Frank Holmes-Fossil Fuels Are Under Siege. Is Misinformation to Blame?

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It's becoming more and more difficult to be in the fossil fuel business. On both sides of the Atlantic, lawmakers and unelected bureaucrats are turning up the heat, so to speak, on companies over the issue of climate change.

In the U.S. House of Representatives, Democrats have launched an inquiry into whether oil companies have participated in so-called “climate disinformation.” This week, letters were sent to top executives of Exxon Mobil, BP, Chevron and Royal Dutch Shell seeking records, and hearings are scheduled for next month.

Meanwhile, the Securities and Exchange Commission (SEC) is expected to propose a series of new disclosure requirements all publicly traded companies must make, possibly as soon as year-end, to inform investors about potential climate risks associated with their business.

Smead Capital Management- The Law of Fashion

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To us at Smead Capital Management, there are some divine laws that govern the stock market over long time periods.

Interest rates are like gravity to P/E ratios (Warren Buffett)

Euphoric episodes end badly (Galbraith)

Cheap stocks outperform expensive stocks over long time periods (Benjamin Graham)

Performance is enhanced by buying extreme pessimism (John Templeton)

Every stock which goes up 10-fold had to double and quadruple first (Smead)

Young people who buy stocks on borrowed money lose (Edwin Lefevre-Reminisces of a Stock Market Operator)

Most investors suffer stock market failure (Dalbar)

5 Reasons why I decided to invest in the Stock Market in Africa

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I recently decided to invest in the stock market in Africa. I worked and lived on the continent for 7 years, before becoming a full time investor, so I feel that I have a better-than-average understanding of the potential of investing on the continent.

I’ll start with five reasons why I decided to invest there, I’ll then mention some of the key risks, and will close off by mentioning how I invested in the stock market in Africa.

Smead Capital Management- The McNealy Problem

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Investors often ask our team at Smead Capital Management what we spend our time on. We believe reading is the best use of our time to learn and think about the way that we can profitably apply capital for our investors. We recently read Ben Inker’s letter from GMO. In the letter was a 2002 quote in Bloomberg from the former Sun Microsystems CEO Scott McNealy. McNealy was explaining ex-ante how irrational the financial euphoria of the late 1990’s was when he said:

2 years ago we were selling at 10 times revenues when we were at $64. At 10 times revenues, to give you a 10-year payback, I have to pay you 100% of revenues for 10 straight years in dividends. That assumes I can get that by my shareholders. That assumes I have zero cost of goods sold, which is very hard for a computer company. That assumes zero expenses, which is really hard with 39,000 employees. That assumes I pay no taxes, which is very hard. And that assumes you pay no taxes on your dividends, which is kind of illegal. And that assumes with zero R&D for the next 10 years, I can maintain the current revenue run rate. Now, having done that, would any of you like to buy my stock at $64? Do you realize how ridiculous those basic assumptions are? You don’t need any transparency. You don’t need any footnotes. What were you thinking?

Stagflation to last next 6 months, markets in danger of sell-off – Tavi Costa

 

Several structural problems in the U.S. could cause a slowdown in economic growth soon, with stagflation hitting and lasting for the next six months, said Tavi Costa, portfolio manager of Crescat Capital.

“I am in the of sort of a more of a stagflationary environment in the next six months or so. It’s difficult to see stagflation over a long period of time…but it’s possible to have periods of that and I think we’re getting into one,” Costa told David Lin, anchor for Kitco News. 

Frank Holmes: When Will Social Security Run Dry? Sooner Than You Might Think

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I have some sobering news: Social Security is in worse shape than we thought. The program’s Old-Age and Survivors Insurance (OASI) Trust Fund is now expected to be insolvent by 2033, a year earlier than anticipated.

According to the annual report, its finances have been “significantly affected” by the pandemic and 2020 recession, not to mention “rapid population aging.”

Indeed, the ratio between contributors and beneficiaries has been shrinking for decades. In 1941, there were about 42 workers for every Social Security recipient. Today, that figure is around 2.5 workers per beneficiary.

A tipping point will occur in 2034: Americans age 65 and over will, for the first time ever, outnumber those 18 and under, according to Census Bureau estimates.

Berkshire: Pinch Hit Weschler

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We have argued for years that the biggest mistake being made by Berkshire Hathaway was not giving shareholders access to the thoughts and investment discipline of their two talented stock pickers, Ted Weschler and Todd Combs. After all, Buffett calls the shareholders “partners” and has not allowed his partners to understand anything about the strategies and results of upwards of $30 billion of shareholder capital.

Thanks to Allan Sloan from The Washington Post, we have learned more about Ted Weschler from the footnotes at ProPublica and Sloan’s phone call to Mr. Weschler than we have ever learned from the Berkshire annual reports or the Berkshire Hathaway annual meetings. Where has any of this been in the Berkshire Hathaway footnotes? Weschler has made himself a centi-millionaire just from his personal investments in his Roth IRA. These funds came from converting his traditional IRA and paying a whopping $26 million in taxes to have future gains grow tax free. Here is how Sloan explained these circumstances:

Chris Mayer: The First Rule of Compounding

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“The first rule of compounding: Never interrupt it unnecessarily.”

 - Charlie Munger

I love this Munger quote. (h/t to @LiviamCapital). I may have it pinned on my wall. (Right next to another Munger quote I have on  my wall: “The goal of investments is to find situations where it is safe not to diversify.”)

I thought about Charlie’s first rule of compounding the other day when a friend asked if I trimmed a position that has run quite a bit this year.

I haven’t touched it.

Why not? Shouldn’t I trim when something becomes “expensive”? Shouldn’t I put the money in something “less expensive”? Isn’t that what “active managers” do?

Warren Buffett's deputy explained how he snowballed his retirement account from $70,000 into $264 million, how he shrugs off losses, and how people can save a fortune

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Warren Buffett's deputy grew his retirement fund from $70,000 to $264 million in under 30 years. He detailed how he did it, shared the way he shrugged off investment losses, and offered tips on saving for retirement in a recent Washington Post interview.

