The Olympics Games and the Looming World War Three

The 29th Olympics Games has concluded nicely in Beijing, and so ended the One Dream of One Harmonic World. The War of Georgia broke out on the very eve of the Olympics Opening. The fireworks we watched were so brilliantly streaming! And the rockets' red glare, the bombs bursting in air, gave proof through the night that our planet was still not peaceful.

One only needs to look at the map to see the location of the strategically important BTC pipeline, to immediately realize that the Georgia conflict is in no way a regional conflict. It is a global crisis in all aspect. This, people, is the prelude of World War Three! Bush said a nuclear Iran would mean World War Three. Iran also warned that an attack against it would mean World War Three. So then, World War Three must be the inevitable thing to happen.

One little noticed news item caught my attention and convinced me that our government is indeed making strategic preparation for a possible global war. It's recent announcements by the Defense National Stockpile Center. It's public information. On August 7th, DNSC suspended sales of six materials from the stockpile inventory, one of them being platinum. On August 12th, DNSC issued a notice to order beryllium. And then on August 25th, DNSC issued solicitation to purchase pretty large amount of titanium. On the same day, DNSC also solicites purchase of the cobalt metal. Those are official public announcements.

In a previous article, I argued that platinum group metals (PGMs) are better safe haven investments than gold and silver and one reason is that platinum is a critical war material. Big nations attempting to prepare for a global conflict of long duration MUST be hoarding platinum, palladium and rhodium. It is shocking that US government suddenly suspended the sale in the middle of the year. This never happened before in the 20+ years since the end of the Cold War! The hoarding of titanium is even more worrysome, as titanium is an aerospace metal. No wonder that the stock of Titanium Metals Corp. (TIE) suddenly surged up 5.99% on August 25. The cobalt play OM Group (OMG), which I recommended before, also surged up alone as well, as does cobalt price.

I am not a warmonger. I am a peace lover. But facing the reality of global resource depletions including Peak Oil, I think a global resource war is all but inevitable in the very near future. I just hope it doesn't go nuclear. I am happy to see our government is trying to stock up on critical strategic materials like platinum and titanium. At least our leaders are sane enough to want to fight a conventional war, not a nuclear war. Strategic stockpiles are not needed to fight a nuclear war. Push a few buttons and it's all over and there will be no survivors.

Also, while I believe a global conflict is ultimately inevitable and that our government is already quietly preparing for it, as probably are other nations, I do think global war is NOT imminent yet, definitely not in the next few months. The reason is very simple: We are NOT materially prepared to fight a global war, neither are Russia or Iran or any other countries. This hopefully should allow individuals time to shift ones financial assets to safe haven investments, and physically and mentally prepare for the difficult times to come. But a global resource war can NOT be avoided ultimately. So keep that in mind.

Mexico, the third largest oil supplier to the USA, sees its oil production plummet, due in large part to the rapid depletion of Cantarell Field. It is expected that by 2010, Mexico will cease to be a net oil exporter. That's only two years away! Do our leaders not realize what a daunting energy future we are facing? Of course they know.

Investors need to keep an eye on what's happening in the conflicts in the Middle East. As our main stream media is nothing but propaganda and brain wash tools, I recommend daily readings of DEPKAfile, Russia Today, Middle East Times, Rense and Guardian, and always read everything with a grain of salt since every one is inevitably biased.

It's disheartening to see that with global crisis looming, everything valuable is selling off and everything with zero intrinsic value is rallying. Everything is sold off: oil, natural gas, gold, silver, platinum, palladium, rhodium, even cobalt, even my favorite tellurium. Meanwhile US dollar saw it's strongest rally in more than three decades! The world is turned upside down.

I say foolish traders! The first fundamental principle of the market place is that fools are always the vast majority in the marketplace. Most market participants are foolish not because their IQs are low, but because they are too lazy to do their due diligence study, or that they are too coward to follow through in their conviction of market fundamentals. Most people would prefer to just follow the mob, a proven method of losing your money fast and painlessly. The mob mentality makes it that much easier for the big boys to manipulate the whole market any way they want.

