Welcome 2024 with this brand new episode of The Week Ahead. Joining us for the first time is Neely Tamminga with our regular guests Albert Marko and Tracy Shuchart. Key themes for this episode:
- The US Consumer & Employment
Neely, an expert in consumer trends, joins us to explore the financial landscape with a focus on consumers being overextended, multiple jobholders, and the ability to repay debt. She provides valuable insights into the challenges that consumers face.
Also, she shares her forecasts for January and February, discussing weaker demand optics and potential layoffs, and helps us understand how the 2024 consumption dynamics might impact consumer confidence in this presidential cycle.
2. Turkey’s Geopolitical Aspirations
Albert takes us on a geopolitical journey, especially focusing on Turkey. What are the lesser-known aspects of Turkey’s influence in the Middle East and Africa?
Albert also helps us explore the impact of Turkish defense exports, and the role of Lira devaluation in geopolitical priorities, and understand Turkey’s key bilateral relationships—Russia, China, Iran, Europe, and the US.
3. Is Nuclear Overbought?
Tracy brings her expertise to the table to address the lingering question: Is nuclear overbought? Tracy discusses the long-standing fascination with nuclear investments and the recent surge in hedge funds loading up on uranium.
Tracy explores the reasons behind this bullish trend, questioning whether nuclear is overbought and what insights these funds might possess.
Transcript
Tony Nash
Today we’re joined by Neely Tamminga, Albert Marko and Tracy Shuchart. We’re starting the new year with a great episode and Neely is going to talk to us about the US consumer and employment. We had that jolts data come out yesterday and on Wednesday, actually. And I’m really interested to see what Neely expects in Q1. We’re going to talk about Turkey. Albert has a lot of experience in Turkey, so we’re going to talk through Turkey’s political aspirations and kind of some of the roles they’re playing in the Middle east with Russia and other places. And then with Tracy, we’re going to talk about nuclear. And I’m really curious. I’ve heard about nuclear for years. I’m just wondering, is nuclear overbought at this point? So I’m sure we’re going to make some enemies by having that conversation, but it’ll be a good one to have.
Tony Nash
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So, Neely, thank you for joining us. I’ve been trying to get you on our show for a while and I’m so grateful to have you here. So welcome.
Neely Tamminga
Thank you. It’s an honor to be here truly.
Tony Nash
Great. Thank you. So one of your key areas is consumer, and I see you tweet about consumers a lot. You recently posted about consumers being overextended and kind of consumers paying bills with multiple jobholder data. Can you walk us through, I’ve got the tweets up on screen. Can you walk us through how loaded up are consumers and how are you seeing the ability to repay debt in the US today?
Neely Tamminga
It’s precarious for some, it’s easy for others. And I think that’s what is going to be most revealing for this year. We’re asked all the time, how’s the consumer? And our first response is always, well, which consumer do you want to talk about? And that nuance is something that I think that we’re going to have to retrain the market to think through in 2024. Nuance is going to be where the alpha is, and that’s how we’re guiding our own corporate clients as well as some of our other clients that we advise on the investment side. One thing that immediately comes to mind is that debt level, we definitely have some consumers that feel so stretched that they choose to do buy now, pay later, or some people call buy now, pay never. Right? And it’s still an unproven mode. It’s still an unproven debt. It’s still unproven. And we’ve seen this way back in history before. Talking with another fellow Twitter friend recently, reminiscing, if you can call it reminiscing around, just like when Providian fell apart and the next card fell apart way back in the day. It kind of feels like by now, pay later might be that next wave.
Neely Tamminga
So it just depends. It depends on the consumer.
Tony Nash
Okay. So just to dig into that a little bit, so obviously, I feel like on social media, we see a lot of people who are probably doing pretty well talking about the consumer in theory, not the consumer in reality, right? And if we look at, say, some restaurant, like a chili’s or something like that, right. These were places not to pick on chili’s, but these were places that through 21 and 22, they could pass on inflation to customers, right? The job market was healthy, so kind of their target market was seeing pay rises, not passive ones, but they were enough to keep up with some of that inflation. And so now we’re seeing those pay rises. Stop. We’re seeing the job switching. Stop. We’re seeing the ability of those companies to be able to pass inflation on to their customers. Stop. And my question, we talk about this fairly regularly, is will there be margin compression coming to hurt those companies, and will there also be demand kind of diffusion, because those customers may not be able to keep up with that consumer spend, given the debt loads that you’re talking about.
