Thursday Night Links

• He was at this point the leftist New Statesman correspondent in Paris, in which capacity his finest hour was to commit the almost unprecedented impudence of interrupting General de Gaulle at one of his carefully prepared press conferences. When de Gaulle proclaimed his support of a Europe of fatherlands (“Europe des patries”), he said that he wanted to build the Europe of Dante, Goethe, and Châteaubriand. The young English representative of the New Statesman, under a mighty profusion of unkempt red hair spoke up: “Et de Shakespeare, mon general”—more an assertion than a question. As Paul recalled, the majestic founder of the Free French and of the Fifth Republic, little accustomed to being interrupted, or to being addressed in such comradely terms by the disheveled representative of a leftist British intellectual magazine, said with an epic Gallic shrug, “Oui, aurons Shakespeare” (“Yes, we will have Shakespeare”). Even the most opinionated journalists on the French Left never presumed to interrupt de Gaulle, and Paul was lionized by the Paris press corps. [Conrad Black]
  
• Trump’s movement has been around for a decade now, and in all that time it has built absolutely nothing. There is no Trump Youth League. There are no Trump community centers or neighborhood Trump associations or Trump business clubs. Nor are Trump supporters flocking to traditional religion; Christianity has stopped declining since the pandemic, but both Christian affiliation and church attendance remain well below their levels at the turn of the century. Republicans still have more children than Democrats, but births in red states have fallen too. [Noah Smith]
• Trump’s disapproval ratings are creeping up and economic expectations are headed down, as more and more Americans realize they got a bum deal. But in general, the idea that short-term pain is necessary for long-term economic gain is not always inconceivable. For example, when Paul Volcker raised interest rates and causes two recessions in the early 80s, the resulting conquest of inflation probably paved the way for decades of good economic performance. Trump and his true believers probably really do think that cutting America off from the global economy will cause a bunch of new businesses to sprout up from the ground like mushrooms after a rainstorm, creating mass employment and economic equality and everything good that they dimly remember America having back in the 19th century. But when I say that that possibility can’t be ruled out, I mean it in only the most technical sense. [Noah Smith]
  
• Because again I think when you think about our business with kind of 6% free cash flow yield plus or minus and then 6%-plus growth rates and some of these high IRR acquisitions were kind of a mid-teens returning business. So, it's hard to find asset acquisitions that measure up against what our business is doing right now. So, again that's probably more of what we'll see over the next year. [PrairieSky Royalty Ltd.]
• Trump’s political strategy has never made much sense relative to his stated priorities. From the beginning, his best potential political allies in Congress were the members who leaned libertarian—not because libertarians agree with him on everything (we certainly don’t) but because libertarians are more willing than anyone to support the boldest measures to reshape and reduce government. But from the beginning he made libertarians, including me, his top targets for disparagement and harassment. He tried to blow up the initially libertarian-leaning House Freedom Caucus. His first major effort to oust someone from Congress was Mark Sanford, one of the most libertarian members. We libertarians are the ones who could have helped him slash federal spending, stop the endless wars, and defeat the surveillance state. Even though his actions suggest otherwise, I’m taking him at his word here that these are things he wants to do. Trump’s advocates insist they are, so it’s fair to assess him accordingly. Instead of siding with those who could have helped him, Trump has repeatedly backed, promoted, and endorsed big-government, establishment stooges who privately detest him but playact as admirers. These people keep giving us more spending, more wars, and more unconstitutional surveillance. Now, he’s trying to oust one of the best members of Congress ever, Thomas Massie. Why? Massie has an actual strategy to advance significant parts of Trump’s stated agenda. What has Trump gotten from allying himself with Lindsey Graham & Co. other than more of the status quo? He doesn’t gain by making enemies of libertarians; it only undermines his administration. In these big battles, Trump should instead be putting pressure on members—like those in congressional leadership—who have a long history of enabling waste, fraud, and abuse in government. I hope, for the health and well-being of America, that he rethinks the strategy he’s employed up to now. I know it’s a long shot, but it’s important to say. So much is at stake. [Justin Amash]

