Tuesday Morning Links

• There is nothing better than the beginning of a new wave, when the opportunities to envision, invent, and build world-changing companies leads to money, fame, and glory. But there is nothing more dangerous for investors and entrepreneurs than wishful thinking. The lessons learned from investing in tech over the last 50 years are not the right ones to apply now. The way to invest in AI is to think through the implications of knowledge workers becoming more efficient, to imagine what markets this efficiency unlocks, and to invest in those. For decades, the way to make money was to bet on what the new thing was. Now, you have to bet on the opportunities it opens up. [Jerry Neumann] 
• The capital cycle approach would tell you that you want to avoid the companies and sectors that are spending the most on capex right now - certainly in relative terms, but probably also in absolute terms. So, it's obviously not a great sign that the tech companies are in a capex arms race and are the biggest capex spenders in the entire economy. Nor is it a good sign that those companies' valuations are so expensive. [Credit Bubble Stocks] 
• The answer may be found in a combination of factors: high barriers to entry due to permitting restrictions for landfills; asset intensive networks which are regulated, and which can have monopoly-like characteristics within a local region; inelastic demand where customers appear to be relatively price-insensitive given that waste disposal is a necessity and may represent a small part of operating expenses; and industry consolidation, through which the main players have successfully improved route densities, improving returns within their fixed asset networks. Pricing power has been the outcome of these factors and has been the key to revenue growth in recent years – waste disposal pricing has far outpaced inflation. [Robert Anstey]
• The subtext to our prior article related to the systematic undervaluation of those assets endowed with large reserves and favourable geology since, over time, the value of the assets increases as they benefit from the steepening and upward shift in the cost curves of projects facing greater technical and geological challenges. Capex inflation is nonlinear throughout the cost curve, leading to a disproportionate increase in the economic value of large, low-cost reserve bases over time. With absolute capital requirements for new mines elevated relative to the base capital employed in producing assets, and the time to bring new projects on stream stretching beyond a decade, the execution risk associated with such ‘greenfield’ projects increases along both the time and cost planes. For the company (read equity holder) considering such greenfield investment, the required rate of return is therefore greater than when projects could be brought on line within a shorter timeframe. [Alex Duffy]
• Although a complete shift to BEVs would be negative for PGM demand, specifically palladium which is most heavily exposed to gasoline auto catalysts, rising penetration of hybrid vehicles is less
  cataclysmic as the majority of the toxic emissions which PGM based catalysts seek to remove occur upon ignition. Hybrid vehicles, with ‘stop/start’ technology, require a higher platinum loading per catalyst than is the case for an ICE equivalent. Since ICE engines remain in excess of 80% of global auto production and the rate of BEV share gains is slowing, the obituary for PGM catalysts may have be premature. PGMs also have other uses with jewellery accounting for 20% of platinum demand and other industrial uses a further 35%. In addition, while BEVs impact light passenger vehicles, it is unclear how such technology would apply to the global truck fleet which requires a higher PGM loading. [Alex Duffy]
• Being able supply an abundance of food to front line troops is arguably the best sign of military excellence. Munitions get priority. So if you can supply your combat troops with hot food with a decent variety, it’s a major flex of your logistical sophistication. In WWII, the US Navy built ice cream barges that would produce ice cream at scale for US forces. The Japanese military couldn’t even imagine doing something like that. It would have stressed their supply networks too much. Same with the US military delivering Burger King to the most remote bases in Afghanistan or wherever. When you see this stuff showing up, you know you are dealing with a seriously capable military. [TheMindScourge]
• A Tricolor ABS issuance this year showed that more than two-thirds of its borrowers lacked a credit score. For those with credit scores, the average was 614. More than half didn’t have a drivers’ license, which suggests they may lack permanent legal status. President Trump’s deportations raise the chances of a surge in defaults by migrants who leave their debts behind as they leave the U.S. [WSJ]
• Phillips 66 (NYSE: PSX) announced today that it has entered into a definitive agreement to acquire the remaining 50% ownership interest in WRB Refining LP from subsidiaries of Cenovus Energy Inc. for total cash consideration of $1.4 billion, subject to customary purchase price adjustments. WRB Refining LP is a 50/50 joint venture between Phillips 66 and Cenovus Energy Inc. that owns the Wood River refinery in Roxana, Illinois, and the Borger refinery in Borger, Texas. Phillips 66 has operated both facilities since the inception of the joint venture in 2007. [Phillips 66 Company]