Amidst the Budget Carnage

August 21, 2013

  • Supply and demand way out of whack for “the most undervalued major metal”
  • Peculiar priorities in the defense budget: Byron King unpacks the investment angle
  • Silver Eagles on track to set a sales record… but when will the Mint stop rationing them?
  • Protesting Detroit’s fire sale… what we learned from Bradley Manning… crying out at “manipulated markets”… and more!

  “The price ought to move,” declares Byron King, “because it has to move. The most undervalued major metal just now is uranium.”

You can put it on a calendar: Dec. 31, 2013, is when 13% of world uranium supply comes off the market.

For the last two decades, the U.S. and Russia have been dismantling a portion of their Cold War nuclear arsenals. The highly enriched uranium has been “mixed down” to a grade suitable for commercial nuclear reactors. This Megatons to Megawatts program comes to an end when the calendar turns to 2014.

  “Come 2014, when 13% of global supply vanishes,” says Byron, “I’m worried about ripple effects across the entire energy sector. I expect dislocations in markets. I foresee downstream users scrambling to make up supply gaps.”

For the moment, however, Byron’s concerns are not shared in the spot uranium market…

“The current price for uranium,” he says, “is weak enough that there’s almost no incentive for outside capital to flow into the industry and build new supply. Meanwhile, the low spot price threatens future mine output because some weak players will have to scale back operations or close pits.”

Meanwhile, “there are over 100 working commercial nuclear power reactors in the U.S. Worldwide, there are about 430 commercial nuclear power reactors operating in 31 countries. Just China has 28 more nuclear reactors under construction.

“In addition to commercial power units, there are about 240 research nuclear reactors around the globe in at least 56 countries. At sea, there are about 180 naval reactors powering over 150 ships and submarines. Every one of these nuclear units requires an identifiable source of uranium.”

100 “When the looming uranium shortage comes home to roost,” Byron concludes, “the spot price should rise quickly and sharply.

“It could happen almost overnight, considering that we’re coming to the end of the year. Who will benefit the most when spot prices rise? Companies that have the most unobligated material to sell into that spot market.” Byron suggested one in particular to his Outstanding Investments subscribers last week; PRO-level readers of The 5 can scroll down to see one handpicked by Dan Amoss.

  “The government just spends it wrong,” says Byron, pivoting to the peculiar priorities in the defense budget and the investing opportunities that result.

Byron spent a couple of days in the belly of the beast last week — both on Capitol Hill and at the Pentagon. “The country is getting rid of soldiers who know how to fight,” he says, “in order to buy super-expensive equipment that can’t do the job.”

As the “sequester” grinds on, “the budget musketeers are running spreadsheets on how to reduce pay for troops and cut back on things like housing allowances and retiree health care. It’s grim.”

Meanwhile, “the country needs to recapitalize its defense equipment. That is, we fought two Middle East wars with tanks, trucks, airplanes and ships that date back to the 1970s, 1980s and 1990s. Much of the nation’s equipment is worn-out.

“We get into nasty procurement situations, though. Consider the problematic F-35 airplane that’s supposed to do everything but can’t (don’t get me started). Or the even more problematic littoral combat ship that’s also supposed to do everything but can’t (ditto). God forbid that we buy more submarines that CAN do astonishing things. Or recapitalize the space satellites that are fast running out of service life.”

  And yet… “amidst the budget carnage,” Byron adds, “there’s funding for true innovation.

“There’s a revolution going on in the world of atomic-scale materials. And it’s investable.

“I’m not talking about little, teeny-tiny incremental improvements in this legacy system or that. I’m not talking about a tweak here or there. None of this ‘5% increment’ stuff. Nope. Not at all — although the new tech will doubtless find its way there, too.

“I’ve been a student of military issues and technology for nearly 40 years — 31 of them associated with the U.S. Navy, on active duty and in the Reserve. I’ve been around big systems, big technology, big procurements and big money. And I have to confess that this next era of military technology is hard even for me to characterize.”

Byron hasn’t even let on to us what he has up his sleeve. But he says it’s as big a deal as when ancient warriors stopped throwing spears and started shooting arrows. That big. He plans to reveal all to readers of his new publication, Byron King’s Military-Tech Alert.

As you know, his latest premium advisory has been in limited release for the last six months. Tomorrow, it will be available to everyone. Keep an eye on your inbox for a special introductory offer.

  So much for Dow 15,000. The big index is set to log a sixth straight losing day if it stays in the red by day’s end.

The low-volume grind downward could be arrested — or accelerate — depending on what turns up in the minutes from the Federal Reserve’s July meeting. Those will be released around the time you receive today’s 5.

In the meantime, traders are chewing on a massive jump in existing home sales — up 6.5% in July, according to the National Association of Realtors. In a refreshingly candid report, the NAR attributes the rise to “panic” over rising mortgage rates. Gee, ya think?

  Precious metals have spent the last 24 hours oscillating within a tight range. At last check, gold was $1,370 and silver has just recovered the $23 level.

  U.S. Silver Eagle sales are almost certain to set a record in 2013.

The previous record was 39,868,500 in 2011. So far this year, 31,896,000 Silver Eagles have exited the Mint’s doors. “If present demand continues and our weekly allocations of between 800,000-900,000 coins remains constant,” the Mint’s acting director Dick Peterson tells Kitco, “we’ll set a new record for sales in 2013.”