Thursday Night Links

• Rather than compelling Canadians to seek annexation, the tariff stirred “love for Queen, flag, and country,” according to George T. Denison, president of the British Empire League in Canada. The majority of Canadians saw the McKinley tariff as part of “a conspiracy” to “betray this country into annexation.” They were having none of it. Their cultural and political ties with the British Empire, as well as their anger over the attempted coercion, proved stronger. Canada’s Conservative Prime Minister John Macdonald wanted to react forcefully to send a message to the U.S. He proposed retaliating with high tariffs on American goods, as well as increased trade with Britain. He also recognized a political weapon when he was handed one. He adroitly turned the 1891 Canadian elections into a broader referendum concerning Canadian-American relations. He portrayed the Liberal opposition as being in bed with the Republican annexationists. According to him, they were involved in “a deliberate conspiracy, by force, by fraud, or by both, to force Canada into the American union.” [Time]
  
• In 2019, two experts at Carnegie Mellon, Paul Fischbeck and David Rode, analyzed 1,600 rate cases over 40 years, and noted the “balance between utility companies and their customers has been shifting over time, in favor of the utilities.” What investors were being paid to take risk in putting money into a utility in 1980 was about 3%, today it is nearly 7%. Interest rates have gone up a bit since these scholars made the calculation, but it hasn’t changed the dynamic. [BIG by Matt Stoller]
• One afternoon I found him in our hotel lobby holding his iPad close to his face, asking Chatgpt, “Where would Tyler Cowen recommend getting dinner near me?” A series of fried-chicken restaurants on the other side of the island appeared. He shrugged and made a disappointed noise; it hadn’t told him anything he didn’t already know. [The Economist]
• As I read ''The Education of a Speculator'' I often found myself asking, how can a man so self-deluded survive, much less prosper, in the market? Is it possible that traits disadvantageous to an autobiographer -- shallow self-assurance, unreflectiveness, bullheadedness -- offer an edge to the speculator? Four hundred forty-four pages later I still don't know. But I can guess. My guess is that they don't, and that the story the author tells of his life in the market is very different from his actual behavior in the market. For whatever reason he does not want to explain the reasons for his rise in the world. He doesn't really want us to know them, or wants us to believe that they are something different and more complicated than they are. [Michael Lewis]
• Metallurgical and thermal coal prices remained weak throughout 2024, primarily due to muted steel demand impacting metallurgical coal and mild weather, high inventory levels, and low natural gas prices impacting thermal coal. While NRP does not expect significant changes in these factors or to pricing in 2025, metallurgical and thermal coal pricing is still higher compared to long-term historical norms. It appears a new price floor has resulted from input cost inflation as well as ongoing labor shortages and operators' limited access to capital. [Natural Resource Partners L.P.] 
• “Does a single district-court judge who likely lacks jurisdiction have the unchecked power to compel the Government of the United States to pay out (and probably lose forever) 2 billion taxpayer dollars?” Justice Alito writes. “The answer to that question should be an emphatic ‘No,’ but a majority of this Court apparently thinks otherwise. I am stunned.” [WSJ]