Neely Tamminga
It’s a great question. And we actually are watching restaurants very closely for signs on discretionary spending here in the month of January. If you rewind, a year ago January, restaurant retail sales were off the chain. They were so strong. And we think it really contributed from two different factors. If you go back, that’s when we saw, like a high single digit cost of living increase among 66 million baby boomer retirees. That easily led to an incremental trip to get their baby back ribs right at Chili’s.
Tony Nash
Cracker barrel or whatever. Right?
Neely Tamminga
Right. The OG Olive Garden did really well last year in the first quarter, cruise bookings were really strong. I mean, things like this that are very much boomer centric. I’m sure someone’s got a boomer ETF somewhere. Right. And I’m sure it did really well. But overall, what we would say is the other thing was that it was really warm in January last year. Like really warm. So it extended a lot of the ability for those restaurants that might have had outdoor seating. They were able to extend it into that month as well. So we’re watching for the January numbers this year from a comparable perspective. The cost of living increase is closer to a low single digit this year. We all know that doesn’t totally keep up with what the cost of consumption is, right. Know at least the perceived cost of consumption. And we’re kind of curious to see if this is going to be a little bit of the breakage. There is one more thing at play that’s not boomer related per se, Tony, and that’s we’ve had this tiny little quiet, no one’s talking about it, payment pause on the student loans.
Neely Tamminga
Even over the last two months, you can see it. We’ve also tweeted about that student loan, student loan repayment. And it’s because some of the payment processors were unable to meet some of the needs and demands of restarting after, what, 43 consecutive months of not paying. We think that there’s easily eight to 9 million people that have just not been paying that might have to go back into repayment in January as well. So there’s a couple of different factors that work against consumer spending and discretionary spending specifically that we could see play out in January. So we’re watching it really closely.
Tony Nash
That’s a great point. You have another tweet. I want to talk about luxury in a minute, but you have another tweet where you talked about consumers feeling optimistic and you talk about some reasons why things might be different in the coming year. You’ve covered some of these things. The cola increases, especially in Social Security. ERTC monies were flowing freely. Consumer spending hangover is more substantial post this holiday. Interest rates, early tax refunds in February, all this other stuff. Right. So can you talk us through a little bit of that list and those things? I think each one of them on their own would, I think, cause some concern in markets. But those things accumulated, as you said, with the student loans. I’m not sure that we got like a fourth Q GDP now estimate yesterday. That was just really stellar. And I think there’s this assumption that these things are going to keep moving. I’m not a doomer, but at some point these things cause concern. Right?
Neely Tamminga
They do. And I think that’s know, I still go back to Danielle DiMartino Booth had a great interview well over a year ago, and I had the privilege of asking her a question around what is it that you would see that you don’t necessarily fully, what is it that you don’t know that worries you? And she said private credit went to places it didn’t belong or something paraphrased to that effect. And I think the same is true with consumer. You won’t see it till it kind of blows up. I mean, the consumer loves to spend. It’s a dopamine hit. Right. Even if you go back to 2008, I was recently reviewing all the retail sales data right before the Lehman crash. Right. And retail sales were robust. It was really strong the month before Lehman fell apart. And then it wasn’t until you saw the job loss that people started to pull back on spending. So I think the consumer, unfortunately, will just be spending all the way in to whatever this is.
Tony Nash
Right.
Neely Tamminga
So looking for consumer spending as an optimistic leading indicator is not necessarily historically the right way to go. But you’re right, we’re concerned about a lot of little cuts to the consumer, whether it’s the student loan payments, the lower Cola. People forget that tax refunds came a lot earlier last year in February. So a lot of people were flushed with the optics of cash in February. And they spent it.
Neely Tamminga
That’s not going to be there this February, or at least it’ll be comparable. And then heaven forbid we have to actually have higher taxes on the other side of this political season. So we haven’t even talked about what’s going on with the election.
Tony Nash
Yeah. Oh, we can talk about that for hours. Let’s talk about luxury for a minute, because Albert talks about luxury quite a lot. And I know he’s outside and it’s windy and people are going to complain about his sound quality on the show. But can you give us your view of luxury? And Albert, can you jump in here? Because know, Albert looks at watches, know luxury watch prices and all this stuff, and gives us observations on what’s happening in Florida at the different luxury stores. What are you seeing in luxury? Like, is it pretty resilient? Are things falling off? What’s happening there?
