Friday, July 31, 2015
Lithium — which has long been used to power cell phones, laptops and tablets (as well as in applications for other industrial uses) — is on the verge a global demand boom.
The emergence of electric vehicles and home batteries charged by solar panels. Additionally, lithium batteries are beginning to be used as backup power sources for businesses and utilities.
However, the supply of lithium cannot be taken for granted.
As batteries become a more prominent and emerging global energy source, demand for lithium is soaring — and we are only at the beginning of the demand curve.
Tesla is planning to produce more lithium-ion batteries in its planned $5 billion Nevada gigafactory than in the entire global marketplace combined.
In fact, that one factory alone will need 15,000 tons of lithium carbonate in just its first year.
Tesla founder Elon Musk says the demand for lithium storage batteries has skyrocketed to the point that an expansion of his gigafactory may have to be considered before it is even built.
According to Credit Suisse, demand for lithium “will actually outstrip supply as we approach the later part of the decade, with demand potentially as high as 125% of total capacity.”
Clearly, that is problematic.
Even before Tesla announced its gigafactory, global lithium consumption had already doubled in the decade before 2012, driven largely by the use of lithium-ion batteries for cell phones and power tools.
Yet, the growing production of electric cars has created even further demand for lithium.
Tesla’s gigafactory is expected to use as much as 17 percent of the existing lithium supply, according to Fortune magazine.
In 2009, total demand for lithium was almost 92,000 metric tons, of which batteries consumed 26 percent, the largest share.
Demand has continually increased in the ensuing years, and it is still growing.
The demand for all lithium chemicals used in batteries is projected to increase by as much as 50% in the near future.
Elon Musk has said he believes that more than 50% of all vehicles sold by 2030 will be fully electric. If his prediction is correct, this will equate to 75 million vehicles requiring nearly 3,000,000 tons of lithium per year.
However, the worldwide production of lithium in 2013 was only around 160,000 tons. Reaching Musk's demand projection would require a nearly 19-fold increase in production.
In other words, we're a long way from meeting that projection.
The problem is that lithium is difficult to find and excavate. The car manufacturer Mitsubishi predicts a worldwide supply crisis as soon as this year if new reserves are not discovered.
Most of the known supply of lithium is in Bolivia, Argentina, Chile, Australia and China. But since China is the largest consumer of lithium, it’s almost certain that all of its supply will be reserved for its own use.
In fact, China controls about 95 percent of the global market for rare earth metals, and it is expected to use most of those resources for its own production.
But lithium is absolutely vital to modern, rechargeable battery technology.
“There are no other materials that could replace lithium, nor are battery systems in development that offer the same or better performance as lithium-ion at a comparable price,” reports Battery University.
About 70 percent of the world’s lithium comes from brine (salt lakes); the remainder is derived from hard rock.
It takes 750 tons of brine, the base of lithium, and 24 months of preparation to get one ton of lithium in Latin America.
However, research institutes are developing technology to draw lithium from seawater. That's encouraging, and it would be game changer if it proves to be feasible.
Yet, it's important to remember that creating energy generally requires enormous amounts of energy. That's always been a conundrum, and a difficult reality.
One of the most promising aspects of lithium is its low cost. A $10,000 battery for a plug-in hybrid contains less than $100 worth of lithium.
The demand for lithium is quickly outpacing supplies, and a shortage could ensue as soon as this year.
Given the math and the timeline behind the creation of lithium (750 tons of brine produces just one ton of lithium after 24 months), a shortage problem could escalate rather quickly.
But lithium is rather cheap, while the cost of crude oil is not. Moreover, crude is a finite resource and is therefore guaranteed to increase in cost over time.
Any hope of meeting the absolutely massive global demand for lithium in the years ahead (again, Elon Musk projects a demand of nearly 3 million tons per year by 2030), is wholly dependent on the development of technology allowing for its extraction from seawater.
In short, such a technology is a sort of scientific holy grail.
Wednesday, July 29, 2015
Wall St. often seems to operate in a parallel universe, in which it makes rules that only it can comprehend. The valuation of listed public companies is one great example.
Even if a company has rising profits and revenues, it can be punished with a stock downgrade by Wall St. analysts.
