A correction is a beautiful thing, simply the flip side of a rally, big or small. Theoretically, even technically I’m told, corrections adjust equity prices to their actual value or support levels. In reality, its much easier than that. Prices go down because of speculator reactions to expectations of news, speculator reactions to actual news, and investor profit taking. The two former “becauses” are more potent than ever before because there is more “self directed” money out there than ever before. And therein lies the core of correctional beauty! Mutual Fund unit holders rarely take profits but often take losses.
Opportunities abound! Heres a list of ten things to do and/or to think about doing during corrections of any magnitude:

1. Your present Asset Allocation should have been tuned in to your goals and objectives. Resist the urge to decrease your Equity allocation because you expect a further fall in stock prices. That would be an attempt to time the market, which is (rather obviously) impossible. Proper Asset Allocation has nothing to do with market expectations.

2. Take a look at the past. There has never been a correction that has not proven to be a buying opportunity, so start collecting a diverse group of high quality, dividend paying, NYSE companies as they move lower in price. I start shopping at 20% below the 52-week high water mark, and the shelves are full.

3. Dont hoard that smart cash you accumulated during the last rally, and dont look back and get yourself agitated because you might buy some issues too soon. There are no crystal balls, and no place for hindsight in an investment strategy.

4. Take a look at the future. Nope, you cant tell when the rally will come or how long it will last. If you are buying quality equities now (as you certainly could be) you will be able to love the rally even more than you did the last time as you take yet another round of profits. Smiles broaden with each new realized gain, especially when most folk are still head scratchin.

5. As (or if) the correction continues, buy more slowly as opposed to more quickly, and establish new positions incompletely. Hope for a short and steep decline, but prepare for a long one. Theres more to Shop at The Gap than meets the eye.

6. Your understanding and use of the Smart Cash concept has proven the wisdom of The Investors Creed. You should be out of cash while the market is still correcting. It gets less and less scary each time. As long your cash flow continues unabated, the change in market value is merely a perceptual issue.

7. Note that your Working Capital is still growing, in spite of falling prices, and examine your holdings for opportunities to average down on cost per share or to increase yield (on fixed income securities). Examine both fundamentals and price, lean hard on your experience, and dont force the issue.

8. Identify new buying opportunities using a consistent set of rules, rally or correction. That way you will always know which of the two you are dealing with in spite of what the Wall Street propaganda mill spits out. Focus on value stocks; its just easier, as well as being less risky, and better for your peace of mind. Just think where you would be today had you heeded this advice years ago

9. Examine your portfolios performance: with your asset allocation and investment objectives clearly in focus; in terms of market and interest rate cycles as opposed to calendar Quarters (never do that) and Years; and only with the use of the Working Capital Model, because it allows for your personal asset allocation. Remember, there is really no single index number to use for comparison purposes with a properly designed value portfolio.

10. Finally, ask your broker/advisor why your portfolio has not yet surpassed the levels it boasted five years ago. If it has, say thank you and continue with what youve been doing. This one is like golf, if you claim a better score than the reality, youll eventually lose money.

11. One more thought to consider. So long as everything is down, there is nothing to worry about.

Corrections (of all types) will vary in depth and duration, and both characteristics are clearly visible only in institutional grade rear view mirrors. The short and deep ones are most lovable (kind of like men, I’m told); the long and slow ones are more difficult to deal with. Most corrections are “45s” (August and September, ‘05), and difficult to take advantage of with Mutual Funds.
But amid all of this uncertainty, there is one indisputable fact: there has never been a correction that has not succumbed to the next rally… its more popular flip side. So smile through the hum drum Everydays of the correction, you just might meet Peggy Sue tomorrow.

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If you have heard fund managers talk about the way they invest, you know a great many employ a top down approach. First, they decide how much of their portfolio to allocate to stocks and how much to allocate to bonds. At this point, they may also decide upon the relative mix of foreign and domestic securities. Next, they decide upon the industries to invest in. It is not until all these decisions have been made that they actually get down to analyzing any particular securities. If you think logically about this approach for but a moment, you will recognize how truly foolish it is.

A stocks earnings yield is the inverse of its P/E ratio. So, a stock with a P/E ratio of 25 has an earnings yield of 4%, while a stock with a P/E ratio of 8 has an earnings yield of 12.5%. In this way, a low P/E stock is comparable to a high yield bond.

Now, if these low P/E stocks had very unstable earnings or carried a great deal of debt, the spread between the long bond yield and the earnings yield of these stocks might be justified. However, many low P/E stocks actually have more stable earnings than their high multiple kin. Some do employ a great deal of debt. Still, within recent memory, one could find a stock with an earnings yield of 8 12%, a dividend yield of 3- 5%, and literally no debt, despite some of the lowest bond yields in half a century. This situation could only come about if investors shopped for their bonds without also considering stocks. This makes about as much sense as shopping for a van without also considering a car or truck.

