Saturday, May 16, 2015

"The Return of Nature: How Technology Liberates the Environment"

Cornucopian, but very interesting article,

"Measured by growing stock, the United States enjoyed its forest transition around 1950, and, measured by area, about 1990. The forest transition began around 1900, when states such as Connecticut had almost no forest, and now encompasses dozens of states. The thick green cover of New England, Pennsylvania, and New York today would be unrecognizable to Teddy Roosevelt, who knew them as wheat fields, pastures mown by sheep, and hillsides denuded by logging."
It certainly hasn't been a good four years for commodities. Young Money predicted,
"[T]he mining industry is heading for a perfect storm in which: 1) Chinese demand will fall as they stop building empty cities, 2) there will be a supply glut as the industry finishes bringing enormous amounts of new capacity online, and 3) financial demand will disappear and metals stocks that have been hoarded will flood the market as prices fall. There will be a huge sell-off that pushes prices below the marginal cost of production and keeps them there for years, and that will put the commodity supercycle theory to rest."
That's well underway. Sometime later this year, we will see bankruptcies begin of the formerly high flying commodity producers. In April 2011 (the commodity peak), Walter Energy traded at $144 and it had 53 million shares outstanding - a $7.6 billion market cap!

Going from that to unsecured debt trading in the pennies in under four years is incredible. But the resource extraction industry went through significant debt-fueled consolidation during the peak of the so-called commodity super cycle, which resulted in a funny kind of adverse selection where the most bullish managements with the worst historical sense and facility at market timing ended up controlling capital allocation for the whole industry.

Big leverage many years into a "boom" is a sign that the emperor has no clothes. Keith Calder is the guy who sold Western Coal to Walter Energy close to the top of the market in December 2010, and then resigned from the combined entity less than a year later.

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