on automobiles is very strong. You only need to check out recent gasoline price raise to realize the fact that the world has an insatiable demand on automobiles.

2. Customers are increasingly looking to buy small fuel efficient cars, but auto makers do not produce enough of the small cars to meet demand. They over-supplied the market with oil guzzlers but do not have enough small cars for offering. As auto makers adjust their production plans accordingly to meet customer demand, I actually see a booming new car market in the next few years. The reality of high oil price is forcing many people to retire their oil guzzlers well ahead of time. They need to buy smaller, more fuel efficient cars as replacements to continue to meet their daily commute needs. Simple math! Assuming you drive 12,000 miles a year, keeping a SUV that gives you 15 MPG for the next 5 years costs you way much more money than buying a brand new Prius that gives you 60 MPG, consider that gasoline will go to $5, $10 or even $20 a gallon.

3. There is a myth that higher platinum or palladium price may suppress jewelry demand. Annually the amount of PGM metals used in jewelries is a couple million ounces, or roughly 0.01 grams per person in the world. Clearly platinum and palladium jewelries are NOT for every one. There is only enough metal for the wealthiest 0.08% of the world's population. Platinum and palladium jewelries are mostly for high end jewelries, like bridal jewelries. A typical diamond wedding band set probably cost $5000 or more, and contains maybe 6 grams of platinum. The metal cost is worth about $400, far less than the diamond itself. Platinum price goes up from $1500 to $2000 only increase the cost of a $5000 diamond ring by $100. A typical American wedding costs US$50K to US$100K. A typical Chinese wedding costs US$10K to US$50K. No one will cancel a platinum diamond wedding ring just for $100 extra cost!!!

4. John Reade did not know that year 2008 is a big Chinese wedding year. As the number of weddings will double, so will the purchase of bridal jewelries. He probably observed how jewelry dealers responded to PGM price changes and concluded that demand in this sector was pretty price elastic. It's absolutely wrong. Jewelry dealers, like any trader, always seek to reduce their cost, so they tend to double their purchases when the price drops a few dollars, and slash their purchases or even sell some, when the price rally a few dollars. But at the consumer end, the demand is not price elastic at all. At the end of day jewelry dealers will have to buy at any price to meet that consumer demand.

But most analysts missed two big issues on PGM metals fundamentals. One is investment demand on the physical metals. The other is the demand of industrial users to hoard stockpiles to secure their supply, especially in light of tight supply, and that investment demand may squeeze the already tight supply, and even worse, the possibility that some investors might intend to corner the PGM market.

The investment demand on physical PGM metals is very real. One only needs to look at the rapid increase of the physical metal holdings at the ETF Securities. Based on the dollar value of latest holdings of ETF Securities, the percentage of investment interests are respectively: Gold 54.90%, silver 7.78%, platinum 32.54%, palladium 4.78%. Such percentages reflect a very strong investment demand on platinum and palladium, if you consider how narrow the PGM market is in relative comparison to the gold and silver market.

Many gold bugs pitch gold as the best hedge against inflation. My opinion is any physical asset probably can be used as hedge against inflation, and contrary to common myth, gold is the WORST of all inflation hedges. Just ask the people who bought gold neat the $800 peak in 1980, or people who bought before the peak, but held right through the peak and eventually sold at a loss. In the next wave of gold maniac, it's quite possible gold may actually reach $2000, $3000 or even higher. But do you actually gain in real term of purchase power?

Gold might be useful to people who has too much money to be invested in anything else but gold, because everything else has a market capital way much less than the gold market.

But even Warren Buffett doesn't like gold. He had this to say:

[Gold] gets dug out of the ground in Africa, or someplace. Then we melt it
down, dig another hole, bury it again and pay people to stand around guarding
it. It has no utility. Anyone watching from Mars would be scratching their
head.

Almost every one laughed at Warren Buffett's gold comment. I did at one point. But after giving it some thought, I found that he actually said something in wisdom.

Why humanity continues all the efforts to dig gold out of the ground, when the world has already accumulated enough gold to last a thousand year? Why do we spend all the energy, resources and human efforts to mine something that we already have plenty? It doesn't make sense especially at a time when we are fast depleting our limited fossil fuels and other natural resources. Our efforts could be better spent on producing something that is useful, and that is in short supply.

