New Year's Links

• In the 1960s and 70s, the standard way to do economic analysis was to feed data into a model and then estimate the relevant parameters. For example, based on historical data, economists believed there was a stable tradeoff between unemployment and inflation, i.e., the Phillips curve. Policymakers believed they could exploit the tradeoff by accepting higher inflation in exchange for lower unemployment. However, when oil price shocks in the 1970s generated both inflation as well as rising unemployment, expansionary monetary policy failed to deliver the predicted results. Instead of lower unemployment, the economy experienced “stagflation” of higher inflation combined with high unemployment, suggesting that the historical relationship had broken down. So what happened? Expectations of inflation made workers and firms change their behavior: knowing that inflation was going to be higher in the future, workers demanded higher wages and firms hired fewer workers today. It turns out that a statistical correlation between lower unemployment and higher inflation is not exploitable by policymakers as an intervention, because their policy action induced a different set of behavior by agents. [Arpitrage]
• If breakevens reduce by only 30 percent over the next five years, approximately 60,000 locations currently classified as Tier 2 ($40 to $50 per barrel of oil equivalent [BOE] breakeven) could achieve the same breakevens as today’s Tier 1—less than $40/BOE, in the absence of inflationary pressures. This could increase the overall Tier 1 count by 150 percent. A range of innovations, such as horseshoe wells and other next-generation designs, frac efficiency gains such as trimulfrac, and other novel breakthroughs yet to be developed, could all contribute to this movement, alongside the cost efficiencies coming from expanded scale. [McKinsey]
• There were two areas of good news during the quarter. One is a surprising demonstration of operational discipline, and the other is the company’s expansion opportunities in natural gas. The biggest recent positive is the company’s decision to suspend development of its Lake Charles LNG project. This is a clear example of management exercising discipline in deciding which projects it is willing to pursue. Energy Transfer was unable to secure enough offtake agreements on attractive terms with high-quality global LNG buyers, so it canceled the project. I don’t believe this is how the “old” ET would have behaved. [HFI Research]
• The Texas-Arizona-California corridor becomes the undisputed tech mecca, triggering a land grab unlike anything since the railroad era. Water rights, housing developments, commercial real estate, data centers, AI infrastructure - everything gets bid up to absurd levels by everyone from sovereign funds to family offices to retail FOMO. The border states that were flyover country a decade ago become more expensive than coastal tier-one cities. Arizona water rights trade like Bitcoin in 2021. Someone will get very rich. Most will arrive too late and overpay. [Mojo]
• I know many hiring managers and believe you me the "Charlotte" and "Matthew" resumes are treated very differently from the "Lynneleigh" and "Packston" ones. Not many of these sorts of names in senior management... On the other end of the spectrum, names like "Apple", "River" or "Moon" tend to be from bonhemian upper middle to upper class families. Perhaps they dont have to worry about hiring managers so much! [Reddit]
• I quit my job and returned to Shaker Heights to live with my father as I regrouped and worked on my novel. I was grateful to be back home in the leafy comfort of suburban Cleveland, where I would remain for most of the next thirty years, marrying, buying a house in the suburbs I loved, having kids. I loved living here. It was my home, my people. Living where you grew up, I found, gave you great spiritual capital you could regularly tap into; it gave cohesion to this life. My father was here. I could point out to my kids the ballfields where I’d played Little League. My daily jog through the neighborhood took me past my elementary school. Each time I stepped on the cracked sidewalk slab on Fernway Road, the spot Debbie Shaw kissed me in second grade, I thought of her. [Michael Ruhlman] 
• In 1980, two economists, Sanford Grossman and Joseph Stiglitz, published a paper that challenged the Efficient Market Hypothesis (EMH), an idea that had dominated financial theory for two decades. The EMH held that market prices reflect all available information. If IBM traded at $100, that price encoded everything knowable about the company—its earnings, prospects, management quality, competitive threats. Thousands of informed traders had collectively processed all relevant data and bid the stock to its true value. Grossman and Stiglitz identified a fatal contradiction. If prices already reflect all information, why would anyone spend resources gathering it? Information is costly—you have to collect data, analyse it, and still make decisions under uncertainty. But if the price already tells you everything you need to know, gathering information is irrational. [The Terminalist] 
• A more useful measure of competition would be based on what we’re actually trying to get competition to do, working backwards from the outcomes we want in order to see what the features are of markets that deliver them. Competition works because it rewards businesses that find better ways to serve customers, and punishes ones that overcharge their customers or offer substandard products. If markets are competitive, then businesses that make desirable products at lower cost will grow larger as customers switch to them, putting pressure on their competitors to improve by cutting prices or making better products. They may face the prospect of having to exit the market altogether. In short, we want to measure whether markets are rewarding excellence or sclerosis. It turns out that such a measure exists: what is called the Olley-Pakes decomposition. The decomposition measures whether customers are switching to more productive companies. If productive companies are gaining market share, we might judge that the market is competitive and working well. If they’re not, and more productive businesses are not doing better than less productive ones, something is wrong, and intervention could be necessary. [Works in Progress]
• On the surface, it was reasonable to expect that bigger reactors would be cheaper per unit of electricity generated. For example, the control room and the security fencing should cost approximately the same for a 900 and a 1,300 megawatt reactor. EDF’s own estimates found that, for the same total output, a smaller series of 1,450 megawatt units would be 15 percent cheaper than a larger series of 600 megawatt reactors. But these larger designs brought greater complexity. For example, the 1,300 and 1,450 megawatt reactors needed an extra coolant pump, steam generator, and piping circuit to remove heat safely from the larger reactor core. The engineering work required to integrate these systems did not scale linearly with increased output. [Works in Progress]

