Curried Wealth Building
Finding an Edge

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September 25, 2010
Issue 115  -  Let's Be Different
 
 
 
 
 
With Gold hitting a new high (not inflation adjusted) and silver hitting a 30 year high (not inflation adjusted) it would be easy to guess that I'm going to talk about the metals.  Well, I'm not going to do that.  I am going to talk about a metal, just not gold or silver.  Remember, if you're running with the pack, and the pack is running with gold (at least for now), you're probably not making money.  So with that in mind, I thought I'd look at a metal that's been down and out for the last couple years....uranium.
 

 
Uranium is not yellow as you might think.  It occurs naturally as a silvery white metal.  It is only mildly radioactive and unstable.  It constantly breaks down, hence the term half-life.  The most common use by far of this element is power generation.  Just about everyone has heard of the Three Mile Island and Chernobyl disasters.  The Three Mile Island problem was far more tame than Chernobyl which was just about a full blown melt down.  A melt down occurs when you can't control the fission state.
 
Typically, the uranium (normally isotope 235) is placed into a fission state which releases enormous amounts of heat.  Water is then used to cool the reactor to prevent a run away situation where the energy and heat get extreme and the uranium actually metals through the outer casing of the reactor which is catastrophic.  The heat from the water turns a turbine, either with steam or pressure and this powers a generator.  Here is a graphic:
 
 
 
The current types of reactors, such as pebble bed reactors are very safe and have incredible safeguards.  People protesting these reactors over safety concerns are just uninformed or worse. 
 
We have enough uranium to power the earth for hundreds of years.  One pound of uranium has 3 million times more energy than one pound of coal.  That's why it's virtually the only way to go as far as long term energy production for electricity.
 
Another misconception about uranium is that because it is so powerful that only a little is used for reactors.  That is false.  There are about 440 current reactors and they require 184 MILLION pounds of uranium a year!  That means each reactor uses about 418,000 pounds a year.  There are currently 59 reactors being constructed with 149 more planned and 344 proposed.  Presently the uranium production is just not keeping up with requirements.  The difference is being made up form stockpiles.  As these new reactors come online, the disparity between supply and demand will widen.  In case you believe that a rising price in uranium will curtail demand and drive the price of the energy produced up, you must realize that the uranium is a VERY small part of the costs involved in running a plant.  This means higher priced for uranium will have very little effect on demand.
 
So how much does uranium cost?  Here's a chart:
 
 
 
As you can see there was a massive spike in price in 2006-2007.  This led to uranium stocks skyrocketing.  These stocks crashed after the price of the metal crashed.  What caused this drop?
 

Uranium Spot Price Reaches $120/lb After Futures Launch 

 
  • Jon A. Nones
Published 5/7/2007 

St. LOUIS (ResourceInvestor.com) -- TradeTech increased uranium spot prices to an all-time record of $120 per pound in anticipation of today's startup of futures trading on the New York Mercantile Exchange. The June contract hit $140/lb in its first day, with January 2008 U308 trading at $150.50/lb, raising the question of whether futures will trace the price of uranium or lead a life of their own.

A Ux Consulting Company (UxC) spokesperson told RI that as the current date gets closer to the futures settlement date, “you’re going to see the gap narrow” between the spot price and the contracts.

In mid-April, NYMEX signed a 10-year agreement with the UxC to introduce on and off-exchange traded uranium futures products on the CME Globex and NYMEX ClearPort electronic platforms. Today’s launch marks the first uranium futures trade in history.

The contract trades under the symbol UX with a minimum contract size is 250 pounds of uranium U3O8. It will be a financially settled contract with each month settling on the corresponding spot month-end U3O8 price published by UxC.

However, the new NYMEX futures market will involve financially settled contracts that are separate from the physical uranium market. Traders won't take possession of the commodity, but they can take title of it and receive exposure to its price.

 
Hmmm......the price of uranium crashed after the launch of futures?  Why would that be?  It couldn't be because the futures were used to manipulate the price could it?  That's exactly what happened, just like gold and silver.  The price was running unencumbered, and the PTB just couldn't have that. 
 
There is also another price of uranium, the long term price.  This is the price negotiated between miners and buyers on longer term deals.  That price is currently about $60/lb, which is 50% higher than the "spot" (bogus price).
This manipulation can be used to our advantage as the uranium stocks have been beat down over the last several years to a pulp.  So what do you buy?  There are two ways to go: big and safe, or small and risky.  The blue chip of uranium stocks is without question Cameco (CCJ)  They are gigantic and profitable.  They are like Newmont mining is to gold. 
 
 
 
If you want to buy something nonsexy, this is the way to go.  If you want a chance at a huge winner, than a smaller company is the answer.  (of course, this is the way I'm going)  My choice for uranium is Denison Mines (DDN)  They are on the American Stock Exchange and have over 300 million shares.  This means the stock is very liquid with a million shares traded a day.  This also means there are lots of shares for sale which can have a negative effect on the price.  They are debt free and have over 80 million dollars as of June 30.  They have current production from three mines.  The stock was over twenty dollars at it's peak and now it sits at about $1.75.  The peak price may have been unrealistic, but I believe the price now is just as unrealistic on the low side.
 
