#158 -Gen Z doesn't wanna work, they wanna be famous, Inflation has peaked in North America and the reemergence of Nuclear Energy
#158 -Gen Z doesn't wanna work, they wanna be famous, Inflation has peaked in North America and the reemergence of Nuclear Energy
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What to think about Jackson Hole
Canadian Population Growth Best in G7
Nuclear IS BACK
Gen Z wants to be soooo famous
The Future is Battery Powered
Crypto Is back to 2017 highs
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📈📊Market Update💵📉
I think indexes will continue to struggle over the coming weeks as too much money is sloshing and too many overvalued companies that people will eventually shed continue to trade at too high of valuations.
A couple weeks ago I wrote about the battle coming at the 200-day moving average. As I thought, the 200-day moving average has beaten stocks back for now. Patience and risk management will continue to rule as valuation compression works its way through a deglobalizing world flooded with capital.
Some thoughts:
The main premise behind the summer rally was that the Fed was going to pivot because of the possibility of overdoing it and causing a severe recession.
This was the market’s bet.
As a result the stocks that were hit the hardest since February 2021 due to rising interest rates – like biotech, were among the best performers in the past couple of months.
On Friday, Fed’s chairman was very clear that the Fed is not ready to change its tightening policy just yet, and bringing down inflation continues to be the main concern.
It seems his words sobered the market up fast and caused a major selloff across the board – biotech, semis, software, retailers, financials, industrials, consumer discretionary, etc. (see more comments below)
Last week was the second down week in a row for the main indexes.
Both, the large-cap S& P 500 (SPY) and the small-cap Russell 2k (IWM) tested their 50-week moving average two weeks ago and have pulled back about 6-7% since then.
The next potential zones of support are their 50-day moving average: about 398 for SPY and 181 for IWM.
The only market areas that have handled the selling in the past couple of weeks relatively well are commodities – energy like oil & gas, coal, uranium, solar; fertilizers, and industrial metals.
Those groups were clear leaders in the first half of the year but then underwent a deep 30-50% drawdown during the summer only to bounce back later. The inflation trade is back on.
The question is for how long? If the market is really worrying that the Fed’s tightening policy will lead to a severe recession, then those groups will start to crumble as well.
Typically, future market leaders build new bases while the indexes correct.
From a strictly seasonal perspective, stocks tend to be weak ahead of the mid-term elections and strong after. Obviously, there are many other factors currently at play.
Keep Your Eyes on the USD and Stocks Making 52-week Lows
Go count how many stocks are making new 52-week lows.
I'll wait.
It won't take you very long.
The new lows list on the NYSE peaked on June 16th.
This was at the height of the permabear bubble.
By then a lot of the leaders had already bottomed a month prior. This is perfectly consistent with prior bottoms and future leadership.
The ones that bottom first tend to lead of the lows, and then you'll see sector rotation from there.
And that's certainly what we've seen as the ones that got crushed the most, bounced the most. And now we're watching some of that sector rotation and prior leadership coming into play, particularly Industrials and Energy.
In bear markets you get a lot of stocks making new lows. In bull markets you don't get many stocks at all making new lows.
Which of these are you seeing?
If the new lows list starts to blow up and those former laggards return to being the market culprits they once were, then great.
But that's just not what we're seeing.
Until stocks start to go down, why would I want to short them?
I think this market is one US Dollar sell-off away from a historic end of year rally.
💸Reformed Millennials - Post of The Week
Who Killed E-Commerce?!
This chart Charlie shared regarding e-commerce growth really caught my attention:
Back in 2008 and 2009, it was not Apple and Facebook hurting e-commerce sales it was the ‘Great Financial Crisis.
Post-crisis, Apple launched the iPhone, Shopify became the home of small e-commerce businesses and Facebook launched ad products that helped create an explosion of e-commerce and e-commerce companies.
Etsy was also an important platform.
In the last year, While Western countries yelled at Facebook for the newsfeed and politics, Apple figured out how a lot of those unjustifiably mad people would opt out of being tracked by Facebook, and opt-out they did.
I talk to a lot of e-commerce founders and they can’t use Facebook to grow anymore, nor do the small teams have the expertise to grow their e-commerce startups as they did on Facebook's backs. The scrappy ones will survive, invest in people and learn new tricks, but for now, I think it is mayhem.
