Monday Night Links

• "The possibility that KMI will abandon plans to build a gas pipeline should have been cheered by astute investors aware of the history. Less KMI capex means less chance to invest at a return on invested capital below the company’s cost of capital. ET has helped KMI from building on their poor track record. KMI investors should be happy." [SL Advisors]
• Every year or so Wells Fargo publishes Show Me The Money in which they compare ROICs for midstream companies. Its release is probably not greeted with boundless enthusiasm by senior executives at KMI, because they have ranked poorly for years. In the most recent edition (October 2024), they were dead last, with a 25-year average ROIC of just 5.4%. For the 2018-23 period Wells Fargo calculates KMI’s ROIC at 3.4%, worse than all their peers except Plains All American. With a 6.3% WACC, they’re earning a –2.9% spread. This suggests that on average, KMI investors would be better served if the company hadn’t made those investments. It’s not a perfect scorecard. Wells Fargo notes that KMI had some natural gas pipeline contracts that matured and were renegotiated at lower rates. Maybe those projects were done twenty years ago and so shouldn’t reflect on more recent capex. Nonetheless, KMI’s returns have been consistently poor. It means that the enthusiasm with which management describes their $9.3BN backlog should not be shared by KMI investors. [SL Advisors]
• But oil’s volatility is nothing compared with electricity. The spot price of electricity in Texas can jump from $0/MW to $5,000/MWh in 5 minutes, then back to $0/MWh in another 5 minutes. Nothing else has price dynamics like electricity. Electricity is so volatile that its price can’t be described with the same metrics and visualizations as other commodities. The last 50 years of oil price movements would hardly be visible when graphed against a single volatile day of electricity price movements. [Chris Gillett]
  
• TSMC will be drained out of Taiwan. By the late 2030s, Taiwan will have agreed a deal to become China’s third SAR formally by 2049, making the centennial celebrations of the PRC a truly festive affair. No massive world war is coming. Our stocks are safe. I believe in this so strongly as the inevitable coming tide. It’s why geopolitics is utterly boring now and in no way really matters that fundamentally. No world war is coming, the only question now is just how fast and how weird AI models and robotics and transhumanism alters the human species itself. But all this political crap? It’s finished tbh. [@okaythen]
• When you fully unpack any job, you’ll discover something astounding: only a crazy person should do it. Do you want to be a surgeon? = Do you want to do the same procedure 15 times a week for the next 35 years? Do you want to be an actor? = Do you want your career to depend on having the right cheekbones? Do you want to be a wedding photographer? = Do you want to spend every Saturday night as the only sober person in a hotel ballroom? If you think no one would answer “yes” to those questions, you’ve missed the point: almost no one would answer “yes” to those questions, and those proud few are the ones who should be surgeons, actors, and wedding photographers. [Experimental History]
• How dreadful are the curses which Mohammedanism lays on its votaries! Besides the fanatical frenzy, which is as dangerous in a man as hydrophobia in a dog, there is this fearful fatalistic apathy. The effects are apparent in many countries. Improvident habits, slovenly systems of agriculture, sluggish methods of commerce, and insecurity of property exist wherever the followers of the Prophet rule or live. A degraded sensualism deprives this life of its grace and refinement; the next of its dignity and sanctity. The fact that in Mohammedan law every woman must belong to some man as his absolute property, either as a child, a wife, or a concubine, must delay the final extinction of slavery until the faith of Islam has ceased to be a great power among men. [The River War, Churchill] 
• Thank you for this. Nigerian here, and I have to say that you hit the nail squarely on the head. Population counts in Nigeria are deeply political and essentially every region/state is motivated to fake/overestimate their headcount to get a bigger chunk of the oil revenue, which is pretty much the most significant slice of gov. revenue. But, once you dig into the figures, you realize it'd be a miracle if Nigeria has up to half of the population it claims. Every single census that's been conducted has been marred by controversy, with states trying to buff up their populations to make their ethnicity/region look bigger and more important. [y/churchill]
• On the road from kikwit to Kinshasa we had noticed our rear differential was leaking again. Problem is the seal and the liquid sealant they use here. Normally there is a rubber gasket, but nobody stocks this gasket in the entire DRC. A lot of differentials here are leaking, that's for sure. We had to buy a sheet of plasticky gasket material and cut one out ourselves. A lengthy task. [Josephine and Frederik]

