The Retired Investor: U.S. Moves to Nail Down Strategic Metals
Rare-earth minerals, with names like cerium, dysprosium and gadolinium have become "must have" materials in the global race to win the technology battles of the future. The problem is that throughout the last 30 years China has built a near monopoly in these strategic metals.
Rare-earth elements (REEs), consisting of 17 different minerals, are used to make components in many high-technology devices, including smart phones, digital cameras, computer hard discs, fluorescent and light-emitting-diode (LED) lights, flatscreen televisions, computer monitors, and electronic displays. China commands 35 percent of the world's reserves of these minerals and produces more than 70 percent of all rare earth tonnage worldwide.
In our present trade wars with China, the possibility that China might respond to U.S. tariffs by embargoing our REE imports is a real threat, since last year China accounted for 80 percent of our total rare-earth compounds and metal imports.
After years of delay before recognizing this danger, President Trump signed an executive order aimed at expanding domestic production of REEs last week. He ordered the Interior Department to explore using the Defense Production Act to speed up the development of such mines. Trump used the same law to accelerate the production of medical supplies to help combat the coronavirus pandemic this year.
The hope is that the energy secretary can identify projects here in the U.S. that could help the country increase our own production and holdings of these minerals. Sadly, we have a long, long way to go before we catch up to China. Today, the U.S. has only one rare-earth mine, which is located at Mountain Pass, Calif. It is owned by a private company, MP Materials, which is 10 percent owned by a Chinese company, Shenghe Resources Holding Co. All of MP's materials are exported back to China.
Rare-earth isn't the only strategic metal that the U.S. needs, however. Lithium is another metal in great demand and is used to manufacture electric car batteries. Global lithium production is about 400,000 tons annually. That is enough to power 2-3 million electric vehicles (EVs), but only about one third of that production actually goes into EVs. The rest, like REEs, is used in computers, cellphones and rechargeable devices. If companies such as Tesla plan to increase production of EVs in the future, then the supply of lithium must increase dramatically. Once again, it is China that controls about 40 percent of world lithium production. The rest is divided among Australia and Chile. The "Big Three" producers — Albemarle, Sociedad Quimica y Minera de Chile, and FMC — hold practically an oligopoly in the lithium market.
In another U.S. initiative, our Department of Commerce has taken steps to protect America's uranium industry from foreign dumping. Both Russia and the U.S. have initialed a draft amendment to reduce U.S. reliance on uranium from Russia over the next 20 years. Russia has been dumping cheap uranium into U.S. markets for years, driving American miners and processors out of business. This practice leaves our country exposed to the same dangers we now face with other strategic metals.
While all of the above actions are necessary, in my opinion, it will be years before the U.S. can gain a competitive advantage in any of these resource areas. Doing so is just as important as domestic recognition back in the 1972 that we needed energy independence in order to remain the nation we are.
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The Retired Investor: Halloween Could Be the Holiday Test Case
As October begins, mountains of candy have become a fixture in every store and supermarket. Halloween is the first in a series of fall into winter holidays. The candy companies are hoping it's going to be business as usual this year, but that depends on who comes to your door.
Whether it is trick-or-treating or costume parties, no one wants a visit from this year's most fearsome of monsters—the coronavirus. Worried parents wonder if this unwanted guest will be hiding among those candy wrappers, or in the noses, hands and mouths of excited children (or the parents and guardians accompanying them). Will one cough undo months of masks and safe spacing?
The Centers for Disease Control has already issued medical guidelines that label all the traditional Halloween behavior patterns as "high risk" activities.
That means no door-to-door activities, indoor parties, hayrides, visits to haunted houses, or rural fall festivals. The CDC gives alternative suggestions, which center on an immediate family night with a Halloween theme, such as carving pumpkins, or virtual costume parties with your children and their friends.
"But it just won't be the same," lamented one mother to me.
While that may be true, it doesn't seem to have deterred consumers from stocking up on candy. U.S. sales of Halloween candy are up 13 percent from this time last year, according to the National Confectioners Association. Chocolate candy is up 25 percent. Usually, we would expect to see a single-digit increase at best.
