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What is the ‘real’ interest rate?

The real interest rate is the nominal interest rate adjusted for the expected change in the associated currency’s purchasing power, where “expected”…

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This article was originally published by The Speculative Investor

The real interest rate is the nominal interest rate adjusted for the expected change in the associated currency’s purchasing power, where “expected” is the operative word. It is not the nominal interest rate adjusted for the currency’s loss of purchasing power over some prior period.

To further explain, when you buy an interest-bearing security the ‘real’ income that you receive will be determined by the future change in the currency’s purchasing power. For example, the real return from a note that matures in 12 months will be determined by the change in the currency’s purchasing power over the coming 12 months, not the change in the currency’s purchasing power over the preceding 12 months. Of course, when you buy the security you have no way of knowing what will happen to the currency’s purchasing power in the future, but your decision to buy will be based on the nominal yield offered by the security and what you EXPECT to happen to the currency. What happened to the purchasing power of the currency in the past is only relevant to the extent that it affects the expectations of investors.

Consequently, it is not appropriate to estimate the ‘real’ interest rate by subtracting a measure of historical purchasing power loss, such as the percentage change in the CPI over the last 12 months, from the current nominal yield. Doing so would result in a meaningless number even if the CPI were a valid indicator of purchasing-power loss.

A knock-on effect is that the numerous articles and reports that attempt to explain how the price of something responds to changes in the real interest rate, where the real interest rate is calculated by subtracting the change in the CPI over some prior period from the current nominal interest rate, can be put into the “not even wrong” category. They are nonsensical.

Just to be clear, the CPI and similar price indices are inherently flawed indicators of “inflation”, but even if they were good indicators of “inflation” it would make no sense to subtract the historical index change from the present-day nominal interest rate when attempting to estimate the ‘real’ return.

If the main concern is the effects of interest rates and “inflation” on the prices of assets, commodities and gold, then the numbers that matter are today’s nominal interest rates and inflation expectations. In the US these numbers are combined to generate the yields on Treasury Inflation Protected Securities (TIPS), in that the TIPS yield is the nominal yield minus the expected CPI. The TIPS yield is not an accurate indicator of the real interest rate in absolute terms, but it is an accurate indicator of the real interest-rate TREND and whether the real interest rate today is high or low relative to where it was in the past.

The following chart compares the 10-year TIPS yield with the US$ gold price. A negative correlation is apparent (the trend in the TIPS yield is often the opposite of the trend in the gold price), especially since 2007. The negative correlation doesn’t always apply, though, because the gold price is not determined solely by the real interest rate. There are several other fundamental influences, including credit spreads and the yield curve (the TIPS yield is just one of seven inputs to our Gold True Fundamentals Model).

Treasury Inflation Protected Securities were first issued in 1997 and the Fed’s data used in the above chart doesn’t go back further than 2003, so the TIPS market can’t tell us what happened to real interest rates in the 1970s and 1980s. However, the non-availability of a valid number or methodology is not a good reason to use a bogus number or methodology.


As Sprott Goes Hunt Brothers On Uranium a Copycat Joins the Squeeze to Force an Explosive Move Higher

As Sprott Goes "Hunt Brothers" On Uranium, A Copycat Joins The Squeeze To Force An Explosive Move Higher

Exactly two weeks ago, we laid out…

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As Sprott Goes "Hunt Brothers" On Uranium, A Copycat Joins The Squeeze To Force An Explosive Move Higher

Exactly two weeks ago, we laid out the investment thesis for what our friends at Adventures in Capitalism dubbed was a "bitcoin-like opportunity in Uranium." In a nutshell, in mid-August, the Sprott Physical Uranium Trust, then roughly $300 million, announced that it would unleash an unprecedented buying spree in physical uranium, a relatively small market, in hopes of forcing a physical shortage and sending the price of urnium higher, leading to more buying of the Trust, more purchases of uranium, even higher prices and so on.