Monday Night Links

• A huge issue I see among investors is that they implicitly apply a labor theory of value to their research process--they commit a tremendous amount of time towards achieving a deep understanding of a business/industry and they think that the market will reward that level of effort even if what they are doing is essentially asking to be paid for digging a hole and filling it back up. The reality is that even terrible businesses are often extremely complex and fascinating but a 20 page research report about them is basically just an exercise in communicating how effective capitalism is in coordinating different parties to deliver value to consumers. Very rarely do businesses provide excess economic profit to shareholders over sustained periods of time and those companies that do are often pretty simple. [Psyop Capital]
• In truth, I was simply born too late to attend the meeting when it would have been at the height of its dynamism. The meetings I have most enjoyed watching online are from the 1990s. I’m confident that those from the 1980s would have been even better. To have been able to have attended when Buffett was at the peak of his intellectual powers, when Berkshire was able to invest in very high-grade businesses, and when fellow attendees were more independent enthusiast than lemming would have been a real pleasure. [Forbes Jamieson]
• Fortunately, the likelihood of a massive oil supply glut combined with an oil demand shock seems to have dissipated (on the demand side), but the projected increase in global oil supply in the second half of this year is hard to ignore. Although projections are often incorrect in this sector, particularly when consensus is uniformly bullish or bearish (in this case bearish), we still believe we are approaching a yellow light to pull from last quarter’s "stop light" analogy. Therefore, we have set up our business for the rest of 2025 to hold oil volumes flat while cutting CAPEX, maintain one of the highest Drilled but Uncompleted wells (“DUC”) balances in the industry and use Free Cash Flow to pay down debt and continue repurchasing shares. This will allow us to maintain flexibility for a green or a red light in the short term. But, a green light is eventually inevitable given we believe current oil prices are unsustainable over the long term. [Diamondback Energy, Inc.]
• While Alphabet is described most often as a technology company, in many ways, it’s more accurate to describe it as an advertising company. After all, advertising is the method by which it earns the vast majority of its revenues. Therefore, when analyzing Alphabet’s future growth potential, we must first understand the prospects for global advertising revenues over time. The prospects are quite good for one simple reason: advertising is one of the ultimate relative goods, lending the industry significant pricing power over time. The more businesses spend to develop mindshare, the more other businesses must spend to keep up since what consumers purchase is largely dependent upon relative mindshare. Another way of looking at advertising is that it is, essentially, the meta pricing-power good. Through advertising, companies attempt to develop pricing power by convincing consumers that their products 1) possess small purchase prices relative to the value provided and/or 2) will make consumers more desirable to the groups and individuals with which they wish to belong and connect (i.e. confer social status). Thus, while spending on most goods becomes smaller as a percentage of the economy over time because of innovation, the advertising industry’s share of GDP has stayed remarkably constant, enabling it to fully participate in the economy’s remarkable gains in wealth. [Brian Yacktman]
• How does one find businesses with pricing power in a deflationary world? Well, the answer, as any economist will tell you, is to find the scarce good. And, increasingly, the scarce good is . . . time. Because of innovation, the growth rate of potential experiences, opportunities, and human connections is far outstripping the growth in humanity’s units of attention, causing each unit of our attention to become more valuable over time. As a consequence, goods and services that help us filter through the myriad uses of our attention are also growing in value over time. These are the goods and services in which we seek to invest, and we have found they can be divided into two categories: reliable information filters and reliable people filters. The first category is reliable information filters. Under our definition, these are filters for safety reliability, efficiency, and personal preference in industries indexed to GDP growth or better. An information filter can maintain or raise prices as long as two conditions are met: 1) the cost of searching for an equivalent substitute must be higher than the savings a customer would achieve by doing so, and 2) the cost of creating an equivalent substitute must be higher than the information filter’s price. [Brian Yacktman]
• At the portfolio level, one prediction embedded in our investment allocation is that human innovation will, over the long term, grow the world’s aggregate wealth. This prediction is both broad-based and time-tested, as evidenced by the long-term decline in the cost of necessities (as a percentage of GDP) and the increasing abundance of goods and services available to us all. We express this prediction by owning a diverse collection of businesses that are over-indexed to industries that have historically maintained or grown their share of GDP as wealth grows, such as capital markets, insurance, luxury goods, and advertising, and under-indexed to industries whose share of GDP has historically shrunk, such as energy and materials. Our next portfolio-level embedded prediction is that businesses that own dominant, mission-critical networks will continue to be a great way to reliably capture a proportionate share of an industry’s value growth. [Brian Yacktman]
• The company benefits from two network effects. The first occurs at the exchanges themselves, which are global, two-sided networks that connect buyers and sellers of futures and options contracts and provide them with unrivaled liquidity. This two-sided network effect is further strengthened by the nature of the futures contracts traded on the exchanges. For most assets, traders have no restrictions on where they can buy and sell them. For instance, if a trader buys Microsoft stock on the NASDAQ, he or she can subsequently sell it on any number of exchanges or on increasingly popular alternative trading systems (ATS) such as dark pools and electronic communication networks (ECN). In fact, ATS platforms have become so popular that, as of April 2019, traders chose to execute nearly 39% of all their U.S. stock trades on them. Futures contracts are different. Futures contracts opened on one exchange cannot be closed at another exchange, making it much harder for competitors to successfully develop alternative sources of liquidity for futures buyers and sellers. CME Group also owns the clearinghouse that validates and finalizes all the futures transactions that occur on its exchange, further enhancing its competitive position through a second, overlapping network effect. Clearinghouses, which serve as third-party intermediaries to ensure that both buyers and sellers honor their contractual obligations, benefit from network effects due to something called position netting. [Brian Yacktman]
• At YCG, our investment strategy is to own a diverse collection of global champions that 1) own dominant networks, preferably with high switching costs and untapped pricing power;  2) possess other checks on competing supply such as not-in-my-backyard (NIMBY) zoning restrictions; 3) operate in categories growing at least as fast as GDP; 4) have conservative balance sheets; and 5) are run by ownership-minded management teams. We favor this approach because we believe it results in a portfolio with enduring pricing power that essentially acts as a toll collector on global GDP. By owning this toll-collector portfolio, we believe we can accomplish all our key investment management objectives. First, we believe this portfolio enables us to participate in the upside of long-term global growth. Second, we believe it helps us to survive the negative economic periods such as financial crises, recessions, stagflations, and depressions that we believe are almost certain to occur from time to time but whose start-date, end-date, and severity are likely impossible to predict in advance. Third, we believe it gives us the best chance of delivering above-average risk-adjusted returns over the long-term because of the tendency of investors to be avaricious, impatient, and overconfident, leading to an overvaluation of the most speculative stocks and an almost perpetual undervaluation of the more boring, high-quality stocks on which we focus. Lastly, we believe our strategy positively exposes us to one of the most important drivers of investment performance: return on invested capital trajectory. [Brian Yacktman]
• Two other areas that we generally avoid because of similar negative convexity concerns are defense and healthcare. In both cases, the federal government is their largest customer. We think it’s unlikely the federal government will, over the long term, accept price increases that significantly raise the defense and healthcare companies’ inflation-adjusted pricing and returns on capital. In contrast, given most countries’ deteriorating fiscal health and increasingly populist politics, we believe there are many scenarios under which they could decide to decrease them. In healthcare, the situation is arguably even worse than in defense. Healthcare regulations often increase complexity and reduce price transparency, which makes it easier for bad actors to engage in unethical regulatory arbitrage that raises costs for both taxpayers and customers. As a result, it’s very hard to figure out how much of a company’s profits are a result of regulatory arbitrage versus actual value provided to customers on a competitive basis. This opacity, combined with the possibility that the government will change its view on what return on capital it deems fair, explains many of the current woes being experienced by the largest and most dominant U.S. health insurer, United Healthcare. [Brian Yacktman]
• Lastly, because aggregates are dense and heavy but also relatively straightforward to mine compared to the more complex processes involved in mining and manufacturing most other goods, they benefit from having an extremely low value-to-weight ratio. This dynamic means that the cost of transporting aggregates quickly exceeds their value (with the delivered price doubling somewhere between 23 and 45 miles), making it uneconomic for non-local aggregates facilities to supply construction sites in most circumstances. As a result, 90% of aggregates are consumed within 50 miles of the place of extraction. Combined with NIMBY, this uneconomic nature of non-local aggregate shipping often turns aggregates mines into local monopolies and oligopolies. [Brian Yacktman]

