Disruptive Discoveries Journal

Negative Interest Rates: A Primer

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By Chris Berry (@cberry1)

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It is widely acknowledged that credit is the lifeblood of an economy. It provides the leverage for growth. The interest rate assigned to a fixed income security can then be thought of as the “cost” or “price” of the credit.

This makes sense as lenders want to ensure their assets (cash, typically) earn a return above the risk free rate. To be clear, there is much more to determining an interest rate, but this is the basic premise.

What happens, though, when that rate goes negative?

This note is a primer on negative interest rates, a phenomenon not unheard of, but increasingly en vogue in the wake of the Bank of Japan’s surprising (or maybe not so surprising) announcement to set the interest rate they charge commercial banks to deposit money at the BoJ at -0.1%.

Forecasting Lithium in 2016: What are the Salient Issues?

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By Chris Berry (@cberry1) 

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If recent mainstream media, sell side, and newsletter writer coverage wasn’t enough to convince you, it is all but obvious that lithium has emerged as an investible asset class for 2016 and beyond as the broader commodity sector continues to struggle with overcapacity and slack demand. While the excitement is born of strong growth in technologies requiring lithium (mainly electric vehicles and energy storage), the real reason for investor excitement boils down to one issue: price.

As The Economist shows, the lithium carbonate spot price has gone parabolic.

Is this the Final Leg Down in the Commodity Cycle? How Much Lower for How Much Longer?

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By Chris Berry (@cberry1)

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If anything is clear after the start of 2016, the global economic rebalancing that central banks around the world are trying to engineer is not proceeding according to plan. The circuit breaker fiasco in the Chinese equity markets is the latest example giving investors pause with respect to what is truly “going on” in China. The Shanghai composite equity index has lost almost 15% of its value YTD and few see good reason for this slide to halt aside from intense government support and RMB devaluation. Money continues to flow out of China as we speak.

2016: There's Something in the Air

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By Chris Berry (@cberry1)

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As is the case this time of year, we start to close the books on 2015 and position for 2016. While we have effectively and indefinitely moved “to the sidelines” with respect to stock picking in the junior mining space, there were some notable successes, in particular with the merger between Western Lithium (WLC:TSXV) and Lithium Americas. This combination positions the new company in a unique strategic light as electrification, underpinned by the lithium ion battery, gathers steam in 2016. Galaxy Lithium’s (GXY:ASX) restructuring is another positive development. We’ll be watching the developments with these two companies closely.

In 2015, there was very little to be cheerful about in the metals markets and to be blunt, we expect this malaise to continue into 2016. China’s RMB devaluation last summer...

Rare Metals on a Collision Course - Book Review of "The Elements of Power: Gadgets, Guns, and the Struggle for a Sustainable Future in the Rare Metal Age" by David Abraham

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By Chris Berry (@cberry1)

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In the Autumn of 2011, my father and I were approached to present to a group of faculty and undergraduate environmental studies majors at a major university here on the East Coast of the United States. The topic was rare earths. What struck me was the fact that nobody was taking notes using a pen and paper – each student was typing away on his or her Mac or PC. While the presentation went well, we were astonished at the lack of knowledge the students had regarding the global supply chain risks inherent in many of the metals and minerals used in the technology that we take for granted. Were the students aware that the cobalt in their computer was quite likely not ethically sourced? This generated several questions. Would they be willing to pay more for a product if they could be sure people weren’t being exploited along the entire supply chain? What about the fact that many of these metals and minerals are critical for national defense and China (a strategic adversary) essentially controls the bulk of production of many of them? There were no easy answers to these questions then and there are none today. But the general ignorance of the supply chain dynamics and the strategic and tactical threats have likely increased despite a horribly depressed metals market.

Unfortunately, these students were likely a microcosm of the broader populace who are unaware of the destabilizing effects of foreign mineral dependence on supply chains for rare metals. For this reason, David Abraham’s excellent new book titled “The Elements of Power – Gadgets, Guns, and the Struggle for a Sustainable Future in the Rare Metal Age” couldn’t have come at a better time.

Four Questions for 2016 - Donald Trump, Deflation, China, & Oil

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By Chris Berry (@cberry1)

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Ed. Note: The following remarks were those I made to investor audiences during a recent bus tour in Munich, Geneva, Zurich, and Frankfurt.

 

Ladies and Gentlemen, thank you for coming today and investing your most valuable asset in us, which is of course, your time. Speaking of time, what I’d like to do today is take a look back and a look forward and briefly offer some thoughts on where we’ve been in the global economy in the past year and what some of the key questions are in 2016 likely to drive the commodity and broader markets altogether.

Rather than make excuses or guesses as to why commodities continue to under perform, I’d like to examine some of our thoughts from a year ago when we were last here in Europe and see what has transpired.

The Revival of Natural Resources: How Did We Get Here? When Will We Escape the Downturn?

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Mike recently presented the attached paper (here) at the Association of Quebec Mineral Exploration (AEMQ) Conference in Montreal. In it, he looks more closely at where we are in this bear market for resources and more importantly, why we're here. Finally, he looks at some possible solutions and time frames for recovery.  

We are gearing up for two trips to Europe in November (Munich, Geneva, Zurich, and Frankfurt) and December (London) and will be back shortly with details.

A Closer Look at Nickel: An Unsustainable Current Reality?

Chris BerryComment

By Chris Berry (@cberry1)

 

 

As contrarian opportunities go, nickel offers an interesting case study. Throughout much of 2014, nickel market participants were almost universally bullish based on the Indonesian government’s plan to ban exports of nickel-bearing laterite ore. Nickel ore exports from Indonesia account for approximately 15% of global supply, so any curtailment in exports would have a material effect on pricing. It was also believed that other metals including tin would follow suit.

As China, the main destination for global nickel supply, had no real options to satisfy its insatiable demand (the Philippines is an exporter but on a smaller scale), the belief was that upward price pressure on nickel would ensue. While there was a rally after the ban went into effect, it was not sustained.

Cobalt as a Case Study in a Wobbly Global Economy

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By Chris Berry (@cberry1)

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Regular readers will know of my optimism regarding cobalt. The fundamentals look sound in a metals market that, already under pressure, appears headed lower. To wit:

·         Cobalt demand is growing by 6% overall with demand in the battery supply chain growing by some estimates at a CAGR of 10% out to 2020 - a good chink of the overall market. Current estimates for battery usage put the actual tonnage demanded at between 35,000 and 40,000 tpy. This is driven almost exclusively by cobalt’s use in the cathode of the lithium ion battery.  

·         Cobalt is mainly a by-product, produced as a consequence of nickel and copper mining rendering cobalt production hostage to the bullish or bearish tendencies of these other metals.