Dave Gonigam – June 22, 2011
- Dry ice fuels new computer revolution, delivering China a windfall and early investors a singular opportunity
- Two charts to ponder while Ben Bernanke jabbers before the cameras
- Greeks empty their bank accounts, load up on gold… while China pumps up Panda production to meet demand
- Urban gold panning: Can you really make a living digging through sidewalk cracks outside jewelry stores?
- One reader rips the banks, a second praises a “new” economic indicator and a third tries to fix Social Security despite herself
You can use dry ice for a lot – keeping a picnic lunch cool, generating fog for backyard karaoke. Now it’s about to revolutionize computing all over again.
More important, it’s going to touch off a scramble for a wonder substance that’s in high demand, and produced mostly in China. If you feel you missed out on the rare earth boom, you’re on the cusp of something equally lucrative.
The story begins with two breakthroughs, both revealed in the last 10 days.
Researchers at IBM announced this month they’ve built the first integrated circuit made of something called graphene.
The wafer you’re looking at is as thin as humanly possible — exactly one atom layer thick. And yet it’s powerful enough to…
- Make mobile phones work in places they can’t now
- Make almost any electronic device run faster, with less electricity
- Power devices that can see inside the human body without harmful X-rays.
You can’t do that with the stuff that’s made up integrated circuits for the last 40 years — silicon. Graphene is on its way to becoming “the new silicon.”
Also this month, researchers at Northern Illinois University made a parallel breakthrough, equally important: They hit on a way to manufacture graphene in high volumes.
Instead of previous methods — splitting graphite crystals with tape, or heating silicon carbide to high temperatures — the NIU scientists came up with something so simple your teenager could do it in the garage (although we wouldn’t advise it) — burning magnesium in dry ice.
“Up until now,” says professor Narayan Hosmane, “graphene has been synthesized by various methods utilizing hazardous chemicals and tedious techniques. This new method is simple, green and cost-effective.”
Graphene is derived from graphite — which itself is derived from the humble carbon atom. The two scientists at the University of Manchester who isolated graphene in 2004 won the Nobel Prize for physics in 2010.
“As a material, it is completely new,” declared the Royal Swedish Academy of Sciences upon bestowing the prize. “As a conductor of electricity, it performs as well as copper. As a conductor of heat, it outperforms all other known materials.
“It is almost completely transparent, yet so dense that not even helium, the smallest gas atom, can pass through it.
“It is not only the thinnest material in the world,” adds The New York Times, “but also the strongest: a sheet of it stretched over a coffee cup could support the weight of a truck bearing down on a pencil point.”
So it will have uses other than electronics. Physicist Michio Kaku from City University of New York envisions more lightweight aircraft and stronger plastics, among other innovations.
Here’s the rub: “Good graphite is not that easy to find,” says our natural resource maven Byron King. “Graphite prices have more than doubled in recent years.” No graphite, no graphene.
On top of that, Byron continues, “China controls 80% of the global graphite market — just like China runs 97% of the world supply of rare earths.” And China’s reserves are dwindling.
So not only are we looking at “the new silicon” in terms of potential… we’re also looking at “the next rare earths” in terms of scarcity. And yes, just as with rare earths, the rush is on to find new sources outside China.
Many lie in developing countries run by dictators who’d love nothing more than to nationalize a big graphite find as soon as some company does the hard work of proving it up. But one of the largest is in North America — 8 million tons — controlled by a tiny firm Byron recently uncovered.
It can produce graphite for $400 a ton and sell it for $2,000. That’s $12.8 billion of potential for a company with a market cap of $58 million.
Byron guided his readers to rare earth gains of 93%… 147%… even 178%. If you missed out, don’t feel bad. Let him tell you about the “new silicon” firm with shares still under $1 each… at least for now. It’s all in this presentation.
By the time you read this, the Federal Reserve will have wrapped up its two-day meeting and issued its statement. Ben Bernanke will have held his second press conference.
There will likely be little drama, save for whether CNBC’s Steve Liesman faints in the presence of Bernanke like a ’50s teeny-bopper in the presence of Elvis.
With the proviso that no one can read the Fed’s mind, it’s a safe bet Mr. Bernanke and crew are biding their time… waiting for the stock market to experience further withdrawal symptoms before mainlining more QE heroin.
A reminder: After QE1 expired in March 2010, the S&P 500 fell 13% and the volatility index blew up 48% before Bernanke signaled the advent of QE2 in late August. Stocks then soared.
For argument’s sake, let’s mark the end of QE2 with Bernanke’s first news conference on April 27, 2011. That’s where he refused to signal the advent of QE3. The S&P topped out two days later. From there, it’s dropped only 4.9% as of yesterday’s close.
The VIX, meanwhile, bottomed at 14.6 on the same day the S&P topped out. As of yesterday’s close, it’s up only 29%, and it hasn’t even begun to approach the high it reached right after the Japanese earthquake.
So if Ben plays coy about QE3 today, those charts will probably say more about the reasons why than anything he’ll spout during his 45 minutes before the cameras.
Indeed the most drama may be what word he comes up with instead of “transitory” to describe rising consumer prices. We’ll parse anything meaningful from the dog and pony show in tomorrow’s edition.