Tuesday Night Links

• Enormous resource rents plus a tiny population plus having sovereignty guaranteed by the United States is an enviable position to be in. With merely adequate government, Canada could easily have the highest standard of living in the world, an Anglo-French North American Norway or Qatar. But instead of leaning into this, the grand strategy of the Canadian state has, like Britain, been to specialize in low-skill labor-intensive services, real estate, and degree mills while legally penalizing resource extraction. [Arctotherium]
• According to Activision founder Bobby Kotick, Berkshire Hathaway's Charlie Munger was at one point in time interested in buying Nintendo, or at least interested in exploring the idea of buying Nintendo. Kotick said on the Grit podcast that Munger was not a fan of video games, but saw an opportunity to potentially make a bid for Nintendo. Munger is said to have floated the idea of spending some of Berkshire's immense holdings on making moves in the video game space. One of Munger's ideas, apparently, was to buy Nintendo. "He goes, 'You know, I was looking at a couple other companies in your sector. I think if we bought yours, we should buy that company Nintendo, too,'" Kotick recalled. "He said, 'Have you guys looked at it? I was like, 'Yeah.' It was trading [at the time] at like 13 billion, with 7 billion in cash. He goes, 'You know, I don't think anything is gonna go really bad before I'm dead, and then if it goes bad after I'm dead, they'll just chalk it up to the folly of an 82-year-old, so you don't have to be so concerned about disappointing me." [link]
• I think people started talking about the paperless workplace in the late 90s. From my experience, it took about 20 years for most workplaces to actually go (mostly) paperless. New technology takes a while to implement for several reasons. First, most decision-makers in most workplaces are on the older side and are inherently conservative. They don't really understand new technology and what it is capable of and don't feel the urgency of change. They won't change until all of the companies they watch and get their ideas from change first. [Marginal Revolution]
• To protect the savings of United States investors and channel them into American growth and prosperity, my Administration will also: (i) determine if adequate financial auditing standards are upheld for companies covered by the Holding Foreign Companies Accountable Act; (ii) review the variable interest entity and subsidiary structures used by foreign-adversary companies to trade on United States exchanges, which limit the ownership rights and protections for United States investors, as well as allegations of fraudulent behavior by these companies; and (iii) restore the highest fiduciary standards as required by the Employee Retirement Security Act of 1974, seeking to ensure that foreign adversary companies are ineligible for pension plan contributions. [The White House]
• In the quarter, depreciation and amortization expense increased $164.9 million growing over 230%. This was primarily due to a revision in the cost estimate included in calculation of the company's asset retirement obligations, ARO. ARO accounts for Lamar's obligation to dismantle and remove over 71,000 billboard structures on leased land and restore the sites to original condition. We test our ARO estimate annually, and the cost to retire these assets has risen substantially, which led to an increase in our depreciation and amortization expense during the quarter. However, the expense is a non-cash item and does not impact the company's adjusted Ebert or AFFfo. [Lamar Advertising Co.]
• In Gas Distribution, we completed the $19 billion, once-in-a-generation, acquisition of three leading U.S. gas distribution companies. This transaction positions Enbridge as the owner of North America's largest natural gas utility franchise and complements our existing low-risk business model, and each of the utilities is well-positioned to serve growing natural gas demand in North America. [Enbridge Inc.]
• A spike in rents during the early years of the pandemic sparked a historic apartment construction boom in 2023 and 2024. That crush of new inventory, especially in hot Sunbelt markets like Austin and Phoenix, led to oversupply and caused rents to fall in much of the country. But more people now are renting longer, as mortgage rates stay high and the costs of homeownership remain unaffordable for many Americans. Landlords say that the new construction pipeline should be mostly drained by year-end, setting the stage for rents to rise nationwide later this year. “The relationship is going to very quickly flip from a renter-friendly environment to a landlord-friendly environment,” said Lee Everett, the head of research and strategy at multifamily giant Cortland. [WSJ]
• Over the coming weeks, all eligible Robinhood customers in the U.S. will have access to futures products across five major asset classes, including the four leading U.S. equity indices  – S&P 500, Nasdaq-100, Russell 2000 and Dow Jones Industrial Average – as well as bitcoin and ether, major FX currency pairs, key metals including gold, silver and copper, and additional commodities such as crude oil and natural gas. [CME Group]
  

Guest Review of “A Century of War: Anglo-American Oil Politics and the New World Order” by @pdxsag

[From our correspondent @PdxSag. His previous guest posts on CBS include What I've Learned the Past Decade and A "Wonderlic" Test for Agency.]

A Century of War: Anglo-American Oil Politics and the New World Order starts out with a deep-dive into the British model for financial hegemony beginning with its origins in the 19th century. It follows its growth through and including World War II, culminating with the passing of the baton from the U.K. to the U.S. after World War II. 

The subtitle "Anglo-American" references the deep ties and overlapping management between the U.K pre-WWII and the U.S. post-war. Following World War II, the U.S. takes a more active roll in shaping policy and outcomes, which the result of is easy enough to see: the US is a super-power now, and the UK is decidedly not. Century of War ends, in the updated 3rd edition of 2011 (original edition was published in 1992), covering the Iraq War, its aims and consequences.

First, what is the British model? Very simply, it is to position yourself at the nexus of trade in a critical resource and make your currency the reserve asset for international commerce. Then you can profit from seigniorage.

Since the industrial revolution, energy generally and petroleum specifically is the critical resource. However its scarcity has been greatly exaggerated. The common theme through the 20th century was elaborate machinations to keep petroleum a scarce resource, mainly by keeping competitors out of the oil market.

