Global Outlook

Isolation Musings

Contributed by eResearch

By Bob Weir

I am writing this lying in a hammock in Killarney Park, one of Ontario‟s most beautiful provincial parks, and made famous by Canada‟s Group of Seven.

The sun is shining, there is a gentle breeze blowing, and I am looking out at the white-quartz La Cloche Mountains. The world of High Finance seems a long way away. I wonder, because I do not know, what happened in the markets these last few trading days. (Nor do I know who won the World Cup.) Right now, in this idyllic nature‟s bliss, I couldn‟t care less. Funny, isn‟t it, that watching the market, minute-by-minute, hour-by-hour, day-by-day, can be excruciatingly intense. But here, in the absense of radio, television, newspapers, and, most of all, cell-phones, it is all about relaxing. Really, nothing matters. (However, by the time you read this, I will have been transported back to reality.)

Regular readers of The Clarion and its colleague, Stock Market Timing, will know that we are looking for a short-term upwards bounce in the market before expecting it to trend lower for a while. To us, the market still has to digest the spate of unfavourable economic matters that lie ahead.

We think it would be catastrophic for the U.S. consumer to return to the overt spending/miserly savings routine that has existed for decades because, eventually, it would perpetuate the vicious economic mess we now find ourselves in. The U.S. consumer (and those of other spendthrift consumer nations) have to reduce their spending and increase their savings, while consumers from the emerging countries, notably China, have to spend more and save less. This could/should/will happen, but it will take time, years. Ingrained attitiudes do not change that quickly. Until then, U.S. consumer spending is not likely going to pick up until the housing market brightens (that could be a while since there are an increasing number of ARM (adjustable rate mortgage) resets that will occur over the next 12 months) and the job market improves (we need the U.S. unemployment rate down to at least 7%, preferably 5%).

As those obstacles are being achieved, the market will also be looking for signs that the USA, and most European countries, are acting positively with reducing their deficits.

Thus, the market has a lot to deal with in the months ahead. For these reasons, we are not anticipating a sustained bull starting again until 2011, maybe even 2012.

That is not to say that there will not be opportunities for making money in these volatile markets. But investors will have to be nimble. It is not likely going to be an investor‟s market, one of buy and hold. So, don‟t be greedy. Pick reasonable price targets and stick to them, unless there are extenuating reasons why not.

Okay, so what should we focus on?

Our preferences are: (1) energy, comprising (a) oil; and (b) natural gas; (2) gold (hard not to go with this with all the global economic turmoil); and (3) uranium.

As stated many times in The Clarion, longer term, uranium eventually has to be a sustainable bull market component. Right now, the market is ignoring uranium, and uranium producer and explorer stocks. One day, whenever it might come, the market will wake up and realize the long-term implications of all of the many nuclear reactors either commissioned to be built or actually now being built in so many countries of the world.

Demand and supply, of any commodity or service, is the primary component that drives prices. For uranium, there is long-term increasing demand. On the other side, supply is limited and is not increasing in lock-step. From start to finish, because of considerable government hoops to jump through, it takes about ten years, on average, plus or minus, to bring a strike through to production.

The world needs more uranium exploration, development and, ultimately, production to meet the increasing global demand. With no large short-term increases in supply, as demand picks up, there is no place for uranium prices to go from here but up.

There is an old investment adage: “Buy „em when no-one else wants „em.” This is so true for uranium stocks right now.

One last word: in the June 28 Clarion, in considering what sectors or commodities seemed to offer investment opportunities, I wrote, “For the future, my bet is on wheat, currently depressed because of poor weather affecting the growing season.” Since then, the commodity has risen 7%. This augurs well for agricultural and agriculture-related stocks.