Suncor Energy (SU) - Q3 2025 Conference Call

Highlights from Suncor's Q3 2025 conference call:

• Upstream production, 870,000 bbl a day in the third quarter, far and away our best third quarter ever. In fact, 41,000 bbl a day higher than our previous best, which was achieved last year.
• Refining throughput, 492,000 bbl a day in the third quarter, our best quarter of any quarter ever, exceeded our previous best, the third quarter of last year. The third quarter is typically the highest throughput quarter each year.
• Recognizing all sales are not created equal, our highest margin retail sales are up 8% year-on-year, while lower margin export sales are down 11% year-on-year. 
• Operating costs, year-to-date OS&G, CAD 9.7 billion, essentially flat with year-to-date 2024. Despite 32,000 bbl a day higher upstream production, 14,000 bbl a day higher refining throughput, and 21,000 bbl a day higher product sales, higher volumes, lower unit costs. 
• Turnarounds, on our second quarter call, we shared second quarter turnarounds were completed at historically low cost and best-ever durations. Our third quarter turnarounds were completed equally well. A couple of examples: Montreal Refinery, our hydrocracker and hydrogen plants. Previously, 55 days to complete the work. We budgeted it at 50. We completed it in 40, going from industry fourth quartile to second quartile. Previously, it cost us CAD 80 million. We budgeted it at 71. We completed it for 62, again going from industry fourth to second quartile. I am really pleased to say it was completed without so much as a cut finger or a spilt barrel.
• We've dramatically reduced our WTI breakeven and at the same time reduced our net debt. We've materially grown free funds flow, fueling higher return of capital to shareholders.
• A few illustrations: third quarter 2025 AFFO, CAD 3.8 billion with WTI at CAD 65 a barrel. Last time we had CAD 3.8 billion AFFO was the third quarter of 2024, with WTI at CAD 75 a barrel.
• Third quarter free funds flow, CAD 2.3 billion, the highest operationally since fourth quarter of 2022 when WTI averaged CAD 83 a barrel, CAD 18 higher. Year-to-date free funds, CAD 5.2 billion, within CAD 200 million of 2024, despite oil prices being CAD 11 a barrel lower. Buybacks, CAD 250 million a month in 2025, every month. Independent of oil price, CAD 250 million when WTI was CAD 75 in January, CAD 250 million when WTI was CAD 61 in May. Year to date, we bought back more than 42 million shares, 3.4% of our float, at an average cost of CAD 53. Year-on-year, CAD 340 million more in buybacks, despite oil prices being down CAD 9 a barrel. At today's oil price, I strongly believe buying our stock is our best investment, and we intend to keep buying it month after month after month.
• Rich has previously described this as our ability to make craft cocktails for our customers. It is this competitive advantage, coupled with our strong logistics and trading capabilities, that enabled us to sell our oil sands barrels at 96% of average WTI over the quarter. Our downstream margin capture is consistently above industry benchmarks. This quarter was no exception, with margin capture at 92% of our custom 5221 index, an index which represents the margin power of our downstream business. LIFO gross margin was CAD 28.87 versus an average New York Harbor and Chicago 321 crack of CAD 26.39. Suncor is quite simply a margin machine, and this should be recognized as a core driver of this company's value proposition.

It would be hard to understand this quarter's oil results without the framework of cornucopianism. Producers are getting more efficient, increasing the supply and driving the price of oil down. ("Higher volumes, lower unit costs.") 

The most efficient, lowest cost producers' profit holds up reasonably well and so do the owners of low cost minerals. It is not great for owners of higher cost minerals! This may be why we are seeing a pronounced divergence between the share prices of Suncor and Dorchester, for example.

The current market capitalization of SU (at a $44.23 share price) is $53 billion and its enterprise value is $61 billion. (Net debt of $5.1 billion plus other liabilities.) Suncor returned $1.02 billion of value to shareholders in the third quarter with $490 million in share repurchases and $530 million in dividends, for an annualized shareholder yield of 7.7% on the current market capitalization. As of October 31 (not September 30) the number of shares outstanding is down 3.8% year-over-year. 

