rob zdravevski's blog

Does uranium power have a future?

Tokyo Electric (Tepco) has 188 power stations

Hydro                                                 160                            9GW                                                                                                                 Thermal (Oil, Coal, LNG)              25                           38GW                                                                                                                 Nuclear                                                  3 (17 reactors)   17GW                                                                                                             Total                                                  188                            64GW

3 nuclear plants produce 26% of the company’s generation capacity.

This is the reason why China won’t stop building its proposed nuclear power plants. Nuclear generates an incredible amount of power.

We know that it’s costly to build nuclear power plants and construction takes years but once operational, the cost of nuclear electricity production is low and it emits minimal greenhouse gases.

Today, the media is salivating about the prospect of reporting about the “grand-daddy” of all events. The nuclear melt-down easily outranks an earthquake, tsunami, aeroplane crash or shark attack.

As financial analysts tout coal being the “winner” as a result of this disaster, electricity prices will most likely continue their rise higher.

Don’t worry if Australia never has nuclear power. The pollies just won’t ever “get it”. Even though uranium is quite ubiquitous on earth, it is estimated that Australia has 30% of the known recoverable resources.

Currently, the world has ~ 440 nuclear reactors which (along with nuclear powered naval vessels) requires approx. 180 million pounds of uranium each year, while the world uranium production is near 90 million pounds……

Japanese investment opportunities

My bullet points and thoughts include:

• Minimise and balance the “noise” about Japan.
• When investing in Japan, perspective required between Japan’s national debt and macro fiscal problems and individual companies that are domiciled there.
• Always analyse the business in its own right and remain true on knowing the business and not speculate.
• Too early to jump into Japanese ideas, mainly because we aren’t sure about the accuracy of various info.
• Only interested buying if there is big discount to the net assets.

• Businesses such as mobile telco, NTT DoCoMo (9437 JP) has always been a good free cash flow and valuation idea, that could become very attractive if we see further market declines.

• Global brands such as Shimano, Daiwa, Yakult, Kikkoman and Toyota could be interesting buying if further declines are seen.

• While Tokyo Electric share price (owner of the Fukoshima nuclear power plant) has dropped 46% in price in 2 days and is trading at same price seen in 1984, it doesn’t appear cheap enough due to the debt that it carries.

• Fukoshima accounts for 10% of its power generation capabilities – beyond balance sheet risk, concerns similar to BP when oil rig sunk in Gulf of Mexico is liability and insurance.

• In fact, alternative opportunities may appear in uranium stocks in Australia or Canada or even nuclear power generation businesses in Europe or the United States such as E.On, Fortum, EDF or Excelon.

Does such a disaster actually kickstart Japan out of 20 years of stagnation?

weak sellers meet strong owners

I’m watching the capitulation, the running for the exits and the indiscriminate dumping of stock.

In the 3 business days, either side of the moment when Transocean’s BP operated rig sank (on April 22, 2010);

• BP’s stock saw 26% of its shares outstanding traded and stock fell 5% (stock fell 30% in the following 2 months as oil spewed and congressional hearings continued)
• Transocean (owner of the rig) saw twice its shares on issue traded and its stock fell 9% from $92 to $84. From late April to late July 2010, 300% of its total shares changed hands. During this 2 month period, it’s share price halved and its market capitalisation was reduced by $12 billion.

Irrespective of a company’s market capitalisation, there should be merit in monitoring the amount of shares turned over in a security, especially when its price is declining.

Providing that a company’s prospects hasn’t materially changed nor its business has become impaired as a result of recent news, this is often when stock changes from weak owners over to strong owners.

All you need is USD

Some tips from a friend who was visiting Cairo recently, when riots and protests broke out.

When you find yourself in a “trouble spot” somewhere in the world….

• Follow the Americans as their government seems to be the most passionate in extricating their citizens from conflict zones.
• Gold, travellers cheques and most currencies aren’t desired.
• Carry cash as ATM’s and Banks may not operate.
• In the absence of your own government’s help, always carry a few thousand U.S. Dollars to pay a charter pilot to fly you to Istanbul.

In his experience, no other currency mattered (except maybe for a EUR 500 note), yet the currency markets are bearish towards the U.S. Dollar.

It seems that when the s**t hits the fan, it’s not gold that is the world’s “safe haven” currency, but instead it remains the U.S. Dollar.

