Monday, July 25, 2016
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Japan Reactor Restarts Continue

nuclear-power-plant

I’ve held a growing position in CCJ since the Fukushima reactor melted down and outlook on nuclear power soured. It has done poorly, but I remain wedded to it. Within the next few years we are going to see pricing for uranium recover and the suppliers are going to do very well indeed.

The Japanese, continue their “patient” process of reactor restarts with courts finally clearing two more this month for reactivation. And of course, by “patient”, I mean “the Japanese are the slowest most irritatingly conservative people on the God damn planet”. But we are finally getting there nonetheless.

A Japanese court on Thursday ruled that two nuclear reactors could be restarted after the operator said in an appeal that they were safe. The Fukui District Court in western Japan lifted an April injunction that was filed by a group of residents who said that an earthquake exceeding the reactors’ quake resistance could cause a disaster similar to the Fukushima crisis set off by a March 2011 quake and tsunami. The order paves the way for a resumption of the Takahama No. 3 and No. 4 reactors, operated by the Kansai Electric Power Company.

The declaration of nuclear power’s death was more than premature. Nuclear power is not dying at all. At this phase, it looks like U308 pricing has set a bottom and the real price for uranium (actually recorded by non-distressed companies like CCJ) has remained higher than the quotes being pushed around on the internet.

For the moment the collapse of hydrocarbon pricing is actually taking the most immediate pressure point off the table for keeping nuclear around, but there are still plenty of reasons why the power source isn’t going anywhere.

The most basic of these reasons is just the broad need of power we have. The planet is advancing; the rest of the world is no longer content to let the West live in the lap of luxury, free from all hunger and cold to work on the most pressing problems of micro-aggressions, while they dig in the mud.

The population of Earth is heavily concentrated in the East. India and China alone make up somewhere around 37% of Earth’s population. As they progress into the late stages of a technological revolution, their demand for power is going to soar. Do you really believe the Chinese care where that power comes from?

China, India, the lot of them, are going to build out EVERY power source available. Coal, nuclear, oil, hydroelectric, wind, solar …if it can turn on a light bulb, it’s getting done. They aren’t going to restrict themselves because some uppity American twat really loves polar bears and aspires to maybe go see some one day.

Now some people are making the case that the recent UN agreement is actually paving the way for more nuclear. I’m not going to buy into that. I’d actually make the case that the UN climate agreement is 99% talk and hype and that there really isn’t such a thing as international law anyway, so only a handful of suckers are going to follow through with what’s written on that paper. The climate agreement’s primary purpose is to funnel billions of hard earned American dollars overseas to bank accounts of the well connected.

But the climate deal does highlight an interesting point. Countries have made pledges to halt emissions growth but those pledges are not completely imaginary. They do seem to be based on emissions expectations for the next few years. And those expectations have a lot of nuclear power built into them.

China is already in the process of doubling their nuclear fleet. Their goal is to quadruple that this decade.

On the Western front, faux-concerned rich people continue to insist that free power come from nowhere especially, which is ironic seeing the West is where Kelvin, Hess, Maxwell, and Gibbs were all born. But if the power flow is actually disrupted I would imagine the pitchfork (or more aptly AR-15) carrying mobs will snap these lunatics out of it. So if we are actually going to attempt to hit these emissions numbers, then there aren’t that many ways to do it.

There is a report floating around that says the US could be almost 100% renewables powered. Of course nobody actually read the report, because if they had you’d realize the extent of madness needed to get there. The point of that report was to discredit the “base load” argument, but the content of the report does a better job of supporting it. In order to completely phase out the traditional power sources, you would need to vastly overbuild the wind and solar sources. It would be extremely wasteful. Otherwise, the variance of power generation would cause problems in the grid.

So my guess is that, for instance, Germany’s insistence they’ll be completely nuclear free (and coal free, and natural gas free, and thermodynamics free) by the early 2020’s in complete crap. Actually, my guess is Merkel’s party gets thrown from power (for unrelated reasons) and reneging on that particular promise will be one of the first orders of business for whoever triumphantly stands over her.

In the US, natural gas generation growth and the sudden collapse of commodities is taking some nuclear power out of commission. I’m not sure if anything is going to reduce this trend, since the GOP doesn’t seem to be going anywhere and they don’t give two fucks about gimmicky fad concepts like “clean energy”.

But big picture, I think US and European reactors will experience only marginal decommissioning (from market pressure and equipment aging). I’m not betting those reactors get replaced just yet, but on the Eastern front, you’re going to see every reactor the West lets idle be replaced by 2 or 3.

These new models have even better safety records than the old 70’s and 80’s models running in the West – which are already basically mortality free – and my guess is seeing them operate will pave the way for a fleet upgrade here at home.

The goal of most countries should be to have a diverse mix of energy sources. In the US, entrenched coal generation has been challenged very effectively. But coal isn’t going away, it’s just going to drop to its even share of the load. Once other sources claim enough market share, they’ll hike prices until equilibrium takes incentives for further conversion off the table. Unfortunately for coal producers, that isn’t a good thing right now. But following enough bankruptcies, there will be room to edge back into the coal industry.

Globally I expect that to be a consistent theme. East countries need more nuclear power to get there (but they need more of everything anyway). South America has very little nuclear capacity and I wouldn’t be surprised if some build out occurs there as well. Europe and North America will slide as they let aging reactors be decommissioned and can’t work up the effort to replace them. The Middle East will continue to push for nuclear because it’s a nice fix to their geographical location, because competition between countries will pick up as one or two implement the source (and because each time they do, America freaks out and showers them with billions at the bargaining table). Africa just needs every source it can possibly get.

Global markets are still experiencing weakness, and demand is soft. But once we work through this patch, it’s back on. Energy is a great place to be for the next 10 years, if you can look past the pain right now. And uranium specifically is a good bet.

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What A Wonderful Day

I am 70% long, and this is what my day looked like:

BAS +12.61%
CCJ +7.56%
HCLP +3.42%
ALDW +1.99%
VOC +1.76%
TIS +1.48%
OMAB +0.70%

It’s difficult to scoff at a day like that.

Yes I am still down from 2014. I have no desire to hide behind spin. 2014 was a horrible year. But as I said to those of you asking why I was still hanging around BAS, it was because BAS had 100% of upside…at least. And now here we are, closing in on $10 from $5.

I like all on the list. I’ve carefully vetted these positions and wouldn’t it be something if it was these same positions that ultimately redeemed me? I’m not wedded to the thought (for fear it will kill me) but it’s certainly quite possible.

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The Recovery On Nobody’s Radar

Yesterday I received reports that uranium U308 spot prices stood at $39.25 per pound as of March 2, 2015. This is a ferocious recovery from the lows of $28.00 in the middle of last year; a rally of 40%.

We are still at least another 50% short of where uranium spot was trading when the Fukushima reactor melted down. Still, this price recovery is constructive.

The recovery in uranium miners has taken longer than I expected. Certainly I was aware that this might happen, but I took early positioning because I figured there were better odds of the market pricing in a recovery early on. Instead, fearing the “Chernobyl Syndrome”, the market curled up into a fetal position and didn’t move for four years.

I remain long CCJ and, despite being very disappointed with the short sighted antics of their upper management, am willing to continue holding out for gains. CCJ’s operations continue to perform beyond reasonable expectations, all things considered.

After CCJ hits $30, I will donate a portion of the proceeds to the Canadian tax agency to offset the cost of chaining their Board of Directors and tossing them into a pit of despair.

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Good Showing Today

Not bad all things considered. CCJ, HCLP, OMAB and TIS all went higher, with HCLP up more than 4%, OMAB up more than 3%, and TIS up more than 2%. BAS was down 1%, but this is a process.

BAS just recently announced their rig count numbers. Utilizations are way down, from 67% at the beginning of 2014 to 56% today. 4% has occurred just since the start of the new year.

Well? We’ve seen that these methods are more expensive. Now let’s see how cheap they can be. And who’s going to be around next year. My guess; BAS are champs.

If oil prices run back to $100 now that Russia has decided to play nice, I will die from laughing. The days of global competition are done; the USA is the victor. I know you defeatists want to apologize for our might – it’s nothing but luck of course, and that is somewhat true – and rekindle the “peaceful” yester-years of blood thirsty despots butchering the peasants for land and spoils, never ending. Save your breath.

Someone was going to win this game sooner or later, and it looks like that someone is us. Rather than wishing upon us another 1,000 years of savagery, suck it up and move on. You could hardly ask for a more genteel ruler than America, no? What other nation has ever spent this much time self-reflecting and prostrating over the vanquished?

Our President’s order is about to smote tens of thousands to ruin. And when he is finished, he will give a long, sophomoric lecture on the importance of civility and equal opportunity in the global marketplace. Could you imagine the look on the faces of Genghis Khan or Alexander the Great, if they could see such a spectacle? I imagine they would have both cast down their arms and retired to spend their final days as hermits.

What comes next is very important. The crowd is skittish, but today surely helped. We need Brent to breach $60 soon, and it would be very constructive if bond yields of the safe havens could, you know…yield something again.

The people are very scared of the Eurozone breaking up…for why, I could not possibly tell you. The euro has brought nothing but suffering on the nations of Europe. It was as if a spattering of intellectuals across the continent tried to trick Germans, French, Greeks, Italians, Spaniards, Finnish, Austrians, Belgians, Irish, Dutch, and Portuguese people into thinking they were all from the same place, like they wouldn’t figure it out.

It seems that way because that was exactly what happened. Such a brainless ploy. And almost set up to fail, from the beginning. The number of American economists, almost uniformly and unanimously across all walks of life, that laughed at this idea; it is incredible.

I will spoil the ending. Greece is going to walk away from the Eurozone, and nobody will care.

Did creating the Eurozone destroy the global economy in the first place? There were many currencies that were trading one day that didn’t the next. The euro came out and life went on. Reversing the process is no different, except at the end of the rainbow, Greece defaults and ruins their credit rating for a decade, and a bunch of banks get whacked (what else is new?). Then voila! we have a brand new example of what not to do when managing a country, as Greece becomes the butt of jokes for a half century (see France as to fighting wars or Venezuela as to not being filthy animals, for reference).

I remain cash heavy for now, but am looking for that moment when people start getting excited again.

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Bought CCJ and OMAB

I am deploying some cash here, by buying back my old position of CCJ for $14.14, and starting a new position in OMAB for $37.78.

CCJ is a well documented position by me, and I believe the thesis holds. Uranium prices are continuing to recover. CCJ has some issues with the Canadian government they’re working through, and have been smacked around by the selloff. I think uranium will have its day soon enough. Cheap, clean power is a global commitment – to that end, the climate change crowd will at least serve some purpose for me.

OMAB is a publicly traded Mexican airport which has been growing at a double digit pace. As the American consumer continues to reap the windfall of cheap gasoline, I expect vacations will pick up. OMAB is the terminal for Cancun, as well as other locations across that region. They also are a major owner of a Puerto Rico airport.

Besides continually growing traffic, they also should get a benefit from cheap fuel prices.

OMAB was detailed in the Income Investment Report, if you want more information.

Cash stands at 60%.

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The Big Question Then: How To Play EU QE?

The Swiss bank just announced that the ceiling they have been maintaining against the euro is to be dropped. That would make sense, since the euro is now trading below 1.17, down from almost 1.40 just earlier. In terms of the exchange rate, that had to be getting very expensive.

But the timing here should be viewed as a sign that the ECB is really about to start QE. This should be the stance because if they don’t, the impact would be minimal, but if they do you can’t be on the wrong side of the trade.

In terms of what this QE will look like…well, that is the question. What is the ECB going to buy? Not public debt, surely. How much more financing can these governments stomach with yields already negative in many countries. Even the worst countries, like Greece, are borrowing at rates that an average citizen would envy.

My guess here is two fold: (1) they buy up private financial assets similar to the mortgage program the Fed had in place, but that it will center on short term bonds, while also working with banks to create a long term financing window (EU companies and banks in particular have notoriously short term financing arrangements) and (2) they take the opportunity to absorb whatever mechanisms exactly they have been using, before now, to hide the massive debt loads that should have been coming due over the past three years.

If you forgot, Europe ended up pulling some master BS, using a combination of trade accounts to gobble up the garbage so that the markets wouldn’t have to see it default. I’m hazy on the exact specifics, but I would gamble that those imbalanced accounts are still outstanding; and my guess is they’re about to get totally monetized.

So the big question now is, where do you park money? I think that it would be very stupid to try and be short right now with central banks making big noise and seemingly readying the cannons.

If this is like past central bank action, then any longs will do – equity, commodities, debt, whatever you like. Oil could get a huge boost since it’s been so ravaged. ECB action will give the Fed room to play, especially if deflation keeps up. Yellen is no Bernanke…yet, but she also hasn’t been tried either. If the Fed coordinates, all boats get lifted.

But the safest low key play is probably just to hug U.S. dollars until things are a little more clear.

I am ~78% cash, with positions in CCJ, BAS and VOC, down roughly 3% in the first two weeks of the year.

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