Suncor's adjusted funds from operations was $2.7 billion which was about the same as a year earlier. Capital expenditure was $1 billion which was also the same as the year earlier. The resulting free cash flow for the quarter was $1.7 billion (again, same as in 2024), which is an 11% yield (annualized) on the enterprise value. Capital expenditures were roughly flat while upstream production was up 6%, year-over-year. This was in an environment of $65/bbl WTI compared with $75 a year earlier. As mentioned in the conference call notes above, Suncor kept profits flat despite a $10/bbl oil price decline! (The WCS spread was $10.40/bbl vs $13.50 a year earlier.)

Suncor generated $2.1 billion of funds from operations from oil sands, $200 million from other upstream (e.g. offshore production) and $863 million from downstream (refining and marketing). The refining and marketing helped keep profits flat despite the oil price decline because they generated $366 million more funds from operations than the prior year. 

Suncor's proprietary 5-2-2-1 crack spread was $31.20 versus $26.05 the prior year and the company had higher refinery utilization/throughput, as was mentioned in the call note above. Suncor gets more diesel out of a barrel than a generic refinery refining lighter crude. Also, Suncor captures some of the retail margin via its fuel stations in Canada.

Oil Supply & Demand Links

Supply Curve for Oil: Shale, Canadian, Venezuela

• By and large, US E&P companies keep beating their own oil quarterly production targets, and are guiding investors to expect flat-to-small growth in 2006. Empirically, current WTI oil prices hovering at ~$60 a barrel aren’t enough to send production down. [Javier Blas]
• Record quarterly liquids production of 1,175,604 bbl/d was achieved, an increase of approximately 154,000 bbl/d or 15% from Q3/24 levels. [Canadian Natural Resources Limited] 
• Simply put, gravity causes some percentage of the sand pumped during a frac treatment to settle out of the fracturing fluid before entering the fracture network. Testing shows that as little as 12% of induced fractures are propped by sand. Even achieving a propped volume on the order of 25%-30% of the fractured area still allows most of the fracture network to close. By mixing near neutrally buoyant proppant with sand, operators can produce 80%-90% of created fractures. Because it is made of an extremely light thermoset nanocomposite bead, ULWP has a specific gravity that is approximately half that of sand. Instead of sinking and settling, it enters the fracture network and stays suspended until closure sets in and locks it in place. [The American Oil & Gas Reporter]
• Spring-based industry major ExxonMobil reportedly is using a proprietary lightweight proppant made from petroleum coke in wells in the Permian Basin to improve production and lower costs.  The proppant is designed to be transported further into fractures than traditional sand to keep more fracture area open and increase overall resource recovery by up to 15 percent.  The technology is seeing “wide use” across the basin with hundreds of wells already completed using the proppant.  And ExxonMobil plans to deploy this proppant on more than 200 Permian wells in the next 12 months. “Our work in the Permian Basin will play a key role in meeting the world’s growing energy demand for years to come,” ExxonMobil said on its website.  The company said it will double production in Permian Basin by 2030 to about 2.3 million barrels per day with “the largest contiguous acreage position in the Permian with double the number of low-cost net drilling locations compared to our next closest competitor.” [PB Oil & Gas]
• Our proprietary lightweight proppant technology enhances production rates and reduces costs. Derived from refinery-coke, it opens greater fracture areas than traditional sand. Leveraging it has improved our resource recovery by up to 15%, making it crucial for boosting efficiency and lowering drilling and completion costs. [Exxon Mobil] 
• In the Midland region of the Permian Basin, the average length of laterals, the horizontal portion of a well, has increased by 58% since 2015. More than 50% of Midland wells completed in 2025 have spanned over 10,500 ft (2 miles) laterally, with the longest reaching 21,276 ft (4 miles), according to Rystad. Advances in technology have enabled producers to drill longer laterals, which can help improve well productivity and capital efficiency. Lateral lengths can vary within and across shale basins. The optimal well design can be influenced by many factors, including geology, other well spacings, and whether a company holds contiguous leases. [American Petroleum Institute] 
• 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 proven oil reserves in Venezuela are recognized as the largest in the world, totaling 300 billion barrels as of 1 January 2014. The 2019 edition of the BP Statistical Review of World Energy reports the total proved reserves of 303.3 billion barrels for Venezuela (slightly more than Saudi Arabia's 297.7 billion barrels). Venezuela's crude oil is very heavy by international standards, and as a result much of it must be processed by specialized domestic and international refineries. [Oil reserves in Venezuela] 

