The best way to deal with a crying baby, unless it’s yours, is to simply ignore it. Not that we are insensitive the suffering of infants here at the Old Hat Factory in Melbourne. We were just thinking of ways with which to distinguish between market “noise” and the other, serious, understated, unexplored liquidity channels in which money will be made in the near future.
The new highs in the market… noise. Rekindled interest in tech stocks… noise. Hedge funds going public… noise. All off these are liquidity-driven news events, and like water falling form on high on to rocks, they make a big a big splash and create a big sound. But it’s just wet noise which threatens to drown out other, better investment prospects.
Of course, all of these are fine as long as the water keeps running. But that’s the real question. Is the demand for these investments simply investment demand, cash-rich financial firms who need to put lazy money to work? Or is the source of the demand a deep, rich, and enduring economic well-spring? We favour the aquifers over the cloud bursts, although singing and dancing in the rain has its own pleasures.
Those ‘better prospects’ are still, at least in our modest view, found in the energy and alternative energy markets. In the traditional energy markets, oil futures moved up again in U.S. trading. The driver, so we are told, is the intention of the American government to buy 100,000 barrels of oil per day to ad the 11 million in America’s Strategic Petroleum Reserve.
Of course it could just be getting colder in the Northern Hemisphere. Or maybe traders realize oil’s sell off was long term goofy, even though it must’ve meant some short term profits. Either way, USO, the exchange traded fund which tracks the price of crude oil, rallied four percent in Tuesday trading to crest the $45 mark. That mark is of interest from a technical perspective because it’s forty percent below oil’s high of $78 last year.
In other words, the 40% correction in oil’s multi-year run appears to have run its course. And that means not only renewed interest in bargain oil and energy exploration and production companies, it means rekindled investor interest in substitutes for the energy we get from oil, like uranium.
“China has begun tentative talks with Australian uranium producers including BHP Billiton on receiving yellowcake supplies as early as next year,” reports Mandie Zonneveldt at news.com.au. China’s first domestic supplier could be the Honeymoon mine in South Australia, which is set to come on line in the first quarter of 2008.
Honeymoon is owned and operated by SRX Uranium One (TSE: SXR). Only forty percent of its slated production is currently under contract, which means should Chinese buyers surface, SXR is a likely supplier. Accordingly, the stock was up one Canadian dollar yesterday, which amounts to a seven percent gain, a good solid days work in the yellowcake business.
This is the kind of gain that attracts our interest, and the interest of thousands of other investors. The problem is that it attracts the interest of spruikers looking to cash in on the buzz. “Claims that a tiny Pacific island could host more uranium than Olympic Dam have left well-known Melbourne mining figures Bryan Frost and Richard Revelins fighting for their business reputations after the Australian Securities and Investments Commission launched court action to ban them from running companies.
We don’t know much about the validity of the complaint against the men, or the validity of the claim by Mining Projects Group Ltd. (ASX: MPJ) (then Yamarna Goldfields), that a New Zealand-based project had enough uranium to rival the fabled Olympic Dam. We do know that the rise in uranium prices, seemingly on their way to US$100 and beyond, means there are a lot of companies claiming to have real uranium deposits just waiting to be mined, should state bans in Queensland, South Australia, and West Australia be lifted, Our own research in to the matter-which we admit was a lot more difficult than we originally expected-is nearly done. Watch this space for results.