Not since I reviewed A Bottle of Lies for CBS has one of my reviews felt so eerily timely. Consider that last month, CBS wrote the long essay on Cornucopianism. Then last week, USAID's cover was blown by DOGE and Elon Musk, and last night I listened to a podcast between Grant Williams (Boomer) and Demetri Kofinas (Millennial) as Williams came to terms with his disillusionment in the American Experiment (my words, not his) owing to the Trump meme coin.

Kofinas worked through his disillusionment some time ago and firmly pin-points the failure of the American experiment on the Bush-Cheney invasion of Iraq which was done under fraudulent pretenses.

As a Gen X, well, we stopped harboring idealism in our teens (years before 9/11 was a thing) and are simply un-disillusionable. Nonetheless, I definitely felt sympathy for Grant and Demetri. I wanted to jump in there and say, guys, guys, guys... the Iraq war wasn't the beginning at all. You should read Century of War. It has the the receipts.

The wrinkle of the British model is two-fold: how do you keep a resource's supply critical (ie. in a shortage), and how do you keep yourself at the supply's nexus. The answer to those questions is... Statecraft.

A nasty business statecraft is. It is lies, deceit, wars of convenience, and lying to your own people as a matter of course. All while you purport to grand ideals of fairness, democracy, and the rights of man. It is quite literally the stuff disillusionment is made from. Pity on us all.

Century of War is the receipts on a century of Anglo-American statecraft. (Nb.: we are aware that Normies are propagandized into calling these "conspiracy theories." However, the last 5 years have shown, if nothing else, conspiracy theories are never more than one undauntable autist away from documenting them to be conspiracy fact. In this case, Engdahl is our undauntable autist. He has sourced citations and footnotes for all of these events. In full disclosure, we mostly skimmed the footnotes and didn't follow citations.)

Here are some of the biggest:

• Interference with German/Russian relationship after WWI – The Treaty of Versailles was the original IMF loan/student loan scam where no matter how hard Germany worked, they would never be able to earn enough hard currency to pay it off. The terms for late-payment were too onerous and the time between recessions too short to ever get it paid down. The Germans attempted to work-around the situation by, among a litany of maneuvers, setting up an oil barter program with the Russians. When the British got wind of the agreement they quickly scotched it and soon after came down on Germany harder by trumping up yet more onerous financial requirements.
• Interference with Italy after WWII – An Italian, Enrico Mattei, almost single-handedly developed a domestic oil industry and successfully reduced Italy's reliance on middle eastern oil and American finished oil products. He was credited more than anyone else for the Italian post-war economic miracle. In October 1962, at the height of his success, as he was preparing to meet with US President Kennedy to discuss a detente between Italy and US' oil companies, he died in an airplane accident under mysterious circumstances. President Kennedy, for his part, would die just 13 months later, November 1963, under no less suspicious circumstances.
• Club of Rome – A Kissinger op, the Tri-lateral Commission needed a plausible cover story for nations of the world to throttle their growth. Over-population and the world running out of natural resources, oil most of all, fit the bill. This helpfully reduced potential competition on resources with the West, while doing nothing to advance supply away from the existing establishment under US control.
• 1973 oil boycott – Kissinger deliberately mis-relayed intelligence and communications between Israel and Egypt which directly lead to the outbreak Yom Kippur War. He then directed the Shah of Iran to launch the oil boycott in 1973 in response to the US siding with Israel. This immediately repriced oil which helpfully made the newly developed oil fields in Alaska and the North Sea economically viable.
• 1978 oil boycott – British Petroleum took an extremely hard line negotiating a renewal of their oil lease with the Shah of Iran. At the same time, British and US intelligence services advanced the propaganda campaign of Islamist agitators, as well as being closely embedded with the Shah's secret police where they recommended increasingly brutal repression tactics which only served to fuel the Islamist propaganda. George Ball, a member of Bilderberg Group and the Tri-lateral commission and Under Secretary of State, recommended Khomeini over the Shah.
• Three Mile Island op – In 1979, the world smarting from two oil price shocks in 7 years, a nuclear reactor in Harrisburg, Pennsylvania, had an improbable sequence of events culminating in an atmospheric release of nuclear radiation fall-out. Additional improbabilities: the newly formed agency, FEMA, whose existence according to the executive order that created it did not begin until April 1, had actually started its operation 5 days early on March 27, the day before the accident on March 28, and thus able to swoop in and assert authority and take control of the situation, including, most of all, censoring all information from plant workers to the media, thereby creating an information vacuum in which sensational rumors could run unchecked amongst the public. Earlier in that same month of March, the movie “China Syndrome” was released pre-suading the American public on the worst-case scenario for a nuclear accident. Finally, in the ensuing investigation, while industrial espionage was listed as one of the six possible root-causes, it alone of the six was never actually investigated. The sum total of TMI was that nuclear energy was suddenly verboten in the West and most of the developing world.
• Saddam Hussein rug-pull – It's often told now that Saddam Hussein invaded Kuwait after an in-over-her-head diplomat intimitated to him that the US would not intervene in an Iraqi-Kuwaiti war. A proto-DEI hire accidentally kicking off a war certainly strokes the sensibilities of many on the popular right today. However in consideration of US petrodollar statecraft and Kissinger's m.o. leading to the Yom Kippur War, it is more believable she was directed to set-up Saddam by giving him the go-ahead so that a shocked, shocked I tell you! George H.W. Bush could invade Iraq and put their oil industry under the US thumb for a decade.
• Second Iraq War – At the peak of US power, with the peace dividend from the collapse of the Soviet Union reaching its full fruition and the US budget ever so briefly in surplus and the deficit going down for the first time in decades, in response to the WTC terrorist attacks, planned by a Saudi royal family member living in the mountains of Afghanistan, the US goes to war in Iraq over fraudulant charges of weapons of mass destruction. It takes Iraqi oil production all but offline, plus creates a host of other regional instability issues. Note, at the time a common charge among the always wrong left-wing crowd both in the US and abroad was that US wanted to “steal Iraqi oil.” On the contrary, we can see that stealing the oil would not help US statecraft in the least. They didn't need it stolen. They needed it stranded.

