Black Gold

In this post I am going to talk to you mainly about the demand side of the oil market. It is another one of those topics that can't be discussed thoroughly in one or two posts, but you have to start somewhere.

Whether it be common knowledge or not, Asia, specifically China and India, are growing and industrializing at an extreme pace. Their increase in demand for oil and other natural resources is souring. Right now I would like to focus on China and its demand for oil. From 2005 to 2006 China’s oil imports jumped a WOPPING 45%. If you were to put this on a basic graph you would see the extreme amount of exponential growth of this number. I did just that and came to the conclusion that at a growth rate of 45% /year, in 10 years, China will need approximately 1600 barrels of oil for every SINGLE barrel that they use today, and that’s just China!!! India is experiencing the same phenomenon. These numbers are a result of the Chinese people basically coming out of the dark ages. They are assimilating to western customs: buying cars, buying houses, and consuming resources like they have never done before.

Let's talk about the United States. When it comes to oil consumption per capita, we are the King. We dominate this statistic and have for a long time. There are two main reasons for this. The first is our life style. Americans love their gas guzzling SUV's, we are inept in the mass transportation department, and our day to day activities require huge amounts of energy. The other reason has to do with the U.S. military. The U.S. military is the single greatest energy/money consuming entity in the whole world. Iraq is not near and any end. The situation is hostile at best in Iran. The U.S. military wil run and run until we can't deficit spend to run it anymore.

Conslusion: China, India, and other countris in the process of mass industrialization are going to need huge amounts of oil and other natural resources to achieve their goals. The U.S. has several years to go before the military and/or American citizens cease to use the amount of energy that they do. This all means higher prices, and is why I'm invested in oil.

There will be a detailed piece on the supply side of the oil market coming soon.

Uranium Through the Roof

Trade Tech:

The quest of buyers to secure uranium at fixed prices continues to fuel the price rise, with any spot material offered up by sellers creating a “feeding frenzy.” As a result, the spot price for uranium jumped $7.00 this week to $72.00 per pound U3O8—the single largest increase reported since NUEXCO began publishing prices in 1968. Bids were due December 15 to a US producer auctioning 260 thousand pounds U3O8. Other sellers, in anticipation of future price increases, have grown increasingly reluctant to release material into the market, and thus competition for the auction material was expected to be aggressive. Meeting this expectation, competition was indeed fierce, as buyers exhibited a willingness to pay a strong premium in order to purchase material at a fixed price. The producer received multiple bids with the winning bid at, or very near, the December 15 Uranium Spot Price Indicator of $72.00 per pound U3O8.

Analysis:
I have been holding off on buying uranium because my funds are limited. Right now I'm sure glad that I have some money tied up in U308 mining. I originally thought the take off was going to be slower and more gradual over time. I figured that I had more time to get in the market. Honestly, I sure didn't see this happening. It looks as if the public caught on sooner than I thought. I thought uranium would hit $100 /lb around 2010. I would like to take that back. I see $100 /lb for uranium in 2007.

No More Melting

The U.S. Mint has now banned the melting of pennies and nickels. That's right, the pennies and nickels in your pocket are now worth more melted down. A nickel is 25% zinc and 75% copper. The metal in the nickel is worth 6.99. Including the cost of production, it costs the government 8.34 cents to produce a nickel. The modern penny today is 2.5% copper and 97.5% zinc. The metal is worth 1.12 cents and with the cost of production, it is worth 1.73 cents. If you own a penny made before 1982 it is made of 95% copper and 5% zinc. It's value being 2.13 cents. The penalty for melting pennies or nickels, up to 5 years in prison and/or a $10000 fine.

What to take from all of this. First off, the value of american currency is not even worth what it costs to make it any more. Secondly, I find the whole thing slightly humerous. The things the government does...

Housing Bust

When it comes to the housing market there is SO much information and its consequences carry dire results for the U.S. economy. In the coming weeks I will have a number of posts regarding the topic. I will try and keep this post and all the posts that follow regarding the housing market specific on a point or two. I apologize if I stray a little bit, I promise it will happen, but I will try to keep things concise.

I would like to keep this post focused on the recent history of the housing market and its future outlook as well.

from 2000-2005 the housing market saw unprecedented growth. A record growth at that. From 2002-2005 the housing market had a 100% increase in overall home values. That is a mind boggling increase. Too good to be true? You bet. After the stock market crash in 2000, the feds felt that they needed to do something, because after all, the only thing the feds are good at is printing money and shifting liquidity. What was their answer? Lets shift the liquidity that was in the stock market to another sector, housing. Their tool for doing this came in the form of low interest rates making it easy for the consumer to get a cheap loan in order to buy a house.

