-- Posted Thursday, February 25 2010 | Digg This Article | Discuss This Article - Comments:

Siddharth Rajeev, vice president of research for Fundamental Research Corp., talks about several of the bright spots he sees on the economic horizon in this exclusive interview with The Energy Report. Sid anticipates: recovery in 2010, with rising interest rates by the end of the year. . .longer-term growth in demand for uranium, which this year's commodity corrections somehow managed to overlook. . .continuing strength for rare earth metals as applications expand in electronics and alternative energy. . .even new faces on the coal front. Despite the push toward clean energy, Sid says coal won't go away anytime soon. One of the cheapest sources of fossil fuels in abundant supply, he says that coal is "tough to replace."

The Energy Report: What do you see for the U.S. economy this year, Sid?

Siddharth Rajeev: We see the economic recovery continuing and increasing investor confidence along with it. We saw that the U.S. GDP grew at 5.7% in Q4, which was the fastest in the last six years and in Q3 posted growth of 2.2%. Therefore, we are definitely seeing very positive signs in the U.S. Yes, inflationary pressures are looming, but we expect the Fed to start increasing interest rates in the second half.

TER: So you're among those who see shoots of recovery and are projecting sufficient positive growth within the U.S. in 2010 to prompt the Fed to start to increase rates.

SR: Yes, because once we see economic growth in the U.S., there's no reason the Fed should not increase rates, especially because of inflationary pressures. We believe the increase in interest rates would be able to limit the inflation rates in the next two years.

TER: You're on the opposite side of what we've been hearing about a recovery in 2010. A lot of people are speculating that with the massive debt the U.S. government faces already—plus the potential for additional stimulus and the cost of radical healthcare changes—the U.S. will not go into recovery this year and possibly not even in 2011. Considering that projection is almost the exact opposite of yours, what are you seeing that they're missing?

SR: The main thing is that the U.S. dollar is still extremely weak compared to other currencies, which would benefit their exports. We believe the combination of a weak U.S. dollar and the stimulus package would result in an economic recovery in the U.S.

TER: What are some of the sectors that you think will perform well in this environment?

SR: One of the sectors that we have a very positive outlook on right now is uranium. We've not really seen any increase in uranium prices, even though all the other metals performed really well in the past few months. It seems like investors have totally ignored this commodity versus all the other commodities, which have responded well to economic recovery. All the money that's being put into infrastructure growth has helped the base metals, but uranium prices have not really responded to the positive news in terms of demand that we've seen over the last six months to one year.

TER: How do you see uranium demand as you look ahead?

SR: Basically, there have been no significant changes on the supply side with uranium, but we have seen very positive news on the demand side, especially long-term demand. Most governments worldwide are realizing the importance of cleaner energy. Obama really stresses nuclear energy. In the long term, maybe two years out, we believe the demand for uranium will be very strong. I think we will see uranium companies probably doing well in the next 12 to 24 months, and uranium prices are something to watch.

TER: One of the darlings of 2009 was all those rare earth metals. Are you following those and, if so, what's your view of that sector?

SR: We also have a positive outlook on rare earth metals, especially because more than 95% of the production comes from China. As you know, over the past year or two, China has increased restrictions on export quotas and raised export tax rates. So they are definitely trying to preserve their resources, and because the supply is concentrated in China, we believe global supply will be affected. On the demand side, rare earth metals are now being increasingly used in electronics and alternative energy. These factors will drive demand for rare earths.

TER: Are there other plays in clean energy?

SR: Uranium has the most potential on the clean energy side. But then definitely we have a positive outlook on alternate energy, clean energy.

TER: It's always educational chatting with you, Sid. We love hearing about those very interesting projects you seem to find in the beginning of their uptrend, and appreciate your sharing the information with us.

Fundamental Research Corp. VP Siddharth Rajeev oversees FRC's research department as well as covering a broad array of companies, primarily in the energy, mining and technology sectors. Sid is ranked a 4-star analyst in the energy sector by Deutsche Asset Management, a division of Deutsche Bank, with 2009 picks in energy and mining sectors that outperformed their respective benchmarks after transaction costs. Prior to joining FRC in April 2006, he had a mix of engineering and finance experience including work in corporate finance at a leading investment bank in Kuwait. Sid holds a Bachelor of Technology degree in Electronics Engineering from India's Cochin University of Science & Technology, and an MBA in Finance from the University of British Columbia. He is also a Level 3 candidate in the CFA (Chartered Financial Analyst) program, and has completed studies in exploration and prospecting at the British Columbia Institute of Technology.

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-- Posted Thursday, February 25 2010 | Digg This Article | Discuss This Article - Comments: