Contrarian Codex — Extra newsletter (September)

The coming month — content every Tuesday and Thursday while he is away

• The third long report this month (after the ~60-page #126 and the 30+ page WNA report); the next regular newsletter is due at the end of October.
• Pipeline while he is away from the desk: updated analysis pieces with valuation models for Mining Americas (the Cerro de Oro permits) and Global Atomic (updated price estimates and financing news), a renewed piece on Western Australian uranium mining, and interviews with Oceanwall's Ben Finegold, Comstock, LibertyStream, Bannerman Energy and Cauldron Energy.

Cut what? The budget lines that can't move

• Social Security, Medicare, Medicaid, veterans' benefits and net interest ran ~$4.6tn against ~$4.85tn of receipts over the first 11 months of the fiscal year: ~95%, growing ~8.5% against receipts up ~3%. "Put military spending on top and the tally clears 110% of receipts," so everything else "runs on borrowed money."
• Through Q3 (TBAC breakdown): Treasury (mostly gross interest) +$120bn / +10%, HHS +$98bn / +7%, SSA +$63bn / +5%, VA +$27bn / +10%, military +$31bn. The "savings" were a 55% drop at Education (a student-loan cost re-estimate, not money that stopped going out) and a 20% drop in "other."
• Luke Gromen's framing: Washington can cut only entitlements and veterans' benefits, defense, or rates. Cutting either of the first two tips the economy into recession, craters receipts and widens the deficit. "If we need a cut, it has to be on deficit spending and if we need a release valve, it's going to have to be the USD."

Defense is off the table, and so are entitlements — which leaves rates

• Fitch's August affirmation named military, interest, Medicare and Social Security as the forces limiting deficit reduction; it sees the general-government deficit at 7.4% of GDP this year and next (from 6.8% in 2025), the highest of any AA sovereign and "a far cry from the 3% by 2028" in Bessent's 3-3-3 pitch.
• "Good luck finding a politician willing to go near Social Security or Medicare roughly 6 weeks out from a midterm, or 6 weeks after one either, or ever." The interest bill is the only line left, "and the only direction that helps is down even if it sparks more inflation."

Hikes as stimulus — why the 1970s model doesn't apply

• Net interest ran ~$1.05tn over 11 months, +12%. CBO noted lower short rates had partly cushioned it, "a cushion the recent hike now flips into reverse."
• Volcker's hikes worked on bank-lending-driven inflation with low public debt. Today inflation is fiscally driven and debt is above 100% of GDP, so raising rates "blow[s] out interest expense, which for retirees parked in money market funds amounts to a raise, so part of every hike comes back as stimulus" (Lyn Alden's point).
• A full Volcker 8% on ~$40tn is ~$3.2tn a year of interest; add ~$4tn of entitlement and veterans' payments against a bit over $5tn of receipts, then defense and everything else, and the deficit reaches $4–5tn, "north of 12% of GDP."

Diesel and medical costs — the inflation hikes can't reach

• US diesel cracks set a closing record near $108/bbl in September, with distillate inventories tracking their lowest August since 1951 and retail diesel past its June-2022 record at ~$6/gal, while WTI sat in the low $90s. In 2022 the crack ran $64–73 with WTI at $110–119.
• The Beige Book had retailers citing transport and fuel costs; the K-shape shows in value-end price sensitivity against solid high-end spending. "Where crack spreads trade 3 to 6 months from now will do more to the inflation path than 25 versus 50bp from the Fed ever could."
• Marsh expects employer health-benefit costs per worker +8.2% in 2027 (biggest since 2003; Aon 9.5%). Unfunded entitlements are owed in knee replacements and insulin, which reprice automatically, "which makes a huge chunk of the federal budget behave like a hard currency liability."

The missing insurer bid — a Mexican standoff with private credit

• The 10-year printed 5.04% and the 30-year pushed above 5.42% ahead of the Fed meeting, ~19-year highs, and the pension and life-insurer bid "never really showed up."
• His explanation: private placements rose to ~23% of US life insurers' admitted bonds in 2025 from ~18% in 2021, and estimates put private credit at 11–16% of industry assets. Selling it to rotate into 5% Treasuries would force the marks, and an insurer facing a capital hole sells its most liquid asset — Treasuries. "No yield on the 30-year is high enough to pull that bid back in."
• Private-credit gating is "closer to the deal investors signed up for than a bank run," but solvency problems are showing at the margins. Regulators can loosen bank leverage rules and a central bank can create reserves; insurers have to sell something to buy something.

Who funds $2tn at 5%? Increasingly the Treasury itself

• Foreign central-bank holdings have gone "roughly nowhere for more than a decade while debt held by the public nearly tripled," and much of the remaining foreign long-end bid is hedge funds who stay only while volatility is low.
• Treasury said in mid-August it would at least double long-end buybacks from $2bn per operation (early September to early November). A new $6bn maximum disappointed a market braced for $7–10bn, and the next operation bought $5.19bn against $10.5bn offered. That was only the third shortfall in 53 long-end operations since 2024; the 10-year rose 11bp to 4.95%. Bessent had said he is "the house" now, "a line that aged about as well as milk left in the sun."
• Stepping in this early risks a Streisand effect. Buying duration with bills and TGA cash is "the softest possible form of yield curve control, closer to an Operation Twist run out of the Treasury." His MOVE framework flags a long end driven by term premium and supply "as a Treasury credibility problem."

Hyperscalers compete for the same capital — and AI eats the tax base

• Amazon, Alphabet, Meta and Oracle issued ~$194bn of bonds in 2026 through early July, +79% on all of 2025; Goldman expects ~$250bn this year and $400bn in 2027, lending weight to Warsh blaming part of the long-end climb on competition for capital. S&P 500 capex is +25% y/y, and Warren Pies notes the Fed had never cut into a capex boom until the past year.
• ~70% of federal receipts (~$3.4tn of $4.85tn) come from paycheck withholding; individual income plus payroll taxes are ~87%. "Anyone pitching AI as the productivity miracle that saves the budget should explain how the budget survives the payroll cuts that miracle requires."

China and Japan — the creditor has an option the debtor doesn't

• China's 10-year near 1.7%, ~330bp below Treasuries, is the conspicuous absentee from the bond rout — Beijing "ate its bitterness early." Where capital moves freely, yields drag each other around.
• Japan held $1.12tn of Treasuries in June with its own 10-year near 30-year highs. As a creditor it can pull capital home; the US has "no domestic pot of money to repatriate." If Japan has a problem Bessent can't fix, the selling lands on Treasuries and the dollar.

Base case: a gradual grind, and the BoE 2022 template

• "A long process punctuated by mini crises, technical explanations and all that jazz." The Bank of England's 2022 gilt U-turn (from preparing to sell to buying long gilts within days) is the template for a smaller-balance-sheet Fed chair ending up buying bonds "for technical reasons."
• Gromen rates a nonlinear air pocket as more likely than most do; given insurers' balance sheets Mart won't rule it out, but "they have stepped in and kicked the proverbial can every time the long end threatened to break" and a midterm makes that likelier, so pressure keeps venting through the dollar.
• The market's comfort stories (Fed credibility regained, an AI productivity miracle, stablecoins absorbing bills) "carry just enough truth to stay believable." His conclusion: "Financial repression is the lower rates they need, and hard assets remain the durable position on the right side of it."

Uranium sentiment: 19, back to the top of pessimism

• A ~10% drop gave back the post-newsletter rebound and dragged sentiment down 12 points to 19, though it remains above the July bottom.
• "I believe this presents an opportunity and that is why I added to my core positions in uranium last week and if we fall more to revisit the July lows (or worse) I will add more."

WNA in one paragraph: sellers hold the strongest hand in years

• Utilities now sign market-referenced contracts with floors in the $80s and ceilings past $150; volume and timing dominate procurement with price "trailing well behind." "You cannot load a balance sheet into a core."
• Term contracting ran ~110m lb (2024) and ~116m lb (2025) against requirements near 200m lb. The 229m lb of US/EU utility inventory came from post-Ukraine double-buying and upflexed legacy contracts and "precious few of those pounds will ever come back to market." EIA: 52% of the next decade's US requirements uncovered, ~186m lb unfilled through 2035.

Spot stalemate, record term

• ~4m lb traded spot across just under 30 deals from late August to early September, lifting spot from ~$87.50 to ~$90; since London only two deals printed in five sessions. Buyers are waiting for October budgets and the NEI fuel seminar in Houston while sellers won't soften offers. Late in the year he struggles to see the stalemate lasting.
• The bid keeps appearing in the high $80s, "a dynamic floor that is rising together with the consistent marching upwards of the term price." Term: 3 deals for just over 5m lb this month, the year's total past 42m lb across 32 transactions (excluding 40–45m lb of Indian demand). TradeTech held $97 and UxC rose $2 to $96, and the ~$96.50 average is above the old $95 high of 2007–08. "A record term price on volumes that still fall miles short of replacement rate."

Demand stack: Kazatomprom's eastern deals, KHNP's bundle

• Kazatomprom's spot-term deal with SNURDC and its supply contract with Uranium One — Russia buying direct from Kazatomprom for the first time as far as he can tell.
• KHNP's 800,000 SWU tender (~26–31m lb of feed) will take offers that bundle uranium as long as nothing is Russian, with a standalone uranium tender to follow if bundling comes up empty.
• Equities are falling on fatigue while spot barely flinches: "Nothing in the fundamentals justifies the move down… come December I expect this episode to be remembered as yet another shakeout, the sector's favorite pastime."