They have properties in Zambia, Mongolia, Canada and the United States.  This gives them a very diverse production pipeline.  The also mine Vanadium, which is used in steel as an additive.  The only real negative here is the share structure, especially at sub $2 a share.  Hopefully, the price moves up to create a more attractive entry point.  Remember, many mutual funds can't buy very cheap stocks.  I believe this has hurt the performance of the shares.
 
Technically, they had a very favorable chart breakout recently.  Technical analysis is used to look at the price movements and try to predict the future movements.  Although I don't hold technical analysis in great respect, there are a few "patterns" or "events" that seem to have some predictive value.  One of these involves the moving averages.  To calculate a moving average, you take the last 50 days of price closes and add together, then divide by 50.  This gives the 50 day moving average.  A 50 day moving average crossing and staying above the 200 day moving average is generally a great sign.  That is what just happened in DNN over the last couple weeks.
 
 
 
I would view any shares bought under $2 as a real good value at this point.  This probably won't be a rocket stock, so patience will be required here, but I believe the cycle for uranium being strong is starting back up.  Denison has a real strong production pipeline that goes out to 2018.  In that year they plan to start production at their Wheeler River property.  This is located in Canada in one of the most prolific uranium mining districts in the world.  There is a chance that Wheeler could be one of the largest uranium mines in the world.  This won't be known until more drilling is done, but it is quite large.  Denison owns 60% of this beast and will run the mine.  Please do your own due diligence.  There are presentations and conference calls posted at their web site.
 
 Well, I lied.  I am going to talk about gold and silver, but just to show a couple charts: (from www.sharelynx.com)
 
 
 
This should put to bed once and for all, the nonsense that gold is in a "bubble".  In the context of other bubbles, it is just getting started.  We may well see gold and silver at the top of this chart before all is said and done.  As far as manipulation, here is a chart from Adrian Douglas:
 
 
 
What this shows is a correlation between the gold and silver price movements.  Gold is essentially money while silver is more of an industrial metal.  Silver is consumed, while gold is held.  These two metals should show some correlation in price movements because both will follow the rises and falls in the value of the dollar.  However, this plot shows a correlation that is nearly perfect.  Unmanaged markets DON'T move in tandem.  This is clearly an algorithm in action.  This just shows how controlled things are in the metals.  Too bad this isn't an isolated instance. 
 
In related news, the bank shenanigans continue: (from Zerohedge.com)
 

GMAC Halts All Foreclosures In 23 States On Heels Of Florida Judge Finding JPM Committed Court Fraud In Mortgage Misappropriation

Submitted by Tyler Durden on 09/20/2010 08:39 -0500

As we pointed out last week, a certain judge in Florida set quite a precedent when he found that JPM, as servicer for a Fannie mortgage, had committed court fraud by foreclosing while not in possession of the actual mortgage. We then concluded that "The implications for the REO and foreclosures track for banks could be dire as a result of this ruling, as this could severely impact the ongoing attempt by banks to hide as much excess inventory in their books in the quietest way possible." Not a week has passed since, and we are already proven right. Today, Bloomberg discloses that GMAC Mortgage, a unit of the affectionately renamed Ally Bank, has halted all foreclosures in 23 states, including Florida, Connecticut and New York. Who would have thought that being caught with your pants down, doing something so blatantly illegal as collecting on something you do not own, would actually have adverse consequences. And GMAC is just the beginning - we expect many more mortgage servicers to scurry now that the light has been shone on their shell game. The silver lining - the permabull pundits will cheer this development now that foreclosures will plunge off a cliff as mortgage holders and servicers scramble to reconcile who owns what, and just on whose balance sheet the mortgage flows should show up.

From Bloomberg:

GMAC Mortgage may “need to take corrective action in connection with some foreclosures” in the affected states, according to a two-page memo dated Sept. 17 and obtained by Bloomberg News. Ally Financial spokesman James Olecki confirmed the contents of the memo. Brokers were told to stop evictions, cash-for-key transactions and lockouts, regardless of occupant type, with immediate effect, according to the document, addressed to GMAC preferred agents.

The company will also suspend sales of properties on which it has already foreclosed. The letter tells brokers to notify buyers that the company will extend the closing date on all sales by 30 days. Buyers will be able to cancel their agreement to purchase and get their deposit back, according to the letter.

Expect panic out of the banking crime syndicate once this story hits the MSM.

