I realize I pick on Jerome Powell a lot but I don’t feel it is without cause. The man literally decides the value of the dollar. He holds the keys to the economy in his hands. If he woke up one day and wanted a strong dollar, he could make that happen. Currently he doesn’t want to make that happen. He spent the year 2020 flooding the market with freshly printed dollars. The concern was that the economy was going to get locked-up if it was locked-down. Which makes sense. You can’t restrict people’s choices without causing dysfunction in the economy. Unfortunately, opening the money floodgates was only a temporary band-aid. It mades things look good even when it wasn’t. Now in 2021, we are feeling the repercussions of the money flood.
The Producer Price Index (PPI) was posted by the US BLS this morning. It came in at 8.6% on a year-over-year basis. This number represents the increase in the prices for final demand products. It is up 0.5% on a month-over-month basis. This is the 13th month of consecutive increases in the PPI. This index represents what producers of products are paying. It typically tracks very closely with the CPI or the prices that consumers pay for goods.
Producers want to stay in business. Nobody wants to sell goods for a loss. However, these businesses are in a tight spot. Their costs of inputs has increased and they are reluctant to pass on all the costs. You can see that in the current divergence between the PPI and CPI. At some point, businesses will hit the wall and be forced to raise prices. This will really light a fire under the CPI.
The Federal Reserve governors and presidents have been out in full force the past few days. Yesterday Brainard and Bowman both made separate speeches. Today Bostic, Barkin, and Williams all have engagements. Zerohedge picked up on a speech from Bullard, the St Louis Fed President.
“While I do think there is some probability that this will naturally dissipate over the next six months, I wouldn’t say that’s such a strong case that we can count on it”.
“I would put 50% probability on the dissipation story and 50% probability on the persistent story."
I don’t know about you but 50/50 odds sounds like a coin toss to me which is more honesty than we typically get from Fed members. This also is very close to what Atlanta Fed President Bostic had to say recently. Has Bostic and Bullard been catching up around the water-cooler? Reviewing the chart from yesterday, both lean towards the hawkish side of the spectrum. This definitely has my attention. I plan to review Brainard’s and Bowman’s speeches to see if they are feeling the same way. This kind of talk coming from those doves would mean a lot more. It would also confirm that the entirety of the Fed sees this inflation leaning towards perpetual and are getting concerned. If panic ensues at the Fed, it could easily lead to a mistake.
The uranium story is gaining a lot of traction. Over the past week we’ve seen hedge funds begin to dip their toe into uranium. They see an opportunity for profit and want a part of the action. These guys are big fish and the uranium pool is small. Their allocations into uranium royalties and miners easily push uranium higher. When they begin to pour more money into this sector, it will get attention from swing and momentum traders. Then we will see the real fireworks begin. Even with the big move that UUUU had the other day, we are just getting started. Don’t be afraid to buy on the down days. Buy the dips, sell the rips.
In addition to the hedge fund story, Finland has announced that they are lobbying the European Union to file nuclear energy as sustainable. The EU has approved wind and solar as sustainable but now Finland has requested nuclear get the same treatment. Currently it is listed only as a “low-carbon” energy source. This is due to the emissions caused by mining and transporting which seems disingenuous because solar and wind would face the same mining and transporting issues. I think Finland has a strong chance and I think other EU countries may get on board with their petition. This would be a real game-changer if the EU would designate nuclear as “green”.
Staying with EU countries, France has announced plans for building smaller nuclear reactor power plants. The idea with the smaller plants is that you would build more of them. Instead of building one giant nuclear power plant that fed several regions, each region could have their own smaller power plant. France is looking to allocate $35 billion to “re-industrialize” the country. I can easily see France joining Finland’s EU proposal.
Reviewing my portfolio, I’m looking to add to my uranium stocks (NXE and UUUU) on dips over the next couple of weeks. I’m still holding oil (USO, WLL) and slowly adding natural gas (UNG and LNG). I’ve been watching my coal stocks (CEIX and METC) closely and I’m worried that they are beginning to run out of steam. My goal was to hold them until their next earnings reports were released but I am considering reducing my position size to take some profits. I’m still a believer in the coal story and think it should continue to have legs into the late fall and early winter but I would kick myself if this was the peak and I didn’t secure a little profit.