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- In other words, there are many different kinds of strategies and bets that are often labeled “value.” Tech versus the market is clearly one of them, perhaps the major one – though one we try not to bet on. The one we do bet on is long and short extremely diversified portfolios of global stocks with a serious attempt not to bet on industries (like tech). We like our way a lot better strategically (i.e., over the very long term) and that’s why we structure our value bet this way. But, today, we also like our way a lot more tactically. A single industry that’s priced high (84th percentile) versus the broad market, but way under the peaks we’ve seen, outperforming medium-term is plausible. A very very diversified portfolio (by names and industries) of expensive stocks outperforming their far cheaper counterparts, when the spread in valuations between these portfolios is still within sight of all-time records is a fair amount less plausible. [AQR]
- The biggest antitrust violation in history may be in plain sight. Wall Street banks and money managers are bragging about their coordinated efforts to choke off investment in energy. It’s nearly impossible to raise money to explore for oil and gas right now, and we may all be experiencing rising energy costs because of this market manipulation. Russian and Chinese aggression overseas also is exacerbating inflation. Here’s what is happening: The biggest banks and money managers seek to implement a political agenda, such as compliance with the Paris Climate Accord. Then a group mobilizes: Climate Action 100+, for example, comprised of hundreds of big banks and money managers that together manage $60 trillion. The group uses its coordinated influence to compel companies to shut down coal and natural-gas plants. The activism can include pushing climate goals at shareholder meetings and voting against directors and proposals that don’t comport with the agenda, even if other decisions may benefit investors. [Mark Brnovich]
- Monarchy is both the most common form of public-sector governance in history, and the universal form of private-sector governance (all corporations have CEOs). Any private-sector firm could operate as a republic or other oligarchical form. None do. There are no senates, assemblies or supreme courts in the private sector — let alone anything like the administrative state. Monarchy —ideally accountable monarchy, with a board of directors or some other safety mechanism — just works better. So either the whole public sector today is mad, or the rest of human history was mad, and so is the entire private sector. As an American monarchist, I choose the former. [Curtis Yarvin]
- For the first time in my 30 year career, companies are being judged by growth in dividends and shareholder returns, not production volumes. This is a big deal and a big change for the better. Reinvestment rates are on-track to be structurally lower than any previous period over at least the past 30 years (Exhibit 2). There is uncertainty on the long-term outlook for oil demand in a decarbonizing world; the fear of future demand erosion (even if inaccurate) is leading to near-term supply tightness. There is little appetite for long-cycle CAPEX or exploration; I believe this will change but that concern is clearly for another day. [Arjun Murti]
- On the advice of officials like these, western nations imported the concept of “lockdown”—one of the most hideously totalitarian policies ever conceived—which had been pioneered by the dictator of China just two months prior. They then spent two years importing an ever-darker swathe of illiberal mandates, all in the supposed interest of “public health.” Countless businesses were ruined, human rights were upended, children lost years of education, millions starved, the mental health of billions was strained, and trillions in wealth was transferred from the world’s poorest to the very richest—all while failing to slow the spread of a virus that was subsequently confirmed to have an infection fatality rate under 0.2%. It’s unacceptable that our chief geopolitical adversary has had two years to reshape western civilization in much the way they would if they’d already won a conventional war against us. The fact that a dictatorship undermined our national security so easily is an inadequate reason for our children to have to live with these totalitarian precedents; on the contrary, the fact that the dictatorship was able to do so with such efficiency only highlights the risk and reinforces the need for this influence to be stopped. [Michael P Senger]
- The legal protection of American police for cowardice is a judicial precedent that’s expanded over time. It’s something of a bastard lovechild born of the American right’s too-often unconditional praise of police, and the wide belief on the left that no adult should ever have to face the slightest danger. Judges seem to like it because it sounds nice and modern, though it’s unclear whether it has any positive effect, or why any person should be legally protected from being afraid to do the job that they’re specifically trained and paid to do at great public expense. [Michael P Senger]
