The Rude Awakening
Laguna Beach, California
Wednesday, July 18, 2007 ------------------------- - Dow eclipses 14,000,
- Dom Perignon denial on Wall Street, that subprime
mess again, the Bear Stearns debacle, - Hunting yellow elephants in the Athabascan Basin and
plenty more…
------------------------- Eric Fry, reporting from Laguna Beach, California… To all the Rude Awakening readers who are minting money in the current market environment, we congratulate, applaud and salute you. …But we also worry about you. We worry that the stock market might not treat you as kindly during the second half of the year as it did during the first half of the year. No investor, least of all your skittish California editor, can know in advance when enough is enough or, more importantly, when too much is too much. And, ironically, experience is a dubious ally. The memory of hard-won capital gains that become hard-to-bear capital losses is not an easy memory to shake. Such painful remembrances sometimes promote an excess of caution - a fear of flying, if you will. Therefore, when high-flying stock markets are flying very high…especially when the fuel of fundamental justification begins running very low, we worry. The Dow Jones Industrial Average posted another of its successive all-time highs yesterday, despite the fact that every mortgage-related everything continued to slump. As the nearby chart clearly shows, for example, the value of sub-prime, mortgage-backed securities is plummeting. 
As the nearby chart does NOT show, the prices of most other mortgage-backed securities are also plummeting - producing billion-dollar losses…and possibly triggering a multi-billion dollar credit-derivative debacle. As these billions of dollars disappear, somebody might miss them. Wall Street's optimistic seers doubt that the slow-motion disaster unfolding in the mortgage derivatives market will impart any serious difficulties for the rest of the stock market. We are not so sanguine, especially not when interest rates continue to rise and home prices continue to fall. Yesterday's headlines produced the following gem: "Southern California Home Prices Drop 36%" The dismal sales total for the sunniest half of the Golden State matched a 14-year low. "It was the lowest sales count for any June since 1993," DataQuick Information Services reported. Meanwhile, confidence among U.S. homebuilders dropped to a 16-year low. These alarming observations do not guarantee that conditions will worsen in the ailing mortgage-backed securities market, but neither do they inspire hope that conditions will improve. The only possible surprise that this market could possibly deliver would be no surprise at all. Last night, for example, just as America's bullish investors were popping Dom Perignon corks to toast another record-high Dow close, the Wall Street Journal's web site divulged that the assets in the troubled hedge funds of Bear Stearns were "worth virtually nothing." The fund, which boasted $638 million worth of mortgage derivative exotica on March 31, saw its leveraged fortunes plummet rapidly in June. "Dear Client," the letter to partners of the High-Grade Structured Credit Strategies Enhanced Leverage Fund announced, your investment has "very little value left." The world's worst amateur investor could not lose every penny of a $600 million fund over a 30-day span. Only a professional could do that. No amateur could borrow enough money to wipe out that much capital that quickly. We pity the victims. On the other hand, any investor who places money in a hedge fund that contains "enhanced leverage" in the name deserves to receive an unpleasant surprise. After the Bear Stearns news broke last night, the brokerage firm's share price tumbled 4%, the dollar slumped to new all-time lows against the euro and gold advanced slightly. Today's trading action should be very interesting. Will the bulls delude themselves that the Bear Stearns debacle is just a one-off nuisance, or will fear replace confident optimism? Confidence and optimism have been holding sway on Wall Street for a very long time. But lately, optimism has reached dangerous extremes, according to professional options trader, Jay Shartsis. "The CBOE equity put/call ratio has recorded readings in the .50 region for 7 straight sessions," Shartsis notes. "It is therefore reflecting the most option trader optimism in several years. This is, of course, bearish in its implications and as a very important indicator is not to be taken lightly. "One of the guys in my office commented recently that 'trees don't grow to the sky,'" Shartsis continues. "My retort was that 'they already have.' I have a client who has been in the market for 50 years and says he has never seen anything like this. Me either. The problem for experienced traders is the psychological state of disbelief that this market drives one into. It's not easy to make decisions with your jaw hanging