Alan's Alert 6-15-2021

 

One of these things is not the like other, one of these things just doesn’t belong. Can you tell which things is not like the others, by the time I finish my song? Did you guess which thing was not like the others?

 

Above are the charts for retail sales/food services, used cars, and the inventories to sales ratio.  Consumers have come back in droves to retail and food establishments.  They have also not balked at the high prices for used cars.  This has caused the bottom chart (inventory to sales) to drop to a record low.  Usually, I like to look at most charts in a percent change year/year or month/month but with these three, it’s important to see the trend before 2020 and what has been happening since.

With consumers ready to spend, businesses have sold them everything they have on the shelves.  Businesses have been operating on the just-in-time inventory system where management would minimize inventory and reorder when demand required it or projections forecasted it.  This would allow businesses to run leaner on inventory costs and would order from suppliers on a more regular basis.  This management style was pioneered by Toyota in the 1970s and perfected by Walmart.  Unfortunately for retailers, the shutdowns have turned this management practice upside down.

You can see the large spike in inventories to sales as the lockdowns started.  This caused retailers to sit on their inventories as consumers stayed home.  As things have opened up, sales have spiked and retailers are having a hard time securing product for their shelves.  Back-orders, shortages, and shipping delays are regular place now.  

The producer price index printed today.

It came in at 3.2% change month/month (which is 38.4% annualized!), and 19% year/year.  Thankfully we aren’t in uncharted territory here.  Unfortunately, the previous history with PPI this high compares more closely to the early 1970s or the first half of 2008.

Finally, I want to touch on the uranium story that took place yesterday.  Uranium miners had a terrible day as all went down substantially.  The story starts at a nuclear power plant in China.  A French company named Framatome partners with the China General Nuclear Power Group (CGN) to maintain the nuclear power plant at Taishan.  Framatome reported a build-up of noble gases in a reactor at the plant.  Framatome then alerted US authorities to this build-up and subsequent release of gas.  The mainstream press went into meltdown but the reality is that this is a big nothing-burger.  Framatome does business in both China and the US.  They don’t want to be hiding secrets from either partner and want to be transparent.  They also needed US-derived technical information and needed a waiver for that information from their US counterparts.  They wanted to be sure that the releasing of the built-up gases would solve the problem that they encountered.  What was the problem? Cracked fuel rods.  Cracked rods are actually a common problem (usually due to manufacturing defects).  So, what did we learn?  The news obfuscates the truth and yesterday was a day to buy uranium.  I picked up NXE at $4.45/share.  I expect this story to hang around a little bit, so you’ve got time to add to your portfolio, as the uranium story is still intact.