Once again, for every-single-year in a row since 2007 (here’s a fun link courtesy the BBC), we find ourselves circle jerking over the impoverished bastards of the middle east. War! War is coming! And we are doomed.

Give it a rest already. I don’t care that we’re about to level Syria. It isn’t going to do anything to oil supplies. There’s a reason we’re positioning our military assets right on top of these misers.

Any culture or group of peoples that attempts to interrupt global oil supplies will be subjected to “extinction” levels of violence. Not that they would want to anyway, because both sides of Syria desperately needs the oil sales to finance their victory.

Oil supplies are coming out of our ears, so you’re jacking a $30 premium on the price because Syria is a ball of intolerance? Come on…

This is getting ridiculous. We’re 7 years out now, from the first time we were just months out from a global war. But it’s not coming, because no one in the developed world is actually willing to put their lives on the line for some people slogging it out in that 13th century lifestyle.

Despite oil demand being at multi-decade lows, recession literally everywhere, and the most massive energy revolution taking place in America since the 20’s, we have “blessings” of $100 oil, all because markets, in their infinite wisdom, have been shaking in fear of the same “imminent threat” for what is rapidly appraoching a decade.

Maybe it’s time we had a very real discussion about cutting back off the broader markets from being able to place bets in oil. It was better when there were only a few major players. This is just getting stupid. These moves are going to double dip us, for no reason.

Comments »

For a while now, I’ve been painfully aware that my portfolio is too focused on commodity prices. I have a fat position in silver, and my two largest positions are a uranium miner and a fracking services company, respectively. While I think there’s good justification that both of those should do well in any sort of market that we might see, because of supply/demand issues and long term necessity to maintain the power grid, at some point you watch competitive coal prices disintegrate and ask “Has the world changed that much?”

Most the rest of my account is distributed to the multifamily “Death Of Home Ownership Rates” thesis, which is working splendidly and has been well documented before now.

And I have a hedge position against the euro, and generally hate everything about the EU. That position theoretically hedges the commodities, a little, but has a mind of its own most of the time.

But in between those things, there’s basically nothing. And in many respects, my strategies are open to certain…weaknesses…that can be leveraged in the wrong sort of outcome.

Watching commodity prices just crater this spring and summer, like they are today, it was clear that I needed a backup play; something that would so benefit in a deflationary vortex that it could dull the pain.

Naturally, the low margin, godless work of the restaurant industry is ripe for such a role.

I’ve spent some hours peering over numbers and feel most comfortable with Darden Restaurants (DRI). Owners of such mainstay, middle class eateries as Olive Garden, Longhorn Steakhouse, and Red Lobster, this company is big and boring, priced modestly with low expectations that, in the event of any noticeable depreciation or positive developments, it will leap over.

I added DRI today for $49.72

Consider that the stock has barely performed over the last year, but sales have grown steadily. Meanwhile cash flows have the cash balance up 16% year over year, and the company pumped over a billion dollars into acquisitions and developments in the last 9 months.

The cost for the book is a little high, but more importantly the price per earnings and sales are low. And the dividend payout stands over 4%, well supported by their high cash levels. Depreciation is very high in the restaurant business, but much of it is tied up in land and buildings, from the acquisitions, so real cash and earnings are realistically greater.

The company appears to me to be cleaning up and simplifying their operations. Financial derivatives were largely unwound over the last year.

Obviously, I am not that excited about DRI. I’m buying up a single digits margin restaurant company. I mean…come on. But, with input prices falling as fast as they are, especially gasoline and fuel, DRI should come out ahead.

31% of DRI’s sales are eaten up in the cost of food and beverage. Another 15% are absorbed in general restaurant expenses. Every 1% move lower in broad commodity prices will expand DRI’s profit margin by about half a percent. And, with gasoline costs coming down, the consumer is set to have more money to splurge on a nice evening out with the family. This will push up profit margins as less food gets thrown out.

You can see DRI’s profit margins fluctuate wildly – for example, in the February quarterly report, the margin is everywhere from as low as 4.5% to as high as 7.6%. Think about how much commodities have fallen since February, then realize that a pressure spike could (and maybe already has) jack those margins above 10%, with minimal risk.

I’ll hold DRI for a few quarters, likely, then liquidate it for whatever is left. This is a play on input costs. But long term, I hate restaurants and will burn this thing at the first sign of trouble.

Comments »

The uranium space ripped to the upside today. It was led by URA as the specter of a uranium price bottom led speculators into the miners. Several of the smaller names doubled, and even Cameco experienced a 3% upside day.

The actual story is decidedly more complicated.

Uranium prices at a few of the brokers I keep tabs on have actually begun to crack lower. The reports are that 8 separate utilities arranged deals at low prices last week and threats of funding and fears of even lower offers led the small names to cave into demands and sign contracts.

This is why I have avoided small cap uranium miners, like foreigners in France around 1349.

What comes next depends. Fears surrounding Japanese policy could be taking root. If those are grounded, then we may have quite a bit of trouble on our hands. Any such trouble would be viewed, from my perspective, as a buying opportunity. However, a rehash into the $10-20’s would not be out of the question. At current demand and sales, I put CCJ at $13, roughly.

However, if Cameco and the other miners can band together, they may be able to strike back against the weak hands that are presently caving. Cameco is in the distinct advantage of controlling more than 20% of the global market. If they can leverage themselves, banding together some of the smaller survivors, they could create a strong floor, devouring the weak in the process at rock bottom prices.

