Uranium Price

The price of one lb of U3O8 has jumped $6 from $85 to $91. This came out after the Energy Resources of Australia (ERA) stated that the Ranger operation in the Northern Territory has been flooded by Cyclone George. It appears that, once again, water seems to be the nemesis of the uranium industry. Whether it be too much, or lack there of, it has been a rather persistent problem. These are the types of risk you take when purchasing stocks in mining companies.

It's important to note that just the very preliminary news of this has come out and the amount of damage has not been assessed yet. The ERA is in the process of figuring out how to take care of its customers who have already made orders.

Trade Tech has stated that active supply (amount of U3O8 for sale) this month will be approximately 2 million pounds. Active demand (buyers currently seeking uranium) will be 4.4 million pounds. To give you a look at how big this Ranger operation really was, Trade Tech stated that active demand could double if Ranger can't get back online soon. Side note: Cyclone George is heading inland and dissipating quickly, but they are still expecting heavy rains Sunday and Monday in the Norther Territory.

This is coming harder and faster than I imagined. Once again, we can all laugh at my prediction of $100 /lb of U3O8 as it looks like it will more likely encroach $150 /lb this year. Either way, SXR and Denison, actual producers of the yellow cake, will be great hold as this market pushes on.

More Than...Less Than...

"U.S. consumer prices rise more than forecasted."

Inflation continues to rear its ugly head. There was a .4% increase in the CPI putting overall prices 2.7% higher than they were at the same time last year. The article on Bloomberg regarding this statistic is really focused on what Chairman Bernanke is going to do. It sounds like they were looking for an interest rate cut, but these statistics that are coming out continue to make justification for an interest rate cut harder and harder. I hate to beat this to death but we are sprinting towards stagflation here. Inflation continues to rise faster and faster, while growth and consumer confidence continues to decline.

On an interesting side note. Last month we saw a near 40% jump in the minimum wage. At the same time we saw a 6.6% rise in labor costs. Now we see a .4% jump in the CPI. I've said it before and I'll say it again, the only things that a minimum wage law does is cause inflation and unemployment. We continue to see politicians make poor economic decisions to appeal to the ignorance of the American voter (see post on ethanol as well).

Billy the Kid

The million dollar question: What do Billy the Kid and the USD have in common? The answer: They are both outlaws. As of March 21, in Iran and North Korea, it will be illegal to hold USDs. The day after the announcement, Malaysia followed suit. The penalty is jail, and I would imagine in such countries as N. Korea and Iran, the penalties could be much worse.

This means that the approximate 4 million barrels of oil per day that Iran exports will no longer be able to be sold in USD. This puts the monopoly that the U.S. holds on oil sales being denominated in USD at strong risk (approximately 70% of all the oil in the world is held in USD).

And what does that mean? Well, one of the main reason the companies like China, Russia, and the other OPEC countries buy our debt and hold USD is to buy oil. It will be harder and harder for the USDs that are floating around the world to find a home. This, my friends, is bearish for the USD. I expect some other countries to eventually follow suit, although this is most unnecessary. There will be little reason to outlaw the holding of USDs when nobody wants them anymore.

Monetizing the Debt

Let me tell you folks, this is slimy business. The government wants to spend money, but doesn't have any. It also doesn't won't or can't sell bonds to foreign investors. This is what they do:

While total fed credit was down a tiny $1.7 billion dollars last week, the Federal Reserve managed to buy up $1.3 billion dollars in U.S. securities. After seeing the numbers, let me tell you what actually goes on. The fed creates, out of thin air, some bonds. It then prints U.S. dollars and buys up those bonds. Just like magic, the government now has $1.3 billion more USDs to spend.

Like I said, this is nasty business that is very bearish for the USD. As U.S. bonds and treasuries become less and less appealing for foreign investors such as China and Japan, expect a lot more monetizing of debt.

The U.S. isn't going to get up and leave there military operations because China won't fund them anymore. Yes, they eventually will be forced to take that option unless they want to turn into Zimbabwe. I promise you, they're going to drive the car until the tank runs out of gas.

More Than...Less Than...

This is a good one: "U.S. producer prices rose in February by the most in three months, a higher than forecasted increase."

The Producer Price Index (PPI) is a preemptive judge on inflation to come. The input costs that go into making a good/service always shows in the output price that it is sold at. With rising commodity values, the PPI is going up. The PPI rose by 1.3%.

This will carry a couple of results, and before I go on, it is important to realize that this is a direct effect of government fiscal and monetary policy. We will see the increased cost of input goods result in the inflationary prices of those goods or services. The other effect will be job cuts. The producers will start cutting jobs or wages to fight the increasing costs.

If you are a regular reader, you have heard me say something along the lines of the government is robbing its citizens wealth by inflation. Increased taxes are not popular in war times, especially for an already unpopular war. So, the government uses debt and the printing press to finance it. This results in higher inflation, which results in increased prices and/or job/wage cuts. So you also see why inflation effects the poor first and the hardest.

The other question that comes up again is what will the Feds do? They were really trying to set the table for an interest rate cut dinner. The volatile market supports this, slower consumer spending supports this, and the decreasing number of new jobs available supports this. An interest rate hike is supported by the rising and rampart level of inflation. There stuck between a rock and a hard place, but I'll tell you what they should do.

They should most definitely raise interest rates, but they won't. I expect an interest rate cut sometime late this summer. An interest rate cut is going to move us closer and closer to stagflation. Each interest rate cut that ensues will be one more nail in the coffin. It will be the beginning of the collapse of the U.S. dollar and gold will absolutely soar. When all else fails, they will begin to run the printing press. We need Paul Volcker.

More Than...Less Than...

"Retail sale in U.S. rose less than forecasted."

Retail sales rose a weak .1% in February. Consumer spending continues to slow as job growth declines and tons of Americans are put in a crunch because of the housing slowdown. This statistic might now seem like as big of a deal as some others, but I beg to differ, and Mr. Bernanke begs to differ.

If you recall, Mr Bernanke said that he expects mid-year GDP growth to increase a little mainly because of consumer spending. This is not an exact quote, but he essentially said that the economy is riding on the wings of consumer spending, and that consumer spending will carry us through the recessions in manufacturing and housing. It looks like consumer spending is losing altitude and won't be flying so high in the future. This have harsh results on the economy and I expect GDP growth to continue to decline.

Sub-Prime Update

The Mortgage Bankers Association writes, "Sub-prime borrowers fell behind on their mortgages at the highest rate in four years in the forth quarter and delinquencies rose on all types of U.S. home loans."

U.S. mortgages entering foreclosure rose to an all time high of .54%. Sub-prime delinquencies rose to 13.33% from 12.56% in the third quarter. Overdue payments rose to 4.95% from 4.67% which is the highest number since the second quarter of 2003. These delinquency rates are an indicator of future foreclosures.

On another note, New Century Financial Corp. stated that it will not be able to pay its lenders, including Morgan Stanlel, Citigroup, Goldman Sachs, and many others. They are also under the process of criminal investigation.

Accredited Lenders' share value has dropped in half as stock holders are FINALLY realizing that mortgage lenders are the absolute last place on earth that you want your money. Accredited Lenders were forced to come up with $190 million to pay for the buy back of stocks. They are the 15th largest U.S. sub-prime lender and I would not be surprised at all to see them on the chopping block at all in the coming months.