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Chinese Monopoly Wreaking Havoc

The opinions expressed by columnists are their own and do not necessarily represent the views of Townhall.com.

Sometimes a ripple in a pond can turn into a tidal wave that washes away hope and prosperity.

What may have seemed like a small detail can blow up in your face at the slightest provocation, and that’s exactly what is happening now with China’s virtual monopoly on the “Rare Earth” elements market.

Like Rome, this empire wasn’t built overnight…

But over the past couple of decades – as more and more businesses deferred their production to the cheaper, overseas work-force – China has slowly gained more and more control over this market, till last year, they produced over 97% of the world’s supply or Rare Earth elements.

Yes, you heard that right – 97%.

Imagine if you controlled 97% of the world’s gold or oil… you’d be the most powerful person on the planet.

And while Rare Earth elements aren’t seemingly as important to most of the world’s day-to-day activities, this complete control over the market still has plenty of repercussions.


Rare Earth metals are vital for many of our defensive entities, used in such things as the magnets that help direct the fins on our smart bombs to the silencing the whir of the blades on some of our combat helicopters.

And as something so important to success for our military forces to be held by our biggest economic rival is not a good thing.

This should never have came to be…

Because as big a fan as I am of free market capitalism, I still believe that our national defense should not only be kept in house, but should take top billing to making money.

What good is being a rich if you don’t have the freedom to enjoy it?

What does China’s control of the market mean?

It means that they control everything, from price to available supply, and we’re already feeling the sting of the consequences related to the monopoly, as this year they’ve already reduced the Rare Earth quotas for the rest of this year by 72%.

And you know what that means…

Any time you limit the supply of anything, the price gets jacked sky height, and Rare Earth elements are no different, as in the span of less than 3 months, the price of Rare Earth elements has jumped over 655% - from $4.50 per kg in June to $34 in September.

This kind of jump makes the gold explosion look like more of a firecracker.

This jump can be seen in the stock price of NEO Material Technologies, a manufacturer of Rare Earth elements that’s traded on the Toronto Stock Exchange, as share prices of this company have surged over 31% in that time.

And it doesn’t look like that it’s going to slow down any time soon…

China’s control of both the price and supply of these metals will have almost zero competition until the end of 2012, when two start-up Rare Earth element producers (one in the U.S. and one in Australia) come online.

And as unfortunate as this situation is, Team Trinity is searching for a way for our readers to profit nicely from this monopoly.

Both Tim and myself are searching for the right ADR or ETF for the members of The ADR Advisor or M3 Profit Accelerator, and we should have something in the next coming weeks.

And as much as I don’t mind profiting, I really wish we didn’t have to search for an angle on something as important as our national defense.

Because when it comes to the safety of our country, I’d rather give up a few bucks than have to start worrying if our boys in uniform are less safe because of it.

Editor’s note: Shawn writes commentary for Trinity Investment Research’s daily e-letter, The Daily Market Beat – an investment newsletter that focuses on financial analysis, contrarian insights and emerging equity ideas.

Shawn is a former professional wrestler and Division I college football player. His passion and aggression allows for him to exploit commodity cycles and emerging markets to find ETFs that show accelerated profit potential.

To learn more, visit: www.trinityinvestmentresearch.com

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