While some voiced concerns that this strategy was similar to what the Hunt Brothers tries to do with silver back in 1980, when the precious metal rose tenfold in months only to crush just as rapidly once the market became "uncornered"  there are several distinct differences between what the Hunts and Sprott are doing (most notably the inability by producers to rapidly flood physical to meet demand, as well as the lack of a sizable paper market to short the move) so far - less than a month later - Sprott's strategy has proven extremely successful, so much so that the Canadian asset manager upsized the size of its Trust from $300MM to $1.3BN... and just this morning got its first copycat, Uranium Royalty Corp (UROY) which this morning announced that it was taking a page out of the Sprott book and would expand its physical uranium holdings to 648,068 pounds.

But before we get there, a quick excerpt from a report this week by Bank of America which has broken down the Sprott strategy and discussed how it will impact the price of uranium going forward, and why it just hiked its price target for Cameco by 45% to $29/share

SPUT/Byron/Dresden add 4% to global demand, PO upped

Uranium (U3O8) purchased by the Sprott Physical Uranium Trust (SPUT) since launching an at-the-market (ATM) equity program on August 17th has added 3% to global demand. This is 52% annualized, or $4bn at flat prices. Prices have risen 42% to $43.75/lb. A supply response is likely but might take time and more SPUT buying is likely, we think. The Illinois House and Senate approved funding to keep the Byron & Dresden nuclear plants from closing. We add both back to our model, increasing annual U3O8 demand by 1.1%. We increase 2021E-2023E U3O8 prices by 18%, 41% and 18% to $36.30, $53.50 and $48.50/b. We raise our price objective (PO) for Cameco (CCO) by 45% to C$36.25/sh ($29/sh), CCO: Neutral as we think outlook is mostly reflected in the shares.

SPUT ATM funding increased to $1.3bn

SPUT has raised roughly $245mn of the $300mn maximum set-out under its ATM program. On Friday, SPUT obtained approval to increase the maximum to $1.3bn. The limiting factor on future SPUT capital raises is market demand for its units, which appears to us to be strong and correlated to SPUT’s ability to continue pushing up uranium prices. Given the relatively small size of the U3O8 spot market (~$2.7bn in 2020, unadjusted for churn), SPUT buying should push spot prices still higher, until supply responds or the price gets high enough to spook investor demand for SPUT units.

So the weakest link in the Sprott strategy is how quickly will incremental supply come on line. The good news for Sprott is that, at least according to BofA, it won't be for some time.

A supply response is likely but not immediately

U3O8 held by junior miners and hedge funds, uncommitted supply from producers and a reversal of carry trades are among potential near-term sources of new market supply. Potentially larger sources are 58Mlbs of idled production capacity and 16.8Mlbs of unutilized capacity in Kazakhstan. However, a large majority of this is unlikely to respond without long-term contracts and would require six or more months to ramp-up.

UxC estimates that hedge funds hold around 11Mlbs of U3O8 that was mostly purchased in 2018 and 2019 when prices averaged just $24.61/lb and $25.84/lb vs. the current spot price of $43.75/lb.

There can be many sources of uncommitted supply with BHP’s Olympic Dam (8-10Mlbs annually) and the Navoi mines in Uzbekistan (9Mlbs annually) the usual candidates. Other less obvious sources also exist. For example, we estimate that in H1’21, China imported nearly 21Mlbs of U3O8 which equates to approximately 82% of the country’s 2021E reactor requirements. In addition, Chinese utilities are estimated to hold as high as or more than 460Mlbs of U3O8 inventory, sufficient to cover expected requirements for the next 11 years. As prices rise we see the possibility for some of the U3O8 produced in Chinese owned mines outside of China to be sold into the spot market. We estimate that in H2’21, Chinese owned mines outside of China will produce roughly 8Mlbs of U3O8. We do not expect Chinese inventories to be sold, however. Those are considered strategic.

Kazakhstan under-utilizing capacity: In Kazakhstan, the world’s largest U3O8 producing nation, there are several uranium mines now producing below capacity. On a 100% basis, these mines have a capacity of around 75.4Mlbs but we forecast them producing 58.6Mlbs in 2021E, leaving 16.8Mlbs of additional production potential trough flexing up utilization. However, similar to Cameco, Kazatomprom has indicated it will not flex up its production until they are signing long-term contracts and the price is fair. The latter condition may now be realized, the former remains to be seen. We think KAP sees $40-$45/lb as fair pricing.

