Congratulations to our President-elect, Mr. Obama. It's fitting that an African American shall take up America's top job to salvage this country from an imminent political, social and economic collapse. Closer ties with Africa, a land blessed with rich natural resources, might provide the best opportunity we desperately need to save America and continue our prosperity!
Circuit City (CC) bankrupted. General Motors (GM) could be next and Ford (F) is not much better. Mean while we are bailing out AIG for the second time (or maybe the third time) in just a few months as it seems to be just another growing black hole. And who will bail out the Federal Reserve Bank or the US Government itself?
If you read my past articles, you know my favorite precious metals are palladium and platinum. PGM metals used in catalytic converters in vehicles account for half of global demand. Am I concerned about these two precious metals' future prospect?
I am not concerned at all, not only because PGM metals are precious metals and hence are safe haven investments just like gold and silver, not only because PGM metals have strong demand in emerging new applications especially in alternative energy categories such as fuel cell, hydrogen economy, bio-fuel, and coal-to-liquid, but even within the auto sector, the global demand continue to remain strong fundamentally.
Enron collapsed a few years ago. Did we stop using electricity at the time? No. Do you stop buying auto insurance if AIG goes out of business? No. More than ten years ago, the last American-owned TV manufacturer went out of business or was acquired by a foreign entity. It did NOT stop Americans from watching too much TV today, either.
The downfall of the US auto industry is a completely separate story from global auto demand, just like a sunset of US-based TV manufacturers did not mean a sunset of consumer demand of TVs and other electronics. It simply means that the US auto industry is no longer competitive in the marketplace against foreign automakers like Toyota (TM) and Honda (HMC). Businesses go bankrupt even during good economic times, if they cannot compete. But I truly feel sad about the current status of the auto industry and other elements of the manufacturing infrastructure of this nation.
From a fundamental point of view, the global auto demand is expanding even as the world enters a period of severe economic recession. IEA recently revised the projection of global oil demand in 2008 and 2009. The lowered projection is 86.5M barrels per day for 2008, which is still 0.5% higher than 2007, and the projection for 2009 is 87.2M barrels a day, yet higher than 2008. Higher oil consumption must mean higher vehicle demand.
Let's do some simple calculations. One barrel of oil produces roughly 19.5 gallons of gasoline and 9.2 gallons of diesel, totalling about 28 gallons of road vehicle fuel. If global oil demand is 86M barrels a day, that's 880 billion gallons of fuel consumed per year. An average vehicle drives 150,000 miles during its lifespan and consumes fuel at a rate of roughly 20 MPG, so lifetime consumption of fuel is 7500 gallons. So 880 billion gallons per year means the world is wearing out vehicles at a rate of 117 million per year. That is the expectation of global new-vehicle demand in the next few years, versus current 70M auto sales per year.
China just announced a 4 trillion yuan ($586B) stimulus plan to transition her economy to one based on domestic consumption demand rather than on exportation. Chinese demand on commodities, goods and services will be insatiable even as her growth slows down, because China's population is just huge and the per capita consumption is still at a very low level compared with the global average, leaving plenty of room for growth.
October auto sales in China increased 8.37% over last year. For the first ten months, auto sales were 5.67 million, which is 6.8M annually. There are only 40M passenger cars in China. These numbers are incredibly low considering China's 1.3 billion population. Global average ownership of cars is roughly one car per 6 persons. China has one car per 33 persons. China today consumes 8M barrels of oil a day, still less than half the global average. Using the rough numbers above, that correlate to 11 million vehicles wear-off per year in China. So China needs 11M new vehicles a year just for replacements, not to mention new ownerships. I will not be surprised if auto sales in China double or triple in the next 5 years.
The global commodity bull cycle will continue if you understand the impact of China's demand growth. Global consumption of many raw materials can easily exceed available supply by a large margin, even if China's per capita consumption only reaches where global averages are!
No wonder we see ever increasing Chinese influence in Africa. Africa is blessed with some of the world's richest mineral resources, especially South Africa, owning over 90% of the world's PGM metal reserves and virtually every species of mineral resources, missing just a few. China is also blessed with mineral riches. China is rich in more than half of all known mineral species, especially in rare earth metals and tungsten, antimony, indium, etc. But China doesn't have much base metal reserves. China has zero reserve in PGM metals and very little in cobalt, metals of critical strategic importance. What China doesn't have, Africa has aplenty. And what about the USA? We are the world's capital of helium. We have plenty of coal. That's about it. America desperately needs to develop good relationships with Africa and South America, if we want to be prosperious in the 21st century.
