Announcer: Free and clear of the chatter from Wall Street, you’re listening to Talking Stocks Over Beer, hosted by hedge fund veteran and newsletter writer, Mike Alkin, who helps ordinary investors level the playing field against the pros, by bringing you market insights and interviews with corporate executives and institutional investors.

Mike sifts through all the noise of mainstream financial media and Wall Street to help you focus on what really matters in the markets. Now is your host Mike Alkin.

Mike Alkin: It’s Monday, April 13th. Welcome. I hope you had a nice weekend. Big weekend here on this end. Obviously Mother’s Day was yesterday, so my kids and I were pampering my wife. The usual breakfast and get the breakfast ready. It was really crappy weather here yesterday, so it was in the 40 degree, mid-40s. Hang on. You know what? I’m going to do something. Because we do have a global audience so I’m going to get my … I speak to so many folks who work off of Celsius. You should be able to do this in your head, but I can’t. For some reason I always get stuck on it. So, it was about 5 degrees Celsius. I’ll convert for you.

Anyway, it was just … was that right? That doesn’t sound right. Let me double check this. Let me see. FC, FC. I have one of these handy little converters. I like to use that. It helps me out. Yeah, it’s about right. So it was rainy, but it was a nice day. Just hung around. Really did nothing. We just watched old videos of when the kids were young. We bought mom a new iPad Pro. So she hasn’t had a new iPad in years, so we got her the Pro with the keyboard and she was all excited and watching movies and all that stuff.

Our neighbors came over and we hung out in sweat pants and bummed around. It was kind of nice. It was great. My wife is very low key, very low maintenance on certain things. But no fancy dinners. We just kind of hang out and chill, so it was good. My daughter had her first high school dance Friday night and I wasn’t sure how I was going to feel about that, seeing her with a boy, but he was a very nice young man, so that was good and thank God the drama of the dance is over because it has been … I don’t know. I’m sure those of you have daughters and they’re grown and now you’ve been through this, but we’re in the thick of it, having a teenage daughter, and who is wonderful but also prone to the mood swings of a teenage girl.

The anticipation of the dance and the dresses and the trying the shoes on, and dresses and going to the store at the last minute for this, that and the other thing, it’s been two months now. My poor wife, I think she was at her wits end with this, and the stress in the house leading up to the dance. I’m glad that was over. She had a nice time. That was good. She had a bunch of girlfriends come over. They stayed. We got them breakfast the next morning, so it was good. It was a nice relaxing weekend. Of course there was some great hockey. The Bruins just looked dominating so it was pretty … why wouldn’t they? Boston professional sports, right? The city of champions. It’s unbelievable, the Patriots, the Red Sox, the Bruins.

At one point years ago it used to be the Celtics but they’re struggling. Well, they made it through playoffs but anyway. So I’m starting at my Bloomberg right now and I’ve seen the Dow down 579 points, 2.24%. The S&P is down 64 points, down 2.2%. Oh, I’m sorry it’s down 55 points, down 2.2%. The Dow is down 4.7% for the month. Still up for the year nicely. The S&P is down 4%. What are the annual numbers? Yeah, they still look decently.

But it got me thinking. I think about the overall market. I think about the noise that comes out you every day. You think about the big things that are out there that people could be talking about. The dollar is overvalued and the other side says, “No it’s undervalued.” Well in the US you’ve got twin deficits in the US and huge deficits around the world in many countries. It’s going to lead to financial collapse. If you had this big global central bank experiment with low rates, printing money. It’s been a decade now, and you’ve had some people say the consumer is in great shape. Others say it doesn’t really indicate … the consumer is not in great shape. The average person isn’t … they may be working now, but their wages aren’t growing as much as they should.

The bulls will yawn and say the market’s not too overvalued. The bears say it’s ready to collapse. You’ve got trade wars on the front page news. 300 billion in tariffs to the US. The Chinese are coming back and saying that they’re going to go get aggressive. In the US they are trumpeting energy independence. The bulls will say look at us we’re finally energy independence. A bear might say Shell is playing a Ponzi scheme. Let’s see how that works out when you’ve got a couple hundred billion in debt coming due, and they’ve got to refinance that. At what rate are they going to do that?

