January 2009

Latest update – November 4, 2008 from a Market Wire press release: “Cameco Corporation…reported today a modest increase in water flow to the development area of the McArthur River uranium mine. Production areas were not impacted. The inflow is only about 10% of our total capacity to pump water out of the mine," said Tim Gitzel, Cameco’s chief operating officer. "We have prepared for just such events and it is being well managed. To prevent rumors, we decided to advise our stakeholders. There were no injuries and the mine is safe. The environment was not impacted.”

Now, Cameco, whose head office is in Saskatoon, Saskatchewan, is one of the world’s largest uranium producers. It’s certainly the largest one in Canada. They provide many, many nuclear power plants around the world the fuel to generate nuclear power.

Before we leave Cameco, let’s look at some recent price action. I like to look at long term charts when we’re doing an initial coverage as we are with uranium this month. The five-year high is just under $60 back in mid ‘07, and the low of $10 is way back in early ’04. In the last calendar year, the stock was as high as $40, and as low as $16 back in October. It’s currently selling at around $23, and any time this stock can be purchased for under $25, it’s a buy. It actually pays a dividend, but not enough to talk about. So, Cameco is our bell cow.

Let’s go to our speculative stock, and remember when I recommend speculative issues, it is always with a caveat that they can be bankrupt at the next quarterly report. Why do I say that? For this reason: junior mining companies are not like junior oil and gas companies that have production and can sell product. You can’t sell a product out of a mine until you have a mill. To get out of the junior status, you have to raise enough money to buy a mill. That’s why they’re still juniors.

The symbol for Paladin Energy is PDN and it’s traded on the TSX. It hit a price of $10 in ’07. Back in ’05 it started out at a buck, did a ten multiplier, and now has had a severe correction to a recent price of $1.30, and it is still trading under $3. Now, let’s take a look at the fundamentals of Paladin. Paladin is better than a pure junior because their Heinrich Uranium mine is now operational and has a targeted production of 2.6 million pounds of U308, and it has a minimum life, at current reserves, of 17 years. They have been in some recent takeovers – they’ve taken over Fusion Resources – the sale is not yet completed. But it shows that they have aggressive management. When you’re looking at a well developed company, takeovers by an aggressive management that can add to the overall strength of the company is a definite positive. That is why they have been selected as our junior. Paladin has a number of locations – five in Australia and two in Africa – one of which is a 50% interest in a project with a previously mentioned pick, Cameco. (See how I like to pull things together?) They have a number of resources waiting for development…which is their way of saying “we’re not going to do this at this price, folks!” But, when you’re buying a stock for long term appreciation, you need to remember that as the price of the commodity that they’re involved in, the more of it is found and produced. These are why Paladin looks like a good long term speculation at these prices.

So, we’ve given you a little primer on Uranium, and then we’ve discussed three ways to invest in it while the opportunity is here. Times are a’changin’ – as they say…and we need to change with it. More and more countries are going to have to turn to Nuclear Power to provide BTUs for their survival. Getting in on Uranium now only makes sense to me.

Pebble Bed Technology: A Simple Solution

Back when the decision was made to build massive electrical generating stations powered by uranium rods with all of their coolant and radiation, we could have chosen to utilize Pebble Bed Technology instead. However, engineers being who they are, they always seem to choose the most complicated solution. I can prove it to you! See, if you’re ever driving through Texas, you’ll see five and six level traffic intersections, some of them elevated as much as 100 feet off the ground; as high as a 10 or 12 story building. This is absurd, but when engineer designers start to do things, they often choose solutions that flatter their egos, proclaiming “Lookie what I designed!” 

IMAGE:Note the large scale design from the United States Nuclear Regulatory Commission

Such is the case when the decision was made to go with the big concrete – big steel – big cooling water – big radiation electrical generators. There was, and IS, another solution. It’s called Pebble Bed Technology and it’s really simple. I mean it’s REALLY simple…which is why the engineers didn’t choose it!

We talked about the development and history in our BTU letter, so I won’t go into that now. What I do want to share, though, is how this relates to providing power in creative ways…and expanding the uranium market in the process.

Okay…imagine a tennis ball, only one made out of carbon graphite instead of rubber. In the middle is a fleck of Uranium. Imagine arranging these balls in a concrete box about the size of the average bathroom. When you hook it up to a power grid, electricity flows from it. There is no cooling water. If it gets too hot, just disconnect it, let it cool down, and you’re good to go all over again. No contamination, no radiation, nothing. Now, a box that size will only support a village of about 4000 people, but these boxes could be hooked up in a series to power something bigger.