Perhaps the USD is in a longer term decline due to economic policy, but as history has suggested, the country or empire that spends the most on its military, maintains the world’s reserve currency and irrespective of which political party is in charge, I can’t see the spending trend reversing.

The mystery about Australian inflation

Woolworths reports a weak profit result as it cites deflation of 3% from its food & liquor business. This division generates ~ 75% of Woolies earnings.

I have wondered about whether retailers can pass on the rising costs of products that are placed on their shelves and I did think they would and could.

So, petrol prices are rising, my groceries cost more as do many other items apart from consumer electronics.

The Reserve Bank posts inflation figures that are comical when compared to the rising costs and prices that I experience and Woolworths are telling us that their profit is low due to deflation.

I don’t know how food prices can be falling when you consider the increase in agricultural commodities and transport costs but supermarkets also sell that other modern staple being the fast moving consumer good (FMCG).

Are batteries, razor blades, toothpaste or shampoo any cheaper than last year ?

Wine prices may be a leading oil price indicator

$2 bottles of wine are now being sold at a couple Margaret River outlets while $5 bottles are easier to find. Supply and Demand folks !

I found a graph in a recent edition of The Economist that showed a correlation between the price of oil and fine wines.

I’m not sure if I can extrapolate this correlation to daily plonk but 1 litre of crude oil is still cheaper than $2 wine, however the wine is now cheaper than bottled water.

Aside from a long term view that I have about oil being able to rise considerably higher in the decade ahead, it may decline first, to match the cheaper prices that wine is commanding…..

note: 1 gallon of oil contains 159 litres.

It continues to be “all about Oil”

Tunisians riot and the President flees, Lebanon’s government collapse leaving, the Iranian Revolutionary Guard supported, Hezbollah in charge.

Taiwan sets off a “test” missile while China’s President Hu is meeting Obama in Washington.

Earlier this month, North & South Korea raised hostilities.

In the last 3 days, Egyptians are protesting against the 30 year commercially corrupt and socially repressive rule of Hosni Mubarak. The Egyptian stockmarket fell 10% last night. It declined 6% the previous day.

Do markets over-react? Aren’t markets supposed to be efficient?

In fact, I’m confused. Egypt’s stock market should probably rise if “democracy” is about to erupt. This is going to be really interesting.

American is a global “backer” of democracy yet Egypt (with a authoritarian regime) is an important Middle Eastern ally for America and is it’s 4th largest recipient of foreign aid, following Afghanistan, Pakistan and Isreal. Seeing the current Egyptian government collapse would not be in America’s interest, ironically even if it meant “democracy”, but Twitter and Facebook could have a larger influence if the government falls or not.

The reason that America needs the 82 year old Mubarak to hold power is because the protest leading group of the Muslim Brotherhood are close buddies with Iran. Hmm, Lebanon under pseudo-Iranian control to the north and Egypt potentially to follow, with Israel sandwiched in between….

Maybe the movements in the Egyptian stock market is justified, but oil has also fallen from $89 to $85 in the past 5 days??

Any coincidence that rioting occurred last night in the city of Suez! Egypt fully controls the Suez Canal.

Ahaaaa !  that’s why America can’t afford to have Mubarak to lose control. They give him $1.4 billion of aid per year (mainly for military purposes), the most populous Arab nation continues to be an American ally, the Suez Canal runs smoothly and thus the oil price remains tempered.

Apple – as good as it gets?

On the eve of Apple reporting its quarterly earnings, Steve Jobs takes leave from the company again due to weight loss associated with his illness.

Principles don’t change, that’s why they’re called Principles

If investors agree that prices of assets seldom move uninterrupted in the one direction, then they should agree that the same prices also revert to their mean at some point. Lately, I get a feeling that investors don’t agree with the latter.

Mean reversion is a mathematical premise that is healthy for the behaviour of assets price, however it is important to understand that asset prices can also overshoot their mean, as markets aren’t always efficient in their discovery of price. Therein lies opportunity.

Opportunity (rather than concern) also lies in the volatility exhibited in an asset’s price. Volatility is often and incorrectly confused with risk.

Whether or not it works in sync with a mean regression theory, volatility is the price you pay for long-term gains in financial markets.

Paraphrasing investor, Sir John Templeton, “the normal range of volatility for stock prices is proportionate to the square root of its price”.

However, I have never seen an industry that is cyclical magically become non-cyclical and nor vice-versa.