Friday, May 20, 2022

Friday Morning Links

  • [O]ur ending cash balance remains more than our next 12 months capex, ensuring our best for all strategic investments are fully funded. With our capital allocation objectives met, we expect to meaningfully increase our stock buybacks in the second quarter. We currently expect to return cash in excess of our currently projected second quarter free cash flow generation, and we'll continue to take advantage of our dislocated valuation. It is worth repeating. [United States Steel Coropration]
  • This AOCI issue is going to have broader consequences. One consequence is lower buybacks this quarter for banks. Banks are some of the largest share repurchasers in the market. This will have a net negative effect on the overall market. [@CapitalObserver]
  • If having negative real yields were more politically palatable (or even desirable, to leveraged elites) than tightening, you'd expect them to talk and talk and jawbone about tightening, but keep printing money. And that is exactly what they are doing. James Bullard at the Fed is the hawkish "matador" to the boomer "bulls". [CBS]
  • So the stock market and the bond market are a positive-sum game. There are more winners than losers. Cryptocurrency starts with zero-sum. So it starts with a world where there can be no more winning than losing. We have systems like this. It’s called the horse track. It’s called the casino. Cryptocurrency investing is really provably gambling in an economic sense. And then there’s designs where those power bills have to get paid somewhere. So instead of zero-sum, it becomes deeply negative-sum. Effectively, then, the economic analogies are gambling and a Ponzi scheme. Because the profits that are given to the early investors are literally taken from the later investors. This is why I call the space overall, a “self-assembled” Ponzi scheme. There’s been no intent to make a Ponzi scheme. But due to its nature, that is the only thing it can be. [Nicholas Weaver]
  • We’re in a room big enough to fit a couple of Cessnas, at a long wooden table that is his desk, bookshelves bearing the carefully arranged stuff of his world: his leather-bound books by history’s great philosophers, bos of Cuban cigars, glass vessels full of cashmere in every shade of an Indian spice market. There’s a small mountain of soccer balls, lamps with cashmere shades and cords, and piles of blank paper from which he picks out two sheaves, lays them on the table, and makes columns to organize his day, his thoughts, your desires. ("Order and tidiness is the first law of heaven," he proclaims.) [GQ]
  • A few weeks ago, when Barack Obama was called upon to explain whether Joe Biden was officially authorized to endorse gay marriage, the president explained, “He probably got out a little bit over his skis, but out of generosity and spirit.” The metaphor, much-repeated since then, was both immediately clear — even the non-skiers among us get the physics implied by the phrase — and also managed to sound at once both powder-fresh and familiar. That’s one of those phrases arugula-eating politicos love to toss around, right? Probably something a lock-jawed Kennedy said once after a weekend on the slopes that caught on? Actually, the phrase’s metaphorical use seems to have begun in the finance world. Its first non-skiing print usages came in the early nineties, in publications like Investment Dealers’ Digest. For instance, a 1991 article quoted a “market source” describing a race between Goldman Sachs’ and Lehman Bros.’ preferred stock desk. “Someone said [Lehman] couldn’t get a clean legal opinion on it. They may have been out over their skis a little bit with their structure.” It makes sense that investment bankers would let their weekend hobbies inform their workday slang. It’s still a favorite in the finance world — far more than in political spheres — and so maybe it’s something Obama’s picked up from all his time hanging out with the Larry Summers and Tim Geithners of the world, trying to clean up the mess of a national economy that got a bit over its skis a few years back. [NY Mag]
  • This feels like one of the more under-appreciated parts of the HFC strategy. In the past, investors would have looked at the price they paid as proprietary info. The secrecy could help you negotiate the next investment. Now, it’s transformed into a signaling mechanism to the public markets and retail investors. In boom times, the leaked valuation effectively sets a baseline idea of a company’s worth. Laceworks is now worth $8.3 billion. When it’s time to IPO, that’s the starting point in the conversation. Over the past few years, with endless capital and investor appetite it worked beautifully. Another notable element from the Laceworks example is that investors got to mark their initial January 2021 investments at that $8.3 billion level in November. Tiger and the HFC crew 4 or 5x’ed the January money with their own follow-on investment. They could then take those results to go out and raise. [Ranjan Roy]
  • “We want to do business with banks that want to do business with us,” Moore explained. “We didn’t think that it made any sense for us to continue to do business with our tax dollars here with an asset manager like BlackRock, which is against the fossil-fuel industry. We feel like there’s a conflict of interest there.” Moore yanked West Virginia’s state funds away from BlackRock and reinvested them with a different firm. A few months later, the state legislature passed a bill that enabled him to create a blacklist of banks that boycotted fossil fuels, and to pull state money away from them as well. Since then he has put together a coalition of 15 other states that are making similar moves — states that he says have funds worth more than $700 billion. [NY Mag]
  • With a dash of support from Mother Nature, power burn demand is at the highest level for this time of the year. We've been saying for a while now, but the usual gas-to-coal switching won't happen this year as the coal stockpile remains incredibly low. In fact, the gas-to-coal switching probably won't happen for the foreseeable future since there are no new coal supplies coming online. You combine that with cooling demand picking up in key demand regions and you have power burn surprising to the upside. And because of the shortage of global LNG along with new LNG export capacity being added in the US, LNG gas exports are moving higher and will hit a new all-time high later this year. The combo of high power burn + high LNG gas exports is pushing total gas demand to come in at the highest level for this time of the year. Finally, if you look at the fact that Lower 48 gas production remains depressingly flat, you get the picture of why natural gas prices will have to go a lot higher than today. [HFI Research]

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