All this newfound oil and gas from the Shell place. Most of them, two-thirds of them, never make money. Some on the bull side will say China and the emerging markets are changing the world. Consumption is growing massively. Consume more stuff, consumer stuff, more raw materials. You’ve got other folks out there saying China’s going to blow up. The economy is going to blow up. We’ve been hearing about it for years. Who knows? On the corporate side you’ve got tax breaks that help corporation’s earnings look good. Is it too little too late? A bear could strongly argue that, “Yeah, well, great.” Post the global financial crisis companies didn’t really have sales growth so they cut to the bone, they cut cost, they fired people. When sales growth didn’t come back, what did they do? They went out and borrowed on that very historically 5,000-year low interest-rates, borrowed money to go pay back stock, and many quality companies took on a ton of leverage, debt.

You’ve cut your cost. That helped your margins. You borrowed a ton of money. You went out and bought your stock back, financial engineered your way. So now what? Some will say that, “Trump rates are too high, you’ve got to lower rates. If rates were a percent lower, do you know how much the growth would be?” Flip side of that is, “Jesus, rates are too low already. If the economy slows, how do you lower rates?” Which you normally do to stimulate the economy because they’re already so low? When you saw rates start to go up in the second half of last year, the market tumbled almost 20%, tough spot. You’ve got TV all day long, business television, business radio. You’ve got podcasts, guys like me, thousands of us out there telling you what our views are. Opinions are everywhere. Twitter, I mean who knows, right?

Anyway, there’s so much going on now. Let’s go back to the last downturn. If you go back to ’04,’05 time period, I think there were about 9,000 hedge funds. They had about a trillion dollars in assets. There are about close to about 9,000 mutual funds, at that time. I think there were about 8 trillion in assets there. Back then if you look at the stocks on the New York Stock Exchange and Nasdaq, the old Amex and over the counter, if you add the over the counter ones that really aren’t trading their 70,000 but really listed stocks, 5,000 stocks. Interestingly, since 97, you’ve seen a steady decline in the number of stocks except 2013. It’s where each year more companies de-list and go public. In ’19, I think it was 75, 76 there were 23 listed companies per 1 million US citizens. Today it’s 11 per million citizens. So, that means investors have fewer choices to invest in.

The national economic research data board says the US has 5,000 less companies that you would normally expect, given the size of the population, the economic environment, and the financial development here. So what’s causing that? What’s causing less companies? We’ve got MNA, right? I mean, a few trillion dollars, some years. You’ve seen these mega deals of 10 plus billion dollars, 50 billion, 80 billion, and you don’t have enough IPOs coming out to replenish that pool. So there’s less diversity to choose from. Now, on recent IPOs that have been coming out, right? These unicorns, Uber, Lyft, get hammered. That’s interesting because you’re seeing unicorns, right? The Silicon Valley unicorns, billion plus, which is not the chump change now. But it used to be, that was your goal. And when they come public, right, they’d sore. But now these stocks are going nowhere fast.

Another thing that’s hit the market is private equity. It’s hit the listed market. Tougher regulations. It makes it much more difficult for smaller companies, much more expensive for them. They’d rather go private. Even Elon Musk would rather go private, right. For 20 funding secured. So for bigger companies too, some people just like to be at a public spotlight. But if you go back, let’s think about that. So if we go back right before the last global downturn, you had 9,000 hedge funds, 9,000 mutual funds, today about 10,000 hedge funds.

But those 10,000 hedge funds have about three trillion in assets. You the same number of mutual funds, maybe a little bit more, a little bit more than 9,000. They have about 18 trillion in assets up from eight. So hedge fund assets have tripled from one to three trillion mutual fund assets, from eight to 18. So there’s a lot of capital swashing around, but at the same number of people. But let’s think about that. So let’s round up 20,000 mutual funds and hedge funds. We’re not counting the long-only shops and the financial advisors, registered investment advisers. But every one of them has a presentation deck telling investors, and they have really smart portfolio managers and analysts, and they’re all able to identify mispriced securities or trends that other people aren’t seeing.

I think I was watching CNBC, I think it was and Cathy would from arc investments, who’s a big Tesla bull. She was saying that her analysts understand Tesla better than anyone. That’s their edge. I mean, that’s laughable. Okay, so the most-watched company in the world, you understand because you have different platform teams, robotics, artificial intelligence, whatever you call it, you look at that and understand it better than anyone? That doesn’t happen in investing in companies like that.

What happens, I’m not to go on a tirade, there is, she and others who believe the bull case there are subject to what’s called thesis creep, where I owned it for reason X two years ago, three years ago, a year ago. And now reason X didn’t happen. But now there’s a reason why. The reason why doesn’t happen, and now it’s reasons Z, that’s why. But you have all these people, now let’s say, I don’t know, 20,000 hedge funds, mutual funds combined. I Dunno, there’s at least several hundred thousand people, analysts, and portfolio managers at least, right? Big Mutual Funds, that they all have every mutual financial manager, portfolio manager. How many hours do you have? I don’t know, 10, 15, 20 picket. But you’ve got several hundred thousand eyeballs looking for Alpha. How to generate an edge, how to be different. Looking at those same 5,000 stocks or fourth today there’s 4,000, not 5,000, right?

