Wednesday, April 8, 2015

[MCP] update

Backlink.  The chart below shows that, while gold and silver have pulled back, rare Earth miner/processor Molycorp has been catching a steady, no gaps bid.  These gapless type reversals are a good omen for longs.  It shows steady, controlled buying whether it is shorts trying to sneak out the back door or new longs realizing that the going concern notice referring to things that might or might not happen in a year has basically turned MCP common stock into a call option on rare Earth commodity prices.

Long time readers know that I place little to no value on current news and on the so called fundamentals when it comes to stock price, especially the short term stock price.  It isn't that there are no fundamentals to speak of, it is simply that you can't be sure what they are.  For example, a Kansas farmer looks at the rain forecast for the next month and, take in conjunction with beneficial current soil conditions, believes it will be good for his harvest.  So he buys a new combine.  The following week, a butterfly flaps its wings off the coast of Japan and those waves combine in some unpredictable way with other waves.  A week later, a tornado takes out the farmer's fields resulting in a total loss.  Yes, this is a ridiculous extreme "butterfly effect" example, but the point is made.  The farmer was looking at what he was sure were the fundamentals to his success but it turns out he missed the most important fundamental even though the story sounded good.

Said differently, pretty much any "fundamental" I hear can be counteracted by some other "fundamental" that nobody's talking about.  In the case of MCP, a very big fundamental was presented to the market: management published a required "going concern" notice.   That is about as fundamental to share price as it can get IMO.  Mgt is worried about defaulting on their debt. 

So what "counter-fundamental" can I possibly propose to counter that?  Well, I like a good story as much as the next guy even though I know that stories come from story tellers and story tellers often tell fairy tales.  But if challenged, here is what I would say:
  • MCP is involved in rare earths the same way FSLR and SPWR are involved in solar panels.  In other words, they are all the dominant US player in an area where Chinese competition has beaten them into the ground.  American innovation has a tough time competing with commodity production in China where government is subsidizing the production of "stuff" be it buildings or electronics or anything else.  Chinese leaders want to keep their workers employed lest they come-a-calling with the hang man's noose.
  • In the case of solar, Obama had an agenda that he needed to drive somehow which was to control US energy production under the guise of climate control.  He was very clear about attacking big coal and only begrudgingly got out of the way of frackers during the recent US oil boom.  His support of solar using taxpayer money was busted during the Solyndra scandal.
  • But now Obama has a different problem.  China just started the Asian development bank and everyone is piling on in support of it.  This activity attacks US dollar global hegemony.  We have ripped so many people off over the last few decades with our control of the global reserve currency that I do not think we will cede control of it lightly.  The typical US response to competition in any form is to vilify the competition.  But they are not attacking our products this time, they are attacking our money scam.  When this starts to happen, the threat of military conflict is raised.  Wars are pretty much the only thing that the US still invests in anymore.  To think we are not going to use threat of war in the name of some trumped up ideological reason as we face a credible loss of global control is to be oblivious.
  • Rare earths are used in many military applications and China is the provider of 95% of the current global supply.  At some point that the odds of conflict pass a certain trigger point, China can be labeled a dumper of these commodities in order to boost US prices.  Either that, or sanctions can be placed on China which cover rare earths. Either that, or Chinese imports of them can be made illegal in order to bolster our own production in the name of national security.  You saw what sanctions did for solar stocks...
    • In this train of thought, MCP common stock might in fact turn out to be a non expiring call option on US protectionism and militarism and fear of losing global money game hegemony.
So, while I agree that my quickly fabricated "counter fundamental' is almost laughable, I still maintain that it has just as much chance of being the fundamental that eventually matters to the share price of MCP as the recent going concern notice.

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