Dear Reader,
Chris Wood here, filling in for David Galland. Today's issue is full of good stuff. Robert Ross will kick it off with an interesting look at the future and economic implications of asteroid mining. Then Adam Crawford will delve into the troubling economic situation in France. And, of course, we'll end it all with some Friday Funnies. Let's get started.
By Robert Ross, Junior Analyst
Although it may sound like it was ripped from the pages of an Isaac Asimov novel, asteroid mining could be a huge step forward for mankind. The concept has been around for over a century, with Russian scientist Konstantin Tsiolkovsky first postulating the idea in 1903. At the moment, the trek into the great asteroid-laden unknown is being led by one company – Planetary Resources.
One thing Mr. Tsiolkovsky didn't have was connections, something that Planetary Resources has in droves. With a lineup of investors and board members that includes various Google executives – including founder and CEO Larry Page and former CEO Eric Schmidt – acclaimed film director James Cameron, former Microsoft executive Charles Simonyi, and Ross Perot Jr., son of former presidential candidate Ross Perot. Seed funding shouldn't be an issue.
Nor did Tsiolkovsky have the vision. Planetary Resources has a three-step plan, with an aim to mine asteroids for water and precious metals. More specifically, the company intends to create a swarm of robotic spacecraft that can use artificial intelligence to coordinate complex mining operations without a human presence.
The whole thing may seem like a bunch of eccentric billionaires getting together to throw hoards of money at a project with little possibility of success. But it's not. According to the company's president and chief engineer Chris Lewicki, Planetary Resources is already cash-flow positive:
"When we started the company, one of the first things we did was to identify the roadmap that would get us from now until we got to the asteroids. That way, we could identify who would be interested in the things we'd be developing along the way. We already have contracts with NASA, some private companies, and even a few private individuals."
That roadmap starts with the Arkyd series 100, also known as the Leo Space Telescope. By designing and selling this "low-cost" telescope, the company believes it will be able to gain the necessary experience to develop more complex models, while generating cold, hard cash in the meantime.
The Leo Space Telescope is designed to track and analyze the size and orbital patterns of near-Earth asteroids. But, in order to generate cash in the short term, the company plans to point some of the telescopes down at Earth. The satellites will gather vast amounts of data which can then be sold to universities, businesses, and governments. Planetary Resources claims the Leo Space Telescope will be sold on private markets at a price "in the single-digit millions," making the Leo the first private space telescope on the market.
The company plans to build on what it learns during the development and launch of the Leo Telescope to get to the next phase, the Arkyd Series 200 – Interceptor. The new fleet of satellites will have added propulsion capabilities, which will be used to hitch a ride on asteroids crossing through Earth's neighborhood.
According to Planetary Resources, two or more Interceptors can work in tandem to identify, track, and "fly by" near-Earth asteroids, capturing high-resolution data in the process.
The new technology will also create an opportunity for the company to update our deep-space communication network. According to Lewicki, who has experience working on the Mars rover projects, the deep-space communication network currently in use is 50 years old and is based on primitive, Earth-based antennae. To improve upon this, the company seeks to develop small, low-power optical communications technologies to couple with the Interceptor, which would offer better communications than the limited bandwidth available on NASA's network.
The third phase of the project will expand upon the Interceptor design. By augmenting it with deep space laser communication capability, the Arkyd Series 300 – Rendezvous Prospector will allow the characterization of an asteroid's value prior to mining operations, collecting data on the asteroid's shape, rotation, density, and surface and subsurface composition. In short, the satellite will serve as a tool to establish which asteroids hold the most valuable resources and which are the most feasible to mine.
The final phase is to actually mine these asteroids. Planetary Resources claims that the initial space-resource development projects will focus on water-rich asteroids. By focusing on water – which can be used in space for hydration, breathable air, radiation shielding, and formulating rocket fuel – the company hopes to enable large-scale exploration of the solar system.
The company has a few ideas on how the actual mining operations will take place. One advanced technique mentioned by Lewicki is to harness the energy generated by the heat and cold differential on an asteroid; this is generated by sunlight hitting part of the asteroid while the rest is in shadow.. In theory, this should provide the energy needed to extract the targeted resources.
Apart from making science-fiction fans cheer, mining asteroids has many implications for life inside and outside our atmosphere. It could make long-term space travel more feasible, since astronauts would not have to return to Earth to resupply certain essential resources, such as water, gas, oxygen, etc.
Another attractive opportunity is the plethora of rare-earth metals – such as scandium, cerium, and gadolinium – contained in certain near-Earth asteroids. It's speculated that a relatively small, 1.6-km diameter asteroid with the right physical characteristics could contain more than $20 trillion worth of industrial and precious metals. For example, near-Earth asteroid 16 Psyche is believed to contain 1.7x1019 kg of nickel-iron, which would be enough to supply current world production requirements for several million years. Not too shabby.
Basic economics informs us that doubling or tripling the supply of anything while keeping demand constant will certainly drive down its price. If a Planetary Resources fleet returned from a voyage that increased the amount of gold on Earth by 100 times, the price of gold would certainly plummet.
In step, by extending the reach of potential mining operations to space, Planetary Resources could potentially alter the way we currently conceptualize scarcity. It also has the potential to ruin the company's return on investment.