The common thread through these events is the need to keep petroleum as an artificially scarce resource. Additionally, is the need to keep Anglo-Americans at the nexus of the physical petroleum trade, which is to say oil moves on the ocean and is subject to the US Navy's good graces. This is known as the petrodollar.

A perennial theme that I left out of the above list is Eastern European pipelines that always fall-through due to extenuating geo-political circumstances. Pipelines running through non-aligned countries really make the elites unhappy. One example would be the Kosovo War, but the best is the recent Nordstream pipeline episode.

The not so obvious implication in all this is that it takes a lot of work to maintain the scarcity of oil and hence the supremacy of the dollar. My theory is that if the scarcity of oil breaks down, so will the dollar.

The world is not running out of oil. It is especially not running out of fossil fuels, more broadly. The genie of that realization is not going back into the bottle. And thus the petrodollar is nearing the end of its line.

To be sure, other people have been warning of this outcome too. As Cornucopists ourselves now, we hopefully will be better prepared than most to accept this new and, frankly, inconvenient fact.

Fun aside: Herman Kahn gets a name drop in Century of War. Additionally, Malthus is called out as a fraud (pages 177-178). Malthus' paper, 1798, was a flimsy plagiarization and adaptation of Venetian Giammaria Ortes paper some 20 years prior which itself was written as an attack on Benjamin Franklin's 1755 positive population theory.

It certainly has some unsettling implications for any investment theses predicated on a return of oil to inflation adjusted prices commensurate with the 1970's, or even the late 2000's. This is not to say oil is a bad investment. Rather, one must avoid the oil bugs bemoaning price manipulation. They without realizing it, must wait for an exogenous supply crunch for their investments to become profitable. Of course, over the full cycle, including the cost of capital, they never are. Most oil and gas producers are trading sardines. Instead, we choose to pay-up for the highest-quality, lowest-cost producers and royalty streams. Make money on volume and don't stress about the commodity price.

Next, I hypothesize that Latin America will stop self-sabotaging their countries with bone-headed politics. That had been the model, because CIA was in there funding left-wing agitators and a coup every time they got someone competent and pro-growth in charge. Instead, they will start growing organically and moving up the development index curve. They will start consuming resources more commensurate with their share of the population. For resource investors, that is a good thing.

