Friday Night Links

• The true business of oil majors is fuels. Gasoline, the most important of those fuels, and used primarily for regular cars, represents 50% of oil demand today. The problem for oil majors is that most projections agree on peak light vehicle fuel consumption within this decade. Mind the wording there: not peak oil, not peak fuels, but peak light vehicle fuel (basically passenger cars). The driver of that trend is EVs. In no country is this more true than in China, the largest EV market in the world. Last year, China’s light vehicle fuel consumption already fell, and it is still falling in 2025, despite the economy expanding. To aggravate the problem, China has the second-largest refinery capacity in the world. It has a lot of refineries, for which it has no (perspective of) vehicles. [Quipus Capital]
• If President Trump normalizes oil trade with Venezuela—even partially—Canada’s exposure is bigger than it looks. Gulf Coast refineries are built to run heavy sour barrels. When Venezuela was sanctioned off the slate, Alberta bitumen became the backfill. Undo that, and the first barrels displaced are likely Canadian—with knock-ons for Alberta’s revenues and the equalization-era fiscal balance across Canada. [drjennifericonsidine] 
• The impoverished environments of early America looked like a genetic problem despite being an environmental problem, which is why so many elites focused on heredity as the primary culprit of poverty. Grinding multi-generational poverty leading to successive predetermined outcomes of inadequate prenatal and childhood nutrition, along with parasite and infectious disease burden, looked a lot like genetic determinism, but it was fundamentally wrong. Similarly, today, with these basic needs almost universally provided, any remaining inequality is likely to be a residue of primarily genetic influence, or else cultural patterns so deeply ingrained they are impossible to address. Yet we assume, despite having harvested all of the low-hanging fruit of improved environments, that outcomes are determined by environment. [The Tom File]
• In contrast with a general trend of declining trading frictions, over the last several decades the cost of borrowing securities for short-selling has increased dramatically. Using a portfolio approach, we show that as the borrow costs have increased so has the mispricing associated with portfolios of high-borrow-cost names. This decline in market efficiency has resulted from a lack of competition in the intermediation chain that links share lenders with borrowers, and a growing and rational unwillingness among institutional investors to hold and lend high-borrow-cost names. [Kent Daniel]
• I think the marginal seller will remain in tight supply (outside of forced liquidation events) because the bull case has been widely-circulated among many skilled small cap investors, who are likely to have high conviction if they did not already sell on recent weakness in soda ash; i.e., I believe recent quarter(s) were sufficiently weak to flush out weaker hands in a strong shareholder base. Specifically, I’ve been anticipating the recent soda ash-related flush. I think the marginal buyer analysis is more straightforward: I take it for granted, from experience, that the market loves enormous dividend increases almost every time. Lower interest rates would likely bolster this effect as the yield would become relatively more attractive for income-based investors. [scalpavelli]
  
• The winners of the contest are never the same from year to year. The one constant is that the overconfident do poorly. Having extremely confident predictions (e.g. 90% or 10%) on any event that is contentious among participants (has a high standard deviation) is associated with poor performance in the contest. The better performing contestants seem to have an easier time intuitively feeling the range of outcomes that a trip through life's quincunx can deliver. What seems to happen specifically is that a very rigid set of expectations, a very definite view, a simple narrative, crashes on the rocks of reality. In fact, I am learning to avoid any kind of simple narrative for thinking about the future. Consider predictions such as, "there's going to be hyperinflation / a crash / a civil war" next year. Reality is a lot more complicated. Bitcoin hit an all time high and oil hit an all time low in 2020. What probability would anyone have given that? And does it fit a simple label like "hyperinflation"? Since we can't predict, what can we do? The only investing strategy that I can think of for coping with the utter impossibility of prediction is diversification among that which is cheap. [CBS]