Our number one investment rule

Monday, 24 September 2018
Albert Park, Melbourne
By Greg Canavan

  • Uranium and electric vehicles
  • Rule number one
  • Gold, the US dollar, and the euro
  • Dr Copper says…
  • Trumponomics

You’re regularly scheduled Port Phillip Insider editor, Bernd Struben, is taking a well-deserved couple days off with his family. In the meantime, I have lots for you today: uranium stock news, some interesting charts relating to gold, a quick review of the copper price, and also an update on Trump’s tariff wars and swamp draining efforts.

So let’s get stuck in…

First, let me share an excerpt from an article sent in by a reader. It concerns the use of uranium in helping to fuel electric vehicles.

It’s clear that electric cars will have a huge impact on battery metals — but not many investors realise the impact they will have on demand for uranium.

Electric vehicles (or “EVs”) will be charged from mains power around the clock, dramatically increasing power demand from the electricity grid in coming years.

Nuclear power is expected to play a crucial role fulfilling that demand as the world goes searching for reliable, low-carbon electricity.

One British energy analyst put it like this: “In the next decades, we are going to need previously unthinkable levels of new low-carbon electricity capacity for charging electric vehicles and to replace coal and gas.”

“There is no other low-carbon energy which can match nuclear power for scale and reliability.”

It’s an interesting take. With EVs driving electricity use, will nuclear energy get back on the radar in the west? France is a big user, but nuclear is hardly a growth industry, despite it being a zero emissions power source. Nuclear is a dirty word and politically poisonous.

In China and other developing nations, it’s a different story though.

I was speaking to a mate of mine last week. He’s an engineer and has looked into the whole electric vehicle thing. While I can’t offer you any sources, he says that driving a Tesla, or any electric vehicle, is really no different to conventional vehicles in terms of total emissions.

By the time you generate the electricity and send it through the power lines, he said, (where it loses most of its energy content) there really isn’t much difference with a conventional vehicle. Except the ‘feel good’ factor.

The benefit is that the emissions occur at the source of power generation, as opposed to in the city where the cars are.

This is why EVs are growing so strongly in China. China is desperate to shift emissions from the cities to the countryside, or city outskirts, where the power stations are.

And it’s why it wants more energy to come from nuclear power, which has zero emissions. According to the World Nuclear Association, the Middle Kingdom currently has 40 nuclear power stations in operation, around 20 under construction, and more planned.

China desperately needs to reduce emissions (since becoming the world’s factory in the early 2000s, its pollution levels are horrendous) and nuclear power is a major part of the energy mix.

The growth will come from China and other developing nations. EV drivers in Australia will have to increasingly rely on renewable power to get around. That could be interesting…

Markets

Over the weekend the Dow Jones Industrial Average closed up 86.52 points, or 0.32%.

The S&P 500 lost 1.08 points, or 0.037%.

In Europe the Euro Stoxx 50 index finished up 27.69 points, or 0.81%. Meanwhile, the FTSE 100 rose 122.91%, and Germany’s DAX closed up 104.4 points, or 0.85%.

In Asian markets, Japan’s Nikkei 225 is up 0.82%. China’s CSI 300 is up 3.03%.

In Australia, the S&P/ASX 200 is down 3.70 points, or 0.06%.

On the commodities markets, West Texas Intermediate crude oil is US$71.64 per barrel. Brent crude is US$79.85 per barrel.

Gold is trading for US$ 1,198.40 (AU$ 1,649.33) per troy ounce. Silver is US$14.32 (AU$19.71) per troy ounce.

One bitcoin is worth US$ 6,684.85.

The Aussie dollar is worth 72.67 US cents.

Rule number one

The uranium plays I recommend to my Crisis & Opportunity readers continue to hold up well. A reader recently asked why another uranium stock, called Berkeley Energia Ltd [ASX:BKY], wasn’t on my radar. The short answer is because it isn’t in an upward trend.

If you’re not a subscriber, you might not be familiar with the Crisis & Opportunity stock picking method. I use two filters. I assess the fundamentals of the industry and company, and ensure the financial condition of the company is sound.

