I'm not as optimistic on nuclear as you would think. Look at uranium pricing ... that doesn't bode well for mass adoption. The trend you reference actually speaks counter to your assertion...imo. There is a huge storm brewing in energy prices across the board... Russ continues to nail the macro landscape ... it's affirming to hear from someone else who realizes we are witnessing the end of free markets.
edit: Also, I love the 10% call on the 30y ... To me, the trend change in the long end of the US bond market is ABSOLUTELY the store of the DECADE. Certainly a generational shift is occurring and I feel bad for anyone who is blind to that reality.
Fuel costs are miniscule compared to construction and hardly feature in feasibility considerations. Even if they go 2-3x, uranium power is probably the most competitive option available, even disregarding the CO2 emissions as well as general reliability, flexibility and predictability.
One thing more about nuclear - from when I looked at it 16 years ago, was that the end of the nuclear weapon arms race, and the decommissioning of nuclear weapons changed supply and demand massively. With a new three way (four possibly) arms race beginning, maybe uranium is rising for very different reasons....
Oh for sure energy trends are inflationary. But nuclear is very capital intensive and fuel is a negligible portion of generation costs (unlike nat gas). Large scale RE or nuclear capex will stress bond markets further which is in line with Russell's thesis.
I think short 30y JGBs is trade of the decade as long as BOJ doesn't play the spoiler.
When looking at US Bond Yields and the price of Oil, remember that crude oil didn't become a freely traded market until the early 1980s. The price of oil going up through the 1950s through 1970s was the US government changing the fixed price of Oil.
yes correct. My understanding was that crude oil price was fixed, but refined wasn't. So in the 1960s, US refiners made fortunes, but drillers not so much. So OPEC was also trying to rectify this imbalance too. I have tried to find official data on this - but have failed so far.
My understanding is that price of the products were fixed too, until the late 1970s. That is why heating oil futures started trading before crude oil futures. "The Act also extended price controls for refined products." Link here https://www.journals.uchicago.edu/doi/full/10.1086/675589 Dr. Bob Murphy also has an article with examples of how oil traders were gaming the price rules to make money https://www.instituteforenergyresearch.org/regulation/crazy-crude-oil-price-controls-1970s/ I think Dr. Murphy would be the one to contract for any price history of regulated prices of petroleum products.
Do you think the copper/gold ratio has any signal anymore? That has been signaling lower bond yields to come, but the correlation has broken down a bit in recent years.
Yes - copper/gold is interesting. Gold has been strong despite weakness elsewhere. I am beginning to think gold reflects rising costs of "other commodities" - like carbon credit, or wages. Wages were stagnant for years - but are ramping now. Costs of having miners work in gold mines is now very high in places like Australia....
Thoroughly compelling as always Russell, ever appreciated. The carbon market is one I’ve struggled to comprehend to date so good to have views on it from outside the green lobby et al.
Q for you (from my inner cynic) - are carbon credit markets actually a hedge against net zero targets ever being met ? By that I mean if corporates fail to reduce their emissions, then have to by more credits to offset those emissions, does that not drive the carbon price higher ?
Carbon credits seem like a hedge on politics - if net zero targets are going to be rigoursly enforced... my bet is that they will likely enforced. It seems to me that climate lobby has enough money and votes to make this happen - and as Greta Thunberg and her cohorts come of age, this group will only increase in power
Hi. One thing (at least…) remain totally unclear to me. How will the higher interest rate be managed in view of the high level of debt the developed countries do have. I have read many ideas, not found one that I do really understand, completely. I feel you are right when you say the interest will remain high or will increase further, but will this be accepted? Many thanks for your help in understanding! Bruno
My understanding and view, is that the current system does not tax capital gains, or profits very much. But wages are taxed correctly. If you see a shift to wage growth, then government revenues should do better - and higher interest rates should weigh heavily on asset prices. There are some signs of this - and this was how debt was paid down after WWII.... I will do more work on this
I would probably not short. Having seen what uranium prices have done, and the resisitance of carbon credits to falling natural gas prices - they would be a very stress inducing short in my view...
Young voters are keen... but you are right, you could well see a pushback... but I think the long term structure is turning green... so thats the way to be focused long term
Higher carbon and energy prices eventually lead to political pushback.
Nuclear may well see a renaissance. Just contrast the trend in Orsted shares vs Cameco!
