You know, sitting here in southwest Florida watching temperatures drop into the forties overnight, I started to complain until I talked to my daughter in Baltimore this morning. Suddenly, my light windbreaker does not seem so bad after all.
We are in that peculiar quiet zone that comes with every January, but this year it is especially pronounced being an inauguration year. We are just days away from earnings season kicking off, which will finally give us some real numbers to chew on from our lenders, BDCs, and REITs. Then there is the inauguration a couple weeks out, which will finally put all the speculation about tariffs, economic policies, and taxes to rest. But let us not get ahead of ourselves.
The State of Things: A Reality Check
First off, let me clear something up: the world is not ending anytime soon. Looking at the data crossing my desk, this is not a horrible economy. Far from it. The United States is not about to collapse, and the economy is actually pretty decent. Third quarter numbers were solid, and word on the street is we are looking at about 2.5% for Q4. Holiday sales? Better than anyone (including yours truly) expected.
The consumer remains remarkably strong. This morning’s JOLTS report showed job openings beating expectations by almost a million positions. The ISM services numbers? Fantastic across the board. Prices up, orders up…business is good, plain and simple.
Now, does this mean everything is perfect? Of course not. The bottom 20 to 25% are still struggling with inflation, but that is unfortunately a constant across almost every economic cycle, regardless of who is in charge. But from an investment perspective, the big picture looks solid:
- Real estate markets are closer to bottom than top
- Unemployment remains impressively low
- The AI productivity boom appears to be the real deal
- People are out there living life: restaurants, shopping, movies, travel
The Nuclear Energy Reality Check: A Deep Dive
Let me tackle something that has been bothering me lately: this whole nuclear renaissance narrative. And folks, we need to have a serious talk about this because I am seeing some concerning patterns that remind me of past market frenzies.
Here is the thing: I am probably one of the biggest long term bulls on nuclear energy you will find. Heck, even Sam Altman of OpenAI stood up at Davos last year and laid it out plain as day: we cannot get to full AI capabilities without massive energy capacity, and that means nuclear power. Eventually, we are talking nuclear fusion power. But here is where I need to pump the brakes on all the excitement.
Let us break this down piece by piece:
The Reality of Nuclear Construction
Remember the Vogtle plant in Georgia? It is a perfect case study of what we are up against. Twelve to fifteen years to build, cost overruns that would make your head spin, and in its first 48 days of operation, it was down about 20% of the time due to construction related issues. That is not exactly the smooth sailing story you hear from the nuclear bulls.
Now, let us contrast this with China. They are leading the world in nuclear construction by a factor of seven compared to their closest competitor, India. Why? Simple: in China, when they decide to build a plant, they point to a spot on the map and say “there.” No committees, no protests, no regulatory agencies, no local councils studying it for years. Result? Five years from decision to operation.
In the developed world? We are looking at ten years minimum, and that is if everything goes perfectly (spoiler alert: it never does).
The Uranium Problem Nobody Talks About
Here is something that gets glossed over in all these excited conversations about U.S. nuclear expansion: we do not have a meaningful domestic source of enriched uranium. None. Zero. Zip. The type of uranium needed for large nuclear power projects? We are basically starting from scratch.
The Next Generation Nuclear Reality
Now, let us talk about all these exciting “next generation” designs everyone is hyping up. We have got:
Sodium cooled reactors
Gas cooled high temperature reactors
Molten salt systems
Sounds impressive, right?
Here is the catch: we have tried all of these before. The performance just is not there compared to traditional water cooled reactors. But that does not stop the hype train.
Small Modular Reactors: The Latest Lottery Ticket
Let us take Oklo (OKLO) as an example. They have got everyone excited about their supposed order book of over 1,300 megawatts. It is impressive until you realize it is all non binding agreements. Nobody has written a check yet.
It is like NuScale’s (SMR). It looked great on paper until the costs started piling up and the customer said, “Thanks, but no thanks.”
The promise is that SMRs will be cheaper and faster to build. But when we get into the nitty gritty details, the cost per kilowatt hour does not look much different from that of traditional nuclear plants. It is a lottery ticket, plain and simple.
The Smart Way to Play Nuclear
If you are dead set on getting exposure to nuclear (and I do not blame you), here is how I play it: every time uranium prices show weakness, I add a little more to the Sprott Uranium Fund position. It owns physical uranium. There are no cost overruns, no regulators, no construction delays.
Just the commodity that everyone is going to need more of eventually.
Remember, most of the early action will be in China and India. U.S. companies are not going to have much of a role in the construction or uranium demand because, again, we are not selling uranium to anybody.
The Bottom Line
Look, I have been around long enough to see my share of “this time it is different” stories. In the 1980s, I made my first foray into distressed securities buying nuclear power company preferreds and bonds after they all went bankrupt from cost overruns. Made a killing when they tripled and quadrupled… after all, the lights still need to stay on.
The nuclear story will play out eventually, just like renewable energy. But “eventually” does not help stock prices today. If you are trading these stocks on technical signals, more power to you. But if you are buying for the long term, remember how many internet stocks from the 1990s are still around today.
Meanwhile, our natural gas stocks had a fantastic week. Coterra (CTRA) and Devon (DVN) saw nice bumps, and our infrastructure plays like NextEra Energy Partners (NEP) recovered well. Sometimes the best strategy is the boring one. Common sense, collecting cash, and making volatility our friend instead of our enemy has worked for me in the past, and I do not see that changing anytime soon. The markets will be closed Thursday for Jimmy Carter’s state funeral. Otherwise, we are getting back to post holiday business as usual.
Stay rational out there, folks.