Gordon Johnson, CEO & Founder of GLJ Research, joins James Connor to deliver a compelling analysis of why inflation is set to surge and how key economic indicators are flashing recessionary warnings. He delivers a sharp critique of Federal Reserve policies, highlights the growing disconnect between the stock market and the real economy, and explains why he’s now even more bearish about Tesla. Gordon also expands on investment strategies to protect your wealth in an inflationary environment and explains why he’s very bullish on uranium and nuclear power.
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Gordon Johnson 0:00
I think the Federal Reserve has been the biggest contributor to the explosion in wealth inequality in the United States we’ve ever seen. Inflation is simply m2 times m, 2v money supply times the velocity of that money supply, and they’re significantly increasing the money supply as the velocity is now back in positive territory, we’re going to get inflation. The real economy is, in our view, nowhere near as strong as the stock market suggests. I think the recession hits next year, if the Fed doesn’t change course.
James Connor 0:38
Hi and welcome to wealthion. I’m James Connor, well, 2024 is coming to a close, and if you want to start 2025 off on a strong financial footing, consider having a no obligation discussion with a vetted financial advisor. You can find out more information at wealthion COMM Slash Free. Once again, That’s wealthion.com/free now on to the show you. Music. Gordon, thank you very much for joining us today. How are things in New York? Great,
Gordon Johnson 1:08
great. How are things your neck of the woods? I
James Connor 1:12
am in Toronto, and it’s a gorgeous fall day here. So Gordon, why don’t we just start with a brief overview of your firm for those people who might not be familiar with it,
Gordon Johnson 1:22
right? So, glj research is a equity research firm focused on deep value stock ideas. We also have a macroeconomics team that looks into some of the different factors affecting kind of stock movements from the perspective of liquidity. You know, different economic indicators, etc, and we really pride ourselves mainly on trying to get the stock picks right. So, you know, we cover some sectors where we have cell ratings and we have cell ratings. You may not get access to management teams, but most importantly, you try to get the call right, not necessarily access to management.
James Connor 2:05
Yeah, and I guess if you do have a seller short on a particular name, they don’t want to talk to
Gordon Johnson 2:09
you. It’s not supposed to be that way full, full and fair disclosure. They’re supposed to talk to everyone. But that’s long since been forgotten and put to the side. Not only did not talk to you, they don’t, they don’t give you the call. It the numbers to their conference calls recently. So yeah, it’s it’s not full and fair disclosure. If you’re negative, companies do not give you access.
James Connor 2:28
So I want to start with your views on the economy, and also the markets and the economy continues to hum along at two to 3% growth. What’s your take on the US economy?
Gordon Johnson 2:39
Yeah. So I think that the problem exists with a lot of politicians and people in the media equating the stock market to the economy. And the stock market is clearly not the economy. The stock market has done amazing things this year and last year, it’s literally up almost daily on days it’s down a percent to 2% it’s deemed almost a national economic disaster, a national disaster, etc, whereas the real economy is something different. And there’s a million data points one can look at to track the real economy, but some of the data points we look at, if you look at, for instance, electricity consumption in the US, if you look at things like retail sales in the US, if you look at things like semiconductor exports in the US are commercial and industrial loans outstanding. For instance, retail sales since 2021 I’m sorry, electricity consumption. Let’s start with that year over year growth and electricity consumption. Since 2021 is average 1.5% it’s at 1.8% now, and down from highs as recently in 2024 7% so when looking at that metric versus GDP growth, the economy doesn’t look as strong if we look at retail sales. Retail sales right now, year over year, growth seasonally adjusted for the month of October, 2.8% better than 2% seen in September. But since 2021 retail sales on a monthly basis, year over year, of average 8% and we’re at 2.8% so significantly below, you know, the average. So looking at just simply looking at retail sales, things do not appear as strong as, you know, the GDP are, you know, some of the pundits out there would have you to believe if you look at CNI, so commercial and industrial loan growth, year over year, loans and leases in the US, commercial, industrial loans and leases right now, right at 0% growth down significantly from that scene in 2023 and 2022 so loan growth not robust. And then if you look at. Construction spending, year over year, growth in construction spending, it’s on the decline. If you look at semiconductor exports out of the US, that’s a leading indicator for recession. I’m looking at it right now. Let’s see, yeah, the chart is trending down significantly. Semiconductor export growth. I mean, literally, you’re having literally a collapse in the exports of semiconductors year over year on a monthly basis. So my point is, the real economy is, in our view, nowhere near as strong as the stock market suggests. And when you look at like, you know, for instance, if you look at S p5 100, I think over 400 companies have reported earnings this most recent earnings season. So q3 revenue growth for the companies that have reported is trending plus 7.5% last quarter of that revenue growth was plus 11.2% earnings growth for the S p5 100 companies that have reported for q3 EPS growth 8.5% last quarter, up 21% go to the NASDAQ for the companies that have reported for q3 revenue growth this quarter, 8% last quarter, 14% EPS growth this quarter, 5% last quarter, 21% so even in the earnings numbers, you’re seeing a significant slowing in growth, and that’s right at a time when I think inflation, I think we’ll get to this is starting to take back off with what I think is a very reckless fed and I want to talk about that as well. Maybe I went on too long, but I’ll stop there. So
James Connor 6:33
just a couple of things I want to ask you about. First of all, with regard to electricity, you’re suggesting lower like electricity has to do with a slowing economy,
Gordon Johnson 6:41
right? So when you look at specific economic indicators, that can’t really be, I shouldn’t say can’t be, but they’re unlikely to be manipulated. If you look at electricity growth, I’m just looking at the chart going back to 2021 again, the average 1.5% year over year. Growth on a monthly basis, we’re looking at 1.8% now, so and it’s trending down. So we’re trending down, back towards the average. Would suggest that overall economic, economic activity is slowing, not increasing, if that makes sense.
