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10.26.2016 - Financial Intelligence Report Bookmark

Batteries, Lithium, Solar, Cars, and Frustration
 
If you've been with us for any length of time you know I'm a huge believer in Solar energy.  Consider the following....

Every day the sun blankets the earth with enough solar energy to power every home on the entire planet for about 2,000 years. You did NOT read that wrong. We don't have to drill for it, explore for it, or blast for it. It comes completely "free of charge."  Let me quote some figures for you from Eco-world.

In full sun, you can safely assume about 100 watts of solar energy per square foot. If you assume 12 hours of sun per day, this equates to 438,000 watt-hours per square foot per year. Based on 27,878,400 square feet per square mile, sunlight bestows a whopping 12.2 trillion watt-hours per square mile per year.  The earth receives about 274 million gigawatt-years of solar energy, which translates to an astonishing 8.2 million "quads" of Btu energy per year.
In case you haven't heard, a "quad Btu" refers to one quadrillion British Thermal Units of energy, a common term used by energy economists. The entire human race currently uses about 400 quads of energy (in all forms) per year. Put another way, the solar energy hitting the earth exceeds the total energy consumed by humanity by a factor of over 20,000 times.

 If you happen to live in a sun friendly state like we do here in Florida, it is abundantly clear just how much energy hits the ground. By noon time, you can't touch ANYTHING made of metal or you will be reminded in a heartbeat. The hood of your car, your roof, the metal rake in the yard. They will be hot. How hot? I bought an infrared thermal thermometer a few months back. The roof shingles are constantly in the 165 degree level. The hood of my son's black Mustang is usually 180.  That's all "free energy"  and it's all wasted as heat.
 
With the advances in solar panel design, they have gotten the cost of panels down to where it truly is competitive with fossil fuel energy. For instance you can buy Solar world 340 Watt panels for just 250.00 dollars. For 2,500 dollars you'd be able to produce 3,400 Watts of juice. That's incredible. But of course there's a problem. A big one.
There's NO question that solar has one gigantic drawback, and that has always been "storage".  While you can now create huge amounts of solar energy with just a few panels now, you have to do something with all that power, because once it gets dark..the power stops. Storage has been the Achillies heel of solar power.
 
So the most common way of dealing with that is that homes and businesses that do implement some solar panels, "sell" it back to the grid while it's producing energy, or they run portions of their homes/businesses directly from the panels when they can, and then sell the excess they can't back to the power company. Then when the panels don't get enough light, they switch back to buying the power company for electricity.
 
So obviously, the drawback is "storage", because in most areas of the country, on Most days you could capture enough solar energy to run your house 24/7, if you had an ECONOMICAL way to store it for the nighttime. For the most part that's been attempted via battery, and it has been woefully slow at getting better. What's the problem? Well for one, cost. Batteries are darned expensive for really good ones, and then you have problem number 2. Batteries are heavy. Problem 3 is that they "wear out". I'm sure all of you have replaced a battery in your car, motorcycle, boat, golf cart etc. So batteries are a very important part of solar power

Now enter part two of the "storage" issue. I am also a strong believer in Electric Vehicles. There's a reason people love the Tesla. Even the Nissan Leaf saw tremendous demand. Fiskar is now working on an electric vehicle as is Mercedes and BMW. What do they all have in common? They, like solar....need batteries to make them work.

For years on end, batteries were pretty much made the same. Lead/acid was the way batteries were made and they were heavy, didn't last that long, hated to be discharged too low, etc. So, engineers began working on newer technologies back in the 70's.  While first use of Lithium in a battery was done in 1912, it was too dangerous, too expensive, and ultimately thought not possible. However that changed as technology changed and for the past 20 years especially; "lithium-ion" batteries were the new standard.

The advantages are many. They are MUCH lighter. They can withstand many more discharge cycles. Their output is much more stable over a longer period of time. But depending on the other components of the battery, some aren't as safe as you'd like. You've all seen pictures of the Samsung Note 7 phones exploding and catching fire? That's what can happen to even a very small Lithium battery if something goes wrong.

