Thursday Night Links

• When Cleveland-Cliffs acquired AK Steel in March of 2020, AK Steel, as a stand-alone company, was ready to walk away from electrical steel. It was ready to shut down Butler Works in Pennsylvania. Butler Works produces electrical steel, a type of steel used to make transformers. If AK Steel had done that as a stand-alone company, today the U.S. would not be able to produce any grain-oriented electrical steel for transformers or nonoriented electrical steel, among several other things. That was the scenario that I inherited at Cleveland-Cliffs, as far as electrical steel goes, when we acquired AK Steel. Then, I made the decision not to shut down Butler Works, and now Cleveland-Cliffs is the only producer of grain-oriented steel products in the U.S. [S&P Global]
• The cost of "renewable" energy technologies like solar, wind, and batteries was falling because we were in a commodity bear market (2008-2020) with the necessary materials being sold below the long run sustaining cost of production. If someone had actually disrupted gasoline/ICE vehicles, or fossil fuels, you would have heard about it by now. There is nothing better than petroleum for transportation fuel. (Nuclear is better than fossil fuels for generating electricity, but that doesn't work for transportation without better batteries.) That means we are probably going to be using it for a long time - probably until it is exhausted. Royalty trusts are yielding 15% and the EV/FCF on Canadian oil producers is north of 20% while Biden is dumping a million barrels a day oil from the SPR and the industry is drawing down its backlog of drilled uncompleted wells. This is perhaps the greatest mispricing we have seen since we started this blog. [CBS]
  
• Separate from science and policy, a slew of sober influencers and self-help books emerged during the late 2010s. First came “This Naked Mind” by Annie Grace in 2015. “The Unexpected Joy of Being Sober” by Catherine Gray followed in 2017. Then, in late 2018, Ruby Warrington published “Sober Curious,” coining a term for the movement and giving people a new way to talk about what they were experiencing, a different path from declaring their problem drinking to be “alcoholism.” (I use “alcoholism” in quotes here because alcohol use disorder is the clinically preferred term now.) The following year, Holly Whitaker published a more pointedly anti-alcohol book, “Quit Like a Woman,” in which drinking is portrayed as useless, toxic and anti-feminist. Whitaker went on to publish an opinion piece in the New York Times with a headline that dismissed Alcoholics Anonymous as “The Patriarchy” and then raised millions to create Tempest, an online alcohol-counseling service geared toward women that costs $59 per month. All of this messaging seems to be having an effect. In 2017, wine consumption shrank for the first time in more than two decades, and in 2021, according to a Gallup survey, just 60 percent of Americans reported drinking any alcoholic beverages, down from 65 percent in 2019 and tied for the lowest level in two decades. Not only are fewer adults drinking, but those who do are consuming less. In the same Gallup survey, Americans who drink said they consumed 3.6 drinks per week, the lowest level in 20 years. Google searches for the term “nonalcoholic” rose in both 2021 and 2022. Each year millions of Americans participate in Dry January. [WaPo]
• Our investment case on Altria is based on the continuing ability of its cigarette business to deliver on its traditional earnings algorithm, which includes: A low-to-mid single-digit annual decline in cigarette volumes, A mid-to-high single-digit annual rise in average cigarette prices, Together these give a low-single-digit annual growth in revenues, Revenues After Excise tend to grow even faster as excise growth lags, EBIT margin expands with higher unit price and operational savings, Including buybacks, EPS tends to grow at mid-to-high single-digits. At $44.00, Altria shares are trading at a 9.3x P/E and a 10.7% Free Cash Flow ("FCF") Yield (normalized). [Seeking Alpha]
• The Two-Income Trap: Why Middle-Class Parents Are (Still) Going Broke (2/5) Based on the title, I thought that Pocahontas understood the two income trap. Unfortunately, her book does not discuss positional goods or the way that oligarchs profit by flooding the country with cheap labor, driving up rents and land values and driving down wages. She recognizes that there is a bidding war - now recruiting two parents' incomes - for houses in "good" neighborhoods with "good" schools, but she is either lying or ignorant about what makes them "good." Everything she talks about is better understood by Steve Sailer or LoTB. [CBS]
• “One way to interpret the results is to think in terms of the equilibrium cost of capital. Firms with such a bad ESG rating that they are excluded from the GPFG may be facing an uphill struggle in raising capital for new investments. They, therefore, have to offer higher returns to the investors willing to ‘dirty their hands’ by providing capital. From society’s point of view, this is a good thing, the higher capital cost will actively discourage investment in low-rated ESG projects, as fewer projects will be able to sustain such high returns. [Alpha Architect]
• “We live in a swamp”, my wife says to me our 2nd month living in Florida. The moisture and environment is so oppressive. Roaches, mosquitos, 2 feet of leaves in the side yard, constant barrage of rain that brings mildew, algae, and mushrooms in the most surprising places. 500 tadpoles have taken up refuge on one of our side roads in the standing water. Hopefully they eat mosquitoes. The constant barrage of carpenters, painters, and pressure washing just to keep nature at bay. Saw DeSantis at my local FBO my first for fun flight after arriving. Not all bad I guess. [Phil G]
• Why don’t you start a self-experiment, and refrain from reading sports, politics, business, and technology news as much as possible for a while? Reduce your smartphone time drastically for one or two weeks, and enjoy the time gained with a good book, a personal conversation or dare to do a previously abandoned activity that has been left undone so far (due to a perceived lack of time…) [Gernot Starke]
• Someone beat me to the punch in coining the phrase re-nicotization, but I am happy to embrace it. I first heard the term here. The thought process is simple and works along the lines of: Humans, historically, embrace substances to enhance/alter how they think and feel. Awareness of the negative health consequences of smoking paired with certain regulations is reducing smoking rates. What would happen if people could easily access nicotine while avoiding many of the health concerns as well as social stigma? If you conclude nicotine usage would increase, you are correct. [Devin LaSarre]
• The magic trick in any environment where you're asked to bet on confidence intervals—especially an adversarial one where someone is either testing your skills or trying to make money from betting with you—is that your confidence intervals should be much wider than you'd intuitively think. [Byrne Hobart]