Spot uranium marches on.
Source: Business Insider
Although the current price spike is likely to be an unsustainable artifact of labor and supply chain disruption, uranium is an unavoidable necessity in the drive for decarbonization. It is relatively abundant and extremely energy-dense. Fission power plants have microscopic footprints compared to sprawling utility-scale solar and wind plants, and considered over their entire life-cycle, have lower carbon footprints than any other non-carbon energy source (except perhaps geothermal). As the U.K. and Europe and the northern U.S. contemplate the chilling effect (pun intended) of natural gas shortages, and the unpleasantness of trying to balance power generation and heating needs in an era of prematurely shuttered coal generation capacity, realism will set in and nuclear power will look attractive. (Of course, Vladimir Putin is standing by, ready to assure Europeans of his tender ministrations in the event of shortages… an offer which would give any rational politician pause.) Some realism is beginning to be visible even now in European policymaking, which has surely helped fuel speculative interest in uranium.
2022 economic growth expectations for the U.S. and the world are being dialed back by many economists. The demand pull-forward created by central government pandemic payouts is now expected by some to create more of a hangover — as consumers who are not experiencing the wealth effect of stock and housing price increases curb their spending. In the U.S., the grasp of the Democratic Party on both Congress and the White House is proving hard to translate into the sweeping remake of government policy hoped for by the Party’s left wing, and thus, future floods of “infrastructure” dollars are seeming less likely to materialize. At the same time, the wind-down of pandemic-era monetary policy is also coming closer to realization and to the market’s attention.
Supply chain problems stickier than previously believed, rising input costs for producers, and rising labor costs are all contributing to the mix. We continue to believe that many of these elements will be more enduring than policymakers claimed, and indeed, the consensus is gradually coming around to the current bout of inflation being more lasting. In our view, that only increases the likelihood that it will ultimately have profound effects, as noted above.
Earnings season is progressing — a mixed one, thus far. Again, we prefer companies whose costs are less exposed to commodities, as well as commodity producers.
Highly labor-intensive and commodity-exposed companies, as well as companies reliant on the physical distribution of consumer goods that are at the end of long manufacturing supply chains, we believe will continue to experience disruption.
Still, the mounting concerns of (perhaps later) 2022 — slowing growth, the end of pandemic stimulus, troublingly persistent inflation, labor shortages — have not fully penetrated market consciousness, and for now, and perhaps into year-end, the story is “risk on.” For such a rally into year-end, we particularly like innovative tech growth companies whose main input is highly skilled labor, and whose product is distributed through the internet backbone rather than a container ship. We also like tech-related materials and their producers, as well as fintech and digital asset platforms.
Gold is not benefitting as it has in the past from the inflation anxiety and worries about political excess; investors and speculators are resorting to decentralized cryptos for that purpose, especially bitcoin and the rewards have led to a self-reinforcing FOMO (fear of missing out). We remain focused on the major cryptocurrencies. We believe that when the current speculative activity in cryptos runs its course, that situation may change, but for now, gold is languishing. Wall Street is a fashion show, and for most of the past few years, the fashion has not been gold.
Thanks for listening; we welcome your calls and questions.