Idled capacity is substantial but a majority is disciplined: According to data compiled by the World Nuclear Association (WNA), there is 54.4Mlbs of idled capacity. Cameco, which controls 58% of this idled capacity, has indicated it must fill its contract book at attractive pricing before it will restart McArthur River and has indicated that very high prices would be necessary to restart Rabbit Lake. The price indicated by Cameco for a McArthur restart is $40/lb or greater. Paladin has suggested a similar approach with its Langer Heinrich mine which accounts for another 11% of this idled capacity. Of the remaining 31% of potentially undisciplined producers only 17% (8.9Mlbs) is profitable at the current spot price on a full cost basis. However, much of this potentially undisciplined production will soon be profitable as prices rise.

But while we wait for supply to rise, one thing is clear: producers - such as Cameco - will benefit when utilities re-enter the market, to wit:

The higher spot price means produced supply is more competitive vs. the carry trade, presenting an opportunity for longer-term contracting. When utilities re-enter the term market, existing producers should benefit. Will utilities enter the term market this week as they have historically? Likely, but volumes are uncertain and coverage is solid.

Of course, much of the production on the cost curve would require far higher prices to be profitable. The chart below shows the estimated 2021 global uranium industry cost curve. Full costs include all mining, processing and site G&A costs as well as sustaining capex. Sunk costs and a rates of return are excluded. The exhibit shows that our long-term U3O8 price forecast of $47/lb is in line with the 90th percentile on the cost curve.

In other words, there is some marginal supply available but the price of uranium will have to rise well above $60 for it to be accessible. Today uranium is trading around $46, up almost 50% since Sprott launched his buying vehicle.

And while utilities are currently well-covered, NPP life extension may change that substantially. As BofA notes, "US utilities have the best contract coverage in 30 years. In the EU coverage is even better. We think utilities thus have bargaining power even with much higher spot prices and see contract prices that are lower (closer to our $47/lb long-term price). Yet, potential nuclear plant life extensions like Byron and Dresden will mean less inventory and contract coverage. We lower our 2021E loss per share (LPS) to $0.45 from $0.22, raise 2022E EPS to $0.25 from $0.08 and raise 2023E EPS to $0.59 from $0.20. Using a net asset value approach, CCO shares imply a $50/lb U3O8 price."

So what does all this mean for the industry? In a nutshell, sharply higher prices: here is BofA.

Given that we think there will be at the minimum a sustained bid in the spot market for U3O8 from SPUT combined with already tightening markets and the addition of Byron and Dresden to our demand forecast, we raise our 2021E to 2023E U3O8 price forecasts by 18%, 41% and 18% to $36.30, $53.50 and $48.50/b. Our long-term price is pushed to 2026E from 2025E and increased to $47/lb supported by an updated production cost curve. Our view is that prices will continue rising but peak in Q1’22 as plans for productive supply responses are revealed. We expect CCO to restart McArthur River in 2023E at a capacity utilization of around 30% and steadily ramp up from there.


A key driver of how fast uranium prices normalize will be the response time at the world's largest miner, Cameco, which according to BofA is "the only large, liquid, US listed vehicle for exposure to uranium." As BofA notes, "we are now assuming that CCO restarts it McArthur River mine, the largest uranium mine in the world at annual production of 25Mlbs, in 2023E. However, we see a very gradual restart with capacity utilization of just 30% in 2023E, 50% in 2024E to 2026E and then 100% from 2026E onward."

To be sure, Cameco will be asking itself does it want to produce more and lower both the price of uranium and its stock, or take its time with ramping production. One look at the recent action of the OPEC+ cartel should give an indication as to what it may do.

In other words, we do not expect major downward pressure on either the price of uranium or CCJ for the foreseeable future, something which even retail investors have now grasped making CCJ the most actively discussed name on the WallStreetBets forum a few days ago.

So with all that in mind, we look at what appears to be the first Sprott copycat to emerge in the past month, namely Uranium Royalty, which has surged as much as 18% after announcing that it’s entered into contracts for three additional spot purchases totaling 300,000 pounds of uranium, noting that the average cost of the purchases is $38.17 per pound, a number which is already a substantial discount to today's price.