Is it any wonder? So you have all these same people looking at the same number of stocks, how we think of the ratio of people to stocks? Is it any wonder that over 90% of mutual funds don’t beat an index and hedge funds have struggled, especially in the in a roaring bull market because they have short exposure. There’s too many people chasing too few good ideas. And that’s what you get and hovering around consensus expectations, and you get mediocrity. Really smart people, but the odds are stacked against them. Add to that, the quantitative models, the quantitative trading at that in the mix, focusing and then funds. What winds up happening when you’ve got all these presentations out there, and they’ll tell you how smart they are. People become so short term focused and the volatility creeps up in the day to day performance and it’s noise. It becomes all noise.

And that’s one of the vast majority of money managers don’t help perform. And who knows, right? On this podcast, I don’t talk about … I mean, every once in a while, I’ll give an opinion, but I have no idea which way the market’s going, nor do I have a view? Yeah, I think markets are tapped out. Do I think there’s more downside and upside? Yep. Do I talk about risk on risk off? Yep. Do I think that means to be cautious say what you own, do I talk about that occasionally or infrequently, but on rare occasion? Yeah, I do. But to sit here and talk to you about the trade wars and talk to you about the dollar and talk to you about energy independence or talk to you about the tax breaks or talk to you about the rates too high, what’s going to happen? I mean, who knows? There’s a lot of people looking at it.

So how can you outperform or try to outperform, give yourself a fighting chance and not be part of the crowd? That’s why I like to look at things that people aren’t looking at. I’d like to pay attention to where there’s few eyeballs, to where the competition to find the mispriced security isn’t as great, and that’s where most people aren’t looking. That is in the bowels and the things that aren’t working, and the things that had been left for dead, right? There’s a great saying by Howard marks from dare to be great, to Howard Marks of Oaktree capital, great distressed investor, great writer. He says, “Most great investments begin to discomfort the things most people feel good about investments, where the underlying premise is widely accepted. The recent performance has been positive and the outlook is Rosie are unlikely to be available at bargain prices. Rather, bargains are usually found among things that are controversial, that people are pessimistic about, and that had been performing badly of late.” Think about that. Most people don’t want to be involved in that, right?

In this world, I think to really generate outsize returns, you need to be early, you need to be right, and you’ve got an occupying unpopulated space. So how do you do that? Well, first of all, you have to accurately embrace a non-consensus opinion. And I say accurately because many times, things are priced where they should be, right? So your work has to be accurate. But a starting point is to look where there’s a non-consensus opinion in my life, in my world that’s a very unpopulated space is uranium. I suggest that, and I do so with great confidence, that as of right now, many hedge funds have no idea they can own physical uranium. Most haven’t even thought about uranium. If ever, for years, commodity from peak to trough was down over 90% number of companies disappeared. There’s very little institutional ownership.

Retail investors, they’ve kept the companies or float as you’ve seen them decline from over 500 to 50 companies through dilution and private placements and capital raises to keep these companies afloat during a bear market. But most institutional investors and that’s changing. I mean, I run a uranium fund and mostly institutional investors, and I see the level of interest is increased quite a bit, but the difference between interest and committing capital takes time. Why? Because people don’t like that discomfort that Howard Marx talked about, right? Most great investments begin in discomfort. If you go back to what I said earlier, most of these managers, they get to perform right away. They like to see things that are moving, that are going in a positive direction. Even a hedge fund, which is much more likely to have a contrarian bent than a long-only mutual fund still needs to perform.

The pressure is great. Generating high fees. They have to outperform, they have to try to outperform, so it helped. So they can’t arbitrage time. They can’t let time necessarily be their friend. Some can. The smaller ones, right, the little more esoteric ones or the really big established ones that have great reputation with investors, and they’re willing to give them time. But industries like uranium, the size of those funds, the multi multibillion-dollar funds really can’t invest at this point in the cycle. Too much money if any, into a uranium company with the exception of Amoco because of its bigger, but most of them, most of the companies are too small. So if you’re running a fund of three, four or $5 billion, and a 1% position is 50 million bucks, if you’re running $5 billion, that’s a market cap of many of these companies.