James Connor 7:14
And the other point I want to ask you about to our semiconductors. You said the sales were significantly lower. Isn’t that because the US makes an inferior product, and all of the production has gone to Taiwan.
Gordon Johnson 7:27
That is true historically. But if you look at this, this figure, this semiconductor growth, for instance, in August, exports of semiconductors on a year over year basis in the US up 31% and in July, that number was up 56% so July up 56 August up 32% and then in September, it dropped to just 9.8% so literally, it went like this, and it’s collapsing right now that’s a leading indicator. Historically, that number has been a leading indicator into recessions, and right now, that number is in full collapse, so I think it’s an important number to look at. If that makes sense, are
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James Connor 8:48
And I think the other element too that has caused a lot of confusion or distortion within the economy is the fact that the Biden administration has spent trillions of dollars trying to stimulate the economy, and in doing so, they’ve gone into significant debt. But what do you think about this? Right?
Gordon Johnson 9:06
Not just the Biden administration, but the Trump administration. Look, look, I think the Federal Reserve has been the biggest contributor to the explosion in wealth inequality in the United States we’ve ever seen. If you think about what happened with COVID, when COVID first hit in 2020, this was during the Trump administration. Admittedly, you know, we had no idea what needed to be done. So, you know, they did 2 trillion in monetary stimulus. And listen when people talk about reckless fiscal spending, the government in the US cannot spend money if the Fed doesn’t print the money to buy the Treasury’s bonds, the Treasury can’t issue all these bonds, because right now, you have a net reduction in purchases of treasuries from foreign entities. So while people talk about quantitative tightening, the definition of quantitative easing is buying bonds, the debt. Definition of quantitative tightening is selling bonds, and the Fed is not selling bonds. They’re simply allowing the bonds to that mature, to roll off. So in reality, they’re not engaging in quantitative tightening. But let’s go back to 2020, right? They did all this excessive monetary stimulus, right? And that’s understandable. Two to 3 trillion, but then, after we had vaccine confirmation in 20 late, 2020 or, I’m sorry, 2021, and after, retail sales went below the trend, but then went back to trend. And in fact, we’re 15% above trend. So if the trend line is going like this, right, and you dip back below, when you go back, we went 15% above that. After that, the Fed did another 3 trillion in monetary stimulus. That is reckless. It’s not data dependent, and clearly it was going to result in excessive inflation, which is what we’ve gotten and what we think we’re going to get. And I want to get into this. So my point is, the recklessness that we’ve seen from the US, government and Congress is a byproduct of the Fed allowing this recklessness, and the Fed is the only entity that can legally create US dollars. So if the Fed stopped printing and buying the Treasury’s bonds, which they’re still doing to this day, despite telling the public they’re doing quantitative tightening, the Congress wouldn’t be able to spend so recklessly. And I want to go over that history if we have time, by
James Connor 11:23
all means, and before we focus in on the Fed, because I love talking about the Fed, but you wrote recently that you the US Treasury market is dysfunctional. What exactly do you mean by that? Right?
Gordon Johnson 11:34
So the Fed and Janet Yellen US Treasury are acting as if their only mandate is to disallow any dysfunction in the US Treasury market. And let me talk about what I mean. So I mean, we can go back to, you know, 2019 when you know problems being began to emerge at the short end of the curve. Repo rates spiked in 2019 and the Fed began expanding their balance sheet. You know, then, you know, in early 2020, you know, the Fed exempted US Treasury bonds from SLR for banks. SLR, supplementally, supplementary leverage ratio that was de facto QE for banks. We can fast forward. And these are all times when you started to get, you know, Treasury rates spiking. And they came in and did these things to make Treasury rates come down. You know, you can go back to, you know, late 20 or early 2022, when the US Treasury began working down the TGA account, the Treasury general account balance, which that Treasury general account balance basically serves as de facto QE, because it’s money that once the Fed begins working that down, it finds its way into the real economy again. In 2022 you have the Treasury intervene and begin working down their TGA account again. And then, you know, when you had the banking crisis, you know, they did this btfp facility, which is de facto QE, you know, in 2023 you know, Yellen shocked the market with her QRA announcement, where she shifted from majority long term debt issuance to short term debt issuance, which allowing her to drain the reverse repo account the RRP. So there’s two people get confused. There’s the overnight RRP, and then there’s the RRP, the overnight RRP, reverse repo account. All that is is excess money printed when they did QE infinity, 2020, to 2021, that was sitting in the coffers waiting to be used. And when Yellen shifted her debt issuance from long term to short term, that effectively incentivized those people who were parking their money in the reverse repo account to put that money, rather into her short term bond issuance. She issued debt, the excess QE money that was sitting in the RRP drained, and that money buying her debt and finding its way into the real economy. You have quantitative easing, you know, again, and you know, you know, in late 20 or early 2024, you know, the Fed cut its pace of q q t, by 30 billion a month. And it’s not q t, it’s just the amount they were letting roll off. And then recently, you know, Yellen announced he’s going to be buying 4 billion in US Treasury bonds per week. There’s just constant intervention by these entities into the treasury market whenever yields start to spike, and it’s them trying to disallow any dysfunction, or rather, I would argue, functioning in the treasury market. Remember one thing I’ll highlight. Remember Liz truss in the UK, right? And she had all these grandiose plans to do all of this spending on climate and, you know, money for corporations and and because they didn’t have the world’s reserve currency, and because their central bank said, we’re not going to fund this, Treasury rates, not Treasury rates, but rates in the UK spiked so much so that, literally, in one weekend after an ounce. Her plans, she had to step down, and they had to revise these plans. My point is, if Janet Yellen and Jerome, Jerome Powell’s Fed did not constantly intervene into the treasury markets and let markets function on their own, we believe that some of this excess slash, reckless spending by both the Trump and Biden administration would not be allowed, because the markets would say, No. De facto, the markets would say, if you’re going to issue all of this excess debt, you have to pay us more to hold it, and thus, the plans would be squashed. If that makes sense.