Thursday Night Links

• Those older men who are fitness enthusiasts, like George Gilder, who still runs miles per day in his 80s, can remain productive far beyond the typical midcentury elderly, who, as the first to live in a post-scarcity world, lacked knowledge of the compensating necessity of exercise and nutritional restraint, and lacked great alternatives to cigarettes for delivery of the world’s greatest nootropic. And since retirement is particularly bad for men, who generally base their self-worth on their productive capacities rather than family relationships, who are we to demand that talented people stop using their talents because of age? [The Tom File]
• You might be thinking: what’s so special about a square? What about triangle theory, or pentagon theory? (Or rectangle theory? Or rhombus theory? Okay, side lengths and angles don’t matter here.) Well, it’s true that there’s something compelling about any loop-closing property, regardless of side count—a story that comes full circle is still satisfying no matter how many points it hits in between, and it’s still neat to discover a triangle of people who coincidentally know each other. But here’s what I think makes squares special: a square is the simplest polygon that has non-adjacent sides. In a triangle, each side is adjacent to the other two sides. But in a square, opposite sides have no points in common, which makes any connection between them feel surprising, like a coincidence. In pentagons and beyond, this still holds, but the extra sides add complexity that make them feel slightly less elegant. Nevertheless, other shapes can be interesting too, but I see them as the exception, not the rule. [Adam Aaronson]
• These guys don't understand each other. Elon Musk is too guileless. He says exactly what he thinks is true with little regard for how others will react. He alienates allies by airing disputes in public instead of settling them behind closed doors. Because he is a sperg engineer who leads companies of sperg engineers, and to do this, you must be 100% truthful and transparent. Donald Trump is too guileful. He says exactly what will advance his plans with little regard for telling people what he actually thinks. He alienates allies by expecting their unconditional support without sharing any aspect of his strategic plans with them. Because he is a New York real estate developer, who thrives on winning negotiations and gaining advantage from unshared knowledge, and to do this, you must be 100% calculating and opaque. [Devon Eriksen]
• Populists and tech titans were in the same boat and it was really picking up speed. It was a credible coalition capable of winning trust and confidence, a grand bargain to go make a mutually desired agenda happen. Then came tariffs. The trade war waged with powers grasped in cavalier and questionable fashion blew this to newfound confluence to flinders. It lost all the initiative and gave the game away. It not only fractured the alliance, but it brought “bad trump” back into the foreground as he stormed the spotlight needing every news cycle to be about him and his antics. The economic harm will be very real as for the second time in 2 presidencies, he breaks global supply chains and is now rapidly losing control of the negotiations and having them go sideways. But worse is all the allies alienated. No one wants to deal with him because no one trusts him. and that’s because trump will always need to be the center of attention, places no value in his word, and always stabs his friends and business partners in the back. [el gato malo]
• Just as throughout earlier stages of life, social functions and social status revolve around children and family, and anyone without them will be incomplete as a person, something of an inevitable outsider to the joys of life. The best insurance against a lonely and uncomfortable old age is a large family, among which there are certain to be sufficient resources to care for you. Many elderly Amish people die with well over a hundred grandchildren and great-grandchildren, and spend their later years constantly surrounded by children and young people who deeply appreciate and respect them. [Follow the Money]
• Across thousands of distinct cultural groups around the world, only a handful have rejected the dominant post-Enlightenment status hierarchy in favor of large families and traditional values. I’m not aware of any that managed it without significant insulation from the dominant culture. That tells me that the short-term incentive structure of modern society is more powerful than any historical cultural norms, and there is no passive solution that doesn’t involve collapse of that incentive structure and the civilization it rests on. [Follow the Money]
• Demeny voting (also called parental voting or family voting) is a type of proxy voting where the provision of a political voice for children by allowing parents or guardians to vote on their behalf. The term is named after demographer Paul Demeny, though the concept predates him. [Demeny voting]
• Good habits are formed by high standards readily enforced. As a product of Catholic schools, it long ago occurred to me how brilliant it was of the sisters to so diligently enforce rules against minor misbehaviors. This served two purposes. By defining deviance up, we could be rebels—which kids need to be—by chewing gum or rolling up our shirt sleeves. But it also kept the guardrails against really bad behavior high and tight. [Richard Vigilante]
• Over the past two seasons, uptake of the annual Covid-19 booster has been poor, according to the Centers for Disease Control and Prevention (CDC). Less than 25% of Americans received boosters each year, ranging from less than 10% of children younger than 12 years of age in the 2024–2025 season to 50% of adults over 75 years old. Even health care workers remain hesitant, with less than one third participating in the 2023–2024 fall booster program. There may even be a ripple effect: public trust in vaccination in general has declined, resulting in a reluctance to vaccinate that is affecting even vital immunization programs such as that for measles–mumps–rubella (MMR) vaccination, which has been clearly established as safe and highly effective. In recent years, reduced MMR vaccination rates have been a growing concern and have contributed to serious illness and deaths from measles. Against this context, the Food and Drug Administration (FDA) seeks to provide guidance and foster evidence generation. Moving forward, the FDA will adopt the following Covid-19 vaccination regulatory framework: On the basis of immunogenicity — proof that a vaccine can generate antibody titers in people — the FDA anticipates that it will be able to make favorable benefit–risk findings for adults over the age of 65 years and for all persons above the age of 6 months with one or more risk factors that put them at high risk for severe Covid-19 outcomes, as described by the CDC . For all healthy persons — those with no risk factors for severe Covid-19 — between the ages of 6 months and 64 years, the FDA anticipates the need for randomized, controlled trial data evaluating clinical outcomes before Biologics License Applications can be granted. [Vinay Prasad]

Monday Night Links

• The court holds for the foregoing reasons that IEEPA does not authorize any of the Worldwide, Retaliatory, or Trafficking Tariff Orders. The Worldwide and Retaliatory Tariff Orders exceed any authority granted to the President by IEEPA to regulate importation by means of tariffs. The Trafficking Tariffs fail because they do not deal with the threats set forth in those orders. This conclusion entitles Plaintiffs to judgment as a matter of law; as the court further finds no genuine dispute as to any material fact, summary judgment will enter against the United States. The challenged Tariff Orders will be vacated and their operation permanently enjoined. [United States Court of International Trade]
• The combination of ultra-conservative Christians and left-leaning university types living in close proximity has turned Moscow into an on-the-nose symbol of life in a divided America: On the five-block stretch of shops that makes up Moscow’s downtown, a slew of kirker-owned businesses stand side-by-side with organic food co-ops and coffee shops displaying Pride flags and Black Lives Matter signs in their windows. On the Sunday morning of my visit, the kirker who offered to drive me to church gently ribbed me after I asked him to pick me up at one of the liberal-aligned coffee shops downtown. I had no choice, I protested. All the kirker-owned ones were closed for the sabbath. [Politico]
• “I’m as French as you are” is the phrase that provokes this reflection. Indeed, on more than one occasion Camus says he has heard an immigrant claim to be “more French” than him. But, as he says, “If this lady is right, being French is nothing: it’s a pure mockery, a failed joke turned sour, a stamp on an administrative document.” While Camus can be blunt, his thinking can also be subtle—certainly nuanced. He concedes things that no outright racist or sectarian ever would. He allows, for instance, that a person can join a people because he cares for their language, literature, way of life, and more. But he contends that on the collective level, “Peoples who remain peoples cannot join other peoples. They can only conquer.” [The New Criterion]
• Ron Chernow’s new biography of Mark Twain is enormous, bland and remote — it squats over Twain’s career like a McMansion. Chernow, who has previously written lives of financial titans, war heroes and founding fathers, misses the man William Faulkner called “the father of American literature” almost entirely. He demonstrates little feeling for the deeper and least domesticated regions of Twain’s art, or for the literary context of his era. His book is an endurance test, one that skimps on the things that formed Twain and made him the most lucid, profound, unpredictable and irascibly witty American of his time. Hardy will be the souls who tour this air-conditioned edifice all the way through and glimpse the exit sign. [NY Times]
• The central model here is the gravity model of trade which in simplest terms predicts the amount of trade between two places as proportional to the economic “mass” of the two places (e.g their population or GDP) and inversely proportional to the distance between them, echoing Newtonian gravity. Usually, the gravity equation takes the distances and masses of countries or cities as an input and outputs a prediction of trade between them. The authors of this paper flip this around. They have some data on the amount of trade between cities, as well as the location of some known cities, and they use this to back out what the size and location of all the other cities is likely to be. They take two steps to estimate the locations of lost cities using their model. First, they use the trade between cities with known locations to estimate the distance elasticity of trade, i.e how much does trade decrease as the distance between two cities increases. Then, they try to fit the model’s predictions over the shares of trades between each city pair in the network to the observed data by choosing different latitudes, longitudes, and productivities for each city. [Maxwell Tabarrok]
• Vitamin K2, specifically MK-7, activates special proteins, allowing the body to properly utilize calcium. Two of these proteins are osteocalcin (OC) and MGP. The former attracts calcium to where it is needed most, namely into bones and teeth; the latter keeps calcium away from where it is not needed, namely soft tissues. [NattoPharma ASA]
• None of that has lifted the price of timber, which never recovered from the 2007 housing bust. Logs for softwood lumber averaged $22.50 a ton across the South last summer, the least since 1992, according to TimberMart-South, a pricing service affiliated with the University of Georgia’s forestry school. “If you put inflation on it, it’s really sad,” said Mr. Hopkins, the Georgia timber grower. Adjusted for inflation, prices for the logs used to make lumber are at their lowest in more than 50 years. [WSJ]
• In my last post a couple of days ago (May 28), I was critical of the blizzard of injunctions issued by the courts against seemingly every policy change that President Trump seeks to implement.  I went so far as to call this the “opposite of democracy.”  But I also noted that there are instances where judicial restraints on the executive are legitimate, most notably where the statute on which the President relies to implement a sweeping policy does not in fact grant him the authority he claims.  Thus, on finding a lack of grant of authority in the statutes cited, the Supreme Court had reined in President Biden when he sought to implement policies forgiving student loans and banning fossil fuel power plants. I ended that article by asking whether President Trump’s actions with regard to imposition of tariffs may fall into the same category of overreach as Biden’s student loan and power plant gambits. [Francis Menton]