That is a hopeful development for candy companies that depend on the 10-week period surrounding Halloween for as much as 14 percent of yearly revenues. Halloween is the biggest holiday of the year in this $36 billion industry, followed by Christmas and Easter, with Valentine's Day trailing in fourth place. Overall, however, the National Retail Federation expects consumer Halloween spending to decrease about 8 percent, even if those who do decide to celebrate are expected to spend 6 percent more on average.
Is this increased candy consumption in September a sign that consumers are planning to disregard the CDC's warnings? And, if so, would that potentially create a nationwide, coronavirus superspreader event? Not necessarily.
Brach's, the maker of Candy Corn, thinks it could be because the candy-selling season started three months earlier this year. Consumers, with many activities curtailed and with more money in their pockets as a result, may be splurging on candy, which is far cheaper than going out to a restaurant, and simply using Halloween as an excuse to indulge. The real test will be in the last two weeks of October when companies such as Mars Wrigley's usually chalk up as much as 55 percent of their total Halloween candy sales.
A market research company, Numerator, which surveyed 2,000 consumers at the beginning of August, found that more than the respondents planned to buy less candy this year than normal. The uncertainty of the turnout for trick-or-treating due to COVID-19 evidently had some consumers planning for less of a celebration.
In response to the uncertainty, candy companies have both reduced, as well as re-sized, their candy bags. Smaller bags that can be used for everyday consumption, but can still be sold after the holiday, is another way some companies are hedging their bets. Candy companies are also getting creative while working with the CDC guidelines to come up with interesting and unique ways that families can celebrate the holiday and still stay safe. Just peruse their websites for some alternative ideas, some of which are pretty imaginative.
Communities across the nation are also coming up with good ideas. In my own town, Downtown Pittsfield Inc is holding a trick-or-trunk event, which involves the community coming together in a parking lot on Oct. 15, so that the children can safely trick-or-treat out of the decorated trunks of their cars. The candy is then quarantined for two weeks and available by Halloween.
In the end, it comes down to the kids, doesn't it? As we all know, children are having a tough time of it during this health crisis. They are out of school and away from their friends. Most of the day, they are glued to their computers, sometimes for hours at a time. There are no after-school activities, no sports, and even going outside has become a controlled activity. Most of this year has been a big downer. Are we also going to disappoint them on Halloween, or will we be able to find new and joyful ways of celebrating, despite the crisis we are suffering? I'm betting we will.
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@theMarket: Markets Feel the Heat
First, the good news: there is only one more week until the end of the month. The bad news, however, is that October may not treat investors any better than did September. As my swabbie friends would say, is it time to "batten down the hatches?"
Let me say I take no joy in being right. During the last few weeks of writing, the volatility I predicted has come home to roost. This kind of correction is especially painful because in these times of great uncertainty, we could have at least pointed to the stock market, and our investments accounts, as one piece of good news.
As I wrote last week: "Investors, therefore, should be mentally and emotionally prepared. If you witness days, or even weeks of ups and downs, don't be surprised. It would not surprise me to see several pullbacks, only to regain those losses, before selling off once again."
That quote sums up the market action throughout this week. All of the worries I have enumerated: the possibility of a winter wave of coronavirus, a slowing economy, the elections, and China trade have converged to drive most financial instruments lower.
Global stocks, commodities, interest rates, even high-yield junk bonds (the last instrument supposedly supported by the Federal Reserve Bank), fell hard. Gold, thought to be a safe haven, "go to" investment, was also clobbered, hitting a low of $1,850 an ounce late in the week. Only the U.S. dollar climbed, staging a big comeback from its multi-week lows.
After last week's declines, some investors hoped that we had seen the worst, but nothing has really changed. The president, who uses the stock market as his barometer of success or failure, added yet another worry to our growing pile of concerns. Wednesday evening, President Trump, in response to a reporter's question, refused to commit to a peaceful transfer of power, if defeated in November. It wasn't the first time the president has said that, but investors took his comments seriously this week. As for me, I chalk it up to campaign rhetoric, but it illustrates the point I have been making about volatility.