James Connor 15:31
You mentioned Liz truss. I wonder what she’s up to now. I kind of lost. I forgot about her.
Gordon Johnson 15:35
Yeah, I’m not sure, but I’ve seen she’s made some comments recently about, you know, monetary and fiscal policy. But I think her example is just one about, I think you’ve heard of the bond vigilantes, and that’s just a fancy way of saying, you know, mutual funds, hedge funds, you know people that invest in the bond market, and when you start to issue excess amounts of bonds, you facto lower the price, so investors demand higher yield. But when you have a Fed in the US Fed, Jerome Powell’s us fed, and a treasury and Janet Yellen treasury, that are allowed to intervene in these markets, you don’t get, you know, price discovery, and that’s very dangerous, because at some point, price discovery will be forced on these markets.
James Connor 16:18
Okay, so the bonds have come under attack here in the last few weeks. So 10 years gone from 363, 70, up to 450, why?
Gordon Johnson 16:31
Let’s go through that. The Federal Reserve has a history of theories, right? We say the banded in our view, as soon as there was risk to rich people’s assets. So, so what do I mean? So if you look at previously, what they’ve said, they said that previously, the Fed said they were for flexible average inflation targeting, and the thought of that is, when inflation was 1.7% they said they were going to let it run hot for a while, let it run above 2% to get the average to 2% but they abandoned that average inflation targeting, and never replaced it when inflation ran high, right, right? When inflation got to 9% all of a sudden they abandoned average inflation and targeting. So then, what did they average inflation target? So when did then, what did they say they talked about for a long time, core PCE, right? That being the number to look at, but Core c, core PCE is currently at 2.7% which is nowhere near their target. So then what did they do a year ago? They created a new category called core services, ex housing, to try to say inflation was improving, yet currently, that metric is running at 3.5% nearly double their target, and even going back to when Janet Yellen was at the Fed one second, um, she talked about what really matters is wages. And she said when wages, wages are running at 3% 3% per year, that would be consistent with the Federal Reserve’s arbitrary 2% per year target. The problem is wages are currently running at 5.5% or way above their target. So that’s all to essentially say that the current members of the Federal Reserve don’t seem to have a serious theory on inflation, and they don’t acknowledge what their role is in setting prices, instead focusing on intervening when there’s wars and pandemics, which is not their mandate. And given we’re in a world as dangerous as the one we’re in right with very irresponsible and reckless fiscal policy, we need a central bank that is very clear about its reaction function and its goals, not one that’s lurching, which is arguably what has put us in the mess that we’re currently in. You know, the Fed has claimed that they’re data dependent, but they have done a massive easing recently, despite data being better since the summer, and recent inflation data coming out and suggesting things are getting hotter, not not colder, suggesting that they’re not data dependent, but rather they just want to goose financial assets. And I could go on, but let’s stop there and see if you have any questions.
James Connor 19:00
So you’re suggesting the Fed is manipulating numbers or creating new data points to make them look good. I’m
Gordon Johnson 19:10
suggesting that the Fed is goal seeking data to fit to their mandate, which is to inflate asset price prices consistently and recklessly. And you know, the proof is in the pudding. You know, the inflation data, the PPI and CPI inflation data that came out recently, shows you that inflation is now reheating, yet they just cut basically, let me let me go on so, you know, the Fed kept interest rates near 0% for a decade. Then they introduced quantitative easing into the US in 2009 and essentially made it permanent. Right? When they introduced quantitative easing, it was supposed to be finite. It’s become permanent. They wondered into politics, right? They’re supposed to be a political but that’s them wondering to politics. How well, essentially, they told the US Congress money was free. So. Saying a strong message that Congress can spend as much money as you want, and as a result, Congress has done just that, um, you know, to the detriment of the majority of Americans. That is, you don’t have to do much to get people in Congress to spend a lot of money. That’s really all they do. So that is over the so what’s happened over the past few years, Congress with relatively full employment, has added 5 trillion in cumulative deficits and put the country in a much more dangerous place. Why is it dangerous? Well, the current excessive level of debt is dangerous to our economy, right, and a terrible sign to the world bad economic policy provokes our adversaries to take us on, so that makes the country less prosperous and less safe. Yes, monetary policy has safety indications. You know, in the old days we had one rate, but now there’s multiple rates. So you have a federal reserve that has clearly, you know, wondered into politics, and they sent a sign to Congress that you could spend recklessly. And that’s all that Congress does. And without putting any brakes on this, you know, out of control train. I’m kind of afraid that we’re going to get a re acceleration, and the rate of inflation, right? Prices are still, you know, at levels that people can’t they can’t afford, right? And you’re seeing that in retail sales below trend, right? Um, and we’re about to get another resurgence in prices, if the Fed doesn’t cool what they’re doing?