We've allowed Apple put a stranglehold on the type of marketing that let small e-commerce businesses thrive and Zuckerberg and Shopify underestimated the impact and are way behind the curve on solving it and explaining to the politicians how dangerous an overlord Apple has been to SMBs trying to grow their business.
The reemergence of Nuclear: FINALLY
As Russia continues to politicize energy policy, many in Europe are really feeling the squeeze as lower flows from the Nord Stream pipeline jeopardize efforts to fill storage sites going into the winter.
On top of the Nord Stream “capacity limitations” we have global droughts causing water levels to lower to the point where the Rhine river is too low to transport coal needed for power plants.
More and more of our energy infrastructure’s fragility is being shown, and we’re not doing enough to address it.
Current renewable build-out capacity is abysmal compared to what is required which is causing many rallies to revisit an old friend…
Nuclear.
We had news last Wednesday out of Japan around their willingness to restart more idled nuclear power plants as well as assess the feasibility of developing next-gen reactors.
Nuclear is commonly villainized in public perception, but unfairly so.
Is it really as dangerous as people think?
Or is it the exact solution we need right now at this level of the energy crisis?
Instability in our energy complex has been shocking global markets, sending gas prices from Asia to the US higher amid a race and intense competition for supply.
Russia has been dragging its feet by limiting capacity sent through a critical pipeline: Nord Stream.
Nord Stream 1 stretches 1,200km under the Baltic Sea from the Russian coast near St. Petersburg all the way to north-eastern Germany.
It is owned and operated by Nord Stream AG, whose majority shareholder is the Russian state-owned company Gazprom.
By the end of June, Germany was importing 26% of its gas from Russia. Most of it comes through Nord Stream 1, with the rest coming from land-based pipelines.
Germany also agreed to the building of a parallel pipeline - Nord Stream 2 - but it never became operational due to the Russian invasion of Ukraine.
Although Gazprom cites “turbine maintenance” as the reason for the closure, we all know it is being politicized in Russia’s war with Ukraine.
While Germany has been trying to get alternative gas supplies from Norway and the Netherlands, the overreliance on Russian Gas has handcuffed the country as local gas prices are up 450% YoY.
Germany is now back to increasing its use of coal to extend the life of power stations that it had been planning to shut down, despite how harmful coal production is to the environment.
This part might actually sound like a joke, but in order to cope with this complete shock to the energy systems, people in Germany and parts of Europe are actually buying wood stoves. In fact, demand for wood-burning stoves in Germany has doubled compared to last year as households look for cheaper alternatives.
I’ve got an idea…
How about you turn to one of the most efficient and clean sources of energy production: nuclear?
Instead, Germany put together a plan for a complete phase-out of nuclear energy back in 2011, with three of its six nuclear plants switched off at the end of 2021 and the other three to cease operations by the end of 2022.
If it sounds like this is one of the worst ideas of all time, that’s because it is.
So let’s take a look at just what is nuclear, and why it is a viable alternative.
I’ve got an idea…
How about you turn to one of the most efficient and clean sources of energy production: nuclear?
Instead, Germany put together a plan for a complete phase-out of nuclear energy back in 2011, with three of its six nuclear plants switched off at the end of 2021 and the other three to cease operations by the end of 2022.
If it sounds like this is one of the worst ideas of all time, that’s because it is.
So let’s take a look at just what is nuclear, and why it is a viable alternative.
What is Nuclear Energy? - Production, Capacity, Construction
Nuclear energy comes from splitting atoms in a reactor to heat water into steam, turn a turbine and generate electricity. This is all done without carbon emissions because reactors use uranium, not fossil fuels.
Nuclear plants are always on. They are well-operated to avoid interruptions and built to withstand extreme weather, supporting the grid 24/7.
Today, there are about 440 nuclear power reactors operating in 33 countries with a combined capacity of about 390 GWe. In 2021, these provided 2653 TWh - about 10% of the world's electricity.
Approximately 55 power reactors are currently being constructed in 15 countries -notably China, India, Russia, and the United Arab Emirates.
China has an additional 46 nuclear reactors under construction compared to just *two* in the US. China also has the overarching goal of building another 150 nuclear reactors over the next 15 years.