Following completion of the deliveries, URC CN will hold a physical inventory of 648,068 pounds of uranium at a weighted average cost of $33.10 per pound. More from the press release:

It is within URC's mandate to make periodic purchases of physical uranium to provide attractive commodity price exposure to shareholders, especially in these early stages of a bull market in uranium. The global mega-trend towards de-carbonization is providing a major catalyst for carbon-free, safe, and reliable nuclear energy. The supply and demand fundamentals for uranium continue to improve, with demand for uranium now exceeding pre-Fukushima levels and global mine production (128 million pounds) expected to lag global consumption (191 million pounds) by 63 million pounds in 2021 (UxC data – Q3 2021 report).

This is the 5th year of the production/consumption gap which has had a positive impact on drawing down excess market inventories. The purchasing activities of producers and financial entities, like the Sprott Physical Uranium Trust have accelerated this rebalancing as of late, resulting in a 49% rise in the spot price in the past five weeks.

As Sprott continues to upsize its physical uranium fund to meet growing demand, and as the price of both uranium and producers continues to rise, expect many more tactical and strategic buyers of uranium to emerge as suddenly Uranium is the new silver and everyone is hoping to be the new Hunt Brothers.

Tyler Durden Wed, 09/15/2021 - 11:44

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Bitcoin to $500,000

The right perspective for crypto today … snowballing adoption … big-time price predictions … an invitation to a special, live event tonight at 7…

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The right perspective for crypto today … snowballing adoption … big-time price predictions … an invitation to a special, live event tonight at 7 PM ET with Luke Lango and Charlie Shrem

Last week, bitcoin and the broader crypto market suffered a flash crash.

Prices haven’t yet bounced back to recent highs, which has some crypto bears predicting bitcoin’s price will slide back beneath $40,000.

Let’s say that happens…

And then what?

Does the investment “game clock” runs out, so if you buy now, you’re stuck with losses?

Would bitcoin under $40,000 represent the beginning of bitcoin’s decline into irrelevance?

As investors, we often get confused between market prices and intrinsic value. It’s understandable – price is in our face all the time. It’s on our phone, whenever we need to scratch that itch.

Intrinsic value is hard to quantify, and open to debate. And that’s even if you take the time to try to calculate it.

But a surefire way to make lifechanging wealth is by recognizing when an asset’s market price doesn’t adequately represent its true value, and then being in position when the masses wake up to the imbalance, sending prices surging.

So, do I know the intrinsic value of bitcoin and other digital assets? No.

However, it’s a bit like the old Ben Graham quote, “you don’t need to know a man’s weight to know that he’s fat.”

In this case, I don’t need to know the exact intrinsic value of the crypto sector. I just need to know its adoption is growing like crazy, which suggests future prices will be significantly higher.

***Globally, retail investors, professional investors, and the business community are all moving into crypto, which suggests major price-gains in coming years

Below, I’ve created a crude visual – please excuse my lack of artistry.

The blue parabolic line represents global crypto adoption.

The green volatile line represents crypto asset prices.

As you’ll see, the green price line is all over the place, though it’s loosely anchored to the blue overall adoption curve.

Now, if I was looking at this chart from a short-term perspective, the green price line is incredibly important. After all, due to volatility, I could easily buy “high” right before a selloff, leaving myself sitting on painful losses.

However, when looking at this chart from a long-term perspective, the blue line is what’s important.

That’s because as long it follows the “up and right” trajectory, price will eventually play catch-up.

This helps illustrate what’s critical to remember today…

What matters most for the long-term crypto investor at this stage in the game is adoption – not price.

***So, where is the crypto sector in regards to adoption?

Well, let’s look at just a handful of recent headlines.

This latest drawdown in bitcoin’s price was prompted by El Salvador going live with its use of bitcoin as legal tender.

But just let that settle in a moment – bitcoin is now legal money in El Salvador.

And it won’t be the last country to make this move.

In June, Paraguay proposed a bill that would make bitcoin legal tender. Of course, they might get beaten to the punch by Ukraine.

