The long-awaited pivot is here. The Federal Reserve is going to cut the fed funds rate this week. Asset gatherers celebrate the opportunity to blow up another asset bubble. The rest of the country should prepare for more misery-causing inflation. Russia talks about limiting exports of uranium during a multi-year supply shortage. Multiple people pinged me this week regarding the repurposing of nuclear weapons to fuel power plants. It’s not going to be close to enough. GameStop $GME announces earnings and the apes who plan to own this stonck “to the moon” were excited about a return to profitability. I’m expecting hate mail for pointing out the massive decrease in revenue. The CPI is down and the Fed prepares to cut before getting inflation fully under control. I’ve said for over two years that Jerome Powell wouldn’t make the Arthur Burns mistake of reducing rates too soon. It looks like he’s heading down the same path and that I was too optimistic (or just wrong). Las Vegas Sands $LVS buys more stock in Sands China $1928.HK after the stock is obliterated. They have inside information. What is the market missing? Learn Wall Street makes a crucial point about investing for the long-term. If you’re a beginning investor, Thing 5 is for you.
This week, we’ll address the following topics:
- Russia is talking about limiting exports on uranium. The market is already in deficit.
- GameStop $GME returns to profitability, but look at the fall in revenue. It’s a problem.
- The CPI is down. The Fed is cutting. Arthur Burns is expecting company.
- Las Vegas Sands $LVS buys more Sands China 1928.HK. The market is discounting the recovery despite visitation above 2019 levels.
- Learn Wall Street writes about the value of compounding and long-term investing. DKI agrees.
Every week, I compliment Andrew Brown and Alex Petrou for their contributions to this work. Did they earn it again this week? Yes – definitely yes. Both of them are back in school, and continue to do the same excellent work here. Someone tell me again how lazy this generation of young people are, because we’re not seeing that here.
Ready for a new week of rate cuts? Let’s dive in:
1) Uranium: The Next Big Play in Energy:
As the world pivots to non-carbon energy solutions, uranium is emerging as a compelling opportunity. Here’s why this often-overlooked element is becoming a hot commodity and why DKI added it to our recommended list over two years ago. There’s a global uranium supply crunch because current demand is 15 to 30 million tons above supply. That’s a huge shortfall, especially with Russian President Vladimir Putin hinting last week at potential export restrictions on uranium. Uranium, once a quiet player in the energy market, is now as geopolitically charged as oil and gas. Repurposing Warheads: The Rise of HALEU. In a move that highlights the urgency of the situation, the U.S. is turning old nuclear warheads into HALEU (high assay low-enriched uranium), the fuel set to power next-generation nuclear reactors. These smaller, modular reactors are more efficient, cheaper, and require less upkeep than traditional plants. However, the fact that we’re repurposing decommissioned warheads for fuel shows just how tight the uranium supply has become. While innovative, it underscores the scramble to meet demand as domestic HALEU production sits at under a million tons per year—far short of the 40 million tons needed by 2030. It’s just not enough to overcome current and future supply shortages.
Graph from World Nuclear Association.
DKI Takeaway: The U.S. leaned heavily on Russia’s vast uranium reserves, but the war in Ukraine risks that. With Russia potentially limiting supply, the U.S. is rushing to develop its own enrichment capabilities. Why Uranium? Nuclear energy powers 20% of the U.S. grid, and as the push for clean, reliable power intensifies, uranium is proving critical. The US needs to build energy production capacity if we want to expand EV use and have AI-powered data centers. With growing demand and constrained supply, uranium is positioned as a strong long-term investment. DKI subscribers have made huge profits in this asset for years.
2) GME Earnings + ATM Offering:
GameStop (GME) delivered a surprise in its latest earnings report, posting $0.01 per share when analysts expected a $0.09 loss. However, the good news was tempered by revenue of $798.3 million, which missed estimates by 11.3% and fell 31% from last year. As Wall Street heavyweights manipulate the short interest and social media titans draw continued interest to the memest of the meme stocks, fundamental performance continues to decline.
$8.5B in revenue down to $5.3B last year. 31% decline last quarter.
DKI Takeaway: Adding intrigue, management hinted at a potential 20MM share secondary offering, flagged in a May 2024 prospectus. The last time they said this, a share offering followed quickly. Investors might want to watch their back on this one. Management also made it clear: “There are no current plans, commitments, or arrangements to make any acquisitions or investments.” So, while they’re raising capital, it’s not for any exciting new ventures or growth projects. (Investors should ask both themselves and management why the company is selling stock with no plans to use that capital.) $GME investors are excited about positive earnings and cash on the balance sheet. They hope the company will buy a business or Bitcoin. The steep drop in revenue makes us question the value of the core business and challenges the fundamental case made by Roaring Kitty a few years ago. The cash comes from selling huge amounts of stock; not from operations. Our view is owning Bitcoin is fantastic and that you can do so without buying $GME. We also prefer self-custody for Bitcoin. Reach out if you need help on how to do that.
