Hey guys, welcome back to risk call.

[VEE] I think it’s interesting to note a few developments, the market has been very focused obviously, on the Russia-Ukraine situation. I want to talk about what are the inevitable trends that this war has triggered, how it’s going to impact our investment thesis going forward and the trends that Nic and I think are inevitable in the months ahead. So, Nick, tell us what you think, you’ve been away for some time so what’s on your mind?

[NIC] I think a lot of things have changed to say the least. I think for the energy portion of our portfolio. We have been talking about it for the longest time, right? When the world was at peace and even before covid, right? And none of us expected the situation to be exacerbated, to the point where we are right now where we’re seeing oil above $100 and Russia, which is a major OPEC+ producer being taken off the global supply of balance for energy when the situation is really so acute. I think that what we’re going to see is an unprecedented spike in energy prices across the world and developed world economies, especially the Western countries, are going to be scrambling to figure out how they are going to solve this energy issues because their ESG policies that they have been touting for the longest time is apparently making this a lot worse. To restart energy, like the oil wells and gas fields is not like a switch where you can just turn it on. It’s going to take many months of lead time to restart the capacity. And I think in the interim we are going to see some crazy things in the energy market.

[VEE] Yes, I believe that’s exactly what’s going to happen. We are already seeing crazy things happening in the energy markets, but I think this is just the beginning of the next phase. I see a lot of investment Banks scrambling to predict higher oil prices, revising their targets up to 120-125 dollars and I believe as always, you know, I’m quite cynical about financial entertainment – what I call it, but the rest of the world calls it financial press or financial research strategies. I believe that $125 is just a day’s move away on any given day and given the news flow that we have right now. And I don’t think it’s going to stop at $125. And as you pointed out, we’ve been very bullish energy for less than two years. After oil went into the negative territory then we started becoming bullish. But never in our wildest dreams, neither you nor I expected the world to develop in such a way geopolitically. Our thesis was predicated on demand and supply, mainly demand continuing to grow both from reopening of the economy’s after covid and also from the growing wealth in developing countries: India, China, Indonesia and much of the Emerging Market countries and more importantly on the curtailing of supply due to ESG concerns that you said, green initiatives, carbon restrictions, carbon emission limits and all the green energy. But none of them really have thought of how it would have caused severe underinvestment in traditional sources of energy. For example, coal and oil, many of the investors do not want to be funding what they think are the bad guys, right? Which is the pollutants and the companies that are adding carbon into the atmosphere. Of course, that has led to severe underinvestment in this energy sector, led to supply being curtailed. So, we have a situation where supply is very hard to be turned back on. As you say, it takes years and there’s not enough investment dollars for developing these sectors. While demand is on the trajectory up, and it’s growing at a very fast speed given the reopening as well as ongoing growth in emerging market countries. So that was our long-term view that was pointing to higher prices regardless of what happens in the world geopolitically, but the geopolitical situation has exacerbated this demand and supply situation. Where now not only production of Russia may not be available to the rest of the world, but also energy security becomes a huge concern for the western governments now like because they not only take their supply from Middle East but they are now also concerned about Russia. So, it’s a big problem, if push comes to shove Russia can and is able to use energy as a weapon against many of the western governments, right? And this is how we structure our thesis: we find anecdotal evidence that confirms our thesis of the world. And if usually when we’re right, we see that for various reasons, many anecdotes, many occurrences in the real world, many news, articles or developments policies that have been implemented somehow fall into place. And one of the very interesting developments in the last week was because after the war in between Russia and Ukraine, Germany, surprisingly and shockingly to many observers, announced that they will increase their defense spending to 2% of GDP in the years ahead, which is a big deal because Germany has been pacifist since the second world war and now, they are building up their military building and weapons. And more importantly, they are rethinking their plan to shut down their nuclear power plants. France has been very open to get their energy sources from nuclear. But Germany was turning their backs on nuclear, and now they’re reconsidering and I think they will come to the inevitable conclusion that if they want energy security, they have to find alternative sources to natural gas and oil, and with ESG concerns, you will need to have nuclear as a core part of the strategy. Yeah, and I think you also have certain views on this Nick, right?