Recent commodity sell off, suspiciously synchronized in time, gives one assurance that it has nothing to do with any change in supply/demand fundamentals, but merely reflect a fluctuation in trader sentiments. It's nothing but inherit market volatility when too much money is chasing profit in markets that are just too small relative to the amount of money involved. Rhodium price fell from $10000 per ounce to the low of $3850 per ounce, a fall of 61% in just a month, but then it bounces back to $6200 per ounce, a rally of 61% up in just four trade days! Such volatility is unprecedent in the whole recorded history of any commodity trading. Does any one buying or selling rhodium really know the precise global supply and demand numbers of rhodium? You might want to read an interesting comment of Jack Lifton on rhodium.

James Conrad recently discussed the disconnect between paper and physical metals in the precious metals market. I highly recommend his article and a follow up. I agree there is a disconnect between the paper contract market and the physical metals market. I have a slightly different opinion on whether there is an actual shortage of the physical metals.

I think one needs to look at precious metal lease rates (interest rates) and compare the four precious metals to which one is in real shortage and which one is not. Gold and silver lease rates are so low they are effectively leased almost for free. But platinum one year lease rate is as high as 5.22%, while that of palladium is 3.38%. More strikingly, if you note the date on the lease rate chart, gold, silver and palladium are all recent, but the last update date on palladium lease rate still remains on July 24, 08. Does that mean that not a single ounce of palladium has been leased out for one whole month?! Isn't a high lease rate and a lack of lease activity an indication of physical shortage?

Another interesting development in the platinum and palladium market is that the ETF Securities platinum and palladium fund saw massive drop of physical metal holdings in recent weeks. Some analysts interpret the physical metal holdings drop as an indication of weaning investment interest. But I noticed that the daily trading volumes of the shares are way too low to account for the volume of recent physical metals redemptions. If it was investment funds unloading their holdings, they would just sell the shares in open market and be done with it. Some one directly tendered the shares and demanded redemption of physical metal, instead of selling the shares! I suspect that those are industrial users who purchased the ETF shares in the past, and who now tenders the shares to redeem into physical metals, as a quick way of quietly acquiring the physical metal, without driving up the spot price. If my speculation is right, this is a good indication there is now shortage of the physical platinum metal in the marketplace.

The massive redemption of the ETF Securities PGM metal funds is a great contrast from the massive increase of holdings in the iShares Silver Trust (SLV) and SPDR Gold Shares (GLD).

During times of crisis and uncertainty, people invest in precious metals to preserve fortune because physical metals have intrinsic values and they can be hold and can be easily stored and transported. I do not like gold because gold has little industry usage and is purely driven by investor sentiments. Gold is sold from one gold investor to another gold investor so you are attempting to profit from your fellow gold investor, which doesn't sound right. Metals with important industrial usages are much better value storage. I hoard physical tellurium and I do not need to sell it to another investor, certain industry users, like First Solar (FSLR), will one day pay a hefty price to me when they can't acquire the material else where due to a global shortage. But tellurium is not for every one due to its lack of market liquidity and its mild toxicity. Silver is better than gold as silver is an important industrial metal. Unfortunately the mine production of silver, as a base metal byproduct, is ramping up, while some of its traditional industry application is diminishing. Silver is now in structural surplus and so just like gold, silver price now is driven by investment sentiment, not by the supply and demand.

I recommended cobalt as a better silver and I recommended the OMG stock.

But the best precious metals are platinum and palladium. Platinum is a way much better gold, while palladium is better than platinum due to current price disparity. Unfortunately, physical palladium coins and bars are now extremely hard to find. If you like the PGM metals, consider buying the stocks of Stillwater Mining (SWC) and North American Palladium (PAL). They are the ONLY primary PGM metals mining companies outside South Africa and Russia. Russia, being the dorminant palladium producer, can cut back export and boost the palladium price at any time, in their own interests. South Africa continues to struggle with a national electricity crisis which greatly impacts the output of its PGM mining industry. How do you figure ESKOM, South Africa's national electricity company, is paying about US$10 per ton for coal while the rest of the world is paying $150 to $200 per ton for coal? They are forced to use discard coal! How long can they continue to burn trash until a catastrophic system break down happens? The CFO of ESKOM has just resigned, another bad sign things are not going well in that country.