Books - Q4 2025

• Born to Be Wired: Lessons from a Lifetime Transforming Television, Wiring America for the Internet, and Growing Formula One, Discovery, Sirius XM, and the Atlanta Braves (3/5) Everyone is talking about this autobiography by TMT entrepreneur John Malone. The WSJ review puts it well: "revelatory personal history and an exhaustive—sometimes exhausting—exploration into the intricacies of Mr. Malone’s various business transactions and relationships." John Malone was very early to the idea that you should focus on cash flow generation rather than net income. (Some say that he invented the EBITDA metric!) Cable companies were perfect for this because the capex to hang the cables and such could be depreciated over a much shorter period than their useful lives. He also liked to use as much debt financing as possible because interest is tax deductible. He also had a flywheel concept (like Bezos): "More scale equals more savings, which gave us more buying power to buy more systems and build more scale, which equaled more savings - a virtuous growth cycle." Byrne Hobart quips, "there are good times, and there are bad times, but there are no times when AT&T is not making poor capital allocation decisions." Something interesting about Malone - he was a big believer that you should partner with competitors in joint ventures, rather than bidding against them (e.g. for acquisitions). Split the surplus with your competitor rather than giving it all away to the seller in a competitive auction.
• Rethinking the Economics of Land and Housing (3/5) Always good to be rethinking things. We posted a link earlier to a Georgist economist who had a conspiracy theory that neoclassical economics was designed and promoted by landowners and their hired economists to divert attention from the way that landowners capture an unfair share of society's increasing wealth. "Once land is owned privately, much of the additional value created by society is captured by landowners, even if they have done nothing to earn that value." The debate between neoclassicist and Georgist economists comes down to whether land is just capital or a distinctive factor of production. I would bet on John Bates Clark. Points out: "physical space is also highly desired and not subject to diminishing returns - as people get richer, they want more space, " and "as economies mature the demand for land relative to other consumer goods increases," because it is a positional good. That is good for land investments if cornucopianism is right. A little bit of heterodox economics goes a long way, but if the Georgists were hopping mad about the benefits of owning land, that tells us that land is a bottleneck that we should be owning. The trick would be to find more attractively priced kinds of land, and note that natural resources are "land" in Georgist thinking. 
• The Scaling Era: An Oral History of AI, 2019–2025 (4/5) This gives really good insight into what the tech nerds who are going to spend a trillion dollars on data centers full of GPUs ("compute") are thinking. (Fair warning: it is written in Redditor nerdspeak full of jargon, and it can be painful to read.) A great point by François Chollet who is a skeptic of LLM intelligence: "If you look at LLMs closely, it's pretty obvious that they're not really synthesizing new programs on the fly to solve the task that they're faced with. Instead, they're reapplying things that they've stored in memory. For instance, LLMs can solve a Caesar cypher, transposing letters to code a message. That's a very complex algorithm, but it comes up quite a bit on the internet. They've basically memorized it. What's really interesting is that they can do it for a transposition length of three or five, because those are very common numbers in examples provided on the internet. If you try to do it with an arbitrary number like nine, it's going to fail. It does not encode the generalized form of the algorithm but only specific cases." Leopold Aschenbrenner is one of the Capex Maniacs: "The next model doesn't just require code, it involves building a giant new cluster. It involves building giant new power plants. Since ChatGPT, this extraordinary techno-capital acceleration has been set into motion." "By 2030, you get the trillion-dollar cluster using 100 GW - over 20 percent of US electricity production. That's 100 million H100-equivalents." There is an essay called The Bitter Lesson by Richard Sutton: "[G]eneral methods that leverage computation are ultimately the most effective, and by a large margin." "AI researchers have often tried to build knowledge into their agents; this always helps in the short run and is personally satisfying to the researcher; but in the long run it plateaus and even inhibits further progress; and breakthrough progress eventually arrives by an opposing approach based on scaling computation by search and learning." The author believes in the Gods of Straight Lines: "The GPUs are getting steadily better. The training runs are using steadily more compute. All the lines on all the graphs are perfectly, eerily straight (on a log-log scale!) and can be extrapolated with ease. Next year is simply this year, plus a known rate of change multiplied by delta-t. Scale is all you need."