Thursday Night Links

• The Treasury Department will stop putting new pennies into circulation by early next year. Afterward, there won’t be enough pennies to use in everyday cash transactions, and businesses will need to start rounding up or down to the nearest 5 cents, the Treasury said in a statement. [WSJ]
• While the load-carrying capacity of a theoretical airship increases linearly with its length in calm air, once an airship grows to span bodies of air moving in different directions, the thickness of the airframe required to withstand discrete gusts grows at the 10/9 power. That suggests that above a certain size, the load-carrying capacity of an airship no longer increases but rather decreases with scale, since the airship structure has to be made heavier to survive the wind loads it will encounter. [Orca Sciences]
  
• In a net-zero world, we’ll lose the lowest-cost sulfuric acid we use to produce phosphate fertilizer. But other sulfur sources will pick up the slack long before other acids are used or a direct approaches to sulfur recycling become economical. [Orca Sciences]
• Given that all contrails represent ~2% of global warming, this indicates that ~1% of global warming is addressable today at under $1/tCO2eq. I don't know of any other climate intervention with such a low upfront cost and such a high probability of success. So why aren’t all airlines doing this yet? You’d think convincing airlines to avoid contrails would be easy. It’d cost them about $5 per flight to cut their climate roughly in half, vastly cheaper than any low-carbon fuel. But no airline has yet committed to it. A pessimistic take is that contrails are a ‘sincerity test’ for the world’s willingness to engage in the most cost-effective climate action, and the world is flunking so far. [Orca Sciences]
• Over a 30- to 40-year life, the energy a typical transformer dissipates as heat can cost close to five times its purchase price. Upgrading to a higher-grade core alloy—or simply right-sizing the unit—would save customers billions of dollars per year. Yet many U.S. utilities still order the cheapest devices that meet federal minimum standards, and virtually none adopt the higher-performing devices common in other countries. Why? Because ratemaking rules let them pass those losses straight through to customers and penalize them for spending that doesn’t add capacity directly. [Orca Sciences]
• Crushed rock down to a few millimeters costs $2-$3 per raw ton of rock. Course grinding down to 30 microns with ball mills costs $7-$11 per raw ton of rock. Fine grinding to ~10 microns with a stirred mill or similar technology is $12-$15/raw ton. [Orca Sciences]
• Because liquid fuels are pricey on an energy basis, synthetic fuels using dirt-cheap solar or wind could be economical. $60 per barrel of oil equates to ~$35/MWh. New solar is under $30/MWh today. Assuming a conversion efficiency of around 33%, the breakeven to make fuels would be ~$12/MWh. [Austin Vernon]
• Decentralized energy generation through solar panels paired with battery storage limits how high rates can go. Customers can defect if going off-grid or adding solar becomes cheaper. In places like California, where households pay ~$0.25/kWh, many can save money by adding a solar plus storage system. The cheaper solar and batteries get, the more competition utilities face. [Austin Vernon]
• Some processes need a lot of heat at very high temperatures (1000+ Celcius). They might be less sensitive about maintaining a specific temperature or be so large that thermal mass moderates any swings. In these cases building a furnace directly into the process makes sense. Blast furnaces in integrated steel plants and kilns in cement manufacturing are classic cases. Coal has the dominant market share in these applications. [Austin Vernon]
• Many environmental groups have already begun to protest solar and wind farms. Ground-mount solar is the industrialization of the solar PV ecosystem. Solar was OK when it was expensive because it would decrease energy usage. Technology that paves the ground and makes $10/MWh electricity attainable, driving demand up, is not what Greenpeace had in mind. [Austin Vernon]
• Modern chemical facilities usually have continuous processes, meaning each plant produces a constant amount of product rather than lumpy batches. The benefits are very similar to the Toyota Production System (they are independent discoveries of the same principles). There is no inventory accumulation within the process, equipment is optimally sized, product velocity through the equipment is high, steady-state conditions reduce variation in product quality, and there is a relentless focus on reliability because any single failure can trip the plant offline. The move to continuous processes happened naturally because many reactions will not go to completion in a batch reactor. Continuously fed reactors allow for the separation of the product and recycling of the reactant. Chemical engineering doesn't have the same dogma as Toyota because these other benefits were an accident. It is left as "continuous is better" in school. So you'll see a plant with perfect one-piece flow and incredible quality sending its product to giant tank farms or warehouses where there might be months worth of inventory! [Austin Vernon]
• Consider the light metals in the top right quadrant in the electrochemistry figure. Al and Mg both have far higher strength/weight ratios than steel; they resist corrosion much better; their production is already electrified; and their ores are arguably easier to find– Al is the most common metal in the earth’s crust, Mg is extractable directly from seawater. Both metals are more expensive than Fe today, primarily because they take much more energy to produce. But in a world with cheaper clean electricity – the world we need if we want to decarbonize steel production anyway—in the future we want, we should expect more use of Al and Mg, and much less use of steel. [Orca Sciences]
• There’s a big push out there to make steel electrically (molten oxide electrolysis, aqueous electrolysis, H2 direct reduction etc). But here Sam shows that at the renewable energy $/kWhr price that makes electro-steel work economically, the world might start switching to aluminum as a structural material. Aluminum is electrified already, comes from a more plentiful ore, has a better strength/weight ratio, and suffers from less corrosion (corrosion of steel costs us >1% of global GDP!). Currently, Al production emissions are nearly five times those of steel. But if you grant the conditions that would make electro-steel viable (i.e. near-free renewable electrons) and believe Alcoa’s claims regarding the near-term viability of carbon-free anodes, then Al prices (currently ~$2000/t, 2/3 of which is electricity for the carbon-free process) will sink towards the steel price (currently ~$1000/t, mostly ore and process cost). [Orca Sciences] 
• The same transformation has happened in almost every corner of our material lives. It has been happening for thousands of years and in every material category. Over time people have switched from mud to brick to cement, from wood to plastics to fiberglass to carbon fiber, from copper to bronze to steel to titanium, from leather to cotton to nylon, from smallholder to factory farms, from heaps of coal to thin wafers of solar PV, from vacuum tubes to specks of semiconductor, from highways to runways to Zoom. Energy intensity increases, materials get stronger and lighter, machines pack more power into smaller spaces. A signature element of modernity is how we’ve moved from materially-centered ways of doing things to energy-centered ways of doing things. Some people call this trend ‘dematerialization’. But that’s misleading. The world today may be made relatively less of stuff, but for various growth and demographic and Jevons reasons overall there’s way more stuff than ever. So I think it’s best to think of it as our world being made more and more out of energy. [Orca Sciences]

Monday Night Links

• Arbitrageurs implicitly assume that the world is full of people who are rational, but imperfectly so, and that the big money is in keeping the expressions of their views that take place through financial markets roughly in line with one another—taken too seriously, it's a form of nihilistic optimism that every important problem will be figured out by somebody else, but that they won't perfect the last few details of their approach before moving on to the next thing. Startups often assume that the world is missing a critically important big idea, and that only they can bring it to fruition. It's a form of realist pessimism holding that nobody else will pick whatever the low-hanging fruit happens to be. At the same time, believing that there are secrets left in the world and low-hanging fruit left to pick is a form of optimism in itself. [The Diff]
• I really hate to be "that guy" (i.e., the jerk that goes around correcting people on spelling and grammar and word usage and such) and I do apologize but... Please note that "Episcopalian" is not an adjective, it is a noun. It always only refers to a person who is a member of that denomination. The adjective is "Episcopal." Some examples: "John and Mary are both lifelong Episcopalians, so their wedding took place in the Episcopal church on the town green." "The Episcopal prayer book is called 'The Book of Common Prayer.' Many Episcopalians turn to it for solace in times of sorrow." "I went to an Episcopal school, where Episcopal chapel services were held on a weekly basis. Most, but certainly not all, of the students there were Episcopalians." [Salt Water New England]
• The film has become a cult classic for its crisp dialogue, lucid fatalism, and fine detail. It bubbles back up in moments of market stress, and the past few weeks have provided a steady supply of oxygen. It hit TikTok during the 2023 collapse of Silicon Valley Bank, boosted by an explainer on the All In Pod. Close to a million people have watched it in unlicensed 30-second installments. There is, of course, an Irons meme generator. And it is invariably how a certain breed of Wall Streeter — just young enough not to have had their careers tarnished by 2008, but to feel like they had missed out on a great war — answers when asked what their favorite movie is. (Nos. 2 and 3 are Michael Clayton, which stars George Clooney as a corporate fixer, and, for reasons passing understanding, Master and Commander, Russell Crowe’s Napoleon-era high seas drama.) [Semafor]
• Fundamental to our approach to energy markets at RBN is a view that natural gas, crude oil and NGLs have become much more interdependent than in the days before shale. What happens in gas impacts NGLs, which influences crude oil, which loops back to the natural gas market. There was a time when you could live out your career in the gas business, or the NGL business, or the crude business and get by with knowing very little about the other hydrocarbon markets. Those days are gone forever. For example, today’s gas prices make no sense unless you understand the economics associated with NGLs and associated gas production. Production of condensates from crude wells directly compete with natural gasoline, the highest margin NGL for gas processors. Natural gasoline prices are being boosted by its use as a diluent for Canadian bitumen crude oil. Low prices for ethane result in rejection of ethane molecules back into the natural gas tailgate stream of gas processing plants. These examples and many more typify today’s highly integrated liquids and gas hydrocarbons markets. [RBN Energy]
• The strong physical trading liquidity at Cushing attracted paper traders, allowing market participants to hedge their physical business and bet on the market via the WTI Light Sweet Crude Oil futures contract (contract symbol: CL) on the New York Mercantile Exchange (NYMEX). This contract, which launched more than 40 years ago, became important in the domestic market and internationally. In 2008, NYMEX was acquired by the Chicago Mercantile Exchange (CME), which currently manages the CL contract. CL remains the world’s most liquid crude oil contract. While this contract was initially supplied with WTI directly from West Texas, it did not exclude crude oil that originated elsewhere but met the contract standards. [NYMEX Leads the Way on WTI Futures Contracts, But There's Room for More]
• As in our report on midstream M&A in 2022-23, many of the midstream deals announced in 2024 and early 2025 involved the acquisition of companies with extensive holdings in the Permian, which is by far the U.S.’s top crude oil production area and also a major supplier of natural gas and NGLs. Rising Permian production over the past few years spurred a massive buildout of midstream infrastructure — including gathering systems (for crude, associated gas and produced water), gas processing plants, takeaway pipelines (for crude, natural gas and NGLs), storage facilities, fractionators, and export terminals. While a significant portion of that midstream development was undertaken by large publicly held companies or master limited partnerships (MLPs), many other vital projects were developed by privately held midstream companies backed by private equity. In the post-COVID era, with many publicly held companies looking to gain further scale and scope — and many private-equity-backed midstream companies looking to cash in on their well-timed, well-planned developments — it could be argued that conditions for large-scale midstream M&A have never been better. [Combination of the Two - A New Drill Down Report on Consolidation in the Midstream Sector]
• In a Drill Down Report in late 2023, we described the NGL networks owned and operated by the four large midstream companies (Enterprise Products Partners, Energy Transfer, Targa Resources and Phillips 66) that currently provide wellhead-to-water services — everything from gas processing plants in the Permian and other plays to long-haul NGL pipelines to the Gulf Coast to fractionation plants (almost all of them in Mont Belvieu) and export terminals for purity NGL products. As we said then, “That start-to-finish management of the NGL stream provides a number of important benefits — chief among them, the ability to operate with extraordinary efficiency, collect fees from shippers each step of the way, and feed pipelines, fractionators, storage and export terminals along the network’s value chain.” [At Last - New NGL Pipes, Fracs and LPG Export Terminal Give MPLX, ONEOK What They've Wanted]
• Give me the money that's been spent in wars and I will clear up every acre of land in the world that ought to be cleared, drain every marsh, subdue every desert, fertilize every mountain and hill, and convert the whole earth into a continuous series of fruitful fields, verdant meadows, beautiful villas, hamlets, towns, cities, standing along smooth and comfortable highways and canals, or in the midst of luxuriant and fruitful orchards, vineyards, and gardens, full of fruits and flowers, redolent with all that pleases the eye and regales the senses of man. [CBS]

