News Review
A short review of the past weeks with my commentary: China's nuclear reactors and economics, autonomous robots & US defense spending breakdown
I will irregularly do this type of review, covering news or data of interest but not important enough by themselves to write a full article or report about it.
China leading in nuclear power
You might know I am a big advocate for nuclear energy. I think the industry should restart innovation where it stopped in the 1970s. We have since the 70s the technologies to:
reuse 95%-98% of nuclear “waste” with fast breeder reactors (French Superphoenix)
use thorium instead of uranium, an inherently safer fuel
But one true innovation that came this decade is SMR, Small Modular Reactor. The design is inherently better for multiple reasons and likely cheaper as well.
In the West, the leading companies are Rolls Royce and NuScale (I own a few NuScale shares myself), planning the first commercial launch in 2028 at best.
Meanwhile, China is already launching its own SMRs.
Not in 2028-2030. Now.
The West really needs to reduce red tape and move faster.
The same is true with thorium. China has now successfully tested the prototype of a thorium reactor that cools down without water. This is an inherently safer design than traditional nuclear power plants, and will be great for arid regions with little water resources, like the Chilean, Central Asian and Mongolian deserts, Saharan Africa, Middle-East, the Himalayas, etc…
This could also open productive collaboration with India, considering the country is sitting on 2/3 of the world’s thorium reserves.
US defense breakdown
Salaries, “Operation & Maintenance” and R&D consume 80% of the now $800B+ American budget. This might explain why so little capacity for things like ammunition production.
Procurement is remarkably small at just 20%. And most of that is to be consumed by overpriced F-35, aircraft carriers, and other flashy devices. Too many foreign bases, too many exercises, too high salaries, and not enough of the basic stuff.
And probably too many administrative personnel and not enough soldiers.
On one hand, this indicates the US army might be a lot less capable than its budget would let you think.
On the other hand, there is so much that could be cut (reduce salary and headcount a little, close half of the oversea bases) that procurement could likely double overnight if needed. Although bureaucratic inertia might be an issue.
China’s new economic strategy
China’s new economic policy post-lockdowns will focus on domestic consumption.
One important focus will be on stabilizing the real estate bubble and avoiding both an implosion and restarting speculative activity. A difficult balancing act for sure.
Nevertheless, a focus on allowing people to have a reasonable price to buy a home, and not real estate for speculation is rather good. I believe many places could benefit from targeting that, including my residence in Estonia, where prices have more than doubled in 5 years (and seem to be crashing now).
The other key focus will be on reducing the cost of raising a family, including parenting and education. The crackdown on private tutoring was probably just a start. Equally sensible strategy considering the abysmal birth rate after the Covid lockdown and the fallout of the one-child policy.
This is likely to be positive for the energy sector and Chinese domestic retail (I have started a small Alibaba position myself since last month).
Overall, this should also make the Chinese economy stronger in the long term, as it should now focus on increasing living standards, instead of an exclusively mercantile approach of exporting and attracting foreign capital.
Russia's secret tanker fleet
Russia has apparently silently bought a fleet of 100+ oil tankers in anticipation of further sanctions on its oil shipping.
A lot of previously unknown companies popped up and bought tankers. A very unusual scene in the small world of oil trading. So Russia has snatched a whole fleet of tankers just under the nose of the West… One more win for the inept sanctions strategy…
This might impact my forecast about the future of Russian oil.
I was expecting a 500,000 to 1.5 million barrels per day cut in production due to the impossibility to find enough ships to replace what was previously carried by pipelines (5-15% reduction).
Now Russia acknowledges it has to cut up to 7% of oil production. But with the tanker fleet gathered, this might affect the maximum extent of the damage to Russian oil production.
I also wonder if other countries will now struggle to find tankers to take away THEIR production, with 100+ ships now off the international markets: the total world fleet is around 1800 tankers, so it overnight shrunk by 5-7%.
China’s expansion in the Middle-East
The new Silk Road is well underway, with China controlling a LOT of harbors in Lebanon, Israel, Egypt, and Greece.
This should be put side by side with the desire of Egypt to join Chinese-led organizations like the BRICS and the SCO (Shanghai Cooperation Organization). I wonder if Greece will do the same one day…
This also gives China serious leverage in all the countries above mentioned, as well as most of the South and South-East of Europe + Maghreb (Morroco, Algeria, Tunisia), especially with Algeria looking to join the BRICS as well.
Huawei Campus
Not really news, but I had never heard about it before and was a little shocked.
The Atlantic covered in 2019 the absolutely beautiful, European-style campus of Huawei. Follow the link for a lot more pictures, this is just really pleasant.
And fitting for the theme of more positivity for the holidays.
I also wonder why European architecture and culture seems to be more appreciated by China than by Westerners these days.
I mean, this is the bland and sterile style Western corporations prefer (Apple headquarters):
Autonomous deliveries are a thing now, yes really
A company in my country has launched a self-driving delivery robot large enough to deliver parcels.
The first delivery in the US was done a few months later.
“The service can be used for smaller and medium-sized home electronics, the outer dimensions of the package of which are up to 140x65x85cm and the weight of which does not exceed 100kg – for example, vacuum cleaners, microwave ovens and the like.
However, to deliver large household appliances such as washing machines or refrigerators, the customer will need to order a standard transport service.
The time required for one delivery is estimated to take about half an hour – 15 minutes to pick up the package and 15 minutes to deliver it to the customer.”
This is likely to boost e-commerce some more. Last-mile delivery is an expensive step and a logistical nightmare. It is also a rather stressful job and always one bad viral cam recording from a PR disaster for the delivery or e-commerce company.
If that can be done at any time without a driver, it will be a lot easier to just book a time for delivery for example after you’re back home in the evening. This could also kill a LOT of business for companies like UPS if they are not reactive enough to acquire their own fleet like DPD seems to be doing already.
Alternatively, innovative parcel companies might see their costs decrease drastically if they can replace most fuel trucks with driver by driverless electric robots. Something most likely not priced in their stock price.
The company behind, Cleveron, has spun off and IPOed the autonomous robot division, Clevon.
It is currently trading in the Tallinn stock market under the CLEV ticker (ISIN EE3100096884). With Estonia one of the startups worth tens of billions of dollars like Skype and Wise, there is a good chance Clevon grow a lot from there.
With my “on the ground” view of this scene, I will keep giving you the ahead info before the rest of the investing community hear about it.
I might one day do a full analysis of the company, tell me in the comments if this is something of interest to you.
On that final note, I wish you all a happy New Year!
Jonathan, your post today is an excellent companion to your This Too Shall Pass post a week ago. That one gave us reasons to be hopeful. This one gives us reasons to be watchful.
While the info about China's nuclear power and Russia's oil tankers is vital, Clevon was the star of your post. I would love to see more from you about Clevon.
I would also love to see more posts like this. You have a great knack for pulling together key information in a succinct digestible format. Maybe give it a catchier title?
Speaking of catchy, do you do interviews? It would be great to hear you on Erik Townsend's MacroVoices podcast. FWIW, I will suggest you to him.
Best wishes to you, your wife and your readers for a successful New Year.