I would rather buy SLV and PGM metals than GLD. But now I have found something way much better than silver: the metal cobalt. It is rare, in short supply, and the demand is surging due to increased production of batteries used in hybrid electric vehicles, and increased demand on special alloys containing cobalt. I believe this metal will do way much better than silver in the next few years. If you know a place where folks can buy small quantities of cobalt metal, please share the information with me. I will talk about this magic metal in greater details in my next article. For now if you are interested in cobalt play, have a look at a stock called OMG, "Oh-My-God", which I first noticed during its run up from $35 to $60. I think now it's cheap to buy.

P.S. The author is heavily invested in SWC and PAL, and holds shares in OMG.

The Brightest Stars in the Commodity Boom Part One

Thursday sees the market's knee jerk reaction of oil dropping of $4 a barrel, in response to China's announcement of gasoline and diesel price boost of 16%. Most traders perceived higher price will supress Chinese demand on oil. They know nothing about what's going on in China. After the price boost, gasoline still costs only US$3 a gallon, far cheaper than prices in the US and Europe. It will not supress demand at all, consider that only wealthest 3% of households in China own a vehicle. The Chinese transportation fuel market is in severe short supply. Refineries are unwilling to increase production because the crude prices are high, while the refinery product must be sold at government controled low prices, well below cost. The government hopes the price boost will encourage refineries to INCREASE fuel supply to ease the shortage. It actually will boost oil demand. Consider buying USO for a quick rebounce once the market realize they got it totally wrong!

Commodity guru Jim Rogers is my hero not only because he correctly predicted the commodity boom as early as 1999, but because the way he does market research and due diligence study is very inspiring to me. His millenium adventure around the world, which I recommend every one to read in his bestseller books, was not a safari, but a real adventure with real danger to his life. I do not think I can be as brave. I wish I knew him and read his books earlier. Commodity investments provided some of the most spectacular returns in recent years. You look at the spectacular chart below. Don't you wish you have bought some rhodium in early 2004? Me? I wish I had studied about CD-RW and bought tellurium in earth 2004 for $10. I want to talk about rhodium in more details in a later article since this is a very interesting case study on how to find commodity super stars, before they shine.


Jim said the commodity boom is far from over, which I agree. Although the current commodity bull cycle started in 2000, many of the raw materials did not start the earnest rally until pretty recently. Copper did not take off until late 2003/2004. Food grains and fertilizers did not take off until early 2007. As for coal, it doesn't make much movement until early 2008 when it all of a sudden rallied spectacularly, running from $45 a ton to well over $160 per ton in a few short months, surprising every one including me. I had the vision to load up heavily the coal mining stock JRCC at $4 last year, but did not have the foresight to see that it could reach almost $60 today, in just a few short months.

JRCC gained 15 fold in 10 months, or more than 12.5 fold in exactly 7 months. How often do you see such an incredible rally. How you wish you have grabbed that opportunity. I did catch it at the start but did not hold it through the whole course. I remember on Nov. 19, 2007 I was watching JRCC and I really wanted to buy it back but I had no dry powder. I knew I was giving up an opportunity but never knew how big an opportunity I had gave up. I wish had paid closer attention to the coal market and discovered this article last year.

Of course, JRCC is not the only coal stock that see spectacular rallies lately. There are a dozen others, PCX, BTU, ACI, CNX, FCL, FDG, MEE, ANR all gained tremendously.

How do you discover such bullish commodity players, before they take off, and how can you hold on to them for the whole course? And even more importantly, how do you decide your exit strategy? One word, due diligence research. If you know the market fundamentals and supply/demand trends, you can spot a bullish commodity player before it takes off, and you will have the conviction to hold through the highs and lows to rip full profit potential, and you will also know when it becomes over-valued and it is time to move on.

Coal's recent rally far exceeded my original expectation. I believed coal was bullish but I thought it's a long term play, at least 2 or 3 years out in the future. It is worth going back and re-example my original assessment of the coal market, and see if I missed anything.

As I discussed before, for any commodity play you need to exam the supply/demand relationship to see how bullish it is. You concentrate on several things:

• Is the natural source of the raw material scarce or abundant?
• What's the supply/demand numbers. How bad is the shortage?
• How price elastic is the supply. How high does the price need to go to boost supply, and how soon will it happen?
• How price elastic is the demand. Can demand be reduced or replaced if the cost is too high. How high the price need to go to cause that to happen?