Neely Tamminga
I think I probably see Albert’s posts about it maybe is know there’s that infamous, like the Rolex watch right. Sort of indicators that you, Albert, it probably is. That’s obviously rolling over. But some of the luxury brands, even this fall, were signaling that they were starting to see kind of a slowdown in their business. And I think some people just immediately think like, oh, luxury doesn’t ever slow. And there’s some truth to that. The higher end consumer is fine. I mean, they will spend when they want to spend and how they want to spend it. It’s the aspirational, incremental customer that aspired into that brand that is now gone. And so in some ways, that slowdown of people who had maybe been flush with the employee retention tax credit money and now they don’t have it, it’s that incremental customer going away that you could start to see some things fall apart in luxury core high end consumer, truly high end people who don’t quiet luxury consumers, they’re fine. They’re absolutely fine. I don’t see any issue there. It’s the marginal customer around the brands that we would want to be on watch.
Tony Nash
And that’s really where these brands intended provide their additional value. Right. I mean, those core consumers are going to be there regardless, but it’s those aspirational ones. That’s a great point. Albert, what’s your thought on that?
Albert Marko
No, she’s absolutely right. Especially in the beginning when she started talking about the nuanced numbers of consumer spending. 10% of the consumers are spending, probably around 40% of the spending. It’s absolutely astronomical right now, and it transfers over to the luxury market. And Neely’s right, those marginal customers are gone. Those people that were flushed with money a year, two years ago, their accounts are dwindling and now they’re just trying to service their debts that they accumulated to combat that. I saw that Rolex and a couple other luxury brands like Blancpain and Brunello Cucinelli rose their prices in Europe 8%. It was just like two days ago, Rolex announced that everything in the UK now is 8% more. So they’re going to slow down their production, whether it’s watches, clothing, luxury cars, they’re going to try to slow down production and raise their prices just to offset it. But, yeah, I mean, the luxury market, although I am bullish for 2024 only because I know there’s an election and there’s going to be money flying around everywhere, but long term, it’s not pretty.
Tony Nash
So it sounds like almost a harder market segmentation than we’ve had for the last few years, like when there’s loose monetary policy market segmentation kind of blurs, but now there’s almost some hard edges coming in that segmentation. Is that fair to say?
Albert Marko
Yeah, but it transcends everything. It’s just like all the normal applications of what you would do to look at fundamental economics in the markets previously is absolutely not the case after Covid. Now that we’re in a total different time zone, total different era, things are more political than they are economic and financial at the moment.
Tony Nash
Right. Okay, great. Now before we wrap this up, I want to talk a little bit about jobs. We had some jolts. Data come out and Neely, obviously with consumption, jobs is always paired with that pretty tightly. What are your views on jobs and layoffs and other things in Q1? Are we going to see some serious slowdown there? Okay.
Neely Tamminga
Yeah, I think for. Oh, somehow.
Tony Nash
That’s all right.
Neely Tamminga
Somehow that went there. Hi.
Albert Marko
Okay.
Neely Tamminga
For us on jobs, jobs, of course, are always like the classically lagging. Right. It’s not a leading indicator, but there are some interesting things that we’ve been posting about which could be somewhat of a leading indicator. So for example, multiple job holders, some people will push back and say, we’re not insignificantly more in multiple job holders than we’ve been historically. Okay, that’s fine relative to total employed. But you might want to look at multiple job holders per continuing claims. That’s going to tell you something, right? Because it’s delightful. I actually love the consumer. I mean, having led the consumer research practice at Piper Jaffery, which is now Piper Sandler, for many, many years, took a dozen companies public, spent 20 years on the sell side. Right. I love the consumer. It has fueled and funded my future. And the consumer is extremely resilient and they care deeply about paying their bills. Sometimes I think we paint them in a picture that they don’t. They will go work multiple jobs to put food on the table for their family. And so you’ve got to look at that multiple job holders relative to where continuing claims are.
Neely Tamminga
Because if they lose that second job, they will not be able to file a claim, typically on initial claims. So initial claims isn’t what you want to look at. You want to look at continuing claims to see will we be able to reabsorb them or not into the job market. And it’s a pretty decent leading indicator, similar to jolts with the quits data. If you look at quits relative to continuing claims, it’s a similar sort of dynamic high correlation with the unemployment rate. If you look at those factors together. And again, that’s been rolling over. So multiple job holders rolling over quits per continuing claim. Rolling over. Unemployment is probably going to move higher not just because of people unable to be laid off and unable to find their job, but we actually have people who are probably coming off the sidelines and expanding that labor force denominator as they unretire in order to pay bills as well. So I think there’s a lot of little things in that, but they’re going to do it so that they can consume, which is why consumption kind of doesn’t fall apart until the economy falls apart.