All investments are ultimately cash to cash operations. As such, they should be judged by a single measure: the discounted value of their future cash flows. For this reason, a top down approach to investing is nonsensical. Starting your search by first deciding upon the form of security or the industry is like a general manager deciding upon a left handed or right handed pitcher before evaluating each individual player. In both cases, the choice is not merely hasty; its false. Even if pitching left handed is inherently more effective, the general manager is not comparing apples and oranges; hes comparing pitchers. Whatever inherent advantage or disadvantage exists in a pitchers handedness can be reduced to an ultimate value (e.g., run value). For this reason, a pitchers handedness is merely one factor (among many) to be considered, not a binding choice to be made. The same is true of the form of security. It is neither more necessary nor more logical for an investor to prefer all bonds over all stocks (or all retailers over all banks) than it is for a general manager to prefer all lefties over all righties. You neednt determine whether stocks or bonds are attractive; you need only determine whether a particular stock or bond is attractive. Likewise, you neednt determine whether the market is undervalued or overvalued; you need only determine that a particular stock is undervalued. If youre convinced it is, buy it the market be damned!

Clearly, the most prudent approach to investing is to evaluate each individual security in relation to all others, and only to consider the form of security insofar as it affects each individual evaluation. A top down approach to investing is an unnecessary hindrance. Some very smart investors have imposed it upon themselves and overcome it; but, there is no need for you to do the same.

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There’s much to learn about the online brokerage industry. Unfortunately, many investors learn this the hard way.

With so many options available, choosing the right broker is as crucial as making the right investment.

For years, investors were accustomed to paying $9.95 or higher per trade based on their account equity or trade activity. However, those days have come to an end.

When evaluating brokers, keep these factors in mind:

* How fast can the broker execute my trade?

* What type of technology does the broker use?

* What level of customer service does the broker provide?

* How much will the broker charge me per trade?

The competitive nature of the new online trading industry has led to lower commission rates for all investors. While well-known brokers such as Ameritrade or ETrade are still charging around $10 per trade, smaller firms can charge less than $3.

Investors willing to look beyond the industry leaders also may find that smaller brokers, such as RushTrade, have more to offer in other areas, including customer service, order routing and trading technology.

RushTrade has made a name for itself as a leader among online brokers when it comes to fast, reliable trading and customer service. With the increase in competition among online brokers, RushTrade has structured its commissions to attract every type of investor.

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It’s been a wild and wooly couple of weeks on the international stock markets. But is the recent slide grinding to a halt…or just taking a breather before tumbling some more? And more importantly, what does it mean to astute penny stock investors?

Wall Street recently stumbled to its worst week of the year, and global stock markets fell dramatically on concerns about rising interest rates and slowing growth. After rising almost 9% in the first four months of the year, the Dow Jones industrial average has fallen about 6.5% from a six-year high, reached May 10, 2006.

Stocks have been ailing because penny stock investors fear the Fed could be so focused on inflation that it ignores signs of an economic slowdown, raises interest rates too high and sends the economy into a recession.

Global stock markets were sent reeling last week after golden-tongued U.S. Federal Reserve Chairman, Ben Bernanke shocked penny stock investors in saying the Fed will continue raising interest rates to keep inflation in check.

And that decision will have a direct impact on the penny stock market. Higher interest rates hurt penny stock prices because investors believe it will curb economic growth and corporate profits.

But why is inflation heating up? Higher energy costs. Traders and penny stock investors are also worried that with the hurricane season officially under way, Gulf Coast refineries and oil production sites could be damaged again this summer and fall.

And higher interest rates have the ability to affect the entire economy. Finance charges on credit cards will rise. So too will rates on mortgages and home equity loans, putting additional pressure on homebuyers and a softening housing market. Ultimately, it will cost more to borrow for expansion.

But does this signal doom-and-gloom for the penny stock market? Au contraire. While the temptation to sell everything can be overwhelming, some see this as a great opportunity. “I would not be selling. I would tend to be buying,” said one New York analyst.

So how exactly is this an opportunity? It just so happens that many companies caught in the market’s downward spiral are cheaper than they were a few weeks ago. And as any seasoned penny stock investor will tell you, buying a great penny stock when it’s been beaten down isn’t a bad way to make money over the long haul.

If you can stomach some of the volatility that is. While many blue chip investors have difficulty handling the market’s unpredictability…it’s par for the course.

So, “snap out of it,” said another watcher. A month of dizzying selling has brought the markets into an attractive range. Is it possible the markets will fall more? Absolutely. After all, no penny stock is a sure thing. But one thing is certain: “Stocks are much cheaper now than they were two months ago.”

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In two previous columns, we talked about how quality management attracts Publicity, or PR. Nearly every company is constantly trying to attract the attention of the media. What brings the media to a companys door? Thats what every public relations man or woman would love to know. For this is what PR people get paid to obtain for their clients.

