I’ve been noticing that certain sectors get hyped at certain periods of time. There are various influences out there (intelligent ones that, in general, are typically directionally correct and hence they gain a credible following over time) which form narratives and the digital financial wave decides to latch on until such a point they get washed away.
Today it appears that a bunch of hype is building up with uranium producers, the claimed narrative is that with Sprott opening up a physical Uranium ETF (TSX: U.UN) that this will suck up world supplies to a point where prices will rise and make all uranium miners spike. If storing vaults of gold and silver wasn’t enough to spike their respective commodity prices, surely storing yellowcake will be different!
The uranium market has been a cesspool for over a decade, which was not helped by Fukushima. In general, worldwide supplies of Uranium ore has been healthy to the point where Canada’s Cameco (TSX: CCO) decided it was easier to just buy than mine.
The claimed investment thesis is that an entity is essentially trying to corner the market on Uranium, so therefore you should buy the crap out of it before Sprott does. We also get a bunch of narrative about how China and India are building nuclear power plants, etc., etc. It’s a great narrative. The story is very easy to understand.
Uranium production itself is also a relatively small space in the publicly traded sphere (especially in North America) and there isn’t a lot to pick and choose from, hence it is a great target to hype up – a relatively small amount of capital will result in outsized price changes.
When I read these narratives from external sources (especially confirmed in multiple locations, which makes me suspect that there is a degree of inter-connectedness in these pronouncements) I get skeptical that I am behind the curve rather than leading it. I literally do not buy into these things.
I am sure there will be a decent price ramp (it is already occurring) but once the capital inflow dries up, it’ll be really interesting to see the conviction of these people that are looking for triple-digit gains in months when the geopolitical situation for this particular commodity will play out over years (specifically when fossil fuels get really expensive… come back later this decade for the resolution of this story).
My investment ideas have to be generated from non-narrative sources, and especially from sources that are not trying to sell subscription newsletters.
Unfortunately, this means that I tend to not pay much attention to various stories of hype – including the boom in marijuana companies in the second half of the last decade, the cryptocurrency boom, etc. I’m content with letting others gamble in that casino.
So when you are trying to be sold a story, ask yourself which stories are not being pitched to you, and look in that direction. It is much more difficult, cognitively, to look at a piece of information and then figure out what is not there, instead of fixating on the piece of information itself.
Stock screeners are great for generating a reasonable amount of random and obscure selections that can be subsequently mined for suitability. If one has views on specific sectors, selections can also be concentrated on that.
At present, however, my usual cautious approach to the markets has been getting even more cautious as of late. A chart of the S&P 500 or the TSX is not properly reflective of the level of fragility that likely exists out there.
Oh finally, a word of caution on uranium squeeze.
Those enthusiastic posts, coming from every corner, got me annoyed.
Hi Sacha, here’s an idea I recently read about: back testing of the index you would never invested your money in: Divestor’s “Never Invest in Index”.
Theoretical 1 million invested in tesla, bitcoin, cineplex, weed, uranium, green energy, China / Argentina / eastern Europe, cruise companies, etc.
I’ve read this in one’s guy blog, and harsh reality is that this garbage index is performing (so far) ~3-5 times better than his working portfolio…
I would think the entry and exit times would be a material determinant of the return… some are really good at gambling in such things, sadly I am not.
i’m with you in general skeptical of hype, but in this case the key to understanding uranium is that the underlying mine supply is far less than stable predictable demand, the spot price is below production cost, and that reactors are just expensive paperweights without access to uranium.
cameco has demanded long term contracts above their cost of production before they reopen mines so investing here is just about predicting the outcome of that industry negotiation
the small caps are far from getting financing and permits to build new mines so that part is just wild speculation. but it does seem pretty clear that the actual commodity uranium price must rise above production cost eventually and sprott is just accelerating the reduction in above ground supply to speed up the ultimate market price discovery
full disclosure: obviously i’m very long U.UN
Nuclear and coal will account for majority of U.S. generating capacity retirements in 2021:
https://www.eia.gov/todayinenergy/detail.php?id=46436
Nuclear might be the cleanest, but politicians are far from understanding this right now.
that may be the political desire, but the reality is the opposite
that article is from january, this is Illinois House action this week subsidizing keeping nukes going
https://www.mystateline.com/news/local-news/illinois-house-approves-clean-energy-plan-includes-funding-to-save-byron-nuclear-plant/
and this U.UN mania is now gaining crypto-like status!
I had the old uranium participation units which was taken over by Sprott in late July. It is now up over 50% just since late July. Only problem is my 200 units only became 100 shares of the new Sprott uranium fund. Same old story too little of the winners and too much of the losers (LOL).
Your Beloved BWXT should change it’s name to BWX Uranium Technologies. That alone would triple the stock price!