We have an entire month ahead of us in which we should expect heated comments from both sides on so many issues that I lose count. The Supreme Court vacancy after the passing of Ruth Bader Ginsberg is just the latest controversy, but there could be others. Driving further downside in the markets, for example, could be revelations dealing with the president's tax returns and/or Vice President Joe Biden's (and his son's) history with Ukraine. Further accusations of foreign interference in U.S. elections, and/or additional mail-in ballot issues could be with us up until, or even after, the actual November 3 election. All of these possibilities could add fuel to the fire throughout October's stock markets.
On the plus side, a coronavirus vaccine could be in the offing as early as next month, according to the President. While most pundits believe another stimulus deal is dead in the water until sometime after the elections, who knows? The Democrats are readying another stimulus plan with a $2.4 trillion price tag. That is down from the $3.5 trillion bill the House passed a few months ago and could be on next week's agenda for passage.
Unfortunately, the Republicans' Senate, with a few exceptions, does not seem willing to compromise, and they are sticking with their own $500 billion proposal. That could change if the markets really take a hissy fit. It might be just enough to get the two sides talking again.
Any or all of the above considerations could cause market swings of anywhere from 3-7 percent in both directions. It might be a day trader's dream, but it could also be their worst nightmare. My advice is to stay out of it.
If things fall apart from here, I could see the S&P 500 Index pull back into the 3,050-3,140 range. If the lower end of that guesstimate were to happen, we would be looking at a 15 percent decline from top to bottom. I hope not, but if so, take your lumps and wait until the smoke clears in November, or possibly December.
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The Retired Investor: Back to the Future in America's kitchens
Whether it is recipes, groceries, home gardens, grilling, pots and pans or online cooking classes, Americans have rediscovered the kitchen, thanks to COVID-19. Where once an occasional meal at home, or a single-serve dish for the kid's lunch was sufficient, times have changed. Home cooking has become a bigger business.
Americans are cooking more and throwing out less food, according to the Food Marketing Institute, an organization that tracks grocery shopping trends. They saw a 40 percent uptick in home cooked meals, and a 27 percent increase in those who were planning more meals in advance in 2020.
However, cooking at home, many Americans discovered, wasn't as easy as it looked. Those who primarily ate out in restaurants in the past, found that cooking well, and often, takes planning, practice, and repetition.
Everything from storage space to kitchen equipment proved less than adequate for many. A frying pan that was good enough for the occasional grilled cheese sandwich failed the practicality test when cooking entire meals every day for four or five. Basic items like measuring cups, baking tins, good quality kitchen knives, high-performance cookware, non-stick pans, and cast-iron pots have seen a surge in demand.
"How to" cooking and recipe searches are as popular today as videos from Netflix or Disney. Take me, the cook in the family. I love cooking and have been doing so for decades. You would think I know most recipes by heart, but in the last two weeks, I, and evidently millions of other cooks, have been looking up recipes for zucchini, swiss chard, and squash — all produce from all those new backyard gardens that we are now harvesting.
On Facebook, you are as likely to see pictures of someone's new smoker, or gas grill as you are photos of their family or pets. Telephone conversations more often revolve around instant pots and air fryers than the latest restaurant reviews because they are few and far between. I know I'm guilty of texting my daughter (cooking runs in the family) for some recipe or other based on a dish she posted on Instagram.
Online shopping and curbside deliveries for groceries have also risen as consumers found that it was more convenient and somewhat safer than going to the local supermarket. Places such as Amazon grocery sales rose by 32 percent since the outbreak, while certain brand manufacturers that sold direct-to-consumers saw increases of as much as 100 percent or more. Deliveries at home have more than doubled since pre-COVID-19 levels.
The traditional brick and mortar grocery store and supermarket have seen revenue gains above normal, running about 10 percent higher than last year. There has been a notable increase in pantry items as well — rice, soup, pasta, and sauces. Shoppers have also returned to the center aisles where pre-packaged goods are usually found. This is a big change from the recent past, where shoppers preferred to buy items on the store's perimeter like fresh fruit, meat, and seafood.