Most of these guys, most of the funds don’t want to own more than 10% of a company, right? So it eliminates most of these funds. But over time, that will change as market caps change, as the fundamentals become more apparent, and they start coming to the surface, what’s happening and brewing below the surface right now is that starts bubbling up above the surface. And that will start to get more people buying, and the market caps increase and then one thing, and then it kind of snowballs from there. But then you take uranium, and take it to take the next step. You want to have a little fun? Its barbecue season is coming up, right? Summer’s here. Getting the grills fired up. I get a lot of work to do. One of my things isn’t working, but we’ll figure that out. But ask your friends or association, ask them about nuclear power. See what they say. Your non-investing friends, or even your investing friends. Like I said earlier, most of them probably don’t even know about it, but ask them about nuclear power. See what they say. Three Mile Island, Chernobyl. So I might say, Fukushima.

So we’re going to say, do we still have nuclear power in the US? You didn’t realize was 20% of the electric grid. Others are going to say nuclear waste dangerous. Others are going to say, oh, when did solar, we’re killing it. All perception, not fact, but perception, right. They don’t know about the safety record of nuclear power. They don’t know that a nuclear waste is managed, is probably the best way stream because it’s captured. All the other stuff winds up in the air. Coal, that waste stream. I particular matter, kill seven million people a year. Solar panels, they wind up in the electronic waste stream. There’s no plan for that. Lead, cadmium, other nasty chemicals. They don’t realize the massive footprint a solar farm requires 450 times the amount of land than then say Diablo Canyon in California the a nuclear power plant. It’s not front and center on people’s mind. Either one in 500 companies have shrunk to 15. The market caps are small.

So they don’t need to know about it, but they do. But that’s good, right? Because you get the opportunity to really understand the story, and to try and triangulate and think about it, and think about without thousands and thousands of people staring at it, and the day to day noise because that comes. But in industries that are left for dead, when the fundamental start changing, there’s no better place to be because what happens is in bear markets, apathy kicks in both investors and industry people, right, when you’re mired in … You’re going to work every day, and it’s doom and gloom. Think about that, that’s been that way for years in the nuclear power industry.

After Fukushima, 54 Japanese reactors came offline, it oversupply, right? Caused people to rethink their plans. Now, at the end of the day, fast forward eight years since Fukushima, and I would strongly suggest that nuclear power is undergoing a very, very encouraging renaissance. Most days or weeks or months, there’s something positive that’s occurring. The country that was going to reduce dependency on nuclear power is now kicking that out a decade. Countries that habit or increasing their exposure or coming online, that’s the demand side. There’s huge amount of reactors under construction. 50, now it’s 54, 55. Hundreds in the plan and propose stage. Why? Because if you need base load on reliable, purely carbon-free, safe, safest form of electricity generation. Again, people don’t recognize that. There is no substitute for nuclear power. Can’t have wind and solar, which delivers 10 to 30% of the time. That’s great. Don’t get me wrong, right, where it can work, where, the sun’s always shining. But even there, we have the great environment, the sun gets dark.

There are places where the wind doesn’t blow, and it cost much to … Yeah, I know. Storage costs come down. Downside, it’s not close. So these are really compelling, and I’m not going to dive into it. There’s array of stuff all over the Internet, if you want to learn a demand side, the demand-supply, Google my name and uranium and you’ll see it. But there’s a very compelling demand case that people tend to ignore when you’ve had oversupply like you’ve had. You’ve had oversupply, and because of the Fukushima accident back in 2011 in March of ’11. And it just caused, when those reactors came offline, it costs to slow down and people’s thoughts, people’s plans and demand. But like anything, supply, demand. And that’s why when you’re looking for out of favor industries in these deeply cyclical industries, there’s no better hunting ground because as the saying goes, it was actually Aubrey McClendon, the former CEO of Chesapeake Energy, who basically said, “Cure for low prices is low prices. Now others have run with that.”

But in these industries, that’s what happens when the cost to produce something goes below the cost that you can sell it for, for more than a reasonable period of time, you have to cut supply. And that’s where you’re at now in the world of uranium. And you’re seeing massive supply cuts that for the total supply is far below … the production or supply is far below demand by say 130 million pounds of supply this morning as primary supply, by the way. You saw more news though, one of the big French nuclear giants, Irano, they’re going to be closing one of their mines in Niger. It’s producing two and a half million pounds a year, earlier than people thought. So if you have 190 to 200 million pounds of demand and that’s going to keep growing, and you produce 130 235 million pounds, well, the rest is made up of secondary supplies and lo and behold, those starting to decline.