Upon his inauguration, President Obama needs to first pay a visit to China, second to Africa, and third to Russia. America, now the world's top debt nation, needs to be bailed out by the world's emerging economic powerhouses. We cannot afford to be a superpower any more as we are not self sufficient and cannot survive on our own any more. We need a peaceful and co-operative world to help us. President Obama must prevent an Iranian War or World War Three from breaking out during his term(s). Prosperity comes from peace, not from aggression.
Coming back to the US auto industry: Is there still hope in the Big Three -- GM, Ford (F) and Chrysler? I think the fundamental demand of autos from US consumers is still there. The current credit crunch means a consumer may not be able to get an auto loan. But it does NOT destroy the auto demand, it merely postpones it. If I see a vehicle break down on the roadside, or a vehicle crashed on the highway, I am pretty sure that within less than 24 hours, a certain auto repair shop or a new car dealer will see a new customer come to their doors for business, regardless of how many credit cards the customer may have. The mobility needs can not be eliminated. The question is, will the customer come to a Toyota (TM) dealer or a GM one?
There might still be some hope if GM can adapt itself to meet customer demand, but I don't think it can do it alone. It needs a government bailout. I am against using taxpayer money to bail out private enterprises. But it is in our vital national interest to bail out the US auto industry to preserve jobs and our manufacturing basis. The current GM shareholders must be wiped out. GM must go bankrupt, then the government must immediately come in to help the bankruptcy re-organization and give the auto maker a second life.
Disclosure: The Author is heavily invested in SWC and PAL, two palladium mining companies, as well as in OMG, a cobalt chemical company. The author does not have a position in GM or Ford, and does not intend to buy or short either.
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This article has 27 comments:
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iman
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40 Comments
My Website
Nov 11 01:51 PM-
rero
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1 Comment
Nov 11 01:52 PM-
bosun.j
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232 Comments
My Website
Nov 11 01:56 PMGood on ya Mark!
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finmah@yahoo
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45 Comments
Nov 11 03:00 PMIf you are behind the metals I would be a little more concerned with the new admin. The candidate had one of the largest contributions ever from labor unions. This will most likely result in a bailout but he also has the backing of the global warming. Will electric or hybrid cars result in fewer sales of cars? As far as emerging market strength goes right now it looks like they are being sold off as well even with the rosy forecasts.Does this indicate changes in protectionism which could lead to Depression? Much of the labor party that swept Congress was a champion of slashing imports. Also I remember so odd legislation directed at domestic mining under Clinton (arsenic) - will this be an issue.
I too am hoping for greater sophistication but after seeing the socialization of the REIT mortg mkt through Fannie Mae swept under the rug I am concerned that the greatest laid plans have yet to unfold.
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BobMichigan1251
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19 Comments
Nov 11 03:13 PMGo ahead and spout all that stuff about GM management. Cerberus came into Chrysler to show us all how a car company should be run by smart financial guys. Check out how well that's working out.
Don't hold up the transplants as examples either. They pay a small fraction of the taxes and health care costs that the Big 3 pay.
Do you want to live in a country where companies are penalised for keeping workers 40 years? Well, you do now.
The Big 3 need emergency assistance, but long term this country needs a plan to make manufacturing compedetive. No other industrialised nation would put up with this situation.
The wealth of an economy is created by adding value to goods. Everyone has a take on why we are in a tail spin, but noone talks about the 800 lb gorilla. Manufacturing has gone from 20% to 10% of our economy and dropping.
Yes, demand for cars will continue without the Big 3, but will the wealth exist to purcase them?
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jack kreg
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56 Comments
Nov 11 03:24 PMGordon Brown, leader of the UK, is advancing his policy of a global round of tax cuts on workers and employers. A coordinated round of global tax cuts in the UK, EU, USA and Asia.
Letting workers keep more of their own money, choosing to pay their home mortgage, pay down their debt, save for retirement or college, or even to buy food or gas.
Let the workers keep more of their own money. Good for employers too, who ever heard of an employer hire more workers when looking at higher taxes (Obama).
We need a global round of tax cuts, that will return the world to economic growth and prosperity.
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Socialism cannot compete!