Tony Nash
Right. So would you say it’s notable but not concerning yet? Something like that.
Neely Tamminga
Correct. Yeah. We’re not in a camp that’s like, oh, it’s totally tight. No, there’s actually signs that things are loosening if you look at different sort of indicators. The question is for how long and can government fiscal spending support it? A lot of job growth has come from either direct or related government spending.
Albert Marko
And that’s another question I have is now you hear the soft landing versus some saying no landing scenarios. And I can’t see that happening in 2024. I still think that the government can float it up until at least after the election. But this soft landing, no landing scenario, it’s not plausible with all this loose money that’s still sloshing around.
Neely Tamminga
Albert, I think the one thing I got wrong all last year was the political will to extend. Right? That’s what I got wrong last year. If I were to say, what did you get wrong, Neely? Because we were definitely bears because of the student loan repayment. It’s a big deal. The political will to keep people from paying their student loans is just palpable. And that’s going to continue all the way up until September 2024. It is an election issue again. Yeah.
Albert Marko
Without question. It’s not just you. I’ve been in politics for God knows how many decades. Right. And even I was taken aback about how venomly opposed they were to letting the markets show weakness. I thought, okay, for sure, we’re going to have a soft recession or some minimal recession for like a month. They are absolutely not okay with that happening on the run up to this election. That’s just the bottom line.
Tony Nash
So the political will to spend other people’s money is pretty strong, is that what you’re saying?
Albert Marko
Yeah. You can see it. Of course.
Tony Nash
Tracy, can you help us on the consumer side before we jump to the next topic in terms of gasoline consumption, airline travel, these sorts of things, are you seeing softness there? Because we’re not really going to talk much about oil prices. But are you seeing softness in gasoline consumption and crude consumption in the US? Based on some of the things that Neely’s talking about? You’re on mute.
Tracy Shuchart
Actually, if we look at oil demand in the US, we really haven’t seen a change yet. In fact, it’s even higher than 2019 levels. And everybody, even the EIA, every year when they do, their short term energy outlook has been underestimating demand. And when they go back and give their 914 report, they have to go ahead and say, we’re sorry. Demand is actually higher than we thought. And so in the US, we’re just not seeing that. But again, when you have to look at gasoline and other demand, it’s fairly resistant to even economic downturns because it’s somewhat inelastic. Yes, people will stop going on vacations and driving on vacations and things of that nature.
Tony Nash
Going to Applebee’s.
Tracy Shuchart
But you still have to get your kids to school, you still have to go to work. So some of that demand is relatively inelastic. And what we have seen in the US is that we have seen demand continue to rise. And of course, since gas prices have, even though they are higher than, say, in 2016 era, they’re still lower than they were. And so this is also helping spur demand further. So we’re just not seeing that.
Tracy Shuchart
But again, like I said, even if we look at the great financial crisis in 2008, oil demand was the first commodity to rebound out of the first of anything to rebound because people went back to work after all the markets shit the bed, pardon my french, but it was the first thing to rebound. So again, I go back to the fact that part of this demand is relatively inelastic. I mean, we’re a big country. Everybody drives to work. Everybody has to put their kids on the bus to go to school or drive them to school. Know, there are just things that we need to do to function as a society in the US.
Tony Nash
So what point in election season, if we continue to see lower gas prices, do we hear people say things like, oh, low gasoline prices are a tax cut, which is the biggest joke. Will we hear those words this year?
Tracy Shuchart
Of course you’re going to hear that. We heard that forever. That’s not new. You hear that just on interim elections. You hear that from congressmen, senators and even your local congressmen. Of course you’re going to hear that. It’s a tax break.
Tony Nash
It’s not, but it is. That’s what people. So, okay, good thanks guys. This on consumption of jobs is fantastic.
Tony Nash
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Tony Nash
Fantastic. Let’s change completely to talk about turkey. Albert, you have a lot of exposure and experience in Turkey. You wrote a piece on your cloak and dagger patron called the geopolitical roundup looking at 2024. We talk about us, politics, Turkey, the Middle East, China, multipolarity, Russia, the EU, kind of everything. One of the items that I really thought was interesting was your discussion of turkey.
