Quants vs.Traditional Stock Pickers

Jeremy Grantham's quarterly report is always worth a read. He owns and manages an investment management firm GMO. His bearish opinions on markets were early but he certainly isn't a permabear like some. His latest article talks about market models and how to account for rare one off events. He was warning about the U.S. housing bubble for at least two years.

Currently, he makes a case for quality blue chips. (I think XLP qualifies here) He also says that emerging markets might be the place if the U.S. economy can muddle through. He also suggestedg hedging these positions by shorting the Russell 2000. (low quality small caps)

Maybe we should take advantage of further market volatility to add an emerging market ETF?

Another Down Day

Wow. I can't remember a day when there was only one up stock on the TSX 300? Anybody care to take a stab at which one? Printer Transcontinental was up 1.7%. I guess they gained on the fact that one of their big competitors Quebecor World is now officially in receivership.

Today during the bloodbath I got thinking about BCE and its buyout. Could it really be at risk. The buyers including Teachers and Ontario Teachers along with some American buyout firms have pretty deep pockets. There was a rumor lately that admist Merrill's problems, that they would want to walk from their miniscule $375 million dollar stake.

The closing price of BCE today was $34.42, so if the takeout proceeded at the negotiated $42.75 a share, that would be a cool 24% upside! The risk is if the credit markets continue to cool and the deal doesn't get done. Now we'd be left owning a large but laggard telecom company with a yield north of 4% and likely a slow grinding recovery.

Any takers if we can get in below $34 tomorrow? The futures are pointing to a downwards open.

a rough day for Fulton Associates

(hi from San diego!)
Well SLB and LuLu had a pretty bad day (week?), dropping more than the market. I still believe strongly in LuLu but a high beta stock is somewhat challenging in a down market. I think the challenge is to evaluate whether the drop is a buy opportunity in emerging or commodity markets? So this comes down to how much those markets are decoupled from the US economy. No one knows for sure so let's make our analysis and try to invest wisely based on our consensus.

Twilight in the Desert

This is an interview with Matt Simmons author of the book in the title of this post. He is also an energy analyst and I found this good interview.

His points were to stay away from the majors (BP, Exxon, Shell etc.) and to focus on the service companies like SLB, RIG, and BHI. He also likes Chesapeake (CHK) because of its management.

I read his book last year and found it very technical but it raised a lot of questions about OPEC's stated reserves. The more I've followed this peak oil theme, the more I realized that's its about the flow rates or production rates and not necessarily about the reserves.

Take a reading of the interview: http://www.financialsense.com/editorials/casey/2008/0109.html

Yellow Cake

I've been meaning to write this post for some time but only got around to it now!

My investment thesis revolves around nuclear energy and specifically uranium. You have probably read about a recent renaissance in nuclear energy. There are many reasons for this including increasing electricity demands especially in the developing world, global warming, as well as peak oil.

For a few years now, mine supply (~105 million lbs) has been well short of demand (~175 million lbs) with the difference made up from US and Russian stockpiles. These stockpiles are now greater than halfway depleted and there is indication that Russia plans to end this agreement. Although the U.S. hasn't built a new nuclear reactor in over 25 years, the rest of the world especially Chindia have 82 plus nuclear reactors on the works. http://www.cameco.com/uranium_101/markets/ The world currently has about 440 nuclear reactors in operation so this represents a potential 18% increase.

Mining and uranium mining in general is capital intensive and often subject to regulatory/political/ and operational delays so market mechanisms for increasing supply to match demand are delayed. For example Cameco's Cigar Lake mine, one of the largest future uranium ore bodies in the world began construction in 2005 and has had continuous construction problems necessitating delays and now probably won't start production until 2011. Despite the price of uranium being higher in 2006, mine supply actually decreased from 2005 levels.

More topical is the global warming movement, and many environmentalists now support nuclear power as a way to reduce CO2 emissions.

Uranium itself has had a tremendous run and has increased from $10 in 2003 to $140 in July of this year. It has since backed off and is trading aroun $90. Most uranium mining stocks have tracked the price of uranium.

I've followed a Nuclear Energy Index stock symbol NLR that is comprised of many companies involved in all aspects of nuclear power production including uranium miners, refiners upgraders, as well as nuclear power plant design and construction companies.

http://www.fool.com/investing/etf/2007/08/31/go-nuclear-with-etfs.aspx

http://www.vaneck.com/index.cfm?cat=3193&tkr=NLR&setGUID=done
It has corrected along with the price of uranium and it may be a good time to play this emerging energy theme.