A very short post as we are taking the overnight flight back to Phoenix from Kauai.A reader asked for my take on a new Rare Earths ETF that is supposed to start trading today with ticker REMX. I have not looked at this at all so for now I can only talk from a big picture viewpoint.
There are quite a few stocks in the space but most of them seem to be foreign stocks with five letter ticker symbols. The name that gets the most attention is NYSE traded Molycorp (MCP) which operates the Mountain Pass site in California which was shut down a while back due to being uneconomical but is apparently going to reopen soon. There are other pockets of rare earths here and there that will come on line and probably make a dent in China’s strangle hold.
You probably know that despite the moniker the minerals in question are not that rare. There are 17 of them and apparently where there is one there is all 17 (I know this from my reading not from firsthand knowledge.
MCP’s stock has gone berserk, upward, since it listed a few months ago and was up a bunch on Thursday, maybe because of the fund, but either way it looks to me like the stock has caught a pretty substantial tailwind as it is the only easily traded (meaning non pinksheet listed) rare earth stock—or at least that is the perception.
So we have a great story and not much supply so the one popular name is up a ton. The behavior has of course happened man times before even if the details have been different. It certainly seems like the world needs rare earths, but that is the case with every mania that has ever existed. A little more supply in terms of an ETF (assuming the reader in question is correct and the fund lists) is not likely to alter supply and demand dynamic in a meaningful way which means it is not obvious that this event is an important top.
Two viable choices is not indicative of a mature fad. At such a point where this fad does burn out it seems unlikely that bubble will ever be the correct word although many will use it. I was asked on CNBC a couple of years ago whether solar stocks were a bubble. My answer was no because the entire industry was only worth about $100 billion (at the time) as opposed to dozens of individual internet stocks with market caps that big.
Rare earths may lose all sense of proportion for all I know but I would be shocked if the entire industry made it to half the $100 billion that solar was making any price implosion in the rare earths more of a mania or fad.
Again this seems interesting to me, for now I have no exposure but if I ever do go in it will be at 2% of the portfolio. At that weight a tripling would help the portfolio but a price implosion will not decimate it.
4 comments:
Good post Roger. I wanted to let you know I just started my own personal investing blog and I've listed Random Roger as a favorite site. If that's not ok, let me know. I don't know the protocols of the blogging world.
Hello and sorry for the off topic post. A few years back there was an English chap who posted an unusual approach to portfolio building and rebalancing. I think he was a retired economist or engineer. I've been searching this blog for his posts to no avail, and wonder if you remember who he was.
Again off topic, I've been holding the TBT short bond fund for a while and am thinking of adding more. But it seems like a lot of smart people are saying this is the "trade of the decade". Which makes me wary that they might all be wrong. I wonder if shorting bonds plays a role in your portfolio and whether there are alternatives other than TBT.
http://www.greenfaucet.com/speciality-etfs/short-treasury-etfs-it-finally-makes-sense-to-short-the-long-bond/67228
Clive? Discussion from 2008/2009.
for interest rate risk i just keep maturities short and yes there are other funds beside TBT. Direction has several and there are probably other funds as well.
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