Here are a couple of recent examples of just how insane Wall St. is, as are the markets it controls:
Apple’s profit surged 38%, and its cash reserves rose to a record $203 billion in the fiscal third quarter. The company sold 47.5 million iPhones, or 35% more compared with a year earlier.
Apple’s profit in the quarter rose to $10.7 billion from $7.74 billion in the year-ago period. Revenue also jumped 33% to $49.61 billion.
Yet, because its sales and revenues missed some analysts’ estimates, Apple’s shares fell as much as 7% in after-hours trading, quickly erasing about $60 billion in market value.
In essence, Apple did really, really well in the most recent quarter ⎯ remarkably well ⎯ yet it was still punished. Despite Apple’s excellent performance, it just wasn’t excellent enough for Wall St.
Facebook is now more valuable than General Electric.
With a market capitalization of $275 billion, Facebook is now bigger than GE, which has a $273 billion market cap.
GE, a company that makes tangible products - including jet engines, power and energy grid equipment, major medical equipment and devices, and the home appliances that are utilized in tens of millions of homes - has been surpassed in value by a company that makes nothing tangible.
In fact, Facebook is a free service that merely allows people to share “status updates,” such as selfies, cat videos, and pictures of their food.
GE racked up $149 billion in sales last year and employed more than 300,000 people. Meanwhile, Facebook reported $12.5 billion in sales and employed roughly 9,200.
Despite this, Facebook trades at 49 times expected 2015 operating earnings and at 37 times expected 2016 operating earnings.
GE, on the other hand, trades at close to 17 times expected 2016 operating earnings.
It's fair to say that Facebook is wildly overvalued. Yes, the Tech Bubble is alive and well, folks.
In the words of investment guru Jeremy Grantham, "Facebook is not the new steam engine." In other words, it will not radically alter economic growth or productivity.
GE is the only component of the Dow Jones Industrial Average today that was part of the original Dow in 1896.
Facebook was created in a Harvard dorm room a little over ten years ago.
In the rational part of the universe, it’s difficult to reconcile Facebook being valued above GE. But it doesn’t end there.
Facebook’s market cap is now $40 billion larger than that of Wal-Mart, America’s largest retailer and employer.
The fact that Facebook is valued higher than GE and Wal-Mart is totally detached from reality. It speaks to the absurdity of Wall St. and its analysts.
They all live in an echo chamber of madness.
These examples serve as just the latest reminders: Never trust Wall St.
Thursday, July 16, 2015
In 2008, the U.S. government threw enormous sums of money at big banks and insurance companies, with the hope of propping them up and preventing a systemic failure. A domino effect of collapsing big banks was feared.
The term “too big to fail” became a part of our national lexicon. Many economists and politicians feared that if the financial sector were to go under, the broader economy would collapse along with it.
Fast forward to today, and the biggest banks in the U.S. are bigger than ever, creating even greater systemic risk to the financial sector and our economy.
That's probably not the outcome most people expected.
During — or in the aftermath of — the 2008 financial crisis, there were a host of Big Bank mergers.
Bank of America bought Merrill Lynch and Countrywide Financial.
JPMorgan Chase absorbed Bear Stearns and Washington Mutual.
Wells Fargo took over Wachovia.
There were also hundreds of community and regional banks that went bankrupt, and those were consolidated with other community or regional banks.
At the end of 2007, there were 8,534 banks in the U.S. However, as of July 9, 2015, there were only 6,369 insured banking institutions, according to the FDIC.
That means there are 2,165 fewer banks than just eight years ago, a massive 25 percent decline.
However, the focus here is on the scale and magnitude of the biggest U.S. banks.
The Big Bank mergers were merely representative of years of consolidation, which culminated with the repeal of Glass-Steagall in 1999. That allowed the merger of commercial and investment banks, which had been illegal since the 1933.
As a consequence, the five biggest U.S. banks now control nearly half of the industry's $15 trillion in assets.
Those banks — JPMorgan Chase, Bank of America, Wells Fargo, Citigroup and US Bancorp — collectively held $6.8 trillion in assets as of Sept. 30, 2014.
JPMorgan holds just over $2 trillion in assets, or 13.1% of the industry’s total, followed by BofA at $1.5 trillion (9.9%), Wells Fargo just under $1.5 trillion (9.7%) and Citi at $1.4 trillion (9%), before a substantial dropoff to US Bank at $387 billion (2.5%).
