BOOM Market Signals - The Mystery Stock - Tariff Wars Will Not Help the US Economy - Rare Earth Companies are Not Rare

WEEKLY -- On Sunday -- All previous Editorials are available on the Substack Archive Further long term archives are available at LinkedIn and Wordpress https://boomfinanceandeconomics.wordpress.com

BOOM MARKET SIGNALS

BOOM is not a stock tip sheet. It does not make investment or trading recommendations. It does not give investment advice. However, BOOM does report market signals. Regular readers will be familiar with those.

BOOM reported (1) the coming rise of the Chinese stock markets in late 2024, (2) the end of the US Bond bear market in October 2022, (3) the bottom of the US stock markets in October 2022 (the Peak of CPI inflation), (4) the fall of the US Dollar in late December 2024, (5) the correction in US stocks (again in late December 2024), (6) the collapse of alternative energy stocks (three years ago), (7) the collapse of electric car stocks (three years ago), (8) the end of the AI Delusion bull market — “Artificial Intelligence is Not Intelligent” (January 26th editorial), (9) the recent collapse of Tesla shares (last week).

On December 22nd 2024, just before Christmas, BOOM wrote — “ …. it is wise to pay close attention to any extraordinary events which may indicate a situation of change and increased alarm. Those circumstances currently prevail in the US stock markets. BOOM is becoming increasingly concerned that we are witnessing what may be the beginning of a Sell Off.”.

Last week, on Sunday morning, the BOOM editorial noted regarding Tesla - “Tesla is the only EV company in the West that has any chance of survival in BOOM’s opinion. But it seems to be vastly over valued by the market.”

During Monday’s trading session, its shares collapsed by 16 % (from the closing price on the previous Friday). That is an extraordinary fall in just one day. Reality Bites.

TESLA SHARES OVER LAST 9 MONTHS

NIKOLA TRUCKS CRASH

The most recent EV company in the US to hit the wall is Nikola. On 20th February, the Nikola Corporation issued a press release stating that it had filed for Chapter 11 of the Bankruptcy Code in the US Bankruptcy Court for the District of Delaware. It listed assets between $500 Million and $1 Billion and liabilities between $1 Billion and $10 Billion in its petition. It noted that $47 Million in cash was on hand to fund activities but BOOM suspects that those cash reserves were dwindling rapidly.

BOOM has stated in many previous editorials that the entire alternative energy sector is not commercially viable in the long run and that includes the EV market (maybe with the possible exception of Tesla which may become a niche manufacturer). In the West, companies have to prove themselves commercially viable by making profits. In China, things are different. Thus, the Chinese EV industry can continue to make financial losses for a much longer period.

The Nikola Press Release stated —

"Like other companies in the electric vehicle industry, we have faced various market and macroeconomic factors that have impacted our ability to operate. In recent months, we have taken numerous actions to raise capital, reduce our liabilities, clean up our balance sheet and preserve cash to sustain our operations. Unfortunately, our very best efforts have not been enough to overcome these significant challenges, and the Board has determined that Chapter 11 represents the best possible path forward …”

During June 9th 2020, the shares for Nikola traded at their all time High price of US$ 2,819.70 and finished that day at $2,391.90. Since then, they have progressively fallen to their last traded price of 13 cents. THAT is a monumental CRASH in market value.

At one point, Nikola was valued by the market at a $30 Billion Market Capitalisation. The shareholders have been slaughtered. The Stock Code is NKLAQ on the US OTC Market.

NIKOLA SHARE PRICES OVER 5 YEARS - FROM $ 2,819 TO $ 0.13 Cents

STANDARD and POORS 500 — US STOCK INDEX — BOOM’S Market Signal comment on 22nd December 2024 — “BOOM is becoming increasingly concerned that we are witnessing what may be the beginning of a Sell Off.”.

US DOLLAR SELL OFF — US DOLLAR INDEX (Stock Code UUP)

On February 2nd, just over 3 weeks ago, BOOM stated — “BOOM will watch closely from here for ongoing US Dollar weakness.”