Ted Weschler, who helps Buffett manage Berkshire Hathaway's investment portfolio, discussed his approach with Allan Sloan for the writer's latest column. ProPublica first disclosed the size of Weschler's nest egg in June, citing federal tax returns it obtained.

Jim Rogers: The Madness Of Investors

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In the book, Inside The House Of Money by Steven Drobny there’s a great interview with Jim Rogers on all things macro-investing before it was called macro-investing. During the interview Rogers recounted two stories that demonstrated to him the madness of investors. Here’s an excerpt from the interview:

I don’t know, there have been some nice ones. When you ask about favorites, that implies success. I usually prefer talking more about the things I have gotten wrong, because I learned from them.

The best one, the one I loved the most, was defense stocks in the 1970s. After the Vietnam War, defense went into the tanks—everybody hated defense, nobody was spending money on defense, so these were dollar stocks at best. I bought a lot of them.

Money World Interview with John Templeton

 

An old video but very good comments from Templeton.

Jean-Marie Eveillard: Investors Have To Have The Courage To Say No

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In Ronald Chan’s Book – The Value Investors, Jean-Marie Eveillard provides two examples of when he had the courage to say no. Here’s two excerpts from the book:

Because I became worried about the Japanese stock market in the late 1980s due to its gigantic credit boom, we sold all of our Japanese stocks in mid-1988. Some investors questioned us for pulling out from the second largest stock market in the world, but I said it’s better to take some money off the table than to participate in market mania.

Obviously, I was wrong and unhappy in the next 18 months because the market went up another 30 percent, but in 1990 when the market collapsed, we owned nothing in Japan and our decision was proved logical.

Meb Faber: Aaron Edelheit, Mindset Capital, “The Best Investors Are Those That View It As A Game”

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In today’s episode, we start with Aaron’s time as the CEO of The American Home, a company he grew to over 2,500 single-family rental homes and sold in 2015 to a REIT for over $250 million. He explains why that experience has led him to be bullish on Mexican homebuilders and why he thinks one specific homebuilder is the most undervalued company in North America. Then we turn to why Aaron thinks it’s helpful for investors to play video games and why he thinks Nintendo is undervalued.

As we wind down, we touch on the cannabis space and why Aaron is bullish on the sector.

  

Michael Mauboussin: The 3 Big Behavioral Investing Mistakes

 

In this interview with Outlook Business, Michael Mauboussin discusses the three big behavioral mistakes that investors make. Here’s an excerpt from the interview:

Mauboussin: Investors make a lot of behavioral mistakes but I’ll mention three I think are particularly prominent.

The first is this notion of being overconfident. People tend to be overconfident in understanding the future and the way that manifests for investors is they tend to project ranges of outcomes that are vastly too narrow. So investors really need to try to calibrate themselves to appropriate distributions of outcomes to offset that overconfidence.

The second really big one is called confirmation bias that basically says once you’ve made up your mind, made an investment, you can to seek information that confirms your point of view and dismiss or disavow information that doesn’t confirm it. One of the essential tasks of an investor is really to understand new information as it comes in and to revise your views appropriately.

The third big one is a failure to use base rates. So base rates are essentially a record of what’s happened in the past to companies in similar situations. An understanding of base rates in terms of sales growth rates or earnings growth rates or return on capital patterns can allow investors to have a much better understanding about how the future may unfold for a particular company or an industry.

GMO: When The Ducks Are Quacking Feed Them

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Stock issuance highest ever, as firms and Wall Street know when it’s time to sell to eager buyers.

Yes, we are witnessing new price records for the S&P 500, NASDAQ, and a host of other markets. That, in isolation, should not be worrisome. What should worry you, though, is that records are being set on the valuation front. By almost any measure – forward or backward-looking – we are staring at some of the most expensive valuations in history, especially in growth stocks. But we’ve talked about that inconvenient truth many times before. Here’s a new worry: Stock issuance in 2021 is also setting a new record, blowing away the last high set in the run-up to the Tech Bubble. This is a dubious item to celebrate if history is any guide.

Would You Have Found Berkshire Hathaway in 1975?

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Probably not, from the performance charts, writes Rekenthaler in this article from the archives.

My July 25, 2018, column suggested that time travelers purchase $1,000 worth of Berkshire Hathaway (BRK.A) stock in 1975. That position would be worth $7.5 million today. Which got me thinking: How did BRK’s equity appear at that time?

Warren Buffett gained control of BRK in May 1965. The chart below depicts the value of a $10,000 investment in BRK over the next five calendar years, from 1966 through 1970. For comparison’s sake, I included the S&P 500 and the price change of a barrel of crude oil. (The latter two investments are theoretical: There were no index funds, and oil barrels came with storage costs.) All figures are adjusted for inflation.

Josh Young: Delta variant and China’s economy are 'short-term concerns' for oil

 

Josh Young, CIO of Bison Interests, joins BNN Bloomberg for his outlook on the sell-off in oil. Young sees rising COVID-19 cases and weakness in the Chinese economy as "short-term concerns" and is buying more oil stocks on pullback from names like Baytex to SandRidge.

Old West Investment Management Q2 2021 Investor Letter

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Our firm recognized an extraordinary opportunity in the nuclear energy/ uranium mining industry several years ago. Old West partner and portfolio manager Brian Laks offers this update on our investments in this area:

It’s been two and a half years since we first wrote about uranium in our 2018 year-end letter. We launched our Opportunity Fund that year to focus on the idea as we saw industry fundamentals improving and felt that we were nearing a turn in the cycle. The timing turned out to be excellent as we were able to steadily raise and deploy capital building positions in a declining price environment as the stocks bottomed.

In April 2020 we wrote that we believed the inflection point had arrived. Since that time, our positions have multiplied in value and the patience of our investors has been greatly rewarded. In an interview we gave last quarter, we talked about the need to become more selective as general valuation levels improved. We think we are still in the early stages of a long overdue industry rebalancing, and we maintain core positions in what we believe are the best assets to capture improving economics in the industry. 

Sean Iddings: We All Need Some Perspective

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The bull market makes us all look like geniuses, but we’re not.

It’s time for a good dose of perspective and honesty.

