Daily Dispatch: Going Nuclear

April 09, 2010 | www.CaseyResearch.com Going Nuclear

Dear Reader,

Glancing at the calendar this morning, a nagging sense of something left undone crept into the back of my cranium.

Something that one should remember to do this time of year. Let’s see…

Send annual extortion money to “Uncle” Sam down at mob headquarters. Check.

Begin a rigorous regime of stomach and back exercises to prepare for the pending golf season. Check.

Clean up the dog droppings revealed by the melting of snow in the front yard of Chez Galland. Check.

Sell in May and go away. That’s it!

But does that time-worn adage, familiar to all experienced investors, hold water? Or is it just another myth of the sort that arrives in the email box with painful regularity these days?

While I am no Bud Conrad, maestro of charting skills and detailed data analysis, I managed to hobble together some charts that may be of use in coming to an answer.

The first chart below shows the S&P 500 over the last five years. As you can see, in three of the five years, selling in May and going away until September would have been the right move. In one of the five years you might have missed modest profits, but in only one 2009 during the extreme bounce back from the chasm of 2008 would you have missed substantial gains.

Treating 2009 as the anomaly it was, one would have to say at least when it comes to the broader stock market that the notion of selling in May holds up.

What about gold stocks?

This next chart shows the XAU index of large-cap gold and silver miners. For the same five-year period, we see that, had you held on to your stocks in May, you would have been a big winner in two years, up marginally in one (but only thanks to a last-minute rally) and down in two one sharply in the 2008 crash. While you would have done better, on the whole, in the gold stocks, it seems pretty clear that, in a typical year, you wouldn’t have missed much by selling in May and going away.

With a few caveats the most important being that once you exit the market, inertia could set in and cause you to stay out of the next big leg up. Given where we think gold stocks in particular are headed over the next five years, that would be most unfortunate. In addition, buying and selling involve tax considerations and transaction fees. (Though, don’t forget that capital gains taxes are going up at the end of 2010.)

Gold Bullion

With my charting engine all revved up, I decided to take a look at physical gold. The chart below is of the London Gold Fix. Interestingly, despite the clear big-picture bull trend that has seen the price of gold more than doubling over the period, you can also see that selling in May and going away would have been a good move for gold bullion over the last five years… provided, of course, you took advantage of the summer doldrums to buy back in.

So, what to make of all this?

Nothing particularly profound. If you know what you own and why you own it, then, generally speaking, the odds are decent that even if there is some weakness over the summer, you’ll regain lost territory and move up in the fall. In all the charts, with the exception of the anomaly of the 2008 crash, September to January tends to be a pretty good period for most asset classes.

But there are clearly some years where selling in May makes sense, and this could very well be one of those years. With a veritable flock of black swans swirling overhead, and the U.S. equity markets overvalued by almost every measure, if you are overweight in any single investment or sector, consider lightening up, and sooner rather than later.
Personally, I am unconcerned about the price of gold, and the resource stocks I own, I own for a very specific reason and so would look to buy more on any correction. But taking a moment to step back and reflect on one’s portfolio is never a bad idea.
And, based on the limited data I’ve shown here, doing so in April just about now, in fact seems a pretty good time to do so.

Going Nuclear: Obama’s Green Machine Is Ready to Go
By Marin Katusa , Senior Market Strategist, Casey’s Energy Opportunities

Over the Easter weekend, seven nuclear reactors throughout the United States stopped operations, and natural gas prices skyrocketed by over 20%. And this was when most of the country was enjoying mild weather and businesses were shut for the long weekend.

Now, with the new workweek starting, traders are out in force looking for the cheapest possible power ahead of rising demand, and the power markets are heading one way: up.

No Homer Simpsons Allowed Here!

It is unfortunate that nuclear power plants are still linked in our minds to the Three Mile Island and Chernobyl disasters. While these were some truly horrific events, we’re failing to realize one very important fact: we’ve learnt from our mistakes. The next generation of nuclear plants are better designed and more safety measures have been put into place than what was there in the plants from the 1960s and 1970s. There is always some operational risk, but that is present in every power plant, be it coal, natural gas, geothermal, or nuclear.

Currently, the United States houses roughly 24% of the world’s nuclear reactors, and they account for about 20% of the power generated in the country. That’s one in every five homes being powered by nuclear energy. This number is a lot higher for some states, with New Jersey getting almost more than 50% of its power from nuclear energy. With renewed interest in nuclear power in the U.S. and President Obama guaranteeing loans for two new reactors this February, it’s pretty clear that the nuclear share in the energy pie is set to increase.

It’s Clean, It’s Green, It’s the New Obama Nuclear Machine

Though they vary in design, nuclear reactors operate on the same basic principle: the energy released by nuclear fission heats water to produce steam, which turns the turbines that generate electricity. The silver lining: no fossil fuels are burnt at any stage, so almost no greenhouse gases are produced. They are, however, expensive to build and it can take years. But once in operation, fuel costs are very low, which translates to low maintenance costs, and each plant can easily operate for up to 60 years. Running at around 90% capacity, nuclear power plants are workhorses that shut down only once every 18 months for refueling and maintenance.

