Helicopter Ben Bernanke Strikes Again

November 11, 2007 | By | 2 Replies More

Proceed with Extreme Caution

Another week of crazy market gyrations brought about by “Helicopter Ben Bernanke” and his merry men of the Fed. It really does look as though the old Greenspan trick of lowering interest rates to pick up the economy is past its sell by date.

Whichever way you look at it the US economy is in dire straits with a likelihood of worse to come.

What seems to have made the difference in the opinion of this ignorant observer is that in the past the world had confidence in the dollar as the reserve currency despite its occasional setbacks. That American business flair coupled with the nations large natural reserves including farming, a substantial manufacturing base and being the worlds major financial center would win out in the end.

This confidence seems to have evaporated with that gorgeous Brazilian supermodel putting another nail in the dollars coffin. As they say “all good things must come to an end”

At last it seems that even the inward looking optimistic US stock market bulls are becoming aware of the outside world and the dangers to their investment portfolios presented by a dollar that is falling through the floor, a financial sector rapidly losing credibility due to excessive greed and risk taking and an economy unraveling in the face of declining consumer spending and colossal personal debt.

That leaves the rest of the world in a bit of a pickle. The old established Western economies will, as always, follow the US lead with the possibility that Canada and Australia will suffer least. The BRIC countries, the Middle East and other oil exporters are likely to continue to flourish although to a lesser extent which brings us to gold, silver and PGMs.

Without the backing of a sound and stable reserve currency to act as a yardstick, trading throughout the world could become fraught with difficulty.

Fortunately the world still recognizes gold and silver to be the universal currency as it has been for millennia despite government interference from time to time. Most recently the US followed by the rest of the world going off the gold standard!

There is every possibility that in the current deteriorating economic climate that gold will soar to $2000-3000 or even more before the decade is out.

No doubt sooner or later the Fed, the IMF and world bankers will have to attempt to come to the dollars rescue, whether they will achieve anything more than partial success will be in the lap of the gods but for the time being gold will reign supreme.

But here is our word of warning

Many institutions, funds, banks, large and small investors are showing big gains from the gold, silver and PGMs in their portfolios while at the same time facing up to losses and potential losses in other sectors. The chances are that there will be a wave of selling, maybe this coming week, maybe next week, who knows, but gold may well go to as low as $750-775 before resuming its steady march upwards.

It probably is not a good time to buy into gold until this correction takes place but if I could time the market with any accuracy I wouldn’t have to earn a crust by writing this piece.

A Fresh Look at Uranium  

Despite the lingering objections of “the greens” it is becoming more and more obvious with each passing day that nuclear power is the only feasible and practical option available to provide a solution to the dangers of global warming. With coal the only available fossil fuel left in relative abundance on our planet and despite significant advances in cleaning the emissions from coal fired power stations, the pollution problem is far from solved. Then there is the expense of mining the vast amounts of coal that will be required with labor not least of the difficulties.

In the meantime we are told that uranium demand in 2008 is likely to exceed supply by as much as 25million pounds or more.

So we continue with our long-term bullish outlook for all things nuclear with renewed optimism and have some suggestions on how to play the uranium market.

Our favorite is Cameco (CCI), it is an established producer and unlike many in the sector pays a dividend. It has had flooding problems with its “Cigar Lake” mine that could come on stream by the end of 2008 but there are some conflicting reports so don’t bank on it. When mining resumes this facility is expected to provide 10% of world output. It is also worth noting that when metals are in an up trend, the producers percentage price rises outstrip the rate that the metals rise.

As the bull market in metals has been in place for over three years, producers are not hedging their positions by forward selling to the same extent, if at all. A necessary practice during the previous twenty years when prices were low to insure them against exposure to the hazards of producing below cost. With uranium set to rise further this will benefit their bottom lines

Tracking the uranium price is an attractive alternative and we like the look of the Uranium Participation Corp (CN:U) a Canadian fund that buys uranium oxide and hexafluoride.

The French company Areva (CEI) is the worlds largest nuclear engineering group. It is the world leader in designing and building nuclear power stations, processes nuclear waste, manufactures fuel rods and is also an uranium miner. With an estimated ten new nuclear power stations coming on stream by 2010 and continuing to grow in numbers annually the prospects for this firm are outstanding.

A little more speculative but with an experienced management and mining in politically safe North America is Denison Mines (DNN:). It has a substantial portfolio of exploration properties and has plans to increase production five-fold within the next five years.

It should be noted by our readers that this writer has a financial interest in the above mentioned companies. 


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Comments (2)

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  1. dave0 says:

    Good stuff this. I enjoy your “rants” !
    I been trading gold futures for the last 3 years. In late Jan this year I went long again and have decided to roll the position long term.

    For buying the real thing I think fidelitrade.com are worth a look. And yes, do yer own storeage in the present environment imo.

    Here’s a little tip. If you look back at interest rates over the years the stock market has almost always trended down with lowering of rates, once any initial reaction is spent out. No doubt in my mind the Fed will have to continue to lower rates for a long time to come. Not sure how they manage the USD in this scenario!

    Great tips for Uranium, I must look at that. Keep up the good work !


  2. John says:

    Hi Dave

    Thanks for that.Your pertinent observations are
    of great interest.

    You are absolutely correct that after the first flush of enthusiasm for an interest rate cut, reality sets in as awareness of the reasons for the cut come to the fore.

    Simply all is not well with an economy that has to be bolstered "Greenspan" style by rate cuts.
    You could be right about future rate cuts but things are somewhat different this time round.

    Inflation, and the extreme weakness of the US economy reflected in a plummetting dollar might just make the Fed bite the bullet, particularly as Bush is on the back straight.

    Another post today as we were not quite quick enough off the mark in expecting a pullback in gold.

    We look forward to hearing more of your opinions and experience.

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