Lynas Rare Earths: Jobs and 'Hot' Waste

Last week rare earths producer Lynas Corporation (LYSDY:  OTC/QB) joined any number of durable goods manufacturers throwing in the towel.  Lynas is halting production at a plant in Malaysia where the company separates rare earth metals from aggregate.  For the most part Lynas’ Malaysia facility processes concentrate from the company’s Mt. Weld Central Lanthanide deposit in Western Australia.  It was a bold move given that the Malaysia plant has been processing Mt. Weld rocks for the last seven years, representing a significant portion of Lynas’ annual production.  

The Malaysia plant is located near Kuantan. Lynas gets access to a deep-water port there as well as a well qualified labor supply.  The plant employs 600 people.  Shuttering the rare earths plant and idling 600 people will not go unnoticed in Kuantan with its population near 525,000.  It is not just the employees who are chewing their knuckles.  Lynas is not without its detractors who have a critical eye on the company’s operations.

Earnings Report Preview

With first quarter earnings reports right around the corner.  With a virus pandemic racing through most communities and a stock market at record low levels, U.S. investors are bracing for the worst.  Recent earnings reports from Chinese companies provide a preview. 

China’s central government put much of the country on hiatus by late January 2020, in an attempt to halt the spread of a highly virulent coronavirus.  Work stoppages were gradually lifted in February, with the lockdown in Hubei province, the origination point of the virus, finally lifted the third week in March 2020.  The PRC indicated that by mid-March 2020, nearly 90% of industrial companies were back in production.  Unfortunately, small- and medium-size businesses were only at about 50% in operation.

There are various estimates on the economic impact of China’s shutdown, with Goldman Sachs estimating a 9% decline year-over-year in China’s gross domestic product in the first quarter of 2020.  Policy makers are apparently weighing the plans for an economic restart with the possibility of a second wave of infections in the coming months.

Thus far China’s various government agencies have initiated a mix of programs to provide businesses with financial support and inject money into the economy.  Taxes have been reduced on small businesses and banks have been instructed to defer loan payments.  Additionally, the government is investing infrastructure projects, although it is not clear how quickly such investments will impact the economy.

Give a Hand to Green Plains

Ethanol producer Green Plains, Inc. (GPRE:  Nasdaq) has donated industrial ethanol for use in producing hand sanitizer.  Apparently, the state of Nebraska is deployed in jail and prison inmates to make hand sanitzer for use during the coronavirus outbreak.  The company is sending industrial-grade ethanol from its York facility, which has the capacity to produce up to 50 million gallons per year.  Industrial-grade is 200-proof ethanol that is used all around the world.

Heading up the sanitizer project is Cornhusker State Industries, which operates workshops in the Nebraska Department of Correctional Services facilities.  Cornhusker has been around for over 130 years.  It presently employs as many as 500 incarcerated men and women with the objective of passing along job skills and will make re-entry the community a bit easier. 

Panic Perspective, Part II

Historic price charts super imposed with event details can provide insight into the information that might have driven trading decisions.  The technique has been applied to the coronavirus health crisis that is playing out in the U.S. and indeed around the world.  The first chart at the end of this post illustrates news of the disease, including reports of first infection, first deaths and spread of the virus around the world.  The second chart includes policy responses, such as lockdown and travel bans, with particular attention to communications from U.S. policy makers.  Yet a third chart (yes, we can have three charts in one post, because this is an investment column) juxtaposes the pronouncements and decisions by key policy makers against the candlesticks of the stock market disaster.  This chart also includes tweets by Donald Trump.

What do the charts say?  Besides making us dizzy, the charts suggest everybody has been scrambling to track down the horses well after they bolted the barn.  These charts also suggest that shareholders were not so troubled by the coronavirus itself as they were by the lack of preparedness in the U.S.

Panic Perspective, Part I

There is not a single shareholder who is not aware of the significant loss in value that has best U.S. stocks over the last three weeks.  The U.S. stock market toppled with such speed and force, all new records have been set.  Financial market pundits repeatedly begin commentary with “never before…” and “not since….”  A chart for the S&P Small Cap 600 Index tells the story well.  Year-to-date the index has lost more than one-third of its value.  Ouch! Few investors can tolerate losing one third of their wealth or even half that amount. 