I strongly believe that they’ve peaked and are receding, and we’ll continue to do so at a more rapid pace. And when you add it all in, the hopper, primary, secondary pulled down the inventories, which people incorrectly think are high because they look at the total number and not the actual number that matters from the commercial standpoint. You have a deaf city uranium, and it’s not little. I don’t share our exact numbers because those are proprietary. One of the things you’d like to do is look at buying behavior, right? One of the things I always implore people when you’re looking at these industries, when you’re looking at out of favor industries and things look so bad. I often say we, right, and this is not me, but I borrowed it. But it’s true, right? While history doesn’t always repeat exactly, it often rhymes. And in deeply cyclical industries, human behavior is human behavior. It doesn’t change.

And when you look at … So you have to understand, you’re dealing with humans who are either euphoric or depressed in their industry when you’re in these deeply cyclical industries. So either they’re really good, or it’s really bad. And there’s this recency bias that can’t, and I speak about it a lot. I can’t overemphasize it. People extrapolate what has recently happened, and industry participants, whether they’re in the production, or their engineering they’re building, they’re buying fuel, they all are susceptible to that. And so yet, you need to understand when you’re looking at these things, when he started looking at industries, understand who are the people buying the stuff that the company you’re looking at is selling, whatever, if you’re looking at a commodity company. Well, who’s the buyer? And what’s the most important thing to the buyer? Is it the price he pays or something else?

If you’re looking at the world of uranium and nuclear fuel, you have to understand what’s the most important thing to a fuel buyer. Well, I am highly, highly confident that a fuel buyer at a nuclear power plant, is not going to get fired for the price he pays for his uranium. He is going to get fired or she’s going to get fired if they don’t have the uranium undersupply. They don’t have it. We can’t run a nuclear power plant when anything but uranium. It’s the feedstock. So security of that supplies the most important thing, period. And uranium is interesting because if you look at other forms of electric generation, whether it’s coal or natural gas, the feedstock there can be 80 to 90%. Feedstock, meaning what did the coal or the natural gas, how much is that as the overall operating constantly comp of the facility? Well, in the world, the uranium, the whole front end of the fuel cycle from mining to converting it, to enriching it, to fabricating it into little pellets that go into the fuel rods, that go into the reactor. That’s 20-ish percent uranium, depending on the prices, low to high single digits versus 80 or 90 for the others.

And Oh, by the way, you’re producing clean, safe, reliable, always on energy. But what matters is not the price they pay. Now they will say it is because that’s their job, right? But one of the things I learned, and one of the things I really implore you to do, A, when you’re listening to a podcast, or you’re listening to TV, you’re, you’re listening to the radio for to enhance your education on investing or to find ideas. Don’t listen to the host. Don’t listen to me. Do your own work. The best thing I can do is point you in a direction on where to look. But you shouldn’t just trust what someone says. You don’t know me. You don’t know. I try and let you know me. I try and give you insights into me. But trust would verify, double check. Do your own work. But I could try and give you the tools, right?

If you’re a professional investor that you’re listening to this going, okay, I know I do this every day. Okay. But many people listening to this aren’t. So man, actually, you know what, most professional investors don’t do it. They get on the phone with a buddy, and they see what they like. So sorry, professional investors, I know your game, I’m one of them. But actually, I and others who are looking at opportunities like this, at least that I know in this space are not doing that. So what would I would suggest is understand if you’re looking at nuclear fuel, you’re looking at uranium, looking at junior miners, physical uranium, nuclear power, understand what the buyer’s mindset is, what motivates them, what’s important to them. It is security of supply. So how do you do that? Well, it’s work. It’s hard work, right? Because there’s, there’s not anything out there that says, okay like Google, what’s the most important thing to a few bar?

No, you got to immerse yourself in the industry. You got understand what’s the history of the industry? Nothing is better than reading and getting on the phone, cold calling people. Now, I understand you have full-time jobs. You might not be available, but there’s other things you can do. You find annual report, The Mechanical, the leader in the industry in the West, right? Go back to 1999, 1998, before the last turn, the price uranium went from nine bucks to 137 in ’07. So what led up 2000, 2001, 2002 annual reports? Read. It can take time. What was the tone? What was the tenor? What was the management commentary at the time with the chairman’s letter, say with the CEO of talk about? Where they put in their management discussion and analysis. What are the key drivers? What were they worried about? But it say the next year, about the prior year that you’d read about. Is it consistent that the industry change will cause it to change when a case of uranium, right?

