Slope of Hope Blog Posts

Slope initially began as a blog, so this is where most of the website’s content resides. Here we have tens of thousands of posts dating back over a decade. These are listed in reverse chronological order. Click on any category icon below to see posts tagged with that particular subject, or click on a word in the category cloud on the right side of the screen for more specific choices.

Solar Storm is Coming (by BKudla)

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As I posted before, the Solar energy industry is producing a glut of solar panels.  Here is a quote by  John Hardy.  "Global annual manufacturing capacity for solar panels may reach 23,500 megawatts next year, exceeding demand by almost 40 percent, according to John Hardy, a solar analyst at Gleacher & Co. in Connecticut. Wind turbine makers will increase capacity to 64,200 megawatts, 30 percent more than expected orders, Bloomberg New Energy Finance forecasts." 

Note also, the glut in Windpower production.  Remember what goes into Wind Turbines, yes, that is right, Rare Earth materials.  I'd be selling on any momo push higher.

Check out these charts on Yingli Solar

If you want to buy solar, make it for your home or business instead. Deals will abound.

www.arum.geld-gold.blogspot.com

Terra-Nitrogen, No Laughing Matter (by BKudla)

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I think the Hard Asset markets are getting frothy, and am looking for some hedges on my long positions. Terra Nitrogen is simultaneously long fertilizers (Urea) and short natural gas (its feedstock), with 64% of their expense in natural gas.

Like the uranium and coal markets, I believe agriculture chemicals are relatively inelastic to the price of the dollar, and nitrogen has another boost in that it is a feed component to corn, which has its own economics of ethanol production.  If my view on colder winters and shorter growing seasons hold true, farmers will need to apply extra Urea to ensure rapid crop growth.  These benefit TNH.

Terra – Nitrogen also pays out a 8.7% dividend through an MLP, and is 75% owned by insiders.  This makes them shareholder friendly a nice source of cash while you await capital appreciation.

I have two buy areas, and will scale in at these points.

2010-11-08_1451_TNH 

Behind the Scenes (by BKudla)

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As we watch the Federal Reserve launch QEII, and other programs to "support" growth in our economy, many of us are saying this will ruin us, we will have a run on the dollar, etc. and these guys can't be that stupid, can they.  Then there are those of us that try to pierce the veil to determine what is really the strategic end game here.  Here is my take, and before I share it, I don't necessarily endorse it or morally judge it.  That is when I lose money.  I am simply trying to see if I can get an edge.

The Federal Reserve has taken the role of executing our trade policy, this is nice and convenient for the Administration, as they can appear reasonable in public, and say things like, we support a strong dollar, and a rising Yuan would be helpful, while behind the scenes we have declared war on the Mercanilist nations. 

From a currency perspective, the players of world are divided into three camps;

  • The resource currency countries such as Australia, the Gulf States, Canada, South  Africa, Russia, etc.
  • The Mercanilist nations, which are of two flavors;
    • The overt, which simply tie the nations currency to ours, such as China.
    • The indirects, which use a variety of regulatory, tax, currency and trade policy to artificially support exports and suppress imports.  Those would be Germany, Brazil, any other Southeast Asian nation, and Japan.
  • The rest of the nations are not engaged or relevant in this fight, but will still suffer collateral damage.

The U.S. has put themselves in a box by allowing their budgets and current account deficits to become unsustainable (the why or whose fault it is, is irrelevant). We have been trying to rebalance global trade to save ourselves, and at the same time been printing dollars (along with every other consuming nation) to reinflate the world economy.

The Mercanilists and the Resource countries like things just the way they are now. But, they are vulnerable; by tying to our dollar, and having a high need for raw material imports, we are now in a position to cause them great pain, unless they revalue their currencies.

So my thesis is, we are playing a great game of chicken to see how long these countries can stand the internal inflation and the havoc of higher food and fuel prices on their populations, and the reduced profits for their business owners.  The squealing has already begun.

Brazil is having great difficulty handling the money flows, Korea, Japan and Germany are concerned enough to take this fight public, and China is struggling with higher food and fuel prices, and disappearing margins.  Here in America, the Federal Reserve has maybe a six month window before higher fuel and food costs embed themselves into the supply chain and come out with intolerable retail price increases. 

