Yellowcake Bucks Up.
We’re not calling the bottom of the market here. But we saw two signs of life in uranium this past month.
Firstly, Avalon Minerals is planning to sell some uranium asset as an IPO. Basically, it thinks it can get more value out of them in the public market than tucked away in its balance sheet. It wouldn’t do that unless it thought the market was on the up.
The uranium price bottomed out at about US$56 per pound about a month ago. This week it’s trading at US$65. Yet Paladin (ASX:PDN) and Energy Resources of Australia (ASX:ERA) are each trading well below their yearly highs. Investors are looking for assets with safe, long-term profiles at the moment. That’s not uranium companies. But the hard asset itself might see demand. And that’s good for the companies.
A Guide to the Markets This Week
Let’s get started. There are a few things you need to keep an eye out for this week, dear reader.
If you don’t like interest rates, we suggest you go find a nice, dark cave somewhere and sit in it for the next year. Central banks set new rates in Australia and America this week. They’re the main event, like a trapeze artist in mid-air. The crowd is holding its breath. Will he stay up? Will he come down? It’s too much. We can’t watch.
(The most interesting part isn’t what central bankers do, by the way. It’s what the market does in response. Not the share market either. The market for money. We’re keeping one eye on free-market interest rates. More on this in the next couple of days.)
But there are plenty of other attractions apart from the trapeze. Here’s the line-up as it stands.
Today: House prices from the ABS. This isn’t likely to be pretty. We guess it’s the bearded lady of the show.
Why’s it important? Because the share market depends on business. Business depends on spending. Spending depends on wealth. And Australians, as the graph below shows, have been steadily increasing the proportion of their wealth in housing over the past 20 years.
Hmmm. Even if we do get an interest rate cut (see below), a bursting housing bubble won’t help the economy.
Tuesday: The RBA sets a new rate. This month’s rate will probably be the same as the old one. No-one expects Glenn Stevens to do anything this month. Everywhere you look people are predicting the end of the rate cycle.
We don’t know what Glenn will do. And we don’t think it matters. Inflation’s running at 4.5%, yet consumer spending is falling. Obviously consumer spending isn’t the problem.
But the point of the RBA is to keep the economy running in a nice comfortable range. It sees that consumers are discouraged. So it’s trying to pre-empt a full economic slow-down before it happens.
Which leaves us in a ridiculous situation. Inflation is well out of control. The RBA’s ‘job’ is to keep it below where it is now. And the RBA may soon be encouraging consumers to re-inflate the economy. We’ll re-iterate: inflation doesn’t always go in the same direction as spending. That’s when the central banking model breaks down.
Why’s it important? Retail stocks and banks depend on low rates to succeed. There’s a chance both sectors could bounce if rates fall.
Wednesday: The US Fed decides on rates. This is the clowns, we guess. Or maybe the freak show. No-one really wants to watch it, but they just can’t help themselves.
Why’s it important? As long as the rate stays where it is, inflation is outstripping primary bond yields. That’s a bit of a mouthful. But it means that gold is basically the only safe-haven asset that isn’t losing value. Might be time to look at yellow oil again, if Bernanke leaves the rate where it is.
That’s a heavy week. And there’s not a lot of good news there. But there are a couple of things still worth considering on the bullish side. Gold’s one of them. There might be another…
Apache Brings New Energy Forward Two Weeks
Meanwhile, WA businesses and miners might be set for some energy relief. Apache Energy reckons it’ll be able to provide more energy earlier than expected.
It’s not a whole lot. The company lost 350 terajoules in the blast. Apache’s hopeful it’ll regain 120 terajoules early this week. That’s around two weeks earlier than anticipated.
But still, it’s better than the alternative. Nothing.