Radioactive Profits

Uranium Market

Uranium Market: Radioactive Profits
by Kevin Kerr
The Daily Reckoning
Wednesday, March 1, 2006

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Memoirs of a Fedhead…the housing bubble gives up more air…burn your television set…
People go along because they are afraid to do anything else - soon everyone is marching in the same direction. And that's when you really get into trouble…
Addison leaves $210 on the table… what a hoser, eh?…when will U.S. consumers learn?…and more!

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We are in the land of Schiller and Beethoven, Goethe and Rilke, lieder and Die Lorelei. We are amongst the people who lured the Roman legions deep into the forest only to destroy them.

Outside our hotel window, it is a winter wonderland. The snow is coming down steadily in the Rhineland. Of course, that didn't stop our cab from careening down the autobahn at 80 miles an hour last night, but on that, more later.

Meanwhile, from the television, we learn this morning that Alan Greenspan is shopping for a publisher for his memoirs. He expects to get an advance in the tune of millions. Now, that's how to make money in this market! We can only hope for his sake that the currency is still healthy by then.

But today, we have not much time to expand even on this juicy morsel and will be brief in our observations and ruminations. Doubtless, many long-time readers will thank their lucky stars for the relief.

First, the housing bubble gives up more air. Ruth Simon, of The Wall Street Journal, writes:

"After climbing steadily for a decade, the nation's homeownership rate appears to have leveled off. New data released late last month by the U.S. Census Bureau put the homeownership rate at 69% in the fourth quarter of 2005, down from 69.2% a year earlier."

Simon goes on to say this is "the first time since 1994 that the rate at year-end hasn't increased from the previous year. It's not entirely clear why the homeownership rate seems to have plateaued. Some economists say that the new data could be a sign that declining affordability is finally taking its toll on first-time homebuyers."

Also this morning on CNN comes news that new housing sales in January were the worst in a year.

And stocks fell on "disappointing consumer confidence figures," said the commentator.

But gold rose.

When will gold correct? Will it ever correct? We don't know, but when it does, we will be ready and waiting for it.

And when will the bubble in real estate finally deflate? We don't know that either, but we hope it doesn't happen too soon…we have some property we want to sell! If you happen to know someone looking for a large chateau in the countryside of France, we just happen to have one.

Pity the poor people who get their financial wisdom from television and actually believe the asinine assertions…the pretentious punditry. The economic coverage, especially, is nothing but one long, continuous babble, punctured on and off by deep questions from the babblers, such as: "How can you make money in this market?"

How? We'll give you the answer. Turn off the television for a start.

But, people love their televisions as themselves - just as they love bingeing on fried chips, medicating themselves with Prozac, and campaigning for political office, too. Are they better off for any of it? Not in our opinion.

Television invades the room and quickly takes charge of your time, your energy and your brain. You begin to eat in front of it; you fall asleep at night watching it. It prattles on in your brain subconsciously day and night; the next thing you know, you have begun to think what it tells you to think and care about what it tells you to care about. Before long, if you're not careful, you'll be wondering about J-Lo's new beau, buying more Google, or voting for Hillary.

But wait, Google also had some disappointing news, yesterday. What else to buy now?

Quick, turn on the TV, find out!

More news from our team at The Rude Awakening…

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Eric Fry, reporting from Manhattan:

"David Lashmet is an unusual guy…who produces an unusual product. Lashmet is not the sort of unusual guy that knits booties for Basset Hounds. Rather, Lashmet is unusually diligent, hence the name of the investment research product that he produces: Diligence."

For the rest of this story, and for more market insights, see today's issue of The Rude Awakening:

Doing Drugs

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Bill Bonner, with more insight from Deutschland…

*** Here's an interesting bit of news: U.S. consumer spending surged 0.9 percent in January, personal income grew 0.7 percent in January and yet - consumers still dipped into their savings to fund their spending.

When will they learn, dear reader?

*** We have come to Germany for a business meeting. What always amazes us is how prosperous the place seems, even after years of sluggish economic growth. From reading the paper you would think Germans were rummaging through trashcans for breakfast and standing in long lines begging for work.

Not a bit of it! Up and down the Rhine Valley, the buildings are spanking new, the streets are spotless, and near as we can tell, the taxicabs are all Mercedes.

"Oh you are an American," said our cab driver last night. "We get a lot of Americans here in Koln, but all they want to know about is the war. I can't tell them much about the war…I wasn't even born then.

"But this whole area was still a ruin when I saw it as a child. Only the church was left standing after you all finished bombing the town.

"You know that was a remarkable thing…the war. I remember when I was little you could ask your parents about it. They didn't want to talk about it. And then, when they did talk, they blamed it all on Hitler. Everybody blames it on Hitler, but I could never understand that.