• The Third Kind of Knowledge: Memoirs & Selected Writings (3/5) This is a collection of writing and memoirs by Robert Fitzgerald (1910-1985) who made probably the best translation of the Odyssey. As we saw with Paul Fussell, it is hard to understand what a big deal poetry and literary criticism were for men of this generation. An important corollary there is that there was no demand for poets during the Great Depression and it made this generation of Ivy League would-be poets into communist sympathizers. (Fitzgerald graduated from Harvard at the exact low of the Great Depression and had to work for a second rate newspaper in New York and then for Fortune magazine. He writes of Spain as "a legitimate Republic [that] had been attacked by a military and Fascist uprising.") Fussell, who almost died in WWII, said that Harvard men got to be "admirals' aides" in the war, and that is exactly what Fitzgerald, who went to Harvard, was! Something else that's "older generation coded" is being married multiple times. Fitzgerald had three wives. Other highlights: "General Marshall at Princeton some years ago said that no young man should think himself educated until he had read Thucydides - because, I take it, nowhere better than in Thucydides can you learn the best and worst to be expected from war and politics." "The Odyssey is about a man who cared for his wife and wanted to rejoin her. In the resonance of this affection, and by way of setting it off, the poem touches on a vast diversity of relationships between men and women: love maternal and filial, love connubial and adulterous, seduction and concubinage, infatuation superhuman and human, chance encounters lyric and prosaic." "A word about 'translation'. The Odyssey, considered strictly as an aesthetic object, is to be appreciated only in Greek. It can no more be translated into English than rhododendron can be translated into dogwood. You must learn Greek if you want to experience Homer, just as you must go to the Acropolis and look at it if you want to experience the Parthenon." "Late in '44, I was assigned to CINCPAC at Pearl Harbor, and when that command moved to the Marianas, to Guam, I went along on staff, to do various menial jobs. From, say, February to October of that year, I had nothing to do when off-duty but to read. I took three books in my footlocker. One was the Oxford text of the works of Virgil, one was the Vulgate New Testament, and the other was a Latin dictionary... my first real exposure to the Aeneid was hand to hand, with nothing but a dictionary - no instructor, no scholarship, nothing but the text itself, and the choice, evening after evening, of doing that or going to the Officers' Club and getting smashed." A big reason that he translated the Odyssey was that he could work remotely: "the best place to get help with the household and the children was overseas." His expenses were paid for six years by a Doubleday book advance and a Guggenheim fellowship to do the translation. He was Catholic and he did have six children!
• Underground: Stories to Understand Past, Present, and Future of Mining (3/5) Something to think about - sodium carbonate (soda ash) is used to produce lithium carbonate from lithium brines. You would think that demand for NRP's Sisecam Wyoming soda ash should grow with increasing global lithium production. "China is very advanced in the battery supply chain, in all segments, and much better than the West." Was surprised that the author mentioned the documentary Empire of Dust! Highlights: "During a family vacation on the French Riviera, Adolf [Lundin] took his sons, Lukas (12 years old at the time) and Ian (10 years old) to a cafe. Adolf looked across the table at his sons and announced that it was time to make a decision. 'Which of you will be my mining engineer and who will be in charge of the oil? You have 10 minutes to decide.' Lukas opted for the former, and Ian for the latter." Mentions an essay by Vaclav Smil: Peak Oil: A Catastrophist Cult and Complex Realities. Author: "We will take the opportunity to argue forcefully that resources are not running out globally and that we will never run out of oil." Talks about Malthusian thinking and mentions Julian Simon but not Herman Kahn or "cornucopianism." Mentions Alphamoon! (Tin producer in the DRC. Africa is rich with minerals.) Cecil Rhodes' Confession of Faith: "I contend that we are the finest race in the world and that the more of the world we inhabit the better it is for the human race."