You need to learn about how uranium is bought. What’s the market like? Kind of unique. There spot volumes, but most of the contracts, most of the stuff is done on long-term contracts historically. Right. Historically, most of the stuff that is bought is done on a long-term contract, so understand that when you’re thinking about it, what percentage of what’s bought is bought on contract? What percentage is bought in the spot market? Do that for each year. It’s not a possibility, you can do it. It’s all in these annual reports. We’re not going to say it like that, but they can tell you how many pounds, what the industry numbers were like. You can pull it out. You think about that. How would the pounds be bought on the spot market? What’s spot price back? Then each year you can find it again. You got to tease it out. You’ve got to pull it out.

What was the percentage at the peak bought in the contract at peak pricing? What was the percentage bought at the trough pricing in the contract market? Same thing with spot pricing. What was the average over those years? What was the ratio of how much they bought? They Ping the industry, globally. How much was bought to how much was consumed in a year? Understand the fuel cycle length in the worldly uranium. It’s two years, 18 months, 24 months, from the time you ordered it to the time you get. So if you were to look at uranium nuclear power, and you’re analyzing the industry, see how much did they buy and how much did they consume, right? Come up with your own ratios. Well, in 2002, the price of uranium was $9.60, and went up to 1340. In today’s dollars, that’s $13.40 to $14.25. And a total pounds bought to the total pounds they consumed was 0.5 in ’03, price of uranium went to about 10, 20 to 1450 in today’s dollars, 14 and a half, 14 and a quarter to two just under 20 bucks bought to consume was 0.5.

In ’04, started to go up 1450 or $19 in today’s dollars up to a little under 20, to $21 for about $27 in today’s dollars. And Lo and behold, 0.6 was how much they bought. So it went from 9.60 to $20, and how much they bought to how much they consumed went from 0.5, 0.6. In ’05, it started to really climb up to the low 30s. I get a little nervous. That ratio went to 1.5 bought to consumed. In ’06, I’m now talking averages, starts spiking up to around 50 bucks. 1.4 bought to consumed. ’07, went as high as 137 bucks for probably an average of around 80 bucks, 1.45. So when the price is low at nine, they’re not buying. And when the prices is at 137 and averaging in the 80s, they’re buying. One and a half times what they consume, but at the trough their buying half of what they consume.

So they’re not bargain hunting when they can buy it at really cheap prices. If costs really mattered, if prices really mattered and they did their own analysis and said, “Look at this, my God, this is on sale.” We know that that time and that time in 2003 or 2004, there were 430, 435 reactors, 2200 construction. There was no new mind supply coming online … I’m sorry, there was a lot of new much supply coming online, but they didn’t … In ’03, ’04 you had a flood. People start to getting nervous. Interestingly, 73% of what they bought or so, about mid-seventies in ’02 was under long term contracts and when it was peaking it was 93%. They couldn’t buy contracts fast enough in ’07. They couldn’t secure them fast enough and went from buying 75 million pounds in oh one 245 million pounds. No, seven no six now do that. They’re looking at inventories around the world, not just the Us Europe and the rest of the world. Who’s buying reasons? Is it reasonable within reasonable expectation yet, but you have to do that work? How much his strategic, how much is in the government stockpiles if not hitting the market? How much in the US, how much is in western Europe, how much is in the developing markets piece together?

There’s Japanese utilities that are public. There’s Korean utilities that are public. The Chinese, they’re basically stayed owned, but they’re public. Their speeches at, they talk about they have filings that are out there. Understand the environment at the time or are you utility inventory levels then versus now? Was there anything that was changing? Anything that was different? Anything that is short supply during that time, you know, to short supply during that time to upwards of 20-ish million pounds a year for us utility up it from 93 to 2013 was the megatons to wag megatons to megawatts program where, the Russians down blended 27,020, 2000 intercontinental ballistic nuclear missiles from highly enriched uranium to low enriched uranium. And they took it into the US shores. But even during that, the surety of supply of that coming in, they couldn’t buy uranium fast enough as the price was going higher. Couldn’t do it fast enough.

So look at it where it is today. What’s the environment like today? What’s bought to consumed? Yeah, a little under one trotted 0.63. Interestingly, back in ’03, about 13% of what they were buying was in spot market. We’ll have 17%, now to half, 0.49 of the demand is in the spot market, and think about that. Today we have at 54, 55 reactors right now under construction at 12, 13 14, 15 hitting the grid next few years per year. Each load, each initial fuel load is three times we used two in our model, but it’s three. Each reactor on average, we’ll use 500,000 pounds uranium a year. We use 450. So we intentionally no or low cause we’re being conservative.

