Saturday, June 10, 2017

Big Investors buying cobalt and storing it in warehouses

WSJ:

Every few months, Robert Mitchell travels from his office near Portland, Ore., to a Connecticut warehouse and checks in on his biggest investment.

Mr. Mitchell’s fund owns millions of dollars worth of cobalt. He is so confident that its use in electric-car batteries will cause demand to surge that he has been buying and storing more than a thousand metric tons of the stuff—worth more than $56 million at current prices.

He feels he has little choice but to hold physical metal, since acquiring a cobalt position in financial markets is so hard.

I have discussed the issue of how to easily and profitably invest in cobalt. Buying and holding physical cobalt is one way to go although this would not work out well for the individual investor.

I still think the best way to participate in this is to be short Tesla via long term puts on the stock. Every auto company is now coming out with electric cars. Most of them can afford to subsidize losses in electric cars with profits for ICE cars. Tesla does not have this luxury and has never really been cash flow positive or profitable.

In the long term they will have a hard time keeping up with all the other car companies as this is a capital intensive business. They can't just keep issuing stock and hoping they become profitable. At some dilution and investor disillusion will take place.

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