Christmas Eve Links

‘A cold coming we had of it,
Just the worst time of the year
For a journey, and such a long journey:
The ways deep and the weather sharp,
The very dead of winter.’
And the camels galled, sore-footed, refractory,
Lying down in the melting snow.  

[Journey of the Magi, T.S. Eliot]

• Reading good stories at an early age, especially myths, legends, and fairy tales, builds children’s moral imagination. It provides them with an imaginative framework for understanding the world around them, and a rich resource on the affective level for discerning between good and evil, right and wrong. In reading classic fairy tales, children practice navigating a world filled with perils by stepping into the shoes of an Everyman protagonist, and are thereby given the confidence that no matter what “monsters” they will have to face, the story is going to end happily ever after. In this way, fairy tales are an essentially Christian genre. Crucially, fairy tales are not cloyingly didactic; they teach about the consequences of vice in a way that is extremely subtle, but deeply profound. [The Lamp] 
• Losing my parents wasn’t just a reminder that I will die and be forgotten. It also started that very process. When they died, they took to the grave some of the stories and memories they had of my early childhood. Things that only they remembered, that I never knew or have forgotten. Things that never got written down or captured in Kodak. Those events and memories were part of my story, my life. But now they’re gone because the only two people who carried that part of my life story are gone. I’m not even dead yet, and I am already slowly being erased from the world. What I am experiencing, then, what I see and touch and what I insist on recording is that everyone, everything on earth is ephemeral. My parents are dead; my wife and daughters and friends will all eventually die; my teaching and poems and translations will someday be forgotten or lost; even what little I have put into print will sit slowly biodegrading in the basements of a handful of libraries. This summer I went to our college library to borrow a volume of poems by the great Spanish Romantic poet José de Espronceda; when I opened it, most of the pages had never even been cut. Does anything we do last? As a Catholic, I have consolation available to me in the faith: “Are not two sparrows sold for a small coin? Yet not one of them falls to the ground without your Father’s knowledge”; “Precious in the eyes of the Lord is the death of his faithful ones”; “I look forward to the resurrection of the dead.” This is what I have somewhat thoughtlessly called the “good news” all my life. But as the saying goes, the good news isn’t good unless the “bad news” is bad. When I lost my parents over that catastrophic year, I finally heard the bad news. [Kelly Scott Franklin]
• What’s more, given the amount of scriptural support for the practice of venerating relics, it’s unclear why the practice seems to be followed mostly by Catholics. Acts describes how the early Christians would touch handkerchiefs and aprons to Paul and bring them to the sick and possessed, and “the diseases departed from them, and the wicked spirits went out of them.” When the hemorrhaging woman wished to be healed, she knew that just brushing the edge of Christ’s cloak would heal her. Christ Himself created one of the Church’s most cherished relics. While Jesus was carrying His cross on the way to Calvary, a woman was moved with compassion and approached Him. Desperate to give Him some kind of consolation, she wiped His bloody, sweaty face with her own veil. Later, the woman realized that the image of Christ’s face had been imprinted on the cloth. The woman has been named “Veronica” by tradition, derived from the Latin vera icona, or “true icon.” Thousands of miracles have been attributed to Veronica’s veil, and the Church preserves and venerates it to this day. I have come to think of our N.I.C.U. nurse as not unlike Veronica. Just as Veronica approached Christ to wipe His face, desperate for some way to alleviate His suffering, the nurse had given us the little teal-starred blanket because she was attempting to find some way to console us. The blanket became his only real possession, since we didn’t have the time or the presence of mind to give him anything else. And just as Christ left His imprint on Veronica’s veil, He also allowed Iggy’s blanket to become something more for our girls, a way to give them the grace of consolation. [The Lamp]

