One Bad Day, Someday

18 Sep

I just read the most understated/truth- telling/awesome quote ever. The quote was from an employee of Tyson Foods when describing the ethical treatment of the animals under their control prior to their eventual conversion into product. The director stated” We want to try and assure that the animal only has one bad day under our care”. One Bad Day… I just love that.Putting aside the karmic repercussions, providing that every animal is fat, happy and delusional until the day of reckoning is probably something to be lauded. This got me thinking  however about some of the recent comments by former Fed Chairwoman Janet Yellen who commented on the fact that Fed policy should take into account the duration of the downturn, even as the economy is starting to turn up, in other words lower for much, much longer than anyone would consider prudent. This type of “radical” thinking fits perfectly with the recent embrace of some economic theory  which further repudiates the negative effects of deficits on the real economy. You know the polemic: “Deficits don’t matter because we own the printing press”, however this new school of thought (promoted by a Bernie Sanders campaign consultant: Shocker) believes that deficits are really just government spending, and that the focus of that government spend is what determines the growth arc. Lower rates for eternity and unchecked government spending, all in the service of ensuring that the U. S. Economy only has one bad day.

High Sticking

12 Sep

I’m not sure if I am the only one that did not know this or not, but the obituary of Black Hawk legend Stan Mikita pointed out that he was one of the first players to pioneer the  use of a curved hockey stick. I guess I’ve got hockey sticks on the brain as I have been looking into developments in the U.S. oil shale proppant  business. As you may or may not know, oil fracking requires a tremendous amount of both water and sand, and that the amount of sand utilized at the well head has grown exponentially just over the past few years. Not surprisingly, the amount of newly financed sand production has grown as well, leading to a surplus and downward shift in sand prices. In looking at this industry, it got me thinking about how quickly  this new production was financed, most likely as a result of a  demand chart courtesy of Mr. Mikita. In fact, one can be sure that this same chart has been used of late to encourage new projects in cobalt, lithium, marijuana dispensaries, (fill in the blank) … The problem with financing the hockey stick is that inevitably one of two things occurs: substitution and or demand destruction. Beware the hockey Stick!

The Symmetry of the Q

20 Aug

If you’ve watched one of the recent Trump rallies you may have noticed the prevalence of some in the audience carrying signs and slogans referencing “Q”. If you’re not aware(and I wish I wasn’t), Q is a term short for Qanon, best described as an interactive conspiracy driven community in which the actions of the deep state are explored and revealed. In short, real tin hat stuff for the technologically “savvy” crowd. However, the latest comments from  President Trump may provide fodder for the Q crowd, as he has been loudly complaining that the Fed is actively working against his pro- growth agenda.  Imagine, we  may now have Q VS. QE, or Q Vs. UnQE. While the Donald prefers to look to the Stock Market as his favorite bellwether of future prosperity, we prefer the yield curve and the flatness of said curve does not foreshadow good times ahead. As growth slows, we predict that the Presidential tweets will become more pointed and critical of the Fed, maybe “Jerry the Jerk”, or “Job Killing Jerry”.

Barriers To Exit

14 Aug

I had the unfortunate experience of visiting a K-Mart recently and it got me thinking about the concept of “barriers to exit”,  and not simply because I could not wait to exit the store which should be used as a field trip to show what the communist era Russian shopping experience must have felt like. I first ran across the term barriers to exit, during a conference call with a South African Platinum producer, in which the very laws of supply and demand were suspended as the company director described a situation where the sub-cash cost platinum price was not adequate to close production as the social cost (barriers to exit) were deemed too high. Keep in mind, that the company we are talking about is not a quasi-governmental concern such as Codelco, but a publicly held firm with stockholders and ostensibly a profit motive. While it is easy to understand the reticence to cut production  (and staff) in a country with 28% unemployment, one wonders if the thought process of said platinum producer and Eddie Lampert are simpatico: Stay alive, even in the face of massive losses. However, staying alive to fight another day is only a working plan to the extent that it is facilitated by the capital markets willingness to accept the asymmetric risk offered by such plans. The Platinum Industry and Sears Holdings have enjoyed the benefits of such asymmetry, however one wonders that as reality bites, the term barriers to exit will be utilized to describe the options available to bondholders.

Exit Brexit

23 Jul

The slow movement towards dis-unification of the EU has recently hit a number of snags, with a shakeup in Prime Minister May’s government as well as some questions regarding Irish border issues. The attached NY Times article however highlights the massive impediments that will be reimposed as the free flow of goods within the U.K. and the European continent cease(in less than one years time). Articles like this point out that it was highly likely that the only thing that Brexit voters wanted held up at the border was people, and that the long-term sclerotic effects on the U.K. economy were at best minimized, and at worst, not even considered. Those bashing the “globalists” in this country would be well served to take notice, as tariffs (both hard and soft) may prove not only to not be the panacea they promise, but in fact may prove to make the situation infinitely worse.

https://www.nytimes.com/2018/07/19/business/europe-brexit-contingencies.html

 

Displaced and Mis-priced

18 Jul

Not a day goes by without being inundated with talk of  the electrification of the transportation sector; namely cars, buses, ships, etc..  The speed of such transformation, if you believe the hype (and we don’t) is happening at such a breakneck pace that carbon based energy will be as extinct as its own DNA. While we obviously have no insight as to the actual arc and velocity of change in the electric vehicle space, it is important to note that such anticipatory hype often produces opportunities in those sectors presumptively deemed extinct. We see value in the PGM sector as traditional catalyst metals will still be required, particularly as most growth in EV will be in hybrids. We also see growth in sources of traditional power generation; coal being one in particular, nuclear being the other.  While we are not convinced of the speed of the transformation of the drive train, we do believe it will happen and when it does the need for additional power generation will be paramount.Contrary to what the NY Times might have you believe, wind farms and solar will not be sufficient to get the job done.

Donald Driver

13 Jul

Packer Fans calm down, we’re not referring to the all time leader in Green Bay Packer yards receiving, but rather to the other Donald and what drives him, namely the Stock Market. Much like Clinton’s unhealthy obsession with the Bond Market, Trump seems to view the Equity Markets as his daily barometer of policy efficacy. This shouldn’t surprise us as both are highly irrational and short -term focused. While Clinton’s fixation on the Bond Market was primarily driven by budgetary deficits hawks (there used to be those), Trump looks at the daily gyrations in prices as justification for policies not driven by any sound fundamental underpinnings, but rather by the empty campaign promises of an avowed populist. The problem lies in the fact that companies make capital decisions based on their best guess of what the future may look like 5, 10, 15 years hence, and a scattershot policy agenda involving not only trade, but immigration, health care and a host of other third rail issues, is only a deterrent to the domestic capital investment requisite for sustainable long-term growth. While an Obama Presidency did leave us with a legacy of bureaucratic overkill, the current disrupter-in-chief has left us with an environment of permanent upheaval, an environment not conducive to either rising prosperity or equity markets.