Uranium Stocks: Driving You To Capitulation?
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Topic: Uranium Mining Stocks — August 12th, 2007
The recent volatility on the US stock markets has had a tidal wave effect on the uranium sector. The Dow Jones Industrial Average is down from a recent high of 14000 to close at 13239 on Friday for a loss of 5.4% in a couple of weeks.
Many of the more cavalier investors would have had to face margin calls on their investments which is a pressure you can well do without when trying to make a rational decision. The sudden need to raise cash results in the selling of everything regardless of its underlying asset value. This pressure combined with the correction of the uranium metal itself has caused a stampede for the exit amongst some of those holding uranium stocks.
Is it over yet? We don’t know. It could certainly be volatile for a few more weeks. The massive amount of liquidity that has been pumped into the market should have a calming affect, but that remains to be seen. A sell-off of this nature is usually typified by total capitulation, a time when investors just can’t stand it any longer so they dump their stocks in order to stop the pain. Last Friday could well have been such a day when we witnessed many uranium stocks taking double digit hits.
Now bear in mind that we have a vested interest as all of our money is in uranium, gold and silver stocks. We don’t have a bean in any other sector, a strategy that makes us slightly different from mainstream investors, so you may wish to ignore the following view.
When faced with a portfolio that has turned down in a big way and your losses are significant there are number of actions open to us. We can sell up, sit tight, or if we have the nerve and think that the worst is over, buy again. Our loss at the moment is a paper loss only, it becomes a real loss when we press the sell button. Our strategy is not to sell but to sit tight and look for for the bottom of this downtrend to show itself. At that point we will become buyers once again in an orderly fashion.
Uranium is the underlying asset and the price is still north of a $100/lb. When the dust settles the world will still want more energy than it has ever needed before. Especially in China where an industrial revolution for 1.3 billion people is currently unfolding. Incidentally, have you looked at the Shanghai Exchange Composite Index shown below? No pull back there. Our fixation with the US market, as the ultimate indicator needs to be reassessed, as China, India and the Asian tiger economies become the dominant forces going forward.
Uranium Stocks: A Gut-wrenching Week!
Uranium To Be Auctioned Next Week
Uranium Stocks: Is it turnaround time yet?
Uranium: To Catch a Falling Knife!
Ur-Energy Incorporated: On the floor?
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August 15th is the final day for hedge fund investors to file for quarters end redemptions. This should take some pressure off management which has liquidated positions indiscriminatly to raise cash. I believe that the most signifigant mortgage bond portfolio adjustments have been taken into account now with the floor being established by central bank guarantees of liquidity. Fundamental economics haven’t changed in the past six months as evidenced in recent global GDP. The Shanghai market nexus may be ‘ the tell’ in this irrational selling frenzy in western markets as that market is now the nascent ‘center of the industrial universe’ where raw industrial components are actually utilized. If there has been no slowdown in manufacturing and production then there continues to be a draw down in resource supply, ergo the mortgage market fiasco is merely a sideshow in the global economy circus. This may prove to be the pivotal moment in time where it is recognized that the the US market-centic hegemony crested and financial power shifted east. I will continue to buy across the resource market bottom in cautious increments, not knowing where the bottom is, while knowing that this is not a set up for a Malthusian catastrophe. As all major stock market corrections and crashes (for that matter) have proven to be a buying opportunity for the long term investor the underlying conditions may prove to be the strongest ally to a rational investor.
Comment by wayne — August 12, 2007 @ 6:40 pm
Excellent article, thanks. The comments from wayne are also much appreciated. They are akin to my own perspective and strategy, but even being long-term-oriented it isn’t easy to sit through a market like this.
Comment by tsl — August 13, 2007 @ 11:33 am
Well, on the chance that the stock market has a ways to go down, precipitated by the sub-prime lending fiasco and the broken-down real-estate market in the USA, and on the off-chance that the US market will directly impact many other worl markets, I, a long-term investor in Uranium stocks, having seen my portfolio whittled down to where it was 2 years ago, have decided that it is time to protect what capital is left until this thing sorts itself out. Preferentially, I think that prec. metals may be a better investment in the event there is a meltdown (hopefully not). Many thanks to the valued comments I have seen here.
Comment by Bob G — August 14, 2007 @ 3:02 am