A New Bully on the Block
Research for Online Investors

by John Dalt

9/24/10

Rare Earth elements are critical to modern technology.  They are used in deep cycle batteries, magnets, flat screen televisions, and are used in hi-tech military equipment.  China has cornered the market in rare earth’s supply.  They currently mine 95% of the world’s rare earth elements.

How does China act when they get a market cornered?  This summer they announced that exports in the second half of the year would be cut 72%. This announcement set off a scramble world-wide to identify rare earth deposits and clear the way for mining.  It may take up to ten-years to actually produce rare earths from a new prospect mine; this makes previous mines very attractive.

In the last few days, China has taken actions that should cause the world concern.  On Sept. 7, a Chinese fishing boat rammed a Japanese Coast Guard boat that was patrolling in the East China Sea.  The Coast Guard was patrolling the area around an island whose Japanese claim is contested by China.

Wars have been fought over worthless islands before.

The boat and crew were subsequently released, but the Chinese captain was detained by Japan until Sept. 29, while Japanese authorities determined if he should be charged with any crime.  China demanded his release, cut off diplomatic ties, and issued veiled threats concerning actions they would take.

China ‘suspended’ all shipments of rare earth elements to Japan late Tuesday night.  The Chinese also arrested four employees of a Japanese construction company that were working in China.  The company was working near a Chinese military base, locating chemical ordinance left by the Japanese during WWII.  Thursday, China’s Trade Ministry denied reports that Beijing is tightening curbs on exports to Japan.

Early this morning, Japan notified the Chinese government that the fishing ship captain would be released.  China is sending an airplane to pick him up.  Articles for this story are from Reuters, The New York Times, and Reuters.

Oh! Bama’s Treasury Secretary Tim Geithner appeared before the Senate Banking Committee a week ago.  He outlined a toughening stance with China concerning the valuation of the Yuan.  The administration should understand dealing with the Chinese is not going to be a “walk in the park.”

One of the triggers for the Japanese attack on Pearl Harbor was U.S. President Roosevelt cutting the supply of crude oil to Japan in July of 1941.  Trade and natural resources are weapons that should be used very carefully.  It is a dangerous world we live in; it seems there is a new bully on the block.

The National Bureau of Economic Research (the official arbiter of recession dates) declared this week that the recession that began in December 2007 ended in June 2009. Today's chart illustrates the duration of all US recessions since 1900. There are a couple points of interest... Of the 22 recessions that occurred over the past 110 years, the most recent recession is tied for fifth in terms of duration. This recession was above average in duration and the longest since the Great Depression.

To the mailbag:
You use common sense and caution when making (investment) decisions.  I compliment you.  Your rationale is logical and conservative.  Investors should read and digest your article.  It should answer any questions regarding the strength or quality of your recommendations.---paid up subscriber R.A.

John’s reply:  You are too kind.  I just always try to remember the important thing is "Return of my money" not "Return on my money."  We all like to book nice profits and gains, but how many times have we been caught and thought back "If I only would have..."  I try very hard to make us money, (I follow my recommendations for our family's long term investments).  It is nice to beat the market, but it is even better to not lose money.  Please pardon the edit of your comments for brevity.

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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