James Connor 21:23
No, all very good points. And I think we’re also seeing that too with a lot of these unions. Boeing, for example, the mechanics just negotiated a 38% pay increase. And one of the reasons whether all these unions are getting such paid big pay increases is because of inflation. They also got a $12,000 ratification bonus, I might apply for a job of Boeing,
Gordon Johnson 21:46
yeah. I mean, it’s, it’s, it’s nuts, and, you know, it’s, it’s understandable again, because inflation has gone up so much so. So the question is, what’s the solution? Right? And in our view, the solution is go to a simpler framework where 19 Fed members aren’t talking nearly daily. More specifically, they need to do more thinking and less talking. IE, what is inflation? What is our role in it, and what is the proper firm framework? Because the current approach by the Federal Reserve’s policies are good for asset holders, and you know, as stocks go up every day, but they’re bad for the people living on w2 income that don’t own assets and just have regular income, based on the Fred’s website, the Fed’s own website, Fred, Saint louis.com the top 10 wealthiest percent of people in the US own 87% of stocks. So when your goal is essentially to push stock prices up every day, all you’re doing is you’re exacerbating the already reckless wealth inequality that exists. And again, the stock market is not the economy. Look, our view is, and I think the view of economists who aren’t paid and brought or brought and paid for by political parties is the reason why you had such a landslide in this election, right in the US election was inflation. People can’t afford life, right? And it’s like we’re playing political ping pong, where every election year, every election cycle, you shift to the other party, then you shift back, then you shift back. You had Obama, right, then you had Trump, then you had Biden, and now we’re back to Trump right? And if Trump doesn’t fix this problem in four years, you’re going to go back to the Democrat but the problem is the political class is serving the rich minority to the detriment of the poor majority, and that poor majority has extended to the middle class, and now it’s extending to the upper middle class, given how expensive things are. Um, so again, you know, what do you do? Right with all this excess of money printing, the Fed is taking risks with our paychecks, with no real framework that justifies why they’re doing what they’re doing. As I highlighted, they keep creating these new frameworks to follow um and to those that say a shift from the Federal Reserve will negatively impact the stock market if the Fed focuses. If the Fed just focuses on the actual economy, and the economy does well, the stock market will be fine. Yet if they continue to focus on the stock market, ignoring the actual economy, the real economy will continue to suffer. Keep in mind the power of the Fed comes from its credibility, and credibility comes from making the right decisions. Yet this Fed has done a lot of harm to itself recently by making the wrong calls over the past several years, which is deeply harmful, again, to the you know, you know 90% of you know people the United States who don’t own 87% of stocks. So when you ask me, you know, what’s my outlook on the economy? I think the economy is not nearly as well as people think. It is because people think and when I say people, that includes the media, that includes pundits, that includes investors, right, greed is good is from the Wall Street movie, everybody basically has taken that to heart, and greed is not good for the majority of America. Kids. So my point is you need to focus back on the economy and not on the stock market. And you have a fed that is compromised and has no real policy or no real measuring stick to measure themselves, and you have a Congress that’s out of control with the spending. So if something doesn’t happen, you’re going to have a significant recession because people just simply won’t be able to afford stuff. And in some of those data points, I think you’ve seen some of that start to emerge. I think the recession hits next year if the Fed doesn’t change course. And I’m sorry for going on, but somebody asked Jerome Powell about average inflation targeting at the most recent meeting, right? They said, You know, when inflation was below two, you know, you said you were going to use average inflation targeting. Now that it’s run significantly above two, are you going to run it below? He said, No. He said, we’re going to get it to two. That’s our goal. So there’s asymmetry in what they’re doing to the detriment of the majority of Americans. And I think that this election shows you that the real economy isn’t strong because you had such a shift to the other side. Voters are saying, house Congress, I’m sorry. House Senate, White House, all go to Republicans. Voters are saying we need something different. I think that’s because they’re suffering economically, and I think we need to change.
James Connor 26:15
I think we would all agree if inflation is definitely out of control. And you recently published a chart on CPI, and it shows CPI re accelerating in 2025 continuing into 2028 and you show it growing, I believe, by 15% Why do you see this happening? What’s going to be the catalyst to drive this inflation,
Gordon Johnson 26:36
right? So if you look at the Chicago index of economic conditions. We’re now basically running looser policy than before, when the Fed started hiking rates. My point is, the Fed has let economic conditions loosen to a level of before they wore, before work, before they were before they started hiking rates. So now they’ve cut rates. They did the massive jumbo 50 basis point cut. And you know, keep in mind, right when inflation was running above target, right? And the Fed said, Okay, we’re going to start to address this. What did they do? They waited nine months to do anything, and then they began raising rates by 25 dips per meeting. And then with inflation right now above their target right and re accelerating what they do. Two meetings ago, they did a massive jumbo 50 basis point cut again, there’s there’s asymmetry in what they’re doing to benefit the rich minority at the expense of the poor majority. So you know, when you talk about why inflation is going to re accelerate, it’s because the Fed is not doing enough to fight inflation, evidenced by economic conditions now being looser than they were. And the way we define liquidity in the US, the way a lot of people define it, is they look at simply the Fed’s balance sheet, but that’s not a real indicator. You have to look at the balance sheet, plus the TGA, the Treasury general account balance, plus the reverse repo account. And if you look at those three tanks combined, there’s been no quantitative tightening. There’s been no you know, they injected all this liquidity into the system, and they haven’t started to take that liquidity out, which is extremely inflationary. Inflation is simply m2 times m, 2v money supply times the velocity of that money supply, and they’re significantly increasing the money supply as the velocity is now back in positive territory, we’re going to get inflation now with respect to the chart, we just juxtaposed it the current trend of inflation over the past seven several years to what we saw, and again, what we’ll share these charts to what we saw in, you know, the 1970 1980 period. And it’s nearly perfectly correlated. And that correlation suggests, basically, this month, next month, you’re going to start to see inflation research higher. The pace of inflation prices haven’t dropped. The pace of inflation research higher. And that’s scary. You give them where prices are at.
