Uranium Is A Frustrating Business

I may love the prospect of a uranium miner rebound, but I’ve also loved the idea for three years. There’s no dancing around how frustrating this time has been. It’s an obvious, solid move, but…man it takes a time to develop.

Trading around a pickup in demand in an industry where you can go eight months without any orders is maddening. Maybe those publicly traded, paper products in “ETF Land” are saying uranium prices are still on the rebound. But brokerage reports are saying we’re back to hitting new lows in the spot price.

None of which is going to shake me. I’m set in my ways. Just… give me my triumph now.

It’s not that bad, what I want, is it?

I just want for us to hurry up and get to where we’re going, so that I can make a ridiculous killing and rub it like sand into the eyes of anyone who happens to be passing by. I’m not a difficult man to work with. Is this so awful?

Give me my victory laurels and my silver chalice, and I will be content. I’m a simple man, at heart.

Let’s just take a second to really breath in the absurdity that takes place around us on a day by day basis, shall we?

Here is a recent history of analyst recommendations for BAS (one of my favorite positions, I will say right off the bat, since it traded at $12).

Look specifically at the ratings being issued by Wunderlich Securities. On October 28, 2013, Wunderlich downgraded BAS from a Hold to a Sell. Then, yesterday, they upgraded BAS from a SELL to a HOLD.

And now let’s look at the price action in BAS.

Wunderlich almost marked the explosive upside to the inflection point. If we don’t go anywhere, they will have “downgraded” 100% of equity gains.

Okay so Wunderlich blew the call and got it wrong. They then reversed their rating to a Hold from a Sell (if you listened you missed out on a move that is being converted to a logarithmic scale on most finance sites). Fair enough – mistakes happen.

That’s not what irritates me. This is what irritates me:

“Will This Upgrade Help Basic Energy Services (BAS) Stock Today?

NEW YORK (TheStreet) — Basic Energy Services Inc. (BAS_) was upgraded to “hold” from “sell” at Wunderlich Securities.

The firm upgraded their rating based on improvements in the weather and natural gas prospects.”

Will this upgrade help BAS? I would fucking hope not…

I don’t want to sound indignant here because I guess as a shareholder, any good news is welcome. But…Christ…

We have just devolved to the point of putting anything out there that we can slap a curious headline on to whore a few hits on a website. After a miss like that, why should Wunderlich Securities’ have the ability to move markets with regards to BAS? If I were to make a list of analyst opinions I care about when it comes to BAS, Wunderlich (and basically half the others on that sheet at the top of this post)…they’re not even at the bottom, okay? They’re not even on the list.

The 24/7 “news about nothing” cycle just starts to grind on you after a while. We have a multi-million (billion?) dollar industry that seems to exist for the sole purpose of employing people to tell me stuff. Why I should listen though…as of yet, nobody has really explained that.

Maybe The Street should instead do a story about how many analysts (including their own) completely missed an obvious buying opportunity. And if you relegate yourself to those sites (rather than read the grassroots efforts of iBankCoin or like), you probably had no idea.

Because less I let this slip by, here’s The Street’s own rating for BAS:

TheStreet Ratings team rates BASIC ENERGY SERVICES INC as a Hold with a ratings score of C-. TheStreet Ratings Team has this to say about their recommendation:

“We rate BASIC ENERGY SERVICES INC (BAS) a HOLD. The primary factors that have impacted our rating are mixed some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company’s strengths can be seen in multiple areas, such as its solid stock price performance, increase in net income and revenue growth. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity, weak operating cash flow and poor profit margins.”

What’s that? Sorry I’m too busy being up 130% on this position to hear you.

I come to you from South East Michigan, where we are privy to a miniature, personal snow flurry. I know it’s not snowing elsewhere in this state, because I had to drive deep into the wooded heartland to wrap up tax season (always have shadowy figures an hour’s drive away from any IRS building do your taxes. If the IRS wants to pop in for a visit, make them earn it).

It’s a bizarre experience to have a heavy snowfall with blue skies overhead, for sure.

I was privileged, alongside the rest of you, to watch the market turn on the face of a dime and ram higher this afternoon, much to the shock and horror of the “new depression” crowd.

You dicks should have to surrender your mark before getting invited onto these unsavory televisions shows to preach. Every time we get an unexpected 10% correction, I get to hear how we’re just days away from a 50% plunge into total chaos.

Then when it doesn’t happen, the perpetrators limp back home where they keep a low profile, knowing that their only blessing in this world is that nobody cares enough to remember them, and therefore cannot point out the last half dozen times they blew it.

Janet Yellen has spoken and her message is one of love…for equity. Take your medicine.

So here we are the week after the Fed announced on April 9 that they’re just going to throw out that guidance that they’ve been spending the last three years meticulously articulating to the public, and we remain in a down market.

End of the world?

Hardly.

This is exactly what happened following the announcements of QE’s I, II, and III. The market continued to be slaughtered following the announcement, market “professionals” and “experts” lamented the end of global civilization and then…it stopped.

No, it didn’t just stop. It lampooned the detractors, dragging anyone short equities into obscene losses, while making those with blind faith quite wealthy.

