Friday, September 24, 2021

Friday Morning Links

  • Although time-varying, the average discount for US value stocks over the period July 1963–June 2021 is about 21%, or put another way, US growth stocks typically sport a price-to-book value ratio about five times that of value stocks. From January 2007 to September 2020, the relative valuation moved from the most expensive quartile (specifically, the 22nd most expensive percentile) to the cheapest percentile in history (100th percentile); this revaluation explains more than 100% of value’s underperformance through September 2020. In other words, net of this downward revaluation relative to growth, value would have beat growth by a respectable margin. [Research Affiliates]
  • Based on current strip pricing, the Company will be in a position to continue to distribute special dividends, the size of which will depend upon the magnitude of excess FCF generated by elevated commodity prices in 2022 and beyond, and the relative return offered by other FCF allocation opportunities. On current strip, 2022 FCF is estimated to be $2.5 billion which represents over $7.50/diluted share and a 19% free cash yield based on a $40 share price.[Tourmaline]
  • New video from a Florida Highway Patrol car shows a state trooper run from a disabled vehicle they were responding to on Interstate 4 as it is being slammed into by a Tesla on auto-pilot. The FHP released the video Thursday of the August crash when a state trooper responded to a disabled vehicle in Orange County. According to the crash report, the trooper was out of his car to help move the other vehicle out of the road when the Tesla failed to move over. [link]
  • “I don’t think there’s long-term viability for five or six thousand private forms of money,” Mr. Gensler said in a virtual event hosted by the Washington Post. “So in the meantime I think it’s worthwhile to have an investor-protection regime placed around this.” [WSJ]
  • In order to promote market competition, four firms were created from the American Tobacco Company's assets: American Tobacco Company, R. J. Reynolds, Liggett & Myers, and Lorillard. The monopoly became an oligopoly. In 1938 Thurman Arnold in the United States Department of Justice Antitrust Division began hosting hearings in the Temporary National Economic Committee to determine whether the four companies were further engaged together in monopolistic practices. That committee found that 3 of the 4 companies were guilty of the charges presented to the court. [United States v. American Tobacco Co.]
  • Many commentators and consultancies expect increasing fuel efficiency and the growing adoption of electric vehicles to cause refined produce demand to structurally decline. But this clearly isn’t happening. Trends toward suburbanization and the widespread avoidance of mass transit have offset these variables. Continued population and economic growth will also keep upward pressure on demand. These countervailing trends remain underappreciated by the market. [MMP]
  • Nora Volkow, the director of the National Institute on Drug Abuse, about my raging non-alcoholism. “When you extinguish a learned habit, it doesn’t disappear,” Koob said. “All you’re doing is replacing that habit with a different habit.” Volkow compared my behavior to a binge. “It’s an automatic compulsive behavior,” she said. (Volkow is Leon Trotsky’s great-granddaughter and was raised in Mexico City, in the house where her great-grandfather was assassinated, in 1940.) [New Yorker]
  • Summers does not buy the notion that current inflation is the result of temporary bottlenecks. Whenever demand exceeds supply, the inflation that results is made up of a series of bottlenecks, each apparently temporary:  “If you thought demand was running hot relative to supply, you would expect there would be bottlenecks. You’d expect inflation to feed through selectively. And there is every reason to think we are going to see new bottlenecks. I read a story today that there is a bottleneck in Christmas decorations. Toilet paper is back to being a bottleneck. Thanksgiving turkeys. There will be new bottlenecks: the history of the ’60s and ’70s was that there was always a specific structural explanation for price increases.” [FT]