December 22nd — “BOOM is becoming increasingly concerned that we are witnessing what may be the beginning of a Sell Off.”

SHANGHAI STOCK EXCHANGE COMPOSITE INDEX — RISING

In August last year, BOOM forecast the coming rise in Chinese stocks.

HONG KONG HANG SENG STOCK INDEX — RISING

BITCOIN — GRAYSCALE BITCOIN TRUST — GBTC

On 22nd December 2024, BOOM wrote — “BOOM’s analysis shows that the Post Trump election exuberance in Bitcoin/Crypto may be coming to an end. Honeymoons don’t last forever.”

Bitcoin started falling 3 weeks later and has continued to fall.

THE END OF THE ARTIFICIAL INTELLIGENCE BULL MARKET

In BOOM’s January 26th Editorial - Pathways to Madness — BOOM stated — “BOOM is sceptical about the claims being made about Artificial Intelligence (AI). It embodies two great threats to our civil societies – Technocracy and Transhumanism. ……. BOOM likes to call it Artificial Non Intelligence.”

And …”“BOOM is sceptical about Artificial Intelligence (AI) and about the claims being made for it.””

The two biggest Artificial Intelligence ETFs (BOTZ and ROBO) and NVDIA shares (NVDA) began to fall immediately.

THE MYSTERY STOCK - HOW LARGE COMPANIES FAIL

Today, there is a mystery stock which BOOM finds particularly intriguing. This US company has one of the most recognised Global Brands in history. The Brand is known to possibly everyone on Earth -- almost as well known as US Brands such as Coca Cola, IBM, General Motors, General Electric. The company still sells its products and services in 160 nations worldwide. It was founded almost 120 years ago and listed on the New York Stock Exchange way back in the early 1960’s. Its peak market capitalisation was around US $ 40 Billion but, today, the market values it at well below $ 1 Billion despite the fact that it still has annual revenues above $ 6 Billion. Net profit, however, has fallen below the Zero line so the company is spinning its wheels. The Balance Sheet reveals Cash on Hand of around $ 0.5 Billion. If the share price halves from here, the enterprise will effectively be for sale for less than its Cash holdings. Its Net Assets are still a positive number so, theoretically, a rescue operation could (possibly) be successful. Its debt load is three times its net Assets which is not an impossible number. BOOM suspects that the company’s shares are being driven relentlessly down by an algorithmic trading operation pending a takeover bid. If not, then Chapter 11 bankruptcy will be inevitable.

BOOM is intrigued by large companies that lose their way. The cause is usually poor leadership, perhaps very poor leadership. Bad luck is not an excuse for these enterprises. They have huge resources and yet their leaders still manage to destroy what was once a thriving entity. It takes a very significant lack of skill to do that.

TARIFFS WARS WILL NOT HELP THE USA

There is now a religious belief in Trump followers that a golden age of US economic recovery will be triggered by a Tariff war with its largest trading partners, some of whom have been staunch allies for many years. “America First” is the slogan that Trump has used. That slogan implies that everyone else is last.

BOOM must remind readers that slogans used by politicians are almost always a form of propaganda and are almost always far removed from the truth. Trump has also said that he “has never seen a Tariff he didn’t like”. And “Tariffs are the greatest thing ever invented”. On another occasion he said “tariff is the most beautiful word in the English language”. We shall see.

BOOM recalls the disastrous Tariff war that was run during Trump’s first Presidency against China. China definitively won that particular battle. So BOOM cannot understand Trump’s continuing enthusiasm for this economic strategy.

CHINA EXPORTS TO THE USA

TRUMP REJECTS AUSTRALIA

Trump has recently rejected the Australian government’s pleas to not place tariffs on Australian products being exported to the United States. This will impact sales from Australian manufacturers. Australia will not be granted an exemption which means that 25 per cent tariffs on aluminium and steel imports into the US will apply. Australian manufacturers will simply switch to other markets. A few phone calls will suffice. However, Australia’s relationship with the US has been badly damaged and Trump cannot fix that as easily as he has damaged it. By the way, Australia’s largest trading partner is not the United States. It is China and by a long margin.