I'm not as optimistic on nuclear as you would think. Look at uranium pricing ... that doesn't bode well for mass adoption. The trend you reference actually speaks counter to your assertion...imo. There is a huge storm brewing in energy prices across the board... Russ continues to nail the macro landscape ... it's affirming to hear from someone else who realizes we are witnessing the end of free markets.
edit: Also, I love the 10% call on the 30y ... To me, the trend change in the long end of the US bond market is ABSOLUTELY the store of the DECADE. Certainly a generational shift is occurring and I feel bad for anyone who is blind to that reality.
Fuel costs are miniscule compared to construction and hardly feature in feasibility considerations. Even if they go 2-3x, uranium power is probably the most competitive option available, even disregarding the CO2 emissions as well as general reliability, flexibility and predictability.
The main problem with Nuclear is the high capital cost, which is not helped by permitting & environmental delays.
Financing costs get higher as interest rates rise and project time to completion increases.
This is something that should've been done in a ZIRP environment IMO!
I must say the move.in Cameco while natural gas prices have been weak is explained by the strength of.carbon permits
One thing more about nuclear - from when I looked at it 16 years ago, was that the end of the nuclear weapon arms race, and the decommissioning of nuclear weapons changed supply and demand massively. With a new three way (four possibly) arms race beginning, maybe uranium is rising for very different reasons....
Oh for sure energy trends are inflationary. But nuclear is very capital intensive and fuel is a negligible portion of generation costs (unlike nat gas). Large scale RE or nuclear capex will stress bond markets further which is in line with Russell's thesis.
I think short 30y JGBs is trade of the decade as long as BOJ doesn't play the spoiler.
Japanese banks have been great
When looking at US Bond Yields and the price of Oil, remember that crude oil didn't become a freely traded market until the early 1980s. The price of oil going up through the 1950s through 1970s was the US government changing the fixed price of Oil.
yes correct. My understanding was that crude oil price was fixed, but refined wasn't. So in the 1960s, US refiners made fortunes, but drillers not so much. So OPEC was also trying to rectify this imbalance too. I have tried to find official data on this - but have failed so far.
My understanding is that price of the products were fixed too, until the late 1970s. That is why heating oil futures started trading before crude oil futures. "The Act also extended price controls for refined products." Link here https://www.journals.uchicago.edu/doi/full/10.1086/675589 Dr. Bob Murphy also has an article with examples of how oil traders were gaming the price rules to make money https://www.instituteforenergyresearch.org/regulation/crazy-crude-oil-price-controls-1970s/ I think Dr. Murphy would be the one to contract for any price history of regulated prices of petroleum products.
Do you think the copper/gold ratio has any signal anymore? That has been signaling lower bond yields to come, but the correlation has broken down a bit in recent years.
Yes - copper/gold is interesting. Gold has been strong despite weakness elsewhere. I am beginning to think gold reflects rising costs of "other commodities" - like carbon credit, or wages. Wages were stagnant for years - but are ramping now. Costs of having miners work in gold mines is now very high in places like Australia....
Many thanks for your comments and for all the great work you share. I also feel more taxes will be part of the political solution.
Thoroughly compelling as always Russell, ever appreciated. The carbon market is one I’ve struggled to comprehend to date so good to have views on it from outside the green lobby et al.
Q for you (from my inner cynic) - are carbon credit markets actually a hedge against net zero targets ever being met ? By that I mean if corporates fail to reduce their emissions, then have to by more credits to offset those emissions, does that not drive the carbon price higher ?
Carbon credits seem like a hedge on politics - if net zero targets are going to be rigoursly enforced... my bet is that they will likely enforced. It seems to me that climate lobby has enough money and votes to make this happen - and as Greta Thunberg and her cohorts come of age, this group will only increase in power
Hi. One thing (at least…) remain totally unclear to me. How will the higher interest rate be managed in view of the high level of debt the developed countries do have. I have read many ideas, not found one that I do really understand, completely. I feel you are right when you say the interest will remain high or will increase further, but will this be accepted? Many thanks for your help in understanding! Bruno
My understanding and view, is that the current system does not tax capital gains, or profits very much. But wages are taxed correctly. If you see a shift to wage growth, then government revenues should do better - and higher interest rates should weigh heavily on asset prices. There are some signs of this - and this was how debt was paid down after WWII.... I will do more work on this
At what point are carbon credits a short too? The old folk have a few votes left in them...
I would probably not short. Having seen what uranium prices have done, and the resisitance of carbon credits to falling natural gas prices - they would be a very stress inducing short in my view...
are we sure voters want a green revolution? I think they are being told we're going to have a green revolution regardless of what they want.
Young voters are keen... but you are right, you could well see a pushback... but I think the long term structure is turning green... so thats the way to be focused long term