This created a large artificial demand in the housing market. Sure enough, it took off. Like I said the result of the "easy money" offered by the feds resulted in the largest real estate bubble in the history of the world. Just like the stock market bubble the housing bubble has now popped. There is a large difference between the two bubbles. The stock market affected people's savings and investments. These people at least had savings. The largest asset for most Americans is their home. Not all of these people are responsible and have savings. In fact, a lot of U.S. citizens weren't saving, but they were doing the opposite, using the equity on their house as a credit card. I know I'm straying off topic but I don't care, this is important stuff. With home owners taking out equity (spending it on cars and boats) and owing a large mortgage on the house this makes them vulnerable. Vulnerable for what? Negative equity. The housing bubble has popped and home values are dropping at an alarming rate. People are being left with more debt on their house than it is worth. Uh oh. They are then forced to sell. That bring us into the next discussion.

The housing market today. Home median prices are dropping like crazy every month. This is a simple micro theory, with more and more people selling their homes because they can't afford them, the market is being over supplied. Supply and demand tells us, the more supply there is, the lower the price is. That's exactly what we are seeing today. The census bureau tell us that 2.5% of homes in America are now sitting empty. The bureau started keeping track of this stat in 1956. Since that time, this stat has never been higher. That means at least a 50 year high in percent of homes sitting vacant.

So, the irresponsible, out of control deficit spender. No I'm not talking about the U.S. government, but the naive home owner who wants that 40' boat. I guess like father like son. Anyways, the homeowner with a negative equity on his house is forced to sell into an absolutely volatile market. They aren't going to get what they want for the house because it's not worth what it once was. They can't afford to stay they can't afford to go. Don't worry, I'm getting to a point here...bankruptcies and lots of 'em.

How about the future outlook for the housing market. Expect a WHOLE lot more of the above mentioned bankruptcies. For the market itself. It still needs to regress back to the mean. I said earlier that in 3 years the average price of homes in the U.S. grew 100%. Houses, historically, have grown 1-2 points above inflation. So a conservative estimate would mean that the housing market has to drop at least another 50% in value before it can turn up again.

Like I said, there will be many posts coming regarding the housing and its effects on the U.S. economy. Stay tuned.

New Addition to the Portfolio

Today I added a company call Oilsands Quest Incorporated (BQI: AMEX) to the portfolio. I really like this company for a couple of reasons. The company has assembled the largest oil sands exploration in Canada. They have recently announced that they are ahead of schedule on their drilling. Canada is moving up the charts when it comes to oil production. They are going to be a strong producer/exporter in the coming years. With the volatility in the mid-east, Canada will become quite important for oil imports here in the U.S. All of the experts have said that there is no bitumen in Saskatchewan. Oilsands Quest proved that theory to be way wrong. They found bitumen, and a lot of it. They are sitting on some huge reserves and are expected to be producing by 2008

Uranium Outlook

Uranium might be the biggest no brainer out there. Anyone who has taken freshmen microeconomics and knows how a supply and demand graph works could look at the data regarding uranium and come to some quite positive conclusions. It is simple, there is a whole lot of demand and not a whole lot of supply. This major shortage has shown in the price of uranium. This year uranium price has increased 70% and is now trading at $65 /pound. Over the past 3 months is has increased 70%. The nuclear fuel hasn't had a down month in over 5 years. It is currently trading at a 26+ year high and has outperformed the eight most popular precious and base metals (gold, silver, platinum, palladium, aluminum, copper, zinc, and nickel.) According to most popular theories, this is just the beginning. Most people see another 100% rise in Uranium over the next few years.

Right now, around the world, there are 28 new nuclear reactors under construction, with plans of another 62 to be built. By 2010 Japan looks to have 11 more reactors and China looks to have between 24-30 more nuclear reactors by the year 2020. This is the driving steam behind the nuclear fuel.

Like I said, there is a huge gap between uranium supply and demand. There is about 180 million pounds of demand for uranium and only about 140 million pounds of suppy available. Being that the uranium isn't going to just appear out of thin air, there needs to be new sources of production. When the price of uranium was in the single digits, it forced many of the mining companies out of business. The problem is that mines don't just appear over night. It takes capital, exploration, management, drilling, and finally milling the final product called "yellow cakes." These numbers show a shortage of uranium until AT LEAST 2013.

This year alone in the U.S. we have increased uranium production by 63%. In my opinion, uranium spot price won't react with the same action that precious metals will this upcoming year. Being that my funds are limited, I will contiune to put money into gold/silver during the rest of 2006. This is because I feel action in the precious metals market will kick into gear faster and harder than uranium. Uranium prices will be held back until the public realizes the severity of the shortage in the nuclear fuel. In the mean time there is no safer investment than uranium. I am invested in a company called Uranium Resources, but there are a few others that I feel are quite promising. If you would like to know more feel free to email me. I am always more than willing to take reader questions.

