Macroeconomics

Oil

  • A long but fascinating read about the interplay of technology and oil.
  • Exemplified by the Kern River oil field story – how technology renders even the best estimates wildly wrong.
  • “From the beginning, it was evident that the Kern River field was rich with oil, millions upon millions of barrels. Wildcatters poured into the area, throwing up derricks, boring wells, and pulling out what they could. In 1949, after 50 years of drilling, analysts estimated that just 47 million barrels remained in reserves—a rounding error in the oil business. Kern River, it seemed, was nearly played out. Instead, oil companies removed 945 million barrels in the next 40 years. In 1989, analysts again estimated Kern reserves: 697 million barrels. By 2009, Kern had produced more than 1.3 billion additional barrels, and reserves were estimated to be almost 600 million barrels.“
Macroeconomics

Yield Curve Predictive Power

  • With yield curves falling to new cycle lows earlier in the summer it is interesting to think about their predictive power.
  • This piece from the Bank of England blog is worth reading.
  • As the chart below shows – the predictive power of yields has indeed fallen over time but interestingly has started to increase recently.
  • There is more in the article for those interested, explaining why this might have happened.
Stocks

AT&T

  • Elliott have gone activist on AT&T.
  • They have set up this website – https://activatingatt.com/
  • “Elliott made the investment in AT&T – among  its largest ever – because it exhibits a unique combination of historical underperformance, a  depressed  valuation, well-positioned  assets and  a clear path forward to generate extraordinary value  for shareholders and other stakeholders.”
  • h/t Market Folly
Misc

Revisionist History

  • Periodically we will recommend some podcasts for our readers.
  • An excellent podcast worth special mention is Revisionist History
  • Malcom Gladwell gives a new perspective on history – especially how things have come to be the way they are and why more efficient approaches have been left by the wayside.
  • Even though the subject matter isn’t finance, ranging from country music to basketball, these stories are valuable …
  • In investing a sense of scepticism and perspective are paramount.
Stocks

WeWork

  • Lots of journalists have now poured over the S-1 of WeWork.
  • In the meantime investors have continued to push down the valuation of the upcoming IPO.
  • Reuters latest suggests just $10bn down from $47bn (when Softbank invested).
  • Of the gems discovered in the S-1 (h/t FT, FTAlphaville), such as the fact that related party transactions are rife, the founder’s shares carry 20x the votes and his wife would have been involved in the succession planning, one particularly stood out:
  • FT pointed out that the company paid $5.9m in stock to founder Adam Neumann in return for using the “we” trademark!
  • (This has since been returned according to the updated filing today).
Stocks

Aldi in the UK

  • A very well researched article from the Guardian on Aldi in the UK.
  • Aldi and Lidl competition, along with a dose of hubris, over-spacing, and using back margin (profits from suppliers) was the downfall of the UK domestic supermarket share prices.
  • They have since learned and adapted. Every crisis is an opportunity.
Stocks

US Gambling

  • In the last two years the US has started on a path to legalising online gambling.
  • As is usual in the stock market there was initial euphoria, talk of a $300bn market, and bidding up of European gambling shares.
  • The reality of course is more nuanced – yes the opportunity is big but there are substantial hurdles to overcome and strong competition from well funded US Casinos and Media companies.
  • There is a good recent Freakonomics episode on US sports gambling.
  • With European gambling company shares since languishing (partly due to other reasons like increased regulation in the UK) and US legalisation progressing – perhaps it is time to take another look?
  • Hype cycles do eventually come good. A classic chart.
Stocks

Biotech Investing

  • Always interesting to read about investors making big returns.
  • Here is an article from 2018 on one such fund – Perceptive Advisors.
  • They invest in biotech, a notoriously difficult area of the stock market.
  • They run a very concentrated portfolio for biotech – which explains the outsized returns if you can get things right.
  • The edge seems to be understanding ‘perception’ of corporate events in biotech against reality.
  • It will be interesting to see if their success continues now that the firm is managing >$4bn.
Misc

Lists worth reading

  • From 2018 but still a really amazing list of things learnt last year.
  • Highlights:
    • Advertisers place a single brown pixel on a bright background in a mobile ad. It looks like dust, so users try to wipe it off. That registers as a click, and the user is taken to the homepage.
    • In Uganda, half the population is under the age of 15.
    • US nuclear testing between the 1940s and 1970s may have killed as many Americans (from radioactive pollution) as were killed by the bombs dropped on Hiroshima and Nagasaki.
    • AgriProtein is a British company that operates two fly farms in South Africa. Each farm contains 8.4 billion flies, which consume 276 tonnes of food waste and lay 340 million eggs each day. Those eggs (maggots) are dehydrated, flattened and used as animal feed. The company is worth $200m, and they’re planning to open 100 more factories around the world by 2024.
  • All references and related articles found in the link. h/t Medium.
Macroeconomics

US Consumer

  • Bank of America Merrill Lynch uses their credit/debit card data to check the pulse of the US consumer. Their latest report had this to say:
  • “The consumer is beginning to worry. Since our last update in mid-August, the BofAML US consumer confidence indicator (USCCI) decline by 3.8 points to 50.1 based on data through September 9. It briefly dipped below the 50 breakeven level during the survey period indcating that the consumer is growing increasingly pessimistic“
  • h/t Calculated Risk
Macroeconomics

Productivity

  • How far productivity has come in 10 years 2020 US Census edition …
  • “We were able to verify 65% of addresses using satellite imagery — a massive accomplishment for us,” said Census Bureau Geography Division Chief Deirdre Bishop during the briefing. “In 2010 we had to hire 150,000 people to verify 100% of the addresses in the field, this decade we will only have to hire about 40,000 employees around the nation to verify the remaining 35% of addresses.”
  • h/t Calculated Risk
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