I Was a Rare Earths Day Trader (or How I lost half my savings in a global investment bubble)

Foreign Policy ^ | 01/21/2011 | Jason Miklian

[SeekAndFind]

How a naval confrontation in the South China Sea created a global investment bubble -- and cost me half my life savings.

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"What's the definition of a mine? A hole in the ground with a liar on top."

The most famous aphorism about the mining business is usually credited -- possibly apocryphally -- to Mark Twain, who before assuming the mantle of America's great literary wit was just another mining speculator gone bust. But generations of fleeced investors since Twain's day would nod angrily in agreement -- losing a fortune on too-good-to-be-true mining deals is a tradition as old as mining itself.

So it goes with rare-earth elements, a group of materials used in the manufacture of various high-tech applications and the object of the latest subterranean fad. Since a border dispute between China and Japan pushed rare earths into the headlines last fall, prices for some of the elements have shot up to an incredible 1,000 percent of what they were just three years ago -- and as in Twain's day, there is no shortage of smooth-talking suits who will tell investors this is only the beginning. I should know: For a few months, I was one of the suckers.

Before we get to that, a brief geology lesson: "Rare earths" is the catchall phrase for 17 elements mostly near the bottom end of the periodic table that are essential for cutting-edge optical and magnetic applications in hybrid cars, wind turbines, iPads, mobile phones, and smart missiles, among other things. What rare earths aren't, however, is rare -- in years past, they were mined everywhere from Florida to Indonesia -- or terribly valuable. In 2009, global sales of all raw rare earths combined came to less than $2 billion -- half the market.

[dennisw]

for reading

[darkwing104]

Another fine example of unintended consequences of Government Regulation.

Great Post.

[mac_truck]

A fool and his money are soon parted.

[oh8eleven]

cost me half my life savings
Never invest more than you can afford to lose.
Per Glenn Beck's warning a few years ago, I pulled ALL of my retirement money o/o the market and lost nothing when it crashed.

[Oldexpat]

A little research on this paid off for us. We had both MCP and some REE. Made a lot of money with them. But, we knew that they were highly speculative and moved on bad and good news. Got in a little late and left early.

[seowulf]

What rare earths aren't, however, is rare

What is rare are places on this planet where regulations don't prevent you from digging holes.

[FormerACLUmember]

Excellent post. I just put a sell order in for my Molycorp stock.

[The Antiyuppie]

Interesting article. I liked the quote from (possibly) Mark Twain.

[wildbill]

You should put the rest of your savings into buying Iraqi Dinars. I have a 78 y.o. friend who is putting all her chips into them in the hope that an currency appreciation will assure her future.

She listens to online seminars every nite and tunes out anyone who urges caution.

[SeekAndFind]

RE: You should put the rest of your savings into buying Iraqi Dinars.

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Where do you go to invest in the Iraqi Dinar?

[proxy_user]

The best investment advice I ever gave myself, is never put more than 3% of your net worth in any one investment.

If you have diversification, you will be hit by the bad things, but that will be made up by the good things.

[businessprofessor]

The world may possess large reserves but I am not convinced the reserves will be mined at least not from countries with reasonable environmental constraints. The countries that mine the rare earths may form a cartel to fleece the rest of the world. In addition, the article treats the REE as a group but there are 17 elements, some of which may be in scarce supply.

Regardless of the demand/supply situation, developing rare earths is dirty business, as dirty (perhaps much dirtier) than conventional energy sources. There is nothing clean in the fraudulent claims of green energy.

[hoosierham]

Sound advice.

What is the old admonition never to put all one's eggs in one basket?

Those who lose the most are often those who foolishly hoped to get rich quick with little or no effort.

[oh8eleven]

If you have diversification, you will be hit by the bad things, but that will be made up by the good things.
Agreed. However, I put all my retirement money into a fixed rate fund and I'm at the point (and age) where that'll have to do.
I make a little money, sleep nights, and that works for me.

[wildbill]

I think I’d google “Iraqi Dinar scam” wuz I you.

[Colorado Doug]

Where do you go to invest in the Iraqi Dinar?

You can get the Iraqi dinar at an Iraqi restaurant, of course.

sorry, couldn't resist

[crazydad]

RARE EARTH, man get ready. Cause here he comes.

[GraceG]

Iceland should get into ther Rare Earth business because a lot of the ore they process, ie. Bauxite should have high concentrations of Rare Earths that all you need is plentiful energy in order to refine them.

Iceland generates a LOT of energy via Geothermal.