Supply Curve for Oil Substitutes: Batteries     

• Battery sales are growing exponentially up classic S-curves that characterize the growth of disruptive new technologies. For thirty years, sales have been doubling every two to three years, enjoying a 33 percent average growth rate. In the past decade, as electric cars have taken off, it has been closer to 40 percent. As volumes increased, battery costs plummeted and energy density — a key metric of a battery’s quality — rose steadily. Over the past 30 years, battery costs have fallen by a dramatic 99 percent; meanwhile, the density of top-tier cells has risen fivefold. As is the case for many modular technologies, the more batteries we deploy, the cheaper they get, which in turn fuels more deployment. For every doubling of deployment, battery costs have fallen by 19 percent. Couple these cost declines with density gains of 7 percent for every deployment doubling and batteries are the fastest-improving clean energy technology. [RMI]
• Batteries are a lot like explosives. Like explosives, batteries contain both reducing chemicals and oxidizing chemicals bundled tightly together, ready to react with one another. Like explosives, we engineer our batteries to pack these chemicals together as tightly as possible to speed reaction rates. Like explosives, we like our batteries as powerful as possible… But the way we put batteries together is a bit like how we made gunpowder in the 1700s. Even though all of the salient reactions and transport phenomena occur on the angstrom-scale, we build batteries in mechanically separated layers—100μm anode, 30μm separator, 100μm cathode etc. Tiny as that seems, that’s as enormous in chemical terms as grains of charcoal and saltpeter in a musket. Even 20 microns leaves tens of thousands of separator molecules for each ion to crawl through before it can cough up an electron into your favorite circuit. So slow! So here’s the obvious question: what if we could make batteries more like TNT, and assemble them at the molecular scale, with anode and cathode only angstroms apart? [Orca Sciences]
• Lithium–sulfur batteries may displace lithium-ion cells because of their higher energy density and reduced cost. This is due to two factors. The first factor is that sulfur is more energy dense and less expensive than the cobalt and/or iron compounds found in lithium-ion batteries. Secondly, the use of metallic lithium instead of intercalating lithium ions allows for much higher energy density, as less substances are needed to hold "lithium" and lithium is directly oxidized. Li–S batteries offer specific energies on the order of 550 Wh/kg, while lithium-ion batteries are in the range of 150–260 Wh/kg. Li–S batteries with up to 1,500 charge and discharge cycles were demonstrated in 2017, but cycle life tests at commercial scale and with lean electrolyte have not been completed. [Lithium-sulfur battery]
• Reducing the cost of batteries is amongst the biggest challenges facing manufacturers. Much of the cost of current batteries is due to the expense of metals including nickel and cobalt. In contrast, the materials used in the electrodes of Li-S cells are comparatively low cost, with sulfur being amongst the most abundant element on earth. The benefits of economies of scale for Li-S cells will be realised upon wider commercialisation, in particular in the production of the electrolyte. Forecasts suggest this may lead to Li-S cells with comparable performance to Li-ion cells, but at less than half the price. The removal of transition metals such as cobalt from batteries is also an important consideration due to environmental and ethical concerns with mining and uncertainties around security of supply. [The Faraday Institution]
• Each cell has a theoretical limit based on the chemistry of the cathode and the anode. There is also a practical limit, which includes the mass of electrochemically inactive components such as current collectors, separators, electrolyte, additives, tabs, and packaging. A percentage of the theoretical limit can give an insight into how mature a chemistry is, or how close to maturity a chemistry may be. Lithium-ion is difficult to measure maturity due to the mixture of different cathode and anode chemistries. [NASA Glenn Research Center]