Market thoughts for 2026

We've learned the folly of attempting to predict things, and yet every living creature has to make predictions in order to survive. (An organism is a hypothesis of its environment, for one thing.) Whether you are an S&P 500 indexer, a Treasury bill doomer, or a value investor, you are making a prediction about the future. So here are some of our thoughts - just hypotheses - about what 2026 could hold.

There is a glut of oil. As we read third quarter earnings reports, we were startled by the production volume increases reported by oil producers, especially since the price of oil during the quarter was down about 14% from the prior year. As we write this, oil has dropped to $55.

Rents are falling, especially in the Sunbelt. The number of people per household (PPH) is pretty elastic - people can double up, give up second homes, move in with their parents, and so forth. The economy and job scene on the low end are tough enough that PPH is probably rising. Also, a significant number of people have been deported or self-deported, which reduces demand for housing.

Shelter (rent) is about a third of the consumer price index and energy is close to 10 percent. With rent and energy both falling, it seems likely that reported inflation numbers will be going down. Since energy is itself a major input into the other goods in the CPI basket, we probably have at least half the basket falling in price instead of rising. 

Falling inflation means that the Fed can keep cutting. Perhaps that allows the economy to hold together for 2026. Trump will certainly want it to, leading up to the midterms. Our CME fed fund futures have the FF rate at 2.75% to 3% by the end of 2026, which is two to three cuts from the current target of 3.5%. With wholesale gasoline down $1.61 per gallon and Trump picking a new FRB chairman, perhaps we should expect more cuts than two or three.

With more FF cuts but the ten year bond yield holdings steady, the yield curve is steepening. Commercial loan rates probably will decline but not as much as short term rates and deposit yields, which is great for banks' net interest margin. Community banks at 1x tangible book value would continue to do well, as long as credit holds up. (There's the potential for earnings yields of 12-14% to have wider margins on higher assets plus multiple improvement.)

Cheap oil and the economy holding together would be good for many types of businesses, but especially: airlines, hotel franchisors, online travel agents, consumer lenders, and consumer discretionary businesses of various kinds. If businesses keep advertising on Google and Facebook, that will continue to fund the AI/LLM/DC capex boondoggle.

With cheaper energy and lower commercial real estate borrowing costs, construction could comes back. That would mean that building materials would do well. Cement and aggregates have a particularly good industry structure of local oligopolies.

Stagflation is the big concern that we see. If the economy is weak and inflation is high, things can get very ugly. The Fed can't come to the rescue by printing. Perhaps that is what Warren Buffett is thinking about, the 1970s stagflation parallels. But it is hard to have stagflation with a plummeting oil price! Herman Kahn would probably be nodding here as the gods of the straight lines continue along.

GMO published an excellent essay recently: It’s Probably a Bubble, But There Is Plenty Else to Invest In.

