Dead Cat Bounce Or Turnaround? The Curse Of The Disaster

Famous investor Jim Rogers said, “Bottoms in the investment world don't end with four-year lows; they end with 10- or 15-year lows.” And: “While 10-15 year lows are not common, they do happen.” Investopedia

Most people want to make a quick money on stock markets, with forex or cryptocurrencies, and don’t care much about long time trends or 15-years bottoms. I’m hunting this special cases, forgotten or hated, undervalued investments, that can produce a real huge bounce – some day.

The curse of the disaster

A nice example is the uranium mining sector. I don’t say it’s forgotten, but only a few investors know some more about. After the Japanese Fukushima nuclear disaster, the 11 March 2011, the whole nuclear sector seemed to be damned. (Marked with yellow arrows on the charts.)

Japan and Germany wanted to close all nuclear plants, some other constructions were rethought, in many plants, costs were surging because of new security measurements. Plants or the energy holding companies halted making new uranium purchasing contracts in this uncertain environment. Uranium prices fell like a piece of stone, and value of mining shares, accordingly. (Should be an ugly “death cross” on the chart.)

Austerities, measures everywhere

In this environment, uranium mines had to take measures, cut costs, cancel investments or explorations, close operations. This process isn’t finished until today: Cameco, the largest western mining company announced only a week ago, “it would extend the shutdown of its McArthur River mining operations to support the uranium price, which has fallen by more than 40% over the past five years”. Seekingalpha

Less scepticism, more plants

The problem is, Kazakhstan, the major producer announced earlier production cuts two times, and Cameco is also making this move the second time. They caused only temporary price jumps. But sometimes other good news are coming.

The earlier nuclear power scepticism faded: “Nuclear power capacity worldwide is increasing steadily, with about 50 reactors under construction”. And more constructions will begin in next years in some large countries, like China, Russia, Korea etc. Source, list here

Jump, but not too high

The price of uranium reached by 17,75 USD a new 12,5-years-low in November 2016, the price of the URA (Global X Uranium ETF) by 10,6 USD in the same month. Uranium price was 26,25 yesterday, 47,9 percent higher. URA shares value is 13,15 dollars today, that’s only 24 percent higher than at the lowest point.

But URA was also by 18 USD in January 2017, as Kazakhstan cut production the first time. That was a quick 50 percent jump in some weeks, from 12 USD earlier. When something really good news are coming, the price can skyrocket. For example if Cameco-Tepco dispute ends.

Dead cat, or not

The recent jumps of uranium or URA were far too big to be a dead cat bounce, but far to small to speak about a turnaround. May be we are at the beginning of a slow, long recovery process. (Meanwhile, URA has a dividend yield of 2,3 percent p. a., see table, source: Nasdaq)

Bad cases

A turnaround can have many possible reasons but is far not sure. Bad news are always possible: further expansion of cheaper renewable energy (and advances in it’s long time storage), new thorium fuelled reactors in India, lower natural gas prices, unfavourable political decisions, a new nuclear accident. Cameco can suffer further if it looses in the dispute with Tepco (worth several hundred million dollars).

“Don't be shy about going against the trend and investing; you could make a fortune by making a bold move - or lose your shirt.” And: “Be prepared to see your investment sink lower before it turns around and starts to pay off” – said also Jim Rogers.

Disclaimer:

I am not a financial advisor and this content in this article is not a financial or investment advice. It is for informative purposes only, or simply to make you think, entertain, increase testosterone and adrenaline level. Consult your advisers before making any decision.

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(Photo: Pixabay)