Demand Curve for Oil: Electric Vehicles

• Electric vehicles currently account for about half of car sales in China, undercutting 3.5% of new fuel demand in 2024, while the use of compressed and liquified natural gas in road freight displaced another 2%. China has been providing subsidy support to purchases of so-called “new energy vehicles” (NEVs) since 2009, promoting its automotive manufacturing industry, and reducing air pollution. A trade-in policy, introduced in April 2024 and expanded in 2025, continues to drive growth in China’s EV sales. Meanwhile, highly competitive Chinese automakers are also making gains in international markets. [IEA] 
• The continued growth in charging will impact transportation fuel demand in China in the coming years, and may have global implications if China’s electric cars and trucks can find growing markets abroad. Public charging demand growth has averaged 62% year on year over the past 12 months, only slightly slower than the 63% growth over the past 24 months. If that rate of growth continues over the next year, annual displacement would rise by 670,000 barrels per day, bringing the total implied destruction of oil demand to 1.76 million barrels per day. The likely impact will be weaker Chinese crude imports over the longer term, declining from last year’s average levels of 11.1 million barrels per day. [Rhodium Group]
• The SCALE of the renewables revolution in China is almost too vast for the human mind to grasp. By the end of last year, the country had installed 887 gigawatts of solar-power capacity—close to double Europe’s and America’s combined total. The 22m tonnes of steel used to build new wind turbines and solar panels in 2024 would have been enough to build a Golden Gate Bridge on every working day of every week that year. [The Economist]
• BYD is currently building a factory in Brazil, its biggest market outside China, although the development was hit last year by allegations of labour abuses. The carmaker is also building factories in Thailand, Hungary and Turkiye. In addition, Wang said that BYD had no plans to sell into Canada and the United States in the short term due to geopolitical developments. The Trump administration has maintained duties of 100pct on Chinese-made EVs, as has Canada. Wang told the analysts he was confident BYD's profitability per vehicle would exceed Toyota's when it reached the scale of the Japanese manufacturer, saying BYD's cost control was better. Toyota, the world's top automaker by sales, sold 10.8 million vehicles in 2024, while BYD sold 4.27 million. BYD, which is targeting sales of 5.5 million units this year, has roiled the Chinese auto market by rolling out more affordable models, including its entry-level Seagull electric hatchback that sells for less than US$10,000. It also offers smart driving features at no extra charge on most of its lineup. [New Straits Times]
• 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]
• Far from a peak, China's gasoline demand is estimated to have fallen 9% in October on the year to 12.5 million tons, with average daily use roughly flat with September, according to Chinese consultancy Sublime China Information (SCI). The sagging holiday demand is symptomatic of the broader decline in Chinese fuel use stemming from wider EV adoption, heralding the approaching end of its decades-long role as the main driving force of new global oil demand. Gasoline consumption in the world's biggest importer of crude peaked in 2023 and the research unit of state oil company Sinopec expects demand to fall more than 4% this year from 2024. During the first nine months of the year, EVs and hybrids made up almost half of all new car sales. A fifth of the 63.5 million car trips during the eight-day holiday break were in electric or hybrid vehicles, the transport ministry says. Daily use of electricity by charging stations, a proxy for EV use, rose 45.73% during Golden Week this year, versus 2024. EV adoption has benefited from China's push to build charging infrastructure, with some 18 million charging ports by the end of September, up 54.5% on the year. [Reuters]  

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]

