Thursday, January 6, 2011

Rare Earth Comments Signal Inexperienced Owners

My posts receive much more exposure on Seeking Alpha than they do on this site. Consequently that's where I get the most feedback; usually of little value.

The rare earth bubble article stirred the pot pretty good. My thesis was rare earths aren't rare, rising prices will attract big miners, REE companies are selling for insane valuations, and finally, if you want to be near the space, buy FCX or TC as they will benefit if the bubble doesn't explode and you'll not lose your nest egg if it does. Most commentors didn't want to get it.

I usually get this type of response when I advocate shorting a stock. All the supporters rally with inane logic and never dispute the central facts. Same thing here. The owners of REE stocks defended the price rise with all types of mineral trivia, mine location, and personal attack. Nobody bothered to re-think their investment and convince me that paying $5B for MCP, a development stage junior, that has committed most of its eventual production to W.R. Grace at a fixed price and therefore won't materially benefit by any huge run up in REE prices, is a prudent investment. That attitude and lack of discipline is how bubbles develop and one is developing, if not already present.

I did receive one comment worth reading. A person that could actually read and understand called me on my reference to Alfred Einstein, hoping it was Albert's brother. I have no idea as what I was thinking about when I typed that other than I probably had a scotch in my hand and wasn't concentrating deeply. It's better to make typing errors than investment errors.


jfs said...

Mr. Kabourek,

I did read your recent article and it certainly helped me understand the rare earth marketplace. It opened my eyes to the possibility of just another hype bubble. I appreciate your straight forward approach and advice.

BTW: Judging from the action in MCP today. Your overview was on point.

Thank you.

Harry said...

I have now had a chance to read your old blogs and they are very interesting. Since you short stocks what do you think of Netflix? I just opened a short at todays price. It looks toppy and expensive.

William F. Kabourek said...

harry, it's way past toppy and expensive. But, I've been afraid to short it and puts were too expensive. If the broker doesn't force you to return the shares you will probably do very well as netflix is going to be eaten by the pipe guys who aren't getting paid now and I'm sure with the growing traffic they intend to. the model doesn't work well when you have to pay for your cogs.a netflix short is ddangerous, but potentially very lucrative. Obviously, lots of luck.

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