I would also recommend buying U.S. OIL FUND ETF (USO) and US NAT GAS FD ETF (UNG). This market is rigged to the extreme. Hurricane Gustav blow through and forced the shut down of oil platforms, and oil and gas dropped 7% overnight? Maybe we should have more category 3 hurricanes so that we can all enjoy cheaper oil and gas. The marketplace has become a giant casino. The only way to fight this casino and win is stick with the fundamentals and stick with logic and common sense and do not run with the mobs.

P.S. The Author hold large long positions in SWC and PAL.

Safe Haven Investments and Global Crisis

As we make our investment decisions, we must be acutely aware what's going on in this country and around the world. We watched the TV report of the bank run on IndyMac Bank (IMB) and it was almost like a Hollywood movie scene of the Great Depression. But it is not a movie. Real people wait in long queue trying to get their life's savings back. Why must people wait till the crisis happens, before they would act to protect themselves? Have you done enough to protect yourself and your family, financially, materially and physically? Unfortunately the people, as individuals or as a whole country, are more likely unprepared until bad things happen and it is too late. We Americans are totally un-prepared to deal with what's coming our way!

Some speculate that World War Three is coming! This is no joking matter. Of grave concern is Iran's nuclear program. There is H.CON.RES.362 and S.RES.580 in the Congress on a fast track to be voted on soon, which calls for naval blockage of Iran, a de facto act of war. There can only be two outcomes. A nuclear Iran, or an Iran War. Third outcome? Maybe BOTH! Iran just said it is not retreating "one iota". Other things in that region are not looking good either so we all need to do something to prepare for the worst and protect our own assets in safe havens.

Putting politics aside, I think we are NOT in a position to launch an Iran War. Iran has the powerful oil weapon they can use. We do not have enough strategic petroleum reserve to deal with a catastrophic interruption of Middle East oil shipments. Not only we do not have enough petroleum in our stockpile, we do not have enough stockpile of any of the critical materials that are needed for national security. Those critical strategic materials include platinum group metals, rare earth elements, cobalt, indium, manganese, and niobium -- minerals used in everything from high tech equipments to every day products Americans rely on, and are vulnerable to supply disruptions. The US government used to have a large cache of all those critical materials. Unfortunately we sold them all since the 1980's. I am urging President Bush and the Congress to address our vulnerability immediately and stock up on petroleum and all the critical materials, before we ever launch another war, if it comes to the point that a global natural resource war is inevitable.

What's particularly worth noting are the platinum group metals (PGM). You may not know that there wouldn't be a World War I and World War II had platinum not existed, or had the German not invented certain platinum-catalyzed chemical processes, called Haber Process and Ostward Process, used to make dynamites and fertilizers. During World War II, the US government declared platinum as a strategic material and prohibit its use in jewelries, because it is needed to make the explosives used in the war. I think it will be patriotic, and profitable as well, that private US citizens should hoard some platinum and palladium, and sell them to the domestic market when these metals are desperately needed in the future.

I believe, at a time of crisis, platinum and palladium can serve better as a safe haven investment to preserve wealth than gold does. And cobalt will be more favorable than silver. I argued previously that the world has a huge stockpile of gold. Gold's value can fall below the mining cost, depending on investor sentiment, driving gold mining industries out of business, without causing any industry shortage. But if platinum value falls below cost, or does not go up with the increasing mining cost fast enough, major PGM mining companies may be forced to reduce production or shut the mines down, bringing about an immediate shortage and so price must recover to the profitable level to allow production to resume. Therefore, platinum provides a much better protection of value than gold, at good times and at bad times. Palladium, on the other hand, historically has a tendency to catch up with platinum price. Due to current extreme price disparity between the two metals, palladium probably will raise more percentage wise.