Tony Nash
And I really don’t believe that turkey is well covered by western media for a lot of different reasons. So can you talk us through a few items about turkey? How big of an influence does turkey have on the Middle east and Africa? Let’s cover that one first.
Albert Marko
Well, look at a map. All roads go through Turkey, especially through that region of the world. Wheat, oil, gas, all of it goes to the phosphorus, so on and so mean. You know, the Turks and the Russians have always been at odds with one another in the Black Sea, especially the whole Iranian dynamic with smuggling roots, too, there. It’s a complex topic that. Probably not for this discussion, but the Turks are ambitious. Their economy is struggling mightily at the moment, but with cheap Russian fuel, they’re at least keeping their head afloat at the moment with Turkey. Turkey has a lot of problems, right? But their defense sales are booming. Their mission in Africa to establish trade routes is booming. Completely unopposed by Europe and the United States. Completely. And they’re actually working hand in hand with Russians and Iranians in some sectors of the continent. It’s actually quite amazing to me that no one in the media dares touch turkey at the moment. I don’t know why. I don’t know. Maybe because they’re a NATO member and the Biden administration doesn’t really want to broach that topic at the moment. Obviously, all the western countries are opposed to Erdogan, but he only has, realistically two years left before he leaves his illness.
Tony Nash
We saw, I guess, what, 1015 years ago, Qatar was putting a huge amount of money in Egypt and parts of Africa and then things that fell apart and then the UAE came in and kind of took over a lot of those investments. So is there some continuity from Qatar to UAE to Turkey? Is Turkey kind of filling in the hole maybe that the UAE had once or are they filling a different need there?
Albert Marko
Turkey is actually facilitating an anti west settlement program to incorporate Iranian trade. Right. They’re discussing on trying to stay away from the dollar and doing some little digital settlement program that’s probably going to fall apart. But you can see the ambition there in Ankara’s eyes. They want to be the dominant player. And on top of that, Qatar has been sending cash payments to Turkey. Whenever they get to the point where their economy is about to falter, plain loads of cash just ships right in through Turkey. So there’s obviously an importance there that the whole region sees.
Tony Nash
Interesting. So Qatar is helping Turkey to stabilize economically.
Albert Marko
Yeah. Because Turkey has military base there with troops in Qatar.
Tony Nash
Right.
Neely Tamminga
Can I ask Albert a question about this?
Tony Nash
Absolutely.
Neely Tamminga
If memory serves, wasn’t the big earthquake like a year ago?
Albert Marko
Yeah, it was just a year ago.
Neely Tamminga
So is that who’s been coming in and helping them rebuild or has there been some kind of natural disaster diplomacy that is not really being spoken of over here too that supports that? I mean, that was pretty disasters.
Albert Marko
Yeah. Luckily it was in a rural area of. Yeah, they had a huge amount of people lost, but it could have been a lot worse if it hit Istanbul. But yeah, there is a lot of corporations coming in that are Dubai or Qatar linked. Most likely know, white companies that are just labeled under Qatar domains. And, you know, everybody but the United States seems to want to help Turkey to gain favor. And again, it’s one of these complete failures of us foreign policy that we’ve seen for 30 years.
Tony Nash
Okay, great. So kind of moving into that a little bit, you mentioned that Turkey has a base in Qatar. The US also has a base in Qatar. Are there other bases, other major military installations in Qatar?
Albert Marko
Relevant ones? Probably not. I mean, I’m sure the Saudis have something there. Even off the top of my head, I can’t even tell you because only ones I would focus on is the US and Turkey at the moment only because Turkey. I’ve been in and out of Turkey doing business for the last few years.
Tony Nash
Okay. Interesting. Now, we’ve heard a lot about Turkish lear devaluation and lack of stability in Turkey’s economy. Can you talk to us a little bit about that? Is there hope on the horizon. Is Turkey stabilizing? It’s interesting you mentioned that Doha is sending money into Turkey, which I didn’t know about. So is there hope on the horizon for stability in Turkey?
Albert Marko
Yeah, but it’s ten years out really, because the reality is the Lira is just tanking. It’s going to be weak for the next decade. Right. But on the flip side, all business through their banks and on the street is done in dollars anyways. So what are they really hurting? Probably not a lot. I mean, obviously the bottom 75%, nobody cares about them and the government, but the top 25 and the businesses are all dealing with euros and dollars. They don’t really see lira problems.
Tony Nash
Okay. So they’re trying to facilitate. Turkey is trying to facilitate transactions in Africa, in Iranian Riyals, but they’re spending us dollars on the street in Istanbul.