I looked at all four criterias for coal and could not find a very solid bullish case. Global coal reserve is still abundant, worth a few hundred years of production. The global coal supply and demand figures in 2007 were 3135.6MT and 3177.5MT respectively. The shortage was 41.9MT, about 1.3% of annual demand. A very small percentage of shortage worth about 5 days of global consumption. Coal is mostly used as fuel in power stations, which often stock up to 3 or 4 weeks worth of coal. That should be plenty of buffering to absorb 1% or 2% of shortage in any given year. From the price elasticity point of view, the high coal price can not last long. China's coal production in 2007 was up 7% year-over-year. Recent news indicate that due to higher prices, the largest coal producer in China is boosting coal production at an annual pace of 13.3% or more. The global coal shortage may end soon right when every one is talking about higher coal prices.

So why did coal price double or triple in just a few months? I guess several reasons.

1. Global coal market is huge. But most coal supplies are already tied up in multi-year long term supply contracts netween producers and power stations. So the amount of coal available on the spot market is pretty limited and so is very sensitive to any temporary supply disruptions.
2. Mid to long term, both the coal supply and demand is quite price elastic. But in very short term, both supply and demand could be completely price inelastic. If a power station is running low on coal reserve and face the danger of shutting down electricity, they pay any price to ensure uninterrupted electricity supply. Mean while disruption at Australia's Newcastle Port forces many dry bulk ships, up to 30 at a time, waiting for weeks to be loaded with export coal. Can't load faster no matter what price you pay.
3. A few global events caused short term supply shortage. Those include the disruption in Australia's NewCastle Port, a major coal export port. By the end of last year, the Chinese government launched a crackdown which shut down a whole batch of small scale private coal mines operated under unsafe conditions, removing a significant portion of the production. As the coal shortage becomes evident, the government is now urging those small coal mines to resume production as soon as possible, when safety has improved.
4. It can not be ruled out that international hedge funds may be speculating on the coal market and bid up the price on the futures market.

Currently most coal mining stocks are prices so high that their prices are justified on the basis that coal price will continue to climb, and will stay high for the foreseeable future. If you look at the history of coal prices there have been periods of quick booms and bursts. JRCC itself emerged from a bankruptcy just a few years ago, and it is still heavily in debt today. So my advice to all the folks holding coal stocks is to sell now and move to something else. I am not calling a top, few people can recognize a top right when it occurs. I am definitely not calling for shorting coals. In all likelihood, the coal fever may well continue for some time and make new highs, but the big crowd has arrived. When big crowds arrive it is often time to move on to something else. There is always a bigger opportunity some where else where the big crowds have not gathered yet.

The biggest crowds in commodity investment probably concentrate on oil, coal, alternative energy, and gold. The gold crowd is too crowded. Today you can not visit an investment site or even tune to a radio or TV station, without hearing some one pitching gold. The most famous gold bug operate a free web site which I read daily. I appreciate the education on fiat currency, the credit crisis and the need of individuals to protect themselves from inflation. But why should gold be pitched as the only good hedge against inflation, and no mentioning of other precious metals, like platinum, palladium, even rhodium? I don't buy gold! You have nothing to gain in gold, in real term, comparing with other physical commodity investments. The only way you can make profit from gold is when you sell it to another gold investor, who just like you, hopes to be able to sell gold for yet higher price to the next gold investor in the line. Pretty much sounds like the bigger fool theory? The world has accumulated 320,000 tons of gold. There is never shortage of gold.

Relatively, the palladium investment crowd is far smaller and far quiet. Lots of gold bugs and silver bugs on the internet. But I have yet to find a palladium bug. Even the respected metals analysts don't understand the palladium market. Year after year they made bearish predictions based on the notion that Russian stockpile palladium flooded the market, each year they were proven wrong as palladium moved up and they scratch their heads wondring why they were wrong. Does it really stretch the mind to understand that Russian stockpile HAS to run out one day, and that will result in an industrial shortage, sending the metal price flying? Look at the sudden boom of investmenet interest since late 2003. Some one must had a Eureka Moment at that time and had been quietly loading up on this unprecedent investment opportunity ever since, driving the price up.

