Uranium supply is about to plummet

Two years ago, the uranium industry got crashed following the Japan's tragic Fukushima disaster due to an earthquake. Japan virtually shutdown all its nuclear reactors. Similarly German and other EU countries also announced to shutdown their nuclear reactors gradually over the next few years. The demand for uranium has been plunging, so is its price. The spot price of uranium dropped from $90/lb to currently around $30. Needless to say, the ming companies for uranium got killed and have been struggled to survive. But there is a good chance that this downward trend is about to reverse and those who get in early in the trend will likely make a lot of money.

The thing is, the world still needs nuclear power and cannot afford to not use it. Actually nuclear power is the most efficient and green energy source. Even the founder of the Greenpeace, Patrick Moore, has said, "Nuclear energy is the only non-greenhouse gas-emitting power source that can effectively replace fossil fuels and satisfy global demand." Due to the severe shortage of energy, China and other Asian countries have planned to build more nuclear power stations, 30 more for China alone. Believe or not, even Japan is likely to reverse its policy to restart some of its nuclear reactors. After all, it is a huge cost of importing liquefied natural gas (LNG) for Japan to maintain their power supply. In the US, over 100 nuclear reactors are running and more are to be building. In other words, the demand for uranium is not decreasing but increasing, and significantly more in the years to come. So how about the supply? Not many people know, the uranium supply is going to be hit very hard pretty soon, actually in about a month in Dec. Why so? Well, 20 years ago in 1993, the US and Russia signed an agreement, so-called Megatons to Megawatts program. Under this agreement, the highly enriched uranium contained in ex-Soviet nuclear weapons was downblended and converted into nuclear fuel. So it is a win-win situation: the US got the nuclear fuel it needed and Russian got the hard cash it was longing for. It is said this source of uranium accounted for about half of the fuel needed for the US commercial nuclear power stations. But this agreement is ending in Dec 2013. You see, suddenly there will be a huge crunch of the uranium supply in just a few weeks. So what will happen to the uranium companies in the situation of very poor sentiment but very high demand however with drastically reduced supply? I think it is a no-brainer: it is bullish, very bullish.

I like Cameco Corp. (CCJ),  the largest pure-play miner of uranium and one of the world's largest uranium producers. It accounts for over 16% of the world's supply. CCJ has been struggling in the past two years with the stock price cut half, but the momentum is behind it now to go up. I think it has bottomed and will shoot up soon.

Macro: The Bottom Line (11/25/2013)

The Highlights:

• Fed creates more commotion; but low rates are here to stay
• China signals looser grip on the yuan
• Iran nuclear deal - another blow for oil 

Fed creates more commotion; but low rates are here to stay: A week after Yellen's uber-dovish Senate testimony reassured markets, the Fed dropped another bombshell that sent dollar bears scrambling for cover for the n-th time this year. This time, it was the minutes from the FOMC's end-of-October meeting, which implied that tapering (i.e. a scaling-back of the Fed's monthly money printing) was just around the corner, and could even begin in December. Market observers, who had pushed back their projections for the start of tapering to March, were caught off guard. But before reading too much into this, let's step back and think about what tapering means. It merely slows the pace of the Fed's money printing, it doesn't reverse it. Even once the Fed stops printing, that doesn't mean its near-$4 trillion balance sheet will shrink. No, the Fed - especially under the leadership of a dove like Yellen - will not risk a still-sluggish economic recovery by tightening anytime soon. All the liquidity pumped into the markets over the past five years will stay, and the era of the ultra-low fed funds rate will continue. So don't come rushing back into the dollar!