James Connor 29:03
So you’re suggesting the Fed made a big mistake by cutting rates in September and also in November. We said it
Gordon Johnson 29:12
was going to be a mistake at the time. But I think the Treasury market, you look at yields in the treasury market right now, they’re screaming, it’s a mistake, right? Ever since they cut rates, you know, you know, treasury yields have surged like 70 bits, with probably 40% or 40 bits of that tied to inflation. That’s a disaster. Gordon,
James Connor 29:31
you have some very interesting comments about the Fed. And the Fed is supposed to be a political Do you think they’re political?
Gordon Johnson 29:39
Absolutely. And let me, let me, let me get into that. So when the Fed kept interest rates at 0% for a decade and introduced quantitative easing for the first time in the US, ie printing US dollars to buy US government debt, and essentially made it permanent, right? Quantitative Easing was supposed to be a temporary dynamic. It’s now static. They wandered into politics. How? Well, essentially, they told the US Congress money was free, and sending a strong message to Congress that they could spend as much money as they want. And as a result, Congress has done just that, and continues to do so, to the detriment of the majority of Americans, given it’s creating inflation, if you look at what’s happened to the national national debt since the Fed did QE and did you know 00, interest rate policy? For a long time, it’s exploded. That is, you don’t have to do much to get people in Congress to spend a lot of money. That’s really all they do. And over the past few years, Congress, with relatively full employment, has added $5 trillion in cumulative deficits and put the country on a more dangerous path. So yes, the Fed is political, and their weight wandering into politics is them basically sending a clear signal to Congress that you have a unlimited checkbook. So 100% they’re political, and it’s hurting the bulk of poor Americans, you know, again, to include the middle class now to the benefit of, you know, the rich minority.
James Connor 31:04
So you’re looking for inflation to re accelerate in 2025 What do you think investors should do to profit from this? How do they protect themselves going into this inflationary environment?
Gordon Johnson 31:17
So we like hard assets and sticking to our, you know, focus on being right on stocks. One of the hard assets we think is going to perform extremely well is uranium. So one way to play this trend of inflation reigniting is to own, you know, either outright, you 308, futures contracts or uranium stocks. So that’s one way to play it. Another way to play it would be to be bullish on, you know, you know, hard commodities, be it oil, gold, silver, palladium, etc, because when inflation surges, those hard commodities tend to do, tend to do well. Another way to play it. Some people, we don’t like Bitcoin. We think it’s rat poison. We think it’s fake money. But another way that people are playing it is via Bitcoin. But, you know, with respect to the stock market, you know, with the Fed continuing to focus purely, not purely, but mainly on, you know, asset inflation, you’ll probably get some inflation in the indices as well, until those negative earnings really start to take hold. And we could talk about, you know, what I think is an AI bubble, and that potentially bursting, but that’s another way to play. But to keep your money in cash with this reckless spending that’s going on is dangerous, in our view, because you’re effectively losing buying power as the Fed pursues this reckless policy.
James Connor 32:46
Yes, it’s like a tax on your savings. Correct, correct. So you mentioned uranium, and this is something. This is a sector I really believe in. I don’t think there’s any other commodity out there that has such strong tailwinds. And as a reminder to our viewers, the US is the largest consumer of uranium. They’re also the largest generator of nuclear energy. 20% of their grid comes from nuclear energy. There was big news recently from the Russians. They said they are no longer exporting enriched uranium, exports to the US, but they’re going to do so to what they call friendly countries, and they named India, Iran and also China. What are your thoughts on this? And where do you think the uranium price goes? Do you have a target?
Gordon Johnson 33:31
You don’t have a target. But it’s just, you know, we see it as a secular bull case. And let me just go through all the Do we have time? Can I go through all the bullish let me give you the bull case, the bear case, and why we think uranium is a 10 year secular bull case. So, all right, first, kazatomprom just revealed that more than half of their supply. So the two main suppliers with low cost of uranium are chemical and kazatomprom right globally. So kazatomprom just revealed that more than half of their supplies committed to China. And the reason why we found that out is because historically, when they’ve committed more than half of their supply to one vendor slash country, they’ve been forced to do a to a shareholder vote. They were forced to a shareholder vote. So we found out for the first time, recently past two months, that because Adam Brown has committed half, more than half the supply to China, that means supply isn’t going to be as readily available as people expect, the US has essentially, as you just noted, restricted supply from Russia, with Russia acknowledging that, and the UK is considering doing the same. This means that the main suppliers of uranium are Australia and Canada. They’re the really only other alternatives outside of Russia. The problem is Australia has restricted all but two states and territories for mining uranium, despite boasting 33% of known global uranium deposits, meaning that the excess resources are going to be hard to get to in Australia, right? You have pending resource reserves from guys like NXT fishing and Denison, but they’ve all been pushed out. Medicine has been two years away from production for the past six years. Fishing just said the acquisition by powden may not happen, meaning they go back to square one, and NFC seems to continuously be pushing out when they’re going to actually have production of their reserve on the supply demands perspective, it’s a pretty easy to model. We know they’re around 450 reactors worldwide. We know how much they’re consuming, and we know what’s under construction. Um so when you look at supply demand right now, we know global uranium demand is around 190 million pounds per year, where supply is around 150 million pounds per year. Um so you just have a deficit right now. And while people are modeling the stuff in development from the