November Newsletter 2024

 

 

 

November 11, 2024

Is Nuclear Energy the Answer to Keep the Lights On?

Dear Client:

This past Friday and Saturday I had the pleasure of spending Grandpa time with my eight-year-old grandson while the rest of the family was out doing “adult stuff”. He and I always have a grand time doing all the fun things available at our ranch. He loves to drive the Can-Am ATV or “Mule” around the ranch, running the dogs and going to the river just because he can. He loves to explore the ponds and fields in his quest to conquer the boundaries of his imagination. He is in his first year of being a Cub Scout and learning the life skills he will need as he adventures beyond the limits of growing up in a small town. After cleaning cakes of mud off his boots when he returned to the house after proclaiming that he had been sucked into quicksand, I warmed him up with a hot chocolate as we settled into a kid’s movie about going to summer camp. He is anxious to have that opportunity this coming summer so he can hone his Cub Scout skills and learn to “Be Prepared” (the scout motto).

As part of being prepared, we talked about what would happen if the power went out during a bad storm or other calamity. He was sure that all would be well as he glanced at his digital watch on his wrist. It turned out he now knows that the power in his watch could also run out. He was not too concerned as he proclaimed we could tell time by the sun’s movements. All well and good during daylight hours unless the sun was blocked by clouds. As it turned out, he does not yet know how to “tell time”, as opposed to his digital watch “telling him the time”. After showing him my “old fashioned” watch with a dial and moving hands (that can be wound to keep it running), we had an in-depth conversation about where the power comes from to run everything. He was vaguely aware of the power from the sun as he gazed at the solar panels on the roof of the garage. He had seen dams and coal-powered electric plants from time spent driving “down the road” on family trips. He also had some idea of wind power from watching our windmill spin on blustery days (although it only functions now as the landmark at the road marking the entrance to the ranch). He is also aware of the need to fill the gas tank to keep the mule running, as well as other vehicles. From that point the conversation turned to understanding the difference between clean energy and not-so-clean energy. He had seen the black smoke coming from the coal powered plant visible when driving south to go to the bouncy house in Farmington. Finally, he commented on the black smoke coming from diesel trucks that can be seen on the highway as he travels up the hill to ski at Purgatory. He definitely prefers “clean energy”!

The conversation turned to how to “be prepared” if the power went out at the ranch. He now knows about the back-up generator that regularly kicks in every time the power goes out at night in a storm. The generator is powered by natural gas from pipes hidden in the ground. As he pondered learning to “tell time” from the hands on a dial, he honestly seemed concerned that there could be situations where there would not be enough power to keep our lives filled with lights in the night. About then, he lost interest and wanted to go outside and practice his BB Gun skills hitting plastic bottles and cardboard boxes. He is definitely on track for the Olympics in 2040.

Over breakfast the next day, we talked about the robot dog we had watched in another movie about the future. In the movie, it appeared that electric power was coming from clean-energy nuclear power plants. Even as a third grader, he has been exposed to futuristic concepts either from school or from “Unspeakable” (his You Tube hero who is making this a better place to live). He believes that nuclear energy will be safe and bountiful and keep the lights on. Let’s hope he is right!   

Turning to our investment portfolio of broadly diversified investments, you now know that we have added many positions over the course of the year to all things needed to generate clean electricity to meet the demands of businesses clamoring to get on the AI bandwagon. The portfolio includes copper, silver, aluminum, lithium, natural gas, infrastructure renewal and utility companies as the economy gears up in its quest to grow and thrive. Just when we thought that the challenge had been met, it became clear that more energy would be needed. I was blown away when I watched a piece on the news where a small town was targeted as an opportune location for a new data center to meet these needs. Well, it turned out that the data center needed more energy than was available, and the residents of the small town did not have enough energy even for their basic needs. More and more data centers are on the drawing boards of large tech companies such as Microsoft, Google, Amazon, and others. Those companies are now turning to nuclear energy as the solution to their needs. Apparently, new technologies have made nuclear power plants more stable, safer and more productive. Plans are underway to build such plants around the country to satisfy the needs of both businesses and individuals. As a result, we have recently added a meaningful position in nuclear energy production. In our opinion, the upside is obvious, and the downside is limited as a result of federal tax credits that establish a floor on the price of electricity produced from nuclear power. Your November account statements from Schwab will include that investment.  For an analysis of our decision process, you can go to https://www.columbiathreadneedle.com/en/world-in-motion-global-equities-blog/power-hungry-ai-investment-implications-in-the-era-of-energy-transition/ from our friends at Tri-Continental.  All managed portfolios  include TY, reflecting our long-time reliance on their skilled and experienced investment making decision process.

Although a very short period to report on for the first six trading days of November: sample returns from Wheeldon Retirement Portfolio for sustainable electricity positions in portfolio (before management fees): Kinder Morgan (natural gas) 9.67 percent; Digital Realty (data centers) 2.99 percent; Constellation Energy (nuclear power generation) 2.34 percent. Given the incredible volatility witnessed lately, these returns are remarkable.

Now that the political season is behind us AND with the announcement by the Fed last week of lowering interest rates once again, we can focus on what could be expected from the fiscal and monetary policies impacting our economy. The incoming administration is expected to implement policies to give the economy a shot in the arm to grow at a meaningful pace in the near term. Lower interest rates and less regulation should stimulate business innovation, giving rise to increased profits from businesses that are expected to pay more in total terms in income taxes. Potential economic growth will result in more jobs and higher paychecks as a direct result. The backbone of our economy is the thousands and thousands of small companies that will realize the lion’s share of the growth. Our Domestic Equity Portfolio of small companies surged last week as a direct result of such expectations. The two small-cap positions in Royce funds (RVT and RMT) together gained over nine percent for the six-day trading period noted above. Large and Mid-cap tech companies in our portfolio of funds also gained for the same reasons; just not to the same extent as the small-cap positions; returning a 3.8 percent and 5.5 percent, respectively.  The current estimate of growth in the fourth quarter is projected to be at a rate of 2.5 percent. Many economists are now projecting GDP in the future to regain growth rates not seen since the 1980s.    All of this is a step in the right direction to lower our national debt as growth will be organic and not based on government spending and borrowing from foreign nations. When growth rates are in fact positive (exceeding the inflation rate), our equity and bond markets will grow also, allowing retirement portfolios to catch-up and keep up in our quest to allow our retirees to live in comfort in return for their years of hard work.

Lastly, our grandchildren will be able to keep the lights on and have a fair chance of achieving the American Dream 

Please reach out to either James or me if you have any questions.

Sincerely,

Intelligent Investment Management, LLP

 

Stephen Wheeldon  

Investment Advisor