I cross check this view by looking at a chart. A chart gives you a huge amount of information, as it reflects the supply and demand of shares at a particular price. A downward trending price means there is ongoing selling at lower prices. This is not a great sign.

The number one rule of Crisis & Opportunity is to never buy a stock in a downward trend. That’s why BKY is not on the radar right now. (See chart below.)



chart image

Source: BigCharts
Click to enlarge

BKY may not make the grade, but my readers have received recommendations for three others, tiny ASX-listed miners which could potentially be set for greater than 1,750% gains in just over a year. You can find out more here.

Gold, the US dollar, and the euro

I wrote about gold in two recent editions of Money Morning (here and here). Make sure to read them if you’re interested in the prospects of the yellow metal.

Adding to that, I have a couple of charts I want to show you.

Have a look at the euro/US dollar exchange rate below:



chart image

Source: Optuma
Click to enlarge

It shows euro strength during 2017 and weakness during 2018. Note the sharp break below support in August, followed by a quick recovery. It suggests that a change in trend may be underway. A move above $1.17 would increase this likelihood.

It would also be bullish for gold.

Why?

Check out this next chart. It shows the performance of the euro (green line) and gold (blue line) over the past year. As you can see, they track one another closely.



chart image

Source: Optuma
Click to enlarge

However, in the past few months gold has underperformed. If the euro is returning to strength, gold could well play catch up, leading to a very strong rally.

Keep in mind the ‘managed money’ category in the futures market is still net short a whopping 75,000 futures contracts. That’s a lot of buying power to propel this market higher if these traders decide to cover their positions.

Dr Copper says…

The copper price is a well known barometer of global economic activity. It has fallen sharply over the past few months. It’s another signal that the global economy is slowing. The question is, by how much?

As shown below, copper continues to trade below support, but it’s trying to find a bottom. If it can move back above the green line in the weeks ahead, it may suggest the global slowdown won’t be too dramatic.

It’s another chart I’ll keep a close eye on…



chart image

Source: Optuma
Click to enlarge

Trumponomics

Last Monday, the White House released a statement explaining that Trump has ordered the declassification and release of a bunch of material relating to the Russian collusion investigation. You can read the statement here.

If you’ve been following events, you’ll also know why the MSM aren’t covering the story, despite it being a huge one. Or if they are covering it, they’re running with the line that declassification will put people at risk, and therefore it shouldn’t occur.

Yet it’s widely alleged that various US government agencies, along with the MSM, tried to frame Trump. Releasing all material related to the investigation could reveal this to be true, which is perhaps why those implicated are now resisting.

As this story grows (and it will), it risks spilling over into markets in the form of a weaker US dollar and a higher gold price. My view is that if corruption at the highest levels of US government agencies is exposed, it will create nervousness and uncertainty about investing in the US. There will likely be a shift from ‘risk off’ to ‘risk on’ in US equity markets.

Let’s see how it unfolds in the coming months. One thing is for sure, with the mid-term elections in November, these issues are not going away.

Finally, a quick comment on Trump’s tariff war with China. There are plenty of opinions on it. But if you want to know where Trump is coming from, you need to watch the 2012 documentary, Death By China.

The documentary is by Peter Navarro, one of Trump’s trade advisers. You’ll understand why Trump’s moves are hugely unpopular with the rich and powerful.

In short, Trump is attempting to reverse a trend that has been in force ever since China joined the World Trade Organisation in 2000. It is a trend that resulted in the hollowing out of the US manufacturing sector, the loss of millions of jobs and the rise of a debt-based consumption economy in the US.

All this benefited US multinationals and the US financial sector, to the detriment of the man on the street.

Whether Trump will succeed or not is anyone’s guess. But it will impact profits at some point, which will have an effect on the US market.

There is much more to it than that. I’ll take the topic on in-depth in an upcoming monthly issue of Crisis & Opportunity.

For now though, this is why I remain cautious on stocks here. In this environment (and for what I think is coming down the track) the best strategy I feel is to gravitate towards the larger and more liquid stocks.

I’ll explain more in that upcoming monthly issue, due out this week.

Regards,
Greg