guys like NXT fishing and Denison coming to market just as they plan, we know that that stuff is getting pushed out. And then, in addition to all that, you have the AI hype, which we believe glj research is BS, but nonetheless, the mag five are investing in more power. They’re talking about investing in SMRs, etc. So that’s the bull side. Now the bear side is front has synthetically removed 48 million pounds of uranium from the market since 2021 so should they start selling? The impact of the spot market would be severe near turn. But that still doesn’t change the fact that you have a roughly 40 million pound per year deficit, and Sprott does not actually own that uranium. It’s owned by their investors, so for them to sell, I think, is a higher hurdle than people think, and it mainly takes roughly 10 SMRs to equal one old school nuclear reactor. So while a lot of people are excited about the SMRs. They’re not going to drive as much demand as people expect. But you take a step back and you think about that, that dynamic. And also keep in mind, people look at the spot price, the overwhelming majority of uranium volumes that transact are in the contract market, not the spot market. So while spot prices fluctuate and at some points are manipulated, it’s not indicative of what’s actually happening. So in our view, uranium appears to be a bull story for at least the next decade, and admittedly, while Cameco is up 10 times over the past five years. Keep in mind, we told people to buy it at 11. It’s at 53 today, and there may be some sell the news risk. Um, you know, we think prices are set to go a lot higher. And when you ask, How high can they go? I don’t know the answer to that. You know, previously, you know, in the last bull market, they went to 140 but the reality is, solar and wind just don’t work. They’re intermittent, peak load forms of electricity. People are extremely have been extremely misinformed. Point being, when the sun goes down, you can’t use solar. And no, batteries are not a solution. They’re extremely expensive, and they only work a certain amount of time. And when the wind stops blowing, you can’t use wind power. So unique, there’s intermittent peak load, meaning it’s available intermittently, and it’s available like when the sun’s at 12 o’clock, you’re getting the most out of your solar panel. When people talk about solar being competitive with coal, they’re talking about 12 o’clock in the afternoon, at 3am at night. There is no solar power, right? So you need distributed base load. It’s distributed, meaning it’s available at the same amount all day, and it’s base load, meaning you can get it all day, right? That’s nuclear. And nuclear is truly renewable energy. It’s clean energy. So if you want real solutions, and not theoretical solutions, again, you know Biden doing this quote, unquote inflation Reduction Act was rich, which was really a massive handout to Elon Musk and the solar industry in China, right? It’s not a real solution. You’re not doing things or actually really helping. So what happens is, it doesn’t benefit people in the United States. A real solution, if you’re going to look for renewable, is nuclear, and the world is now realizing that moving back to nuclear, it’s extremely safe, far less casualties and nuclear than solar even. So again, you can probably tell from our enthusiasm. We’re very bullish on the nuclear space, so I think that’s one way to play the resurgence in inflation.
James Connor 39:05
You raise a lot of very good points. So I got one question for you, why isn’t uranium spot uranium trading at $100 or 125 or $150 a pound, right? That’s
Gordon Johnson 39:16
a good question. So number one, if you look at the seasonality of uranium, there’s seasonality in the volume. So a lot of volumes are purchased, kind of in December, January, February timeframe. Number one. Number two, there’s not a lot being transacted on the spot market. I think 80 to 90% of the volumes of U 308, are via contracts. So the spot market isn’t actually indicative of what’s actually going on, and the spot market can be manipulated. So I think those two things are why you’ve seen a significant drawdown in spot prices. But I think you’re going to be surprised by what number one contract volumes come in at and what prices do next year to the upside.
James Connor 39:55
So Gordon, you’re very bullish on nuclear energy and uranium, which is. Great. Now you’ve been very negative on Tesla, and Tesla has ripped in the last few weeks, ever since the election. It’s currently up 30% on the year. It’s gone from $220 up to 350 market caps over a trillion dollars. Now have your views changed on Tesla?
Gordon Johnson 40:16
No, in fact, we’re even more bearish on Tesla. So the reason why Tesla stock ripped is because when they reported q3 earnings, the numbers were slightly better than expected. Um, and then when Trump won, essentially, people are basically, I think the bet is that you’re betting on corruption. You’re betting that because Elon Musk has contributed to Trump’s administration, that Trump is going to give handouts to Tesla in a quid pro quo type of agreement. And I lost, you know, I would highlight that betting on corruption historically hasn’t been good. You know, if you look at Enron, for instance, they were a big contributor to the Bush administration, and Bush was a huge bull on Enron, and the stock did quite well. Um, shortly after, you know, they made those contributions, and then we saw what happened. Look, here’s the reality on Tesla, the stock is trading at 130 times, um, 130 times price to earnings ratio, which means that the market expects Tesla to pay it as a dividend 100% of its 2019 net income for the next 130 years. So the market is expecting tremendous growth for Tesla. What’s the reality? The reality is, as of right now, their sales of vehicles are going to be down year over year. Their revenues, their core revenues have stopped growing. So this is a company valued for exponential growth that is no longer growing. They’ve lost significant market share in China, Europe, the US and every other EV market, the average price of their cars on cargurus.com has went from 72,000 to roughly 34,000 down like 56% over the same time frame, the average car’s price is down 9% so the value of their cars are imploding. They’re currently offering discounts in every single geography they’re in. In fact, in a lot of geographies, they’re offering zero down 0% financing for five years. They’re effectively, literally giving you the card for free for five years to entice buyers. They just cut the price of leases in the US on the model Y, from 349, to 299, the same as the model three, because they’re having demand issues. Um, right