a word from the doctor

Publisher's note: Dan Denning is away. Today's Daily Reckoning comes from our good Doctor, Alex Cowie...

The old saying goes that that 'the best time to buy is when there is blood on the streets'.

When the revolution is over, the markets collapse, and investors are destitute and bloodied.

That is when a patient and stoic contrarian investor can walk in and buy assets at giveaway prices.

I was having a chat with your regular Daily Reckoning editor, Dan Denning about this yesterday. He told me a story about a famous US investor, Sam Zell, who was so effective at investing at the bottom of the market and buying happily from investors that had been completely torched, that he became known as the 'grave dancer'.

The big wins in investing need you to have a touch of the grave dancer about you: to recognise assets with values that have been incinerated by the market and left with rock-bottom share prices.

To walk onto the pitch when all the other players have been stretchered off. To buy them confidently and then wait patiently for as long as it takes for the rest of the market to realise its folly.

I reckon we are seeing a grave-dancer moment right now in the uranium market.

What could be more unpopular!

It's been three months since the Japan 'quake, tsunami and nuclear crisis, and the uranium sector is still falling.

At some point there comes an opportunity for some 'grave dancing'

Don't get me wrong, I don't expect uranium stocks to bounce overnight. This is a sector with one big image problem, and the distrust runs deep.

But as is often the way with deep distrust, it is backed by deep ignorance.

Investors have turned off uranium but the bottom line is that the world needs nuclear energy. And even after the tragic events in Japan, nothing has changed.

China's plans have certainly not changed. And the hundreds of nuclear plants it has planned, proposed or in construction are at the heart of the uranium story.

The deputy secretary of the China Nuclear Energy Association said a few weeks ago that

'...in the medium and long term, China's nuclear strategy cannot be shaken'

But isn't Germany shutting down its nuclear plants?

It's a side show! It has just nine power stations in operation, which it plans to close in 10 years. This is small change on the global playing field.

And closure is not for 10 years anyway. That's assuming whichever German Chancellor is incumbent in 2020 doesn't see this for the window dressing it is - and change the plan.

Besides - who would make up the 20% energy shortfall?

France!

Where does its power come from?

Uranium!

Has France backed the future use of nuclear energy?

Yes!

There's so much schmaltzy anti-nuclear sentiment out there right now, I can't stop my nostrils from twitching at the scent of opportunity.

The quick way to cut the noise of the rabid media, panicking investors, the coal-financed anti-nuclear lobby, and cut to the chase is to look at the uranium price.

The uranium spot-price is still at $54.75/lb according to UxC.

So for all the rampant talk of a 'collapse in the uranium price', it still remains far higher than it was for most of the last few years.
But to be honest, the spot price is a bit of a beauty contest; nice to watch, but ultimately not that important.

The real meat and spuds is the long-term price. This is where the real volume in the market is, and this is the market price that producers and power utilities negotiate.

You can see in the chart above - the long-term price is alive and well.

It has hardly been dented by everything the world has thrown at it this year - and that tells you everything you need to know about the future of nuclear energy. It is not going to go away.

But with uranium investors running the other way regardless, uranium stock prices have been - and there's no other way of putting it - kicked in the plums.

We have some great junior uranium stocks on the Aussie market, and it is just spectacular how much the price has come off in the last three months.

Yet the underlying fundamentals haven't changed! If anything a few of the lower quality projects may fall off a cliff because of this - and make the fundamentals even tighter.

This is when smart investors need to get their grave-dancing shoes on.

The road may not be easy at first, as we may not be at the bottom yet. But at some point in the coming months, and I'm guessing pretty soon, we will see other bargain hunters coming into the market.

And slowly, like a capsizing vessel turning, we will, I'm sure, see the sector right itself and the price head north-east.

As editor of Diggers and Drillers, I sat on my hands last year and watched the uranium market, not quite convinced of it. The shortage in the uranium market doesn't come until 2013, and 2010's rally looked like a false start to me.

One year on, that deficit in 2013 is getting palpable.

Coupled with the bargain prices we are looking at now, we should see uranium stocks start to rally in the second half of this year.

And this time I reckon it's got legs.