Commentary and analysis on markets, personal finance, and wealth building from a contrarian perspective. "I believe in the discipline of mastering the best that other people have ever figured out. I don’t believe in just sitting there and trying to dream it up all yourself. Nobody’s that smart."
— Charlie Munger
This is what I wrote to subscribers of the Actionable Intelligence Alert this past weekend:
Well I suppose I better talk about uranium. First let’s look at the charts of our two holdings.
The meltdown in Uranium prices and stocks is a fallout of Japan
A couple of things to note before I get to what I am doing with these two. First the news media, because of the need to fill 24 hour news cycles is hyping this thing beyond what is reasonable. The amount of death and destruction that was caused by the earthquake and tsunami is taking second place to the hysteria about these nuke plants. There is a serious issue with these plants however one must remember that these 40 year old plants survived the earthquake ( the fourth most destructive ever recorded by the way) and were only compromised when the tsunami flooded the plants and knocked out the electrical systems and backup generators precluding cooling of the reactor storage pools. In fact in reactors 5 and 6 where a diesel generator has been supplying power to the pumps there have been no issues. It now appears that the Japanese are slowly but surely gaining ground on solving the power issue and hopefully will be able to get cooling water returned to the plants. I do not think there is much danger of a Chernobyl event. Yes there has been radiation released and there will continue to be releases until they can get the rod storage pools under control. As the Japanese get this under control it will begin to fade from the front pages although there will be some longer term fallout among firstworld countries. (no pun intended)
As this is a financial newsletter the question must be asked how this affects nuclear power going
forward. The facts are that 90% of the new builds of reactors were going to occur in China, India, and Russia. I think there will be some discussion about increased safety and lessons learned but in the end these countries will proceed with their build out. They have no choice as continued economic growth is incumbent upon large scale electricity production and nuclear power has to be in the mix. I am sorry but you cannot run a large scale manufacturing economy on solar panels, windmills, and Al Gore’s pizza farts and the Chinese, Indians, and Russians are rational and know this. In fact the Chinese have already said that they are watching the situation and although they are suspending permitting of new plants I believe this is just political window dressing. The Chinese are pragmatic and they will continue to build plants. Politicians in Germany and here in the US are already getting in front of the camera and grandstanding about how they are either going to shut plants or are declaring nuclear power is dead. That is fine as the western welfare states are in decline and whatever they intended to do with nuclear power was never part of my investment thesis to begin with. So what am I doing? Well as this is a newsletter that is focused on speculating on mispricing of assets, I am buying. As Baron Rothschild said you have to buy when there is blood in the streets. This is no different than when the Macando well blew in the Gulf of Mexico last year. BP and the oil drillers got crushed. If you realized that the world was not going to end and that oil use was going to continue to be in demand and that BP was stronger financially than most sovereign states you sacked up and bought them. The result was an eventual return to normalcy and a significant recovery in the share prices. Here is a chart of BP. The returns were even better in stocks like Ensco, Anadarko, Diamond Offshore, and others that had nothing to do with the spill.
The uranium stocks rallied hard today as things are becoming less bad in Japan. Quite frankly a 40% sell off was not warranted even if Japan had a worse case scenario which it does not.