Coronavirus cases are rising again in Europe and governments try desperately to avoid a return to brutal lockdowns. They may succeed

As European children return to their reopened schools this week, governments are still grappling with multiple second waves of the virus and tightening coronavirus-related restrictions to avoid having to resort to more radical measures.

– Europe can “conquer the pandemic” by learning to live with it without waiting for a vaccine, and can avoid going back to full economic and social lockdowns, World Health Organization regional director for Europe Hans Kluge said on Tuesday.

– Wearing masks in the workplace is compulsory in France, as the number of new cases has shot back to its record level since the height of the pandemic in March. Masks are also mandatory in the streets of most major French cities, including Paris.

– Tourism in Spain was down 75% in July compared with the same month in 2019, according to data released on Tuesday. And spending by international visitors was down 70% in the same month.

– Spain and France are by far the two countries in Europe where the number of new cases has risen fastest, but coronavirus infections are also up, albeit in smaller numbers, in Germany, Italy and the U.K.

– Attempts by German far-right protesters to storm the Bundestag, the country’s Parliament building, in anti-mask protests over the weekend, were condemned by politicians left and right, with the interior minister warning there would be “zero tolerance” for such acts.

– According to an article from the Johns Hopkins Bloomberg School of Public Health, although no less than 125 coronavirus vaccines are currently under development, little chance remains that one of them will prove effective before the end of 2021.

Read:Retail sales in the U.K. are back to their pre-coronavirus levels. Here’s why this may not last

The outlook: Although most European countries are facing new COVID-19 spikes, the number of deaths hasn’t been rising in similar proportions. Heading into the winter season, that seems to give governments some leeway to tailor their responses to the pandemic, and, notably, experiment with local restrictions. Still, governments such as France’s or the U.K.’s are warning that they may not be left with much choice other than returning to economically devastating general lockdowns if the virus keeps spreading. That in turn depends on the governments’ own credibility, and the trust they inspire – or not – among their citizens.

Read: Japanese Prime Minister Abe’s resignation shocks the markets but what happens next depends on his successor

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Tesla: One Thing Isn’t Rising (NASDAQ:TSLA)

One of the best performing stocks so far this year is electric vehicle maker Tesla (TSLA). Investors have sent the stock soaring to new heights thanks to deliveries holding up fairly well and GAAP profits potentially leading to S&P 500 inclusion. Interestingly enough, there is one thing associated with Tesla not rising currently, which could help to fuel the rally even further if the recent trend continues.

In early July, Tesla came out with a decent Q2 production and delivery report. However, street estimates were so ridiculously low that everyone made it seem like it was a massive blowout. The low bar continued into the earnings report, where Tesla revenues came in well above the street average, although anyone that followed my coverage knew that a sizable beat was likely. Tesla has only missed revenue estimates three times since Q3 2016, and the only major miss was in Q1 2019 when Tesla took a major one time hit to revenues from an accounting reversal.

For Tesla to get to its 500,000 unit delivery guidance for the year, it needs a really strong back half of the year. As I discussed in a previous article, a moderate ramp would mean roughly 142,000 vehicles delivered during the current quarter and then 178,000 in Q4. These would both be quarterly records for the company, and likely would lead to the two best revenue prints in Tesla history. That being said, take a look at the following graphic, which highlights a history of Q3 2020 analyst revenue expectations.

(Source: Seeking Alpha Tesla analyst estimates page, seen here)

I’m not going to make a big deal of the 2016 and 2017 numbers, because that was a number of years off and could have been impacted by a very low number of estimates. In late 2018, however, the analyst average was over $9 billion for Q3 2020 revenues. Six months ago, the end of February 2020, the Q3 average stood at $8.36 billion, during the start of the coronavirus pandemic. Two quarterly revenue beats later, and the Q3 average is down about $200 million since. Yes, there was a sharp drop and then a rebound, but we’ve still seen the average come down by $100 million in the last month.

Based on current street estimates and a few personal projections for the quarter, the current revenue average implies a little over 122,000 deliveries for Q3. That would make it extremely hard to hit the company’s yearly guidance, and it also would be quite disappointing when Tesla has the ability to produce well over 150,000 vehicles per quarter at this point. Just like the past quarter, it seems that the street is setting a pretty low bar.