Albert Marko
Yeah, of course. I mean, the Chinese do the same thing, but on the flip side, they’ll lend out Renminbi and they ask for dollars back.
Tony Nash
Okay, let’s also look at what are Turkey’s closest bilateral relationships? I know that they’ve had a troubled past with Russia, but what is that relationship, aside from kind of the oil relationship now, is there a true bilateral relationship there, or is it really just kind of an opportunistic economic relationship?
Albert Marko
It’s completely opportunistic. They have issues with Iran, Russia, and the EU and the Black Sea area. It’s all they have mentioned before. It’s always been a problem. It always will be a problem of all four of those players trying to dominate that area. So the only relationships they have, realistically are with long standing with Germany. Although contentious at times, that’s one of the biggest communities outside of Turkey.
Tony Nash
Okay. And just for the people who don’t know, you really have to look at Ottoman history and Russian history and a lot of the fighting they did to really understand why that antagonism is so deep seated. So you say Germany and Turkey has a tight bilateral relationship, is that right?
Albert Marko
Yes.
Tony Nash
Okay. And that’s largely because of the migrants that went from Turkey to Germany in the 1970s and have continued since then.
Albert Marko
Yeah. Erdogan has even visited Turkey, Turkish communities in Germany multiple times.
Tony Nash
Okay, then what about China? Does Turkey have a good relationship with China?
Albert Marko
Yes and no. They view the Chinese with skeptical eyes. I mean, obviously they’re not going to give up their key forts to Chinese outfits like the Greeks did. They’re not that desperate for money at the moment.
Tony Nash
Okay. And go ahead.
Tracy Shuchart
I have a question. We’re looking at Russia right now, wants to kind of build this very large natural gas hub in Turkey. So what, if any, do you see this being a problem with Turkey being a part of, you know, obviously Russian sanctions know all energy. So do you foresee this being a problem if Russia does decide to have kind of turkey be this big natural gas hub for them?
Albert Marko
No, I mean, let’s just be realistic. How do you replace Turkey if you want to have any kind of defense or offensive capabilities into the, this, all this chatter know we should kick Turkey out. It’s not sensical. It’s not going to happen. I don’t care how many LNG ports they build over there in the Bosphorus, whether it’s Chinese, Russian or from Pluto, nobody cares. It’s just the fact of the matter is that they’re always going to be in NATO.
Tony Nash
Speaking of that a little bit, Albert, Turkey does have quite a lot of defense exports, especially with UAVs. Do they compete with the Chinese for defense exports in places like Africa?
Albert Marko
Of course. But nobody likes the chinese stuff. It doesn’t work. It’s too cheap. It’s not been proven in combat. The Bayraktar’s, which is the turkish drones, are well proven. Great pricing. I think they run for like 20,25 million a piece and it’s hard to beat.
Tony Nash
Okay, so I remember last question on Turkey. I remember reading, I don’t know, 20 years ago or whatever, George Friedman wrote this book called the next hundred years and he said that there would be a re kind of assertion of kind of the Ottoman empire through Turkey, and Turkey would be one of the big geopolitical players in this century. Do you see that happening? Can Turkey really get it together to be a major geopolitical player this century?
Albert Marko
No, not this century or next century. Their economy is, like I said, barely afloat. Their military, although somewhat decent next to their borders. They have no logistical capabilities whatsoever and they have no leverage outside of know being geographically.
Tony Nash
Okay, interesting. Okay, very good. Thanks for that. I want to come back to Turkey occasionally because it’s so interesting. And again, I think it’s so misunderstood in the west that I think it’s a really important conversation for us to have. So thanks for that, Albert. Tracy, I want to talk to you about something that is, I think probably going to make me unpopular and may make you unpopular is nuclear. I think the nuclear guys, they’re not quite as adamant as the crypto guys, but they’re probably as adamant as gold guys. So we’ve seen nuclear push up quite a lot lately. I’ve heard people pumping nuclear for years it’s an obsession for people. I think over the past couple of years we’ve seen countries like Belgium and Japan claim that they’ll revisit plants to open nuclear plants. And we saw with the earthquake in Japan this week that because of the safety protocols that were put in post Fukushima, that the nuclear plants were safe during the earthquake, which I think is really a good sign for reopening in Japan. So this week you posted a tweet on hedge funds loading up on uranium, which is interesting, and we’ve heard this story for a long time.