open. "So when might this madness end?" Shartsis wonders. "We are now nearly 5 Fibonacci years from late July of 2002 when the maximum number of new lows was recorded. That is sometimes referred to as the "internal " low. Keep 5 in mind. From the great liftoff of August 13,1982, the market ran up almost an exact 5 years to its late August 1987 top, and then the crash. The bull move of the 1990s started in earnest in January of 1995 and topped for several major indices 5 years later in January 2000. So July expiration day, which arrives this Friday, would fit nicely into the 5-year cycle that seems to have relevance. It is also hard to believe that the market can get though this entire year without a first rate smack in the face." The Dow's 5-year bull run, as nifty as it has been, hardly compares with the meteoric, 20-fold jump in the price of uranium over the same timeframe. Even in a world of soaring commodity prices, no commodity price has soared like uranium. The former bad-boy of the energy world has been making good for several years…very, very good. From a low of $6.75 a pound in 2001, the price of U-3O8 "yellowcake" has soared to $133 a pound. No other commodity has come close to matching these gains. The universe of uranium stocks has been "melting up" right along with uranium price - a phenomenon that has enriched many of the earliest entrants into the sector, but which is now attracting a wave of skeptical shortsellers. Doug Casey's team at the Casey Energy Speculator was among the prescient few to recognize the uranium bull market in its infancy. Casey's bullish recommendations provided some astonishing gains for his subscribers. But what about now? Is the uranium bull market over? Is a wicked correction imminent? Or is there a prudent way to position for a longer-term advance? The answers to these questions are not self-evident. But now that the first phase of the festivities may be drawing to a close, the insights of investors like Casey, who were early to the party, merit our attention. "The uranium sector has stalled out," observes Casey, "It was inevitable, given that the number of companies claiming to be uranium related had exploded from a small handful at the time of my original recommendation, to well over 400 today. Most of these companies are not worth the ink, let alone the paper, their certificates are printed on. "Does that mean that the uranium stock bull market is over? Hardly," says Casey. "The fundamentals still line up well in the favor of higher and higher uranium prices, as Marin Katusa discusses below, and there is an overarching reason why the sector may be about to surprise the nay-sayers. As you'll read, there is still big money to be made, and probably sooner than you'd expect." Casey is the expert; we are merely timorous bystanders. But uranium's parabolic price spike provides little comfort over the short term. Any asset that soars precipitously in price tends to drop precipitously as well…at some point. That said, Casey and his team make some compelling arguments for selective stock-picking in the uranium sector. So without further ado, please allow us to present the latest insights from the Casey Energy Speculator… --- Subprime Tsunami…The Second Wave --- Why Your House Could be Worth 43% Less by 2011 Thought you were "done" with the property bust? Think again -- then get ready as a whole "second wave" of falling prices sparks the worst property-led recession of the last 76 years! Don't Get Left In The Dark. Get Your Housing Survival Report Right Here. ------------------------------------------ Uranium Arcadium
By Marin Katusa The current uranium bull market has seen it all: land rushes, promises of immense wealth, millions of dollars poured into drill programs, and a uranium spot price that has wowed the investment community by smashing through $130 per pound. But amid the brouhaha, one thing has remained elusive: a major uranium discovery. Everywhere from Australia to Zambia, exploration results have been largely underwhelming. The most interesting results so far have come from a grassroots project; the Cameco/Strateco joint venture at Matoush, Quebec. But even this project is not fresh, much of the drilling to date has simply been to explore and define known deposits. In short, the investment world is still waiting for a big find in this exploration cycle. And discoveries will be key to the uranium story going forward. Here's why: the considerable gains made to date in uranium stocks have been largely triggered by the appreciation of U3O8 as a commodity. But riding the commodity price of uranium won't be the easy ticket to success for juniors it was in the recent past. With the uranium spot price doubling in 2006, investors crowded into the party, indiscriminately pouring money into exploration stocks, creating a rising tide that lifted all boats. In the first half of 2007, the uranium spot price has doubled yet