Current events in Kazakhstan underscore the significance of uranium, as nuclear energy enjoys a renaissance. Of course, although Kazakhstan accounts for roughly 40% of world uranium production, it is unlikely that unrest there will be an enduring problem for uranium supplies, although it may be unfortunate for ordinary Kazakhs. The price fluctuations created by such events can be traded by the nimble; others may be better advised to stick with a longer-term view. In that view, we see uranium and nuclear energy as attractive themes and critical components of the global energy transition.
The U.S. stock market is experiencing some volatility, likely occasioned by the release of Fed minutes indicating a level of hawkishness that markets find unnerving. Every year is different, but we do note that historical precedent suggests that years following a year with a 20%+ appreciation in the S&P typically offer a buyable decline in the first quarter, and that may be unfolding now. Back to 1980, that decline has typically been 4–6%. But note what we said before: every year is different (and 2020 was “a bit” of an outlier, though pandemic volatility seems to be receding into the rear-view, even while omicron remains with us).
A significant correction will afford investors the opportunity to increase exposure to the most ambitious and disruptive names that are deploying technology in finance, healthcare, and cybersecurity. Many more speculative names, some of which have real prospects but had been suffering from valuations bordering on lunacy, have already declined substantially. Where the theme is intact, we welcome the declines and will use them to deploy cash.
Europe’s energy woes suggest to us that in spite of their unpopularity, many carbon-based energy suppliers will continue to have robust free cash flow generation for decades to come. They will return much of this cash flow to investors through dividends and buybacks. Demand will remain high, and supply will remain constrained as expansion is hindered by unfavorable public and regulatory opinion. Their multiples will be capped, but their strong cash flow will remain a support, and could be attractive to some income investors.
Certain commodities, including uranium and battery minerals, remain a long-term theme. Gold may strengthen, though much depends on the Fed’s willingness to endure any market volatility occasioned by its withdrawal of stimulus, balance sheet run-off, and raising of interest rates. Certain goverments continue to add to their gold reserves, even if other investors seem to be ignoring it. A significant part of the interest in “value storage” that used to accrue to gold has moved to bitcoin. Goldman Sachs recently noted that it would not take much more transfer of such interest to take digital gold higher. We are long-term bullish on bitcoin, and expect that there will be late-to-the-party institutional buyers if it gets much weaker.
Thanks for listening; we welcome your calls and questions.
