toughlove

      As markets in the States were closed on Monday, uranium equities fell in sympathy with stocks
around the world. The rate cuts by the US Federal Reserve spared markets in the States from the 5%
drops experienced on bourses around the world, and even propelled world markets higher during the
next trading day. Through all of this, uranium related stocks fell and then simply yawned.

      We have been saying that the market will not have a good idea of the total impact of sub-prime
mortgages on financial markets for 12-18 months. We started stating this fact back in September and
August so we still have at least 6 months in the best case scenario and another 12 in a worst case
scenario. Our last article highlighted the nearly identical correlation between financial and uranium
equities. Financial issues made their move this week in a big way, and by late Wednesday and then
during Thursday's trading session investors saw uraniums moving smartly higher. This is probably not
the beginning of a new bull run now, because 75 basis points is not enough to alleviate the heavy
burden of adjustable rate mortgage rates from borrowers currently burdened by these resetting rates.
Even another 50 basis points at the next meeting will not be enough because in all honesty it will take
more than just low interest rates for borrowers to be able to get new fixed rate mortgages. Housing
prices need to rise as well in order to get individuals in the hardest hit markets to qualify for new
mortgages. Lower rates will simply allow other buyers to enter the market and help stabilize prices and
possibly re-inflate the market in the long-run, but it is not a quick fix by any means.

      With this being said, we believe that a "dead cat bounce" may be in the works right now as the
markets have most likely priced in the fact that we have an insurance policy in our back pocket.
Investors seem to have forgotten about our problems and are focused on the fact that the Fed is going
to cut at least 25 basis points on Tuesday and quite possibly 50 basis points if they are serious about
getting ahead of the markets. Markets could fall after that Fed meeting with no one really knowing what
is in the works after that, which is what we are expecting.

      Currently we are not adding to our positions yet, but we are not selling either. True, markets seem
to be fairly priced at these levels, and even more so when you look at individual securities but markets
tend to move in ironic ways. If we are correct regarding mortgages, and the current tax rebate proposal
stays the same (which will pay on average roughly 1-2 mortgage payments of those with out of control
ARMs), then markets could be deflated across the board very easily by 10% and even more if more
banks around the world discover 'tainted' paper on their books.

      We are very interested in the producers and those companies with plans to begin mining in the next
year to two years and will point out that these stocks are now trading near two year lows! A lot of the hot
money has now disappeared from the uranium market (both the equities and physical spot markets) at
this time but fundamentals remain strong. It seems almost daily that countries are announcing plans to
build new nuclear reactors and reactor builders are formalizing plans to offer both reactors to their
customers as well as the uranium oxide/nuclear fuel required to run the reactor and deliver the desired
power.

      Our reason for caution regarding buying equities which appear cheap is that we are hearing rumors
of companies shuttering some operations and many have been putting out press releases regarding
downsizing among staffs and expenditures for exploration. This could lead to a large exodus of talent
from uranium juniors to their better capitalized and larger brethren. It has not yet reached an alarming
stage, but could very well if secondary offerings are not well perceived by the market anymore.

      We are paying close attention to those companies with large offerings right now to see how quickly
they fill these offerings as well as the price they are able to get. One company we have noticed doing a
very good job raising funds as well as expanding their business is Bluerock Resources. The company
has had a stock which has performed quite resiliently in this brutal market and it appears that they will in
fact be mining and milling their uranium sooner rather than later now that they have put together an
agreement with Denison Mines Ltd. to use their White Mesa Mill located in the Western United States.

becomes less of an issue and the market can once again focus on industry fundamentals rather than
macro, financial, and worldly issues. This is when the big money is going to be made by those holding
shares in the uranium industry which should be one of the bigger bull markets in the next few years.