again, yet uranium stocks have languished, with many stocks trading at levels last seen when uranium was half its current price. Will continued increases in uranium price ensure investors stay interested in the uranium sector? Probably. Will it generate another buying spree in uranium stocks? Maybe not. The question then is, is there still big money to be made in the uranium stocks? In a word, yes. The uranium stock bull market to date has been unusual in that it has been driven solely by the price of the underlying commodity, with no major new discoveries to date. In almost all previous resource bulls, the junior explorers have been propelled by the announcement of a major find. Pyramid Mines' lead-zinc discovery in 1965 sent the entire Vancouver Stock Exchange into a buying frenzy. Likewise, DiaMet's diamond discovery in 1991 sent its stock from pennies to $60, and sparked a follow-on mania as investors rushed into any and all companies with diamond properties in northern Canada. In Labrador, the Diamond Fields Voisey's Bay nickel discovery in 1993 sparked one of the largest and most profitable resource share bull markets to date. And here's the good news: a major discovery in uranium is now all but inevitable, due to the unprecedented amount of money that has been spent in uranium exploration programs over the past few years. And when the long-awaited discovery does come, accompanied as it will be by stories of shareholders striking it rich overnight, it promises to kick start another bull run for the sector as a whole. And especially for anyone fortunate enough to have invested in a company with holdings near the discovery. For that reason, our Casey Energy Speculator has focused on identifying the uranium companies that have the land, management expertise and the cash needed to give them a real shot at the next big find. That will be the single best way to earning life-changing returns. In addition, we are investing in companies working in zip codes where elephants might be found - and that zip code, or postal code as would be more apt, can be none other than Canada's Athabasca Basin. The Athabasca Basin has been the world's premier uranium district for the past half-century, and accounts for one-third of the world's uranium production. Since 1968, 18 deposits totaling over 1.4 billion pounds of uranium have been discovered in the region. The total value of Athabasca's remaining uranium deposits is on the order of US$30 billion, putting the region on par with the world's other major mining districts - Nevada's Carlin trend (US$35 billion) and Ontario's Timmins Camp (US$21 billion). The first major uranium discovery in the Athabasca Basin was made at Rabbit Lake in 1968, producing 120 million pounds of U3O8 over twenty-five years. In 1975, the richest open-pit deposit in the world was discovered at Key Lake. Over its 15-year life, the Key Lake deposits produced more than 190 million pounds of U3O8. These early discoveries of relatively near-surface deposits were found by traditional prospecting of mineralized boulders and current-day radiometric geophysical techniques. In the early 1980s, deeper discoveries were made of so-called "blind deposits" that had no surface expression. The MacLean, Midwest and Sue Deposits as well as the giant, high-grade Cigar Lake deposit all fell under this category. In 1988, the highest-grade uranium deposit in the world was found beneath 500 meters of sandstone at McArthur River. In short, the Athabasca Basin has and continues to be uranium's ground zero and the likely address of the next big discovery. But which of the many companies working in the Basin is most likely to grab the prize? We don't know the answer, of course, but we are not short of educated guesses. Check in tomorrow, as we put a little more meat on the bones of our analysis. Joel's Note: The Casey Research folks have dug up a few gems of there own in recent years. I checked in on their track record and found some stunners like Sterling Resources, up 660%, Strathmore Minerals, up 340%, International Uranium, up 1,497%, Luke Energy, up 104% and Cameco, up 570% since their recommendations. Not too shabby, huh? I guess being "early to the party," as Eric puts it, can really pay off. If you'd like to find out what the Casey group are eyeing up next, you'll find all the details here: Doug Casey's Energy Speculator - 6-Month Risk-Free Trial --- Big Gains from "Worthless" Oil --- Find out how one penny stock will soon begin to transfer the world's "junk oil" into pure profit… But you have to hurry: It's rallied hard in recent trading. Here are the details -------------------------------------- Rude Endnote: Have you got a fascinating discovery you wish to share with your fellow Rude readers? Mail should be addressed to aussiejoel@the-rude-awakening.com . Addison and Ian are working on your 5 as I type. Look for
it to hit your inbox sometime around lunch. Cheers, Joel | 