Quality management is certainly a key motivation in attracting a reporters attention. This helps persuade the reporter or a radio/TV producer that the proposed interview isnt going to be with someone who has nothing to say or just rehashing a clich or tired, old story. The higher the title and the better known a company, the greater the impingement a PR pitch (thats what publicity people use to sell a reporter) impacts upon a member of the media. If someone from the publicity department at Microsoft calls Fortune magazine to ask about profiling Bill Gates, the pitch will have major impingement value. Few names have this kind of clout, either personally or corporately.

In any event, the senior editor of the major magazine will still inquire about the story angle. The editor will want to know, What are we going to talk about? Ultimately, it is the outstanding story that sells magazines or newspapers, not just the big name. Not all such stories involve a big name speaking or spouting his thoughts for the day. Often, better stories evolve when there is a strong newsworthy angle. Lets look at two recent stories one which involves a uranium company and another one about a coalbed methane (CBM) company, which weve covered in this column.

On Thursday, Pacific Asia China Energy (PACE) was featured in the Financing section of Canadas Globe and Mail newspaper. Headlined High-Energy Performer, the opening sentences told us why the reporter was interested: PACE holds contracts to help China explore for and develop its coalbed methane (CBM) resources fuel China needs to help satisfy its energy demands.

The big story, which drew the newspaper to Pacific Asia China Energy, was China. PACE piggybacked that story because the company may be helping to offer a legitimate solution to the countrys energy mix. Part of the big story is the possible size of the recoverable gas, estimated in a technical report by Sproule International to be as large as 11.2 trillion cubic feet of gas.

Those two items enhanced the reporters interest in PACE. China needs alternative energy sources, such as CBM, to improve their energy mix from a near total dependence upon coal. And, PACE has a potentially huge resource, which could last a good number of years. Such a gas resource could be sufficiently large to make an impact on China. After all, China has proven reserves of a little more than 30 trillion cubic feet. Another 11 trillion cubic feet, should the potential be proven up, would represent a significant increase of available gas in a very large country. By itself, this could later develop into a major international energy story, reported upon by a great number of news media. Another impingement about the reporter is having the satisfaction of reporting upon a good story, well before others write the story.

Chatter in the newsroom:
Did you hear about PACEs gas discovery in China, Bob?
Bobs Reply: Oh that one. Yeah, I wrote about it eight months ago!

Therefore, there are multiple impingement points in this story. Each draw, or a reason to attract eyeballs to the story, is another point the story must score, for the reporter and his editor, to overcome the hurdles of being featured in a major publication. China is a draw. The size of the PACE coalbed methane gas resource is a draw. The potential impact upon Chinas energy mix is a draw. Writing about it before the rest of the pack jumps on the bandwagon? Thats a draw, too. In this case, four draws sufficiently attracted media coverage for this small CBM development company.

Sometimes, the timing is just perfect, and the overpowering big story accidentally introduces a lucky guy onto the worlds stage. On the same Thursday, the PACE story was carried in the Globe and Mail, the Chief Executive of a tiny Canadian uranium company impinged on a Russian news service reporter in Hong Kong. Such was the good fortune for Craig Lindsay, a Certified Financial Analyst, who has spent more than 16 years in corporate finance, investment banking and business development, according to the website of Magnum Uranium, for which he now serves as Chief Executive.

While Magnum has a market capitalization of about $15 million, and Lindsay is neither a geologist nor engineer, RIA Novosti news agency touted him as a well-known energy expert. Admittedly, Lindsay gave a great speech at the Hong Kong Club for foreign correspondents. Cleverly, he announced, Uranium may be the next oil, during his speech. As many other industry experts have predicted, Lindsay also forecast uranium may hit $50/pound by the end of the year. So many are now announcing this it is likely to become a self-fulfilling prophesy.

What elevated Lindsays publicity was not what he said in his speech. Most of his commentary has been already been reported in numerous publications, including in our columns. (What reporters really hate is rehashing old news to give someone publicity!) It was to whom Lindsay was speaking, and especially the timing as to when it was said. Here is how Craig Lindsay got his 15 minutes of fame.

About six hours earlier, the very same Russian news agency reported that Russia and Kazakhstan had signed a uranium deal worth $1 billion. The photos of Russian President Vladimir Putin and Kazakh President Nursultan Nazarbayev appeared as the photo op which goes with such really big stories. This was a major event involving two very big names, and among the biggest names and countries in the uranium sector. This was also Russias first contract to import uranium; Kazakhstan is the worlds third largest uranium producer. All of this is big news.

The clever Russian freelance reporter, who attended the Lindsay speech in Hong Kong, probably text-messaged or emailed his editor by Blackberry, tried to piggyback the Russian-Kazak story with his own story. Yes, that is how timing works. As soon as a major event takes place, other journalists rush to piggyback the event with their story. The Russian reporter scored points with his editor and got his story filed (slang for published).