The fact that they emit almost no greenhouse gases also makes nuclear power plants safe from the threat of potential emissions caps. Once these are introduced, and they are certainly going to be introduced, the costs of producing electricity at coal and natural gas-fired plants will noticeably escalate. In fact, the high energy yield of nuclear fuels, the carbon dioxide emitted during the mining, enriching, fabrication, and transportation of uranium is very small compared to the carbon dioxide emitted by fossil fuels.

Do You Like a 1,500% Return on Your Stocks? Our Subscribers Do.

The push to restart the uranium mining industry started up in 2001 and by 2006, America’s yellowcake production had increased by 70%. The Casey Research team was out scouting the market, and we knew which junior uranium mining company was going to explode. On our recommendation, our subscribers saw their stocks that they bought at under US$0.25 shoot up to over US$4 per share in less than a year.

Today, America’s nuclear industry is ready to expand again and has all the political and economic support necessary to do so. Consuming almost 30% of the world’s uranium, America’s uranium mining industry is looking to jumpstart itself again and at Casey Research, we know all the inside details. Click here for your free trial today and find out who will win the prize and who will miss out.

Liberal Arts and the iPad
By Bud Conrad

Steve Jobs said that the new iPad was developed by merging liberal arts with technology. Through my engineering eyes, I think of these technical breakthroughs as the result of combining hardware and software.

I saw an hour-long interview by Charlie Rose of Walt Mossberg and David Carr showing the function and features of this new device and became so enamored, I decided to go buy one the next day. Unfortunately all three nearby stores had sold out, but I prevailed a day later, like mothers buying scarce Cabbage Patch dolls in the 1980s.

Boy, does Apple know how to market! That one-hour TV slot was an infomercial that Apple could never have paid to get. There has been hype in the community for three months, and they know how to capture attention. It’s been five days, and hundreds of thousands of $500 machines are flowing to the masses.

I remember the to-be-shown-only-once 1984 commercial for the Mac: zombies, red running shorts, and smashing the Big Brother screen! No product features. Only anticipation that something to shake up the world was coming to bring information to the dull masses. How prophetic.

Here I am less than a day since I bought one, trembling from the outsized purchase that may be too new to work or not interface with my PC properly, and finding limitations on availability of WiFi.

But I hark back to that time in 1984 when I bought the second version of the Mac (which got beyond being just a toy) and grew into a Mac bigot, creating a developer’s relationship between then Fortune 500 “Big Iron” Amdahl and Apple. (What a culture clash as we drove to Apple in our Mercedes and suits, and they were late to the meeting, with beards, yellow Ethernet cables hanging from the ceiling, giving a sense of a Montessori school.)

It took a month for me to learn that mouse and visual interface, and there were plenty of people that said they would never need a mouse back then. The mouse, as developed by Doug Engelbart and demonstrated at the 1968 Fall Joint Computer conference had come alive. And computing became more accessible to the masses.

I have a similar feeling about the new interface demonstrated by the iPad. I loved my iPhone the last two years, (my contract expired a few months ago, so I know), and I have fond feelings toward how many new things I learned with that device. I hear small children love to play with smartphones.

That isn’t a fluke: one of the original human interface developers from Xerox PARC was Alan Kay, who at an early MacWord gave us bit-fiddler engineers a lesson in human development, discussing Piaget’s observation that the primitive child brain can recognize parents’ faces, and that communication by pointing and clicking on icons was from a more basic part of our brain.

The iPad develops a new paradigm in how we will interface with our information. It is enchanting. It is a mouse killer. We will see more. This is the wave of the new things to watch, along with services like iTunes that will replace traditional information sources.
The cost of delivering a new paradigm is high, which is why most Asian producers merely copy. For example, I sat through a class for an hour and a half, with six of us in the store that must have cost $200 to put on, and I badgered several floor people when the WiFi crashed twice. But “There’s an app for that” can make more money than the box.

In the early days of the Internet, I gave a talk at Harvard Business School where I gave my sense of where the Internet was going, saying things like “Remember when we had milk delivered to our door? That is what is going to happen to the newspaper.”

I pushed a bit further saying “Think of the future when we will be saying ‘Remember when we had newspapers? Remember when we had books? Do you remember movie theaters? Those libraries were kind of quaint. Perhaps, when we meet again in the future, we won’t have to travel because we can meet in virtual Internet space.’”

We are close to that vision. The features for book reading with this device are revolutionary, and I can say with confidence that Amazon and the iPad will bring the demise of the biggest Barnes and Noble.

