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Mike Holt

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  • Epilogue To TREM '11 -- Cyberspace, The Friend Or Foe Of Technology And Western Civilization? [View instapost]
    Against the backdrop of headlines regarding the Sony Cyberattack, China is aiming to purge most foreign technology from banks, the military, state-owned enterprises and key government agencies by 2020, stepping up efforts to shift to Chinese suppliers, according to people who, per this Bloomberg article, are familiar with the effort but asked not to be named because the details have not yet been made public.

    Foreign suppliers may be able to avoid replacement if they share their core technology or give China's security inspectors access to their products, the people said.

    These requirements are eerily reminiscent of similar requirements that have been imposed in the past, such as local content requirements, that many believe are intended to facilitate the copycat of technology developed at great expense by the foreign corporations being "allowed" to set up operations within China.

    Reinforcing this notion, "A key government motivation is to bring China up from low-end manufacturing to the high end," said Kitty Fok, China managing director for IDC.
    Dec 18, 2014. 01:59 PM | Likes Like |Link to Comment
  • Epilogue To TREM '11 -- Cyberspace, The Friend Or Foe Of Technology And Western Civilization? [View instapost]
    Although North Korea reportedly has no internet,

    that still would not preclude North Korea from ordering a cyberattack on Sony, as American officials claim per this article in the NY Times today.

    Yet, some argue that this had to involve insiders at Sony coordinated over a number of years, and may have been motivated by reasons other than the pending release of "The Interview" a dark comedy about an assassination attempt against North Korea's dictator.

    Regardless of who is responsible, this should serve as another wake-up call to the risks associated with cyber theft and cyber espionage since the internet is now relied upon so pervasively. It is almost everywhere, and provides access to almost everything. And, to ban unauthorized access to the internet would require governments to relinquish their ability to do so under a variety of circumstances in which they may believe it would be necessary for national security reasons.

    Understandably, internet security stocks such as FireEye (FEYE) and Palo Alto Networks (PANW) have surged on the news of this latest cyber attack against the Japanese company Sony Corporation (SNE).
    Dec 18, 2014. 01:38 PM | Likes Like |Link to Comment
  • A Closer Look At Ucore's Switch To Molecular Recognition Technology [View article]
    Ben, this is a GREAT article. You not only addressed the issue that was on the minds of many Ucore (UURAF) investors, namely why did Ucore switch to a different MRT partner, you also provided a valuable update on the REE space that should put the outlook for Ucore, and the importance of this outlook, into better perspective.

    Sticking with the MRT discussion (pun intended) I now understand that there is more to the story than whether the ligands are placed on the surface of a polymer or within the interstitial spaces between polymers for purposes of binding with, and thus separating, the specific REE(s) being targeted. The design of the ligands themselves is important, which helps to explain why the privately owned IBC refers to them as Super Ligands. I can see how this would be especially important with respect to rare earths because of the unique nature of these elements.

    Remember, that the group as a whole wasn't even recognized to consist of many different elements for many years. Part of this is due to the fact that the additional electron distinguishing each element is not found on the outermost orbit as for most other elements, which alters their chemical properties. Rather, for the REEs, they are differentiated by the number of electrons on the F orbital, just inside the outermost orbital, so they are often differentiated by their magnetic properties moreso than their chemical properties. It seems to me that the proprietary, multi-character nature of IBC's Super Ligands will need to factor in these unique characteristics of REEs, and I wonder if MRT will need to be supplemented with another process involving magnetic separation through some other means.

    Regardless, Ucore and IBC still have their work cut out for them, but my sense is that they're on the right track and that it is hardly game over for Ucore as some detractors argued when Ucore announced that they would be parnering with a different MRT company to develop the unique MRT that would be required to achieve a commercially viable MRT separation process for the heavy REEs that make Ucore's Bokan Mountain project so unique and potentially of such great value and importance.
    Dec 18, 2014. 09:02 AM | 6 Likes Like |Link to Comment
  • Is China's Growth Really Slowing? Not Really [View article]
    Almost half of China's $9.4 trillion GDP consists of Fixed Aasset Investment spending, so it alone is almost double China's total GDP of $2.7 trillion in 2007. This frenzied spending has been accompanied by a surge in debt and the emergence of shadow financing channels as the CCP attempts to rein in this out of control debt fueled spending.

    According to BIS data, in 9 out of 10 instances, a debt crisis has followed when debt has grown by more than 40% of GDP over comparable periods. China's debt growth far exceeds the debt growth preceding all of those instances in both absolute and percentage terms.