Supplies are still being rationed to the Mint’s dealer network. Peterson says with demand peaking in 2011, flagging in 2012 and surging again this year, “this volatility makes forecasting extremely difficult, as demand is driven by external factors beyond the Mint’s control.”

Gold Eagle sales, meanwhile, total 684,500 ounces year to date. The total last year was 753,000.

[Note for collectors: The folks at First Federal have secured a supply of limited-mintage 2013 Silver Eagles — both proof and NGC-graded virtually perfect gem 69 uncirculated. The mintage is so limited Nick Bruyer says the situation is comparable to 1995: That year’s Proof issue cost $200 at the time and is worth $4,000 today. If you missed out then, here’s your second chance.]

  We hold our head low today. A young man who made possible a considerable amount of fodder for you here in The 5 is going to prison for 35 years.

Private Bradley Manning learned of his fate this morning from a military judge about 20 miles south of the Agora Financial HQ at Fort Meade, Md. Manning’s crime? He handed over 700,000 classified government files to WikiLeaks.

Hero? Traitor? Say what you want about the guy. Were it not for Manning, the world would have never learned…

  • that the man who became China’s premier this year considers China’s official economic statistics “man-made” — and if he wants to know what’s really going on, he looks at only three things — electricity consumption, rail traffic and bank lending
  • or that U.S. diplomats take a keen interest in Chinese media claims that the U.S. and Europe suppress the gold price to prop up the dollar’s reserve-currency status
  • or how the State Department under both Bush and Obama colluded with the Spanish government to hose Odyssey Marine out of $500 million in Spanish gold and silver coins the company’s explorers discovered off the coast of Gibraltar.

Seeing as even the government witnesses during his trial conceded no one was killed as a result of Manning’s leaks… we daresay the world’s a richer place for them.

  “Everything in Detroit is up for grabs,” Detroit resident and artist Jerry Vile tells the art blogazine Hyperallergic, “from Belle Isle to the DIA’s collection — our culture.

“Kind of like the Old West, even the water rights could be on the table.”

Last we mentioned Detroit’s sell-off, the city’s sights were set on the masterpieces in the Detroit Institute of Arts. We also noted the public backlash of the “everything goes” mentality: Vile is one of the more vocal critics of the fire sale.

“Not long ago,” Salon writes, “artist Jerry Vile placed a giant Crisco can in front of the Monument to Joe Louis, a giant sculpture of a fist in downtown Detroit, as a lewd but hilarious and spot-on commentary on the city’s bankruptcy.”

Last week, Mr. Vile struck again by hanging oversized DayGlo “sale” tags on Detroit landmarks such as the Spirit of Detroit and the famous The Thinker statues.

His latest work can be found plastering Page 3 of the latest Detroit Metro Times issue…

A full-page satirical ad titled, “Motor City Going out of Business Sale!”

“Personally, I think the message is too dire and situation is too sad to call the pieces I did a prank,” Vile wrote. “It’s like an Op-Ed piece.”

Vile has since sold the Crisco can on eBay for $1,300, giving the money to a local charity. That is, after offering to donate the piece to the city, “but for some reason that we can’t understand,” Salon jeers, “they didn’t want it.”

  “That was very interesting,” a reader writes after we took a critical eye to second-quarter earnings on Monday, “but you are overlooking an important item.

“The very important item is that you can’t depend on the stock market, because it isn’t being used to invest in the future or even in a company. It is being played as if it’s a giant game of craps. These day traders are in and out, up and down. They buy because it’s someone’s birthday and sell because it’s raining. There is no rhyme or reason behind their thinking. They play this exactly like they were in a casino and much of what they do is on a hunch.

“As long as people are selling and buying on how Tiger played yesterday or if Lindsay Lohan got arrested again, it’s going to be difficult to understand where the market is going.”

The 5: “You can rail all you want about manipulated markets, conspiracies and such,” our Chris Mayer has long said, “but at the end of the day, you have to accept the market as it is.”

Chris points out complaints like yours are not new: In the years before World War II, investors railed about the market “pools” — an early type of hedge fund — conspiring to run roughshod over the retail investor.

“The only real advantage an individual investor has,” says Chris, “is his ability to sit on his hands. He doesn’t have to report to anyone quarterly or monthly about his results. He doesn’t have to play the performance game. He can buy what he likes at what prices he wants and wait to sell at prices more favorable.

“I think there are many other stocks in which you could just sit and be much richer, say, three years hence.” Or if you really want to be lazy about it, you can wait 10 years and see your money multiply 20-fold.

Cheers,

Dave Gonigam
The 5 Min. Forecast

P.S. “Does President Obama know what his own government is doing or is he actively lying?” reads an aggrieved post this morning at Firedoglake.

The president may tell Jay Leno “we don’t have a domestic spying program” but today’s Wall Street Journal tells us the NSA scans 75% of all U.S. Internet traffic in the hunt for “foreign intelligence.”

“In some cases,” says the rag, “[the system] retains the written content of emails sent between citizens within the U.S. and also filters domestic phone calls made with Internet technology.” Unlike the systems revealed by Edward Snowden, “this set of programs shows the NSA has the capability to track almost anything that happens online, so long as it is covered by a broad court order.”

We’re not sure what else we have to say to urge you to take a few basic steps to keep the snoops away. Maybe you think it’s too complicated. But as the expert we recruited explains, it’s easier to take back your power than you think.

rspertzel

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