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467 Comments
Nov 11 03:42 PMCongratulations to our President-elect, Mr. Obama. It's fitting that an African American shall take up America's top job to salvage this country from an imminent political, social and economic collapse. Closer ties with Africa, a land blessed with rich natural resources, might provide the best opportunity we desperately need to save America and continue our prosperity!
[end quote]
Clearly someone has bought into the Marxist catch-phrase campaign of Mr. Obama! It's not the "failed policies of the last 8 years" that have brought us to our economic knees, but the failed mortgage socialism pushed by Barney Frank, Chris Dodd, ACORN, Obama & the Dems!! The push began in earnest during the Clinton admin. This is KNOWN, not my own agenda-pushing opinion, Mr. Anthony. You could google and read up for yourself, if it didn't offend your politics so much.
Do I defend the big-deficit spending of the Bush admin? No. Clearly that hasn't helped the current situation. But it is not the root of the current crisis. Also keep in mind that the last two budgets have been passed under Democrat Congresses...which also did little to reign in war spending, despite rhetoric to the contrary.
[quote]
We cannot afford to be a superpower any more as we are not self sufficient and cannot survive on our own any more. We need a peaceful and co-operative world to help us. President Obama must prevent an Iranian War or World War Three from breaking out during his term(s). Prosperity comes from peace, not from aggression.
[end quote]
Not self-sufficient? Hooey! We very well could be, if the bloody government got out of the way. There are a few very simply changes that would completely reverse the situation in just a few years:
1) Abolish the income tax. Replace solely with consumptive taxes and tariffs.
2) Pass a Balanced Budget Amendment
3) End entitlement government! Cut the federal government back to the functions outlined in the Constitution; all other governing is to be done by the states or municipalities, and should be minimal.
Prosperity is NOT a byproduct of peace (vs. war). Prosperity is the result of a moral code among the people, their hard work...AND...their willingness to defend themselves when necessary! Military strength puts off many would-be agressors! Your comment "...not from agression" sounds like you need a little reminder on exactly who attacked whom, Mr. Anthony! Radical Islam has been on a string of jihads since its inception. America is RIGHT and JUSTIFIED in taking the fight back to them.
Those who desire peace must prepare for war, not kowtow to the likes of Ahmadinejad.
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fool me twice...
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6 Comments
Nov 11 03:58 PMHowever, BobMichigan1251 explained it nicely: US economic policy has pushed every US manufacturing sector out of business. The US government's record debt will continue to grow under the "service economy" model. Service industries only move money around until it leaves the country to the places that actually make things. Fix the US economy with policies that encourage US manufacturing.
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Demo Up
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1 Comment
Nov 11 04:54 PMFood for thought, not sure what that does to your projections...
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JBP
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47 Comments
Nov 11 05:40 PM-
DaveW
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220 Comments
Nov 11 07:41 PMMark,
I'm curious about your thoughts on the SWC 3Q earnings? Did you see anything *terribly* alarming (vs. just *merely* alarming)?
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montyman
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43 Comments
Nov 11 10:30 PMLooks like Putin is going to nationalize Norilsk Mining. What is your opinion of the Russian Checkmate from here on? Will it still shut down? Thanks...
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PacificGatePost
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26 Comments
My Website
Nov 12 12:40 AMCongress: Here is a radical, but common sense and workable plan -
pacificgatepost.blogsp...
It is this, or bankruptcy. The American Auto industry should be saved but under new conditions.
Do not leave it to the likes of Paulson or Congress to come up with a creative plan resembling interest in taxpayers' wellbeing.
There is much creative talent hidden inside the Big 3 that has been smothered by mismanagement and the UAW.
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Mark Anthony
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306 Comments
My Website
Nov 12 02:33 AMThere is no error in my part. One barrel of oil is about 40 gallons. It can be refined to produce a lot of things besides gasoline and diesel. Follow the link I quoted in the article. One barrel produces about 28.9 gallon of vehicle fuels, among other things. Divide it by 40 that's roughly the 71% you discovered through google.
DaveW:
I do not see anything thing wrong with SWC's Q3 result. The roughly break even result is much better than I thought. There has been some deliberate manipulation of the share price on Tuesday. There is a Bloomberg news article which obviously distort things or mislead readers.
www.bloomberg.com/apps...
For example, the article says "quarterly net loss", without a number and without indicating that it's pretty close to break even.