History shows that indeed many investors do consider platinum and palladium as much a safe haven investment as gold and silver. Look at history prices of PGM metals provided by USGS, and compare with gold price. All three metals share a major peak around 1980. There was nothing particular in industry demand to drive platinum and palladium up. Osmium and ruthenium prices were flat in 1980. According to USGS explanation, platinum and palladium prices were driven up by strong investment demand at the time, just like gold.

In the last month and particularly on August 1st, the prices of platinum and palladium plunged. On Aug. 1st, 08 alone, platinum dropped $106 and palladium dropped $20 an ounce. According to talking heads, the price drop was because the monthly auto sales numbers looked terrible, reducing prospect of PGM demand in auto catalytic converters. If you exam the auto sales numbers closely and you look at history, such knee-jeck reaction of PGM investors is totally wrong and unjustified. This price plummet give people an excellent opportunity to buy the physical metals, if you really know the fundamentals. Over the weekend I took the opportunity and swapped a big chunk of my silver for palladium!

If the talking heads travel back to 1980, what they would say about platinum and palladium? At the time, driven by crisis like the Iran-Iraq war, oil price was skyrocketing, just like today, there were long queues for gasoline at gas stations. Auto sales plummeted and GM stock price hit an all time low. Talking heads would claim the PGM demand for auto catalytic converters must fall (probably true), and hence platinum and palladium prices must fall through the floor. The prices actually rallied with gold and silver in 1980. People buy and hoard platinum and palladium just like gold as a safe haven investment. The investment demand more than make up for the drop in auto demand. Further, countries needed to hoard the PGM metals, just in case they needed the metals to make explosives in a possible World War III.

Knee-jeck reactions like the sort that happened on Friday Aug. 1st, 08 are wrong 99% of the time, because those are the mob's animal instinct reaction to headline news created by simple minded talking heads. The data is wrong; the headlines are for manipulation of mob psychology; critical information has not been filtered and processed by the brain when you react on animal instinct. A good example (page 103) was in December 1988 Ford (F) announced that they invented a platinum-free auto catalyst. Platinum spot price instantly dropped to $100 per ounce, from $500-ish. Have auto makers stopped using platinum today, 20 years later? When the so called Nisshinbo platinum-free fuel cell affair spread all over the world, I immediately contacted NIKKEI and searched NISSHINBO as well as Tokyo Institute of Technology web site, and find no reference whatsoever, and a T.I.T. researcher involved in platinum-free fuel cell research flatly denied knowing anything of the story. Based on information I collected I can conclusively say this must be a unsourced, unverified and not-credible news item, with no name mentioned, contributed to NIKKEI by an un-named author. What a shame! You just have to dig hard for authentic information because there is just too much noise out there.

Most investors are foolish not because they have no brains, but because they are too lazy to use their brains. The headline news claimed mind buggling auto sales drop in the US market. But auto sales in Canada actually went UP! Has any one actually digged through GM's actual sales document and analyze the actual data? Has any one actually visited a car dealership to find out the truth?

According to GM's monthly sales release, in July,08 GM delivered 235,184 units compare with last July's 320,935 units. That's where the claimed number of 26.7% drop in GM sales came from. But what people don't realize is the way GM report sales. For GM, any vehicle they shop out of the factories to the dealers is considred SOLD and booked in sales. The whole auto industry calculate sales that way. The problem is in any given month, GM can ship out any number of units, as they see fit. But it is NOT the actual sales. A vehicle is only sold when a customer walks into a dealer shop and drive away a brand new vehicle. So reading the GM delivery number is very misleading and does NOT reflect the reality of the market.

If you exam the GM data more closely, in July the inventory at dealers is at a low level of 747,000, a further drop from last month's inventory of 788,000. So GM delivery plus the inventory run down is the actual retail sales, which stands at 276,184 units in July, 08. In July last year, if you read the first paragraph, although GM delivered 320,935 units, retail sales were only 239,192 units, far fewer than GM's delivery.

So the true story is even through GM delivery dropped 26.7% y-o-y, the actual retail sales are UP 15.5%. US customers are actually picking up MORE vehicles, as I expected and I learned from dealers, that people are rushing to replace SUVs with new fuel efficient small cars, boosting the auto demand. GM must decided to ship less vehicles to dealers when the customers actually bought more, in an effort to reduce inventory and improve their liquidity position.

