Welcome to our Friday mailbag edition!
Every week, we receive fantastic questions from your fellow readers. And every Friday, I answer as many as I can.
Up first today, a question from reader Roger on the price of aluminum…
Nomi, where do you see the price of aluminum going in the near future?
– Roger W.
Thanks for writing in, Roger.
Generally, I find myself in agreement with Goldman Sachs analysts who recently upped their price forecasts for aluminum to $3,125 per ton during 2023.
Keep in mind this is much higher compared to their previous forecast of $2,563 per ton. That also puts it 30.2% over the current price of $2,400 per ton.
That’s as soon as this year, mind you.
And from my experience working there, Goldman rarely makes forecasts that bold unless there’s a lot of data backing them up. And when it comes to commodities, Goldman tends to get it right.
Now, since making aluminum requires a lot of energy, one thing I’ll continue to keep a close watch on is energy prices. Between August 2021, when energy prices first began to surge, and peaks in early March, aluminum prices skyrocketed by 60%. That’s hardly a surprise given that energy costs are responsible for 40% of aluminum production costs.
Goldman’s forecasts may come true or not, but one thing is clear… The setup for aluminum is very bullish.
Finally, as I mentioned in my recent essay on aluminum, there’s also one factor that plays something of a wild card in this story, and that’s the West’s potential ban on Russia’s aluminum.
Russian aluminum hasn’t been sanctioned to date, but with no sign of Russia letting up on its war efforts in Ukraine, this situation may not last.
Russia produces about 6% of global aluminum. Removing that supply would push aluminum prices way past what Goldman expects.
Next, reader Betsy wants to know about investment sizing…
I asked this question before, but since it wasn’t answered, I am submitting it again because I am sure a number of your readers would like your opinion.
If one only has a limited amount of money to invest ($20,000-30,000 or maybe even less) and has subscribed to a number of your products, is it better to invest in every one of your recommendations (but only a small amount such as one call or only a few hundred dollars’ worth of shares) or is it better to pick a few suggestions and invest more heavily in those?
Basically, I am asking for advice as a beginner and less wealthy investor than the majority of your investors. But I am sure there are some folks like me.
– Betsy B.
Hi Betsy, thank you for re-submitting your question – I appreciate your tenacity!
I try to get to as many questions as I can, but sometimes, a few fall through the cracks. Ultimately, this choice is up to you. But I can tell you this: when we select recommendations for our products, it’s with a big picture in mind. So they are all additive into that big picture.
This would lend itself to taking smaller positions in a broad range of our recommendations.
That said, I totally understand that some people are more comfortable monitoring fewer investments in their portfolio. In which case, I’d suggest setting a number for separate investments (let’s say, 10, but it can be any number that works for you). As for the specific stocks, select the ones that most register with you personally.
Finally, our last question this week is from Neal, who read my colleague Peter Zeihan’s book – The End of the World Is Just the Beginning – and wants to know about energy and power production…
I am reading Mr. Zeihan’s book, and it strikes me that he has made very clear that, for all the discussion about EVs and batteries, there has been very little discussion of power generation and transmission.
Mr. Zeihan suggests that we will need to increase power production by more than tenfold (and prevent losses and distribution failures). Other than fission plants and hopes for fusion production, I have not heard of any significant plans that avoid burning fossil fuels.
We know that solar and wind are worthy but limited sources and may only be meaningful with some big, long-lasting, and cost-appropriate batteries. Would you have any comments on this matter?
– Neal H.
Thanks, Neal, for writing in. Those are excellent observations.
You’re absolutely right. There’s been relatively little discussion of power generation and transmission in the context of electric vehicles (EVs).
The challenge with the EV revolution is that we need to expand quickly enough to meet growing demand. After all, every 100 miles driven by an electric vehicle consumes enough power to run all the appliances in a home for a day.
And every automotive company is preparing to increase the number of electric vehicles they produce.
In fact, the International Energy Agency (EIA) estimates that EVs will represent more than 60% of vehicles sold globally by 2030. Every one of those vehicles needs to be recharged regularly.
So, we clearly have a transition to build and develop efficient technologies for utilizing more renewable and sustainable energy sources.
But far from being an overnight cure for all our energy woes, I believe the energy transition will take time to play out. Make no mistake, though, it will happen.
But until it does, we are in a unique period of history, where we need to build out the foundations for the transition while still having a critical need for fossil fuel-based energy sources.
That’s why, while some investors are going full steam ahead, I prefer a more measured approach to investing in the transition.
Just like not all technology companies turned out to be Google, not every company developing a new technology to support the energy transition will succeed. And not every company that secures government funding or private investment will deliver on its promised gains.
So those who invest blindly in the green energy space risk getting hurt.
That’s why in my investment advisories, I always deeply analyze each company I recommend. I include the potential risks involved and things to look for as the company grows.
And that’s all for this week’s mailbag. Thanks to everyone who wrote in!
If I didn’t get to your question this week, look out for my response in a future Friday mailbag edition.
I do my best to respond to as many of your questions and comments as I can. Just remember, I can’t give personal investment advice.
And if there are any other topics you’d like me to write about, I’d love to hear from you. You can write me at [email protected].
Happy investing… and have a fantastic weekend!
Regards,
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Nomi Prins
Editor, Inside Wall Street with Nomi Prins