However, there’s another major factor here that I haven’t really heard any analysts discuss lately, and that’s the weaker US Dollar. So far during Q3, the greenback has taken a big hit versus many key currencies. In the chart below, you can see the average dollar close so far during Q3 as compared to the average close for all of Q2 against three key currencies.

(Data sourced from Yahoo! Finance)

In Q2, the average Dollar to Euro close was a little over 1.10. If you assume Tesla sells a vehicle that is 50,000 Euros, that translates to about $55,062 US Dollars. With the average close in Q3 projecting to about 1.18 at this point, that implies about $59,000. This means that Tesla is going to have a nice tailwind for average selling prices during the quarter. However, it also means that if you hold the average street estimate steady, every tick up in your average selling price assumption means a lower delivery number. For every $1,000 increase I make to my average selling price figure for Q3, it implies the average street delivery estimate comes down by about 2,100 vehicles.

While Tesla shares are currently soaring by the week, street analysts don’t seem to be raising their numbers in stride. In fact, the average revenue estimate has declined over the last month, and when combined with a much weaker US Dollar, that implies that the average delivery estimate is heading a bit lower. Should this trend continue through September, it would seemingly set up another low bar for the Q3 delivery print, which could fuel the rally even further when the reported number “shockingly surprises” the street.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Investors are always reminded that before making any investment, you should do your own proper due diligence on any name directly or indirectly mentioned in this article. Investors should also consider seeking advice from a broker or financial adviser before making any investment decisions. Any material in this article should be considered general information, and not relied on as a formal investment recommendation.

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Cameco: A Gamble On Rising Uranium Prices (NYSE:CCJ)

Cameco Corporation (NYSE:CCJ) is well positioned to benefit from rising uranium prices. The producer has some of the best production assets in the industry and ample proven reserves. Sustained low uranium prices have forced Cameco to shutter several production sites in recent years. The company is betting on Chinese demand for nuclear reactor construction to drive up uranium prices; however, there is significant uncertainty on the supply side of the pricing equation. Shares of Cameco offer upside potential; however, the company could also be highly volatile due to heightened global supply and demand uncertainty.

Company Profile

Cameco is a pure-play uranium producer headquartered in Saskatchewan, Canada. Founded in 1987, Cameco is one of the largest producers of uranium in the world and owns some of the highest quality uranium reserves. Trading on the NYSE as “CCJ” and on The TSX as “CCO”, Cameco has a market capitalization of approximately C$5.5B. The company operated in two segments, Uranium and Fuel Services. The Uranium business includes exploration, production, and marketing of uranium. The Fuel Services segment engages in refining and production of uranium concentrate powder (yellowcake). Cameco accounts for approximately 9% of global uranium production, making it the fourth-largest producer globally.

Source: Statista

Production and Operations

Cameco’s two principal production sites are Cigar Lake in Saskatchewan, Canada and Inkai, in Kazakhstan. Cigar Lake is a joint venture between Cameco (50.025%), Areva (37.1%), Idemitsu Canada Resources (7.875%), and TEPCO Resources (5%). It is the second-largest high-grade uranium deposit in the world and boasts uranium grades that are 100X the global average. Inkai is a 40/60 joint venture between Cameco and Kazatomprom, which is majority-owned by the Kazakh government. Inkai is a low cost mine with lower-grade uranium. Cameco’s share of annual production from both Cigar Lake and Inkai is similar at 9M and 8.2M lbs respectively.

Cigar Lake Mine - Canadian Nuclear Safety Commission

Caption: Cigar Lake; Source: Canadian Nuclear Safety Commission

Both these production operations have been materially impacted by COVID-19. The supply interruption caused by these facility suspensions has contributed to rising uranium prices in recent months. The restart of the Cigar Lake site is scheduled for September and will take approximately 2 weeks for production to commence. The company is anticipating production for the year to be approximately 5.3M lbs; down from 9M, lbs in 2019. The restart schedule at Inkai is more uncertain. Kazatomprom had extended the three-month shutdown of all mines in Kazakhstan until at least August. Recent news from Kazatomprom has indicated that the company plans to return to normal staffing levels by the end of the August, however, recent COVID-19 outbreaks in Kazakhstan add uncertainty to this timeline. Production interruptions over the last quarter led to Q2 2020 losses of C$53M versus losses of C$23M in the same quarter of 2019.

