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Alan Young
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Alan Young has been a full-time student of the market since early 2008. He lives in the San Francisco Bay Area and plays jazz piano. (The photo is not of Alan, but of a life-sized 1000-year-old statue of Ganesh, found in the Asian Art Museum of San Francisco.)
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  • Dacha Capital: a rare commodity play

    Investors who are alert to up-and-coming niche opportunities have probably heard about opportunities in rare earth mining. The excitement about this sector stems from the fact that many high-tech industries depend on "rare earth" elements (Neodymium, Europium, Terbium, Dysprosium, etc.) which are produced almost exclusively in China. China is increasingly committed to keeping its resources for its domestic use, so it's easy to extrapolate the increasing value of supplies outside of China.

    But the Canadian and Australian companies that produce rare earth ore are risky investments, as are all small mining companies. And while the recent IPO of US rare earth miner Molycorp (MCP) has been met some success on Wall Street, it will be some years before the company can develop the capacity to actually produce refined ore. (Much of the difficulty in obtaining these metals is separating them from each other, as well as from other materials, in the ore).

    A much safer way to gain exposure to the rising value of rare metals is to actually own the refined ore. Dacha Strategic Metals Inc. (TSX:VENTURE:DSM)(OTCQX:DCHAF) is a small company that buys Rare Earth metals that have already been mined and refined, and resells them at fabulously increased prices.

    The managers have targeted Yttrium (Y), Terbium (Tb) and Dysprosium (Dy) as the main assets to accumulate. Yttrium is mainly used in lighting; Tb and Dy are primarily used in  magnets designed for high temperature environments, such as hybrid cars and military vehicles. And "hard to get" is actually what the name Dysprosium means! (This is clearly the prototype for the fictional "Unobtainium"--but no Pandorans were injured in the stockpiling of this asset). 

    What I like about this stock is that, with smart management, the investment is as close to foolproof as you can find in the volatile commodity sector. The metals are stored securely, mostly in Singapore.  While anything is possible, the risks that could reduce the value of this asset seem remote. But the upside has already proven spectacular. Terbium Oxide stockpiled early this year cost $360/kilo, and is now quoted at $2600/kilo. Clearly, management knows what they are doing and have already added a lot of value to the invested capital. Yet the stock persistently trades at less than its net asset value:

     

    DATE

    NAV (C$)

    STOCK PRICE (TSX)

    OTC PRICE (US$)

    2/15/11

    0.51

    0.41

    0.41

    4/5/11

    0.68

    0.45

    0.49

    5/30/11

    0.94

    0.64

    0.65

    6/13/11 (intraday)

    1.32

    0.73

    0.76

     

    More information on the company can be found at http://www.dachametals.com/. 

    Disclosure: I am long OTCPK:DCHAF.
    Tags: MCP
    Jun 13 2:53 PM | Link | Comment!
  • Climbing the Wall of Worry

    O, how this spring of love resembleth
    The uncertain glory of an April day! 
    Which now shows all the beauty of the sun, 
    And by and by a cloud takes all away!
             —The Two Gentleman of Verona. Act i. Sc. 3.

    They say that a bull market climbs a wall of worry, and we have plenty of worry. Uproar throughout the middle east, meltdown in Japan, sovereign debt in Europe, and, here in the US, lingering depression (“the worst recession since...” doesn’t really cut it)..... take your pick. 

    On April Fool’s day, the market surged on the good news that unemployment was down by 0.1%. Is that really good news, or just a rounding error? Here’s some perspective:



    Maybe there’s hope for a recovery in housing? Maybe, but “hope” is not a great strategy (click and drag image to see right side):



    You may recall that market crash of 2008 was preceded by a run-up in the price of oil. See anything familiar here?

    These data provide a dandy “climbing wall” for the US equities market, which looks bullish beyond belief:  



    But this is nothing, compared to the bullishness in emerging markets (compare 36-day and 600-day time frames).

     It shouldn’t be surprising that US stocks keep going up, as companies are reporting the highest profits ever. The question for us worriers is whether these gains are sustainable.

    One glitch in that news is that the financial sector now accounts for about 30 percent of the economy's overall operating profits. Put another way, the financial sector is skimming 30% off the top of the income of the rest of the economy—i.e., the part that actually produces something. This lopsided money-grab by the financial sector was another precursor to the 2008 crash.




     



    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Apr 03 11:42 PM | Link | Comment!
  • California strikes [out] again!

    The worst-rated state for muni investment has just sealed the case for staying that way. With the annual budget 3 months overdue and payments for vital social services already being delayed, the governor and the legislative leaders have finally reached an agreement to break the deadlock.

    But the preliminary leaks about the "solution" they arrived at is mind-bogglingly irresponsible--again. No new revenue (because Republicans will not support any), only cosmetic cuts, and the "balance" will come from increasing estimates of revenues--from taxes and federal support.

    Next week, the legislature will vote on the deal. Either they have an attack of conscience and say no, in which case the state will have to start using IOUs to pay bills, leading to more disputes and probably lawsuits; or they say yes, and leave investors wondering if there will ever be a long-range plan to actually become solvent.

    The Good news: if Proposition 25 passes in November, then next year's budget will only require a simple majority, and all this nonsense will stop. Well, at least some of it will. 

    Disclosure: No tickers mentioned. I have long positions in several CA muni bond funds.
    Oct 03 3:36 PM | Link | Comment!
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