Between now and then, expect this new money to flow into hard assets that are internationally trade able.  These prices, I suspect will rise far faster than most expect, with high volatility throughout this complex and within it.  That is where I am positioned. When our energy and food prices get too high, we will force the Fed's hand to stop (Average gasoline in the $3.75-$4.00 range). That is when I step off. I suspect after this, a new managed world trade policy will be hammered out if we did not tip the world over the falls into real deflation and depression.

One man's view www.arum-geld-gold.blogspot.com

Solar, Partial Eclipse Ahead (by BKudla)

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For full disclosure, I own a Solar Energy company.  We sell and install systems and also act as a utility and finance long term projects.  From a personal point of view, I love solar, from an investment point of view, they are going the way of memory chips, with few exceptions. The industry is growing quickly, but profitibility will fall even faster. 

 I first wish to discuss the most optimistic growth scenario from an industry advocate, Greenpeace.

"Solar photovoltaic is a key technology to combat climate change and to secure access to clean electricity. By 2015, the global market could be twice as big as today, leading to a Rs.430 billion investment. Our goal is to make solar photovoltaic a mainstream power source through more supportive policies around the world,' said Sven Teske, senior energy expert at Greenpeace International."

That is a market growing 12-14% per year not bad, but that is the top line and we need to get through some headwinds in 2011 first.  This is a quote from an industry research report I get.

"Looking ahead into 2011, the most challenging quarter will undoubtedly be Q1'11. Leading European markets, including Germany will face large reductions in tariffs at the beginning of the year. Even with careful phasing of projects and price reductions, market demand is projected to be less than 50% of module production. As a result, the analysis forecasts end Q1'11 upstream and downstream module inventory days to increase significantly by the end of that quarter.
"Historically, the PV industry has often exuded over-optimism in the face of uncertain end-markets. However, the recent industry conference in Valencia confirmed two prevailing industry positions, one that emphasizes oversubscribed order books, the other that focuses on the German tariff declines and a demand reduction next year," Stevens concluded."

And that is before our elections.  If the Republicans take the House, they will not be renewable friendly.  They are the extraction party.  This will create domestic headwinds.

Another source I have speculates that solar prices will fall 25% over the next five years, and with these near term headwinds I expect to see aggressive pricing to move inventory, frontloading the margin compression.

Another concern for the industry is new entrants with enabling technology.  These companies have already paid for their fixed costs selling other products, and will compress margins even more.


For me, too much risk, recent price action in the space is already sensing this. I will opportunistically short the rips.

Bubbleium – A New Rare Earth (by BKudla)

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Rare earth's are all the rage these days, thanks to China.  Everywhere you read, you hear China is going to corner the market and bring Western Civilization to its knees.  Although it is pretty shortsighted allowing China to control 97% of the production, all is not what it appears.  First some facts:

 The rare earth marketplace is $2 billion per year.

  • The anticipated growth rate for the rare earth markets is speculated to be 9% per year.
  • The United States requires approximately 5% of the metal produtcion as raw materials for domestic manufacturing.

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  • The military see no shortages in rare earths. From Bloomberg last week.  "The U.S. Defense Department has concluded that China’s monopoly on rare-earth materials, used in military hardware such as missile guidance and radar systems, poses no threat to national security, according to a person familiar with a year-long study by the Pentagon."
  • There are no export controls on the sale of value added products from China, made with these materials.
  • By 2012-13, The Lynas mine in Australia will be producing, and it is likely that MolyCorp will be, as well.
  • The Market capitalization of Molycorp (MCP) is $2.6 billion, and Rare element Resources (REE) is $266 million. Lynas Corp (LYC:AU) $2.4 billion.
  • The Market Cap of all Rare Earth companies are $10 billion.
  • Annualized stock price appreciation since mid August for REE and MCP is 1,200%
  • Molycorp needs to secure additional financing equal to its original investment of $250 million.

 

 

Based on the above facts, this is a bubble, market caps exceed the entire industry annual production by 5x. These mines will not have any pricing power once they are up and running. Remember, China can control the price of these metals downward, as well as upwards.

I sold my position in REE last week and have no intention of buying Molycorp, until they have completed their dilutive follow-on offerings and the insider lock up periods end.  I will evaluate them, then.

This is a rollercoaster I do not wish to ride.

www.arum-geld-gold.blogspot.com