Friday Night Links

• One day, everything in the world economy will be priced in Bitcoin. Or, one day, Bitcoin will be regarded as the biggest bubble that ever was. There are stable equilibria between these outcomes, but they are unusual and structurally exotic. There are three major ways in which Bitcoin could still fail. A: it could be actively killed by its enemies. B: it could lose its energy source. C: it could be outcompeted by another candidate monetary standard. [Curtis Yarvin]
• Meta is signing an “operating lease” with an initial term of only four years. They have the option to extend the lease every four years, but they are not obligated to. To persuade the JV to accept the short four-year leases, Meta provided a “Residual Value Guarantee” (RVG) covering the first 16 years of operations. If Meta decides to leave (by not renewing or terminating the lease) within the first 16 years, they guarantee the campus will still be worth a certain amount of money (undisclosed). This payment is “capped” i.e. there is a pre-agreed maximum limit to how much Meta would have to pay. Again, we don’t know the exact capped limit in this deal. [MBI Deep Dives]
• If you have considered an idea from a conference, you did not buy it, and then it does well, you will feel bad. I heard Bill Ackman pitch General Growth Properties at the 2009 Ira Sohn Conference, thought it was a great idea, checked the stock price and then did nothing about it. As it 10x-ed over two years, I felt sad inside, and apparently still do. This feeling is much less painful than a loss from a bad purchase, and unless you’re insane like me you might not even remember, so I’ll assign only 0.25 sad points per occurrence. If you have considered an idea, did not buy it, and it went down, you may experience a little satisfaction from your discernment. This will be a faint emotion and you’re even less likely to remember the stock than one in the “interested-not purchased-went up” basket, so I’ll only give this situation 0.05 happy points. [Harvey Sawikin]
• But there’s a catch: had we tried to do that, we may never have survived to enjoy all the ultimate gains on Lukoil and Norilsk. Between 1995-2021, the period under examination, Russian stocks experienced two major crashes (1998, 2008) and three large corrections (2000, 2011, 2014). Firebird Fund entered all of these with reasonably diversified portfolios (in 1998 and 2014, partially hedged with derivatives and cash); though we were down, the vast majority of our investors rode out the turbulence. We communicated frequently with them and what they saw was a stable management team, calmly assessing events and determined to recover the fund’s recent losses. They may have been disappointed with us but had no reason to doubt our sanity. If, on the other hand, we had entered any of these crashes or corrections with a 75% weighting to just two stocks, Lukoil and Norilsk — which likely would’ve been the case had we kept the 1995 portfolio static — we may have looked like excessive risk-takers to our limited partners. [Harvey Sawikin]
• "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." [Enterprise Products Partners L.P.]
• Terraform's nominal design size for its kits is one megawatt. For context, one megawatt can power a few hundred homes in Europe, or about 20 to 30 large, air-conditioned homes in America. The company sells a kit that captures solar power and produces hydrocarbons, essentially creating instant oil. The goal is to have the first paying customer for these hydrocarbons, who isn't just part of a demo, as early as next year. [Casey Handmer]
• Piłsudski was aware that the Bolsheviks would not ally with an independent Poland and predicted that war with them was inevitable. He viewed their advance west as a major problem, but he also considered the Bolsheviks less dangerous for Poland than their White opponents. The "White Russians", representatives of the old Russian Empire, were willing to accept limited independence for Poland, probably within borders similar to those of the former Congress Poland. They objected to Polish control of Ukraine, which was crucial for Piłsudski's Intermarium project. This contrasted with the Bolsheviks, who proclaimed the partitions of Poland null and void. Piłsudski speculated that Poland would be better off with the Bolsheviks, alienated from the Western powers, than with a restored Russian Empire. By ignoring the strong pressures from the Entente Cordiale to join the attack on Lenin's struggling Bolshevik government, Piłsudski probably saved it in the summer and the fall of 1919. [Józef Piłsudski]
• Pick a target lifestyle number that you can comfortably live on. Call it $100-200K a year after tax all-in spend for your family. That’s housing, food, childcare, insurance, travel, everything. Then you lock that number. Tattoo it. That number is now your “max lifestyle.” You do not let it scale linearly with income. When your income jumps from $300K to $450K? You do not *deserve* to scale lifestyle 1:1. You siphon the marginal(~$80K-$90K post tax) straight into buying time and leverage: taxable brokerage, second cash-flowing asset, equity in something you own, principal paydown on a mortgage, or building/purchasing a side income stream that is not tied to a boss. Again. You use it to invest in things that earn or you control. [BowTied Bull]
• The articles published by the Annals of Eugenics (1925–1954) have been made available online as an historical archive intended for scholarly use. The work of eugenicists was often pervaded by prejudice against racial, ethnic and disabled groups. The online publication of this material for scholarly research purposes is not an endorsement of those views nor a promotion of eugenics in any way. [Wiley]