Nuclear headlines: France past 60, Duke's ESP, NRC rewrite, Holtec, NEI survey

• France's ASNR reportedly sees no major technical obstacle to running 32 of EDF's 900 MW reactors past 60 years. Pair that with the WNA finding no age-related capacity-factor decline and ~29 GW that cautious models retired in the late 2030s–2040s stays on: ~13–15m lb a year at 450–500k lb/GW.
• Duke filed its Belews Creek early site permit (up to 2,250 MW of advanced reactors) only at the end of 2025 and the NRC hearing is already scheduled — the same Duke running the RFP. The NRC plans a broad risk-informed rewrite of its rulebook, and Holtec got the go-ahead to start ground works at Palisades for two SMR-300s (680 MW) before holding a Limited Work Authorization.
• NEI's chief nuclear officers now pencil in ~28 GW of new US capacity by 2040 (from ~23 GW last year), with interest in new build up 54%. "I will believe in the gigawatts when I see concrete poured," but anything above zero matters when zero is what is priced in.

Saudi Jabal Sayid and Korea's reactor list

• Saudi Arabia unveiled ~110m tonnes of ore at Jabal Sayid with heavy rare earths and "promising" uranium, but no grade: at 0.01% that is ~24m lb before recovery losses, at 0.05% ~120m lb. It goes "in the drawer marked headlines with big numbers attached" until a grade appears.
• Seoul's $350bn trade-deal pledge: after shipbuilding's $150bn, up to 8 large US reactors at ~$15bn each (6 reportedly Westinghouse, 2 Korean designs). That is ~9 GW, another 4–5m lb a year plus initial cores. "Anyone still framing nuclear demand growth as a China and India story alone should take a closer look at the global shopping list."

Oil: the East-West pipeline goes down

• Brent came within a whisker of $110 intraday on the Saudi pipeline news, then slid to close the week just under $104 (WTI ~$100) and was battling the pivotal $100 mark as he wrote. ULSD touched ~$5.25/gal, which still puts the diesel crack above $100/bbl, with distillates ~13% below the 5-year average.
• Drone strikes on pumping stations knocked out the line feeding ~4.5 mb/d through Yanbu. Riyadh blamed drones from Iraq, other reports the Houthis. This came a week after Bessent called Hormuz "a worthless piece of water within 2 years." The IEA already had Saudi crude supply near 6 mb/d in August, a 30-year-plus low.
• A bypass could restore about half of Yanbu's throughput within a month, with full repairs in 4–6 weeks. Yanbu stocks are down 7m+ barrels to ~9m, so Riyadh has pivoted back to Ras Tanura and Juaymah through Hormuz, with ship-to-ship handoffs off Sohar and Fujairah.

Hormuz flows are rising — still far from pre-war

• Satellite imagery puts Saudi crude through the strait at ~2.8 mb/d over six days against ~700k in August. Hormuz flows reached nearly 12 mb/d on a 7-day average by mid-month, the fastest since the June MOU, with virtually no Iranian crude and Iraq the biggest contributor (Kpler). That is against ~20 mb/d pre-war. "A rising line is a rising line and it has certainly helped."
• Some days show as few as 4 visible commercial transits against ~125 a day pre-war, with dark transits and unattributed Gulf of Oman ship-to-ship transfers filling the gap.

China's restocking bid carried the rally — flat price is convex

• Chinese crude imports rose to ~8.9 mb/d in August from a decade-low ~7.1 mb/d in June (still ~23% below last year). Fuel exports rose 29% m/m, premiums for Congo's Djeno reached $20 over Brent, and the teapots are being priced out. Sinopec's chairman thinks Chinese oil demand likely peaked in 2025, and the IEA estimates EVs displaced ~1.5 mb/d in Q2.
• Global observed inventories are down ~500m barrels since the war began (~95m in August), and the SPR is near its lowest since the early 1980s. A small Chinese pullback against accelerating Hormuz flows could knock prices hard; a strike on Abqaiq or Ras Tanura would do the reverse. He recommends his Rory Johnston interview. "Be quick on your feet if you're trading oil."

Codex holdings — news flow

• Bannerman, Mining Americas, Global Atomic and LibertyStream have news that will be covered in interviews and standalone pieces over the coming month.
• PetroTal: Block 131 royalty cut, a full position as an oil hedge. Outcrop: 58 Moz AgEq, "underwhelmed" but not writing off 100 Moz. Aldebaran: Altar infill at double the M&I grade while the stock falls. Merlin: an apology, a sub-$2 record low, and the C-130J flight demo as the turnaround trigger.