Expect that U.S. statecraft is not going to disappear. It will by necessity pivot away from oil scarcity being the foundation of U.S. hegemony. However, seigniorage is heady stuff. No country gives that up laying down.

Personally, I expect crypto-fiat to be what comes next (if the last decade doesn't feel like a long-con pre-suasion op for digital money, I don't know what else to tell you). But I am humble enough to know I have no idea what the end-game really is or how we get there.

If forced to guess, I'd say a three tier system: legacy Bitcoin which will be preferred by those outside U.S. direct sphere of influence; a Greenback coin for people and companies within the U.S. sphere of influence, including close allies such as Western Europe, Japan, Singapore, the Urban Middle East; and a central bank clearing house coin for balance of payments between countries, much as gold functioned prior to 1971.

We have to assume that a repricing of gold does not fit with US seigniorage interests. Indeed, if it were that easy, it would have been done in 1971, if not earlier. Gold will likely be a part of the final solution, thousands of years of history see to that, but to expect it to solve the whole or even the majority of the reserve currency problem seems long odds against the experience of 92 years without it in a modern, post-scarcity economy.

Finally, if nothing comes next, that's bad for the U.S. dollar far more than it's bad for oil. And bad for the U.S. dollar could be good for U.S. citizens. Empires aren't cheap. As we are seeing with DOGE, they run through a process of shuffling lots of money around in a very opaque manner and those with connections skim a nice little vig for themselves. If they are forced to stop shuffling money and there's no vig being siphoned, that value in the economy doesn't disappear, it stays allocated to the creators of it. It makes for a rocky adjustment period, but after the adjustment there will be a bigger economic pie than there had been before.

Earnings Notes I (Q4 2024)

Exxon Mobil Corporation (XOM)
Exxon's free cash flow for the fourth quarter of 2024 was $8 billion, which was the same as a year earlier. For the full year, Exxon generated $34 billion of free cash flow versus $36 billion in 2023. (Note that Exxon acquired Pioneer Natural Resources in May 2024 for $60 billion, which added a large amount of production in the Permian.) The market capitalization of Exxon (at $108 per share) is $478 billion and the enterprise value is $500 billion, which puts the annualized FCF/EV yield at 6.4%.

Exxon's upstream earnings were $6.5 billion for the quarter (up 5.5% y/y), downstream earnings were $0.4 billion (down 70% y/y), chemical earnings were $120 million (down 87% y/y), and specialty products earnings were $746 million (down 6% y/y).

Imperial Oil Limited (IMO)
Imperial's free cash flow for the fourth quarter of 2024 was $3.5 million (USD), which was up 54% from a year earlier. For the full year, Imperial generated $2.9 billion of free cash flow versus $1.4 billion in 2023. The market capitalization of Imperial (at $66 per share) is $34 billion and the enterprise value is $36 billion, which puts the annualized FCF/EV yield at 10.8%.

The share count was down 5% year-over-year. They returned a total of $2.7 billion to shareholders in 2024, which is a shareholder yield of 8%. On the operations side, Imperial's cash cost per barrel in 2024 was $3 (USD) lower than in 2023. (Cornucopian.)

Suncor Energy Inc. (SU)
Suncor's free cash flow for the fourth quarter of 2024 was $2.5 billion (USD), which was up 27% from a year earlier. The market capitalization of Suncor (at $38.41 per share) is $49 billion and the enterprise value is $57 billion, which puts the annualized FCF/EV yield at 17.5%. They returned a total of $2.1 billion by way of share repurchases, dividends, and debt repayment in the fourth quarter, which is a yield on the market capitalization of 17%. Suncor has hit its net debt target and is now focused on buybacks and dividends. The oil sands segment produced 539k bbl/d in the fourth quarter with a cash operating cost of $18.59, which was down 14% ($3 per barrel) from the year earlier. 

Intercontinental Exchange Inc. (ICE)
For the full year 2024, ICE earned $3.9 billion of free cash flow on $9.3 billion of total revenue (less transaction-based expenses) for a royalty-like 42% free cash flow margin. Free cash flow for 2024 was up 26% from the prior year. The current market capitalization is $92 billion and the enterprise value is $113 billion, which makes the FCF/EV yield 3.5%.

