The Best Explanation Of Why Rare Earths Are A Bubble Just Waiting To Explode

Once again, the rare earth companies are exploding higher today, thanks to a big media push from MolyCorp. Before you get excited though…

There are really good reasons to be sceptical of the mainstream thinking.

This presentation from economist Ed Dolan provides the best, most-concise explanation of the issue that we’ve seen.

It basically comes down to this:

  • Yes, China does control 95% of rare earth production.
  • But that’s mainly because it has the loosest environmental regulations. They are in abundance all around the world.
  • Rare earths aren’t really that rare… they’re more prevalent than gold.
  • And demand over the long-run is elastic. Companies are in fact finding alternatives to them.

So before you jump into the rare earth ETF to ride the bubble, at least get some background.

China's monopoly is fragile.

The latest scare started in the dispute between Japan and China

What are rare earths?

They're not that rare, really.

And China hasn't always been so dominant

But China has been very loose with environmental regulations

And its cost basis is very low

The environmental looseness is a big deal

In the long-run supply will be rather elastic, though for now it is indeed tight

In the long run, we can actually find alternatives

Prices are likely to stay volatile in the short-run

So China is dominant today, but it could collapse

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