Monday Morning Links

• You can see that when gold peaked out in 1980, it peaked out, at least from a yearly price point of view at 2.5x production cost. We know gold actually spiked up to $850/oz or so. But that was a short term spike that didn’t last long. We can see gold peaked out again in 2012 or so at 1.7x cost of production. With gold at $4,100/oz, it is trading at 2.7x production cost, higher than it was in 1980. But if we use the peak price of $850/oz, that was 3.4x the cost of production, so for us to get near that level, gold would have to spike up to $5,100/oz… another $1,000! But last time gold got that high, it went down for the next 20 years, so who wants to get on that boat?! The title of this post is referring to the stock market, but having written this about gold, I now see that gold is clearly in bubble territory. [The Brookyln Investor]
• What we see with bulk population mortality curves is exactly what we would expect to see if we were monitoring the convergence of thousands of similar simulations, or the same simulation run thousands of times with slightly different initial conditions (such as in weather forecasting). Over time the state quantities gradually diverge from their initial harmony. Integrated homeostatic systems consistently restore equilibrium, but there is hysteresis and loss of information. Homeostatic mechanisms are themselves perturbed by the steadily degrading state, and the resulting feedback is a slow (or fast, depending on perspective) slide into an ever less convergent state. The process is deterministic. In numerical simulations, there are plenty of hacks to try. One could speed up feedback loops, decrease timesteps, reformulate the underlying equations, attempt to add dissipation, filtering, or systemic decoupling. Perhaps the reason exercise and caloric restriction improves life expectancy a bit is because it tempers state excursions relative to the capacity of feedback systems to recenter them? [Casey Handmer]
• People often ask what they can do to generate original contributions or comparative advantages. Usually they vastly overestimate how common it is to have gone through the basic intellectual background in a field. If you've actually read the book (actually checked the proof, actually implemented the algorithm), you're probably way ahead of the field. Much expertise is simply doing this over and over. [Nate Meyvis]
• But now you need to figure out: what should it be that you consume a lot of? For me, it's largely newsletter writers. The economics of this aren't fully clear to me (or anyone else, I think), but the people I'm most willing to bet chunks of my cognitive life on are, disproportionately, writing newsletters or newsletter-adjacent things. Why? It makes them prolific, which fuels componding returns for a good reader (see above). There are massive intellectual benefits to writing on the cadence a newsletter encourages, so the writers are improving most rapidly. [Nate Meyvis]
• Cigarette advertising used to be a huge deal. Tobacco ads were banned from broadcast TV and radio way back in 1971, and the practical upshot was that cigarette companies became some of the biggest boosters of print periodicals. Much later, the 1998 Tobacco Master Settlement Agreement between the four largest tobacco companies and 52 state and territory attorneys involved an agreement to stop running cigarette ads in publications that had very large youth-readership shares. Still, when I was an intern at Rolling Stone in 2000, the magazine’s business model relied in large part on the fact that its readership demographics were young-skewing without tripping the T.M.S.A. threshold. [Matt Yglesias] 
• When you observe an extreme outlier, you should usually vastly reduce your credence in the model with respect to which the event counts as an outlier. In crude terms: suppose that you're 95% sure that some model of the situation is right. If you observe an event that is a four-sigma outlier according to the model but much less likely if the model is wrong, then (by Bayes' theorem) your model is almost certainly wrong. So if you were making commitments on the basis of that model, you should stop doing so. [Nate Meyvis]
• Whenever possible, ask: "should I do this same thing again and again?" Getting compound returns is great. Getting diminishing returns is bad. Doing more and more of the same thing tends to get you one or the other, and figuring out which situation you’re in is often very tricky. Work at it. [Nate Meyvis]

Thursday Morning Links

• Many of us still recall the story of Belshazzar’s feast, in which the foolish king’s crime was to take sacred vessels plundered from the Temple in Jerusalem, and use them to carouse merrily with his toadies. As they did so “they praised the gods of gold, and of silver, of brass, of iron, of wood, and of stone . . . which see not, nor hear, nor know: and the God in whose hand thy breath is, and whose are all thy ways, hast thou not glorified.” Then it was that there “came forth fingers of a man’s hand, and wrote over against the candlestick upon the plaister of the wall of the king’s palace: and the king saw the part of the hand that wrote.” The prophet Daniel, brought to interpret the writing, tells him, “God hath numbered thy kingdom, and finished it. Thou art weighed in the balances, and art found wanting.” I wonder if this portion of scripture is read often in Canterbury Cathedral nowadays. I suspect that any nation which neglects it will sooner or later face its own writing on the wall, as we do. [Peter Hitchens]
• So, given that, how does the market look today? The market today looks like it is priced correctly. The 10-year Treasury rate is 4% today, and the S&P 500 index P/E is 25.5x, almost exactly where it should be according to the model. Next year’s estimate P/E is 22x. In past bubbles, the rubber band was stretched. The table below is from an earlier post. Just before Black Monday, the rubber band was stretched as 10-year rates spiked to close to 10% while the earnings yield declined to 4.7%, creating a near 5% gap. On a price basis, the market was overvalued by 100%! During the internet bubble, the gap increased to 1.5% and the market was overpriced 40%. Today, there is no stretch in the rubber band. [The Brookyln Investor]
  