For example, it portrait standard forward looking statements, common in all corporation quarterly filings, and made them sound as realistic outlooks. SWC never had a problem collecting payments so far.
The worse of all, right after mentioning that SWC doesn't have a credit line and doesn't believe it can get one with reasonable terms, the author immediately follows with a comment "``It's MURDER for anyone who needs cash,'" Made it sound like SWC is so desperate for cash liquidity that it will soon be killed. The reality is SWC has more than enough liquidity and does NOT need to take up a credit line. SWC has tons of working capital tied up in the recycling business. It can easily slow down the recycling a bit to free up a lot of cash it it needs to.
The plummet of SWC tuesday is the worst stock manipulation I have ever seen. I am going to put some fresh cash in and buy more tomorrow.
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Beabaggage
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72 Comments
Nov 12 09:10 AMGM/F/C have sold on price and rebates, not quality, for years. just like ATT and MCI, when they ruined long distance by competing on price, and TOY/HON have just made fortunes and increased share. Even Hyundai is perceived as better than GM now, as a former Auto Loan repo guy in a bank, we would never even repo a hyundai 10yrs ago, it was not worth it. Now Hyundai is a great car with increasing market share.
No one bailed out Steel, it was let to fail in the 70-80s, the survivors are strong and can compete.
Stronger dollar will also help kill the autos. CN and MX plants looking good now.
LONG PAL, SWC and ZINC, all which would benefit from a stable industry. But when things recover, Hyundai, Hon/Toy/VW all can sell cars and will need this Plat/Pall and who cares who buys it. The auto market is all about the 3rd world anyway now, not the US.
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Repper
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26 Comments
Nov 12 09:25 AM> like ATT and MCI, when they ruined long distance by competing on
> price, and TOY/HON have just made fortunes and increased share. Even
> Hyundai is perceived as better than GM now, as a former Auto Loan
> repo guy in a bank, we would never even repo a hyundai 10yrs ago,
> it was not worth it. Now Hyundai is a great car with increasing market
> share."
I'm SO sick of people blasting the products produced by the US automakers. The OBJECTIVE TRUTH is that they are building world class quality cars and trucks with world class fuel efficiency. Compare styling and they blow Toyota away. GM’s products are the benchmark in many segments. Look at the data! And [really] look at the cars!
The problem is the perception that keeps getting perpetuated that they don't build good cars and trucks. Many won't even look at them because of this ridiculous, pervasive misconception.
Yes, they had problems in the 70’s, 80's and early 90's. They got very complacent, and their products suffered. The companies have changed drastically since then, they HAVE BEEN doing the right things, but since so many consumers have written them off for past sins, they are having trouble getting some people to even look at domestic vehicles. Now with this perfect storm of the economy, and their legacy costs they are obviously hurting.
Letting them fail would truly send the economy into deep depression. Apparently most don't realize how much this manufacturing base effects every part of our economy. Yes, it hurts to say we're gonna "bail them out", but all they need is affordable loans to continue on the RIGHT path of building great vehicles and getting ahead of the competition with alternative fuel technologies. The American public would do the most for their economy if they would just CONSIDER buying American. It would help 'themselves' as well because the government can make a good deal of money from these loans (see the Chrysler "bailout" of the early 80s).
Before blindly bashing, please give a real look at the products that are being produced today and educate yourself with the facts. Try visiting gmfactsandfiction.com/.../ . Yes, it is compiled by GM, but all the facts included are from third-party sources to which links are provided. Dispel your misinformed misconceptions about GM and the other domestic auto makers.
On Nov 12 09:10 AM Beabaggage wrote:
> GM/F/C all need to go into bankruptcy with govt assistance to bring
> them into the millenium with PBGC taking over pensions, removing
> legacy costs, hiring Toyota or Honda managers to run it and keep
> the industry vital. Assure payments to suppliers, back warranties
> so people will buy. Cut brands- Mercury, Ford and Lincoln products
> are all the same? who needs all these brands? same with Chevy,Pontiac.
> Cut out the management. Set up an ESOP, let the employees that remain
> participate in growth, work for it.
>
> GM/F/C have sold on price and rebates, not quality, for years. just
> like ATT and MCI, when they ruined long distance by competing on
> price, and TOY/HON have just made fortunes and increased share. Even
> Hyundai is perceived as better than GM now, as a former Auto Loan
> repo guy in a bank, we would never even repo a hyundai 10yrs ago,
> it was not worth it. Now Hyundai is a great car with increasing market
> share.