- For years tobacco companies have been fighting regulators more than each other. That might be about to change, and Altria in particular needs a game plan. If Philip Morris International ’s $16 billion offer for oral nicotine pouch maker Swedish Match is accepted, U.S. cigarette makers will suddenly have a nimble new competitor. Soon after it was spun out of Marlboro co-owner Altria in 2008 to focus on overseas markets, a slowdown in international cigarette volume forced Philip Morris to innovate in smokeless products. Since 2014, the company has built IQOS from scratch—a noncombustible heated-tobacco brand that now generates $9 billion in annual revenue. [WSJ]
- Tiger Global Management rode the tech boom like no other investment firm. It was funding more startups than any other U.S. investor when the market peaked last year, and had tens of billions of dollars from pensions, endowments and rich clients riding on some of Silicon Valley’s hottest stocks. With tech values plunging, the New York firm is humbled. The market rout has vaporized years of gains in a matter of months, calling into question Tiger’s big bets. [WSJ]
- Tesla’s US operations are still bleeding an astonishing amount of cash. As a result, it needed extensive contributions from a massive surge in overseas profits plus sizable energy credit sales, generous accounting maneuvers, huge tax breaks, and lease funding for a third of its actual capex to cover its even larger operating cash outlay plus debt repayment—and US cash still fell by $2.3 billion. It’s a good thing Tesla cash stored up from more than $13 billion it sold in stock in 2020, because odds are margins and profits in China are shrinking this year even faster than its sales. [Vicki Bryan]
- Tesla’s domestic operations are still seriously unprofitable. Domestic revenue was $24 billion for 2021 (up 58%), which accounted for 45% of consolidated revenue. But domestic operations generated a pretax loss of $130 million—barely improved versus the $198 million loss in 2020 despite an $8.8 billion increase in revenue. By comparison, foreign operations generated an 83% increase in revenue and all of Tesla’s reported profit—again—a substantial $6.3 billion versus $1.2 billion in 2020. The astounding profitability differential indicated for foreign operations makes no sense, especially since they mostly comprise Tesla’s new Shanghai factory which was ramping up during much of the periods reported and new factories tend to dramatically less profitable versus mature facilities. One troubling explanation could be that Tesla has continued to capitalize costs beyond appropriate duration for the China factory, and potentially excessively. If so, this also suggests Tesla may also have been grossly overrepresenting how profitable are its US auto segment operations where the company has boasted dramatically higher gross margins versus industry standards. If true, neither maneuvers seem sustainable as vehicles to continue to inflate profits—a potentially even bigger threat to reported margins than I have projected for this year and beyond. [Vicki Bryan]
- As Twitter’s prospective owner, Mr. Musk is clearly entitled to the requested data to enable him to prepare for transitioning Twitter’s business to his ownership and to facilitate his transaction financing. To do both, he must have a complete and accurate understanding of the very core of Twitter’s business model—its active user base. In any event, Mr. Musk is not required to explain his rationale for requesting the data, nor submit to the new conditions the company has attempted to impose on his contractual right to the requested data. At this point, Mr. Musk believes Twitter is transparently refusing to comply with its obligations under the merger agreement, which is causing further suspicion that the company is withholding the requested data due to concern for what Mr. Musk’s own analysis of that data will uncover. [Elon Musk]
- We are pleased to announce that Beaver Coal Company, Limited will henceforth be doing business as (d/b/a) Beaver Property Company, Limited (“BPC”). This new name better reflects our activities as a land company as we have never mined coal as part of company operations in our 133‐year history. Also, given the perceived environmental concerns about hydrocarbons, and in particular coal, we think it is an appropriate change to lessen any stigma which may be associated with that commodity. Our LP units and all legal contracts will continue to be executed in the name of Beaver Coal Company, Limited but we will be known to the public as Beaver Property Company, Limited. The change will be evidenced in our advertising and public relations, printed materials and signage, and the website. [Beaver Coal]
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