So a new one-gigawatt reactor is going to use 1.5 million pounds on an initial fuel load. So think about where the industry has put itself right now. You’ve had massive supply destruction. Now people will say, “Don’t forget, there are financial buyers that have entered the market that could have bought uranium and taken it off the market. That could sell it back in.” You sure they can. Yellow cake is bought nine million pounds. Uranium participation are at 12, 13, 14 million pounds of inventory. I’m working off of memory in ballparking. They’re not run by fools. They’re not trading uranium to make a few bucks, they didn’t put these vehicles together to make a few dollars.

I don’t know what’s the right price that that comes in through market, 60? Because I know the miners need 50, even be incentive to even think about putting projects online that are going to take a few years to build, and they need to have contracts in hand because you’re not going to get those minds built without the contracts. And those contracts have to have at least a five in front of many. You’re going to need six in front of them and why those projects need to get built? Because nuclear powers of growth business.

You can read a headline here or there, somebody reducing a reactor here or there closed. Put all in the hopper though. How many new builds? How many licenses? How many existing reactors go draconian on closures around the world, country by country. It’s a growth business even when you do that. But the utilities didn’t put themselves globally in a position where the highest point ever, they’re buying in the spot market, 0.49 in 2018 at the pounds, the ball was in spot. At a period of time where supplies coming offline, the biggest mine in the world, MacArthur River came offline at 18 million pounds a year. So the price of uranium sits is what? 25, 26 bucks just in their updated 43 101, technical report. They’re basing it on $43? They’re not bringing that online unless it gets there.

And Tim Grant run it, smart guys. You think when they could get a $43 contract and I can hold out for more with all the leverage they have on the market? These guys didn’t fall off a turnip truck. They have a lot of catch up to do for the industry that’s been pounded for the last eight years. When cash flows have imploded, not their fault. They’re not there just to make a little bit of money. They get a lot of catch up. And other projects that could come back online that gets referenced. Yeah, 60 bucks. Is that the right price? It is amazing when it these deeply cyclical industries, when you’re trading at 25 bucks and you’re thinking 50, 55 and in number that you could come back online? It’s funny how human psychology comes into play because when it gets back there, all of a sudden that number changes. You’re going to hold out for more because you can. Why? Because the buying behavior of the buyer dictates that. They show that they buy it peaks and don’t buy a troughs and when they were fearful they buy more.

And in a period now where you have the most number of reactors hitting the green in a long time and bigger reactors, you have closures. They’re closing smaller ones are bringing bigger ones. In that net you’ve got growth, a lot of it. And for this demand that’s coming down the pike, you need new projects to your primary supply that far trails demand. You have secondary supply that is receiving. I’m not going to get into a discussion on underfeeding, but you can look it up. I’ve talked about it. You could listen to conversations I’ve had on the podcast about it, but that’s receding. And the biggest thing, the biggest thing is uncovered demand when you’re looking at this industry, right, and the industry like that, that’s contract based. How much of the needs of the buyer is covered by a contract within the prescribed length of the cycle of purchasing? And in this particular case, you’d run Uranium stocks are 13, 14, 15. There was no uncovered demand. There’s abundant supply in the utilities were covered by contracts that lasted seven, eight, nine, 10 years. There was no reason for them to buy uranium.

That’s an entirely different ballgame right now. It’s an 18 to 24-month fuel cycle. You’re upwards of 20 percentage points, 20% of needs that are not covered by contract within two years, and that ramps 70% range over the next seven, eight years. That’s a big deal because it could take a decade or 15 years to get a mine licensed, permitted, built, all these development projects, most of them still need a lot of work. Many of them have been shelved. Huge amounts of capital that will not get financed unless they have contracts in hand and many of them with at least a five handle, meaning 50 plus. So you have a lot of work to do on the price front, and all the while there’s projects that are sitting there not getting built means more supply destruction means less supply to meet demand. When you had a primary and secondary, it’s not enough. And what will happen?

If you laid it out what’s the focus and inventories are drawn down not at bare bone levels, but at very reasonable levels. And what’s the one thing of fuel buyer needs? He needs uranium or she needs uranium, and she will pay, or he will pay what they need to pay to get that uranium. And as long as they’re paying the same as everyone else amongst their peer group, that’s okay. Now, going back to what I said earlier, think about these things in terms of how many eyeballs are doing this right now? How many people are paying attention to an industry that A, in the public perception is wrong, but it’s not well liked? B, people in the industry are apathetic, they’re beaten up.