>
> No one bailed out Steel, it was let to fail in the 70-80s, the survivors
> are strong and can compete.
>
> Stronger dollar will also help kill the autos. CN and MX plants looking
> good now.
> LONG PAL, SWC and ZINC, all which would benefit from a stable industry.
> But when things recover, Hyundai, Hon/Toy/VW all can sell cars and
> will need this Plat/Pall and who cares who buys it. The auto market
> is all about the 3rd world anyway now, not the US.
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anand
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18 Comments
Nov 12 10:53 AMDo you have any thoughts on TCK? Or do you think that large industrial metals, oil sands and coal should be avoided?
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User 296685
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1 Comment
Nov 12 11:27 AM-
Mark Anthony
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306 Comments
My Website
Nov 12 10:03 PMGM must be allowed to go bankrupt and all its liabilities eliminated. Then under new share holdership the government can help with the re-organization and inject money and all that. But tax payer money must NOT be used to bail out share holders.
The global auto demand, as well as demand of PGM metals, is a separate issue from the fate of GM. US gasoline consumption in the first 8 months of this year only dropped 2.5% from same time last year. That's a very insignificant percentage drop.
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31October
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47 Comments
Nov 20 10:20 AMMark Anthony, when George W was elected, did we get free oil from Norway? Did Clinton bring over Swedish minerals? I thought the only people who cared about the candidates' skin color were the media, who love to hate and divide for profit. Do you really expect "Africa" to send us their platinum because Obama is darker? Well, then, I'm flying over right now and requesting my share.
President Bush quintupled aid to African nations. I would say that increases ties to Africa, so where's the palladium?
I have posted many times for people to be polite, respectful, and stick to the fundamentals. But as a holder of PTM, PAL, and SWC, I keep following links to related stories. They are always the same six-thousand-word ads. It is like reading the same Motley Fool next Hidden Gem advert over and over and over and over. You promise riches and imply that there could never be a very LT drop in demand. Gues what: A very long-term drop in demand just started. People selling is not always "stock manipulation."
Also, President-Elect Obama is not African. He was born in Hawaii. He visited Kenya. I went to Brugge once. It didn't establish any ties.
BTW, Africa is a continent, not a country.
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31October
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47 Comments
Nov 20 10:38 AMSorry to double-blog, but please read the Qur'an. You can have mine. Pay special attention to the 9th sura. The Qur'an specifically tells what to do with contracts & treaties made with infidels, and then what to do to the infidels themselves. I will not comment on religion further, since I mostly know Muslims, and this is financial. Obama's familiarity with Islam is a strength, but you don't have that familiarity. Our defenses need to be more like Israel, not more like France.
And, with better weapons, palladium demand could actually skyrocket.
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Midas' Bizarro Twin Brother
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4 Comments
Dec 05 12:04 PMIn the ladder case, I wonder if a collapse of the COMEX and/or the obvious continuing degradation and inexorable replacement of the USD would affect the PGM market making the old fascist PGM regime obsolete somehow?
Get me out of the Bizarro world. I'd rather be the real Midas.
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Midas' Bizarro Twin Brother
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4 Comments
Dec 06 07:40 PMMark, how about your take on the the Russian manipulation...
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Midas' Bizarro Twin Brother
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4 Comments
Dec 10 09:29 AMNow's the time to get interested in PGM, not 6 months ago unless you were short.
See the base forming? Commodities have tanked due to the manipulated/covered-up dollar devaluation. Hyper inflation is inexorable. Buy this shit.
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Mark Anthony
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306 Comments
My Website
Dec 12 10:06 AMBusiness all over the world are all the same, they want to maximize profit. I would think a controled release of palladium would be in Norilsk's best business interest.
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Midas' Bizarro Twin Brother
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4 Comments
Dec 12 10:25 AMOn Dec 12 10:06 AM Mark Anthony wrote:
> I have no particular insight into the impact of Russian government
> privatize control of PGM metals export. But in general less government
> control is always a good idea. Of course that will leave it to individual
> business to decide when and whether to export certain metals, and
> how much quantity, for how moch money.
>
> Business all over the world are all the same, they want to maximize
> profit. I would think a controled release of palladium would be in
> Norilsk's best business interest.
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website
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51 Comments
My Website
Jan 01 04:24 PM