Monday Morning Links

• When market veterans gather, the talk often turns to memorable crashes: Where they were in 2020, 2011, 2008, 1998, or for the older among them, 1987. Last week should join that list. Where were you when investors fled America? [WSJ]
• A future Trump impeachment seemed all but guaranteed by last Wednesday morning. It seems only slightly less likely now. It may even be desirable to restore America’s standing with creditors and trade partners. As sacrilegious as the comparison will seem, Mr. Trump faced a problem Abraham Lincoln and Franklin Roosevelt solved by dying once their greatest achievements were in the bag. Mr. Trump’s great achievement was his 2024 re-election, a rebuke to the injustices and insults meted out to him and his fans since 2016, some of which were even real. However, no consensus or even significant coalition exists for trying to force into existence a new American “golden age” with tariffs, which anyway is like asking a chicken to give birth to a lioness. He invented this mission out of his own confused intuition. [Holman W. Jenkins, Jr.]
  
• Time for a call. 81 days: that is how long Trump’s golden age lasted. Deportations now paused for agricultural and hotel workers. Musk’s chainsaw slashing of the federal bureaucracy replaced by departmental “scalpel”. And as of this morning, surrender in the tariff war. Trump and Musk didn’t even last as long as the 100 Days reformers, who failed to reboot Qing China. Somewhat longer-lasting than the wilting lettuce, Truss, that ran the UK into the ground in three weeks. The exemptions for iPhones and other electronics make a joke of the tariffs on China. It’s the second climb-down since Wednesday. This is before a single gesture of conciliation from China. And the week isn’t over yet. So, lessons... Trump’s mandate was an illusion. Trump, to use his own favorite expression, did not have the cards. In less than three months his approval has dropped to eight points underwater. Musk’s numbers are much worse. And this last week has displayed with fluorescent clarity: the numbers for Trump’s debt renegotiation do not work with 30-year bonds above 5%. A little reminder: China has barely played its cards yet. Tesla and Apple plants are still open. If China was behind some of last week’s sales of Treasuries, it exercised some tact. The latest unilateral trade concessions will be spun as another brilliant move by the deal artist, Trump. But Xi still has not called, despite White House pleas. So the only conclusion can be this: the Trump economic reforms are over; the dollar’s reserve currency status is already in question; and the grind you hear is of tectonic plates in motion. I don’t think China planned for 2025 to be the year. A patient approach — coordinated industrial investment and an ever-expanding trade links — was working fine. Ray Dalio notes that previous imperial transitions — from British to American, for instance — took decades. And some sectors, such as finance and culture, lag even more. With Trump, Musk and Vance as the triumvirate, China will never face opponents as easy to read, so easily tricked, so prone to make mistakes, and liable to fight among themselves. China could not contend with American soft power. Against Musk the Techbro, Vance the Hillbilly and Trump the Chud, the contest for global opinion is way easier. [Nick Denton]

Monday Morning Links

• If Trump goes through with his tariffs and isolationism, this will have many effects, but probably not the one effect that he intends, namely, bringing back manufacturing jobs. Tariff policy has been changing on a weekly basis, and all of the tariffs could well be rescinded after Trump leaves office. No one is going to start building factories in the US when they don’t know what policies will be in place when the factory is ready to operate. [Nathan Cofnas]
• On the other hand, if we make improvident choices, the bright horizon I’ve described will not materialize. And let me put it very plainly. If we Republicans choose Donald Trump as our nominee, the prospects for a safe and prosperous future are greatly diminished. Let me explain why I say that. First on the economy. If Donald Trump’s plans were ever implemented, the country would sink into prolonged recession. A few examples. His proposed 35 percent tariff-like penalties would instigate a trade war and that would raise prices for consumers, kill our export jobs and lead entrepreneurs and businesses of all stripes to flee America. [Mitt Romney]
• The measure won’t pass the House, and the White House may dismiss the Senate vote as more criticism from the usual GOP dissenters. But that could change as economic events evolve. Iowa Sen. Chuck Grassley on Thursday introduced a bill with Democratic Sen. Maria Cantwell of Washington that would claw back Article I’s trade authority by requiring Congress to approve tariffs within 60 days. Tee that up for a floor vote, please. Congress could do the country a favor if it becomes jealous of its powers—or at least afraid of the political consequences that will accompany higher prices and slower economic growth. [WSJ]
• By employing this statute, Mr. Trump claimed a unilateral power to tax and regulate commerce—powers the Constitution vests in Congress under Article I, Section 8. The Supreme Court has signaled skepticism toward such executive improvisation. In West Virginia v. EPA (2022) the Court struck down the Obama Environmental Protection Agency’s Clean Power Plan, ruling that the agency couldn’t overhaul the energy sector without explicit congressional approval. [WSJ]
• Mr. Trump justifies his tariffs by declaring a national emergency under the 1977 International Emergency Economic Powers Act. No previous President has used that law to impose tariffs. Mr. Trump is stretching his authority much as Joe Biden did with his student-loan forgiveness. Congress has circumscribed the President’s power to impose tariffs, allowing it on imports that threaten national security (Section 232) or in response to “large and serious” balance-of-payments deficits (Section 122), a surge of imports that harms U.S. industry (201), and discriminatory trade practices (301). None of these trade provisions empowers Mr. Trump to impose tariffs on all imports from all countries based on an arbitrary formula. [WSJ]

Thursday Night Links

• The key word to describe 2025 so far is “uncertainty” and as a public company, our investors hate uncertainty. This has led to a marked increase in the implied cost of capital of our business, with public energy stocks down significantly more than oil prices over the last two months. This uncertainty is being caused by the conflicting messages coming from the new administration. There cannot be "U.S. energy dominance" and $50 per barrel oil; those two statements are contradictory. At $50-per-barrel oil, we will see U.S. oil production start to decline immediately and likely significantly (1 million barrels per day plus within a couple quarters). This is not “energy dominance.” The U.S. oil cost curve is in a different place than it was five years ago; $70 per barrel is the new $50 per barrel. [Federal Reserve Bank of Dallas]
• As an Australian, it amuses me that the time taken for physically plausible journeys to and from Mars on a chemically-propelled monster rocket like Starship is similar to the time taken for my ancestors to sail from Great Britain to the colonies about 150 years ago. Unlike them, though, voyagers in Starship will not have to endure hunger, disease, infant mortality, and navigational errors. While landing on Mars has yet to occur, landing back on Earth will not be a problem, as demonstrated recently by the incredible “chopstick” maneuvers of Starship test flights 5 and 7. [Casey Handmer]
  