Follow along…

In 2013, Brian Scalabrine, a recently retired 11-year NBA player, had enough.

Scalabrine was sick and tired of hearing average Joes say they could beat him one-on-one on the court. The armchair professionals insisted that Scalabrine, a 3 point per game player, a poor player by NBA standards, would be an easy challenge. 

Scalabrine wanted to shut them up. Scalabrine took on four of Boston’s best amateur ballers, dubbed it the “Scallenge” and recorded it for all to see. Some had Division - 1 college experience. All had supreme confidence they would win.

Here is how it went.

Smead Capital Management: Quail Pricing in Oil Assets

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On the insistence from a friend and a colleague, I watched the movie There Will Be Blood over the weekend. I’m a Daniel Day Lewis fan from his prior works like Gangs of New York, so was excited to watch this odd story. Lewis’s character Daniel Plainview is a silver speculator turned oilman who comes across an oil opportunity in Little Boston, CA. He takes his son (HW) to a property, owned by the Sunday family, that they are told contains oil. He tells the owner that they are going quail hunting, which wasn’t true. While hunting, HW stumbles upon an oil seepage confirming the oil is present on the land. They are both excited and the following scene ensues with his son:

HW (son): How much we gonna pay them?

Daniel (father): Who’s that?

HW (son): The Sunday Family

Daniel (father): We’re not going to give them oil prices. We’ll give them quail prices.

While we are not claiming to be getting our oil companies for birdfeed, it brings up the idea of distraction for the Sunday family in the movie and investors now. The Sundays had strangers show up looking to hunt quail, not knowing they were looking for oil. Outside of one family member believing there was a ruse, they were willing parties when the sale price was negotiated at what looked like low prices in the movie. These people had never seen oil drilled on their land, thus didn’t understand the opportunity that lied ahead.

The Folly of Ruling Out a Collapse

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A remarkable feature of extended bull markets is that investors come to believe – even in the face of extreme valuations – that the world has changed in ways that make steep market losses and extended periods of poor returns impossible. Among all the bubbles in history, including the 1929 bubble, the late-1960’s Go-Go bubble, the early 1970’s Nifty-Fifty mania, the late-1990’s tech bubble, and the 2007 mortgage bubble that preceded the global financial crisis, none has so thoroughly nurtured the illusion that extended losses are impossible than the bubble we find ourselves in today.

Benjamin Graham understood that even when extreme valuations are not immediately corrected by market losses in the shorter-run, they are typically followed by disappointing investment returns and very long, interesting trips to nowhere. The fact is that most of the fluctuation in 10-12 year S&P 500 returns is driven not by changes in fundamental growth, but by changes in valuation multiples. When valuations are depressed, investors not only purchase expected future cash flows at an attractive price; they also avail themselves of the potential for valuations to increase in the future. At extreme valuations, investors not only purchase expected future cash flows at an elevated price; they also expose themselves to the potential for valuations to retreat in the future.

Warren Buffett in Switzerland: A Few Lessons on Value Investing

 

Rare footage of Berkshire Hathaway’s CEO sharing his investment and business wisdom in a Q&A session in Switzerland.

Berkshire Margin of Safety is not on price, but qualitative factors

Ben Graham

Price

Long term investing

Durable competitive advantage

Products

Nestle

Management qualitative factors “Management you’re gonna love 20 years from now.”

Passion

Predictably 

Future profits

Evaluation of a business

Software products

Tech / computer/ IT industry (Microsoft, Google)

Change

Being chief risk officer as CEO

Control / decentralised management of acquisitions and holdings

Values / ethics and behaviour

Charity is up to shareholders to allocate, not up to us to allocate their funds

Jeremy Grantham: Beware The ‘Confidence Termites’

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In his recent interview on The Moneyweek Podcast, Jeremy Grantham discussed what might bring this latest prolonged bubble to an end, and the role of the ‘confidence termites’. Here’s an excerpt from the interview:

Grantham: The history books are pretty clear, there doesn’t have to be a pin. No one can tell you what the pin was in 1929. We’re not even certain in 2000. It’s more like air leaking out of a balloon. You get to a point of maximum confidence, of maximum leverage, maximum debt, and then the air begins to leak.

And I like to say, the bubble doesn’t reach its maximum and then get frightened to death, what happens is the air starts to leak out slowly because tomorrow is a little less optimistic than yesterday. And gradually, people begin to pull back. And the process is very interesting, in that before the end of the great bubbles, and there’s only been a handful, so we can get carried away with over-analysis.

A Conversation with America's #1 Futurist

Stansberry Investment Hour:

On this week’s episode of the Stansberry Investor Hour, Dan invites an incredibly special guest onto the show.

He studied for years under Henry Kissinger at Harvard University…

He later helped pioneer the formulation of supply-side economics as Chairman of the Lehrman Institute’s Economic Roundtable…

And he’s widely regarded as America’s #1 futurist…

The one and only, George Gilder.

George is best known for many of his best-selling books including, Wealth and Poverty, Life After Television, Life After Google, and his latest work, Gaming A.I.: Why A.I. Can’t Think but Can Transform Jobs. 

Howard Marks: Thinking About Macro

Oaktree Capital

Regular readers of my memos know that Oaktree and I approach macro forecasts with a high degree of skepticism.  In fact, one of the six tenets of Oaktree’s investment philosophy states flatly that we don’t base our investment decisions on macro forecasts.  Oaktree doesn’t employ any economists, and we rarely invite them to our offices to share their views.

The reason for this is simple: to use Buffett’s terminology, we’re convinced the macro future isn’t knowable.  Or, rather, macro forecasting is another area whereas with investing in general – it’s easy to be as right as the consensus, but very hard to be more right.  Consensus forecasts provide no advantage; it’s only from being more right than others – from having a knowledge advantage – that investors can expect to dependably earn above-average returns.

John Polomny: Regulatory Capture Of The FED By Crooked Former FED Officials. They Get Rich, You Get Screwed

www.actionableintelligencealert.com

Just more crookery as people work at the FED where they ostensibly regulate the banks. We see all these so-called smart people work at the FED and manage our economy. After they blow serial bubbles and ruin average people's financial lives they move to private industry (banks) and get fat salaries and perks.