And now, on Nov 11th, 2008 the Russians themselves admitted they are running out of palladium stockpile. Is there any wonder that palladium price surged 12% in one week time since then? People are getting it and jumping on the wagen but unfortunately even a highly respected and award winning metals analyst, Rhona O'Donnell, didn't get it at all! She believed there was still some palladium stockpile some where "available to the market".

Hello! Whoever hoarded palladium since 2003 do NOT do it for a global charity. It's for making money! If the price is not right, it is NOT "available" to any one at all. On such notion of "large stockpile available", then shouldn't some one argue then that gold price should fall just because there are huge stockpiles in the world? No one ever made such a ridiculous argument. Whoever hoarded palladium waited exactly for such a Russian checkmate moment, and now the Checkmate Time in palladium is coming rapidly. The data contained in the Rhona O'Donnell article confirms that without Russian stockpile palladium, the market is in a pretty big gap of supply shortage. Do you notice that the palladium lease market may be halted?

Could palladium be the next rhodium? It could be possible. At least it's a way much better physical metal investment than gold. So you can never go wrong buying some palladium coins or metal bars. Of course, buying the stocks of the only two primary palladium producers in the world, SWC and PAL, may provide higher leveraged investment gains.

PGM metals are unique. Unlike gold, whose largest demand is investment demand, which is unpredictable and can not be counted on. PGM metals are critical to many important industrial applications whose demand can not be supressed even at very high price levels. But at the same time, the physical metals can also be hoarded away by investors, increasing the physical demand and adding to the shortage, driving up price. The global PGM market is so narrow and so tight that minimal investment demand can send the price to very high levels.

That is quite different from other commodity investments. I buy SWC and PAL stocks but I also buy physical palladium metal bars. All your folks who buy coal or oil stocks, do you also stack up a ton of black coal or a couple hundred barrels of crude oil in your backyard. If I visit Goldman Sachs office, do I expect to find a truckload of coal just delivered? No, there can never be any real physical demand from speculative investors, not even in the futures market. All trades are done on paper and when the contracts is about to expire they roll it to the next month. No delivery is ever taken so there is no physical investment demand in coal, oil, food grain etc.

I think I would rather invest in something that can be physically hold in my hands. But maybe I will just buy enough USO to hedge the gasoline price I pay at the pump, UNG to hedge my monthly natural gas bill. Finally read an interesting speech by Kevin Crisp which explains why PGM metals are critically important to the industries.

P.S. The author is heavily invested in SWC and PAL.

Investing In a Resource Constrained World Part Four

Recent developments in the general market make it necessary for me to continue this serial article about investing in a resource constrained world. I will be talking about food, agriculture and energy related investment topics this time.

In the part three article, I debunked Mr. Epstein's commodity bubble burst theory. The market quickly proved me right in a strong return of the commodity bull. Oil price jumped to record breaking $118 a barrel. Retail gasoline price now almost $4 a gallon. Food prices worldwide, leading by rice, rocket up and there's panic buying and hoarding of rice and other essential food all over the world. I bought 10 bags of rice three weeks ago before they were all gone. My rice bags made it into national headline news, thanks to Mr. Josh Gerstein. It wasn't a matter of me trying to save a few bucks. It's a matter of availability. Folks holding FSLR stocks tried to argue with me that tellurium is still quite affordable to FSLR. They do not understand it's a matter of availability, not affordability. Why don't folks contact FSLR and demand a specific and quantitative answer on their tellurium supply?

The availability vs. affordability debate will always bring up a very unpleasant topic that must be told, Demand Destruction, and an even more unpleasant but absolutely true topic, Malthusian Catastrophe on population growth. I will talk about it in more details in later articles.

We are entering a phase of severe global economic recession, triggered by the global credit crisis. Normally an economic recession means reduced demand on commodities. But it's different this time. I mentioned that for the first time, we are hitting the natural limit of supply on many non-renewable natural resources. The current crisis is caused not just due to imbalance in the economy, but also due to depletion of natural resources like petroleum, precious metals and base metals. If you are unfamiliar with the topic of Peak Oil, I advise you to buy a copy of Twilight in the Desert and visit TheOilDrum.com. In simple language, when exactly half of a non-renewable natural resource has been consumed, trying to produce the remaining half becomes every increasingly difficult and the annual production will be ever declining, until it's all gone.