Such concentration of banking assets is dangerous for our economy and raises the systemic threat to our banking sector during the next, and inevitable, crisis.
In 1990, the five biggest U.S. banks held less than 10% of industry assets.
Clearly, there has been a long, orchestrated march toward ever fewer and ever larger banks, with enormous financial and political power.
So much power and clout in the hands of so few is plainly dangerous, anti-competitve, and against the best interests of our nation.
Taxpayers are always on the hook for the failures of private banks. Profits are privatized, while losses are socialized.
If you're looking for some good news, there's this: The Federal Reserve established rules, which took effect this year, that will allegedly prohibit bank mergers that result in a combined company’s liabilities exceeding 10% of the industry’s total.
The rule was mandated by the 2010 Dodd-Frank financial law.
JPMorgan Chase is presently the only U.S. bank with assets in excess of 10%. Ostensibly, the banking giant will be prohibited from merging with another large financial firm, except in certain circumstances, such as another financial crisis.
However, that means we can expect JPMorgan Chase to continue its growth through additional mergers during the next, inevitable crisis.
BofA, Wells Fargo and Citi are all approaching the 10% threshold as well.
The Big Banks are very calculated. They understand how critical they are to the U.S. financial system, and the broader economy. They are betting — as they did in the lead up to the 2008 financial crisis — that the government won't let them fail, but will instead bail them out with taxpayer money, no matter how grotesque their misdeeds or how ill-advised their bets.
Big Banks are dangerous to our democracy. They have drowned out the voices of 99% of Americans, turned government into a feeding trough for the financial elite, and turned economic growth into debt.
The Big Banks are able to undermine our democracy because they have co-opted our government. Former Wall St. executives fill the ranks of the government's regulating agencies, which means those agencies are largely neutered.
We've all heard about the revolving door between Wall St. and Washington.
The power of the Big Banks comes from what else? Money.
The nation's top commercial banks (i.e., Wall St. banks) spent $61 million on lobbying in each of the last four years.
As a whole, the securities and investment sector has spent a whopping $1.24 billion on lobbying since 1998. They've gotten a lot for their money.
A 2013 research paper, “Corporate Lobbying, Political Connections, and the Bailout of Banks,” by Creighton Associate Professor of Economics Diana Thomas, found the following:
• Campaign contributions and lobbying influence the voting behavior of politicians.
• Campaign contributions and lobbying have a positive effect on wealth for the shareholders of the companies that spend.
• Businesses that pay lobbyists before committing fraud are 38% less likely to get caught; even when they get caught they are able to evade detection almost 4 months longer than those that do not pay for lobbying.
• Firms with political connections are more likely to receive government bailouts in times of economic distress.
Our government is bought, and our alleged representatives don't really represent us; they represent Wall St. and the other Big Banks.
Such is the sad state of our republic. Our financial system and our economy are imperiled by the power, wealth and influence of the Big Banks, and that affects every single one of us.
The steady pattern of banking consolidation, and the huge increase in concentrated assets, has made the banking system less stable, which has made the U.S. more vulnerable to the next shock.
That event is just a matter of time.
Just like the last time — and every other time — the taxpayers will once again be forced to bail out the banks, which puts all of us at risk. Our whole economy is at risk.
That's not how a free market is supposed to operate.
Monday, July 13, 2015
A mere seven days after the Greek people resoundingly rejected the demands of Greece's creditors, 61% to 39%, Prime Minister Alexis Tsipras defied the will of his citizens and capitulated to the Troika — The IMF, EU and ECB.
Tsipras was elected earlier this year on a platform of defiance of the Troika and the austerity measures that have crippled the Greek economy. His party and the electorate may now revolt against him. Tsipras could face a snap election and be quickly booted from office.
His decision is a blatant affront to democracy — the will of the Greek people — and for that he may pay the ultimate political price.
Why the Greek government did not ready and relaunch their former currency, the drachma, is inconceivable. It is their only hope to return to some semblance of normalcy.
Greece needs to leave the euro and devalue its currency to gain some competitiveness in global trade.
Greece is stuck in a nightmarish scenario in which it must borrow from its creditors in order to repay those very same creditors. How insane is that?