3) CPI Softens, Rate Cuts “Sooner Rather than Later” Means This Week:
Last Wednesday, we got the August Consumer Price Index (CPI) report which showed an overall increase of 2.5% for the last year and 0.3% for the month. That’s below last month’s 2.9% and consistent with expectations. The 0.3% monthly increase was above the 0.2% expected, and a bigger increase than last month’s 0.2%. The Core CPI, which excludes food and energy, was up 3.2% vs last year and up 0.2% from last month. Both of those were consistent with expectations. The annual number is trending towards the Fed’s 2.0% target.
For more analysis on last week’s CPI print read our report.
Many are excited for rate cuts, but what if it’s a bad idea?
DKI Takeaway: The all-items CPI is down substantially as the Federal Reserve has done all it can to try to bring inflation under control. I think there are two areas of current and future issues. First, current inflation isn’t due to Federal Reserve policies; but rather, is related to massive overspending in Congress and the White House. This is a bipartisan problem and is not going to change no matter which party wins the November elections. While a recession could cause a brief bout of deflation, the long-term trend is likely to be inflation above the 2% target due to trillions of dollars of excess stimulus coming out of Washington. Second, even if the CPI went to zero, there’s still the issue that current price levels for necessities like housing, cars, and food are too high for too many families. We believe we’ll see a 25bp cut this month and that Chairman Powell will say the Fed is prepared to cut further and will remain “data driven” in making those decisions in the coming months.
4) Las Vegas Sands Makes a Telling Move:
Las Vegas Sands ($LVS) owns integrated resorts and casinos in Singapore and in Macau. The Marina Bay Sands in Singapore is performing at record levels. Recent results have exceeded even pre-Covid highs. The recent weakness in $LVS stock has come from Macau where concerns about the Chinese economy have led to a lower stock price. Sands China (1928.HK) is the company that owns almost 30% of Sands’ Macau assets. $LVS owns the remainder. Sands China was trading at $24.50 as recently as February and has fallen more than 40% since then. While concerns about the Chinese economy are legitimate, visitation, gaming revenue, and property-level EBITDA have all risen rapidly. So, what did management just do?
Stock down into improving fundamental performance. Management noticed.
DKI Takeaway: Earlier this year, $LVS bought back a large amount of its own stock as well as repurchased a larger stake in Sands China, returning over $1B to shareholders and increasing ownership of the Macau assets. Last week, Inside Asian Gaming reported that Sands is buying back another $103MM in $1928.HK increasing its ownership to 72%. Las Vegas Sands is building a huge new fourth tower and concert venue in Singapore, is building and renovating in Macau, has restarted the dividend, and is actively pursuing a new expensive development in the NYC area. The company has plenty of things to do with its cash. The fact that they’d devote another $100MM to buying a greater share of the existing Macau assets now is an indication that they think the market is misunderstanding and undervaluing the recovery there.
5) In It for the Long Term? Compounding is Your Friend:
If you’re new to investing, compound interest is one of the most powerful ways to understand the long-term opportunity. The key to compound interest is that returns accumulate on both your original investment and any previously earned interest or returns. For example, if you invest $1,000 at a 5% return, your account value the next year would be $1,050. In the following year, you would earn interest not only on the original $1,000 but also on the $50 of interest earned in the first year. Over time, by adding more capital and reinvesting dividends, your growth can become exponential. As Albert Einstein famously said: “Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t, pays it.” Time is an underappreciated asset when it comes to investing. Wherever you are in your investing journey, you’ll definitely want to consider subscribing to a DKI premium membership.
Image Credit: Learn Wall Street
DKI Takeaway: Credit to our friend Raji Khabbaz from Learn Wall Street for highlighting the importance of compounding. Many people recommend dollar-cost averaging into equity index funds like $SPY and $QQQ. That’s not a bad long-term strategy. At DKI, we prefer to invest in growing companies with the potential to appreciate substantially. We think our last couple of stock picks could be up 5x – 10x in the next five years. Whether you want to own the index or individual stocks, it’s ok to ask for help. Either way, the longer your time-frame, the better the probability of a great outcome.
Here’s the video version: https://www.youtube.com/watch?v=bnZE7hwwBAA
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