Goehring & Rozencwajg Q2 2021 market commentary: The IEA Ushers in the Coming Oil Crisis

Goehring & Rozencwajg 

The fundamental problems facing global oil markets are much more severe than 2021’s spike in oil prices would suggest.

Our newest commentary, The IEA Ushers in the Coming Oil Crisis, provides an in-depth look at why global oil demand will not taper off due to ESG-related reasons, as the IEA predicts, and supply growth will likely remain restricted — a recipe for a dramatic oil deficit.

• Problems facing the oil supermajors: Exxon, Chevron, Royal Dutch Shell and Total
• Shrinking global oil inventories
• Tightness in the US natural gas markets
• Higher-than-expected Chinese agricultural demand

Harris Kupperman Interviews Josh Young Of Bison Interests

In this episode, Patrick Ceresna and Kevin Muir take a backseat and let fan-favourite Harris Kupperman aka Kuppy interview Josh Young from Bison Interests.  Josh has been hitting out of the park when it comes to his energy picks, and he comes back to the Market Huddle to give us his new picks.

Frank Holmes: Texas Freezes in New Commodity Supercycle

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A joint state and federal investigation into the outages has already been announced, and improvements to (and winterization of) aging infrastructure will likely be recommended, if not required, to prevent this from happening again. Such a massive overhaul would require an incredible amount of metals and other basic materials, which would be positive for miners and producers.

We're particularly bullish on copper, used extensively in electrical wiring and circuitry.

Texas is the ninth largest economy in the world, ahead of Canada, South Korea and now Brazil. It consumes more energy than any other US state. Its residents and businesses deserve a world-class power grid that operates reliably in all weather conditions, even those that strike only once every 100 years.

Crescat Capital: February Research Letter

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The year is just getting started and the US fiscal deficit already reached another record, now at its worst level in 70 years. The Fed is facing its worst predicament yet. The current fiscal spending path will lead to record Treasury issuance this year. Foreign investors are unlikely to be the ones funding this operation. With 2020 as a guide, there are no buyers of any size for those securities outside of US banks and the Fed. Major foreign holders of US debt only bought about 5.2% of all Treasuries issued last year. In the face of this enormous new government debt issuance, the Fed faces the impossible task of continuing to prop up already historic asset bubbles while also preventing inflation. The current extreme fiscal imbalances put the central bank on a crash course to fail at both.

MacroVoices: #260 Lyn Alden: Shifting from Monetary to Fiscal Dominance

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• Perspectives on mainstream deflationists adopting a new inflation view
• Limits to excessive deficit spending and fiscal stimulus
• Fiscal vs. Monetary dominance
• Macro asset allocation strategy in fiscal dominance environment
• Perspectives on the Fed’s yield control
• U.S. broad money supply vs. Japanese broad money supply
• Outlook on Gold and Bitcoin

John Polomny: How Stupid Are Things Getting In The Everything Bubble? Pretty Freaking Stupid.

Businessweek says on its cover that sneakers are a "new asset class". Valuations for most assets are through the roof. People with no idea how markets work and no knowledge of valuing companies or understanding what they are buying are making money hand over fist. Is this normal or is it a result of too much money being created by central banks that is enabling rampant specualtion.

Meb Faber: Episode #290: Bill Smead, Smead Capital Management, “There’s Less Respect For Stock Picking Experts Right At This Moment Than There Has Been Since The Peak Of The Dot-Com Bubble”

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In today’s episode, Bill explains why he believes the market is undergoing a tide change. He starts with a look back on the 2000 tech bubble and uses Cisco as an example of why it’s important to separate a good business from a good stock. After talking about parts of the market he doesn’t like, we move on to the parts he finds attractive, including home-builders, energy, suburban mall REITs, and financials. As we wind down, Bill touches on the antitrust case for big tech and what the investment implications may be.

Crescat Capital: The FED Is Trapped

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The year is just getting started and the US fiscal deficit already reached another record, now at its worst level in 70 years. The Fed is facing its worst predicament yet. The current fiscal spending path will lead to record Treasury issuance this year. Foreign investors are unlikely to be the ones funding this operation. With 2020 as a guide, there are no buyers of any size for those securities outside of US banks and the Fed. Major foreign holders of US debt only bought about 5.2% of all Treasuries issued last year. In the face of this enormous new government debt issuance, the Fed faces the impossible task of continuing to prop up already historic asset bubbles while also preventing inflation. The current extreme fiscal imbalances put the central bank on a crash course to fail at both.

For many reasons, the path of least resistance at this stage in the economic cycle is indeed the inflationary one. After years of underinvestment in the basic resources of the “old economy”, the world is facing commodity supply shortages. When combined with the fiscal stimulus driven boost in demand, hard assets are already starting to catch fire. A commodity boom is contributing to reflexive macro inflationary pressures, including investment demand for inflation protection, as well as rising industrial demand in a fiscal stimulus driven economy attempting to both recover from Covid and transition to a cleaner, greener economy. Rising inflation starts with rising basic materials, energy, and agriculture prices. The recent 12-year breakout in commodities is rock solid.

Smead Capital Management: Beating Bobbie Fischer

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During the 1998 Berkshire Hathaway meeting, Warren Buffett and Charlie Munger were asked a question about the return-on-equity of American banks. They commented on the topic in a typical Berkshire-like fashion. They then got off on a tangent that provided a truth of biblical proportion.

So it’s not at all clear that if all American management were dramatically better, leaving out the competition against foreign enterprises, that returns on equity would be a lot better. They might very well drive things down. That’s what, to some extent, can easily happen in securities markets. It’s way better to be in securities markets if you have a 100 IQ and everybody else operating has an 80, than if you have 140 and all the rest of them also have 140.

So the secret of life is weak competition, you know. (Laughter)

Somebody said, “How do you beat Bobby Fischer?” You play him in any game except chess.

John Polomny: Baby It's Cold Outside. AIA Weekly 2-20-21

 

I discuss the recent cold snap in Texas and the reasons why generating plants were not able to deal with the abnormal cold weather the state experienced.

