This same scenario is being played out at many individual companies as well.  Without delving into each name individually, we look at the information technology sector overall and find it trading at less than the overall market, despite having a stronger growth profile and being the home to some of the world’s best growth companies, including Apple, Google, Qualcomm and even Microsoft.  In the industrials we own companies such as Cliffs Inc., a major player in the iron ore market, trading at 7 times current earnings and growing.  Auto stocks are also recovering from ‘depression level’ sales of the past few years and are growing once again yet trading at huge discounts to the overall market.  Ford earnings estimates for the year have recently been raised to over $2 per share after the strong second quarter report.  With the stock trading below US$13, it is therefore at a multiple of only about 6.5 times earnings and is also generating about $9 billion in cash.  We are seeing these same kinds of opportunities in many different stocks and sectors despite the fact that economic growth was anemic in the second quarter.  With our expectation that growth will pick up in the second half of 2011, much like it did in the second half of last year, the backdrop for stocks becomes even more compelling. While there was clearly heightened risk surrounding the U.S. debt default limits, we saw that as political posturing and believed that some type of deal would get done before the deadline.  This is not a case of the U.S. not having the capability to borrow the necessary funds or be able to pay its bills.  It’s really more about the legality of what the current limits are and under what conditions they get increased.  It’s unfortunate that politicians are using the financial markets as their ‘political football’, but the reality is that there is ample liquidity in the financial markets at current interest rates to let the U.S. get through this period.  The politicians just needed to agree on the package to get them there, and that’s what the delay has been all about.

Another worry for the stock market has been about the growth rate of China’s economy as there are some fears that growth is slowing there as interest rates and bank reserve requirements have been increased to slow down the inflation rate, which recently increased to over 6%, well above the stated threshold level of 3%.  Beijing reported earlier this month that the economy expanded by a reasonably robust 9.5 per cent in the second quarter, slightly ahead of the consensus estimate of 9.4%, but down from the 10-12% rate we have seen during the recovery.  Preliminary numbers show that a key purchasing managers’ index slid to 48.9 this month from 50.1 in June. Any reading below 50 signals a decline in output.  These types of numbers and reports have fuelled some of the fears about China’s growth.  But our view continues to be that China is doing a good job of slowing down its economy to a more sustainable growth rate of around 8%, which will be more than enough to support the continued global economic expansion and commodity prices. Inflation appears to have peaked for now as food prices have been falling so we don’t expect that interest rates in China will have to rise further.

There is also a broader, more fundamental basis for continued Chinese growth totally aside from the normal cyclical changes in the growth rate.  It is the long-term (secular) growth of the economy as it evolves from an agricultural-based economy to an industrial-based economy, much like what is happening in many of the other emerging economies of the world.  About 20 million people are still moving annually to the cities, with another 700 million or so remaining in rural areas.  They are moving to higher paying jobs and becoming consumers of global goods.  Also, as more Chinese manufacturers clamber up the food chain from low-cost consumer goods to high-end electronics and the like, demand for key commodities like copper, cement, metallurgical coal, iron ore, oil and gas will only expand.  Chinese consumption also still has a long way to go to meet the standards of the developed economies.  For instance, China consumes 3.5 kilos of copper per person annually, compared with about 40 kilos in Japan. Chinese stock-piling of uranium is very logical when you look at data like that shown in the chart below, which outlines where the growth in Nuclear Power Reactors throughout the world will come from over the next number of years.  While their existing base of reactors is still quite low (about 3%), their share of reactors which are proposed, planned and under construction is much higher (17%).  While some of the proposed reactors may be cancelled after reviews following the Fukushima disaster, there are clearly a lack of alternatives for power generation.  This is another reason why we are still bullish on uranium prices.

China the Key to Long-Term Uranium Demand

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