What the Fed is really communicating here is that the game will remained rigged for as long as it takes. And since what the Fed is doing doesn’t seem to be making a difference (free money tends to get doled out to those closest to the trough, not those that actually need it), well then that’s just a another way of communicating that the game is going to be rigged forever, isn’t it?

Forever or until the guns come out.

So we’re seeing the monthly POMO purchases dropping another $10 billion and people are ever so afraid – but think about this rationally. From $80 billion a month, we were buying up $960 billion annually in effectively newly issued currency. That’s idiotic, QE I levels of program. I mean, QE II was only a $600 billion program, not counting the reinvestment of proceeds (which was really going to happen anyway, they just publicized it).

So $55 billion in new asset purchases are still on the table, which is for the moment still $660 billion every year. After the next $10 billion drop, we’ll still be at an annualized $540 billion every year. I mean, look, the numbers being thrown around here still equate to another QE II every 12 months.

I do some quick back of the envelope math and pretty quickly work out that QE III, from its inception on September 13, 2012, was somewhere in the neighborhood of $1.5 trillion.

So I’m supposed to lose my grip now that that’s being slowed to a “paltry” $600 billion? Let’s be straight here, just winding down QE III is going to be another QE II.

You know, because we’re winding it down permanently, really.

Or not, really.

Whatever…

And – oh yeah – your expectations that interest rates were rising next year are also premature. In a $17.4 trillion economy, a 1% rise in interest rates NOT materializing by itself is good for probably $150-200 billion a year worth of market forces. Multiply that by every percent financial institutions were expecting.

My point is this; right now everything is super scary, market short sellers are behaving like gigantic dicks, and The Fly’s comment section is haunted hourly by scum. But I’m thinking this is just the same story we’ve seen play out on at least three separate occasions already.

The fear is drawing everyone in. But the victory blow has already been struck – point Yellen.

But you can’t have a fox hunt without a fox; so we’re pressing downward. Make no mistake though, death awaits all short sellers. Before this is over, even just having too much cash on the sidelines will be grounds for humiliation, and short sellers should just actively start picking out that special “last rights” shotgun now.

Good morning and I hope I find you well.

The 9th Floor’s estate is in tatters from the storm, with many trees down and trash littering the landscape. The weekend was warm and pleasant save for Saturday, which brought wanton destruction to many in this good state.

I bought back MAA this morning for $67.74 a share. Cash is down to 10% of account value.

I owned MAA as a legacy position from CLP being bought out last year. I sold the shares back when I was raising cash heavily towards the beginning of 2014. I always communicated a desire to buy back in and if you would like to read up on the position and reasons for owning, a quick search of my archives under MAA or CLP should get you plenty well started.

The big thing holding back the uranium miners right now isn’t concern for the long term viability of the industry – to the contrary, it is very clear to everyone that nuclear power generation is about to increase. Even concern in the US over aging reactors being taken offline is being tempered as four new state of the art models have been approved for construction.

Actually, the major impediment to higher prices is just the spot price for U3O8. The broker I follow has reported the spot price has just corrected back to new lows (based on how many virtually non-existent sales, I cannot say). URA meanwhile shows prices have corrected from the recent rally, although still off the bottom.

In that spirit, here is what I’m reading.

Uranium Participation Corp (TSX:U) is the only physically backed uranium fund. The company’s primary objective is to achieve appreciation in the value of its uranium holdings through increases in the uranium spot price. In December, Raymond James analyst David Sadowski made a case for investing in UPC, a fund managed by the management team responsible for Denison Mines (TSX:DML), explaining that the fund offers investors with “great exposure to a uranium price rebound without the typical exploration, development or mining risks associated with some of the other equities.”

After having completed a $57.6 million bought deal financing on February 6, UPC has made its first purchase of uranium in four years. The company announced on Friday that it would use a portion of bought deal financing to purchase 850,000 pounds of U3O8 at an average cost of US$34.74. UPC notes that 250,000 pounds have already been delivered, the remainder will be delivered by the end of June.

In a note to investors, David Sadowski views UPC’s latest announcement as a point in the company’s favor, supported by the overall sentiment that uranium prices are set to strengthen over the next 12 to 14 months on supply shortfalls and JApanese reactor restarts. Given these variables, and the companies current available cash, Sadowski expects to see another purchase of 800, 000 – 900,000 pounds of uranium sometime in the coming weeks.

I’m still confident we see nuclear take off this year. In the past I’ve been a little more shy about such a direct claim, arguing “sometime in the next X years,” instead. But I do believe 2014 will be the year.

I also think the volatile pricing we’re seeing is the market putting in a bottom / shaking out the weak hands as the big players start to take a more direct financial interest.

Recall from our prior discussions that the refueling needs of real reactors is almost logistics free. A nuclear reactor can run at full power for almost three years without needing a delivery of fuel from the outside, on nothing but what’s in the rods plus the typical amount of fuel in storage for a common model.

From 2011, three years is almost up. By which, I would surmise, nuclear power operations in aggregate will either begin to see electricity output decline, or else need to make a purchase.

Just my two cents on the matter.