now in China, their their cells through the I think it’s what is this. Fourth is six week, six week, week of the quarter, their sales are down 4% and you’re up in October, their sales are down 8% yet they’re guiding to record sales in q4 right now it looks like they’re going to miss that metric. Trump just said he’s going to get rid of the $7.5 thousand EV tax credit. That means immediately the price of a Tesla car just went up by $7.5 thousand why is that important? Because the way it works is, when you go to buy a EV car, test a car, you immediately get that $7.5 thousand off. Tesla gets the credit and then goes and sells it. So if Trump access that, the car goes up by 7.5 1000, right? More importantly, Trump has said he’s going to get rid of GHG credits. If you look at Tesla’s revenues or their earnings, a big percentage of their earnings comes from the 100% margin basically sell of carbon credits. And that’s a dynamic that was put in place by Obama, where he basically said, All cars have to admit a certain amount of carbon emissions, and if you go over that amount, you have to buy these credits from Tesla. It’s literally socialism for one company, Trump. Is that company being Tesla to the equivalent of 750 million and 100% margin revenues every quarter, right? That’s effective. So think about this Ford, GM, etc. They sell electric cars at a loss. If Trump gets rid of their need to make electric cars to meet these government socialist mandates, they no longer have to make the EVS, they can then go lower the price of their ice cars, and they’ll sell more cars profitably, hurting Tesla. Look right now, Tesla stock is tied to this idea that you know Trump is going to help them, right? Help them, because Musk helped him get get elected. That’s corruption, right? I don’t know if that’s going to happen, but the reason the stocks up eight and a half percent today is because Trump said he’s going to relax restrictions on full self driving cars. Tesla does not have a full self driving car to be full self driving every single car on the road today, whether it be in the US, Europe, China, etc, that doesn’t have someone in the driver’s seat, has Lidar and radar. Tesla has neither. They point vision only. In fact, with when you use Tesla’s quote, unquote, full self driving, you’re required to have your hands on the will. So the idea that him relaxing. Rules on the full self driving industry is going to be positive for Tesla is the epitome of market stupidity. Like Tesla could be testing 1000s of driverless cars on the road right now with existing rules, you don’t need to ease them. The reason they’re not is because their technology doesn’t work. I say all this to say that eventually we’re going to get back to looking at the fundamentals of Tesla, and not what Trump is saying on a daily basis or what Musk is saying on a daily basis, and on that fundamental on that fundamental basis, Tesla’s fundamentals are imploding. They’re imploding because people don’t want to buy their cars and because the competition has come in and it’s eating their lunch. So I get it that I’m wrong right now, and I’ll admit that I could argue that I was right for most of the year, and then with the Trump election, I got wrong. But you know, fundamentally, we’re very much so on track, if you look at their cash generation, if you look at their actual margins, if you look at their ability to sell cars, and them not having the ability to sell cars despite aggressive discounts. So I think once the market normalizes back to reality, I think the stock has tremendous downside.
James Connor 46:08
One thing I will say about Tesla and Elon Musk is that over the course of the last six or seven years, a lot of people have been negative, both on him and the company, and he always proves the market’s wrong. And you have to admit when I you know he’s done an amazing job, not only with Tesla, but with SpaceX and also starlinks.
Gordon Johnson 46:27
What has he done that’s amazing at Tesla, it’s
James Connor 46:31
grading one of the largest TV companies in the world
Gordon Johnson 46:34
based on market cap, right?
James Connor 46:36
Well, based on the number of
Gordon Johnson 46:39
cars. Let me, let me correct you. Because people make
James Connor 46:42
these have you? Have you driven in? Have you taken but let me, let me correct
Gordon Johnson 46:46
what you just said. So you said he’s created one of the biggest EV companies in the world. Tesla is currently valued at more than the next 12 largest automakers combined. Over the last 12 months, they’ve sold about 2% of the cars those auto makers have sold, and that number has now stopped growing. So when you say, created one of the biggest EV companies in the world, people don’t value Tesla on EV, at least that’s what they say. They value them on full self driving where they’re last in the world. They have the world’s worst full self driving car out. You know, if you look at was it amci, a lab recently did a test. They said that Tesla’s cars on full self driving have a critical intervention every 13 miles. The equivalent number for Waymo is every 5.3 million mile, or, I’m sorry, 2.3 million miles. You heard that, right? So whale has a critical indigenous intervention every 2.3 million miles, where, according to amci, Tesla, has one every 13 miles. That’s to my point, when you make these blanket statements that he’s done amazing things he has not, what he’s done is he’s got the market to value his technology as if, as if he’s achieved these amazing things when he has not. And the problem is that’s going to be reflected as his earnings continue coming down. So when you say he’s done amazing things, I’m here to tell you he has not. In fact, another study came out to say the Tesla has the highest fatality rate of any car on the road. And if you go to Tesla deaths.com there have been dozens of people that have been credibly alleged to have died by relying on this technology, in our view, because regulators aren’t doing their job and coming in and regulating, and because Elon Musk can make wild claims like having a million Robo taxis on the road in 2020 there’s not one on the road today, and he gets credit for that via valuation. That’s not an amazing thing, in our view, it’s a deceptive thing, and I think it’s bad for capital markets.
James Connor 48:45
I respect everything you say, but at the same time, you can’t tell me this man has not created an amazing economy and a whole new industry. And you just think of the people that have been negative on this company for the last 510, years, right? But
Gordon Johnson 48:56
again, price, what’s purely on the stock price again.
James Connor 49:01
Let’s find Have you taken money for a test drive? Though?