• Jamie Dimon was sitting on the 13th floor of his new headquarters on a Monday morning, sipping a Guinness and looking out at the Manhattan skyline. It was the first day that JPMorgan Chase’s massive skyscraper at 270 Park Avenue was opening to employees; the CEO had arrived with his architect to toast the building, a $3 billion monument to work. [WSJ] 
• Both Rayonier and PotlatchDeltic have also benefited from surging demand from solar-power generators for swaths of land, especially in the South. They each have options and lease agreements with solar developers covering tens of thousands of acres at rates that are upward of 10 times more profitable than growing pine trees. [WSJ]
• The U.S. retreat from its electric-vehicle ambitions is spreading around the globe. In Canada, Prime Minister Mark Carney paused an electric-vehicle sales mandate that was set to take effect next year. In the U.K., Prime Minister Keir Starmer has allowed for a more flexible timetable to hit the country’s EV targets. And the European Union last month bowed to pressure from automakers to rethink—a year earlier than planned—its 2035 target for eliminating carbon-dioxide emissions from cars. [WSJ] 
• General Motors said it is reducing its electric-vehicle manufacturing capacity and booking a $1.6 billion charge on its EV business as demand sinks. In a regulatory filing, the company said that EV sales are expected to fall with the end of government-funded subsidies and regulatory mandates that fueled EV growth. The automaker has dramatically scaled back EV plans after spending billions on the technology. In 2021, GM had said it was committing $35 billion on EVs and autonomous vehicles. Money went toward new models, EV battery development and converting traditional auto factories into EV plants. [WSJ]
• One thing I notice in reading the various things put out by Stahl is that he never talks much about valuations or at least how much he thinks the various investments held by HK and FRMO are worth. Granted TPL and GBTC are the main investments held by Stahl, so the smaller stuff is not hugely important to talk about, but even for TPL I don’t see much in the way of what Stahl thinks these businesses are intrinsically worth. Why is this? Am I just missing it? Like what is the calculation – however approximately – that Stahl is making? IDK why TPL is better than, say, a basket of other oil royalty companies with similar low-capex, commodity-price optionality that Stahl always mentions with talking about TPL (of which there are a good number that are cheaper on a conventional P/E and price-to-flowing-barrel basis). [Lemon Cakes Investing]
• I think this year we're really happy that we were able to cancel just over 2.5% of the shares outstanding. We've also found a few acquisitions that are kind of in the high teens IRRs. That's great as well. I think, again, on top of the dividend, we have still a significant wedge of incremental cash flow. Even though oil over the last three years has gone from $94 to $58 and gas is virtually at zero, we still have roughly $100 million of excess free cash flow a year. We just thought with the growth we've seen in the business and the strong free cash flow yield, it was a great opportunity to cancel shares. We're happy with the amount we've canceled this year. The debt repayment should continue through the back half of the year. [Prairiesky Royalty Ltd.]
• Testosterone has affected my life in ways both large and small. The best way I can describe it is that it uniformly lowered the activation energy required for pretty much every activity. When I get a message, I respond to it. When I need something from another room, I stand up and go get it. In fact, I have energy to burn; sometimes I find myself pacing in my office. I get 1-2 hours more peak productivity per day. [Cate Hall]
• Should people start taking lithium orotate, such as the low dose of 5 mg now, widely available as an unregulated supplement? The answer is no, even though we’d anticipate it would be safe, without worrisome side effects as seen with considerably higher doses of lithium carbonate used for BD. Yes, it’s tempting, with the body of evidence presented here that exceeds supplements in common use, but we need a clinical trial to prove that the new study translates to a human benefit. If lithium orotate does work, we don’t know the right or optimal dose. Even 10 mg would be a huge dropdown from the usual dose for lithium carbonate, which for BD in adults is between 600 to 1,800 mg/day. The amount of elemental lithium in lithium orotate is approximately 1/5th of lithium carbonate. [Eric Topol]

