Round-up: midterms, rare earth metals and cannabis
8th November 2018 |
Following the midterm elections in the US, the stockmarket has rebounded nicely. There has been a lot of loose talk about a bear market and even the spectre of a crash has been circulating around some news outlets.
However, none of the lead indicators I watch for a recession are rolling over so I continue to think this is a medium-term correction which will be resolved with an upward break. If you have read this month’s issue of Frontier Tech Investor you’ll already know what my rationale for that view is.
We get to hear from the video gaming sector today with both Activision Blizzard and Take-Two Interactive Software reporting earnings. Activision has not yet rallied but I anticipate the earnings are going to be positive which should help to confirm a floor for the stock.
I received this email from a subscriber which I believe may be of interest to subscribers:
I was reading in the Zero Hour Alert issue that with China controlling approximately 90% of these rare earth metals and that they have recently announced a 40% cut in sales, leaving only sales to Chinese companies being covered.
What is your opinion on alkane resources featuring an uplift in their share price as I believe they are one of the few providers/explorers outside of China, and they are already within your suggested portfolio?
I am not asking for personal advice, just your view on this particular area as you have written about it before.
China is the largest miner and refiner of rare earth metals. In 2010 the decision to weaponise the sector, which is vital to everything from high technology to renewable energy and laser guided missiles, resulted in an incredible price surge. This saw the price of some shares rise by several multiples. The aim of the policy was to force high-tech manufacturing to move to China because of its reliance on the metals.
It backfired because the price surge set off an exploration boom to develop new sources of supply and it encouraged consumers to innovate in order to reduce demand. China realised the threat to its dominant position in 2011 and flooded the market with rare earth metals. Prices of everything associated with the sector crashed lower.
China has not announced a ban on this occasion but it has a clear intention to squeeze the US. That is likely to be beneficial to rare earth metals miners and explorers like Alkane Resources if we see a commensurate jump in the prices of the respective metals. So far there has been no activity in the China quoted prices for neodymium or yttrium, but if supply becomes an issue that situation will not last persist.
Another piece of news that is likely to be of interest to subscribers is that President Donald Trump asked the attorney general Jeff Sessions to resign yesterday. The president has been at odds with Sessions for months, not least because of his handling of the investigations into Russian tampering with the 2016 election.
However, there is a more relevant issue to the portfolio in the removal of Sessions from such a key position. He has been one of the most vociferous critics of cannabis legalisation and has been very active in attempting to use federal power to supersede the will of individual states where people have voted for the freedom to use cannabis recreationally.
I have been anticipating that Trump would remove Sessions as a pre-amble to “evolving” his position on the cannabis issue. This could well be the catalyst for a major change in the outlook for the US cannabis sector and I am looking at an additional position that would give us clear exposure to the market. I anticipate pulling the trigger on it soon.
All the best,
Eoin Treacy
Investment Director, Frontier Tech Investor