My point however is this... the hunt for ever better batteries is NOT going to stop. I recognized this many years ago and figured this would be a simple way to make a fortune. All I'd do is buy up a bunch of Lithium futures or options or stocks...right? Wrong.  Despite being a soft whitish metal with MASSIVE DEMAND, there is NO common market for it.  Lithium isn't traded on any major exchange, and doesn't have futures contracts or swaps. What's up with that??

The only way to get exposure to Lithium was to buy mining companies or the companies that actually make Lithium batteries. It was actually pretty depressing. I wrote in 2009 that "Lithium is going to be a major player, all I have to do is figure out how to invest in it."  Well that proved to be harder than I expected.

You can imagine how "excited" I was in 2010 when they developed an ETF which was a basket of stocks that were involved in Lithium production and manufacture. The symbol is LIT.  Well guess what? After launching at about 30 bucks, it flew to 45 and then fell apart. Here we are 6 years later and guess where LIT is?   24 dollars. Yes folks after 6 years of so much demand that Lithium went from 5000 dollars a ton in 2010, to 20,000 a ton in 2016... the ETF is down in that time frame. 

I continue to look for a way to make some money in the electrical storage realm, and frankly I'm not having much success. With the demand for solar, with the demand for electric cars, with the demand for every longer phone life, and tablet life, "storable energy" is going to grow and grow. Yet a pure play on it is very hard to find.  For instance, I focused on what you might call pure play storage by looking at battery/alternative storage companies themselves.

Right. Well, HEV was promising. They went belly up. VLNC was promising, they went belly up.  (note, they still make batteries in Lithium but they're private) BCON? Gone. AONE? Gone, XIDE? Gone. On and on that went.  Well chat about China Battery? Surely that's a winner right? Wrong, it's a buck.

As bizarre as it sounds, it is really hard to get into this area, despite the area having so much demand. Yes you can buy TSLA as they're building that gigantic battery plant in the desert, but its 200 bucks.  So if batteries aren't the way, and there's no way to buy the metal, maybe the plan is to buy lithium miners? Well the big 3 are... ALB, SQM and FMC. But the fact is Lithium is only about half their business. They also mine copper, zinc, etc. Not so pure.
Then there's the wild west of the over the counter penny stocks.  That's always a real gamble because they don't even have reporting requirements. You are really taking your chances there. But, that said there's one that I will keep a loose eye on. LACDF is a lithium company with ties to SQM, and has property near where Tesla is building. At 59 cents a share, rolling the dice on them and holding it for a few years might pay off.

All in all, I've never really seen a situation where the demand is so big, the future so bright and we can't find one truly wonderful play in the space. How utterly odd.  I'll keep looking.
 
The Market...

The pattern continues. We are obviously capped until this election. Each day you can see that their only job is to keep the market from plunging, as evidenced by today's action.
On Monday we had a slightly up day. It got people excited that we were starting a week on a green note. But Tuesday took all those gains away. This morning we opened in a sour mood, with the DOW off 90 and the S&P off 9. But like every day lately where it looks like the market is going to fall apart, they rushed in and from all the way from down 90, they pulled us to green by 30.  Magic.  Interestingly however, they did let the S&P close red but just by 3.

So the only real pattern we have is that they aren't willing to push us back up near the old July highs, but they ARE willing to make sure that down days don't snowball and that we roll over into a big correction.
 
50 trading days ago (which is over two months ago) we put in a closing high of 2190 on the S&P. Since then we've gone sideways in a range between that high at 2190 and the "line in the sand" at 2120. Most of the action however has been in a much tighter range. Look at a chart of the S&P and you'll see most days in the last month+ to be between 2140 and 2160.

I don't suppose this is going to change until after the election folks and that's still 10 trading days away. Until then I suspect they won't let it fall, but they aren't going to spend the capital to push for the highs either.  That makes for some tougher trading as you can buy something on a nice market up day and have it tossed in your face the next day as the market goes red.

I can't give advice, I'm not a licensed advisor or broker. By my advice to myself is...keep trades short term, take profits quickly and wait the madness out. Something's going to change and we even know the date. That's sort of rare. Let's chat more about that on Sunday.  What is the strategy for a Trump win? What is the strategy for a Hillary win?  There's a lot to consider. 

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