Tony Nash
We’ve also got a screenshot of the uranium price. The uranium ETF obviously popped up in 21 and 22, and we recently saw a top. So I guess my question is, why are all these funds so bowled up on uranium? Like, is the near term prospect for uranium as positive as many of the people have been pumping for the last probably four years?
Tracy Shuchart
All right, well, you have to look back at the history of uranium. It’s been a very difficult trade. It’s had its ups and downs. It’s had its ins and outs over the last 30 years or so. So this is not new for uranium to see this kind of price action. That said, I do think that we’ve hit kind of a new phase or a new nuance in this particular market about that. We can cut that out. All right, let me restart. So I think we have hit this new phase or nuance in this particular area. Now, do I think that prices may in the near term have gotten away from us a little bit? Yes, perhaps. But that’s a good thing overall because what we’re going to start seeing is that a lot of these projects, we are in a deficit. Let’s start with it. We are in a deficit because even though the west has largely shunned since Fukushima and Chernobyl, we have had Asia pick up the slack. And I mean, that’s where most of this demand and most of these new nuclear facilities have been scheduled to either have been started or are under construction or plans under construction.
Tracy Shuchart
And so that really hasn’t changed. It’s really been kind of the west having this very negative thing about this. And what really changed this, I think notably this year was COP 28, when nuclear was finally brought into the fold in talking about the green transition, because we haven’t seen that. Right.
Tracy Shuchart
We saw in COP 27, we saw natural gas finally brought into the fold, and then finally we saw nuclear brought into the fold. In COP 28, we had over 25 nations kind of sign up saying we’re going to triple nuclear energy capacity by 2050. Now, I would like to remind people this is totally an impossibility, logistically speaking, but the mere fact that they have signed up for this is a very positive sign for the nuclear industry, for the west in particular. And so I think that’s very good. Looking forward. I also think that we’ve been in a deficit, even though we haven’t seen this reflected in crisis, because again, largely the west has disregarded this technology and or shut it down. Like, look at Germany, for example. So I think that we’ve seen a new turning point. Do I think that this market’s going know prices are going to continue to skyrocket higher? I do think there’s room to the upside. Do I think we’re going to see a pullback at some point? Yes, because we have had such an escalation in prices. That said, if you’re an investor, instead of kind of wanting to chase prices, uranium prices higher here, maybe wait for that pullback there, but maybe start looking into junior miners.
Tracy Shuchart
Right? Junior miners are miners that I would look at. Miners that are already permitted. Right. They don’t have to go through this hassle. They already have drilled holes, so they already know what they’re looking at. They’re ready to go. Right. As soon as these prices hit, and as soon as we started hitting above, say, 65, we started seeing junior miners say, oh, we can kind of get our projects off the ground now because we can make money at this. And so I think that’s a really underlooked area at this point because we’ve seen CCJ and all the big obvious ones explode along with uranium prices last year, and they did extremely well. But I think in this new phase of things, in these new higher prices, what you’re going to see is you’re going to see the juniors doing more well. And I’m not saying CCJ is not going to do well, but I’m saying you’re not going to see the 80% increase that you did. Probably in 2023, you’ll see a lot less increase. And I think there’ll be a lot more interest in junior minors again, but be very selective of the minors that you’re choosing.
Tracy Shuchart
You don’t want people that are. I’m just trying to get my permit now. That’s going to take ten years. It’s going to take billions of dollars. It’s going to be over. You want miners that are literally ready to go.
Tony Nash
So that’s great. Thank you for that.
Albert Marko
I have a question, Tony, I have a question, maybe a statement. I don’t expect Tracy to answer this, but how much of this investment drive for uranium nuclear is predicated off of the failure of alternative energies, renewable energies hidden lately because we’ve seen wind power fluctuate significantly, we’ve seen solar power problems and supply chain problems and the cost going up. So I’m just curious if you have any insight.
Tracy Shuchart
I don’t have exact figures, Albert, but it’s great that you brought that up because I absolutely agree. And the confirmation of this was cop 28 when we finally saw it because we’ve already seen or said this year, right, we saw demons this year and then just yesterday we saw BP and know dump out of wind. And so I think people have seen this coming again. I don’t know the exact percentage, but I would say that a lot is predicated on that. Absolutely.
Tony Nash
If nuclear capacity is going to expect it to come online at some point, who is making these nuclear plants? I would assume it’s the French, the Japanese and the Chinese, is that right? Who actually constructs nuclear.