The conclusion is US auto demands are actually much stronger than the phony sales delivery numbers show. In emerging market like China, the sales data are the actual sales transactions, not the phony delivery numbers, and the actual sales in China is going up at 20% yearly pace. So globally, as told by Johnson Matthey the auto sales are growing strongly. Johnson Matthey made more than 1/3 of the world's auto catalytic converters so they are in a much more credible and authoritive position to tell the real trend of global auto demand.

Not only the US auto sales numbers are mis-interpreted, so are the news from ESKOM, South Africa's privately owned national electricity company. Lack of recent drama of load shedding lead some to assume "a brighter supply outlook out of South Africa." How dare any one make such a claim when ESKOM itself repeatedly warned the crisis will continue at least for the next five years. ESKOM's electricity supply in June, 08, despite having brought two mothballed decades-old plants back on line, actually DROPPED 2.3% from last year, although they claimed, in political correct way, that South Africans saved 2.3% in electricity consumption.

With half of the Koeberg nuclear power plant shut down, South Africa is running their electricity grid at dangerously low level of only 2.5% capacity reserve margin. It's only because large mining industries sacrificed themselves and received significantly reduced power supply during the time, that the whole country managed to escape more catastrophic power interruptions. Anglo Platinum (AGPPY.PK), largest platinum producer in the world, recently admitted that they never received the promised 95% of power supply, and had been running at 90% level all the time. Their first half 2008 production dropped16% from last year, or almost one month's worth of production in the first half year, much worse than a mere 5 days shut down in late January. So the South Africa PGM production reduction is very significant and is on going for the next few years.

The recent plummet of PGM prices reflects both the inevitable volatility due to strong investment interests squeezed into such a narrow market, and mis-understanding of market information. I would suggest that people interested in the PGM market to purchase a copy of CPM Group's Platinum 2008 yearbook. I was very impressed by the quality of their research and their data, from private emails. Right now, it's a great buying opportunity of the physical metals and of related mining companies, like Stillwater Mining (SWC) and North American Palladium (PAL).

My portfolio took a big hit lately but I am sticking to my convinction of the PGM metals bull market. Stocks of these two little known mining companies, PAL, and SWC, must be the most manipulated stocks I have ever seen. Some one must manipulate them for good reasons. In one month, the short interest in SWC ran up from mid June's 6.8M shares to mid July's 11.2M shares shorted, while the combined holdership of Norilsk (NILSY.PK), institutions and insiders now stands at 93.5M shares, higher than even the company's 92.78M outstanding shares. Likewise PAL's short interest also increased dramatically. I wonder how the shorts can manage to unwind such large short interest, accumulated at such low share prices, when the PGM metals start to rally again?

The market place has been extremely volatile lately. PGM metals are not the only thing that sold off lately. Petroleum also sold off heavily. I recently picked up a small stake in US Oil Fund (USO). Majority of market participants must be complete fools and their normal brain functions must be short circuited by animal instinctions. Congress passed a law to allow some drillings and suddenly peak oil is no more? We will get millions of barrels of oil out within days of the drilling while it may take another 100 years before Iran could obtains nukes? I don't understand! Perfectly intelligent people acting in totally foolish way.

There really is NO rationale in recent commodity sell off and financials rally. It's an inherit part of extreme market volatility. Such volatility results from a huge amount of money chasing a relatively narrow market. Prices could instantly move in the opposite directly violently on the most insignificant and ridiculous reasons.

I would love to use the analogy that if you squeeze 1000 people into a small room that fits 50 people, there will be fist fights right away triggered by the most innocent reasons. The market place is even crazier, consider how many trillions of all the absurd financial derivatives are out there, and how scarce the earth's remaining natural resources are. Extreme volatility is all but assured. You have to cope with it by keep a clear mind of the fundamentals, and buy the dips and sell the rallies.