Now, imagine a six-lane super highway with rail lines down the center stripe. About every quarter mile is a concrete box that looks like a little substation. What is it? It is a Pebble Bed generator that is supplying electricity to the rails for the train, and to the highway for the cars that are designed to run on electricity coming from the roadbed. 

Now, this is big thinking…these are big changes…but I have news for you folks, we need thinking like this. We need to utilize the technologies we’ve got, even if it means change. What’s the point of knowing how to utilize something and then not doing it? We’ve got to have new answers because this problem…You know the one…is going to be upon us before we know it.   Pebble Bed technology is one of the answers and it’s going to use tons and tons of Uranium. That’s why we need to get our investment position in the Uranium area. We need to begin to accumulate the issues that I have mentioned and we need to do it now.

Ineffective SEC

Bernie Madoff has brought it to our attention that the SEC was asleep at the switch yet again. What’s wrong with having a government agency that supposed to protect investors is that it gives us a false sense of security if it’s not going to work. I know what I’m talking about because I have been the victim of this same type of operation. Back in the 60s there were two companies – one was called Equity Funding and the other was Four Seasons Nursing Homes. It was obvious to a lot of people looking at the quarterly reports of Equity Funding that there was something wrong and it was obvious to me looking at the reports of Four Seasons that there was also something wrong there. I had taken short positions in Four Seasons Nursing above $70. Well, I covered them at five…not five dollars, five cents. The SEC announced – AFTER the collapse of each of them – that yes, they did have problems, and yes, they were now going to prosecute them. Why didn’t they bring the problems to our attention before they collapsed? This was my first experience with the ineptitude of the SEC. Their argument at the time is that they didn’t have enough people and they didn’t have enough of a budget to adequately monitor all that they were supposed to be monitoring.

Now, skip forward to the Continental Illinois – Penn Square Bank episode in Oklahoma City in the 70s. It was evident to me, because I happened to live two blocks from Penn Square Bank, that all was not right in this burgeoning market of oil field financing largely carried on by what had become the third largest bank in the U.S., Continental Illinois Bank of Chicago. After THIS collapse, the SEC said that there had been a problem. And again, they complained that if they had had the manpower and the budget they might have been able to do something about it in time. I won’t bore you with the details of many other situations, but jump forward to the present and again we have the SEC caught with their proverbial pants around their ankles and again complaining that they don’t have enough of a budget or not enough people. Folks, they have too many people and too large a budget! They have never thwarted a problem before it has turned ugly. They have never intervened before a collapse, period. And I can point out many new instances of where shortcomings were pointed out multiple times to the SEC and they took no action. They’ve allowed it to happen yet again in the Madoff case, and now more people, more agencies, more companies have been hurt!

We do not need an agency that claims to protect us and doesn’t! It gives us a false sense of security and therefore it hurts us not once but twice. I say, let’s get rid of these people once and for all. They don’t help us in any way shape or form. Please, OUTLAW THE SEC! That’s my opinion, and I’m sticking to it!

Problem Solving: Quick Fixes vs. Real Solutions

In the United States of America we have a chronic illness. We see that there is a problem, and immediately we begin to work on the solution to the problem. Wrong! What must be done first is to analyze and understand the problem so that when you’re expending your time, energy and resources on the solution you’re working on something that is viable and makes sense. Most of the time, the solutions that we come up with are based on guesses and end up being quick fixes that don’t last.

This most often seems to present itself in the energy conservation and production areas. We say, “Oh, gee…we’re going to be experiencing oil shortages or energy supply problems, we’ve got to do something fast to fix it.” If we put more thought into it, especially now when there are so many things that need to be fixed, we may find that we can solve even more than one problem at a time. Let me give you an example.

Currently, the run off from storm sewers mostly ends up in the ocean or other large bodies of water. The problem is – storm sewers pick up oil, tar, trash, animal feces and even decaying animal remains. All of that goes into our bodies of water – and much of those bodies of water are our drinking water sources. Now…if we could reduce the amount of rain that ended up in the storm sewers, then less of those contaminants would end up in the ocean.

You know, I remember that at my grandparents home when I was a boy, it was my job, when it rained, to wait 10 minutes for the rain to wash off the debris from the roof, and then to go out and switch the valve that directed the run off into the cistern that was in the backyard. Now, that water wasn’t put into the home water supply, but it was made good use of; they had chickens, and a garden that needed watering. The water did not go to waste.