Tracy Shuchart
Know, it depends actually South Korea, even Bangladesh, believe it or, you know, it’s a lot of Asian countries know obviously that. China of course. But I think that you’re going to see renewed interest in the US, particularly because the US is talking about banning Russian geranium imports, which accounted for about 25% of our uranium imports. And so if they are going to ban that, then where are we going to get this? So I think there’s going to be a, you can do Australia, you can do Kazakhstan, you can do their other places too. But why not get it from North America, right? Because you have some really great companies that we’re looking at not only in Canada but also in the US that have some great projects on the line.
Tony Nash
It’s interesting, over the past few months we talked about kind of the cost of debt associated with building new kind of green projects. And obviously the cost of debt associated with nuclear projects would be different or would be similar. But the lifespan of a nuclear project is quite long, right? You’re talking 50 years or something.
Tracy Shuchart
You’re talking decades. I mean, we have nuclear facilities that are 50 years old that we just expanded another 20 years. I mean, so far we haven’t really found an end to them. And those were facilities that were literally built 50 years ago. Technology has obviously advanced further at this point. And again, you have to look at companies. I just want to keep stressing this and I know I have three times already, but you want it to have companies that are already permitted, that have already drilled, that already know what, that literally are ready to go because the other ones are going to take decades really to get the projects off the ground. And that’s being realistic as far as just looking at permitting a loan is concerned.
Neely Tamminga
Yeah. I would love to ask Tracy a question about this. I am not an energy expert by any stretch, but I think we do need to bring it back to politics for just a hot minute. Right. And that is executive Order 13990, I think ultimately has been like the line in the sand against fossil fuel drilling and production that President Biden signed into. It was easily, I think, his first twelve executive orders he signed in when he took office. And what happens if we have a contender that moves over from the Democrats to the republican side? Do you think that’s going to be one of the first executive orders that gets eradicated and then all of a sudden the fossil fuel companies are back in business again? I think through from a board of directors perspective, could you green light big capital spending projects in fossil fuels if you have a political will against you? What happens when that political will is eradicated and removed? I’m just kind of curious, your perspective on the political component of that.
Tracy Shuchart
Yeah, on the political side of things, I think that nobody wants to go 100% into fossil fuels, politically speaking. Nobody’s going to do that except for, say, Senator Manchin, that he’s West Virginia pole, whatever. But I don’t think that is politically kind of a platform you want to run on. And so I don’t think that we would see a complete 180 on this and it would be all just fossil fuels again because that would be politically going against half the country. It would be politically going against what the entire world or what the entire west is kind of looking at. So I don’t think anybody’s going to run on, I mean, you know, I don’t think anybody’s politically going to run on completely. Let’s forget renewables, right?
Albert Marko
Yeah. You would need the Republicans to take majority both in the House, Senate and the White House to be able to push something like that. And even then the numbers would have to be so high that it would stop any kind of veto. So it’s going to be a while before fossil fuels will come back into favor in DC.
Tony Nash
Yeah. The other consideration we talked about is that cost of debt and almost the substitutional factor with green power generation. Right. And so as terrible as this sounds, I think it’s really interesting how interest rates have brought some kind of reason back to the alternative energy space, and we’re looking at the return on investment. So nuclear is. So for the people who hate me for what I said about nuclear earlier, nuclear does have a lifespan of decades. So there seems to be really good value for money there compared to some things like wind and some other things that have really been hyped. And I don’t hate wind, but I just am not really sure that it’s there in terms of what do you do with the used blades, all this other stuff that are just really complicated issues.
Tracy Shuchart
And the same with solar as well. Look at solar panels. And I understand that there are many companies that are trying to figure out ways to reuse and recycle these products, but ultimately, it’s very hard to separate these metals from each other after they’ve been fused together. And the big startup companies that have already started this kind of have pulled back on this even and said, well, maybe we can’t. Maybe we had two ambitious schools at the beginning. So I think the reality is just starting to set in and it’s not cheaper. If you look at the big countries, Germany, particularly in Europe, their energy prices haven’t come down even as their share of renewable have gone up in their overall energy consumption profile.
Tony Nash
Yep. Very good, guys. Thank you so much. We have covered such a range of stuff today. It’s amazing. So we got the first one for the year all done. So thank you so much. Neely, really appreciate you joining us. You’ve brought an amazing perspective on consumers. And Albert and Tracy, as always, thank you so much for your time and all your thoughts and have a great week ahead. Thank you.
Tracy Shuchart
Thanks guys.
Albert Marko
Thank you.