Two cunning gentlemen, the Russian stringer (slang for freelance reporter), and Craig Lindsay (whose name was spelled Kreig Lindsay in the article), both accomplished their purposes. Mr. Lindsay got his company into the worlds spotlight. The Russian stringer got a great story. The reporter threw up a softball question, for which Mr. Lindsay supplied the desired answer.

What was the question the reporter asked Lindsay? Thats pretty obvious from what the reporter published in his article. Here is a clip from the Moscow News article:

Foreign investors are ready to invest in Russias uranium industry, if Moscow wants this to happen and establishes a necessary legal base, Lindsay said. I believe that Russia is one of the most promising directions for this kind of investments, it is an undeveloped market, full of opportunities. My company will be the first to come to Russia, if the necessary conditions are created, he added.

Nowhere in Lindsays speech did Magnum Uraniums Chief Executive discuss investing in Russia. However, the reporter NEEDED a good quote. It had to tie-in with investing in Russia for uranium development. Lindsay accommodated. He didnt commit to investing in Russia, but he kept the door open. Magnum Uranium recently announced the acquisition of a 1,080-acre land package in Converse County, Wyoming. The company is also exploring for uranium in both Wyoming and the Athabasca Basin. Its finances are probably already stretched from both exploration and acquisition activities. Magnums market capitalization would probably be insufficient to launch investments into Russia, at this time.

However, Lindsay did a great job getting his company this caliber of publicity. And he got the uranium sector excellent publicity. He capitalized upon an impinging story a story that did show up on the worlds radar by correctly supplying an answer the Russian journalist was trying to prod out of him.

This is the essence of how journalists and publicity-seekers work together. If the PR person gives the journalist the story angle he is looking for within the bigger story, chances are it will appear in print. Piggybacking a main event is the most common way to increase ones impingement value to a reporter. And by being a cunning interviewee for his Russian reporter, Craig Lindsay just got Magnum Uranium into this column as well!

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Cameco Corp (NYSE: CCJ) is the 800-pound gorilla of the uranium sector. Cameco is to uranium what Wal-Mart is to retailing, and what Saudi Aramco is to petroleum. On a percentage basis, Cameco dominates its sector more so than either of the two. Cameco probably has more clout in turning off the electricity now powering your computer than any other company in the world.

This week, the spot price of uranium rose to $40/pound, for the first time since Ronald Reagan was president. That should help grow the uranium business in Wyoming by leaps and bounds. In Part 5, we look at the largest U.S. uranium producer, Cameco-owned Power Resources.

Understanding In Situ Leach Uranium Extraction

It took $284 million Canadian to build, and it operated with 546 people, said Patrick Drummond, Plant Superintendent for Cameco subsidiary Power Resources Smith Ranch facility. He was pointing to Kerr McGees Smith Ranch underground mine on the wall across from desk, which was later converted into an ISL operation, first run by Rio Algom. This operation cost US$44 million to build and 80 people to start. Drummond was referring to the In Situ Leaching (ISL) uranium extraction facility, known as Smith Ranch. That should give you the scale of the ISL versus an underground mine, he explained.

The aging, but sprightly, Drummond knows his uranium. Hes worked in underground mines, open pit mines, and uranium mills since 1980. From 1996 to the present day, hes worked in Wyoming for Power Resources at the companys ISL uranium extraction facility. I started off in the coal mines in Scotland, boasted Drummond, who claims he can spot a coal miner in a bar, just by looking at the veins in his hands. I worked up in Elliot Lake and the massive underground mines up there. Clasping his hands and looking down, he seemed to apologize, Its also a massive environmental problem to clean up, a major undertaking. Quirk Lake was one of the bigger mines up there. It cost a lot of money to clean it up.

The New Face of Wyomings Uranium Mining is the ISL uranium extraction method, also known as solution mining. The differences between mining uranium underground and an ISL operation are both minor and vast. Both methods mine uranium beneath the surface. So both methods are underground mining. However, that is where the similarities end. With underground, you bring up the ore, grate it, crush it, and extract the uranium from the ore, Drummond explained the basics of underground uranium mining. That ore becomes waste, which is known as tailings. You then have to service these big tailings and then decommission.

ISL is the new breed of mining. With ISL, we dont do that, continued Drummond in his day-long lecture to our editorial team during a VIP tour of the Smith Ranch facility. To mine underground with ISL, you drill the holes where the uranium is and extract the uranium from the underground ore, he said. Then, you process that into yellowcake.

Its not all wine and roses for Drummond, though. He pines away for his underground mines, From a mining perspective, its not mining so it is not as exciting. Drummond laughs, ISL is like a water treatment plant. We take water out and remove some ions. He makes it sound so simple, We remove the water from the underground and remove the ions, being the uranium ion. Then, we put the water back under the ground. All of the water goes back into the ground? Actually no, Drummond explained, We take our water out and we put 99 percent back in. The one percent we call bleed. Its a control function.