Not only oil has peaked, a lot of other natural resources have peaked, or will be peaking soon. Those include helium, which has peaked long ago. You might consider APD for helium play. Copper has peaked and there is only 27 years worth of identified copper reserves left. Nickel has peaked as well. Silver production has long peaked and now there is only 13 years worth of silver left to be mined, based on USGS data.

The PGM (platinum group metals), on the other hand, is no where near peak yet. But I happen to believe the PGM will be the best natural resource play in short and long term, due to rapidly expanding usages and price inelastic nature of both supply and demand. That's why I like the only two primary palladium mining company in the whole world, PAL and SWC, as my most favorite stocks. Please read VM Group's recent research paper on PGM metals.

I have now heavily invested my 401K account into just two stocks, mainly PAL, and then some SWC, as price of both have dropped to a very attractive level, and all the bullish factors remain intact. The South African electricity crisis is becoming worse as they approach winter now, greatly impacting PGM metals production. Not only regularly scheduled load shedding is carried out daily, but ESKOM now stopped releasing info on power alert indicator or the total amount of load shedding, probably for fear of disclosing bad news. Auto sales in China grows at 25% or higher pace, now reaching 10.32 million per annum while the sale in the US only dropped 0.4%. That's a great boost of auto catalyst demand on PGM metals. Year 2008 is a huge Chinese wedding year and lots of ladies will purchase platinum or palladium diamond wedding rings.

I don't understand why people sell off platinum and palladium, knowing there is an industry deficit for both metals. Why should the stock of PAL be pushed to near multi-year low, while the metal prices are near multi-year highs? Dirt cheap stock price of a company of bullish outlook is an excellent buying opportunity. Insiders of PAL, North American Palladium, are buying shares of their own company from open market, according to recent filings found on SEDI.CA. At a time when most company insiders are selling their stocks like crazy, it's refreshing to see PAL insiders buying from the open market with their own money.

Most market participants are incapable of doing quality due diligence research and can only blindly chase stock price momentums, at the end of day the mobs always lose and savvy investors who stick to fundamentals win big time. At this time I do not even own FSLR short positions and have nothing to gain if FSLR suddenly collapses tomorrow. But I must insist on telling the truth of my research on the global tellurium shortage. If you hold FSLR, it's in your own interest to do your own research to find out what's going on, or at least push for FSLR to reveal quantitative information on their tellurium supply and usage. I believe that insisting on objective discussions of facts and logic helps return the market to a healthy state where companies are more fairly priced to their real valuation, instead of being rigged by professional market manipulators on the Wall Street. Do we need more ENRONs or BSCs?

Now return to commodities. Oddly, none of the best performing commodities in recent times are near any geological peak. Food, of course, leads all commodities in recent rally, as well as fertilizers. Price of coal skyrocketed, although the world still has plenty of coal left. Thanks to the coal price rally, stocks like ACI, BTU, BUCY, CNX, JRCC and MEE boomed. JRCC rallied from $4, where I purchased some, to a recent high of $25.37. When I purchased JRCC I figured that coal price may soon start to go up and JRCC may start to turn profitable. It is my belief that when a company goes from not profitable to profitable, the stock price appreciates fastest during the transition period. I figured that JRCC could go to $40 and it would take three years to get there. But the strong coal rally took me by a big surprise. I sold JRCC way too early and was never able to buy JRCC back. A lost opportunity and lesson learned that when you locked onto a bullish stock, you should never be swayed into selling by some temporary corrections.

Related to the global food shortage and food price rally, agriculture stocks are also on fire. Particularly in the fertilizer sector, we see some incredible rally in stocks like POT, MOS, AGU. The rally do seems to be justified, as the global fertilizer prices skyrocketed. What is worth noting is POT, which is the the largest potash fertilizer producer in the world, at about 9 million tons per year production scale.