But Lewicki isn't fazed:
"Of course, it's all about supply and demand, and we're subject to those risks as much as any other company. But if we as engineers had materials that were best for a job and could use those materials all the time without thinking of the costs, it would change the world. It's not about scarcity, it's about access. Fundamentally, that's what we're focused on. We want to take opportunities and deliver value just like any other business. Only our business will extend the economic sphere into the solar system.
Although this could leave some BIG GOLD subscribers shaking in their boots, don't expect any of this to come to fruition any time soon. The company plans on launching its first Leo Space Telescope in 18-24 months, and it will probably be decades before any actual space mining takes place.
Of course, the scientific community is not without skeptics. Former NASA aerospace engineer Louis Friedman says it would take "hundreds of millions of dollars" to get started. This shouldn't be a problem considering Planetary Resource's wealthy stakeholders and friends, not to mention the private sector's ability to innovate and cut costs.
It's also worth noting that upcoming NASA mission OSIRIS-Rex will be engaging in some asteroid mining of its own. The mission's goal is to harvest two ounces of material from an asteroid and return to Earth at a cost of about $1 billion. But we all know how efficient government-funded projects are.
Private versus public arguments aside, there are some other fundamental issues related to asteroid mining. Friedman states that the company would have difficulty transferring raw materials extracted from asteroids back to Earth, given the cost of going in and out of Earth's gravity well. So hang on to your gold.
There's also some competition, although it's taking a different approach. Moon Express, led by Intelius founder Naveen Jain, seeks to mine the moon, and he's already secured a $10-million NASA contract. But, considering the legal wrangling that would be involved with strip-mining the moon, I would be skeptical of the company's outlook.
In my opinion, both are interesting concepts that could have far-reaching implications for us here on Mother Earth. Could this technology allow humans to travel millions of miles into space, harvesting water and other nutrients from asteroids along the way?
The science-fiction fan inside of me sure hopes so.
By Adam J. Crawford, Junior Analyst
Thus far, France's troubled economy has eluded the spotlight of the popular press. This may soon change, however, as the realization that France's economy is as fundamentally flawed as the highly publicized PIIGS economies takes hold.
France looks like PIIGS
For many years, France has been on a borrowing binge while feeding those funds to its citizens through various entitlement programs. The amount borrowed each year has accumulated over time, resulting in the dangerously high level of debt to GDP seen today.
| Deficit to GDP | Debt to GDP | |
France | -5.2% | 85.8% |
Portugal | -4.2% | 107.8% |
Ireland | -13.1% | 108.2% |
Italy | -3.9% | 120.1% |
Greece | -9.1% | 165.3% |
Spain | -8.5% | 68.5% |
| Source: Eurostat 2011 data | ||
This reckless borrowing ends and the painful – but necessary – economic contraction begins when the market punishes heavily indebted countries with higher interest rates. This is what is happening to Portugal, Ireland, Italy, Greece, and Spain.
| 10-year bond yield | ||
| Portugal | 10.67% | |
| Ireland | 8.21% | |
| Italy | 6.04% | |
| Greece | 28.91% | |
| Spain | 6.51% | |
| Source: Bloomberg | ||
So far, France has escaped the wrath of the sovereign bond market. In fact, the yield on France's 10-year bond recently slid to an all-time low. But the smart money is beginning to question the French government's ability to repay its debt. The evidence can be seen in credit default swaps (CDS), which have spiked nearly 35% since March. The cost to insure $10 million in French debt for five years currently stands at $213,000 per year. This number is relatively small when compared to the cost to insure the debt of other troubled nations in the Eurozone. However, it is strikingly similar to the cost to insure the sovereign debt of these same troubled nations three short years ago.
2009 | 2012 | |
| France | $39,000 | $213,000 |
| Portugal | $79,000 | $1,070,000 |
| Ireland | $220,000 | $679,000 |
| Italy | $107,000 | $552,000 |
| Greece | $162,000 | $8,161,000 |
| Spain | $98,000 | $600,000 |
| Source: Bloomberg | ||
David Hinman, comanager of SW Asset Management firm, believes insurance on French debt could soon follow the PIIGS's path into the stratosphere:
"The severity of French CDS' going from 220 to 500 is going to be very meaningful and it could very easily happen. There is too much debt with very little prospects for them being able to work it out. I am not sure how all of this plays out."
This time isn't different
One thing is for sure: the boneheaded economic agenda of France's newly elected Socialist leader will only make the country's precarious financial situation much worse. Here's a list of President Hollande's most memorable campaign promises:
The scary thing is, implementing these reckless reforms should be a piece of cake given that the Socialists are likely to win a majority in the Parliamentary elections. If this does happen, expect to see soaring debt and a sinking stock market in the near future (just like last time the French elected a socialist leader).
France's economic predicament is but one of myriad opportunities the world's shaky economy is presenting to self-directed investors. Some particularly intriguing speculations can be found in our flagship publication, The Casey Report, which is helping subscribers position themselves to profit from the Volatility Index, options on a Chinese index fund, and a host of emerging trends that Wall Street is ignoring.
But perhaps the biggest opportunity that awaits subscribers – indeed, all investors – lies beneath the surface of the United States' teetering economy.
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Greek Mythology
The Modern World
That's it for today. Thank you for reading and subscribing to Casey Daily Dispatch.
Chris Wood
Senior Analyst
Casey Research, LLC