Bricks and mortar are going the way of the milk man. Clicks are replacing bricks just as the human genome has superseded our competition. This is a new wave. (Ed. Note: The single best way to stay on top of big changes happening in tech is with a subscription to Casey’s Extraordinary Technology service. Through a comprehensive monthly letter and special alerts, the CET keeps you up-to-date and in the groove on everything you need to know about profiting from new technologies. A three month, 100% guaranteed, trial subscription is yours for the asking. Details here.)
The persistently elevated unemployment level continues to drain the federal and states’ unemployment insurance systems. The number of states forced to borrow from the Federal Unemployment Trust Account (FUTA) to continue sending out weekly unemployment checks has grown 50% from 22 to 33 over the last six months. And the total amount borrowed has surged 100% from $19.2 to $38.5 billion. Not exactly the “stabilizing” in employment that the government officials like to claim is underway.

FUTA was intended as a self-funded system via a yearly, per-employee tax paid by employers. However, the federal budget for fiscal year 2010 allocated “advances” to the fund specifically earmarked for “loans to states.” So, it appears that the bankrupted state programs are using FUTA as another backdoor bailout, with Uncle Sam’s loyal taxpayers footing the bill.

Relying on Big Brother for your economic analysis is a dicey proposition at best. At Casey Research, we monitor all the trends that impact your life and your money. Start getting the objective and independent analysis needed to position your portfolio to profit from the unfolding trends by accepting a no-risk, no-hassle, 100% satisfaction-guaranteed subscription to The Casey Report. Get started now by clicking here.

Friday Funnies

A man is walking down the streets of Washington DC one night. All of a sudden a mugger sticks a gun in his ribs and says, “Give me all your money!” He replies, “Do you realize I am an important member of Congress?”

The robber says, “In that case, give me all my money!”

Light Bulb Jokes

How many Californians does it take to change a light bulb? Six. One to turn the bulb, one for support, and four to relate to the experience.

How many LA cops does it take to change a light bulb? Five: One to screw in a new bulb, and four to beat the crap out of the old one.

How many mystery writers does it take to screw in a light bulb? Two, one to screw it almost all the way in and the other to give it a surprising twist at the end.

How many statisticians does it take to change a light bulb? One — plus or minus three

How many doctors does it take to screw in a light bulb? That depends on whether it has health insurance.

How many accountants does it take to change a light bulb? What sort of answer did you have in mind?

How many rock drummers does it take to change a light bulb? Ten. One to hold the bulb, and nine to drink until the room spins.

Mahatma Gandhi, as you may know, walked barefoot most of the time, which produced an impressive set of calluses on his feet. He also ate very little, which made him rather frail, and with his odd diet, he suffered from bad breath. This made him… a super callused fragile mystic hexed by halitosis.

Husband and wife go to the doctor’s

A woman accompanied her husband to the doctor’s office.

After his checkup, the doctor called the wife into his office alone. He said, “Your husband is suffering from a very severe stress disorder. If you don’t follow my instructions carefully, your husband will surely die.”

“Each morning, fix him a healthy breakfast. Be pleasant at all times. For lunch make him a nutritious meal. For dinner prepare an especially nice meal for him.”

“Don’t burden him with chores. Don’t discuss your problems with him; it will only make his stress worse. Do not nag him. Most importantly, make love to him regularly.”

“If you can do this for the next 10 months to a year, I think your husband will regain his health completely.”

On the way home, the husband asked his wife, “What did the doctor say?”
“He said you’re going to die,” she replied.

MiscellanyA Case for Expatriation. Following is the opening bit from an article titled “America the Grim Truth” I received this week by one of our researchers.Americans, I have some bad news for you: You have the worst quality of life in the developed world by a wide margin.

If you had any idea of how people really lived in Western Europe, Australia, New Zealand, Canada and many parts of Asia, you’d be rioting in the streets calling for a better life. In fact, the average Australian or Singaporean taxi driver has a much better standard of living than the typical American white-collar worker.

I know this because I am an American, and I escaped from the prison you call home.

I have lived all around the world, in wealthy countries and poor ones, and there is only one country I would never consider living in again: The United States of America. The mere thought of it fills me with dread.
While the author comes across as a something of a socialist, his overall message has a lot of truth to it. My personal experience and my interactions with dozens of expats over the years confirm it’s a big, beautiful world out there, with abundant rewards available and not just of the monetary sort for those willing to break free of the confines of their national identity. You can read the full article here.Ohio Phyle. Matthew D. will be taking over the reins on the Ohio phyle. If you are in Ohio and would like to join the group or even if you have previously joined drop us a note at phyle@CaseyResearch.com and we’ll get you set up for the next meet-up.
And with that, I will sign off, thanking you as I do for spending time with us this week, and for being a subscriber to a Casey Research service. Glancing at the screens, I see that gold is breaking to the upside and is now up over $1,160. While it is impossible to say whether the gold price will take out its former (nominal) high, a lot of support for the metal is coming from the increased media coverage on the insolvency of sovereign debtors.

In the end, as the fiat currencies head for their intrinsic value (correctly calculated in calories i.e., the heat they produce when burned), only the precious metals, or currencies directly linked to precious metals, will remain viable.
We live in interesting times, and they are going to get a lot more interesting before this is over.

David Galland
Managing Director
Casey Research