How high will the rice and other grain prices go? How high can prices of fertilizers like potash go? Even though my 10 bags rice hoarding went on national news, my opinion is the boom and burst cycle of food grain will be relatively short, as proven time and again by history. A great famine is always followed by a great harvest. Oddly, historic records rarely show skyhigh food prices during famines. The reason is food prices are very price elastic. Most foods are consumed by poor people, the majority of the global population. They have no choice but cut back in face of higher prices, because they have limited money to spend. Instead of paying more, which they can't, they buy less, eat something else more affordable, or worse, die off due to hungry and malnutrition. Demand destruction at its cruelest. The population thus is reduced to the level where the available food can sustain. If a global natural disaster destroys half of the world's harvest in one year, then the poorest half of the world's 6 billion population will die off. Next year a good harvest may bring the food production back to normal level but there is no longer 6 billion mouths to feed, and food prices may collapse.

Some argue that as living standard of China and India improves, people eat more meat, hence mandating more food consumption to feed the animals and hence food price must continue to go higher. But food grains are merely taken away from the mouths of the poorest people in order to feed the animals. Wealthy people always eat meat and poor people never have enough to eat. The world is never fair to begin with.

Food is both perishable and completely renewable. The world will never run out of food. The next harvest is always less than 6 months away. So the grain bull market can not last for much more than a year or so. The food price can not go up indefinitely, either. When the food prices exceed the level where the poorest people can afford, they stop going up further. Rich people have money but they only have one stomach. So although I agree with Jim Rogers who predicts many more years of commodity bull market despite of the coming recession, I disagree with his emphasis on agriculture as the most bullish of all commodities.

Relating to the booming food prices, is the booming fertilizer prices. Players in this sector includes POT, MOS, AGU, TRA and a recent IPI. What is particular worth noting is POT, Potash Corporation of Saskatchew, No. 1 of the world in potash fertilizers, No. 2 in nitrate and No. 3 in phosphorite. The skyrocketing stock price of POT is mainly due to skyrocketing potash price. As recent as in year 2002 potash price was as low as $75 per short ton, now the news just break that the Chinese are paying $355 per ton more, raising from last year's $270 to now $625 per metric ton, for a total of 0.75 million metric tons worth of potash. More recent news says $1000 per ton is possible for the second half of the year. Such stunning news of course pushed POT share price to all time high of $216. Michael Pento discussed the agriculture boom and proudly declared that there is no bubble here in POT.

I beg to opine differently. When every one is talking about fertilizers and what a great company POT is, it's already too late for late comers and there might be a bubble forming. The world's population has been growing and has been eating for decades. Artificial fertilizers have been used for many decades. Potash supply, demand and price has been flat for three decades. So what has been changed in recent three years? A flooded mine in Russia last year and POT took the monopoly advantage and suspended sale, causing panic amongst the unprepared fertilizer buyers in the third world countries. The global potash market is tightly controled by two entities, Canpotex and BPC, leaving the major fertilizer buyers of China, India and Brazil no bargaining power at all. It's a good lesson learned that major countries like China and India MUST establish national strategic stockpile of fertilizers worth at least 3 years consumption. It is not just a matter of food security, but gives these countries greater bargaining power. I notice that POT has 13.25 million tons annual potash production capacity, but currently produces only 9 million tons. This looks like they use their monopoly power to limit supply and price gauge the global potash market.

I think POT is abusing its dominance power for the short term gain, but will hurt itself in the long term, like killing a hen to retrieve all the eggs at once. Natural plantations grow without potash fertilizer, because dead plants decompose on the spot, releasing potash back to the soil. Traditional agriculture removes only a very small eatable portion of the grain plantations, and return the bulk of the plant bodies to the fields, after decomposition or burning as cooking fuel. So the fields remain fertile. In recent years, Chinese farmers abandoned the traditional methods in favor of the easier potash fertilizer, due to increased income and affordability. Excessive application of fertilizers do not always result in the expected result, as potash is quite solveable in water. Rain water washes off the excessive amount of fertilizers, polluting major rivers. Will the Chinese farmers return to more sustainable traditional husbandary methods, in face of skyrocketing potash price? We will see.

The earth is plentiful in the potassium element. But rich, cheaply produceable potash resources concentrate in only a handful spots. At today's high potash price, many previous uneconomical potash resources all over the world can now be produced profitably. Many countries, including China, has been producing potash fertilizers from salty lakes. For decades, Isreal and Jordan are producing a combined 3.77 million tons of potash from the Dead Sea, which is only 8 times saltier than the ocean. All of the salty lakes of the world provide great opportunities to expand potash production. If the price remain even at half of today's price, I don't see why can't any one start to produce potash from the ocean itself. I see a potash price bubble bursting in the next year or two as the world adapts. POT, a company which has limited room to increase either the production, or the unit price, currently at a high P/E reserved only for companies perceived to have unlimited growth potential, is a clearly over-priced bubble. I would NOT short it here yet because I know the giant inertia force of group mentality of investors. But watch closely for an opportunity to short after the harvest season.