Copper above $4 a pound and French oil giant says we need massive investment in oil to stave off a supply crunch in a few years.

Jesse Felder: One For The Ages Part Tres

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Last year I started a series of posts titled, “One For The Ages,” (here are Part One and Part Deux) intended to chronicle what I see as a frenzy in speculative activity in the markets that typically comes around only once in a generation (although it seems my generation has had more than its fair share). This is the third in the series.

J.P. Morgan famously said, “Nothing so undermines your financial judgement as the sight of your neighbor getting rich.” And only in the age of social media could we ever have as many neighbors getting so fabulously rich all at the same time as we do today.

Smead Capital Management: Vexing Today’s Convex Pricing Behavior

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After getting into our offices around 8:30am Eastern on Monday morning, I was lucky enough to catch an interview with famed short seller Carson Block of Muddy Waters. As expected, CNBC anchor Andrew Ross Sorkin asked about GameStop and short sellers. Block provided his answer, but then went on to say:

…But the bigger issue really is that when you get down to what actually causes this. I’m going to throw something out there that I suspect a vast majority of your listeners have not heard, but a lot of this disfunction is being driven by the prevalence of passive investing. I want to say one thing before questions come my way. Yes, I knew about the robo-bid and I knew that fundamentals are irrelevant to the robo-bid or passive investors. What I didn’t appreciate is that as passive grows in a float that It actually creates convex pricing behavior. It basically becomes the driver of growth and it is in my mind, based on my understanding now, it’s the single biggest explanation for why growth as a style has massively outperformed value. Again, it’s not tied to fundamentals. It’s tied to supply and demand.

Meb Faber: Jeremy Grantham, “What Day Is The Highest Level Of Optimism? It’s The Day The Market Hits The Peak”

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In today’s episode, Jeremy begins by talking about the current market, which he believes will be recorded as one of the great bubbles of financial history. He puts this bubble into historical perspective by comparing it to the Japanese, technology and housing bubbles. Then he addresses the commonly cited argument that low interest rates justify high stock valuations. Next, Jeremy explains why he is so bullish on venture capital and has allocated almost 60% of his foundation to the asset class, making it, as he says, one of the most aggressive portfolios in the philanthropic world.

John Polomny: It Is The End Of The Oil Age As We Know It, And I Feel Fine

A bit of a riff on REM's song title "It Is The End Of The World As We Know It."

Lot's of talk in the media recently about the end of fossil fuels and energy transitions. How realistic is this? How long will it take? Wht are oil prices rising and will they continue?

We get into this week. Ninepoint Partners Report https://www.ninepoint.com/commentary/...​ Goehring & Rozencwajg http://gorozen.com/research/commentaries

Open Insights: US Vaccination Progress, Better Than Many Think?

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43M vaccine doses administered.  That figure is stunning.  It’s stunning because of the rapidity of it.  We thought it could be high, but did we expect it?  No.  To be honest, the roll-out of the vaccines have been problematic, largely because of manufacturing constraints, logistical challenges and bureaucratic ineptitude.  Still 43M. These are vaccinations mind you, they aren’t “vials delivered” which is another 20M more (62.9M) per the CDC.  These are real vaccinations to the highest risk groups.  What’s this mean?  Well we believe we’ve already vaccinated about 20% of the target US population group and almost 40% of the highest risk group.

The Speculative Investor: Rampant Speculation

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We assume that everyone reading this has at least superficial knowledge of the incredible goings-on around the stock of GameStop (GME), a video game retailer. The GME situation became so extraordinary last week that it drew the attention of senior US policymakers, but more importantly it is representative of what’s happening throughout the stock market and is symptomatic of the US money supply’s Fed-driven explosive growth.

The underlying cause of the crazy price action is the explosive money-supply growth engineered by the Fed. This record-breaking expansion of the money supply hasn’t led to rapid rises in official measures of “price inflation” YET, but its effects are plain to see. One of the most obvious effects at the moment is the rampant speculation in parts of the stock and commodity markets.

The participants in each bubble believe that there are some fundamental considerations that make their bubble special, meaning that their bubble is believed to be not actually a bubble but a reasonable assessment of future prospects. For example, Tesla bulls believe that Tesla’s market cap makes sense considering the company’s future earnings potential, bitcoin bulls believe that bitcoin’s price rise is justifiable and is nothing compared to what’s coming, and many retail equity traders now believe that the stock market offers them a sure-fire way to make a lot of money very quickly without the need to do any real work.

Howard Marks: The Most Important Thing

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You can argue that not every stock goes up long term, in which case, you’d be right. There are plenty that stagnate, while others fall apart completely.

And how can you tell which is which, especially given the second quote: “No rule always works, the environment isn’t controllable, and circumstances rarely repeat exactly?”

To that very good question, I would make three recommendations:

Know your pain vs. pleasure tolerances.

Allocate your portfolio appropriately.

Know each company’s actual value before you buy into it.

As Marks says, “Investing requires just one thing: dealing with the future.” And the future is undoubtedly going to be filled with emotions, failures, and corrections.

John Polomny: Even The Smartest Man Ever Could Not Keep From Getting FOMO. Weekly Market Update 2-6-21

 

Sir Issac Newton, who many say was the smartest human ever, got caught up in the FOMO of the South Seas Bubble. He made some money at the start and got out. But seeing his friends get rich caused his FOMO to soar. He got in big at the top and lost most of his money. 

History repeats with the FOMO and greed that we have seen in this bubble market. 

I also discuss the 68% gain in Athabasca Oil Sands since I mentioned it in my past video from last week.

Jeremy Grantham: Why Grantham Says the Next Crash Will Rival 1929, 2000

 Jeremy Grantham, co-founder and chief investment strategist of Boston’s GMO, believes U.S. stocks have become an epic bubble and will burst in a collapse rivaling the crashes of 1929 and 2000. In this interview, he explains why, discusses the futility of Federal Reserve policy, criticizes the state of American capitalism, and shares his thoughts on gold, Bitcoin, emerging markets and climate change. He spoke exclusively to Erik Schatzker on Bloomberg’s “Front Row.”