Now, let’s jump forward to today, and look at any major city with a whole lot of rooftops. In the city, more rain falls on rooftops than on street surfaces, right? Why not collect the rainwater or melting snow into cisterns, or holding tanks in the building. Now, back on the roof…there’s an air conditioning system…I guarantee it. There is a cooling tower up there as part of that air conditioning system. The water needed for that cooling tower doesn’t have to be potable water, just clean. The water that we have in the cistern could be mildly filtered, and then provide the water for the cooling tower. Now, that’s a solution. There is no use of potable water that could be going into households, and we are saving the contaminant run off into the sewer systems. We’ve solved two problems with one solution…now that’s efficiency.

Folks, that’s the American way of thinking. This is the kind of stuff that we have to be doing. It’s not just finding new oil, cleaning up coal. It’s using our head. Our brains are our greatest asset, let’s start using them!! That’s my thought on the matter.

Market Analysis

Extended Stock Market Analysis Technical Basis; we use the S & P. The S & P in late ‘07 made an all time high. It then began a sideways and eventually downward movement that resulted in the low in November. The 50 day moving average was pulled down sharply and finally was penetrated decisively at the beginning of this month. It looks like the “January Effect” is in effect so far, but we’ll watch and update this next month. The 200 day moving average unfortunately is in the 1180 range, so yes, we’re above 900 but we have a LONG way to go to get back to the 200 day moving average. And there is much congestion. The VIX Index tells us perhaps we had more than just a significant low, but a true intermediate low in this multistage bear market that we will be in until at least 2012. So, we’ll keep you updated, but for now, I suspect the path of least resistance is up.

Crude Oil Update

Crude Oil since last summer has been in a steady down posture. Only in the last few days has it been able to penetrate its 15 day moving average line. The 50 day moving average will be crossed at $52, so watch $52 as that is a critical level. At that point it’s possible that we have reversed the downward trend completely, because as we were coming down we had a rally top between $50 and $52, so with the double cross of the old top and the 50 day moving average, technicians will announce that oil has been reborn. That’s what I’m watching and you should be too!

Natural Gas Update

Recent Gazprom pricing and delivery struggles has turned our interest to our old friend, the biggest bargain of them all: Natural Gas.

Natural Gas bottomed at approximately $5.50 give or take and has recently playing with $6. With the 50 day moving average at $6.25 a solid close of three days above $6.25 breaks the 50 day and establishes a pattern of rising tops and bottom. Finally we may have the bulls returning to the world of Natural Gas, my favorite commodity.

Gold Update

All that glitters is gold and that’s what we’re covering here. We’ve mentioned the bottom that occurred in October. We’ve established a series of rising tops and bottoms. We’ve penetrated the 50 and 200 day moving averages. We’re fighting with the top from September and October in the $900 – $920 range. Gold was rejected from that area and has pulled back to the neighborhood of the 200 day moving average line. I suspect it will be supported there and will set the stage to assault the $940 and then the all time high. By the time this calendar year is over, very likely we will see $1200 an ounce for gold.

The U.S. Dollar Index – Update

There is much talk in the electronic media of the war between the Euro and the U.S. Dollar debating which one is the weaker. Obviously neither of them is as strong as they should be, yet one has held the status of World Reserve Currency, and the other has been taking a bit of that glory. For now, we will focus our attention to the dollar index. From its .72 low last summer it rose to above .88, established a head and shoulders formation, broke the neckline, broke the 50 day, headed for the 200 day but didn’t get there, has rallied off of that and is now trapped between the 50 and the 200 day moving averages. I suspect that the war with the Euro will determine the nature of this index. Let’s us avoid it and use gold as our surrogate for the eventual weakness in the US Dollar.

DISCLAIMER:
We publish the No Bull Strategy Newsletter and Reports. It is a monthly newsletter enhanced with audio and video placed on this website in which we discuss energy, along with precious metals, base metals, minerals, commodities (George calls it stuff) and the financial markets.     Attention will be given to various mineral, energy, commodity and resource companies or products that George believes offer excellent investment potential. As an investor, you take advantage of direct frequent contact of companies and their officers. As a shareholder, you have a vested interest in the company.    Financial statements, corporate charters, board membership, contract details, and other critical information should be made available for close review upon request. "No Bull Strategy" is written and published by, "Zapata" George Blake and ContraryInvestorsCafe.com and is made available only for information purposes. In the past George has always owned, almost without exception, every stock that was recommended. In this letter it will be impossible for him to own every one. So this way, we will not, I repeat, will not, discriminate between them when he makes a recommendation, he may own it, he may not. But, you can rest assured that he have looked into it thoroughly.
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