China signals looser grip on the yuan: Early in the week, China's central bank governor Zhou Xiaochuan was quoted as saying that the world's second-largest economy would "basically" end currency intervention, and that the case for stockpiling FX reserves is no longer as strong as before. What does this mean? Well, as a refresher on what China has been doing in the past: for years, due to perennial trade surpluses and capital inflows, dollars had been flowing into China en masse, putting upward pressure on the yuan. To counteract that, Zhou's People's Bank of China printed new yuan to soak up all those dollars coming into the country, thereby artificially weakening the RMB. Importantly, because a lot of the reserves were recycled into US Treasuries, it kept the US federal government's cost of borrowing at manageable levels. Now, with China trying to reform its economic model, Zhou appears to be hinting that China will at least ease up on the policy, allowing the yuan exchange rate to be more market-driven (read: appreciate even further). True, this could lead to some short-term pain for Chinese exporters, but they're not the ones who should be most worried. That distinction belongs to the congressional lawmakers and Mr. Obama halfway around the world in DC. Why? With the end of Chinese reserve accumulation, financing the US twin deficits has become that much harder.

Iran nuclear deal - another blow for oil: Over the weekend, the five UN Security Council members plus Germany reached what was hailed as a landmark agreement with Iran. After years of confrontation and hostility, an agreement came into being that would loosen sanctions on Iranian exports of precious metals, in return for the Islamic Republic restricting its uranium enrichment activities. While the agreement is modest in scope (and does little to free up Iranian oil exports to the West), it marks a remarkable change of tone between Iran's new moderate President Rouhani and the Western powers. Suddenly, the specter of war in the Middle East and the Persian Gulf has diminished (notwithstanding some saber-rattling from Israel). Speculation leading up the agreement had already put significant pressure on oil, with WTI crude falling below $95 during the week. Coupled with the Obama administration's backtracking from intervention in Syria, and the fracking boom in the US, the "perfect storm" for oil only looks set to continue for now.

My cool feet have cost me dearly

Sturm, Ruger & Company (RGR), founded in 1949, is the biggest gun maker in the US by sales. Sturm produces hundreds of thousands of firearms annually for hunting, target shooting, collecting, self-defense, law enforcement, and government agencies. With a market cap of $1.4 billion, RGR trades over $75 a share and a PE of 14.5, which is still cheaper than the overall market's ratio of about 15. It has a 16% profit margin and a return on shareholders' equity of an  eye-opening 64%. It is paying a 3.10% dividend even at this high price and may be one of the best dividend paying companies at the moment, considering its booming business and relatively cheap valuation.

I wish I had known this long before today and had not let this cash cow slip away from my fingers. Unfortunately my cold feet cost me dearly. Shortly after the financial crash in 2008, I saw an analysis about RGR, the first time I had heard about it. It was said that gun sales would likely go up much more during the financial turmoil and the coming US policy on gun control could further triggered people to rush to buy guns before too late. I figured that this did make a lot of sense and I used naked puts to have actually obtained RGR at a very good price, around $10 (red circle below). However, in the next few months, RGR did not behavior as what I had expected and even went under water for a while. I got cold feet and lost patience as well. So I sold it with a little bit profit when it bounced back a little. Since then everything has become history for me. If I could stick to this great company, even during its difficult time period, I'd have made a fortunate on it. I have really missed a huge pile of money, almost 8 times the cost I paid and I would have earned probably over 15% of its dividend based on my initial cost. DAMN IT!

Don't repeat my mistake and for companies with sound business fundamentals, stick to it even during their difficult time periods. I hope RGR will correct significantly soon so that I can get it again for years to come.

The next Apple in biotech

3-D printing is a revolutionary mega trend currently ongoing. It is still at its early stage but it may repeat what has happened to the creation of Internet and its impact ensued to the whole world. Of course, this is a very big trend touching all the aspects of the human activities but its application to medicine, so-called Bioprinting, could be one of the most important ones. Actually, using this 3-D bioprinting technology, scientists have already created create artificial airways and cartilage, but future innovations may bring in greater potential for revolutionizing medicine.