Enterprise Products Partners L.P. (EPD)
The $0.74 earnings for the fourth quarter are a 9% annualized yield on the current unit price of $32.78. The quarterly distribution is only $0.535 because they are retaining earnings, so the current dividend yield is ~6.5%. The big question with Enterprise is whether all of the "growth" investments pay off by resulting in higher free cash flow generation? If so, cash from operations would increase and capital expenditures would (hopefully) decrease, resulting in a lot more cash available for distributions to unitholders.

General Motors Company (GM)
Was surprised to see that General Motors shares outstanding ended the year 17.53% lower. The market capitalization is $48 billion and in 2024 GM generated $20 billion of cash from operations, spent $11 billion on capital expenditures, and did $7 billion of share repurchases.

Thursday Night Links

• It’s important to note that most entrepreneurs must bootstrap and run businesses for a cash profit. Only a tiny sliver of the most privileged closest to the money printers, e.g., the Harvard and Stanford networks, can tap into venture capital willing to lose money in hopes of flipping an IPO on public investors, so it’s extremely rich for this most privileged caste — pun intended — to then demand serf labor on top of their superior access to undisciplined capital. On a cash basis, your local dentist who owns his practice is a more successful entrepreneur than most of these people. [The Tom File]
• As they note, airline equities have destroyed capital in real terms since the industry was first deregulated: every airline chases economies of scale, and that means the industry tends towards overcapacity. (A feature they don't note in the piece, but that also affects these growth incentives, is that newer planes are cheaper and seniority-based pay means that newer hires are cheaper, too, so a small but growing airline has better unit economics than a mature one, but only as long as it can outgrow the actuarial headwind.) One of the reasons airline returns over time have been poor is that they sometimes go to zero, and being a winning trade some years is just the flipside of the same volatility that can wipe out shareholders. The biggest airlines today are run more conservatively than they were in the past, and that flattens both tails of the distribution, but the fundamental challenges of the business remain. [The Diff]
• In the long run, model commoditization and cheaper inference — which DeepSeek has also demonstrated — is great for Big Tech. A world where Microsoft gets to provide inference to its customers for a fraction of the cost means that Microsoft has to spend less on data centers and GPUs, or, just as likely, sees dramatically higher usage given that inference is so much cheaper. Another big winner is Amazon: AWS has by-and-large failed to make their own quality model, but that doesn’t matter if there are very high quality open source models that they can serve at far lower costs than expected. [Ben Thompson]
  
• Quite honestly, the tax rates didn’t really matter because when an internet company worked, it grew so fast and got so valuable that if you worked another three years, say, you’d make another 10 X. Another 5 percent higher tax rate washed out in the numbers. [Marc Andreessen]
• Plumbing:  Plumbing is a critical service that should benefit from older houses with older pipes.  These can range from simple calls related clogged drains to more complex issues such as backed up sewers.  Plumbing services is severely fragmented, leaving industry-wide data hard to come by, but we can glean some insight from Chemed, which owns Roto-Rooter, the nation’s largest plumbing company.  Since 2005, Roto Rooter’s revenues have compounded at about 6% per annum, a rate above nominal GDP over the same period.  For reasons we have already listed, this rate of growth for plumbing services seems set to continue. [Lawrence Hamtil]
• The utilities situation might be the most interesting. A utility dropping 20%+ in one day on a read-through in demand is something that may well have last happened almost a century ago. Credit problems, lawsuits, supply constraints, regulatory issues—utilities do have the occasional big swing, but it's almost never directly attributable to a drop in future demand. One reason for the drop is that the buyers pushing a select group of utilities higher were either utility tourists who found a low-vol way to get AI exposure without the large-cap growth factor weighting, *or* were AI tourists who found a way to chase the market's favorite theme within their asset class constraints. Neither group is going to do an especially great job of rapidly updating their estimates based on news like this. But if there's a section of the economy that best fits the now very well-trod Jevons Paradox argument, i.e. that declines in AI's cost will increase dollars spent on AI because we all use it so much more, that beneficiary should be the companies whose watt-hours turn into revenue by way of inference. [The Diff]
  