From CityAM:

(Ukrainian President) Zelensky – a vocal Bitcoin evangelist – has already instructed ministers to transform Ukraine into a crypto-friendly nation…

The plan, says Professor Vyacheslav Evgenyev, is for Ukraine to make Bitcoin legal tender by the start of 2023 and create a “duel-currency country” where Bitcoin sits alongside the fiat hryvnia before potentially being phased in as the dominant financial structure.

Meanwhile, Argentina, Brazil, and Panama have all been supportive of El Salvador’s move, which could lead to their own adoption of bitcoin as fiat currency at some point.

***Closer to home, institutional dollars continue to pour into the crypto sector

Yesterday, we learned that billionaire, Steve Cohen, who owns the New York Mets, is investing in a new cryptocurrency trading firm.

From Cohen:

While the cryptocurrency market is now a $2 trillion asset class, we are still in the early stages of institutional adoption.

Don’t forget that hedge-fund billionaires Paul Tudor Jones and Stanley Druckenmiller have already embraced the crypto sector. Last year, Jones said it was just the “first inning of bitcoin and it’s got a long way to go.”

Meanwhile, on Sunday, CoinTelegraph echoed Cohen’s and Jones’ belief about institutional adoption just getting started:

Institutions investing in Bitcoin or getting into digital currencies as a payment mechanism are still at their nascent stages.

Also yesterday, the popular trading platform, Interactive Brokers, announced it has launched cryptocurrency trading access on its platform.

From their CEO, Milan Galik:

As financial markets evolve, sophisticated individual and institutional investors are increasingly seeking out allocations to digital currencies as a means of achieving their financial objectives.

And it’s not just here in the U.S. Last week, we learned that Switzerland has greenlit crypto trading.

From the Wall Street Journal:

Switzerland cleared the way Friday for more trading of bitcoin and other digital assets in the country by authorizing a new digital stock exchange.

Stock exchange SIX said its new SIX Digital Exchange, or SDX, will let investors, via regulated institutions, trade, settle and store digital tokens through one venue, underpinned by “the highest Swiss standards of oversight and regulation.”

Frankly, the adoption is happening everywhere, and it’s picking up pace.

***Though shorter-term price predictions aren’t where our focus should be, let’s throw in a couple for fun

Bloomberg just published its September issue of Bloomberg Crypto Outlook.

From the report:

We see Ethereum on course toward $5,000 and $100,000 for Bitcoin.

Portfolios of some combination of gold and bonds appear increasingly naked without some Bitcoin and Ethereum joining the mix.

By the way, that price prediction is for the end of this year.

Our (prediction) depicts a simple, yet logical, way for Bitcoin to get toward $100,000 by following the performance of No. 2. Ethereum (up about 300% in 2021 to Aug. 6), which we see as highly probable, especially after last year’s supply cut.

Post-halving years have seen the greatest appreciation, and 4x in 2021 would be quite tame for the No. 1 crypto compared with 55x in 2013 and 15x in 2017.

Meanwhile, famous fund investor, Cathie Wood, is putting bitcoin’s price even higher if we look further out – specifically, $500,000 bitcoin in five years.

From Business Insider:

Ark Invest CEO Cathie Wood expects bitcoin to soar to $500,000 in five years, and her firm’s conviction in ether has strengthened tremendously…

Her price prediction depends on whether companies continue to diversify their balance sheets into bitcoin, the biggest cryptocurrency by market value, and whether institutional investors begin to allocate 5% of their funds to it.

If that happens, “we believe that the price will be tenfold of where it is today,” she said. “So instead of $45,000, over $500,000.”

***Bottom-line, major growth is coming – it will be volatile, but it’s coming nonetheless

With this in mind, I invite you to join crypto experts, Luke Lango and Charlie Shrem, this evening at 7 p.m. ET. They’re holding their first-ever Crypto Code Event that dives into the enormous wealth-generating opportunities in the crypto sector today.

Here’s Luke describing the evening:

Tonight at 7 PM ET, I am sitting down with my colleague and legendary Bitcoin investor Charlie Shrem at our first-ever Crypto Code Event, where we will tell you about our proprietary system for picking the best cryptos in the market.