• The uniquely dangerous side effects of the Covid vaccine were due to its having the body manufacture the most toxic, likely bioengineered portion of its anatomy, the spike protein, to produce an immune response. Significant questions remain about the mRNA vaccines, including the unexpected persistence of spike protein at six months after vaccination. This mechanism is unlike that of any standard childhood vaccines, which protect against natural rather than bioengineered pathogens and feature direct introduction of weakened virus or virus parts instead of hijacking cells to manufacture them. While perhaps not technically possible, an mRNA vaccine that targeted a less toxic portion of Covid’s anatomy might have been effective without significant side effects. [The Tom File]
• More important than the fact that a technological innovation solved Pittsburgh’s smog where political coordination failed is the following point: Even if the social coordination had worked perfectly the technological solution would still be more important. The socially optimal tradeoff between coal energy and clean air available to Pittsburgh in 1905 still leaves them in a bad situation. They had to accept either dirty air or energy poverty; they had no way to solve both problems at once. The technological solution pushes the production possibilities frontier between energy and air quality far beyond what was the optimal point when only coal was available. [Maxwell Tabarrok]
• The more uncertain we are about birth subsidies — and I agree that’s the correct view — doesn’t that mean we should all the more commit to some kind of revival of cultural conservatism on matters of family? That there’s an asymmetric pairing. Families should be expected to have three or four children, and that’s the alternative. Yes, we should try subsidies, but the more uncertain we are, we’ve just got to go the Ross Douthat route. I think he has five kids now. Good for him. [Tyler Cowen]
• For the money, nothing comes close. Is it reasonable for consumers to deny themselves Teslas’ performance, efficiency and safety just because Elon is a putz? And what about the greater good of buying a modest, zero-emission vehicle? The Model 3 is still the right thing to do, no matter how many stiff-armed salutes Musk throws around. [WSJ]
• When I say the Nicene Creed, I mean it. I am open to hidden complexities and unexpected syntheses, but in the end I think that God has acted in history through Jesus of Nazareth in a way that differs from every other tradition and experience and revelation, and the Gospels should therefore exert a kind of general interpretative control over how we read all the other religious data. I think the New Testament is just clearly different from other religious texts in a way that stands out and demands attention, that the figure of Jesus likewise stands out among religious founders, that together the sources and the story and the Nazarene Himself all seem God-touched to a degree unmatched by any of their rivals. So where there is uncertainty, tension, a wager to be made, I make my bet on Jesus. [Ross Douthat]

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]
  

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]
  

Tuesday Morning Links

• A good book review does some combination of 1) explaining what the book has to say and 2) expressing the reviewer’s own thoughts on the matter. (That way, of course, you get both the novelist's ideas as well as the critic's thinking.) Different reviews hit this balance differently: sometimes I come away from a book desperate to tell people about, say, the ways fuel choices change society, and sometimes I really want to talk about some interesting idea the book sparked for me (is wokeness WEIRD? why do I hate contemporary fantasy so much?). [Mr. and Mrs. Psmith’s Bookshelf] 
• When we look more closely at the historical record, it shows not a neat sequence of energy transitions, but the accumulation of ever more and different types of energy. Economic growth has been based not on progressive shifts from one source of energy to the next, but on their interdependent agglomeration. Using more coal involved using more wood, using more oil consumed more coal, and so on. An honest account of energy history would conclude not that energy transitions were a regular feature of the past, but that what we are attempting – the deliberate exit from and suppression of the energetic mainstays of our modern way of life – is without precedent. This is the argument of More and More and More, the latest book by the French historian of science Jean-Baptiste Fressoz. [Adam Tooze]
  
• The People’s Republic of China is the hyper-modernist state par excellence. Chinese communists are quite taken with their slogans about “Chinese style modernization,” but this mostly amounts to standard modernization but with a Leninist party in charge. If there is a country whose leaders are more inspired by Enlightenment rationalism than China, I have not found it. India is different. In fact, India is the only country I have visited where a post-liberal polity seems plausible. Hindu nationalists conceive of their project much the same way Western post-liberals do—they aim to create a country animated by a “non-Western worldview,” to strip away the hegemony of Enlightenment ideas on the Indian mind, and to find a separate path toward wealth and power. As Nehru’s India was liberal in conception, a successful Hindutva program means an actual post-liberal order. [Scholar's Stage]
• The leek has been known to be a symbol of Wales for a long time; Shakespeare, for example, refers to the custom of wearing a leek as an "ancient tradition" in Henry V ( c. 1599). In the play, Henry V tells the Welsh officer Fluellen that he, too, is wearing a leek "for I am Welsh, you know, good countryman." The 1985 and 1990 British one pound coins bear the design of a leek in a coronet, representing Wales. [wiki]
• In some of the wonderful screwball comedies from the 1930s, you really see the class divide in America. A country bumpkin from the middle of America arrives in New York City, and there’s a scene of culture clash in an elegant art deco apartment, where the women wear those slender gold lame gowns. Today, Americans wear pretty much the same clothing all over the country, and drive pretty similar cars (more likely SUVs.) I’m not sure the Gini coefficient numbers pick up this regional leveling of living standards, but if they don’t it may be due to the fact that the richest areas have seen explosive rises in housing prices, so today’s nominal inequality greatly overstates the degree of real inequality. In 2025, I doubt there’s much meaningful difference in living standards between the typical resident of New York City and the typical resident of Oklahoma City. [Scott Sumner]
• Altogether, MGP is the source of beverage spirits sold under about 50 different brand names, although these are often sold misleadingly by their bottlers as distinctive products with minimal disclosure of the actual source of the spirits. Some industry experts have commented negatively about the practice, such as the whiskey writer Charles Cowdery who has decried such bottlers as "Potemkin distilleries". As one example, in a class action settlement announced in 2015 about the marketing of the Templeton Rye brand which was actually produced using MGP spirits, Templeton was required to add the words "distilled in Indiana" to its label and remove claims of using a "Prohibition Era Recipe" and "small batch" production. The settlement also offered refunds to customers who had bought Templeton Rye since 2006. [Midwest Grain Products]
• Under a conventional franchise arrangement, the Company generally owns or secures a long-term lease on the land and building for the restaurant location and the franchisee pays for equipment, signs, seating and décor. The Company believes that ownership of real estate, combined with the co-investment by franchisees, enables it to achieve restaurant performance levels that are among the highest in the industry. Franchisees are responsible for reinvesting capital in their businesses over time. In addition, to accelerate implementation of certain initiatives, the Company may co-invest with franchisees to fund improvements to their restaurants or operating systems. These investments,
  developed in collaboration with franchisees, are designed to cater to consumer preferences, improve local business performance and increase the value of the McDonald's brand through the development of modernized, more attractive and higher revenue generating restaurants. The Company requires franchisees to meet rigorous standards and generally does not work with passive investors. The business relationship with franchisees is designed to facilitate consistency and high quality at all McDonald’s restaurants. Conventional franchisees contribute to the Company’s revenue, primarily through the payment of rent and royalties based upon a percent of sales, with specified minimum rent payments, along with initial fees paid upon the opening of a new restaurant or grant of a new franchise. The Company's heavily franchised business model is designed to generate stable and predictable revenue, which is largely a function of franchisee sales, and resulting cash flow streams. [McDonald's Corporation]
• Cipolla divides people into four categories: helpless, bandit, intelligent and stupid. In any normal interaction between two people, he contends, the helpless person suffers a loss while the other gains. The bandit exacts a benefit while levying a loss on the other. The intelligent person gains while enabling the other person also to gain. The defining trait of the stupid person is that he gains nothing while obliging the other to take a loss. Mr. Trump’s fans can argue with his despisers about whether he belongs in the category of bandit or intelligent, but he definitely can’t be classified as stupid according to Cipolla’s definition. [WSJ]
• About 40 years ago I happened upon a Toastmaster toaster at a yard sale. I researched its serial number - it was made in April of 1935 - and found that it was one of the very first pop-up toasters ever made. It does not have a thermostat but rather an escapement timing mechanism (old fashioned wind up clock type mechanism) that is controlled by a small ‘light/dark’ dial. It ticks like those old fashioned clocks - faster for lighter toast, slower for darker. The sides, top, front and back are heavily chrome plated steel. The sides, front and back metal itself is scalloped vertically about 1” wide each, to give it some style - very Art Deco looking. AND it still worked - well almost - I had to take it apart to repair the main spring - and it’s worked pretty much marvelously ever since. Now I realize it’s not designed for bagels and other really wide breads. Its nichrome wire heating elements are very close together (yielding a fabulous even heating next to the bread-no stripes ever!) and because you adjust the actual TIME of toasting and not a bi-metal heat sensitive thermostat, your toast comes out consistently - time after time after time. Bi-metal thermostats take time to cool off - if you pop in another few pieces of toast right after doing two, the second set will be less done as the bi-metals haven’t cooled enough in between tastings. I also realize that most toasters today take advantage of digital technology and may not even use thermostats anymore but I still feel what I have is a treasure. I did have to have it repaired once by a guy in NYC who does this kind of thing  - (ToasterCentral.com) -  he’d put on a new period cord. It’s gorgeous. It has style, reliability and functionality. It cost me I think about $3.00). My younger daughter says she wants it when I go. Today it’s 85 years old - 13 more than I. Now I ask you - what appliance do you still have in your kitchen that still works and is that old? Only saying! [Which Slot Toaster Makes the Best Toast?]
  

