(This is an excerpt of what was sent out to premium readers the morning of 3-16-11.)
There's an old saying in investing: Buy a winter coat in the summer. Uranium stocks are certainly out of season and deeply discounted. Media coverage has shifted from the destruction of the earthquake to the negative aspects of nuclear energy. Nothing puts fear into the public more than green men in radiation outfits. The media has taken this opportunity to capitalize on the fear of the masses. This has resulted in devastating sell-offs in the uranium mining sector such as in uranium (Global X Uranium ETF (URA)) and nuclear energy ETFs (Market Vectors Uranium+Nuclear Energy ETF (NLR)), which has seen its most severe decline in its short history.
One needs to separate the facts from the fiction as the one-sided coverage often signals that a shakeout may be occurring. Potassium Iodine tablets being hoarded in South America is a testament to the media inducing one of the greatest hysterias that I have seen in my lifetime. The fire sale in uranium stocks may be providing an excellent opportunity to enter this market or to add to positions.
Nuclear energy is not going anywhere. These accidents arose from a lack of investment in nuclear; Fukushima was using using 40-year-old, first-generation reactors. This was unfortunate, but Japan was aware that newer and safer reactors existed, such as those that are used in France and Turkey Point, Florida, the latter of which is able to withstand 235 MPH winds and didn't suffer any serious damage during category-5 Hurricane Andrew. Reactors need to be updated and new ones need to come online.
Emerging economies are rapidly developing and expanding their power grids to provide for the basic needs of their growing populations and middle class. Nuclear is a critical element that is needed for clean and efficient energy; and it is critical to many developing countries -- not only to Japan, where one out of three homes is powered by nuclear energy. Countries in Europe, the Middle East, India, Russia, and the US all are planning nuclear energy development. Now, it's not just about building new reactors but replacing those that are 40 years old. The United States has over 100 reactors and many are aged and have old designs. This has to change. Nuclear is safe when it is given the necessary funding for development and the revamping of old designs. Think about it: If we replace cars after 10-20 years, why shouldn’t we replace 40-year-old reactors that keep spent fuel above the reactor? This doesn’t make sense, and questions need to be asked by proponents of nuclear energy. Although the nuclear industry needs to be revamped with newer and safer technologies based on the lessons learned in Japan, nuclear is not over. We must continue to support expanding economies and carbon-free energy.
President Obama has a long track record of claiming in his speeches to support nuclear energy as a key element of carbon reduction. However, in terms of action, Washington has been stalling the construction of newer and safer reactors, and has made it a bureaucratic nightmare for the nuclear industry.
Don’t think based on what's been reported that nuclear plants will be closed. With a high unemployment rate and emerging social unrest, the last thing any country wants to experience is regular blackouts, which shut down hospitals, schools, and police stations. Japan is facing these power outages now. People don't realize that without nuclear energy in the United States, one out of five homes would not have power.
I remain with questions and concerns about the recent nuclear catastrophe in Japan. The automobile reaches antique status at the age of 20. As I mentioned earlier, some used in Japan were almost 40. Japan uses 54 reactors and some of them approaching that age have tried to receive 10-year extensions. This may lead to older reactors being replaced by new state-of-the-art reactors which are safer, smaller, and much more efficient. Japan may have gambled with extending these power plants past their expiration date but that will no longer occur globally.
Modern nuclear power plants are built on “rollers” to withstand the most severe trauma. Were these 40-year-old structures built on such rollers (as are the more recently built high-rise buildings in Tokyo) to handle extreme shocks and were they near geological fault lines? This will have to be investigated. The Obama administration's 2012 budget proposal will include a request for money to help develop small "modular" nuclear reactors. Was Japan investigating these new-generation designs? Were they interested in updating their vintage nuclear plants? Did they have the financial means to replace those reactors? Or were they too busy intervening in the foreign exchange market to save the US dollar?
Several weeks ago, my readers were informed of a multi-billion-dollar deal between India and France to build a new generation of safe nuclear reactors. France does not use the first generation boiling water reactor; they use a uniform pressurized water reactor which is generally considered safer. Since 1973 the French, led by Areva, have taken the lead in nuclear energy independence. Sarkozy has already told the media that there is no chance France will rethink nuclear. Are other countries learning from France? It is sad that the United States -- the pioneers of using the atom to produce energy -- can’t get its head out of the sand.
American standards of nuclear generators have to be built to withstand the most severe shocks and be able to shut off safely during a blackout. Was Japan aware of these protocols when power losses and emergency generators shut down?
The Japanese catastrophe was a millennial perfect storm comparable to Hiroshima. What happened in Japan is truly the worst case scenario with a 9.0 magnitude earthquake, aftershocks, and tsunamis. Still there is no proof that the public has been exposed to toxic levels. This may be a testament to Japan’s rugged designs and engineering progress over the past 40 years. Already power is being restored and radiation levels are coming down, but still we must learn from all mistakes.
Perhaps the world should not be too quick to “nuke” nuclear energy. From this disaster will emerge new protocols for building safer, stronger and newer reactors. The world will not give up on nuclear as it is inappropriate to extrapolate Japan’s worst case seismological situation to the many years of safe and clean energy production throughout the world.
Many fear this is the end of nuclear energy as the media escalates these disasters with fears that the nuclear industry will shut down. In reality, The Japanese have been proud of their nuclear accomplishments over the past 50 years supplying cheap and clean nuclear energy to approximately one out of three Japanese homes. In a catastrophe of epic proportions with a record-setting 9.0 earthquake and subsequent tsunamis, only two plants suffered significant damage, but have not released toxic or harmful levels of radiation to the public. One accident will not stop a developing industry that many countries rely on. Will nuclear engineers study and try to perfect reactor design? Yes. Will nuclear energy be abandoned by countries who have growing energy and carbon reducing needs? Absolutely not.
I have highlighted that we are in the beginning of a nuclear renaissance throughout the globe. Since September of 2010, uranium stocks have soared as emerging economies expand their next-generation state-of-the-art nuclear reactors. During this run there were minimal corrections for several months. When conditions become overbought with little technical support, a news-related item could be a good excuse to liquidate. A health pullback was in order, however this news accelerated that correction. Nuclear stocks are in an uptrend and what counts is not the news released but the reaction and resilience that may follow. Some of the leading names have reached significantly oversold levels such as Cameco (CCJ), the blue chip uranium stock which has lost close to 25% of its value this week.
Uranium stocks may be seeing a once-in-a-generation shakeout and bargain opportunity. Contrarian investors are able to make large gains as the media-induced hysteria will subside and investors will realize nuclear is not nuked.
Before this event China and Russia made bids for uranium resources. Don’t be surprised if the stocks reach all-time oversold levels if strategic acquisitions increase and new deals are announced at much more reasonable levels. One has to be careful of the power and influence of media-induced sell-offs as quite often they signal bullish turning points and excellent buying opportunities. The fire sale is getting hot in uranium stocks...time to buy a winter coat on sale?
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