"'How come you went along with Hitler?' I would ask. And they told me, 'because they'd shoot us if we didn't.' But Hitler couldn't shoot 40 million Germans.

"No, it doesn't work that way, does it? People go along, you know, because they are afraid to do anything else. But why are they afraid to do anything else? I don't know; one step leads to another - some are afraid…some are ambitious…some are believers in the cause. And pretty soon, everybody is marching in the same direction.

"That's when you really get into trouble: when everybody goes in the same direction.

"Oh, I didn't tell you though…I'm not completely German. My mother was Italian. Well, the Italians are smarter. They never go in the same direction, and even when they try to - remember, they were with the Germans in the war - they end up going in different directions. That's why you can't really govern Italy, not in the way you can govern Germany or America. That's what's nice about Italy.

"But America is a lot like Germany. I visited it a few years ago and I felt right at home. People there actually obey the law. They all get behind their president, even when he's a man like Mr. Bush. I'm not criticizing, mind you. He's probably a good president, even though all the press here is against him. But still, it's scary. I mean, the way a whole nation can get behind something, march off in the same direction and end up together…in Hell."

*** On the other side of the Atlantic, Addison made an appearance on SqueezePlay last night live on CTV, Canada's answer to CNBC.

"For some reason the camera was pointed at the top of my head and looking downward," writes Addison "But Amanda and Kevin, the hosts, seemed to get the gist of my spiel.

"Before going on, a few colleagues from the office took up a pool and bet me $210 that I couldn't work the words 'Hosers, eh?' into my responses… it being a Canadian show and all.

"I almost pulled it off.

"'It's all well and good to predict the end of Western civilization as we know it,' the host asked, 'but as investors timing is everything, what if you guys are wrong?'

"I could have replied: 'Uh well, we could be wrong, we're hosers, eh?' But I didn't… I said something far more sensible and boring. Consequently, I left $210 bucks sitting on the table. Darn."

You can see the sensible side of Addison by clicking here:

Addison on SqueezePlay

Scroll down to the 5pm show SqueezePlay. Addison's the second to the last guest on the show.

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The Daily Reckoning PRESENTS: Most people are in the dark when it comes to nuclear energy, and all this talk of uranium enrichment programs leaves people scratching their heads. Well, never fear, Kevin Kerr will do his best to explain the uranium markets…

RADIOACTIVE PROFITS
by Kevin Kerr

The Uranium market is one that is like a wild roller coaster, and many of the equities associated with it can make investors queasy from the ride. These equities are no different from many mining stocks; they have to be looked at very closely. Uranium trading was starting to become more stable, or so it seemed. Then, just as fast as it calmed down - bam! - it went right back up. In two the uranium price surged $5 to $29 in just two weeks last year.

After the market woke up and new buying came in, the ultra-precious metal's price climbed another $4, which set the highest uranium price since the early 1980s. The new speculation was triggered by growing expectations that China, India and Russia were planning to build new reactors and more reactors would cause a run on the limited supply of uranium. This speculation may well be right, if the International Atomic Energy Agency (IAEA) stats are even close to true.

Uranium Market: The Big Players

According to a report by the IAEA, 130 new nuclear power plants may be built in the next 15 years. Who are the big players? The usual suspects, of course: China, India, Europe, Russia, etc. Nuclear power provides about 16% of the planet's total annual electricity generation and 34% of the European Union's needs. Trust me, they need it - a lot. When my wife Katrin and I were in Estonia recently, it was frigid cold. Likewise, people are freezing to death in Moscow, right now. Nuclear power is a key component to economic survival in both Eastern Europe and the European Union.

I couldn't believe some of the stats for other countries that I found in a great nuclear energy report called Uraniumletter International:

"China: Announced that it plans to build up to 40 nuclear reactors within the next 15 years. Some experts feel this will increase the amount of electricity generated by nuclear power from 2.4% to 4%.

"India: Also getting aggressive and wants to increase mining of uranium ore at four mines, including the existing Jaduguda mine in Jharkhand. The country recently signed a nuclear energy agreement with the United States and could generate 40,000 megawatts of nuclear power in the next 10 years, compared with current production of 3,120 megawatts.

"France: Receives 78% of its electricity from nuclear power.

"Belgium: Gets almost 56% of its power from nuclear plants.

"Sweden: Close to 50% of Sweden's power is nuclear.

"Switzerland, Japan and the United States: Nuclear power provides 40%, 25% and 20%, respectively.

"Korea: Currently uses about 40%, operating on 19 nuclear reactors, and is expected to increase its dependence on nuclear power up to 60% in three decades.