Since China is currently by far the largest consumer of the world in coal, a shift to other, less polluting energy sources will be huge when it comes to the push to greener initiatives.
In addition to building out more reactors, increasing nuclear capacity can also be done by uprating existing plants. This is a highly cost-effective way of bringing on new capacity. Numerous power reactors in the USA, Switzerland, Spain, Finland, and Sweden, for example, have had their generating capacity increased.
Why the Hesitation? - Policy, Perception
Narratives drive perception. The narrative around nuclear has been highly skeptical as a result of the high-profile incidents of Fukushima and Chernobyl which were the only two accidents rated at seven (the maximum severity).
While Fukushima was caused by a natural disaster—an earthquake and a tsunami—Chernobyl was caused by human error during a safety test.
The Chernobyl accident response together with later decontamination of the environment involved more than half a million personnel at an estimated cost of US$68B (inflation-adjusted).
These events would remain firmly in the public eye as they were widely covered in the press and nuclear energy was deemed too dangerous—the risks too high. People flooded the streets in protest as they pressured governments not only to halt any additional reactor buildout but also to shutter existing ones.
However, these two major reactor accidents are the only ones to occur in over 18,500 cumulative reactor years of commercial nuclear power operations in 36 countries.
The evidence over six decades shows that nuclear power is a safe means of generating electricity. The risk of accidents in nuclear power plants is low and declining.
The consequences of an accident or terrorist attack are minimal compared with other commonly accepted risks. Radiological effects on people of any radioactive releases can be avoided, but are still a risk.
While the process of creating nuclear energy does not have harmful carbon emissions, the byproduct is radioactive waste which can be extremely dangerous because human exposure can cause certain types of cancer. The safe transportation and storage of nuclear waste will be vital in the viability argument for nuclear.
So we know that fears of safety in actual reactors themselves are overblown, but there is also the danger of harnessing nuclear technology in building weapons of mass destruction (WMDs) through atomic bombs.
This is a much more real and much more scary risk.
There are links between nuclear weapons and nuclear power because the process of enriching uranium to make it into fuel for nuclear power stations is also used to make nuclear weapons. Plutonium is a by-product of the nuclear fuel cycle and is still used by some countries to make nuclear weapons.
The Market - Key Inputs, Facilities, Unit Economics
Uranium is the key input that is used in the generation of nuclear energy. Looking at uranium production from mines by country in tonnes:
Mining methods have been changing. In 1990, 55% of world production came from underground mines, but this shrunk dramatically through 1999, with 33% then. Since 2000 the new Canadian mines have increased again.
In situ leach (ISL, also called in situ recovery, ISR) mining has been steadily increasing its share of the total, mainly due to Kazakhstan, and in 2021 accounted for over 60% of production.
Conventional mines have a mill where the ore is crushed, ground and then leached with sulfuric acid to dissolve the uranium oxides. At the mill of a conventional mine, (or the treatment plant of an ISL operation) the uranium is then separated by ion exchange before being dried and packed, usually as U3O8.
Like anything, we have to look at two components: demand (required by reactors in order to generate nuclear energy) and supply (uranium mined). So to get a good pulse of projection we then look at inventories as well as projected supply/demand imbalances.
Ralph Profiti, a Uranium Sell-side analyst has come up with the following projections:
What we are looking at here is a projected uranium deficit, should reactor buildout proceed as anticipated.
The recent move in the uranium price was due to [this Reuters article](https://substack.com/.../f3cba7c8-2b50-4831-b0ee...) which stated that Japan will restart more idled nuclear plants and look at developing next-generation reactors as the Prime Minister has had a major policy shift on nuclear energy.
While there are legitimate concerns over byproduct waste and fears of weaponization, the fragility of our energy infrastructure right now is rightfully causing many countries across the globe to heavily reconsider nuclear.
When one energy source is being weaponized, diversification is the key to limiting buyer/seller imbalances.
It’s sad our governments are so reactionary…
Democracy is the worst political system… except for all the other ones.
🐦 Twitter Thread of The Week 🐦
🔮Best Links of The Week🔮
Big Beliefs - Morgan Housel
Can Canada handle its coming population boom? - Globe And Mail
Canada just missed possibly one of the greatest opportunities in its history - National Post
Reflections on the Investing Process with Michael Mauboussin - Rational Reflection