One small company is clearly the front-runner in Bioprinting and if it can maintain its momentum and continue with new exploration of this technology in various innovations, it may become Apple in this field, leading the super trend of 3-D Bioprinting. I’m talking about Organovo (ONVO). There are two areas in the foreseeable future that ONVO could make some breakthroughs:
 

·         Organovo is developing its first commercial product due in 2014: bioprinted liver tissue. For people like me and many of my friends who have been involved in drug development, it is well known how costly it is to successfully bring a drug to the market for a company. In average it takes over 10 years and over $1 Billion. One major cost is the high failure rate due to drug toxicity and liver toxicity is also one of the most common and important one to determine the fate of a drug. If a company can freely print 3-D liver tissue that can be used by the company to test drugs on their potential toxicology problems at the early stage, it will be a huge cost saving for the company. The market is huge beyond imagine. The next product line for Organovo is bioprinting of tumors.  Organovo is currently working with Oregon Health and Science University's Knight Cancer Center to use 3-D bioprinting to generate tumor models. This kind of 3-D tumor models can mimic the actual physiology of the tumor and therefore can dramatically improve the drug development process with respect to testing new cancer drugs.

·         The longer term of more aggressive use of the Bioprinting technology is to create new human organs for transplantation. As we all know, the medical technique for organ transplantation has been very mature but the critical bottleneck is the source of organs that are available for waiting patients. Unfortunately many patients cannot wait till the time when the organ becomes available and pass away prematurely. If printing live organs becomes a reality, which I’m sure will be sooner or later, organ transplantation will become a routine operation to save life of millions of patients. The research and development in this area is certainly actively underway in Organovo.

Of course, I’m not saying you should buy Organovo immediately as its price has been chased up dramatically in the past few months. It will likely be very volatile. This is a very long term trend and along the way, it will be very bumpy for ONVO. Remember, Apple has come to the brink of bankruptcy at least two times before it becomes what it is now. Those with the faith, persistence and courage to accumulate more shares of Apple when it plunged like a stone are the ones who have become rich with Apple. I think there is a good chance that ONVO will follow a similar path. If it is indeed on sale someday, consider to get in.

Paid-off to be lonely

The plane maker, Boeing, was the big winner at the opening day of the Dubai Airshow, landing $100 billion in orders, twice that of Airbus. Its share price got boosted by adding $2.28 to $138.36 yesterday. Is it really a surprise for us?  Boeing seemed to have endless problems early this year but I told you to take the opportunity to buy when everyone hated it. If you did, pat yourself for an almost double in less than a year. What's more? Yes, you've also got a higher dividend yield at 2.6% based on your original purchasing price, regardless how high its share price has gone up. I bet you will get even more dividends moving forward. After all, if its bottom line is secured, you will for sure get more pay from it.

As I have shown you again and again here in my blogs, don't be scared by others' reckless herd behaviors. When everyone is doing the same thing, it is almost sure you will win by going against them. Being lonely is one of the most important and critical characteristics a successful investor must have. It is not easy but it is essential! Try to learn it.

Macro: The Bottom Line (11/18/2013):

Starting this week, Red Bull Money Talk will be posting Macro: The Bottom Line, a weekly column covering the top macroeconomic movers affecting the markets today. The inspiration behind this column is simple: in an age of unprecedented policy intervention by central banks and governments alike, it's impossible to make isolated investment decisions without considering the broader picture. But with the likes of Bloomberg, CNBC, WSJ, FT etc. bombarding us from all sides with information 24/7, how do busy working professionals like you keep track? This column will present you what you need to know, without the frills.

• Yellen comments signal no change in Fed's easy-money policy  
• China introduces bold reforms, but the devil is in the implementation
• Spain exits its bailout, but Eurozone issues not over yet

Yellen comments signal no change in Fed's easy-money policy: Despite all the hype leading up to Fed Chair-nominee Janet Yellen's confirmation hearings, her initial comments to senators on Capitol Hill last week revealed little that we didn't already know. In a nutshell, Yellen repeated what she and her mostly dovish colleagues on the FOMC (including outgoing Chairman Bernanke) have said over and over again: without strong signs of growth, the Fed's printing presses will stay on. And we'd better take her word for it. For all the panic over "tapering," it's worth remembering that Yellen is an unconditional believer in an activist Fed. The era of easy money is here to stay, and don't expect any rate hikes from the Fed anytime soon. What we've been warning about on this blog from the start - that (1) inflation is set to trend higher over the long-term, and (2) favor gold and real assets over the dollar - remains very much the case.