    Yet, some remain optimistic that the new leadership of the CCP will succeed in their efforts to rein in this wasteful spending and dangerous growth in debt, even though it would require GDP growth to fall below 3% per year for about a decade in order for them to be successful, and entrenched interests would prefer to keep the music playing in their short-term perceived self-interest regardless of the catastrophic consequences it wiould bring to the Chinese economy, financial system, and savings of PRC residents, not to mention the environment for which a similar lack of concern should be self-evident to all but the most delusional cheerleaders for GDP growth at any cost.

    But, given the recent declines in direct foreign investment in this lawless country whose judicial system is still controlled by the CCP even after efforts to reform their judicial system were prioritized during the recently completed 4th plenum of elite members of the CCP, and the fact that every province has been instructed to create Asset Management Companies to complement the four behemoth Asset Management Companies formed by the CCP to buy bad loans from China's State-controlled banks in the hope they can sweep all the bad debt under a huge rug where it can remain concealed from the prying eyes of more astute investors, I am less confident in the ability of China's supposedly reform- minded new CCP leaders to achieve the reforms outlined in their 3rd Plenum that are required in order to get the PRC's economy and now severely weakened banking system on a sustainable footing.
    Dec 17, 2014. 08:30 AM | 1 Like Like |Link to Comment
  • Epilogue To TREM '11 -- Cyberspace, The Friend Or Foe Of Technology And Western Civilization? [View instapost]
    It is widely understood that the military capability of the US far exceeds that of any other country, and that those contemplating adversarial relationships are more likely to seek asymmetrical weaknesses that can be exploited in order to gain an upper hand through non-military means.

    Cyber theft and the development of cyber espionage capabilities are commonly cited examples of such means, with the former sometimes being used to access info on valuable technology to obtain economic benefits at the expense of competitors who incurred their development costs.

    Although it could be argued that this cyber theft is effectively a form of economic warfare that substitutes for direct military engagement, the lines may be blurred further when the technology stolen relates to our advanced weapons systems.

    For example, according to Reuters, the president of Aviation Industry Corp. of China recently boasted on China Central Television that China's J-31 stealth fighter, that some officials believe was built with stolen design plans for the US F-35 stealth fighter under development by Lockheed Martin, can outfly the F-35. In his words, "When it takes to the sky, it can definitely take it down."

    This is an interesting perspective given China's repeated assurances that China's "rising" is intended to be entirely peaceful in nature.
    Dec 15, 2014. 06:06 PM | Likes Like |Link to Comment
  • China growth could slow to 7.1% in 2015 [View news story]
    There are 3 potential near-term outcomes for the Chinese economy:

    1. An immediate Hard Landing;

    2. Insufficient reductions in the debt-fueled spending on excess capacity and projects that don't generate enough current revenue to pay for their debt servicing costs which will lead to an even Harder Landing in a few years; or

    3. A significant decline in GDP growth to approx. 3% over several years, i.e., a Long Landing, as meaningful efforts to avert a debt crisis gain traction despite the objections of entrenched interests who don't want to give up their subsidized cash cows regardless of the catastrophic harm sustaining their current trajectories brings to the Chinese economy.

    The final Long Landing scenario is the only sensible alternative but selfish, short sighted thinking makes it the most difficult to achieve. If that can be overcome, the resulting trade contagion spells trouble for highly indebted countries that rely, directly or indirectly, on trade with China--the world's largest trading partner. Financial contagion from those countries could cause interest rate spikes and eventually higher interest rates in other countries which would choke their economic growth as well.

    Stalling economic growth and higher interest rates would likely heighten fears of deflation from both falling prices for commodities and trade goods and for capital assets collateralizing loans which could reintroduce the disorderly deleveraging process and adverse feedback loops that were experienced during the 2007-09 GFC for which the risk was supposed to be reduced through a gradual, orderly deleveraging process over a period of one or two decades. Yet, debt has grown instead and now exceeds $100 Trillion which is well over 100% of global GDP equal to just over $70 Trillion.

    This $100 Trillion of debt outstanding does not include even larger unfunded liabilities for pensions, social security-type programs, and health care programs for which costs will likely escalate with the aging of populations in developed countries.

    Nor does it include the debt that governments would need to incur if they were to bail out inherently leveraged banking systems again, assuming that they still have the wherewithall to do so given that government debt has been the most rapidly growing debt sector over the past several years.

    And, if central bank efforts to fight deflation were to trigger bouts of inflation, that should be expected to result in higher interest rates that could be very burdensome given how high debt levels have become.

    So, propping up asset prices through artificially low interest rates that encourage additional capital spending is not the panacea that government leaders and central bankers cum policy makers hope that it will be during their terms in office. Capacity already exceeds consumer demand so propping up their prices through monetary policy is as foolish as relying upon Fiscal Policy to prop up the prices of Tax Shelter investments during the 1970's which similarly made no economic sense absent the artificiality of their government subsidies albeit in a different form, and on a smaller scale than the Monetary Policy experiments that have run amok today.