 
You see, to foreclose, you need to have the deed.  You also need all documentation to be legally signed.  Because our system is so fraudulant in relation to mortgages, the deeds are who knows where and numerous documents were signed by processors illegally.  Now, a trend is arising where judges are telling these shysters that they need to show the deed and all documentation or they can't foreclose.  Of course, this is slowing the housing price correction which MUST happen to flush the system and reach a new equilibrium, so this is only delaying the inevitable.  This isn't the only shady behavior from the banks:
 
More U.S. banks skip latest payment on bailout aid

CHARLOTTE, North Carolina (Reuters) - More than 100 U.S. banks failed to pay an August 16 dividend on bailout money they borrowed from the U.S. government, signaling that the number of banks struggling to meet obligations under the program is rising.
The statistics, compiled by SNL Financial L.C. from U.S. Treasury data, show 115 U.S. banks skipped the August 16 dividend payment required under the Trouble Asset Relief Program, or TARP. The figure is a 26 percent increase from May 2010, when 91 banks deferred that payment.
While most major U.S. banks have paid off the government's temporary investment, roughly $130 billion is invested in more than 600 smaller banks.  Smaller U.S. lenders are still coping with high real estate-related loan losses in the wake of the housing crisis. Profits have become a rarity, crippling the ability of banks to pay dividends to both private and government investors.
The results were the fourth straight quarterly increase in the number of banks missing their required dividend payments to the U.S. Treasury. The total number of banks skipping payments has increased 109 percent from November 2009, when 55 banks skipped the payments.
The program, introduced in the autumn of 2008, injected billions in taxpayer money into U.S. banks in the form of preferred investments the banks could repurchase over time. Banks, however, are allowed to defer dividend payments to a later date.
The SNL Financial data shows 28 banks deferred their first payment at the August 16 deadline, up from 23 who skipped their first payment in May.  The banks that skipped the August payment received $3.6 billion in total TARP funds, or 1.8 percent of the money disbursed through the bank investment program.
So the beat goes on as the looting of the American tax payer continues.  If the banking system was "saved" by TARP, why are the smaller banks having so much trouble?  The answer is that TARP only saved the big banks.  It protected the big money interests.  That was the ONLY reason for it.  Anything else was irrelevant.  This will continue until the system blows up.  I only wish I knew when that day would be.  
 
I found an editorial that was so eye opening, that I pasted the whole thing and I highly recommend you read it.
 

Washington Times Editorial

We Can't Affford this Government

Whether by design or incompetence, the Cloward-Piven Strategy lives. Named after two leftist professors at Columbia University, the scheme calls for overwhelming government obligations to the point of collapse, therefore providing an excuse for a radical government takeover of the whole economy. Three news stories yesterday show the Cloward-Piven day of reckoning is creeping perilously closer.

First came word that new jobless claims last week jumped above half a million, a number so large that one economist said "it looks like the economy ran into a wall." Second came a Congressional Budget Office estimate that this year's federal deficit will be well above $1.3 trillion for a second straight year and remain above $1 trillion next year as well - causing as much debt in three years as government built up in the previous 219.

Third came the announcement by Americans for Tax Reform (ATR) that yesterday was the 2010 "Cost of Government Day," which is "the day on which the average American has earned enough gross income to pay off his or her share of the spending and regulatory burdens imposed by government at the federal, state and local levels." Just two years ago, Cost of Government Day fell an astonishing 34 days earlier. This year, the average American worked 231 days just to support government, which consumes 63.41 percent of national income.

If anything, ATR underestimates the problem. Of those 231 days, 74 are taken up by regulatory costs. But that includes only the direct costs of new equipment and labor time required by government red tape. "Not counted are ... hidden costs" (such as discouraging new business investment), according to ATR, that "may be as large as the direct compliance costs of regulation. Economists at Washington University in St. Louis, leaders in the study of regulation, estimated these costs to be over $1.5 trillion per year in 2009."

Taxpayers foot the bill for an increasing number of government workers at outrageously growing wages. ATR reports that federal employment has increased by 230,000, or nearly 5 percent, in just the past year. USA Today reported Aug. 10 that federal pay and benefits per employee now average more than twice that of private workers: $123,049 compared to $61,051. Federal salaries outpaced inflation in the past decade by 33 percent.

Such government extravagance is unsustainable, and all this doesn't even take into account the $115.8 trillion of unfunded liabilities in Social Security and Medicare, as calculated by Michael D. Tanner of the Cato Institute.

The United States is headed toward financial collapse unless these trends are reversed. The radical change needed is not a government takeover, but a significant downsizing of government's intrusion into our economy and daily lives.


So the people had to work for the "man" for 231 days????!  Yeah, that's sustainable.  Let's see how long that lasts.  Maybe that system collapse is closer than we think.
 
I've been meaning to post a picture or two from Jamaica and here they are: 
 
(Riley and Tanner at sunset)
 
(Riley, Jean, me, and Tanner headed out to the reef)
 
 
I'll close with a picture and a video.  First look at the picture.  This is Victoria Falls which just happens to be about 354 feet high and is one of the 7 natural wonders of the world.
 
 
 
Now watch this video and realize it was taken from the top of the falls.  Have a great week!