Stan Druckenmiller: The Wildest Cocktail I Have Ever Seen

In this episode of Talks at GS, investor Stanley Druckenmiller discusses his current outlook on the market, his approach to risk management throughout his career, and his perspective on the conversation surrounding the role of capitalism in American society.

Frank Holmes: Energy and Natural Resources Market

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The best performing commodity for the week was natural gas, up 12.09%. U.S. natural gas futures extended gains through the week, amid colder weather forecasts across the country for February. The spread between March and April natural gas futures -- known as the widowmaker -- flipped to positive on Monday for the first time since January, writes Bloomberg.

Brent crude continues to make a comeback, trading near $60 a barrel, which was a low as $35 three months ago. OPEC+ said it will continue to quickly clear the oil surplus created by the pandemic and is currently withholding 7 million barrels a day of output, or around 7% of global supplies. China’s biggest offshore oil and gas producer said it will boost spending by 19% this year ahead of an expected production surge, in contrast to other global producers cutting spending.

Credit Suisse upgraded the U.S. steel sector to overweight, predicting prices could remain above the historical average of $600 a ton through the year. Bloomberg notes the firm turned bullish on Nucor, Steel Dynamics and Stelco.

Jesse Felder: The ‘Index Of The Volume Of Speculation’ Blows Off

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There are all sorts of signals pointing to rampant speculation in the stock market today. And if we are to measure it by way of margin debt (normalized by the size of the economy), then what we are witnessing is, in fact, a level of speculation that dwarfs anything seen in modern times.

Not only is the overall level of margin debt hitting new highs, the 9-month increase in the total amount of margin debt also just soared to a new record. It’s hard to believe that both of these could be possible simultaneously, that off of such a massive base the amount of debt used to speculate could increase so rapidly, but there you have it.

Harris Kupperman: Talking KEDM On Real Vision

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During one of the craziest weeks I can remember in the markets, I chatted with Max Wiethe from Real Vision about what is going on. We covered a lot of ground, including an overview of why this is a golden era for Event-Driven trading and how KEDM can help you capitalize on all of the opportunity. We also go through a few historic examples so you can get a better sense of how to use KEDM. (For those of you who don’t know what I’m talking about, click here for my introduction to KEDM.Com)

By special request, my friends at Real Vision have let me distribute the interview for those who aren’t yet paid up Real Vision subscribers (Seriously?? Who wouldn’t already be a subscriber?? It’s well worth the cost).

Frank Holmes: 2021 Could Be Another Big Year For Silver

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Silver is set to become a major beneficiary of emerging industrial applications.

That includes sources of renewable energy, solar specifically, which continues to ramp up around the globe in response to a combination of carbon emissions legislation and a rapid decrease in the cost of “green” electricity. President Joe Biden has made addressing climate change one of his top priorities and has ambitions to legislate a more rapid transition to clean technologies that favor not just silver but other metals as well.

According to a report by CRU Consulting, solar power generation will increase to 1,053 terawatt hours (TWh) by 2025, close to double the amount that was generated in 2019. Amazon alone is planning five major solar projects around the world, including its first in China, as the retail giant seeks to reach 80% renewable energy by 2024 and 100% by 2030. Once completed, these five projects will generate 1.2 million megawatt hours (MWh) of energy every year, or enough to power 113,000 average U.S. homes.

John Polomny: WSB Gamestop Play Is Just Another Manifestation Of Central Bank Corruption Of Our Money

 

 

Because of the central banks zero interest policy and over prinitng of currency to deal with the huge debt situation most people have been turned into speculators and now gamblers. In my view the recent Gamestop short hedge fund body slam, although amusing, is just more rank speculation and will end in tears for most players. Mayor de Blasio, Comptroller Stringer, and Trustees Announce Estimated $4 Billion Divestment from Fossil Fuels https://comptroller.nyc.gov/newsroom/...​ Diamond Offshore exit from bankruptcy: http://investor.diamondoffshore.com/n...​ Big Oil hits brakes on search for new fossil fuels https://www.reuters.com/article/us-oi...​ Follow me on Twitter: @JohnPolomny

MacroVoices: #256 Russell Napier: Prepare for Secular Inflation

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How are stocks rallying to new all-time highs amidst the ongoing pandemic?

Stimulus into real economy – will this still support the stock market?

How far Bond Yields could go

Financial repression and inflation outlook

Inflation may be good in the beginning but for how long?

Benefits of inflation on the stock market

Perspectives on commodities including Copper and agriculture

Gold vs. Bitcoin

Is there a strategy to evade financial repression?

Jeremy Grantham: Waiting For The Last Dance, The Hazards of Asset Allocation in a Late-stage Major Bubble

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The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble. Featuring extreme overvaluation, explosive price increases, frenzied issuance, and hysterically speculative investor behavior, I believe this event will be recorded as one of the great bubbles of financial history, right along with the South Sea bubble, 1929, and 2000.

These great bubbles are where fortunes are made and lost – and where investors truly prove their mettle. For positioning a portfolio to avoid the worst pain of a major bubble breaking is likely the most difficult part. Every career incentive in the industry and every fault of individual human psychology will work toward sucking investors in.But this bubble will burst in due time, no matter how hard the Fed tries to support it, with consequent damaging effects on the economy and on portfolios.

 Make no mistake – for the majority of investors today, this could very well be the most important event of your investing lives. Speaking as an old student and historian of markets, it is intellectually exciting and terrifying at the same time. It is a privilege to ride through a market like this one more time.

Meb Faber: Episode #278: Lucas White, GMO, “Since Inception Of The Strategy…We’ve Been Buying Companies At A Significant Discount, Yet Our Portfolio Has Had Earnings Growth That Far Exceeded The Broad Equity Market”

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In today’s episode we’re talking all about resources and climate change as an investment strategy. Lucas sets the stage with why he believes the resource sector offers a huge opportunity and currently trades at an 80% discount to the broad equity market. Then we dive into GMO’s climate change strategy. Lucas explains what led them to focus on climate change and clean energy and officially launch a strategy in 2017. We talk about the allocation to different areas, including copper, food and water.