"Asia: Nuclear energy is becoming more and more vital to the growing economies. Without it, Asia's bazillion factories would come to a grinding halt."

Uranium Market: A History

I'm not a historical scholar by any stretch, but I am a big history buff and the he history of atomic energy fascinates me. In the 1940s, the U.S. government began buying large amounts of uranium in the effort to produce the world's first atomic bomb.

I mean, a country didn't simply go down to Wal-Mart in those days and buy some. So, it was a major undertaking. Don't laugh, maybe someday we will all have little nuclear reactors in our backyards, and instead of going to get some more wood for the fireplace, you'll have to run to Wal-Mart to get a bag of uranium.

Nuclear power plants, as we know them, fired up in 1959. That was when the first privately funded nuclear energy plant came on-line, in Illinois. Fast-forward, and by the 1970s that number had exploded (pardon the pun) to 250 nuclear reactors that were planned across the United States - but the dream train of cheap, easy energy derailed a bit.

The disaster in Pennsylvania changed all that. I was just a kid, but I remember that accident. Three Mile Island was a nightmare. My wife Katrin was just a kid when Chernobyl happened. She lived in nearby Estonia. They had to stay inside for days, she told me.

Anyway, the Three Mile Island nuclear power plant accident came close to Armageddon in 1979. Remember that movie? The China Syndrome? In the movie, Jack Lemmon works in a nuclear power plant that is going to have a meltdown. This movie is the kind of hysteria that made the public fear nuclear energy, and basically put the brakes on new construction. People didn't want it near their homes, and I can't say I blame them.

Uranium Market: The Collapse

Public ignorance and fear of nuclear power changed the course of nuclear energy, as we've known, it for a very long time. Starting in the 1980s, utilities were canceling plants hand over fist. This resulted in the almost complete collapse of the uranium market.

And then, to beat down the market even further, uranium got hit square in the jaw. This second blow came when the Soviet Union fell apart in 1991. Enriched uranium that was removed from Russian bombs was blended down to reactor-grade fuel and put on the market. But, it gets worse.

The third punch came when the Clinton administration dumped 55 million pounds of "yellowcake" (uranium in the form of a yellowish powder) on the market, via a government-owned uranium enrichment program. This was what really caused the freefall for uranium prices - until now.

American uranium production peaked in 1980 at 43.7 million pounds, according to the U.S. Energy Information Administration. That was the proverbial nail in the coffin for the exploration of uranium. New research and development ground to a halt, as mines could no longer afford to operate, and exploration was basically a waste of time, energy and money. According to Uraniumletter International, Wyoming once had eight uranium operations, which produced 12 million pounds per year. Today, things are different - a lot different. Wyoming now has none. Ouch!

I could go through each state and many countries around the world and cite examples just like that from reports I have read. It seems clear that because of these widespread shutdowns, the once-overflowing uranium supply dwindled in just five to 10 years.

Things didn't seem so bad during the 1990s; the lack of new supply from functioning mines has been supported by other sources. There were excess inventories, for example, and there was also the dismantling and recycling of nuclear weapons, especially from Russia. Also, reprocessed reactor fuel was added to the mix.

But many of those quick fixes are no longer available.

Uranium Market: The Bottom Line

The president's State of the Union address was a rallying cry to uranium producers to get moving…finally, reality is setting in. The dwindling supply of oil and spiraling high prices of fossil fuels are driving interest in nuclear energy as the possible power source that will be used to meet current and future global demand.

Three Mile Island and Chernobyl, unless you lived there, of course, are distant memories to most Europeans and Americans. On their minds are the prices at the pumps and their home heating bills.

Bottom line: New supplies of uranium will come at a much higher cost, which in turn, will continue to put upward pressure on the future price of uranium.

Regards,

Kevin Kerr
for The Daily Reckoning

P.S. My co-editor at Outstanding Investments, Justice Litle, is looking at many of these uranium companies. After all, there's no use in building a reactor if you don't have the fuel to make it work.

Justice is in charge of the Outstanding Investments portfolio, and he is doing a fantastic job. He has already recommended great uranium stocks that he's had his eagle eye on, and I think there are more to come. For a sneak peek at these stocks, see our new special report:

The Four Horsemen of the Petrocalypse

Editor's Note: With 15 years of experience, Kevin Kerr is a true veteran of the commodities markets. A licensed commodities trader since 1989, he's worked the trading pits in Chicago and New York with legends like Paul Tudor Jones, and he's even traded commodity derivatives in London. Over Kevin Kerr's career he's dealt with everything from cotton to currencies to oil and natural gas.

If you take a look at Kevin's track record with his commodities trading service, Resource Trader Alert, you'll see for yourself that he is no stranger to the natural resource markets:

Get Rich Trading Real Resources

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