Source: Cameco

Reserves and Future Production

Located near the Cigar Lake mine, McArthur River/Key Lake is the world’s largest high-grade uranium mine. Cameco owns a 69.8% share of the 273.6M lbs of proven and probable reserve here. This site along with several other mines have seen operations suspended in recent years due to weak uranium prices. Cameco owns a massive portfolio of reserve assets that can be activated for production should uranium prices strengthen. In the current demand and pricing environment, many of these properties remain uneconomic. Even while current production facilities have been suspended due to low prices, Cameco has pursued future growth projects in Australia and Canada. The most advanced of these growth projects are Yeelirrie and Kintyre in Australia and the Millennium site in the Athabasca Basin of Saskatchewan. Cameco is banking on decades of future demand growth and is positioning the company to gain market share should the economics of these projects improve.

Source: Cameco

Demand for Nuclear Power

Following the Fukushima disaster in 2011, nuclear energy production flat lined. Some planned facilities were shelved indefinitely and other existing reactors were shut down. In Japan, following the disaster, all but two of the country’s 35 reactors were taken offline. As of 2019, nine reactors were operating, six had received initial approval and 20 were either under review or had yet to file an application for restart. The average reactor has required nearly four years to fully restart following a shutdown. This lengthy and uncertain process to restart the world’s third-largest nuclear reactor fleet creates significant uncertainty for future uranium demand.

Outside of Japan, the mood has soured on nuclear energy in other jurisdictions as well. In Germany, the country is planning to shutter all 17 of its reactors and phase out all of its nuclear capacity by 2022. Switzerland held a referendum in 2017 that resulted in the decision to phase out the country’s five reactors. Similarly, Belgium has passed legislation with plans to phase out its seven reactors from 2022-2025. Even France, Europe’s largest nuclear power generator has made plans to reduce the share of nuclear energy from 75% to 50%.

Source: OECD

While western nations (with few exceptions) have cooled their enthusiasm on nuclear energy, China, India, and other Asian nations are moving ahead with new reactor construction. Worldwide, there are 48 new reactors currently under development. The lion’s share of new uranium demand will come from developing nations looking to meet growing electrical generation needs.

Uranium Demand

Kristoffer Inton, an Analyst with Morningstar is forecasting global uranium demand to grow roughly 40% by 2025. This would be a dramatic change for a commodity that has seen next to no demand growth for a decade. This demand growth is expected to be largely driven by reactor capacity expansion in China. China, currently, has 48 operational reactors, with 11 more under construction and plans for a further 42. In 2019, the country’s nuclear electricity generation rose by 18.1% from the previous year to 348.13 TWh.

As China develops new reactors, it has developed a national policy to secure a supply of uranium. China plans to produce one-third of its required supply domestically, obtain one third from Chinese-owned foreign mined and one-third on the open market. With China interested in obtaining one-third of its supply from companies with Chinese ownership, Cameco could be considered as a potential target for future joint ventures or other forms of ownership.

Uranium Pricing

Uranium prices like other commodities can be highly volatile. Uranium spot prices spiked 35% from February to April 2020 as COVID-19 caused supply disruptions with Cameco and Kazakhstan’s Kazatomprom. Over the long term, however, pricing has been trending downward since prices spiked in 2007. Long-term pricing contracts have transacted at higher prices than average spot pricing. With prices in near-consistent decline from 2011, there has been little appetite for investment in new production projects. This lack of investment could result in supply shortages in the coming years, which would positively affect spot pricing.

Source: Trading Economics

Risk Analysis

As a pure-play bet on uranium, Cameco is not without risks. The company’s future profitability and growth rely on the strengthening of uranium prices. While the last few months have seen increases, prices are still low in the commodity cycle and would need sustained improvements to make expansion projects economical.

Uranium prices are driven by global supply, which can be difficult to fully ascertain. Much of the world’s production is controlled by state-owned entities with less than transparent inventory reports. The risk of supply overages is material with the potential for Kazakh producers to strengthen production more than expected.