Gold continues its slow and steady march upward in advance of the Fed statement. At last check, the spot price is $1,554 an ounce. Silver’s up to $36.63.
As the Greek drama grinds on (if you’re keeping score at home, the government survived the no-confidence vote last night), ordinary Greeks are closing their bank accounts and loading up on gold.
“When the global financial crisis started, our sales of coins to investors overtook bullion for the first time,” metals trader Harry Krinakis tells the Financial Times. “Now the sales ratio has reached 5-to-1.”
The Greek central bank says depositors are withdrawing an average of 1.5-2 billion euros from bank accounts every month. A computer technician named Tomas says he’s traded in his euros for gold coins: “I keep them at home just like my grandmother did in the Second World War.”
The People’s Bank of China plans to ramp up production of its Panda gold and silver coins to meet nearly insatiable demand.
Production of the 1-ounce 2011 gold Pandas will be stepped up from a previously planned 300,000 to 500,000. Smaller gold coins will see production tripled to 600,000 per year. Silver Panda production will double to 6 million.
The price of gold in yuan is up 9.4% this year — a darn sight better than a 3.25% interest rate on one-year bank deposits in China.
Of interest to collectors: Our friends at First Federal still have a handful of 2011 Pandas with the coveted “First Strike” designation. The 1/10th ounce Gold Pandas come with a grade of MS69 — almost flawless. Check them out here. They also have a small stash of First Strike Silver Pandas graded MS70. You can learn more about those via this link. Full disclosure: We may be compensated if you buy.
“The streets of 47th Street are literally paved with gold,” says New Yorker Raffi Stepanian, pioneer of a phenomenon we’ll call urban gold panning.
Working with tweezers and a butter knife, Stepanian mines the sidewalk cracks of the city’s Diamond District. He says he finds enough diamonds, rubies, platinum and gold to make a living.
“Material falls off clothes,” he tells the New York Post, “on the bottom of shoes, it drops off jewelry, and it falls in the dirt and sticks to the gum on the street.”
Stepanian, a freelance diamond setter, got the idea when he noticed minute gold scraps on the floor of a diamond exchange. “If it’s on the exchange floor, it’s got to be outside as well.”
But is it really good enough to make a living? Stepanian says his findings over recent a six-day period generated $819 in sales. Assuming he could keep up this pace indefinitely, six days on, one day off, that would work out to a pretax annual income of $42,588.
In New York.
Don’t give up the day job, Raffi.
“Your writer hit one right in the middle of the bull’s-eye,” writes a reader who caught Dan Amoss’ remark that banks sitting on foreclosure properties need to “bite the bullet and take the losses.”
“This is all made possible,” the reader continues, “courtesy of the Federal Reserve Bank and their almost zero interest discount window. The math behind it is real easy to understand. The banks can borrow money at near zero percent interest, which they have done in hundreds of billions of dollars, which enables them carry on their normal daily business without interruption.
“Now turn your attention to their nonperforming assets that they are carrying on their books at full value. For example, if they have a $400,000 house with a mortgage of $360,000 and it is in default, why should they foreclose? If they do that and resell it, they will probably net somewhere in the vicinity of $200,000 by the time they are done. This will reduce their balance sheet by $200,000, which will adversely affect their stock price, so the most logical thing for them to do today is to let the loan ‘ride.’ They replace that asset with money they borrow at almost 0%.
“The American taxpayer is footing the bill for this in the form of inflation, which the banks are counting on in hopes of selling these assets at a price nearer their current book value. The problem is housing prices are not keeping up with inflation, so how long can this go on?”
The 5: If Japan is a model for the propping up of zombie banks, oh, a good 20 years or more…
“I think the Harpex is the best ‘recession’ indicator,” a reader writes after seeing Addison’s account of his visit to the Port of Los Angeles, “since China ships to the world, or, in weak economic times, does not.”
The 5: We’ve yet to find an indicator with flawless predictive powers, but a five-year chart of the Harpex isn’t bad…
It hit its high early in the fourth quarter of 2007, sat in a long trough for the second half of 2009 and has since recovered to the midpoint of its 80% decline during the Panic of 2008. The top it reached around the time of the Japanese earthquake bears watching.
The 5 Min. Forecast
P.S. Graphene isn’t the only wonder substance that has Byron King’s attention these days.
“Beryllium,” he says, “has an incredible combination of properties that occur in no other metal.”
“Rocket scientists use beryllium — in rockets. Beryllium goes into satellites and space structures, aircraft, optical systems, semiconductors, medical imaging and nuclear systems. And as the story up above demonstrates, there’s beryllium in gun sights, rocket launch rails, camera gimbal systems and more.”
“Why use beryllium? Because it provides unmatched capabilities for medical, aerospace, defense, information technology, scientific, nuclear and other applications. When designers have to come up with products that work at the extreme edges of performance — from the dirt of a mountainside sniper position to the depths of outer space — they specify beryllium.”
Byron recommends a beryllium producer in the current issue of Energy & Scarcity Investor. Subscribe now and you’ll get a package of special reports with his favorite microcap resource plays — including the tiny company sitting on 8 million tons of graphite.