Frank Holmes: Closing the Gold Window Opened the Door to Modern Monetary Theory (MMT)

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The drawback is that, in the years since the end of the gold standard, there’s been a significant and growing lack of discipline when it comes to government spending. Before 1971, there was a natural limit to how much money could be printed. New issuances were dependent on the amount of gold sitting in the nation’s coffers.

Today, with the dollar backed not by a hard asset but by the “full faith and credit” of the U.S. government, the federal debt is closing in on an astronomical $28 trillion, which is more than 130% of the size of the U.S. economy.

John Polomny: Get Ready For The "Crack Up Boom". AIA Weekly Market Update 1-23-21

With all the money being created and injected into the economy to fight covid I am expecting a reopening of the economy to lead to a Crack Up Boom. The increased money will outstrip the economies ability to prodcue goods and services which will lead to rising prices.

It will look and feel good at first but will have the potential to end in disaster.

Grant Williams: The End Game Episode 14- Paul Singer

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Bill and Grant welcome Paul Singer, Founder, President, Co-Chief Executive Officer, and Co-Chief Investment Officer of Elliott Investment Management L.P.

Among the topics covered in this extremely rare and endlessly fascinating conversation are Paul's thoughts on the importance of understanding markets are little more than mass experiments in psychology, the fallacy of 'sitting passively', the creation of value for clients and the corner into which the Fed and other central banks have painted themselves.

Chris Mayer: The Best Investors of All Time

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Who are the best investors of all time?

You probably thought of Warren Buffett or Peter Lynch or John Templeton or other renowned money managers, past and present.

But did you think of the Walton family, the Rales brothers or Jeff Bezos? 

Yes, we tend to think of them as entrepreneurs. But they do own stakes in public companies just like any of those other investors. In this case, the public companies are Walmart, Danaher and Amazon, respectively. The returns on these stocks have been, well... let’s just say they would be the envy of nearly any traditional money manager you care to name.

Let’s think about Sam Walton for a moment. He opened the first Walmart store in 1962 at the age of 44 (then called Wal-Mart). In 1970, he took the company public. The IPO generated nearly $5 million, which doesn’t sound like much these days. The Walton family retained ~60%, which put the overall equity at about $13 million. The Walton family stake was worth about $8 million.

Massiff Capital: Q4 2020 Investor Letter

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We are beginning to see significant capital flow into real asset businesses (where the primary investment and value creation is derived from tangible rather than intangible resources). In the last 24 months, roughly 51 SPACs have either gone public or been announced that are capital-intensive businesses focusing on the energy transition. These companies have IPOed for a combined ~$15 billion. Today, the combined market capitalization stands at ~$84 billion. The share-price of those firms has grown an average of over 200%. 

The Rocky Mountain Institute, an energy-focused think tank, expects $40 trillion to flow into new low carbon assets before 2050.4 The critical link between all these investments, though, is that the companies involved are all either growing fast (some of them are young and growing fast), turning over their balance sheets quickly, investing heavily in next-generation processes and technology, or adjusting business models that in some cases (for example steel, bulk chemicals, cement, etc.) have not changed in more than fifty years. The world of capital-intensive tangible asset businesses, long considered boring compared to the exciting tech world, is fast becoming a driver of economic change. 

Given the impetus and interest in financing solutions to combat climate change, paired with technologies in the energy, transportation, materials, and utility industries that appear on the cusp of large-scale commercial adoption, we feel comfortable stating that: 

We have not seen this level of future growth in capital intensive industries for decades. 

Investors searching for high growth opportunities have not had capital intensive businesses in their hopper of growth opportunities over roughly the same time horizon. 

This has profound implications and raises important questions. Namely, how do you value high growth capital intensive tangible asset businesses? 

Macrovoices: #254 Luke Gromen: The FED Faces No Easy Choices

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• Is this the beginning of the end for the U.S. dollar as the global reserve currency?

• Relative decline to other fiat currencies or loss of purchasing power?
• Democratic control of the Senate – how does this affect yields?
• When will deficits start to matter?
• How do you translate the current state of the dollar into investment strategies?
• Bitcoin vs. Gold

• Are we finally at a point of runaway wage & price inflation?

John Polomny: Joe Biden's Banana Republic. Weekly Market Update 1-16-21

 

“Typically, a banana republic has a society of extremely stratified social classes, usually a large impoverished working class and a ruling class plutocracy, composed of the business, political, and military elites of that society.” Like all Banana Republics, the US economy and social structure is now on the way to perdition with virtually no chance for Biden & Co to reverse the inevitable course of events. Joe Biden's Banana Republic: https://www.goldbroker.com/news/joe-b... Macrovoices Luke Gromen on the dollar and inflation: https://www.macrovoices.com/935-macro...

Howard Marks: Something of Value

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What is Value Investing?

Value investing is one of the key disciplines in the world of investing. It consists of quantifying what something is worth intrinsically, based primarily on its fundamental, cash flow-generating capabilities, and buying it if its price represents a meaningful discount from that value. Cash flows are estimated as far into the future as possible and discounted back to their present value using a discount rate made up of the prevailing risk-free rate (usually the yield on U.S. Treasurys) plus a premium to compensate for their uncertain nature. There are a lot of common valuation metrics, like the ratio of price to sales, or to earnings, but they’re largely subsumed by the discounted cash flow, or DCF, method.

Importantly, value investors recognize that the securities they buy are not just pieces of paper, but rather ownership stakes in (or, in the case of credit, claims on) actual businesses. These financial instruments have a fundamental worth, and it can be quite different from the price quoted in the market, which is based on the manic-depressive ups and downs of a character Benjamin Graham called “Mr. Market.” On any given day, Mr. Market can be exuberant or despondent, and he quotes prices for securities based on how he feels. The value investor understands that – rather than informing us as to what a given asset’s value is – Mr. Market is there to serve us by offering up securities at prices, which can be meaningfully disconnected from the actual value of a stake or claim in the underlying business. In doing so, he sometimes gives us the opportunity to snatch up shares or bonds at a meaningful discount from their intrinsic value. This activity requires independent thought and a temperament that resists the emotional pull of the market cycle, making for decisions based solely on value.

