China and Strategic Metals

Posted by John Kaiser - KaiserBottomFish.Com

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My view has been that the key macro trend is one where China will gradually become a major, self-sufficient global economic power whose development of a middle class will nourish the OECD sunset economies as the Chinese standard of living catches up to that of OCED members. In the even longer run as China begins to grapple with its own demographic problem India with its youthful demographics will pick up the slack and become the driver of global economic growth. In a globalized economy where significant imbalances in living standards between relatively large and smaller population bases exist, and where capital is free to seek out the place with the lowest cost structure, mobilize local resources, and transport goods and services into regions with higher cost structures, the OECD has a 20-30 year window during which its objective should be to prevent the crash of its own living standard and sustain itself on the rising living standard of the have-nots. If the United States has any rival outside of China it has to be Europe and not Japan. During the past few weeks China has been put off balance by stories such as Google’s threatened withdrawal due to Internet censorship, a US decision to ship $6.4 billion in weapons to Taiwan, and an escalation of public anxiety about Iran’s nuclear ambitions which has isolated China as the sole nation unwilling to sacrifice its security of supply interests for a common good.

China, in turn, has retaliated by tightening its banks’ lending requirements in a move ostensibly designed to cool internal inflation, but which is also intended as a warning to the OECD that in so far that it hopes to pull itself out of recession on the coattails of China, it should perhaps not count too heavily on a China portrayed as “Big Bad China”. With China checking out for a little siesta it is a good time for the United States to deal with Europe through its proxies, the transnational mercenaries which have no geopolitical allegiance but do owe some gratitude to the Obama administration for not playing hardball during the 2008 meltdown. The relevant question for the medium term future is, who suffers less as China rises, the United States or Europe? The trouble with this question is that it posits a false dichotomy, for nationalism is a sop for the saps who cast their votes for politicians already bought and paid for by interests who are neither Europeans, Brits nor Americans. The proper question should be how is the disparity between the standard of living of population bases whose economies are de-industrializing and those which are industrializing to be managed so as to avoid chaotic eruptions of the pitchfork or “sieg heil” variety? This risk is for the moment acute because the United States and Europe are both in a state of denial about the course history is taking, which is that the significantly larger Asian population bases will drive the world’s economic future, and in doing so determine the power landscape of the future.

Gold is bound to be a natural beneficiary of this transition period because we cannot predict the political structure of this future, and gold is the ideal long term hedge against this uncertainty. That is why I believe we have entered a period of real increases in the price of gold which may not be very dramatic in nominal terms for speculators hoping to profit from higher prices (oddly, they unanimously seem determined to calculate those profits in dollars!), but which real gains have a profound leveraged impact on the value of resource juniors with ounces in the ground that can be developed as mines. But more importantly, this “optimistic” view in which the world’s average standard of living grows at an accelerated pace implies a steady growth in total demand for all raw materials, with particularly high growth for those raw materials which play critical and incremental roles in new technologies. This puts me into the secular bull camp for raw materials where Eric Sprott used to belong, but from which he has distanced himself after committing the sin of wishing this trend to accelerate faster than it could. During the past year I have spent an increasing amount of time on “minor metals”, that oddball group of metals often referred to as “strategic”, “critical”, “specialty” and ever more frequently as “technology” or “rare metals”. The specific group on which I focused last year was the “rare earth” metals, a group of metals in whose supply China completely dominates and which have a broad set of properties which have helped them become key inputs for many new technologies, including those related to “clean” or “renewable” energy.


Kaiser Bottom-Fish Online is a fee based research portal owned and operated by John Kaiser from his base in Moraga, a suburb in the San Francisco area of California. It specializes in high risk Canadian listed securities and seeks to provide investors with a framework for intelligent speculation. The resource sector is the primary focus for an investment approach developed by Mr. Kaiser which combines his “bottom-fishing strategy” with his “rational speculation model”. A full membership costs $800 annually or $250 quarterly. It provides access to online information resources, commentaries and recomendations.