    The Stable Disequilibrium being sought by these Monetary Policy experiments is not sustainable, as evidenced by Japan's slowing economy despite a massive QE program, and is no substitute for the True Equilibrium that can be expected to result when the natural market forces of supply and demand are in balance absent government and central bank interventions.

    A genuine effort to rebalance the Chinese economy away from debt-fueled investment spending now equal to about 50% of their GDP would be a good start. Although there has been some growth in Chinese domestic consumer spending, it has been dwarfed by their $4.5 Trillion of fixed asset investment spending that continues to grow by 18% per year. Although this has allowed China's GDP to grow rapidly from $2.7 Trillion in 2007 to over $9 Trillion today, the resulting imbalance has contributed to imbalances elsewhere, although policy makers in other countries have also taken actions independently that put us in the fragile position in which we still find ourselves some Ten years after the collapse of the US housing bubble.
    Dec 14, 2014. 10:31 AM | 1 Like Like |Link to Comment
  • Crucial Facts About Energy Stocks [View article]
    Midstream pipeline operators should not be impacted by falling oil prices unless the price falls below levels that could cause production to be shut in and thereby reduce pipeline volume.

    The K-1 reporting is a dog and better diversification can be achieved by buying an ETF or an ETN. The ETN will simplify tax reporting without introducing another layer of taxation, and this can also make an ETN attractive within IRAs, but an ETN introduces counter-party risk.

    An ETF also simplifies tax reporting, but introduces another layer of taxation. Since initial distributions may be treated as non-taxable returns of principal that merely reduce cost basis, it may make more sense to locate an MLP ETF in a taxable investment account. But, taxes already accrued may serve to buffer the impact of falling oil prices, so can be appealing at the moment--if you don't believe future pipeline volumes will be effected by lower oil prices, or higher interest rates that could reduce future capex for new production replacing existing short-lived shale oil resources.
    Dec 12, 2014. 10:49 PM | Likes Like |Link to Comment
  • Crucial Facts About Energy Stocks [View article]
    Art Cashin made this same speculation on CNBC at noon today. But, I'm not sure anyone really knows why prices have fallen as much as they have so quickly.
    Dec 12, 2014. 10:36 PM | 1 Like Like |Link to Comment
  • Crucial Facts About Energy Stocks [View article]
    On October 23, I attended a conference at which Tim Guiness, co-manager of the Guinness Atkinson Global Energy Fund identified Ten commonly cited reasons for the recent oil price declines.

    The factors cited were a combination of supply side and demand side changes.

    Most were of minor significance, and were due to conditions that have either been in place for awhile or could easily have been anticipated. Tim Guinness also pointed out that declines such as this have occurred in the past but it didn't take long for long-term demand trends to drive prices back up, so that's what he expects this time around as well.

    He is probably right, yet prices have fallen much further since then, and no new factors appear to have emerged, so I find these further sharp price declines to be very curious. Could this be due to the expiration of hedging contracts? Or, is there some other factor that investors have not yet identified?

    I'm aware of some longer term developments such as breakthroughs in nuclear energy technology and slowing growth in certain countries that could trigger financial crises, and I have heard speculative comments about new higher energy density magnesium ion batteries, but it doesn't seem likely that these developments would have such a significant impact on near-term oil prices. So, either some new development has been entirely overlooked, or the markets have significantly over reacted to some fairly modest developments.

    Question 6: Which is it?
    Dec 11, 2014. 09:51 PM | 2 Likes Like |Link to Comment
  • What Does A 'Good' Chinese Adjustment Look Like? [View article]
    "In an older issue of my blog, I tried to place the last 3-4 decades of Chinese growth in a historical context that recognizes four different stages of this growth process. By doing so, I try to show how China's own recent history can help us understand how to consider the policies President Xi must implement."

    Given the extensive role of the CCP in the Chinese economy, understanding how China's economic development has affected the level of control that its leaders have been able to exert over the last 3-4 decades is, in fact, of great importance. In addition to reviewing the older issue of Michael Pettis' blog, another useful source of information in this regard is David M. Lampton's article in the Jan/Feb 2014 issue of Foreign Affairs magazine titled "How China is Ruled."

    Interestingly, trends over the past few decades have required China's leaders to adopt a more consensus-oriented leadership style that also takes into consideration extensive public opinion polls, yet Xi Jinping is said to be seeking much greater individual power than his two predecessors, Jiang Zemin and Hu Jintao.

    This may be attributable in part to the new CCP leadership's agreement that broad reforms are required and that these reforms, in turn, will require greater consolidation of power in a strong leader, but this does not seem to entirely explain the shift toward greater consolidation of power in a single CCP leader. And, since this greater consolidation of power is inconsistent with the broader trends taking place within China over the past 3 to 4 decades, it will be interesting to see how this unfolds.