Smead Capital Management: Throwing Caution

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As we begin 2021, the investing public is tied up in a “frenzy,” to quote Charlie Munger from a recent interview. This “frenzy” can be captured a couple ways. Whether by the investment banking activities that usually coincide with poor market returns going forward (stock market failure), or by the sell-side research analysts playing hopscotch to raise their price targets over their competition in the most exciting stocks. Rather than look at Wall Street, who can often exact nefarious schemes and ideas on investors, we think it would be best to look at market participants to understand where we sit.

Call buying relative to put buying is at a 20-year high as noted by the chart below. Investors have never been this enthused to speculate in options at any point since 2000. This is Munger’s “frenzy.” They aren’t avoiding caution. As the song says, they’re “throwing caution.” They believe “the winds of change are blowing wild and free.” Individual and institutional investors are telling us stories of what the future will hold and what the market has capitalized. As Marty Whitman would remind us, they’re way too interested in the “going concern” and not interested enough in the balance sheet of these situations. Predicting earnings in the future is tough. Looking at the capital structure of a business is more predictable.

John Polomny: President Joe Biden And The $3 Trillion Dollar "Stimulus". AIA Weekly Update 1-9-21

 

President Joe Biden is proposing a $3 Trillion so called stimulus package. He said, “economic research confirms that with conditions like the crisis today, especially with such low interest rates, taking immediate action - even with deficit financing - is going to help the economy.”

Not sure what experts he is talking about but the great reflation trade has begun.

Peter Sainsbury: Agflation is here to stay. How to play the agricultural commodity bull market

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Agricultural commodities look like they are beginning to see the start of a sustained bull market. First, precious metals, then base metals and now agriculture. Since the middle of 20202 soybeans and corn have increased by 55% with wheat registering a 35% gain.

Governments in Asia (China in particular) and in North Africa have been buying imported grains and pulses in an effort to build up their strategic reserves. Authorities in many countries made use of those reserves to dampen down domestic food prices during the pandemic, but now those reserves are running low.

Crescat Capital: December Performance Update

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It is time to gird for full Modern Monetary Theory. With the democratic sweep in place, we are about to experience even more of the double-barreled fiscal and monetary stimulus that we saw in 2020. Overwhelmingly today, such policies have served to incite animal spirits toward financial assets. Investors are already positioned, all in, on both stocks and bonds in the US creating a highly imbalanced market. The problem is that money printing married with fiscal spending is crashing head-on with an emerging commodity supply problem that will likely stir up rising inflation which is bearish for both equities and fixed income. Get ready for a volatile 2021, the year of reckoning for twin asset bubbles as the world attempts to emerge from the Covid-19 pandemic.

MacroVoices #253 Art Berman: U.S. Oil Production Still Set for Steep Decline in 2021

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Erik Townsend and Patrick Ceresna welcome Art Berman to MacroVoices. Erik and Art discuss:

Saudi Arabia’s production cut decision and what this means

Will U.S. shale industry recover?

Expected decline in demand in oil

Analysis of current comparative inventory report

Pandemic and U.S. consumption recovery – what does this mean for gasoline?

Perspectives on previous prediction of a big decline in U.S. production in Q1

Can OPEC compensate for loss of U.S. production?

Lag times between getting the rig started to actual oil production and what this means

Price vs. Comparative inventory yield curve

Smead Capital Management: From the Impatient to the Patient

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"The stock market is a device which transfers money from the impatient to the patient.”

—Warren Buffett

As we enter 2021, it appears that Buffett had things upside down in 2020. The things which had gone up the most by the end of 2019, went up the most in 2020. We invest on behalf of clients who want to avoid stock market failure and history shows most investors are impatient and are like a car stalled on the railroad tracks.

Fortunately, it is for these critical junctures in the stock market which disciplines like ours were created. First, we believe valuation matters dearly. It didn’t matter in 2020, in fact, you were better off to buy the most expensive securities carrying the highest possible risk during the year. Historically, valuation is a driver of alpha and usually makes a roaring comeback when a “frenzy” (like Charlie Munger describes today’s stock market) breaks and shifts the capital to those who are patient.

John Polomny: Making Predictions Is Tough, Especially About The Future. AIA Weekly Update 1-2-21

 

The title of this video is a riff on one of Yogi Berra's famous quips about predictions. We had a great Q4 with our stock picks and an awesome year overall. I review the portfolio's performance and discuss some things I am watching for in 2021.

Jim Rogers: Legendary investor warns of stock market bubbles in 2021

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Famed investor Jim Rogers, the founder of the Quantum Fund, recommended investment in silver in the New Year as its price is substantially lower than historic high.

The financial commentator made the advice in a recent joint interview with the Korea News Plus and E-Trend, a YouTube channel focusing on economic and stock market news.

“Silver is down 50 percent from its all-time high. Gold is down 10 percent from its all-time high, less than 10 percent. I will buy both, but I will buy more silver than gold,” he said.

“I have been buying travel, entertainment, tourism, wine, and restaurant companies because people did not go out and could not go out, but in 2021, people will go out again, and people will travel again,” he said.

Louis Gave: Inflation Will Come Back With a Vengeance

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Yes, I think inflation will come back with a vengeance. One of the key deflationary forces in the past three decades was China. I wrote a book about that in 2005; I was a deflationist then, as my belief was that every company in the world would focus on what they can do best and outsource everything else to China at lower costs. But now, we’re in a new world, a world that I outlined in my last book, Clash of Empires, where supply chains are broken up along the lines of separate empires.

 Let me give you a simple example: Over the past two years, the US has done everything it could to kill Huawei. It’s done so by cutting off the semiconductor supply chain to Huawei. The consequence is that every Chinese company today is worried about being the next Huawei, not just in the tech space, but in every industry. Until recently, price and quality was the most important consideration in any corporate supply chain. Now we have moved to a world where safety of delivery matters most, even if the cost is higher. This is a dramatic paradigm shift.