There is also a price risk on the demand side. China is the primary force for nuclear reactor development today as the country seeks to secure long-term sustainable energy sources. If China’s economic growth forecast does not materialize, the country may defer construction of some planned reactor sites. Likewise, if the economics improve for other energy sources, nuclear development may not be as attractive relative to alternative energy sources.

Another nuclear disaster like the Fukushima reactor could further sour the public attitude towards nuclear energy. Public perception and government policy in the western world has not yet recovered from the 2011 disaster in Japan. In 2016, the government of Japan increased the cleanup cost estimate for the Fukushima nuclear accident to about USD$75.7B. TEPCO, the operator of the plant expects the cleanup will take 30-40 years. Nuclear energy is not viewed as a clean renewable energy, leaving nuclear energy projects out of many long-term national energy plans. Regulators could increase the costs of operating nuclear energy by seeking to add safety precautions to prevent future accidents or external events. Additional regulation would result in higher energy generation costs, further diminishing the relative advantages of nuclear power.


Caption: Fukushima Nuclear Reactor; Source:

Despite a highly uncertain macroeconomic environment, Cameco is well positioned for turbulence. The company has strong liquidity with C$878M in cash and C$1B in an undrawn credit facility. A recent court ruling in the company’s favour has also been welcome financial news. A tax dispute concerning taxes owing from 2003-2006 will result in Cameco being awarded C$10.25M for legal costs incurred and up to C$17.9M in disbursements.

Investor Takeaways

Cameco has some of the highest quality uranium reserves in the world. The company has decades of reserves and a pipeline of projects to grow production if uranium prices recover. Cameco is not profitable in the current uranium-pricing environment and needs higher prices to restart production at some sites. Uranium demand should grow based on Chinese plans to expand the country’s reactor fleet. Uncertain uranium supply impacted by COVID-19 production suspension adds uncertainty to the pricing environment. It hasn’t been a fun decade to be an investor in the uranium business, however, Cameco is a high risk – high reward business for investors who are bullish on uranium prices.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Asian Stocks Down Over Disappointing Fed Minutes and Rising U.S.-China Tensions By

© Reuters.

By Gina Lee – Asian stocks were down on Thursday, coming under pressure as the lack of details in the U.S. Federal Reserve’s latest minutes, and simmering U.S.-China tensions, damped investor sentiment.

The minutes, released on Wednesday, caused U.S. markets to pause a rally as investors digested their lack of guidance. Although the minutes stated, “with regard to the outlook for monetary policy beyond this meeting, a number of participants noted that providing greater clarity regarding the likely path of the target range for the federal funds rate would be appropriate at some point,” no further details were given.

But the pace of U.S. economic recovery is more likely to be worrying officials at present, “given the stalemate on fiscal stimulus in Washington,” Marvin Loh, senior global macro strategist at State Street (NYSE:), told Bloomberg, referring to the stalemate in the U.S. Congress over the latest stimulus measures.

“The Fed will continue to do what it can, but it does feel that fiscal is as important in the recovery process as monetary, and their tools to get funds to Main Street remain constrained,” he added.

Investors will be seeing whether the Fed will provide any further guidance at either the Jackson Hole symposium, due to take place from August 27-28, or at its next meeting in September.

The U.S. threw the latest salvo into mounting tensions with China on Wednesday, when it suspended its extradition treaty and reciprocal tax treatment agreement with Hong Kong.

The suspended agreements cover “the surrender of fugitive offenders, the transfer of sentenced persons, and reciprocal tax exemptions on income derived from the international operation of ships,” State Department spokeswoman Morgan Ortagus said.

Other potential U.S. moves include sanctions against senior management at some of the city’s banks and further limits on the technology that Hong Kong companies can purchase from the U.S.

Hong Kong’s slid 2.14% by 10:38 PM ET (3:38 AM GMT).

China’s fell 1.18% and the was down 0.62%. The People’s Bank of China kept its unchanged, with the one-year loan prime rate at 3.85%, and the five-year loan prime rate at 4.65%.

Japan’s was down 1.12% and South Korea’s slid 2.75%. Korea reported 288 cases as of midnight on Wednesday, with the country struggling to curb an outbreak in Seoul.

Down Under, the was down 1.06%.

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Gold rising to $4,000 an ounce ‘would not be an unreasonable move,’ fund manager says

Stocks and bonds may be in an asset bubble, as record-low interest rates and a tremendous increase in the money supply have sent prices soaring this year.