Drummond cites more comparables, To start an underground mine, it would take a year to do the shaft before you could start mining. Then, theres the development cost of the mill complex. You have all that outlay of cost before you can get any benefit. Its expensive to do underground — $200 million plus because of the upfront development costs. From his perspective, the miner in Drummond has come to like solution mining. ISL is easier. It is a lot cheaper: less expensive capital costs and less operating expenditures. It is less labor intensive. Asked about the deadly radon emissions, often cited as a danger in underground mining, Drummond shot back, This is a zero emission facility.

Analyzing the two methods, he said, You can start producing faster with an ISL operation. You start your first header house, and you can start producing and make money. He added, So you get a return on your investment faster. Whats the downside? We also recover less uranium with ISL, Drummond admitted. Some of Camecos mines in Saskatchewan are running around 5, 10, 15, and 27 percent uranium. In this area, or in an ISL, it runs less than one or two percent. Its very low. Plus the uranium ore body must be found below the water table. He added, You can only do ISL in rock thats porous and has water in it in the first place.

To put it in the simplest terms, billions of years ago, the uranium found its way into the underground aquifers of Wyomings sandstones. We add oxygen and get the uranium back into solution, Drummond remarked. We complex it with CO2 to keep it in solution, and then bring it to the surface. We extract it with an ion exchange base. According to Drummond, extracting uranium works on the same principle as a water softener. We add salts to the resin to get the uranium to back off from the resin. Then, we take that uranium and make it into a final product called yellow cake.

And why it is called yellowcake? Some of it is yellow; some of it is green or dark green. Some of it is black, Drummond patiently explained. The color is a function of how we dry it, not how we process it. There is a very definite correlation between drying temperatures of yellow cake and color. It all depends on what chemicals you use while processing uranium. At Smith Ranch, we make uranium peroxide. It is very clean and yellow. We complex uranium with hydrogen peroxide to make our product. You can make different types of yellowcake. You can make a uranium diuranate, a complex made with ammonia. Yellowcake can be made with other chemicals.

How is Wyomings ISL uranium dried? We dry the uranium with vacuum dryers, said Drummond. The benefit of vacuum dryers is first of all, its a vacuum so everything is sucked inside the canister so nothing escapes into the environment. There are no gases that escape.

Investigating the Environmental Issues

It was, at this point, we felt it appropriate to inquire about all the puzzling worries many of us might correlate when thinking about nuclear energy and uranium. How safe is all of this really? When we first started uranium mining, we inherited people from the gold mines, Drummond explained. They were underground, and smoking, breathing in the dust. In the early days, we didnt have good ventilation. In underground mining, youve got to keep the air moving. Hard rock underground mining produces dust. The shards of silicone you are breathing stick to the follicles on your lungs, he noted. But that doesnt happen during the ISL extraction process. No emissions, a farm of well fields with underground pipes and tubing, and very detailed safeguards explain they the lobby wall of Power Resources is lined with Safety Award certificates and plaques.

On a daily basis, when we leave the facility, we are scanned for alpha radiation, continued Drummond. Depending upon your position here, you get urinalysis once per week or once per month. We also check for radiation levels. How did Drummond fare on his most recent radiation check? I was way below, he laughed. There are guys on the beach in Malibu that have higher radiations than I have.

What precautions does Power Resources take to protect the environment during the ISL extraction process? Since 1996, we have had zero excursions, Drummond announced with steeliness in his voice. We take very great pains to look at the topography, so if we do have an excursion, we make sure it does not enter what we call the waters of the state. Any channel that could take that and move it into the waters of the state, is something that we are very cognizant of.

After the holes are drilled into the well fields, a company does a baseline sample. Drummond said, Thats a sample of the constituents in the water. When we mobilize the uranium, we mobilize other items. It is our duty here, after we start the well field, to return the aquifer back to baseline when we are done. He added, If we know whats in the water before we start, then we know how to restore it to background. Restoration of the underground tampering with Mother Nature can take anywhere from 18 to 36 months.

The company is meticulous in restoring the landscape as well. Any restoration work on the surface is called reclamation. That can involve farming. When we start a well field, we have to, by license, remove the topsoil and store it somewhere, Drummond explained. When we go back to reclaim the property, we take all the pipes out, we take the houses down, and cut our wells off. Its all identified. We put an ID marker on the well. In 50 years time, when Farmer Joe comes around and wonders what was there, the state can say, That was a uranium well. From the time weve stopped mining, we put everything back to normal.

It takes from two to four months, or up to seven years, to exhaust a well field, depending upon the roll fronts. While it can take up to 24 months to put in a well field, reclamation and restoration take longer. We put back the topsoil on, depending upon the weather, as soon as we can, said Drummond. We re-seed, during the spring or the fall, which is the best time for seeds. The seed we use is dictated by the regulators so we use a certain amount of native vegetation. Because its very dry at the Smith Ranch, nearly bordering on desert, and because it is also very windy, slapping down the topsoil wont last very long. First, we plant some fast-growing oats to establish a root bed, he explained. If we just planted grasses, it would all blow away. Because we plant the oats, we have fat antelope and fat deer. From our observations, the sheep were well-fed and frisky.