Gordon Johnson 49:06
Look, I’m just looking at numbers like you can, you can, you can ask me what my opinion. It doesn’t matter what my opinion. Consumer Reports, ranks test on your dead last and quality of car. Same thing for JD, power, same thing for what question mark in the UK. So when you look at the not me, glj research, but you look at the people who actually have been raiding cars for years, they ranked his cars near dead last. His car just came out as the most having the most fatalities among all the cars out there. So when you say how I took the one for a test drive, you know, if you look at the actual people who do the test drives, and you know, are reputable for years for raiding cars. Tesla ranks very poorly. So again, when you say he’s created this amazing industry, I mean Ford and GM and Mercedes and all these companies that are being forced to make EVs are losing money doing so. One of the main things that Trump campaigned on was getting. Rid of all these EV mandates, because it’s killing the auto industry. The auto companies are firing 1000s of workers. So when you say he’s done something amazing, again, I pose the question to you, what has he done that’s amazing, other than getting his market cap to levels that are astronomically high? Well, actually done. When you’re talking
James Connor 50:18
about Ford, GM or Mercedes coming up with EVs, and they’re losing money doing so it’s because they they were so late to the game. I mean, Tesla had first mover advantage by many years, and nobody believed in the technology. So
Gordon Johnson 50:33
you believe so think about this. Elon Musk said he was going to have million rubble taxes on the road in 2020 we now know that that was not true. Elon Musk did the painted black video in 2016 where the video starts out by saying the driver is only in the seat for legal purposes, the car is actually driving itself. We now know that was 100% false. In fact, the video is over three minutes, makes it looks like the car is driving itself. We later found out that video was taken over 500 miles, multiple interventions, the car wrecked itself. That’s extremely deceptive. He filed a 13 G instead of a 13 D with the acquisition of Twitter, where he sold shares without letting people know that he has significant ownership interests with Solar City. He showed a fake solar panel on the set of Desperate Housewives to basically sell that acquisition, where solar city was arguably on the on the brink of bankruptcy. He said he had funding secured to take the company private. He clearly did not. So a person willing to do all this, you’re willing to believe their financial statements, that’s fine. I post a link to Twitter, where I questioned a lot of what they reported in q3 we believe that they may be capitalizing expenses to make their margins look better, similar to what Worldcom and health South did. So when you say that they make cars more efficiently than Ford and GM, you know, GM was able to repurpose their facilities to make ventilators. Tesla said they were going to do that. They didn’t make one ventilator in World War Two. GM was able to repurpose their facilities to make tanks. You’re telling me that GM and Mercedes, with their manufacturing know how and expertise, you’re telling me Tesla’s more efficient. I strongly question that. So again, I think a lot of your optimism is rooted in purely the stock price. And then you jump to this conclusion that he’s done amazing things. And when I ask you what he’s done amazing, you don’t have an answer. So again, what has he done that’s so amazing, outside of his high valued stock?
James Connor 52:28
Well, what about SpaceX? What about starlings? You’re trying to tell me, those are insecure
Gordon Johnson 52:33
Starlink hemorrhage every quarter. And how much money does SpaceX hemorrhage every quarter? Listen, so. But
James Connor 52:40
I’m not asking you if they’re profitable or not. I’m sure. I’m asking you whether or not those companies are significant. So what is SpaceX
Gordon Johnson 52:48
in Star Lake doing for poor kids in Hardin? Right? They’re getting billions of dollars in government contracts, thus, government money. But what are they doing to help out the average person outside of Elon Musk and his investors, listen, self landing rockets are not new. Self lending rockets were around in the 1990s the difference was, as we discussed with the Fed, in the 90s, you didn’t have a fed that only only goal was pumping money into the economy. So now you can have companies that lose money, that can raise money infinitely, right? So the reason why those self landing rocket companies didn’t last back then is because if you didn’t make money as a company back then, you went bankrupt. Now, if you don’t make money, you can create some narrative and go raise money and forever be be funded. So this isn’t new. It’s just we’re in a dynamic where I think money is being wasted on technologies that aren’t necessarily viable. Listen, Elon Musk said he was going to, he was going to go to Mars, you know, in like, the year 2025, right? And said that decades ago, roughly 10 years ago. Clearly, we’re nowhere near there. So again, just just giving this person praise without diving to the facts. I think it’s not not wise, and I think a lot of people just blindly do that, because people are just copying each other versus actually looking into what this man has actually done.
James Connor 54:10
Very interesting comments, and I guess time will tell. Well, Gordon, I want to thank you very much for that discussion. And as we wrap up, if someone would like to follow you online or read more about your research. Where can they go? Yeah, so
Gordon Johnson 54:22
glj research.com. Is our website. You know, we have a Twitter account. We sometimes post our economic views, but our real, in depth economic analysis comes via a subscription to our research. And we’re happy to add anyone who wants to sign up. You know, I’ll note we cover 19 socks a lot of people know us for our Tesla coverage, but we’ve been very bearish on the solar space. We cover about nine solar stocks, and in a raising bull market that was up 22% last year, 24% this year, the solar stocks have been phenomenal shorts. So if you follow everything that glj research has said as. For Bloomberg. We’re rented, you know, basically at the top, if not the top, as an equity research analyst, we’ve done quite well in our cell ratings outside of Tesla. And as you can see with our nuclear call, where we got in, I think earlier than most, if not everybody, we’ve done quite well there as well. We also covered the still space, where we’ve made some interesting calls that have worked out. So while we got, you know, the election made us wrong on Tesla, so far this year, I think overall, we’ve done quite well, and I think a lot of people miss that fact. Well,
James Connor 55:30
the next time we chat, we can talk about the solar stocks, absolutely once again, thank you.
Gordon Johnson 55:36
Thanks for having me. Well, I
James Connor 55:38
hope you enjoyed that discussion with Gordon Johnson, 2025 is just around the corner. And if you’re been neglecting your finances because you’re too busy or you don’t have enough time, consider having a discussion with a vetted advisor at wealthion.com/free, it will only take a few minutes of your time, and there’s no cost or no obligation to work with any of these advisors. It’s a free service that wealthion offers to anyone who has an interest. Once again, you can find out more information@wealthion.com slash free. If you have any suggestions on who else you would like to see on wealthion, let us know in the comment section below. We’re always looking for new guests. Thanks for being with us today, and I look forward to seeing you again soon. And if you want to check out more content on wealthion, you can check out this video next.