Monday Night Links

• Let’s suppose that the Gospels really are a historical account of real people and events, and not some later invention. Well the Gospels are full of named individuals, so we should expect the statistical distribution of their names to match that of the society from which they were taken. Sure enough, the fit is very good: if you go and tabulate the names found in first century Judaean ossuaries, the most popular ones by far are Simon and Joseph, and there are 8 distinct Simons and 6 different Josephs mentioned in the New Testament. The most popular female name at the time was Miriam (Mary). None of this is something that somebody making up a story centuries later would have known, and once again we find that the various apocryphal and gnostic gospels are full of weird names and names that were popular in other times and places. Because you see, the thing about names is they wax and wane in popularity very fast! The most popular names in first century Judaea were not the most popular names in third century Judaea. They weren’t even the most popular names in first century Alexandria! Most of the wealthy and assimilated Jews of the later Roman Empire, the ones that somebody trying to fake the Gospels would have known, were Alexandrine. But the name distribution in the New Testament fits the name rankings of cosmopolitan Alexandria very poorly (common Jewish names in Alexandria included Sabbatius and Dositheus), and that of backward and isolated Palestine very well. You can push the onomastics angle even further. Imagine that you have ten friends named Simon and one friend named Thaddeus. When you’re writing to somebody about Thaddeus, you might just call him Thaddeus, and when you’re writing about one of the Simons, you’d include extra information to disambiguate him. Every bit of the Gospels, down to the random side conversations, fits this principle perfectly. [Mr. and Mrs. Psmith’s Bookshelf] 
• The first pattern that you notice is that popular baby names change over time just like all fashion. What seems to happen is that certain sounds or phonemes become popular and that drives name choices with those sounds. For example, Ava, Emma, and Anna all seem to trend together in part because they share similar sounds. But if any name becomes too popular, it stops being used as much. This leads to shifts in popularity over time. [Explorations in Personality]  
• After that first visit I read the Essay on Development and found, as he did, that “to be deep in history is to cease to be Protestant.” In a gap year I read the Grammar. Back at Oxford, I made the Littlemore pilgrimage each feast day. I drifted from my D.Phil. topic in history into theology. On an Easter retreat at Littlemore, I wrote an essay about my conversion in the library. Then doors opened. [The Lamp]
• The most significant development is that the “scaling law” appears to be breaking down – more compute is no longer delivering proportionately meaningful gains in model performance. Indeed, it is even possible future models start to get worse on account of AI “pollution” of the training data set (discussed more below). Moreover, evidence is also emerging that LLMs have fundamental limitations in their capacity to reason, and in contrast to early speculative optimism, it appears they do not in fact have internal models of the world and are instead simply sophisticated imitation engines. Unreliable output, or “hallucinations”, are proving persistent, and may in fact be an incurable feature of LLM architectures, rather than merely temporary nuisances. To the extent this proves to be the case, LLMs may be a dead end and genuine breakthroughs in AI/AGI may require us to go “back to the drawing board” with RL and/or entirely new and more targeted architectures, potentially a tougher grind and setting us back decades relative to prior expectations. [Lyall Taylor]
• Management was recently authorized to increase Aztec’s buyback program to accommodate additional privately negotiated block purchases. This brings the total dollar amount of authorized buybacks to $8,750,000. Aztec will have repurchased a total of approximately $7,800,000 in shares since December 2024. Subsequent buybacks will be considered on a case-by-case basis. [Aztec Land & Cattle Co., Ltd.]
• BlackRock-owned Global Infrastructure Partners is in advanced talks to buy utility group AES people familiar with the matter said on Wednesday, a deal that could be one of the largest ever involving a U.S.-listed power company. [Reuters]
• [H]e was unhappy that, in two places in the piece, an editor had changed the word “but” to “however.” He made his case for a page and a half, and concluded, “But is a hell of a good word and we shouldn’t high hat it. . . . In three letters it says a little of however, and also be that as it may, and also here’s something you weren’t expecting and a number of other phrases along that line.” [The New Yorker]
• The other night, struggling to sleep, I was visited by a fantasy: The 2028 presidential election is coming to its conclusion and the candidates are Republican Sen. John Thune of South Dakota and Democratic Gov. Josh Shapiro of Pennsylvania. President Trump has quietly—I told you this is a fantasy—announced his intention to retire to the golf course. JD Vance, driven out of the campaign by disastrous polling, will caddy for him. [WSJ]
• Kennedy got into the habit, according to a person familiar with the matter, when he was living in Bedford, N.Y., an area sometimes described as the epicenter of Lyme disease. He liked to start the day by taking his dogs or hawks (Kennedy is an avid falconer) for a hunt or a hike, then hit the gym afterward. Wary of ticks, he wore jeans for his outdoor adventures and then just kept them on for his workout. [WSJ]