Thursday Night Links

• Say half of the 97 million barrels of oil that Rystad Energy estimates China has socked away so far this year had shown up in storage facilities at Cushing, Okla., instead. That would bring Cushing’s storage levels to 70 million barrels—slightly above the level that contributed to turning West Texas Intermediate futures negative in April 2020. Back then, sellers holding front-month contracts had to pay buyers to take barrels off their hands as they were worried there would be nowhere to store the oil. Sanctions are making it very difficult to judge where the market will head next. The result has been an unusually steady oil price despite growing oversupply. But any sign that the glut of sea oil is moving onshore could cause the floor to fall out from under the oil price. [WSJ]
• But the puzzling thing here is that despite such weak oil prices, why isn’t US crude oil production declining? As you can see in our production composite index, December US crude oil production should have started to decline, but the latest figure points to a production reading near ~14 million b/d. We still have more weeks to finalize this month’s data, but the fact that we aren’t seeing material weakness yet implies that production could be stronger than expected going into 2026. Part of the reason for the outperformance stems from Exxon. In Q3 2025, Exxon reported that Permian production averaged ~1.7 million boe/d. In its latest 2030 company guidance update, it noted that the Permian is expected to grow to ~2.5 million boe/d (+200k boe/d vs previous guidance). [HFI Research]
• After more than two decades of flat or anaemic growth, US power demand is now surging. Electricity usage is projected to rise by an average of 5.7 per cent a year to 2030, based on forecasts from utility companies. Though some of this demand is due to reshoring activity and a broader shift to electrifying buildings and transport, more than half of the expected increase stems from the rapid build-out of AI data centres, according to consultancy Grid Strategies. Even if these projections prove overstated, conservative estimates still far exceed recent trends, requiring substantial investment in grid capacity to accommodate new loads. [Financial Times]
• President Saddam Hussein of Iraq today openly threatened to use force against Arab oil-exporting nations if they did not curb their excess production, which he said had weakened oil prices and hurt the Iraqi economy. The Iraqi leader did not mention particular countries by name in his nationally broadcast address today, but his warning was clearly aimed at Kuwait and the United Arab Emirates. In the last few weeks, the Iraqi oil minister, Issam Abdul-Rahim al-Chalaby, has frequently singled out the two Arab nations, which have been producing oil at rates far above the quotas mandated by the Organization of Petroleum Exporting Countries, as the main culprits in the steep fall of oil prices in recent months. President Hussein charged that the oil production policies of Kuwait and the United Arab Emirates had been the result of American influence, seeking to obtain cheap oil and harm Iraq, among other nations. ''The policies of some Arab rulers are American,'' the Iraqi leader was quoted as having said by news agencies from Baghdad. ''They are inspired by America to undermine Arab interests and security.'' President Hussein said, ''Iraqis will not forget the saying that cutting necks is better than cutting means of living.'' ''O God almighty, be witness that we have warned them,'' he added. ''If words fail to protect Iraqis, something effective must be done to return things to their natural course and to return usurped rights to their owners.'' [The New York Times]
• China cannot buy what it wants from the US, either because the US will not allow the sales (high-end semiconductors), or because the US struggles to produce the goods (Boeing planes).
  The US can no longer buy what it really wants from China (rare earths, magnets).
  The US won’t allow China to sell what China really wants to sell in the US (higher value added goods such as cars, telecom switches, tractors, earth moving equipment, trains, nuclear power plants), even if US consumers would actually love these goods, and even need them. For example, can US farmers remain globally competitive if everyone else drives cheap tractors and they do not?
  What the US really wants to sell to China (soybeans, liquefied natural gas), China can generally get elsewhere (Russia, Brazil, Colombia) for less money and with greater reliability. [Gavekal]
• The airport lounge was created in 1939 by American Airlines’ C.E.O., C. R. Smith, as a way to build support for commercial aviation. Smith called his first lounge, at LaGuardia, the Admirals Club. (He referred to his planes as the Flagship Fleet.) Membership was private, free, and at the company’s discretion. A manual listed those eligible: generals, congressmen, governors, judges, members of the U.N. Secretariat, “persons listed in Who’s Who.” New “Admirals” were commissioned in faux naval ceremonies. Often, they’d get a writeup in the local paper. Smith would send personal letters about Admiral business. (“Dear Admiral: As you know, we are not permitted to extend membership in the Admiral’s Club to the ladies. . . .”) He’d sign off, “C. R. Smith, Fleet Admiral.” [The New Yorker]