Thursday Night Links

• Today, the world produces 40 times as much copper annually and 250 times as much nickel as it did in 1900. The fact that we produce far more materials than we did in the past, yet prices have barely changed, suggests that contrary to Ehrlich’s prediction, we’re not close to running out of these materials any time soon. That is what brings me closer to Simon’s worldview. [Our World in Data]
• One reason to doubt all nutritional studies outside of 24/7 metabolic wards is the documented propensity of people to underreport how much they eat. Take for example the popular claim that “metabolism” is to blame for over-fatness. When food intake is precisely measured and controlled, study after study has demonstrated that there are no significant differences in metabolism per pound of body weight between the young and old, pre or post-menopause, or the obese and lean. All humans have about the same caloric requirements per pound of body weight. Given the laws of thermodynamics and the narrow range of human body temperature, this makes sense. People who weigh more really do eat more, but report less, and this is why reliable experiments must be conducted in a controlled environment instead of relying on self-reporting. [The Tom File]
  
• Households with at least one GLP-1 user reduce grocery spending by approximately 6% within six months of adoption, with higher-income households reducing spending by nearly 9%. These reductions are driven by significantly larger decreases in purchases of calorie-dense, processed items, including a 11% decline in savory snacks. In contrast, we observe directional increases in nutrient-dense purchases, such as yogurt and fresh produce. We also examine food-away-from-home spending at limited-service establishments, such as fast-food chains and coffee shops, finding reductions at breakfast and especially during dinner times. Our findings highlight the potential for GLP-1 medications to significantly reshape consumer food demand, a trend with increasingly important implications for the food industry as adoption continues to grow. [SSRN]
• In one of its last days as an independent bank, I was having lunch at Bear Stearns’ quite subdued partners’ dining room with a friend. Since I was about to have my first kid, I was full of theories. New parents start off with a lot of theories. With each subsequent one, it becomes more and more practical until you have had most of these theories beaten out of you. Unbidden, I was lecturing my friend (a father of many kids and many years) about the virtues of 24/7 attachment parenting. He let me go on for a while before interrupting with, “but no one wants to see you 24/7. You should get your kids on a schedule”. So I did and it worked. As it is nearly impossible to get them scheduled once they are much older this fit into the theme of erring towards reversible mistakes (no facial tattoos, etc.) [Chris DeMuth Jr.]
• This is the nickname of an area of Madrid where you find the three most famous art museums in Spain: Museo Nacional del Prado, Thyssen-Bornemisza Museum, and Museo Nacional Centro de Arte Reina Sofía. All of them are a pleasant walking distance from each other. While all have massive exhibits (each with many thousands of pieces) I recommend visiting all in one day as they act as context fillers for each other. In one day of indulgence you will see Goya, Velázquez, Holbein, Cranach, Picasso, Dalí, Rafael, Ribera, Murillo, Joan Miró, and literally hundreds more. I recommend starting with Thyssen, then Prado, and finish at Reina Sofía. [Caribbean Progress Studies Institute]
• What buyers cared about was price and square footage, along with generic markers of a nice house: faux columns, faux brick/stone, a fancy front door, faux shutters, and generic/safe colors. They DID care about the interior, where they wanted granite countertops, big kitchen, big closets, lots of bathrooms, lots of rooms (bedrooms, home office space, home gym room, man cave, laundry room), tall ceilings, big master bedroom, generous garage, quality windows, etc. These are efficiently achieved with a two-story boxy style like a Colonial that sits on a postage-stamp sized property, with a similar house sitting close on each side. As long as the property has a decent patio there is little regard for having a yard large enough for children to play in, since kids don't play outside anyway and people are having fewer kids. If people want to show their neighbors they have fancy taste they'll buy an expensive car and park it in the driveway. [Marginal Revolution]
• Of course, after being left for dead by so many U.S. investors, the global stock market did better with non-U.S. stocks actually turning in historically healthy real returns (like 5-6% per annum over cash). It turned out that, just as we thought, the U.S. really did have the best companies (most profitable, most innovative, fastest growing) and this indeed continued in this last decade. But it also turned out that paying an epic multiple for the U.S. compared to the rest of the world mattered somewhat more than we thought, and international diversification, as we knew it would one day, did eventually work. It turns out there was indeed a price at which European stocks made sense. [AQR]