Professional traders and individual investors alike have had to scramble to unwind leveraged positions.  Indeed, some of the downdraft is actually as a consequence of the rapid, disorderly deleveraging action that began in early March 2019.

Calendar Effect of Superstition

Long-time stock brokers watched the calendar carefully for market anomalies, called without surprise ‘calendar effects.’  These interruptions in usual behavior of the stock market appear related to the time of year, day of the week or time of the month.  Others see importance in the U.S. presidential election cycle.  One of the most popular calendar effects is seasonal in character.  In the northern hemisphere there is a propensity for investors to reduce equity positions in the spring in anticipation of a carefree summer and then a reloading of positions in the fall.  The habit has given way to the maxim ‘sell in May and go away.’

A calendar effect often overlooked is one with spooky overtones.  The Friday the 13^th effect is driven by a superstition-fueled fear of the number 13^th falling on a Friday.  In order to avoid bad luck, traders sell their stocks before such a trading day.  The behavior leads to an inordinate fall in prices before such calendar dates.  Additionally, traders avoid buying on Friday the 13^th, waiting until the next day to buy shares.  This causes prices to rise more than usual in the next trading sessions. 

Ocean Power Technologies: Alot Under the Water

After years of promises Ocean Power Technologies (OPTT:  Nasdaq) is finally realizing revenue from its ocean wave power innovations.  Sales in the quarter ending January 2020, was $725,000  -  more than double the same quarter in the previous fiscal year.  Driving the top-line is the sale of one of the company’s signature PowerBuoy ocean wave power generation system to Enel Group (ENEL: BIT; ESOCF:  OTC), Italy’s premier energy company. 

Some investors might find Enel an unlikely customer for a renewable energy device like the PowerBuoy.  Designed to convert the mechanical energy in ocean waves to electrical energy, the PowerBuoy has been years under development.  Ocean Power has long touted the potential in the device to generate energy free of carbon emissions. 

Sizing up Online Retail

PRIME SERIES

Despite the rise of consumerism the retail industry may be experiencing its greatest challenges in history.  The entrance of digital technology to the retail process has created opportunity for some and threats for others.  Retailers must deliver a shopping experience that gives consumers the immediacy and personalization they have experienced on other digital platforms.  Younger shoppers are also adept at mixing on-line and in-store channels for a single purchase and are disappointed with those retailers that confine them to a single path.

It all sounds very modern, but even retailers who serve customers across multiple channels and are ever present through mobile connectivity still struggle for financial success.  The problem is that contemporary shoppers have penchant to order merchandize and send it back.  Costly returns have become the bane of merchants.

A solution to retailer’s returned merchandise problem comes from My Size, Inc. (MYSZ), a developer of sensor-based measurement technology.  The My Size measurement tool can be used in digital shopping and shipping channels to make certain buyers get things right the first time.

MySize is a fledgling company and has not yet captured revenue or profits from its measurement innovation.  However, a growing string of new relationships in its target markets suggests the company is about to turn the corner to success.  The timing could not be better for investors to look closely at MYSZ shares. 

Interest Rate Shift Delivers Stock Price Surprise

Like all good gifts, the U.S. Federal Reserve’s decrease in the its benchmark interest rate by 50 basis points was intended surprise and delight business leaders and consumers.  As the day drew to a close it seemed as if the only ones to be surprised were the Federal Open Market Committee (FOMC) members themselves.  Consumers were not impressed!  The hoped for boost to the U.S. stock market last only a few minutes. 

Perhaps traders just did not want to be distracted from shopping on-line for face masks and self-quarantine supplies against the imminent threat of coronavirus.  Indeed, the prospect of a dramatic upheaval in the U.S. economy because of widespread illness and the efforts to contain it appears to be driving market sentiment even if the potential economic effect is lost entirely on policy makers.