This system is the real deal. It’s produced an average gain of 760% in our model portfolio of cryptos.

And tonight, we’re going to tell you all about it.

If you’re still skeptical about the crypto sector, I understand. But if so, that’s even more reason to join tonight and learn. There’s zero obligation. At worst, you become a more informed investor.

But I believe once you have a greater awareness of just how big this is becoming, you’ll join the millions of investors who see this as a once-in-a-generation investment opportunity.

Click here to join Luke and Charlie, and we’ll see you tonight.

Have a good evening,

Jeff Remsburg

The post Bitcoin to $500,000 appeared first on InvestorPlace.

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Toronto Stock Exchange announced the 2021 TSX30, showcasing top-performers

  TORONTO – Toronto Stock Exchange yesterday announced the 2021 TSX30™, the Exchange’s flagship program showcasing the 30 top-performing stocks…

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TORONTO – Toronto Stock Exchange yesterday announced the 2021 TSX30, the Exchange’s flagship program showcasing the 30 top-performing stocks over a three-year period, based on dividend-adjusted share price performance. The annual ranking serves to spotlight the achievements and sustained success of TSX’s leading listed companies while also highlighting the depth and diversity of Canada’s powerful capital markets ecosystem.

“Public companies on our world-class Exchanges play a critical role in creating jobs and driving economic activity. Despite challenging times, the 2021 TSX30 and many more of our listed companies across all sectors have continued to lead the way; pursuing adaptive, future-focused business plans and generating growth for their shareholders, industries, and the communities in which they operate,” said Loui Anastasopoulos, President, Capital Formation and Enterprise Marketing Officer, TMX Group. “On behalf of all of us at TSX, I’d like to congratulate the 2021 TSX30 winners for their achievements and look forward to continuing to work with them to support their future success.”

14 out of the 30 companies on the 2021 TSX30 list are from the mining industry and five are from the technology sector. While those sectors are well-represented, the ranking spans several industries and includes a cross-section of established and emerging companies.

Other highlights from this year’s ranking include:

  • TSX30 companies created $248B of market capitalization growth over the past three years and average adjusted shareholder returns of more than 300%

  • 60% of the companies on this year’s list are not on the S&P/TSX Composite Index*,  demonstrating the diversity of investment opportunities in Canada’s premier equities market

  • 11 of the 30 companies on this year’s list are graduates of the junior TSX Venture Exchange, highlighting the strength of TMX Group’s two-tiered capital formation ecosystem


The 2021 TSX30 ranking:




3-Year Performance


Aura Minerals Inc.




Shopify Inc.




Trisura Group Ltd.




Ballard Power Systems Inc.




Capstone Mining Corp.




Champion Iron Limited




goeasy Ltd.




Orla Mining Ltd.




SilverCrest Metals Inc.




Wesdome Gold Mines Ltd.




Marathon Gold Corporation




Aya Gold & Silver Inc.




Victoria Gold Corp.




EcoSynthetix Inc.




Ivanhoe Mines Ltd.




Real Matters Inc.




GDI Integrated Facility Services Inc.




AutoCanada Inc.




Goodfood Market Corp.




TFI International Inc.




Copper Mountain Mining Corporation




NioCorp Developments Ltd.




Cargojet Inc.




Absolute Software Corporation








ECN Capital Corp.




Ceridian HCM Holding Inc.




Pollard Banknote Limited




Ero Copper Corp.




Lithium Americas Corp.



TMX Group operates global markets, and builds digital communities and analytic solutions that facilitate the funding, growth and success of businesses, traders and investors. TMX Group’s key operations include Toronto Stock Exchange, TSX Venture Exchange, TSX Alpha Exchange, The Canadian Depository for Securities, Montréal Exchange, Canadian Derivatives Clearing Corporation, and Trayport which provide listing markets, trading markets, clearing facilities, depository services, technology solutions, data products and other services to the global financial community. TMX Group is headquartered in Toronto and operates offices across North America (Montréal, Calgary, Vancouver and New York), as well as in key international markets including London and Singapore.

We seek Safe Harbor.

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