The sad reality is that Greece is absolutely, fundamentally incapable of ever paying off its debts, and even its creditors know this.
Secret documents published by The Guardian reveal this:
"Greece would face an unsustainable level of debt by 2030 even if it signs up to the full package of tax and spending reforms demanded of it, according to unpublished documents compiled by its three main creditors.
"The documents, drawn up by the so-called troika of lenders, support Greece’s argument that it needs substantial debt relief for a lasting economic recovery. They show that, even after 15 years of sustained strong growth, the country would face a level of debt that the International Monetary Fund deems unsustainable.
"The documents show that the IMF’s baseline estimate – the most likely outcome – is that Greece’s debt would still be 118% of GDP in 2030, even if it signs up to the package of tax and spending reforms demanded. That is well above the 110% the IMF regards as sustainable given Greece’s debt profile, a level set in 2012. The country’s debt level is currently 175% and likely to go higher because of its recent slide back into recession."
So there you have it; the medicine will only help to kill the patient. It is madness!
The IMF knows the demands made by it and the other two members of the Troika will not help Greece. They will only prolong and deepen its misery. Yet, they are making these demands anyway.
It is perverse.
Back to The Guardian:
"Even under the best case scenario, which includes growth of 4% a year for the next five years, Greece’s debt levels will drop to only 124%, by 2022."
Consequently, Greece has no chance of meeting the target of reducing its debt to “well below 110% of GDP by 2022” set by the Eurogroup of finance ministers in November 2012.
If there is no chance, even under the best case scenario, why the charade? Why all the handwringing, public proclamations and outlandish demands by the Troika?
Greece is an economic basket case, and everyone who has followed this story closely for the past five years or so knows this. Back in 2012, I said that the eurozone debt deal would leave Greece permanently indebted.
One way or another, Greece will remain in a depression for quite some time. It's only hope for a better future is to default and return to the drachma.
It won't be easy, and it won't be painless. But at least it offers Greece a ray of hope — a light at the end of a very long, dark tunnel.
Wednesday, July 08, 2015
I've been writing about China's bubble economy since 2010. Now reality is finally setting in.
China's economic growth over the past three decades has been nothing short of stunning, but that trajectory has become increasingly dubious. Many among us have been waiting for China's bubble to burst.
That time may now be at hand.
Despite massive government interventions, China's stock market is in free fall.
In just three weeks, stocks listed on the Shanghai Composite index, mainland China’s most prominent exchange, have tumbled 30% from their seven-year highs. A whopping $3 trillion has evaporated from the Chinese stock market in the last month.
Yet, the plunge isn't over by any means. There's still a long way still to go.
Novice Chinese investors have opened 30 million new trading accounts this year — many on margin. Now they are facing margin calls on their highly leveraged positions, which has ignited a selling frenzy.
Newbie investors are by definition inexperienced, and they are prone to following momentum and the herd. Quite predictably, panic has set in.
Shanghai shares had risen 150% over the previous 12 months, meaning Beijing should have seen this correction coming. The government is attempting to hold back the tide, but it is discovering that it is not so mighty after all.
So far, the free fall has largely affected only Chinese investors; foreigners own just 1.5% of Chinese shares.
However, Chinese stocks represent more than 20% of some emerging-market ETFs, so the pain will be felt far and wide, well beyond China.
China's stock market collapse may lead to a long overdue real estate collapse (which has also started. but still has a long way to go), the opposite of what happened to the US in 2008.
This is a much bigger story than the Greek debt crisis. The Greek economy is miniscule. China's is the world's second largest.
A stock market meltdown could become a full blown real estate meltdown. Stunningly, Chinese regulators are now allowing people to use their homes as collateral to buy stocks! Seriously.
A real estate meltdown would become a full blown economic crisis.
The ripples from a Chinese economic crisis would be felt around the world.
This is a story to watch closely in the coming days and weeks.
Monday, July 06, 2015
By a vote of 61 percent to 39 percent, Greek citizens chose in a referendum not remain permanently indebted to their government's creditors, with no hope of economic recovery.
The Greek economy has been shattered, gripped by spiralling unemployment and poverty. The nation is suffering through a full blown depression.
Yet, the crisis in Greece is growing worse. Even limited amounts of cash are drying up, with no prospect of an immediate infusion from its former creditors. The government imposed restrictions to stem a bank run after the referendum vote was called and its bailout program expired.