How does Wyoming ISL mining compare to other places, such as in Texas or in Kazakhstan? In Wyoming, the water is pristine, very clean, even compared to Texas, where they do ISL, answered Drummond. The waters pretty clean down there also. Is the uranium the same? When we bring our uranium to the surface, it comes up as uranyl dicarbonate, he responded. In Texas, it comes up as uranyl tricarbonate. Whats the difference? Its in the processing of the uranium. We get about 8.5 pounds of pounds of uranium per cubic foot of resin, he explained. In Texas, they get about 3 to 4 pounds of uranium per cubic foot of resin.

Drummond described the Smith Ranch ion exchange operation, We have two columns in the ion exchange, each with about 500 cubic feet of resin. The resin costs about $200/cubic foot and, barring mechanical damage, can last up to thirty years, according to Drummond. The polymer beads they look like tiny plastic ball bearings capture the uranium during the processing phase. In Kazakhstan, you get about two to three pounds of uranium per cubic foot of resin, he continued. They use hydrochloric acid because of the water conditions. Of course, youve changed the chemistry of the water and have all the acid to clean up. Drummond described the water in Kazakhstan as very brackish, and yellowish. The TDS (total dissolved solids) is very high, he added. The waters not fit for human consumption anyways. He laughed, Using acid over there cleans their water up.

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A lot of discussions have been devoted towards finding fair value of an investment. The goal of every investors is to find undervalued investment and sell it when it reaches fair value. Admittedly, this is the hardest part of investing. So, what is fair value? Fair value is a point where the price of an investment reflect its earning power.

Fair value is relative and it depends on other factors beyond the investors’ control. In here, we will discuss on calculating fair value within our own boundary of control. In short, calculating fair value of an investment depends on the rate of return expected and the risk taken to achieve that return. Higher risk needs higher reward. It is quite simple.

So, what asset constitute lower risk investments? We can only compare. First thing that comes out of my mind is Certificate of Deposit (CD). You are guaranteed certain return (interest rate), if you can hold for a certain pre-determined time frame. You would never lose your principal at the end of the time frame.

The next low risk investment is Treasury Bond. This is the bond issued by the United States government, which is deemed to be safest in the world. There are certain risks associated with the small fluctuation in the bond price. However, if you held the bond until maturity, you are guaranteed certain rate of return. Your rate of return depends to certain extent on the price that you bought the bond at.

The next higher risk investment is buying common stock. This is what we are going to focus more here. It is considered higher risk than the two types of investments mentioned previously because you have a higher chance of losing money on your investments. Earlier, we established that higher risk needs higher reward. Therefore, stock investing requires a higher reward.

So, what does this have anything to do with fair value? Quite simply, the price of a common stock that we buy must gives us a higher annual return than bonds or CD. For example if a CD gives you a 3% return, treasury bonds give you a 4% return, then you would want your stock gives you a higher return of perhaps 6%.

What does it means for a stock to give investor a return of 6%? It never really say it, doesn’t it? You are partly right. While it is not explicitly shown, you can do a little digging and find out how much the return of your stock investment would be. For example, if your Certificate of Deposit (CD) gives you a 2% annual return, for $ 100 of investment, you would earn $ 2 every year. Let’s assume that you want your stock to give you a return of 6%, which is higher than CD or treasury bond. This implies for every $ 100 invested in common stock, it needs to give us a return of $ 6 annually.

Where can we get this information? You can get it on Yahoo! Finance or other financial publications. All we need to do is find the share price of a common stock and the profit per share (also known as earning per share) of that particular stock. Let’s use an example to illustrate my point. Magna International Inc. (MGA) is expected to post a profit of $ 6.95 per share for fiscal year 2005. Recently, the share is trading at $ 73.00. The annual return of buying Magna stock is therefore $6.95 divided by its share price $ 73.00. This gives us a return of 9.5%.

Will Magna continue to give investors a 9.5 % return year after year? It depends. If the stock price rises, Magna will return less than 9.5 % annually. What else? Well, Magna might not constantly produce the same amount of profit year after year. It might even produce a loss! So, you see, stock investing is inherently risky because there are two moving part in the equation. Price of the common stock and the profits produced by the company itself. That is the reason why investor need to aim for higher return when choosing their stock investment.

All right. So, let’s move on to the crucial thing in investing in common stock. What is the fair value of Magna stock assuming a constant profit of $ 6.95 per share? Personally, I assign fair value of a common stock to be at least 2% above the rate of Treasury bond. Please note that I am using the 10 year bond here. Recently, treasury bond can give us a 4 % return. Therefore, the fair value of Magna common stock is when it can give me a return of 6%

So, what is the fair value of Magna common stock in this case? For a profit of $ 6.95 per share, the fair value of Magna common stock is $115.80 per share. That’s right. At $ 115.80 per share, Magna common stock will return investors 6% annually. Having said that, we should never buy a common stock at fair value. Why? Because our investing purpose is to make money. If we buy stocks at fair value, then when do we profit from it? Do we expect to sell it when it is overvalued? Sure, it would be nice if we can do that all the time. But to be conservative, let’s not bank on our stocks reaching overvalued level.

