General

With crude hitting $70+ and many traders thinking we go higher this summer I submit this article from the Daily Reckoning about how the successful folks from tech are moving into alternative energy. The market is now large enough that it is attracting serious capital and brainpower. I am a peak oil advocate, however i am not a doomsdayer like Kuntsler. If there is a market smart people will step up and solve the problems and make money to boot. One quote struck me from this article,

”Energy has got to be one of the top five problems the world faces, and it’s been frustrating to watch activists and politicians fail to solve the problem,’’ Metcalfe recently griped. “Now it’s time for the entrepreneurs and scientists to give it a try…The markets for the [alternative energy] products are huge. If you can get it right it’s really a market that’s infinite. We’re hopeful.’’

I hold several alternative energy stocks in my personal portfolio and my Marketocracy portfolio. I will post some of the ideas in the forums.

David Pauly from Bloomberg writes that the commodity markets must be near a peak because he thinks everybody is invested there.

Analysis: As usual the media gets it wrong. Has there been more intrest in commodities? Absolutely however as Jim Rogers pointed out there has been no investment in any infastructure or capacity in decades. Yes producers will react but it takes time to build a mine (10 years or more depending on the local) and as Rogers has pointed out, even if a large oilfield was found it would take years to bring it online. I think there will be corrections along the way but this thing is going to levels that will make the internut and housing bubbles look sane.…

Jim Rogers was quoted in Bloomberg yesterday and said the commodity bull has a long way to go. We here at the Real Deal like to follow the old adage of going where the smart money goes thats why we like Jim Rogers. This guy has made billions trading and he has been on this commodity supercycle theme sinec 1998-99.

He said,

“The shortest bull market for commodities lasted 15 years, the longest 23 years,’’ Rogers, 63, said in an interview. So if history is any guide, “they’ve got a long way to go.’’

“Supply and demand is terribly out of balance for nearly all commodities right now,’’ Rogers said in Singapore April 17. “This is not a bubble.”

“Nearly everything makes a new all-time high in a bull market,’’ said Rogers. He didn’t predict when gold would reach $1,000 an ounce”…

More confirmation on housing deflation

Housing-Deflation

It looks like the mainstream media finally have started to pick up on what is being reported in the blogshere about the slowdown in housing. CNN has an article about the slowdown but still trys to qualify it by saying “it might just be there could be an element of self-selection, with agents suffering a slowdown more inclined to vent.” What will the FED do as this becomes apparent to even them? If the FED stops rasing rates or even has to cut rates what will happen to the dollar support? How will China and Japan react to a rapidily devaluing dollar? I think gold is sniffing this out.…

Oil hits record

Price IncreaseI know the mainstream media says its a “terror premium” or its about Iran. Quite frankly my view is more demand then supply. Yes there are disruptions in Nigeria and there are still facilities in the GOM offline. Couple this demand with the FED money pump and all commodiites are heading higher. Are we heading for $100 per barrel?…

We will dump the VPU the Vanguard Utilities ETF for a 4.2% loss. We bought it with the expectation that repealing PUHCA would unleash mergers in the utilities industry. Things have not worked out as we hoped and with interest rates rising we will move on to better deals.…

Despite concerns expressed by federal regulators about the growth of nontraditional mortgages, their popularity among borrowers continues to rise, according to statistics released yesterday.

About 26 percent of mortgage loan originations by dollar volume in the first six months of 2006 were interest-only loans, according to the Mortgage Bankers Association, a trade group in the District. Such loans do not require borrowers to pay down the principal.

Analysis: Anything to keep those hpuses moving. So the FED will raise rates on these people. I don’t think so.…

Clive Maund theorizes that the recent silver action may be a precursor to a “superspike” like back in 1979-80. As he cautions, these events only happen once a generation. I would argue that it would not suprise me and we are positioned for a spike. I think the odds favor a pull back as we are way overbought at this point. However I am ready to let the market tell me what it wants to do.…

The reason for this revisit to the “BRIC” story is the enormous amount of press about the “burst bubble” in commodities this month.  It’s an important, some might say, critical, topic.  How we should act and react in the market is intimately related to the type of market we are in.  Viewed in isolation, a bear market rally will look pretty much like a small piece of a bull market rally.  But while you might be looking for periods of weakness to accumulate positions in a bull market you’d be much more likely to be watching like a hawk for any weakness as a sell signal in a bear market rally.

Much of chatter recently focused on “unsustainable” growth in China.  This is said to prove the point that commodity prices have to fall.

We won’t know just how long China’s (or India’s or …) secular expansion lasts until it’s come to an end.  What we do know is that if it looks like recent periods of above trend growth in the region, namely Japan and South Korea, it will last for at least 25-30 years.

This is not wild eyed optimism.  Similar growth periods moving through mass industrialization in both Europe and North America had similar time frames.   That is about how long it takes to move to and through the process and to upgrade infrastructure (both public and private) to the level where it becomes sustainable.   There is absolutely nothing unusual about the length of the China expansion and we expect the one just starting in India will fit the pattern as well.

Analysis: We can see the historical patterns or generational growth and infastructure buildout ie Japan and South Korea. We can reasonably say the same dynmaics will play out in the BRIC countries thereby underpinning long term commodity prices. Once Wall Street figures this out we should a revaluation of the commodity stocks.…

Cameco Corp., the world’s largest producer of uranium, said Monday it was unable to control water flowing into its Cigar Lake project following a Sunday rock slide, and it expects all underground areas to be filled with water.

The company said it evacuated everyone by 11:30 a.m., and it will investigate options to restore access to the mine. Cameco said it is committed to the project, and it will develop new timelines for construction, cost estimates and production forecasts. The mine was originally slated to start production in early 2008.

At 5 a.m. Monday, Cameco closed two bulkhead doors to try to protect the project’s main shaft and key underground infrastructure. The company later, though, found one of the doors did not seal properly, allowing significant water to flow into the processing area.

Cameco said it is adequately positioned to meets its contractual obligations, as it has supply interruption protection in contracts.

Analysis: Well this is no the best of news. This mine was scheduled to come online next year and produce 18 million pounds per year. This is one of the hazards of mining. There are two paths forward for us sell now or hold on ride through this and have confidence management will fix the mine and bring it online in 2008. I am inclined to hold as I have confidence uranium and nuclear power is the only way to go for mass power generation. It will take a few days to digest this information and get a feel for where the stock should trade. You will notice this news got the other uranium stocks to rally hard as this is just makes a bad supply situation worse. I think you can pretty much count on a supply squeeze in uranium. Buying Uranium Particpation Corp. could be a good play here if you do not own it. In summary, I am a long term bull on uranium and I want to own the largest uranium miner so I will hold and add if the stock were to drop enough.…