Add gold, which has risen 35% to $2,049 an ounce Aug. 5, to the list.

But Michael Cuggino, CEO of the Permanent Portfolio Family of Funds, says gold can move a lot higher. It would “not be an unreasonable move” for gold to breach $4,000, he said in an interview.

Cuggino manages the Permanent Portfolio
a $1.9 billion mutual fund that is conservatively run and rated four stars by Morningstar in the fund-research firm’s “U.S. Fund Allocation — 30% to 50% Equity” category.

A long wait for a big move

First, take a look at this chart showing how monthly prices for an ounce of gold
(per continuous gold contracts on the New York Mercantile Exchange) have moved over the past 30 years:


You can see the triple bottom from the end of 2015 through November 2018.

“Ever since then, it has been gradual move up, then some down. It moves sometimes in big chunks, gives some back, sits around and does nothing, reacts to stimulus, inflation, the value of dollar and euro … but it has had an aggressive move this year,” Cuggino said.

Gold may extend gains as money is being pumped into the U.S. economy, the dollar is declining, and investors are fearful that inflation may return, he said.

Cuggino warned of sharp pullbacks even during a long-term move up, as did Nigam Arora, who wrote that gold is an appropriate hedge against stocks. Still, “gold is a very small market, and it can be easily manipulated by the governments,” Arora wrote on MarketWatch.

The case for gold being relatively cheap

When looking back at how gold and stock prices have moved over the very long term, Cuggino said gold is still trading at an inexpensive level when compared with stocks. This chart shows monthly prices of gold divided by closing levels for the S&P 500 Index
over the past 30 years:

The S&P 500 was up 3% for 2020 through Aug. 5, but it was also up 49% from its closing low March 23.

Despite that action, and this year’s 35% climb for gold, the metal was trading at 0.6 times the level of the S&P 500. It hasn’t been above 0.7 since 2014, and you can see looking further back that it was close to 1.7 times the S&P 500 in August 2011.

Different crisis, different response

Cuggino said the quick and tremendous reaction to the COVID-19 pandemic by the federal government and the Federal Reserve was completely different from the actions taken during and after the 2008 credit crisis.

“In 2008, the fiscal policies didn’t matter much for economic gain. GDP didn’t grow because of stimuli. Monetary assistance from the Fed basically stayed in the banking system,” he said.

But now, because of programs meant to help small business, the payments made to individuals and families through the CARES Act and the loan payment deferral programs, stimulus is “much more targeted to get money out to consumers,” Cuggino said.

This points to a long-term concern and bullish possibilities for gold.

“Even though we have deflation now, [eventually] with excess raw materials, in a growing economy, the velocity of all that money can produce inflation risk,” he concluded.

Permanent Portfolio

The Permanent Portfolio
is designed to provide good long-term performance regardless of the economic environment, and to complement (and partially hedge) a broad portfolio by bouncing back more quickly during periods of market turmoil.

Here’s the fund’s broad asset allocation as of June 30:

Gold and silver made up more than 27% of the portfolio. Equities made up about 21%, with top holdings in that bucket including Texas Pacific Land Trust
Freeport-McMoRan Inc.
Facebook Inc.
and Twilio Inc.

So the fund cannot be expected to outperform the S&P 500 over long periods. But because it bounces back more quickly, and because of the nature of the portfolio, it has outperformed the index so far this year:


From a closing peak Feb. 21 through its trough March 20, the fund was down 21%. From its record closing high Feb. 19 through its closing low March 23, the S&P 500 was down 34%.

Here are long-term returns for the fund, compared with those of the S&P 500 — you’ll have to scroll to the right to see all the data:

Total return – 2020 through Aug. 5

Average return – 3 years

Average return – 5 years

Average return – 10 years

Average return – 15 years

Average return – 20 years

Permanent Portfolio Class I







S&P 500







Source: FactSet

So the fund didn’t capture the S&P 500’s extraordinary gains, led by the large tech companies that make up a major portion of its market capitalization. But if you go back 20 years, its average return has beaten that of the index.

Don’t miss:This $20 billion bond fund produced outsized returns by capitalizing on market turmoil, and is set to do it again

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