There you go. I have explained how to calculate fair value in a common stock. Of course, the $ 6.95 per share profit figure is the expectation of profit compiled by Yahoo! Finance. It is not in any way an endorsement to buy Magna common stock. You should do your own calculation to verify that number.

Reviews

commodity derivatives trading

Energy Guru Bill Powers Forecasts Uranium Shortfall in Three Years. Bill Powers focuses on investment opportunities in the Canadian energy sector, mainly independent oil & gas companies and now uranium companies. We talked with him and he thinks uranium could reach $100/pound this decade.

Interviewer: A lot of newsletters cover oil and gas, but you picked uranium, which hardly anyone was covering until recently?

Bill Powers: I feel the uranium market right now is the worlds most unbalanced commodity market. In a sense, the world, through the nuclear power industry, consumes approximately 172 million pounds of uranium per year, and the world only produces about 92 million pounds of uranium per year. The supply deficit is made up through above-ground inventories, which are being worked down pretty quickly. Those numbers were supplied by Uranium Information Center. A lot of my information comes from the U.S. Department of Energy (DOE) or the Nuclear Regulatory Commission. For example, I discovered from them that the U.S. produced, through the 1980s, about 43.7 million pounds of uranium. And by 2002, the U.S. only produced about 2.34 million pounds of uranium.

Interviewer: Where is uranium being produced in the United States?

Bill Powers: Wyoming. There is also a uranium facility in Nebraska. I think there are two in-situ leach plants in Wyoming and another one in Nebraska. There are a couple of phosphate farmers in Florida who produce uranium. I believe there is a facility in Texas that also produces uranium. For the most part, the uranium industry in New Mexico has just about been wiped out. The very low prices that weve seen, for about twenty years, have pretty much wiped out the entire U.S. uranium industry. To go from over 43 million pounds to less than 2.5 million pounds, it has really only allowed the most productive, highest margin and most efficient mines in the country to continue operating in that environment.

Interviewer: So that makes the U.S. a net importer of uranium?

Bill Powers: Absolutely. According to the DOE, US imports have gone from 3.6 million pounds per year in 1980 to 52.7 million pounds per year in 2002. A lot of it comes from Canada, but a significant amount is coming from the Russians, through a program called HEU (highly enriched uranium): the megatons to megawatts program. Its where the United States Enrichment Corporation, as well as its partner in Russia, took highly enriched uranium and broke it down into lower grade uranium that could be marketed to nuclear power companies throughout North America and around the world. This has been one of the reasons weve had lower prices. All of this uranium has cluttered the market the past few years. And the US Enrichment Corporation has a lot to do with why weve seen low uranium prices here in the States.

I had a conversation with them about the fact that since 1998, when they became a public company (after being a company that was owned by the U.S. government), their long-term inventories of uranium had declined. When they became a private corporation, the U.S. government gave them 7,000 tons of enriched uranium and 50 tons of highly enriched uranium. They have been selling about 6 million pounds of uranium into the marketplace every year since 1998. According to my conversation with them, they have about three to four more years of selling. Its because the US Enrichment Corporation wants to get out of the uranium storage business, and they want to be in the processing business.

Interviewer: How long will it be, do you think, before USEC is going to stop being a factor on the selling price pressure of uranium?

Bill Powers: I would probably say in about three years. For the uranium they are now selling, the cost of the uranium to them was zero. This has really made that company look very profitable. They are selling about $100 million worth of uranium every year, and they intend to do this at no matter what price. This is an extremely bullish scenario right now because uranium prices have touched twenty-year highs, despite the fact that USEC is dumping more than three percent of the worlds uranium consumption onto the market place. When this dries up, we should see markedly higher uranium prices.

Interviewer: How high is high when you say that?

Bill Powers: I would say up to $100 per pound. Before the end of this decade, uranium will probably be $100/pound. The Russians are going to be holding back some of their output from the megatons to megawatts project. Their (the Russian) uranium is going to be needed for internal consumption. Russia has a growing nuclear power industry. They need to have uranium supplies available. Theyre not going to be selling as much as they had in previous years. It appears it is going to be very important to factor in reduced Russian supplies as well as when USEC gets out of the business.

Interviewer: How can a sophisticated investor benefit from uraniums rising price?

Bill Powers: The most leveraged investments are the Canadian juniors. I believe Cameco (NYSE: CCJ) has other businesses out of uranium exploration and production, and it is a very safe way to play uranium. But I think there are far better opportunities out there. One of my favorite companies is Strathmore Minerals (TSX-V: STM). I really like their business model of acquiring a great deal of very prospective uranium properties at bargain basement prices. Theyre able to do this because, right now, uranium has gone through a twenty-year depression. The prices for some of these pretty far advanced projects are very cheap.