Wednesday Morning Links

• America will be a manufacturing nation once again, and we have something that no other manufacturing nation will ever have — the largest amount of oil and gas of any country on earth — and we are going to use it. We’ll use it. We will bring prices down, fill our strategic reserves up again right to the top, and export American energy all over the world. We will be a rich nation again, and it is that liquid gold under our feet that will help to do it. [The Inaugural Address]
  
• I think what you're seeing there is the fact that 100 basis points lower rates have sponsors excited about dusting off some projects, signing a term sheet, and getting ready to move forward. And frankly, I think the election has stimulated enthusiasm and excitement about the US economy with the expectation that we're headed into a more pro-business constructive environment that's going to be good for economic growth. So we're getting those vibes from our customers and seeing that. So we're feeling cautiously optimistic about loan growth in 2025, even knowing we're going to still be dealing with a big bunch of headwinds from RESG payoffs because 2025 is the third year following the record 2022 origination year in RESG. [Bank OZK]
  
• The biomass accumulation rate is something like 0.5 mm/year (1/64th of an inch), which doesn’t sound like much, until you realize that 20 years of accumulation is equivalent to coating the entire forest in a layer of gasoline 1/4” thick. This is not hyperbole, drought resistant trees including eucalypts and creosote secrete volatile oils to help retain moisture, contributing to their combustibility. [Casey Handmer]
• Healthcare will be the consumption category most increased by demographic shifts, with spending on healthcare per capita increasing between 5 and 29 percent as a result of changes in age mix alone. In Japan, the average person will spend 5 percent more on healthcare per year in 2050 compared with 2023, considering only the age mix shift. In the United States, per capita healthcare consumption could increase by 8 percent, or $380 billion in 2050, solely as a result of the shift in age mix. [McKinsey Global Institute]
• These developments made it possible to replace thick, heavy walls of stone and brick with thin, light curtain walls made of glass and aluminum. And while this style of construction was indeed championed by modernist architects, it also had decisive advantages from a real estate developer’s perspective. The most obvious was cost. A glass and metal curtain wall wasn’t necessarily all that much cheaper than one made of brick in terms of the materials themselves, but it was much thinner and lighter. Its thinness meant that for two equally sized floor plates, the curtain wall framed one would have more rentable square feet than the stone or brick one. This more than made up for the fact that the thin curtain walls had worse insulation and were more expensive to heat and cool than masonry walls. [Construction Physics]
• The stock market is pricing portfolios of American homes at a hefty discount to what houses are changing hands for in the open market. Shares of single-family landlords Invitation Homes and American Homes 4 Rent are trading at 35% and 20% discounts to their net asset values, respectively, according to real-estate analytics firm Green Street. Invitation Homes’ stock has traded at a particularly large discount to NAV since interest rates began to rise in early 2022, but the gap has widened by 10 percentage points in the past year. [WSJ]
• Whereas if your MacBook Pro was made by the California Department of Computing, you can only imagine it. I’m sorry, I’m here in this building, and I keep forgetting to make my best argument for monarchy, which is that people trust The New York Times more than any other source in the world, and how is The New York Times managed? It is a fifth-generation hereditary absolute monarchy. And this was very much the vision of the early progressives, by the way. [NYT] 
• Curtis Yarvin is mistaken when he says that Apple can produce iPhones because it's a monarchy. There are millions of firms ("monarchies") in the world that can't produce anything nearly as impressive as iPhones, from the laundromat down the street to Boeing. Apple is the result of a decades long evolutionary process facilitated by the market which uplifts the very best culture, talent, processes, and ideas in the entire world. And the moment Apple slips, it'll get replaced (the average lifespan of a Fortune 500 is 15 years). Governments just don't work this way. Xi Jinping isn't competing again a million counterfactual Chinese leaders who didn't do Zero-COVID, avoided deflation, didn't kill the tech industry, and were awake to AGI. He can fuck up as much as he wants. If a monarch happens to be competent, like Lee Kuan Yew, it's merely by chance, not due to some intrinsic selection mechanism of monarchy that we can replicate. You are just as likely to get brutal dictators like Mao and Stalin by chance - this is not a reasonable gamble to take with the lives of hundreds of millions of citizens. Apple is indeed a wonderfully competent organization - if we want more of the world to be run competently, we should delegate more functions to the market, which is constantly and ruthlessly sizing down incompetence. [Dwarkesh Patel]