    It may be that while a financial crisis has been a source of growing concern for investors, the potential for a political crisis may warrant at least as much attention.
    Nov 30, 2014. 12:52 PM | Likes Like |Link to Comment
  • Update: Ucore To Generate A 99%+ HREE Concentrate Using Molecular Recognition Technology [View article]
    Ben, can we rely upon you to contact Ucore's management team to learn why they have chosen to switch to IBC's SPE technology known as MRT rather than sticking with IntelliMet's SPE technology?

    There seems to be sound logic behind Dr. Richard Hammen's explanation that less rapid binding with the elements to be separated will result if ligands are placed on the surface of the particles themselves (as described in your link above to Ken Collinson's Nov 14, 2014 presentation at the Singapore Rare Earths Investment Conference) rather than placing a polymer web within the interstitial volumes between the particles.

    If that's the case, it also seems logical that Ucore's switch away from IntelliMet's technology to IBC's technology could result in lower throughput, which in turn would require larger systems involving higher CAPEX costs, so why has Ucore's management chosen to switch from IntelliMet's SPE process to IBC's SPE process?

    Are they hoping to achieve some other cost savings? For example, are the variable costs associated with the use of coated beads lower than the variable costs associated with inserting a polymer web between the beads? And if so, would any such reduction in Ucore's variable costs translate into an overall cost savings even if the relatively small plant described in Ken Collison's presentation was larger than it would be if Ucore used IntelliMet's technology?
    Nov 29, 2014. 06:00 PM | 1 Like Like |Link to Comment
  • Update: Ucore To Generate A 99%+ HREE Concentrate Using Molecular Recognition Technology [View article]
    Thanks Ben. This announcement received a lot of attention but that announcement focused primarily upon the MRT itself without tying it into the overall separation process including SPE. Viewing this development in that broader perspective is therefore very helpful.
    Nov 23, 2014. 10:59 AM | 1 Like Like |Link to Comment
  • Epilogue to TREM '11 -- Potential Applications for Thorium in the Nuclear Power Industry [View instapost]
    Senator John Kerry arrived in Vienna last night for last-minute talks on Iran's nuclear program this weekend. Success or failure of the talks could have fateful implications for Washington's ties to the Middle East and for the potential spread of atomic arms in the region.

    Concerns about the use of enriched uranium for nuclear weapons rather than nuclear power could be drastically reduced if the technology used for nuclear power did not rely upon the production of enriched uranium in the first place.

    Since thorium can't be used for nuclear weapons, Liquid Thorium Fluoride Reactors ("LFTRs") represent such an alternative. And, LFTRs could also use existing nuclear waste to initiate reactions in their thorium based nuclear reactors.

    Unfortunately, when most people focus on headlines such as this weekend's negotiations with Iranian leaders to limit their uranium enrichment program, their response is to scorn nuclear energy in general, rather than to call for efforts to promote safer forms of nuclear energy such as LFTRs which were developed by the US in the 1950's and 60's but then, largely for political reasons, were abandoned in favor of the nuclear energy technology in use today which relies upon enriched uranium for fuel.
    Nov 21, 2014. 09:02 AM | Likes Like |Link to Comment
  • Epilogue To TREM '11 -- Cyberspace, The Friend Or Foe Of Technology And Western Civilization? [View instapost]
    In testimony at a House Intelligence Committee hearing on Thursday, Adm. Michael Rogers, the director of the NSA, said he expects a major cyberattack against the U.S. in the next decade. "It's only a matter of the 'when,' not the 'if,' that we are going to see something dramatic," he said.

    Rather than simply questioning the impact that this may have on the stock prices for cybersecurity companies such as FireEye (FEYE) and Palo Alto Networks (PANW), investors should consider the broader implications that this may have.

    U.S. officials maintain that nation-states, including China and "one or two others" are infiltrating the networks of industrial-control systems, the electronic brains behind infrastructure like the electrical grid, nuclear power plants, air traffic control and subway systems.

    Adm. Rogers also warned of increasing cyberattacks on mobile devices as "a coming trend," because they are difficult to secure and may serve as entry points into larger central government or corporate networks.

    For years, this has also been a concern to Brad Rotter, CEO of the privately held AirPatrol Corporation whose indoor positioning systems can identify and track mobile phones, laptop or tablet computers and portable Wi-Fi access points.
    Nov 21, 2014. 08:43 AM | Likes Like |Link to Comment
  • U.S.-China emissions pact has implications for automakers [View news story]
    rijensen, you took the words right out of my mouth. I'm also concerned that viewpoints regarding how much CO2 has been emitted by early industrializing countries may reflect a bias to excuse developing countries from utilizing the means now available to minimize all these other forms of pollution.
    Nov 14, 2014. 06:21 PM | 1 Like Like |Link to Comment