China introduces bold reforms, but the devil is in the implementation: The key measures unveiled following the Communist Party's Third Plenum meeting included: (1) allowing farmers to buy, sell, and collateralize land; (2) loosening the household registration system to facilitate migration to urban areas; (3) scrapping the one-child policy under certain conditions; (4) upgrading the role of the private sector in the Chinese economy. In a nutshell, the idea of these reforms is to lift the purchasing power of ordinary Chinese consumer, halt the demographic ageing of Chinese society, and sustain the country's growth momentum. All very noble goals, and the reforms are certainly a step in the right direction. It's too early to pass judgment though, as these reforms will not be fully implemented by 2020. And the details on other key areas - such as reining in the shadow banking system (which now eerily resembles the CDOs and ABS markets of the pre-Lehman US) and tackling surging local-government debt levels - remain lacking. So the risk of a financial crisis in China still cannot be ignored. But these risks aside, the reform efforts in China are nonetheless a positive development. In fact, they serve as another reminder that the sources of growth will increasingly come from the world's emerging markets, and not from a nation governed by a dysfunctional Congress and "kick-the-can-down-the-road" policies.

Spain exits its bailout, but Eurozone issues not over yet: It's true, you've seen quite a lot of Euro-bashing in this blog. But we see the need to do so again in light of the Eurozone finance ministers' decision this week to allow Spain (yes, that's not a typo) to exit its 100 billion-euro bailout program. True, the situation has calmed down, Spanish bond yields are no longer at stratospheric levels, and the bleeding in its banking sector has been bandaged. But does this mean that it has fully reverted to being a "normal" economy? It suffices to look at the the 25%-plus unemployment (more than 50% for youths), the hundreds of billions of euros of bad loans on bank balance sheets, and the absence of a viable growth model (after years of a construction-led boom) to answer the question. The broader issue is that markets appear to be taking the European Commission's bait, and the Euro currency has recovered the 1.35 mark against the dollar. Don't read too much into it - while Europe appears to have stepped back from the brink for now, the region's economic misery is set to continue.

Royal Gold - A gold company never mining gold

Royal Gold (RGLD) is a precious metals company with royalty claims on gold, silver, copper, lead and zinc at mines in over 20 countries. It is the best gold company with no mining risks whatsoever. Why so? You see, RGLD is not a traditional gold company engaged in exploring and producing gold; rather it is simply collecting gold at extremely low prices. How could that happen? Well, what RGLD does is to finance the early stage small gold mining companies when they desperately need money and in return, instead of simply collecting fixed interests on the money lent out,  RGLD will get certain percentage of gold at a much lower price than the market price when the company starts to produce gold. And RGLD shares none of any political, economic and operational risks any mining companies must face. Right now in its portfolio, RGLD has got 36 mining properties producing gold already and additional huge line up of other companies still working towards gold production. Since RGLD collects more and more cheap gold and sell at much higher market prices, it has become a hugely profitable gold company. At a market cap of over $3 Billion, tell me how many employees you think RGLD should have?  21 people for the whole company!

Right now, RGLD is paying 1.9% dividend but since you can bet that it will get more and more gold moving forward, its dividend will be going up substantially in the future. In the past 5 years, it dividend growth rate has been around 25% and I think it will be more in the future. RGLD is definitely one of those companies I absolutely must have for my retirement portfolio. I don't care if its share price may fluctuate or not. I know holding Royal Gold is just holding a gold mine, from which you can collect more and more golden eggs.

Gold is struggling at the moment and RGLD has plunged 60% along with it. It is now at a much reasonable price.  I think it is a great time to accumulate  RGLD shares. You will regret 10 years from now if you don't act now.