Rory line on the same data. That data is stale. And when you’re looking at industries, understand who the data producers are, and what motivates them, is it stale or their handcuffs on how they could report it? Are there other reasons why they might not want to stick their neck out? Do they want to have a baseline, a high case and the low case that you could drive an ocean liner through so that you can gravitate towards whichever one it happens and say, as we said? understand how consensus is formed. So understand how consensus is formed, understand the incentives and the motivations of the buyers. Understand that psychology of the industry, the mindset, the mood, and then do fourth-grade math. Open up a spreadsheet and do that and come up with your own ideas. Pounds bought, pound consumed. How much bought in the spot market versus long-term market? Put little graphs look to see when were they buying the most or are they buying the most that peaks or troughs?

History repeats. It rhymes if it doesn’t necessarily repeat. When you do that, you start to put a mosaic of information together. And I go back to Howard Marks. Most great investments begin in discomfort. What bargains are found in things that are controversial, where people are pessimistic about their performed badly of late way. The way I view these things as you can slug it out. Is the dollar overvalued undervalued? What’s going to happen with the twin deficits, or just going to go out to trade wars, tax breaks going to help out, how long is that going to last? Let me turn on Bloomberg and see what that guy said. What’s CNBC saying from a guy I have no idea about? Is he talking his book or is he not? Let me and the other 20,000 combined mutual fund and hedge funds and hundreds of thousands analysts all looking at the same shrinking pool of potential companies to look at. I’m going to go figure out a way to do it. I’m smart than all of them.

I call bullshit on that. I just don’t find value in that because when it turns, and it goes down hard, how are you going to know when to get off the caboose or off the train? How are you going to know? Now what I’m perfectly willing to do and is where I look at risk/reward. What’s my risk? What’s the reward them I can get for the amount of risk I’m taking? If I have to wait a couple of years and I have 10, 15, 20% downside, but I have huge upside that’s called asymmetry. Who cares what happens in the near term, but all goes back to you got to be right. If the work is wrong, it doesn’t matter, right? So you have to have a non-consensus opinion that accurately embraces it. Got to be accurate.

That’s where you will see, and I see on Twitter a lot, footnotes first. As a publicly visible person in uranium, I see a lot of traffic. A lot of stuff comes at me. And I see commentary and it’s daily. It’s constant. It’s all day. And this stuff, the traffic on there, the more work you do, if your work validates, keeps validating and you keep an open mind to where you could be wrong, and you have to take into the many areas you can be wrong. And I’ve talked about that Ad Nauseum, on prior podcasts about uranium. You’re not susceptible to the daily whims of the, if the mood is down in the stocks are going down or they’re going up, whatever it is, you kind of let your fundamental work takeover, so do your own work. But nothing beats reading historical commentary.

Nothing beats it because like I said, in these deeply cyclical industries, unless there’s been a change, a step function change. Now if you’re looking at the oil and gas industry in the Us right, you’re looking at the shale plays, technological change has changed everything right. In theory, the US has become energy independent because the shale plays produced so much oil and gas. Well, you have to ask yourself if you’re looking at that of two-thirds of the company can’t make money and they owe a few hundred billion dollars and no matter what the price oil is, they still shit the bed from an earnings perspective. How long is that going to last? But you’ve gotta be cognizant of what’s going on. But anyway, so that’s my view. And what brought that up, what triggers is I was looking at the futures this morning as the market was getting hammered. I look at that downtown about the same, and I thought, “Huh, I think of …” I don’t really care what the market’s doing because I’m looking at others that’s …

Yeah. On a day like today, it’s going to get hit. But what’s going to happen? What’s going to cause people to go, holy crap, look at this. And I noticed that. I love those ideas. Anyway, so I got … I am not going to be doing a podcast on Memorial Day. I’m going to just take a little time off on Memorial Day. I’ll put one of my prior ones up. And this week’s an interesting week. Mike Shellenberger, the global nuclear power activist who, if you don’t follow his work, you should. He’s an environmental progress and you can find him on YouTube. He’s given so many Ted talks, he’s fantastic. And he used to be anti-nuclear pro-renewables activist for a long time, but he changed his mind on nuclear power. Now he’s an outspoken advocate of it. But he’s getting about 20 people together at his office over the next few days in California.

And I was one of the invited, few. And so, I’ll be out there this week and learning and sharing and I’m looking forward to that. So I’ll be back next week. It’s a Chatham House rules. So you can’t attribute who said what. So it’s not that I could come back and report on what I learned, but I’ll take that body of knowledge and incorporate it into my views. so anyway, I’ll see you next week and a half. I have a good rest of the week and take care. Thanks.

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