Something Massive Is About To Break In The Energy Market 

• With oil down almost 50% over the last 36 months, how did fundamentals change and how do Chris and Brad feel about the oil and gas investments today?
• The great European blackout: what was behind the worst power failure in modern times.
• As major tech players like Microsoft, Amazon, Meta, and others are now getting directly involved in nuclear to power AI data centers, what do these shifts mean for the energy market?
• The Youtube indicator for finding contrarian opportunities.
• China vs. US: what opportunities does an AI arms race between the world’s top 2 economies open up for investors?
• Why the price of natural gas is a key indicator in the energy market.

Video Length: 00:44:36

 GOT GAS?

While on the topic of energy…

The following chart caught our collective eye.

As you can see, data centers already consume more electricity than France — the world’s 7th biggest economy. And with power-hungry AI data centers now being added into the mix, this demand is on track to triple over the next 5 years.

That’s an “isht” ton of new energy that will have to come from… somewhere. We have been saying for years that the best way to play the AI boom isn’t to load up on NVIDIA and the likes… but to buy coal, natural gas, and uranium.

And lookie here…

From the article:

President Donald Trump signed a series of executive orders May 23 intended to overhaul the regulation of commercial nuclear reactors and speed the process of building and deploying nuclear power.

During the signing, which was attended by the CEOs of major nuclear-related companies, Trump argued the “technology has come a long way, both in safety and cost.” The orders realize a long-held Republican goal of deregulating nuclear power.

According to a senior White House official, the four executive orders aim to expedite reactor research & development, streamline regulations to allow the Pentagon and other agencies to build reactors on federally owned land, change the Nuclear Regulatory Commission and sets new timelines for its consideration of construction permits, and expand domestic uranium production and enrichment capabilities.

This is yuuuge for uranium. But before you pull up your Interactive Brokers app to buy uranium stocks, keep in mind it will take 5 years to bring any additional nuclear capacity online (and that’s being very generous).

This extra supply will have to come from either coal and/or natural gas. And since in the west, coal is as welcome as a fart in a crowded elevator, this leaves us with natural gas.

Our view is that demand for it is set to increase dramatically in the coming years — double from today’s levels, according to this chart (h/t @Josh_Young_1).

Perhaps that’s why “natty” gas stocks have been on a tear lately (for instance, one position in our Insider portfolio is up some 200%, though it has been a marathon of patience — with multiple 30+% pullbacks along the way).

 POSITION SIZING MATTERS

This interview with Morgan Stanley’s research head, Michael Mauboussin, is well worth your time. The following section on position sizing is particularly worth highlighting:

There’s one other thing [Druckenmiller] talked about and it was about position sizing. Broadly speaking when you’re trying to maximize your returns, you need two things. One is you need some sort of an edge. Edge means you have a belief or a mathematical advantage that’s not reflected in the current odds or in the market price. The second thing is how much you can bet on that when you have that advantage. And the intuition is quite straightforward. If you had perfect information, you knew your bet was going to make you money. You would bet everything you could, right?

And then there are degrees of certainty about that. So there’s this relationship between edge and betting size, and that leads to your total ability to generate excess returns. He has this sort of zinger, where he says, people said, what did you learn from Soros? And he said, the main thing that he learned from Soros was that position sizing was 70 to 80% of the game. The reason that struck me is because, first of all, purportedly George Soros made money on fewer than 30% of his trades. And that alone is worth letting settle in a bit. And he’s one of the great investors of our time. So what does that mean?

It means that he made a lot of investments that lost money. They probably did not lose much money. And when he did make money, he made a lot of money, both by betting a lot of money and by letting it run simultaneously. That I thought was a really interesting lesson.

Position sizing is a topic we harp on about a lot here at Capitalist Exploits HQ. Successful (asymmetric) investing is a matter of weighing probabilities and sizing your trades appropriately.

Keep your position sizing small enough that you don’t give an isht if a trade turns against you (like the natural gas trade we mentioned earlier), but big enough that it can move the needle on your portfolio.

GOLD: RUNNING LIKE THE POLICE ARE AFTER IT

Speaking of “needle-moving” investments, check out this chart (h/t @MikeZaccardi)…

Not something most people would’ve expected — especially given that growth stocks like NVIDIA, Microsoft, Tesla, etc. make up a good chunk of the S&P 500.

And while gold was running like the police was after it over the recent months, gold miners have been an entirely different story.

For a looong time, they went nowhere (despite the favorable fundamentals being there all along), and we had nothing to show for it. As an aside, a practical lesson in position sizing — we only had a 5% initial position size in gold miners. If that was a 20% position size, we probably wouldn’t have been able to hold that position for the length of time we did.

But so far this year, gold miners have been beating the pants off gold. Here’s the gold miners ETF (GDX) against gold.

According to a recent Wall Street Journal article, gold-mining margins are currently sitting at a 50-year high. But ironically (though not surprisingly), most investors still couldn’t care less about gold or gold miners.

Case in point, Tavi Costa (@TaviCosta) shared this chart about how family offices are positioned. You have to squint to even see the gold chunk. Gold and other precious metals make for just 2% of family office portfolios while they have less than 1% in commodities.

Our hunch is that this will change materially if gold and gold stocks keep on running.

 WEEKLY HUMOUR

Some ESG-compliant humour (from Insider member Patrick):

And lastly, if you have no plans for the weekend, here’s an idea (courtesy of Insider member Clint)…

More By This Author: