It Doesn't Get Much More Contrarian Than Uranium

I was scanning Marketwatch articles in a thorough way for the first time in about six months, and stumbled across this article arguing in favor of speculating on uranium.

http://www.marketwatch.com/story/uranium-is-not-going-away-2011-04-22?pagenumber=1

For rather obvious reasons, this is probably one of the most contrarian plays I've ever seen. Bottom fishing in Japan right now is one of the more obvious ones, but this is really going into the heart of the storm. The good case being made is that production actually is not keeping up with fuel usage in existing power plants and that the difference has been made up by recycling (or re-purposing) old nuclear weapons. That cannot go on forever, so that supply imbalance will eventually be reflected in prices.

However, the case against it is that even existing levels of demand are not as solid as they appear because not only Japan, but also Germany may be disinvesting in nuclear power. In German politics, this has recently proved a formidable issue that has spurred plans for phasing out the country's nuclear power plants. http://www.nytimes.com/2011/04/21/business/global/21rwe.html

In short, the current levels of demand may not be safe.

In any case, for the brave there is Uranium Participation Corporation (URPTF).

                                    

Japanese Markets Tumble Again

After a decent sized gain yesterday, the Nikkei is down over 2% again as of the time of this posting. As bad as the news is regarding the nuclear situation there, I am surprised it is not worse. I'm not sure that this is the market reflecting better information than we are getting out of the press or if it is simply that, after some serious declines earlier in the week, the market is as low as it will go. I'm not prepared to test that particular proposition yet, but I think it bears watching.

One thing that has surprised me in all of this is that the yen has actually strengthened and not weakened. I saw a couple of articles suggesting that Japanese residents and institutions would start repatriating funds rather than seeking to park their money oversees because they need those funds to pay for damages. Apparently that is at work here. It is what I would call a secondary effect where the primary effect of market weakness pushing the yen down gave way to the actual mechanical action of domestic Japanese investors redeeming oversees assets.

The real economic effects are still being assessed at this point and they are difficult to fully quantify. Obviously, there are the losses to insurers, which are being quoted at around $25 billion. Disruptions for various electronic component manufacturers are another source of significant strain. Of course, Japanese consumer confidence is going to be seriously depressed, and rightfully so, after seeing such horrors unleashed on them by a merciless earth. Similarly, the already clammed up Japanese business community is unlikely to unleash its purchasing power either. Those are all in the short term and are unavoidable. However, I would generally say that nations tend to recover from these sorts of incidents more rapidly and more vigorously than most predict. The one caveat here is that serious nuclear contamination is a different animal and it is very difficult to quantify those economic effects. As long as the situation remains (relatively) contained, it will not seriously hamper the recovery. At this point, all we can do is pray for those working in and near the reactor to subdue the situation there. Those workers are the bravest individuals in the entire world at the moment.

Larry Kudlow Was Right, But Very Wrong

The human toll from the Japanese earthquake is indeed far worse than the economic toll, though we should not be grateful for that. I would have rather $250 billion in property be destroyed and supply chains for global commerce ruined for months than see 10,000+ people die.

That being said, while it is crass to speculate on the effects on Japanese markets, I shall do so anyway. Due to both weakness in the underlying markets and the yen, Japanese stocks will be a poor investment in the short run. However, barring a much worse than expected nuclear incident, Japanese stocks will present a good buying opportunity for those who do not have qualms on speculation in such incidents. The sell-off has been and will continue to be fairly uniform as will be the inevitable short-term recovery and EWJ is a decent way to play that after a few more days. Unfortunately, Japan still has serious long-term structural issues that need resolving and the debt incurred as a necessary expense to rebuild from this disaster will only make matters worse. Hopefully, the international community will not simply leave Japan to its own devices because it is a "rich" country.

I do not endorse this form of speculation as I generally find it distasteful, but in case anyone has the urge to do so, that is my best guess at the moment.