Monday Morning Links

• The 2007-8 Everything Bubble and the 2021 Duration Bubble, for instance, were both bubbles in which the right portfolio to own if you believed there was a bubble was a portfolio that would have an unacceptably low expected return if markets were fairly priced. But the 2025 AI Bubble looks little like either of those two and much more like the 2000 Internet Bubble, in which a bubble-agnostic investor could have owned a portfolio with a reasonable risk/reward trade-off in either a bubble or a business-as-usual scenario. Today, non-U.S. equities, deep value stocks, and liquid alternatives offer returns that look reasonable or better, regardless of whether AI is in a bubble. Tilting a portfolio away from AI names and toward those assets may save investors a lot of pain if it turns out we are in a bubble without meaningfully reducing expected returns if financial markets are somehow still fairly priced today. [GMO]
• There's basically always been a cottage industry of value investors complaining that the market has gone crazy, but that's a selection effect. People like reading about the market when it's up, or when it's crashing, but not when it's had a long period of underperformance or has been grinding down month after month. But value tends to underperform during bull markets, and also tends to crash alongside everything else in bear markets. And people talk a lot about stocks during bull markets and crashes, and a lot less in year three of a bear market or after a long, choppy period of sideways trading. So you should always expect value investors, of the discretionary or systematic variety, to be complaining about things. They do best when nobody's talking about stocks. And that's probably part of the risk premium that value has earned over long periods: to be a value investor is to underperform when stocks are all anyone is talking about, and to make your money when people don’t care about it all that much. [The Diff]
• For the last two decades, datacenter construction basically co-opted the power infrastructure left over from US deindustrialization. For AI CapEx to continue growing on its current trajectory, everyone upstream in the supply chain (from people making copper wire to turbines to transformers and switchgear) will need to expand production capacity. The key issue is that these companies have 10-30 year depreciation cycles for their factories (compare that to 3 years for chips). Given their usual low margins, they need steady profits for decades, and they’ve been burned by bubbles before. If there’s a financial overhang not just for fabs, but also for other datacenter components, could hyperscalers simply pay higher margins to accelerate capacity expansion? Especially given that chips are an overwhelming 60+% of the cost of a data center. We did some back-of-the-envelope math on gas turbine manufacturers which seems to indicate that hyperscalers could pay to have their capacity expanded for a relatively small share of total datacenter cost. As Tyler Cowen says, do not underrate the elasticity of supply. [Dwarkesh Patel] 
• OEM Bergen Engines has secured a contract to supply a 400MW power plant for a new AI data center on the US East Coast. Operating fully off grid in true islanded mode, it will be the first medium-speed reciprocating engine power plant in North America designed for AI-driven workloads. [Bergen Engines]
• When I first read about the discovery of a vast new deposit of lithium in a volcanic crater along the Nevada-Oregon border, I can’t say that I was surprised. Not because I know anything about geology — but because, as an economist, I am a strong believer in the concept of elasticity of supply. Now about elasticity of supply, in which we economists tend to have more faith than do most people. Time and again over the centuries, economists have observed that resource shortages are often remedied by discovery, innovation and conservation — all induced by market prices. To put it simply: If a resource is scarce, and there is upward pressure on its price, new supplies will usually be found. Not surprisingly, the Lithium Americas Corporation put in a lot of the work behind the discovery. Searching for new lithium deposits has been on the rise worldwide, as large parts of the world remain understudied and, for the purposes of lithium, undersampled. Just as Adam Smith’s invisible hand metaphor would lead one to expect, that set off many new lithium-hunting investigations. Sometimes the new supplies will be for lithium substitutes rather than for lithium itself. In the case of batteries, relevant potential substitutes include aqueous magnesium batteries, solid-state batteries, sodium-based batteries, sodium antimony telluride intermetallic anodes, sodium-sulfur batteries, seawater batteries, graphene batteries, and manganese hydrogen batteries. I’m not passing judgment on any of these particular approaches — I am just noting that there are many possible margins for innovation to succeed. [Tyler Cowen]
• Think about the last time you read something important to you—maybe it motivated you to do something differently, or changed the way you thought about something. Did you write to the author and let them know? Personally, I have literally never done this, as far as I can remember. (Huh, maybe I should…) Similarly, you should expect that most people who love your writing aren’t going to tell you that directly. So: lower your bar for what’s worth writing about! My personal standard is anything that I’ve said more than once in a conversation. [Ben Kuhn]
• Canadian sands, some of the world’s largest oil reserves, are also steadily contributing to higher Canadian oil output, now at 5.4mbpd! Canada is a sleeping oil giant and its capable operators figured out how to produce oil at low breakevens over the years. PS: if u see this as UAE oil minister, what do you do? Yes, you panic and order a reserve audit among OPEC members to get a higher quota as you know everyone’s oil reserves (which determine output quotas) such as Kuwait are overstated, as typical for ME low trust societies. My point? UAE had it with cheaters. They too want to produce more oil or leave OPEC sooner rather than later. Other nations that are set to produce more oil regardless of oil price volatility is Guayana, Argentina, Kazakhstan, potentially also Venezuela down the road. The latter possesses the largest oil reserves globally. [Alexander Stahel]
• China’s clean energy efforts contrast with the ambitions of the United States under the Trump administration, which is using its diplomatic and economic muscle to pressure other countries to buy more American gas, oil and coal. China is investing in cheaper solar and wind technology, along with batteries and electric vehicles, with the aim of becoming the world’s supplier of renewable energy and the products that rely on it. The main group of solar farms, known as the Talatan Solar Park, dwarfs every other cluster of solar farms in the world. It covers 162 square miles in Gonghe County, an alpine desert in sparsely inhabited Qinghai, a province in western China. [The New York Times]