Such volatility may provide me another opportunity to enter the coal sector soon. I told you in the past that I massively loaded up James iver Coal Company (JRCC) at $4. Although I sold it way too early, I did make the correct call to sell JRCC on June 20, one trade day before it peaked at $62.49. The coal price, as well as JRCC share price has fallen since, and there has been some extreme ups and downs in JRCC lately. My opinion, there is still too much bullish sentiments in JRCC and in other coal sector players, like ACI, ANR, BTU, CNX, FCL, FDG, MEE, and PCX.

One must wait for capitulation before buying coal players again. Capitulation is defined as the commodity and the stocks decline so much, that most people's sentiment change from bullish to bearish, and maybe with seeming good reasons, too. When that occurs, and when careful study convinces you that the bullish fundamental is still intact, that's capitulation and that's where you can buy. Pending the earnigns release of JRCC, which probably will be another disappointment, I think capitulation of JRCC will happen at $20 or below. I will buy at that price level but not before then. If you are in coal sector, sell now and buy back at capitulation time. In the PGM metals sector, I believe the capitulation has just occured. It's now a great time to buy SWC, PAL, PLG and ANO, as the bullish fundamentals of PGM metals are still intact.

A few short targets to consider. First Solar Inc. (FSLR) is one stock I love to hate. This is one well executed company with a good management team and proven track record of fast growth. It won't be a short, had it not been that they rely on cadmium telluride, the most toxic metal plus one of the rarest elements in the earth's crust. The cadmium toxicity makes FSLR vulnerable to Europe's update on the RoHS regulations. The tellurium scarcity as well as booming demand from other industry sectors put a very tight cap on FSLR's growth potential, and may ultimately force FSLR to go out of business, if emerging demands consume all the available tellurium. This should be a great short-to-zero target, but the timing of when to enter a short position is tricky, as there seems to be some big vest interests trying the best to support the share price, presumably to allow some big players enough time to get out. Althought tellurium price has eased down a bit recently, implying that FSLR may not face an immediate shortage for now, there have been indications that FSLR must be very anxious about their future supply. They have a secretive Tellurium Initiative Department seeking to extract residue tellurium from mining waste. That information was accidentally leaked in a job posting, #655, and they promptly removed the job postings after the leak. FSLR visited Capital Mining in Australia and Mexivada in Mexico in an obvious attempt to try to lock in some potential future supplies. Although these two mining companies are still in exploration stage and actually have very little tellurium to offer. More shocking is a recent Wincroft news which I shall not comment here. I will let you judge as FSLR so far avoided addressing the tellurium supply issues directly. If they pump the stock up to $300+ I will start to short.

Goldman Saches (GS) is one of the few financials that hasn't seen a significant drop yet so far but shall follow its peers soon. Coca Cola (KO) and Pepsi (PEP) are considered by many as good companies to hold during bad economic times, and with extremely low short interests, and they are Warren Buffett's favorite holdings for decades. During real bad economic times, who would spend discretional money on soft drinks when family budgets are tight even for regular food items? Soft drinks are unnecessary luxuries while a fuel efficient car will be a must have for average families. So I am contempting about shorting these three at good prices.

The Beijing Olympics will start on August 8th. I hope the game in the capital city of my motherland brings some peace and mutual understandings among nations on earth. But the real peace making event will happen at the same time but in the capital of the greatest nation, in Washington DC. The 14th International Conference on Condensed Matter Nuclear Science to be held in Washington DC from August 10-15, 2008. This science break through, if properly funded by our government and developed into commercial applications, will bring us virtually inexhaustible energy supply and put Peak Oil behind us. It will be a great dream come true, not just for the fortune of those of us who invested in palladium, the metal used in Cold Fusion, but for the good of humanity. No amount of money can protect us if World War III must be fought to grab the last remaining fossil fuel of the world. Let's hope that shedding blood for oil becomes totally unnecessary. I have urged my Congressman to send some one to listen in to the ICCF-14 conference and learn about the science first hand. Please urge your Congressional representatives to do the same!

P.S. The author is heavily invested in SWC and PAL and is also trying to build some short positions in FSLR, GS soon. I also hoard physical tellurium and palladium metals.