I think they are well leveraged for that. Another safe way to play uranium is Denison Mines (TSX: DEN). They produce about 1.3 million pounds per year. They have properties are in McLean Lake, Saskatchewan, which is part of the Athabasca Basin. What I like about them is they are able to use their cash flow from their existing production to further expand some of their properties. With UEX Corporation (TSX: UEX), Cameco was the shareholder. UEX was founded several years ago with Pioneer Minerals. Both of the companies put in properties. Its look like they are rapidly advancing some of their properties in Athabasca. I believe they have about eleven properties they have an interest in.

Interviewer: What about other energy factors, such as crude oil, and what do you see happening there?

Bill Powers: I would say crude oil is heading much higher. We have reached the worldwide production peak of crude oil, or we are very close to it. This is not very well recognized. As demand continues to rise, and world production starts a downward slope, were heading for much higher crude oil prices. I see much higher prices later this decade, if nothing goes wrong. What I mean by that is the natural market equilibrium price of crude oil should be $50 within the next eighteen months. And probably over $100 by the end of this decade if nothing goes dramatically wrong. That would come from the natural decline of existing reservoirs, limited new discoveries, and increasing demand. However, if a country, such as Saudi Arabia, were to have a regime change

Interviewer: Are you looking for a regime change in Saudi Arabia?

Bill Powers: Yes, there is a body of evidence that supports this. Terrorist incidents are becoming more violent and closer together in Saudi Arabia. Right now, were seeing those attacks targeted to the oil workers. I believe it will not be too long before those attacks are focused more on the royal family. I believe that will be the next stage in Saudi Arabia. Theres a very good chance, which history supports, is when there are sudden regime changes in oil-exporting countries, oil exports from those countries drop significantly.

Regardless of what were to happen, as far as the political situation, a lot of their fields, especially Ghawar, which is the biggest oilfield in the world it produces between 4 and 4.5 million barrels per day there is evidence that this field could decline relatively soon. Saudi-Aramco has been injecting substantial amounts of water into injection wells to push the keep production flat What this has done is it keeps production flat, but its sort of an illusionary fountain of youth. If you keep injecting water, the amount of water you produce, along with the oil, continues to rise. As the water cut continues to increase, the amount of oil produced can fall dramatically. If that were to happen, if Ghawar were to go into a permanent and irreversible decline well, it could happen relatively quickly.

There are other fields in the Middle East, such as Yibal in Oman, where they had a lot of water flooding and horizontal well drilling. Yibal has gone from 250,000 barrels per day in the late 1990s to about 80,000 barrels per day now. If we were to get that type of decline in Ghawar, the world is going to be seeing higher prices just on that. Right now, there is not any excess oil production supply anywhere in the world. A relatively small reduction in availability of supply will lead to an exponentially higher oil price.

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trading future

Thousands of people who have money in any type of account for their retirement can consider ourselves participating in the Stock market. But have you pondered about the functionality of how this interesting market works? Imagine being at a regular auction, where instead of nice bits such as cars and antiques are being bidded away, think of bits of public companies being auctioned away.

To make a less confusing analogy, think about the role of an auctioneer. The auctioneer’s role is to get the highest and best price for each product. Well, the stock exchanges around the globe kinda operate in the same fashion. The auctioneer role, is called a Market Maker. In a stock sale, there is no stable, set price for stocks, but instead, setting the price is the role of the Market Maker.

The price will fluctuate greatly, because the ying and yang of the market, the buyers and sellers, will bid on either the stock going lower, or higher. Usually when you see a stock price go up, it means that the buy price of a stock has increased. This is vice versa when a stock declines in value.

Now I am sure you have seen visuals on the major news networks of how a stock floor looks. You know, the floor where tons of stark raving mad folks, scream numbers and look at monitors and make trades all day. The trading day starts at 9:30 in the morning Eastern Time, and stops at 4:00 in the afternoon Easter Time. Depending on business news, market forecasts, world events, and a few other things thrown in between, can dictate how much volume a market can have in a day.

The last couple of paragraphs have mentioned all of the particulars of two major markets, the New York Stock Exchange(NYSE) and the lesser known American Stock Exchange. But there is a third one too! It is called NASDAQ.
Now what makes NASDAQ quite unique from the other two, is that this market is controlled by computers. Despite the technological advances of this stock market, NASDAQ still has the conventional bidding water of NYSE and American Stock Exchange. The buyers and sellers have their own areas to buy and sell stock, and bid through a quote system called Level II.

The great thing with stock trading, is that in order to be successful with trading stocks, you do not have to be in the pit, bidding like a madman on the hunt for their lives. Not at all! You can now use the very computer in your house, or go to a trading office if you live in a big city and trade stocks. Many different internet based brokerages are out there, and have plenty of materials to get you started on your way to becoming a great stocktrader!

PROFIT ON!

Reviews

commodity trading account