  • The Company stands behind the high quality of its PMTA, which we believe established that the products’ continued marketing would be “appropriate for the protection of public health,” the standard established by the Family Smoking Prevention and Tobacco Control Act of 2009. These products are crucial to improving public health by helping adult smokers migrate to less harmful products. TPB will continue to engage with the FDA and other stakeholders as we consider options moving forward, including a formal appeal of the decision and potential legal relief. The PMTA denied by this MDO included an in-depth toxicological review, a clinical study, and studies on patterns and likelihood of use. We believe the data demonstrated that TPB products do not appeal to never users, youth, or former users and that a significant majority of users of TPB products had completely ceased use of combustible cigarettes. The scientific literature on lower-risk nicotine delivery systems shows that these products can significantly improve public health by providing alternatives that are much less harmful than combustible cigarettes. “While we believe the FDA’s current conclusion is misguided, we will continue our dialogue with the agency in search of a path forward,” said Larry Wexler, President and CEO, Turning Point Brands. “As we explore options for appealing this decision, we are hopeful that the agency reaffirms its commitment to science-based decision making and to its announced Comprehensive Plan, which includes fully transitioning adult consumers down the continuum of risk in order to reduce the morbidity and mortality associated with combustible cigarette use by preserving the diverse vapor market.” [TPB]
  • Yole estimates that the addition of one battery electric vehicle on the road is comparable to the electricity demand of a small family home. The calculation is based on an EV energy efficiency of 14-18 kWh/100km and daily driving distance of 60-80km, which comes to around 8-11 kWh/d. This compares with average daily household consumption of 10-15kWh. [link]
  • There is a compelling case to be made for favoring value stocks today. Among those, the energy sector remains the most compelling by a long shot. In addition to being cheap, it’s really the only sector within the broad market where insiders continue to be very bullish (the broad market, in contrast, continues to be sold by the smartest of the smart money). So it would appear that insiders believe oil prices are likely to breakout above critical resistance represented by the upper trend line of its long-term downtrend channel. It’s also very encouraging to see commercial hedgers in crude oil futures actually cover their short positions (or hedge less) as oil prices rise. This is fairly unusual. Just by glancing at the chart below, it’s apparent that hedgers typically add to shorts (hedge more of their production) when prices rise and vice versa. The fact that they are actually adding exposure as prices have risen over the past year or so would appear to be a signal that they, too, are betting on a breakout higher in oil prices. [Felder]
  • Imagine if Boston and Mexico City had a love child — that’s Buenos Aires (BA). It has the charm and character of Boston and the dense population of Mexico City. BA is a world-class city with 13 million people. That’s almost 35,000 inhabitants per square mile! It’s big for sure, but we found it both friendly and pretty clean. We booked a room in the San Telmo neighborhood, and spent our time in BA taking pictures of the architecture and relaxing in restaurants. [link]
  • "Wind is not produced on peak. This last summer, when we went across the summer peak, I had 3,000 megawatts of capacity of wind. How much did I have on the summer peak, back in August? No, no, no, I didn't have zero. I had a total of 63 out of 3,000. And we're investing all of this money in wind..." [CBS]

1 comment:

Stagflationary Mark said...

Summers does not buy the notion that current inflation is the result of temporary bottlenecks.

Toilet paper is back to being a bottleneck.

The news is almost always looking to demonize those who stock up on goods. They call it unnecessary hoarding.

I say almost always because I am now told by the news that if I am looking to buy a specific toy for Christmas, then I should buy it right now. They call it being prepared.

Hypocrites. It’s the same thing. Buy now and store it for later, so we are guaranteed to have it when we really need it. It is both hoarding and being prepared. Only in hindsight will we know for sure if it was necessary.

Can you imagine the outrage and panic if we were told that if we really want toilet paper for Christmas, then we should also buy it right now? So why is it okay for toys?

Plant the seed that toys will be scarce (which is most likely true), and it won’t just be toys that are hoarded. Bottlenecks beget bottlenecks. For the record, we’re pretty much fully stocked on all essentials. Didn’t need a pandemic. A negative real yield on the 30-year TIPS was more than sufficient. Sigh.

That said, future demand is being pulled forward. Not guaranteed to ultimately end in stagflation. The future demand could easily be weaker than expected.