[NIC] Yeah. So, I think it’s quite interesting because Germany has actually one of the strongest green party movements in the entire world. And to see them make a sharp U-turn where they said that they’re going to rethink their nuclear strategy and start stockpiling coal and oil, which you will never expect coming from Germany at any point in time, right? So, everything ESG just went out of the window. And also, what’s interesting is also that the EU is going to integrate their Energy Grid in the future. And I think that’s quite telling of where the EU energy story is going to go because France seems to be the leader in Europe in terms of being smart about the energy choices because they are the only country which has an existing nuclear Fleet and Macron is very insistent on building up more nuclear reactors in France. So, I think this is going to flow over the Germany soon as they start to consider integrating the energy grid across the entire Europe. We have never seen, the Western Alliance so United before in terms of energy and in terms of the policy stance now in the face of Russian threat, right? And I think that they will understand that the only way Europe can achieve carbon neutrality or if they are even going to consider sticking to their green targets, nuclear is the only answer for that. Because now they are taking strong actions against Gazprom and Russian energy, which Europe was entirely dependent on for survival. And that is why I think that’s why Putin was so bold in saying that: If you sanction Russia, then you have fun staying cold because they’re not going to send gas over. The only answer to that is nuclear. And I think what has happened post-Fukushima was that nuclear mining activities have become almost dead. And as countries around the world ramp up, we are stockpiling nuclear and understanding that it is the only way to achieve energy Independence, what we think is going to happen in the years or actually even months ahead is a mad Scramble for Uranium resources where the world in is such a huge deficit of these commodities. So, one of our major Investments and trades is also in Uranium because as I think as this oil supercycle winds down in the future, I think the next one that is going to explode is uranium. And it’s starting to break above the post-fukushima resistance of $50 per pound. I think that’s a very historic and key breakout and I think it’s something that we should watch and it’s an  asset that we should add to our own at this point in time.

[VEE] Yes, I agree with that and also very interesting is that there was a news headline, where US is going to start a strategic reserve for Uranium or nuclear energy sources, much like the SPR for oil. I think if that’s the case, it wouldn’t be the first or last country to do so. I believe that’s the trend going forward: energy security. This is just one of the themes that I believe is now set into motion as inevitable, the world order has changed. This is a paradigm shift, that in my mind, is as lasting as what happened after September 11. The strategic alliances has changed, policies will have to adjust. the world is much less safe than before and governments will have to change their policies and act in a way to secure the future security of resources. So, on this energy front I believe that uranium and also coal companies will be benefiting from this new world order. So, for the details of the stocks that we’ll be adding to the model portfolios, we will drop the details into our chat forum soon enough.

In summary, the world has changed and it’s obvious to all. But I think the debate of what’s going to happen next geopolitically within begin in the war is not really productive for our investment thesis because things can change, peace talks may succeed unexpectantly. But what is inevitable is that the government have end up realising that being too dependent on one source of energy is making themselves very vulnerable to disruption that is going to cause other problems economically and politically as well. So, is there anything else you want to add Nick?

[NIC] No, I think that’s all. I think the world is moving from an optimisation-based system to a redundancy-based system, right? Where a lot of reshoring is going to happen and the spread in between to get from an optimisation-based system to a redundancy-based system is going to have to require lots of fiscal spending. And I think commodities in general is going to do very well, right?

[VEE] Yes, in layman terms, what you’re saying is that when we are optimised, everything was just in time where we assume very efficient supply chains, which may just get our resources and our production inputs, in a timely fashion, just when we need it. We don’t stockpile We just get it whenever we want. From optimized to now redundancy. So you need to stockpile, you need to secure your suppliers, to you need to make sure that they are within your control, rather than dependent or vulnerable to supply chain disruptions because of our strategic enemies, right? I think the word should be enemies, it used to be rivals but for many nations now, they are very close to their enemies now. It’s a bleaker world that is more dangerous. But be that as it may, there are opportunities for Investments. And I think these are the inevitable trends going ahead. And in the days ahead, we will put out more of our thoughts and hopefully we can encourage more discussions around this. Thanks, as always. Stay true to your process and eventually you’ll be profitable.