I would like to say that I am NOT a financial planner and encourage the readers to do their own due dilligence and research. I share what I know and what I research with you, but, like I said, do research. There is a lot of money to be made here. The train hasn't left the station yet, but I can here them yelling "last call for boarding."

My stocks,

U.S. Gold Corp. announced today that it will be traded on AMEX. The propable date of the open on the American Stock Exchange will be Dec. 11. This is great news for share holders.

I would like to make a brief statement about the stocks on the ticker. Those are stocks/etfs that I own. I am a college student, on a college budget. Every spare penny I have is invested. I also own physical silver and gold bullion.

GLD, streettracks gold trust, is a gold etf. It is approximately the equivalant of owning 1/10 of an ounce of gold. A lot of people are against holding "paper gold." In my case it is very expensive to buy ounces of the yellow metal, so I am left with the etf as an option. I do believe, when shit hits the fan, that you don't want anything to do with "paper gold." I plan to use it as a trading tool and riding the waves as the come and go over the next year. After reading a lot of charts and data I plan to ride the etf until gold hits around 850-870 U.S. dollars. At this point i feel that it will drop somewhere between 5-7%. I will sell at, what I believe to be its first peak, and get back in at around 730. There will be some ups and down on golds rise to greatness. By just holding one can accumulate substantial wealth in the next 10-15 years. I plan to try and maxamize my profits and play the market. We will see how it all goes, and I will keep you updated. Expect to see some great action in the precious metals market the first half of 2007 when the coming recession becomes official.

If you don't believe me, believe China

I am quite bullish on commodities, particularly in energy and precious metals. I love gold/silver and anything to do with them (ETF's and Mining). I like oil refineries, being that I believe oil is going to 100$ /barrel sooner than later. I REALLY like uranium producing companies. I believe that uranium is just about the biggest no brainer out there. And I'll tell you what I'm bearish on, and that's the dollar. I am not going to go into the details on this post of why I like or dislike curtain investments. I just want to inform you of what I think at this point. Why take my word on it? Don't. It doesn't bother me...but do you believe China? China's gold consumption is set to rise 17% this year. They are bull on gold. Xia Bin, head of financial research of the Developement Research Company, a think tank for the Chinese cabinet, "It's practical for the Chinese to increase it's holdings of gold." China is currently putting a
$100 billion dollar investment into an Australian uranium project. They are bull on uranium. China is currently putting $100 billion dollars into a natural gas/oil investment in Iran. They are bull on natural gas and oil. China is bull on commodities. Now the U.S. dollar. China is by far the largest holder of the U.S. dollar in the world. They have more of it the our own government does. Of the $1 trillion Chinese surplus, approximately 72% of it is in the dollar and dollar related assets. They accumulate the dollar by selling goods to the U.S. and in turn taking the dollars that they get and investing them in U.S. bonds. Being that China is the largest holder in the U.S. dollar I think it is necessary to watch their actions regarding the greenback. Do you think that they will let the nation's surplus drop by 1/3 or even 1/2. No way. They are diversifying away from at and buying commodities and other, more stable currencies. This is bad news for the U.S. dollar. Like myself, China is bull on energy and precious metals. They are terrified of the dollar. If it wouldn't create a world economic crisis, they would get rid of it all today. So, if you don't believe me, believe China

Too good for the business cycle

Over the past few years, the Feds have decided that they are too good for the business cycle. The only things they are interested in is the short run economy and keeping a positive spin on things. This results in eventual economic disaster, which is just on the horizon. What are the Feds good at? Creating bubbles and shifting liquidity. There was the stock market bubble...eventual crash. There is the housing bubble...now crashing. These artificial bubbles, often created by low interest rates, always end up popping. It is a simple economic concept called regressing to the mean. Let's look at housing briefly. After 5 years of unprcidented growth, the housing bubble peaked and is starting too look pesimistic. All of the crap that you hear on CNBC, CNN, and other news channels about the housing downtrend being almost over and having a soft landing is a load of crap. Most of these economists that are saying this load of jargin are on the payroll of some real estate firm. They spin this, because they get paid to spin it. So we haven't seen nothing in the case of real estate. Without getting much into the specifics of the whole ordeal what does it all mean? All long overdue recession, and what I believe to be a depression coming. When will this occur? Well I strongly believe we are in a recession now, but it will be public in the first half of 2007. The action of the Feds will be to immediately lower interest rates, once again bending the American consumer over. Higher interest rates are the last pillar holding any value that the fiat U.S. dollar holds. How far will the dollar drop...really low. Maybe 1/4 or 1/3 of evento 1/2 of its value today. Instead of riding the recession out responsibly, they are going to try and inflate through it. BAD BAD BAD for you and me. That will be the straw that sets us into depression. Ouch. Not allowing the business cycle (which is not a naturally occuring cycle, and is something we created) to act accordingly carries dire results. And that is exactly what the Fed is doing. Have a nice day.