Here below is the section in IKN97, out yesterday, on Uranium and how we expected it to get hit today, but we also consider the medium-term and that doesn’t look so bad.
Enter the wild cardLast week’s massive earthquake in Japan now presents one of those “now what happens?” events for world markets. Though not an ideal situation, part of analysis is to separate human distress factors from the cold, clinical world of money and markets and think about the financial consequences of moments such as this. Here, in a preliminary way, are a few thoughts on what might be in store for the metals end of business (the one junior miner portfolios care about):1) Uranium will sell off in the very-short-term and with it we’ll see selling of U producers and junior exploration plays. But let’s keep things real and note short, medium and long term scenarios (i.e. all with the potential for making or losing money) before we start running around waving our hands in the air. Short-term I expect U-exposed issues to drop, whether the exit be orderly or full-on dumpage, whether it be for knee-jerk or rational reasons. It matters not whether the sell-off is for rational or irrational reasons, from smart profit-taking of winning positions or from the we-are-all-gonna-die brigade. U will drop. Medium-term, my personal opinion it that it depends on which way China jumps. On that I call that China will keep on its aggressive U development on track, note how well the Japanese reactors have stood up to a 9.0mag quake on their doorstep, calm its own people (the only opinion that really matters to its Politburo) by noting the lack of tectonic plates where it’s planning to build its next generation of power suppliers, put a backbone in to the market and U gets back its mojo. Longer term is more of a world scale rather single country scale and the Fukushima situation gives energy policymakers another reason to look beyond uranium as mass scale generation of choice and towards alternative energy sources. This might be played up by sector interests in the coming weeks (solar companies may tell you to love solar now, geotherm likewise), so join any budding hype on those if you feel the need (repent at thy leisure afterwards…switchgrass, anyone?). So in other words, my only real call is for a short-term knee-jerk reaction to last week’s events and a wholesale dumpage of U stocks, which is a pretty pathetic analysis. As the timeline lengthens it’s tougher to make a proactive money call. My best guess is that uranium business might see some of the froth blown off but if bargains may appear at the quality end of the market they should be good trades for those with patience. Final point: As for the ‘sleeper facto’r of uranium stocks hardly moving last week even though talk had started to build about Japan’s nuclear power problems, it’s worth checking this screenshot below showing how the word “meltdown” didn’t trend much until after the Friday markets had closed. Then suddenly it was featured in between 1 and 3 of every 1000 tweets…and that’s a lot of tweeting, people. So get ready for your dose of irrational.
As for gold (and therefore the other PMs or pseudo-PMs that follow its lead), my current playbook…
IKN Back: The gold/PM and then base metals thoughts are being kept for those on the subbers’ list, but suffice to say the first part of those playbooks seem to be happening as well. DYODD, dude.