THE TARIFF STRATEGY - HOW TO NOT WIN FRIENDS AND INFLUENCE PEOPLE

Trump has ordered tariffs be placed on imports from certain countries, as well as imports of certain types of products.

• Chinese imports were hit with new 10 per cent tariffs on February 4th, which were doubled to 20 per cent a month later.

• Tariffs of 25 per cent on Canadian and Mexican imports were put in place on March 4th. But Trump later signed an order that exempted imports that were covered by a previous trade deal.

• The 25 per cent tariffs on all steel and aluminium imports — including those from Australia —took effect last Wednesday. Trump has threatened to double them to 50 per cent for Canadian steel and aluminium imports as part of the escalating trade war with that country.

BOOM is certain that this Trump policy will damage America’s relationship with many nations and will not assist the US economy. This is called a lose, lose, lose scenario — WHAT A DEAL (!) — for Trump, for the people of America and for those nations and companies that export to the United States.

In an advanced economy such as the USA, tariffs are just a tax on the middle class. The costs are usually passed on to the consumer by the importing company. However, Trump wants to stick to his delusion. Last year, during the election campaign, he said “It’s not a tax on the middle class. It’s a tax on another country.”

Perhaps someone should buy Donald a copy of Dale Carnegie’s famous book, “How to Win Friends and Influence People”?

RARE EARTHS ARE NOT RARE — MORE HARSH FACTS

China is the largest producer of rare earths with 57% of world production in 2020, followed by the USA with 15%. Rare earths are often called critical materials or strategic metals, as they are considered to have national interest.

Last week, BOOM pointed out that Rare Earth minerals are not rare. Here is a list of Australian Rare Earth companies that are listed on the Australian Stock Market — it is rather long.

Acdc Metals Ltd, Alkane Resources Ltd., Australian Rare EARTHS Ltd., Ardea Resources Ltd, American Rare EARTHS Ltd, Arafura Rare EARTHS Ltd, Askari Metals Ltd, Andean Silver Ltd, Brazilian Rare EARTHS Ltd, Caprice Resources Ltd, Green Critical Minerals Ltd, Hastings Technology Metals Ltd, Havilah Resources Ltd, Iluka Resources Ltd, Iondrive Ltd, Ionic Rare EARTHS Ltd, Krakatoa Resources Ltd, Lynas Rare EARTHS Ltd, Meeka Metals Ltd, New Frontier Minerals Ltd, Osmond Resources Ltd, Peak Rare EARTHS Ltd, RAREX Ltd, Strata Minerals Ltd, VHM Ltd.

VAST RARE EARTHS RESERVES IN THE USA

Why is Donald Trump interested in Ukraine’s Rare Earth minerals?

The US has vast Rare Earths reserves and is the second largest global REE producer thanks to its sole operating mine, Mountain Pass. However, it currently lacks sufficiently large processing facilities.

Here are the two largest American Rare Earth companies —

MP MATERIALS (Stock Code - MP)

MP Materials, the largest producer of rare earths outside China, focuses on high-purity separated neodymium and praseodymium (NdPr) oxide, heavy rare earths concentrate, lanthanum and cerium oxides and carbonates.

The company went public in mid-2020 after acquiring the Mountain Pass mine in California, the only operational US-based rare earths mine and processing facility. In April, MP Materials was awarded US$ 58.5 Million to support construction of the first fully integrated rare earth magnet manufacturing facility in the US.

ENERGY FUELS (Stock Code UUUU)

The company finished construction of Phase 1 REE separation infrastructure at White Mesa in early 2024, and in June reported production of separated Neodymium that meets the specifications required for REE-based alloy manufacturing.

Rare earth elements prices are hard to come by, as there is no widely used public exchange. Spot prices are listed on websites such as Kitco and Metals Prices, however they are infrequently traded and pricing should be approached with scepticism.

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In economics (and finance), things work until they don’t. Do your own research. Make your own conclusions. BOOM does not offer investment advice.

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