Longer term, the uranium market remains ripe for picking. There are several trends I am seeing that could lead grid demand to pick up 10-20% just here at home, at minimum, over the next one to two decades, and no real positive supply growth to see yet. Couple that with continued demands from environmentally conscious politics to trend away carbon emitting fuels and the necessity of alternative energies like wind or solar to be supplemented with constant energy sources and a build out in nuclear power is an obvious go to.

Thus far, there is no word on Russia extending the HEU agreement. The moment will be dominated by Japan. The decade won’t care about Japan at all.

Comments »

It’s been long enough that I’d say I actually need to give an introduction and background here.

I’ve owned Cameco since Fukushima; literally, I bought my first round of shares at $29 while the reactor was melting down. Since then, I’ve built a position, by averaging in and trading rips, that has a cost average around $21.

My belief was that, at the time, commitments to roll back nuclear power facilities were vastly overconfident (if not totally unrealistic) and would ultimately end in retraction. So far, I haven’t seen anything to make me change my views on this. I also felt that the dangers of nuclear power and the consequences of the Japan problem were being overblown. Nuclear accidents have traditionally been forecast to be, literally, millions of times worse than they actually are.

Recent developments in the space include:

1) Japan is prepping 4 more reactors to reopen, while creating the review process to speed things up a bit
2) Tokyo Electric is getting impatient, using a subsidiary of itself to start pushing back against government agency claims that any of its reactors lie on fault lines
3) China is ramping up construction of power plants
4) They’ve also discovered Fukushima is leaking radioactive water – could stiffen the process back up
5) The forced shut down is starting to do its damage to nuclear power companies – Japan Atomic Power, for instance, will be forced into a hard bankruptcy shortly if they can’t get operations up and running or, worse, are forced to decommission any of their three reactors. This would flood the market with fire sale priced uranium fuel
6) Russia has not expressed any desire so far to extend the HEU (Megatons for Megawatts) agreement; it currently stands at over 95% completed. Although interestingly enough, Executive Order 13617 (which floods Russia with money for decommissioning nuclear weapons for fuel) has been extended by the Obama Administration under emergency decree. I’d be more inclined to think that’s an indication a new agreement is being drafted, if I didn’t know how much politicians like to fling slush fund money around to friends and enemies alike. For the moment, I’m predisposed to believing Putin will not be crafting a new agreement

Altogether, the ability of the uranium market to shore itself up depends on Japan for now. There is a visible push to get the reactors up and running, and elements of the government seem at least partially favorable to it. For the last two years, the uranium market has been frozen, as the fuel miners and electricity producers sat in a stalemate, waiting to see what would happen next.

We’re about to find out, I think.

If Japan can successfully navigate back to nuclear power, it would thaw the uranium space, encouraging power companies that have been so far waiting to see if nuclear opposition would gain more traction, or if Japan’s unspent fuel would be up for sale, back to the markets to bring their fuel cycles up to speed.

If not, Japan power companies will likely start to arrest, plunging the entire sector back into violent fluctuations. For this reason I am exclusively a holder of CCJ, and no others, because they are too small and will have trouble surviving if everything doesn’t pan out just right. This does worry me, as Japanese culture is notoriously slow and patient, almost to a fault. It is not completely out of the question that they let their power companies crash. I simply have to hope that they don’t.

Long term, the sector is ripe, with lots of new demand, and supply concerns at current production targets. However, any disruptions could easily drag out the recovery another few years.

CCJ is greater than 20% of my account.

Comments »

If there’s one thing you can count on lately, it’s for the oil market to make exactly the wrong decision going into summer. It’s almost a joke, really. To whichever analysts are sitting at office right now, prepping that liability report explaining why they loaded up on oil contracts going into the summer for the third year in a row, I have the following advice.

For the moment, just carve out any data sets you may have from before 2009. They aren’t worth the bits they’re stored on.

The entire move testing $100 has been shut down. The only remaining question is, do we hit $88, $85, or $79?

The worst hedge of all time, SCO, came through for me after all.

In other news, one of the Greek political parties has decided to nix the union that has held the country together with a government body. This is of course impeccable timing on the part of the Greeks, as there just wasn’t anything else we may have been worried about at this exact moment.

Today, I will be enjoying a fine chicken breast seasoned with fresh thyme from my garden, set out on the veranda, to celebrate the unstemming slaughter.

Comments »

By some marvelous act, I managed to breached my prior account highs today, without even being full long in the markets. It is a queer thing, sitting on 30% cash with SCO and EUO and yet still discovering that you’re making money every day.

I’m not greedy – if this bull market could last forever! I would be more than content to sit here collecting half a percent every trading session.

The errors from 2011 are now fully behind me. I lost quite a chunk of my money on a bad oil short then (it was much larger than the one I’m carrying now). That was the first big oil implosion after the 2008-2009 near total collapse, when it fell from almost $110 back down to inside of $80. I didn’t take my gains, instead believing that we were experiencing an epic slowdown (EU). It wasn’t long after that oil completely rebounded.

Energy markets nowadays are prone to sudden collapses that are immense in size. But they don’t last. There’s not resetting based on demand or supply. Rather, buyers pick themselves up from the beatings, quickly absorb the additional supply, and force the price higher again. It’s hard for me to imagine how this is going to work out, undisclosed bidders buying $100 oil when the US is quickly becoming a stable production powerhouse.

But for now, the name of someone’s game is to keep oil elevated. There are so many speculations for why this might be the case, it doesn’t do well to even start getting into them. We are nearing another crash, I feel. Multi million barrel inventory builds going into summer can’t go completely unnoticed. But after the quick money has been made, I’ll move on fast. The price will probably recover going into the fall, after just a few short months; nothing but a blip, in the grand scheme of things.

Comments »