Banks remain closed and ATMs have little cash. Without more liquidity assistance from the ECB to Greek banks, Greek citizens might not be able to withdraw even the meager 60 euros ($67) allocated per day.
While banks are scheduled to re-open Tuesday, that remains in doubt. Without assistance, there will be no cash for clerks to handover to bank customers.
Greece is so starved for cash that it could be forced to start issuing its own currency and become the first country to leave the 19-member eurozone, established in 1999.
There is no EU treaty for leaving the currency, but there is one for leaving the EU. Now the monetary union is threatened.
The harsh, unrelenting austerity dictated by the “Troika” – the International Monetary Fund, the European Union and the European Central Bank – pushed the Greek economy into a death spiral, with no chance for recovery.
Huge cuts in government spending helped to create an economic catastrophe in Greece, reducing the economy by one-fourth. Unemployment is at 25 percent, and a stunning one in two young workers are without jobs.
In short, there is no hope for huge numbers of Greeks.
With unemployment so widespread, the tax base has been crushed. With no tax base, it is impossible for Greece to repay its creditors.
The Troiks is now being reminded of an old adage: You can't get blood from a stone.
Saturday, July 04, 2015
More than any other day, Americans take pride in celebrating our freedoms on Independence Day. It is a day of national honor.
However, observed objectively, Americans aren't nearly as free as they'd like to believe. While Americans are renowned for believing "we're number one!" in any and all manner of worthy rankings, when it comes to freedom — undoubtedly the most important ranking of them all — we're far from number one.
The United States ranks 21st worldwide in personal freedom.
The Legatum Institute in London finds that 20 other nations rank ahead of America in regard to personal freedom, which is calculated based on protections of civil rights and civil liberties. The U.S. ranking has dropped significantly in recent years; in 2010 it was in ninth place.
The researchers at the Legatum Institute measure a nation's prosperity on a number of factors including health, safety, education, economy, opportunity, social capital, governance and personal freedoms.
The research shows that citizens of countries including France, Uruguay, and Costa Rica now feel that they enjoy more personal freedom than Americans.
Yes, France, the country that so many Americans love to hate because it is "socialist," ranks ahead of the U.S.
This is not some liberal screed either.
Even the Heritage Foundation, the famed conservative research think tank, ranks the U.S. 12th in the world in its 2015 Index of Economic Freedom.
Freedom of the press was so critical to our nation's founders that they enshrined it as the very first amendment to the U.S. Constitution.
They would be horrified by our lack of press freedom today.
Reporters Without Borders issues an annual worldwide ranking of press freedom. This year, the United States is ranked 49th.
That is the lowest ranking ever during the Obama presidency, and the second-lowest ranking for the U.S. since the rankings began in 2002 (in 2006, under George W. Bush, the U.S. was ranked 53rd).
Frankly, no nation should rank ahead of the U.S. Period. If there is one area we should be able to proudly brag about being No. 1, it is press freedom.
Sadly, that is far from the truth.
There is a long, unfortunate history of American jingoism and chauvinism. There is an enormously misplaced sense of national pride that America is the greatest in every way. Most of that is rooted in the notion that we are the most free people in the history of the world, and that all other nations seek (or at least should seek) to be just like us.
The reality is quite different.
Of the 167 countries in the world (165 of which are members of the United Nations), 76 are democratic. While the democratic nations account for less than half of the nations in the world, the U.S. is far from unique.
Most critically, we are not a model of freedom or democracy.
So while the U.S. has a litany of things to be proud of (the list of things invented by Americans is stunning), including aviation, the telephone, the internet, rock & roll, jazz, blues, blue jeans, baseball, putting men on the moon, and on and on, we did not invent freedom. That honor goes to the ancient Greeks, the world's first democratic society.
Ultimately, we don't hold some exclusive claim to freedom. In fact, we have lots of room for improvement.
We have a nation of stunning beauty, filled with kind, giving people who are always willing to lend a hand in a natural disaster or any other national tragedy.
But we shouldn't fool ourselves about how free we are, especially on a day such as today.
What we should do, instead, is look at all the countries ranked ahead of us in various measures of freedom, and aspire to be more like them.
We should demand better, because we deserve better.