Résumé: Today, we look at the still narrow US equity market managing to post new all-time highs, while the broader market is mixed. Some signs of froth are forming in this market as some of the most speculative stocks, including quantum computing names and one we profile that is really not much more than a bunch of promises at this point, are ramping exponentially on the latest news flow, even when earnings are years away. We also look at the follow-on reaction to the FOMC and Bank of Japan meetings, what to watch this week and more. Today's pod hosted by Saxo Global Head of Macro Strategy John J. Hardy.
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Why is US gearing up a massive flotilla in the Caribbean? Some believe it is about something far bigger than “narcoterrorist drug boats.” I have no qualified opinion, but it would make sense that the US is soft-pedaling this military to the general public if the threat is as large scale as the link would have us believe as opposed to the easy-to-trumpet drug-boat story.
Podcast from Hidden Forces, more than a month old now, but not time-sensitive, interviewing the very academic but still compelling “classical realist” Johnathan Kirshner. He offers a distinct counter to Michael Every on the nature of the Trump administrations’ policy pivots - the former almost gleefully celebrating the logic and self-interest of US policy moves, while Kirshner believes that the US interests abroad are undergoing a “self-immolation” under this policy regime. Kirshner admits his own political biases, but it is still a great conversation that gets better later in the podcast, especially on the discussion about the increasing inability to agree on the truth or narrative surrounding almost any event, past or present and what this means for the US outlook - will it descend into an authoritarian regime or plutocracy run by a super-wealthy elite?
Speaking of alternate realities and narratives that define our world, Ben Hunt’s latest free access piece at Epsilon Theory is a tour-de-force, noting the way that constructed narratives divide us not only in the political and partisan realm, but even splintering reality further, as people have their world views shaped within online forums and milieu that we have no awareness of.
South Korea is reluctant to sign on officially to a trade deal with the US - mostly on the sticking point of the promise of hundreds of billions in investments in the US - without certain assurances on USD swaps.
On the surface, Oklo, Inc. has a compelling vision for the future of energy. It seeks to produce small, safe nuclear reactors with an innovative, sodium cooled design that eliminates meltdown risk, although dealing with sodium, a volatile metal, can be tricky. The basic technology is a proven one, with one small experimental reactor in the US that operated for decades. The French had a harder time with their reactor, while Russia has used the technology the most widely and India is currently constructing a reactor using this basic technology. The company also intends to standardize components for lowering cost and mass producing its reactor units - all a key selling point for the coming generation of small modular reactors (SMRs) that are meant to succeed the pricey behemoths of the past. The company got its start about ten years ago. It’s CEO holds a PhD in nuclear engineering from MIT and had OpenAI’s Sam Altman as an early investor back in 2015 and as Chairman of the Board until just a few months ago. Altman stepped down purportedly due to potential conflicts of interest as Oklo is signing all kinds of deals to deliver power to AI data centers in the future, and OpenAI could be a future customer of the company. This all sounds amazing - and the company has been rewarded a nearly USD 20 billion market capitalization. What’s not to like?
One problem is that while the company hopes to have its first reactor constructed and operation by the end of this decade, and has announced that construction is about to begin, there is no working prototype or even partial prototype that demonstrates the technology and only two of the four regulatory steps for their design have been passed. Also, remember that the S means in SMRs means “small” - Oklo’s 75 MWh reactor, once available at a USD 50 per MWh would see annual revenue of USD 32.5 million. Given the capital intensive process of getting the technology up and running, you would need hundreds of these reactors in place to justify even a fraction of the current market cap.
The final concern is the fuel that is meant to drive Oklo’s “Aurora” reactor. That fuels is something pretty specific called HALEU - a highly enriched uranium that is more enriched than what is used in standard nuclear reactors, but less enriched than nuclear-weapons grade stuff. The company has secured some small scale HALEU commitments for getting off the ground, but uncertainties surrounding the future supplies of this fuel at scale are a significant limiting factor for Oklo and many others, if not a show-stopper. No HALEU, no operating SMRs, in many cases. Can Oklo deliver? I have no idea - but it is priced to deliver an awful lot already. Some food for thought. It feels like this company is over-selling itself for now by announcing deals it will take many years to deliver on, assuming it is able to get its reactor design approved and the built and then ramped up into the hundreds - with the assumption that the currently non-existent mass production of HALEU also ramps up in parallel. Of course, it certainly helps to have the government helping clear the way with efforts like the deal just signed by the US and UK to promote nuclear technology. Let’s see how this shapes up in the months and years to come.
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Global Head of Macro Strategy
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Global Head of Macro Strategy