That makes a lot of sense to me, since cooking three squares a day can be exhausting at times. At first, when the country was shut down, and there was plenty of time on our hands, "project" dishes and baking from scratch were popular. Today, where working from home requires more time at the computer than in the kitchen, having more pre-packaged meals available gives cooks a break. Even I have succumbed at times to picking up a "Tagliatelle grilled white chicken and portobello mushroom sauce" dinner that is microwaveable in eight minutes.
As the seasons change, and traditional holiday celebrations such as Halloween, Thanksgiving, Hanukkah, and Christmas approachs, I would expect that America's kitchens will continue to get a work-out unless, by some miracle, the pandemic should end. In the meantime, I will start researching trick-or-treat cupcakes. What about you?
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@theMarket: Investors Face a Rollercoaster Ride
Volatility returned to the stock market this week as the level of uncertainty increased on several fronts. Unfortunately, there won't be any definitive answers to what concerns investors for at least two months.
It is September, after all, and this month is notorious for inflicting pain on investors. Historically, October is not much better, and in a presidential election year it can be worse. While the financial media will provide their thoughts on just why stocks drop or rise on any given day, it is not much use to you.
The real reason for "why" will only be known after the fact. This week, the excuse for Thursday's and Friday's decline had to do with the Fed, or so many believe. But Jerome Powell, the chairman of our central bank, did not say anything new, nor did the Federal Open Market Committee meeting notes add any insight on Fed policy. The message that rates will stay lower, for longer, was repeated again with the Fed's timeline somewhere between infinity and beyond.
I suspect the disappointment for many was that the central bankers did not indicate their willingness to provide additional quantitative easing. In fact, one could infer that the Fed would be pleased if the long end of the yield curve started to move higher at some point. What that means is that shorter-dated bonds and notes would yield less than longer-term 20- and 30-year bonds. In a perfect world, that is what should be happening, but it's not thanks to the Fed's past stimulus efforts.
It could be why technology shares sold off, or at least that is my guess. These high growth companies normally borrow money at the long end of the curve, and invest that money in their businesses to produce even higher growth years into the future. If that cost of capital were to rise, it could clip the future growth rates of these high-flyers.
However, overall, the Fed assured us that whatever comes, it "has our back." And if so, why the sell-off? The simple answer is future uncertainty. The economic data is giving the markets conflicting signals. Unemployment, while dropping, is not happening quite as fast as the markets would like. Since there is no additional fiscal stimulus as of yet, the economy may still grow, but again just not as fast as investors would like.
Then there is the conflicting information on when a coronavirus vaccine will become available. Will it be in October, as some in the political arena contend, or will it be later, at the end of the year, or sometime in 2021? Since just about everything to do with the economy depends on that vaccine, investors' expectations are all over the place. And, finally, there is the presidential election.
This week, a new worry surfaced, centered upon the outcome of what might be a contested election. The prospect of a really close race where an avalanche of mail-in ballots is recounted, and where opposing parties squabble over every single vote, could drag on for weeks, some say months. The Biden team has already hired lawyers to prepare for such an eventuality. Back in the year 2000, when the outcome of the Gore/Bush election was questioned, markets waited in limbo for five weeks into December. In the meantime, the stock market declined 10 percent, until Al Gore reluctantly accepted defeat.
On the China front, the TikTok sale (or shutdown) has basically been booted to after the election, on Nov. 12, so I will ignore that. Downloads of WeChat, the main internet line of messaging and communication between Chinese people living, working, and studying in the U.S. and the Mainland, will be shut down on Sunday, according to the U.S. Commerce Department. That may elicit a counter response from the Chinese government or it may not — more uncertainty.
Investors, therefore, should be mentally and emotionally prepared. That doesn't mean the worse will happen, but it could. If you witness days, or even weeks of ups and downs, don't be surprised. It would not surprise me to see several pullbacks, only to regain those losses, before selling off once again. However, once we are through this thicket, markets should resume their uptrend.
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