Watch JRCC and other coal mining company for opportunities to buy on the dip, as coal price is still cheap and has some more room to go up. But I believe the PGM metals, my favorite, has way much bigger room for price gain. Just look at rhodium. Went up from $300 to $9000 per ounce in 4 short years. Is this a peak already? Hardly! That's what a commodity of extreme price inelasticity can do.

PGM metals are extremely price inelastic, because few places in the world produce these metals. Russia's Norilsk mine has been produced for decades and now is in steppy decline. Largest PGM producer, South Africa, is crippled by a destructive electricity crisis. It can't even maintain current production, let alone expand capacity in the next few years. Outside Russia and South Africa, SWC and PAL are the only primary PGM metals producers. That's the price inelasticity on the supply side. On the demand side, the PGM demand in various applications are booming: auto catalyst; catalyst for oil refinery, chemical industry and fertilizer production; electronic application in MLCC (multi-layer ceramic capacitor), which see one trillion annual production and growing, and in LCD big screen TVs, etc.; Palladium dental fillings; palladium food inserts for preservation; fuel cell applications, etc. etc. PGM metals must be used in all these industries, there is virtually no replacement available, and quantity used per unit of product is usually small so the cost is not a big factor.

Take the dominant PGM metal usage, auto catalyst, for example. Some believe an economic recession may reduce automobile demand and hence autocatalyst demand. But according to this article, China's auto sale is growing at 21% or higher annual growth rate and now reaches 10.32 million units per year, that compare to a mere 0.4% drop in the US market. If you look at recent gasoline prices, you know the whole world has an insatiable demand on oil, and an insatiable demand on automobiles, and hence an insatiable demand on autocatalyst and the PGM metals used. Bad economic times also encourage catalyst converter thefts, leading to increased demand on replacements.

Vehicles must have catalyst converters that comply to tightening environmental control regulations, for good reasons. Global air pollution causes more than 4 million unnatural deaths per year, far more than traffic accident deaths. Without catalyst converters reducing the air pollution, the air pollution related deaths could triple to 12 million per year. So the annual consumption of 8 million ounces of platinum and palladium in auto catalyst applications saved 8 million lives a year. One life saved per ounce of metal. How much is one human life worth? How much is once ounce of platinum or palladium worth? No wonder the 2007 Nobel Chemistry Prize was awarded to the work that leaded to the invention of PGM based auto catalyst converters. The scientist have saved a population several times the total deaths of WW II. I am humbled to say that is the most deserving Nobel Prize awarded to a noble research work on the noble metals.

Unlike food, which every one eats, rich or poor, automobiles are only for those wealthy enough to afford them. And unlike fertilizers, for which plants can grow with less or with alternatives, PGM metal usage in auto catalyst converters can not be reduced. Decades of research have already exhausted most thrifting opportunities. Tightening environment regulations probably mean more metals need to be used in order to improve efficiency. It's ridiculous for some industry vest interesters to spread unsubstantiated technology news, making claims like silver based catalyst converters replacing PGM metals. We all know silver readily reacts with sulphur dioxide in the exhaust gas, rendering it useless. People who can afford to buy a car surely can afford to pay for a few extra grams of noble PGM metals, for the noble cause of save some human lives from air pollution. We are supposed to believe that silver catalyst converters will go into commercial usage in 2012. By that time, every one will have forgotten the story.

With such bullish outlook of the PGM metals price, how could I not get heavily invested in the only two PGM metals players in North America, PAL and SWC? Especially at such ridiculous low prices. I see nothing better to buy. I am a firm believer of Warren Buffett philosophy. He said if you really know what you are buying, there is no need for diversification.

Update April 25,08: Mitsui Mining now back stepped from their original silver catalyst converter claim, and now says it's "for use in farming and construction machinery, rather than car engines" WHAT A SCAM! Jack Lifton also commented on the story.

P.S. The author is heavily invested in the PAL and SWC stocks at the time of writting.