Q3 2025 Earnings Links

• RCI Hospitality Holdings, Inc. (Nasdaq: RICK) today announced the acquisition of all the shares of RCI stock owned by ADW Capital Partners, L.P. The 821,000 shares were acquired for $30.0 million or $36.54 each for $8.0 million in cash and $22.0 million in two-year seller financing at 12%. The transaction closed today. [RCI Hospitality Holdings, Inc.]
• Tom Hill, Vulcan Materials' Chairman and Chief Executive Officer, said, "The combination of our aggregates-led business and our commercial and operational execution has resulted in strong earnings growth and margin expansion through the first nine months of 2025. Adjusted EBITDA has improved 20 percent over the prior year, and margin has expanded 290 basis points on a year-to-date basis. Aggregates cash gross profit per ton has improved 12 percent with widespread improvements across our footprint. These results demonstrate the compounding benefits of our strategic disciplines and reinforce our confidence in our ability to continue to deliver strong earnings growth and cash generation." [VMC]
• Commenting on the second quarter results, Michael Haack, President and CEO, said, "Eagle’s portfolio of businesses continued to perform well during the quarter, generating record revenue of $639 million, EPS of $4.23 and gross margins of 31.3%. We repurchased 395,500 shares of our common stock for approximately $89 million and ended the quarter with debt of $1.3 billion and a net leverage ratio (net debt to Adjusted EBITDA) of 1.6x, giving us substantial financial flexibility that supports disciplined capital allocation and long-term growth." [EXP]
• "With the completion of the Neches River Terminal next year, we are nearing the culmination of a significant capital deployment cycle that began in 2022. These investments included large scale pipeline and marine terminal facilities as well as gateway acquisitions that put Enterprise in a position to support production growth from the Permian and Haynesville basins for years to come. With this large wellhead to water build out cycle behind us, we believe 2026 will see an inflection point in the partnership’s free cash flow. Today, in connection with this expectation, we announced a $3.0 billion increase to Enterprise’s common unit buyback program." [EPD]
• Altria: "Smokeable products segment reported domestic cigarette shipment volume decreased 8.2%, primarily driven by the industry’s decline rate (impacted by the continued growth of flavored disposable e-vapor products, the majority of which we believe have evaded the regulatory process, and discretionary income pressures on ATCs) and retail share losses, partially offset by trade inventory movements." "[Smokeable] net revenues decreased 2.8%, primarily driven by lower shipment volume and higher promotional investments, partially offset by higher pricing. Revenues net of excise taxes decreased 1.3%." [MO]
• Genesis Energy L.P.: "Looking forward, the combination of growing total Segment Margin and lower absolute debt should produce a clear trajectory of significant and rapid improvement in our leverage ratio throughout 2026. Rather than focusing on what could have been this year, our attention is squarely focused on the future. We are well positioned to generate higher levels of Adjusted EBITDA and free cash flow in 2026 and beyond, giving us the financial flexibility to deliver meaningful long-term value for all our stakeholders." [GEL]