Ferg's Finds
This is a short weekly email that covers a few things I’ve found interesting during the week.
Article(s)
Read these two articles back to back:
Shell CEO Ben van Beurden insists he doesn’t run an oil company any more
Shell CFO Says Shareholders Focusing More on Energy Security
In summary: Returns and Energy Security > Climate Change/Carbon reduction aspirations.
Podcast
Crux Investor is releasing my interviews with a few month lag. This interview was one of my favourites with my mentor Brad McFadden.
It's Not the View, but the Application of the View that Matters in Markets
Quote
Not exactly a quote, but following the above, here are Brad’s investment rules.
1. Asymmetry
2. Position yourself to get lucky
3. Make it harder for the market to take money off you by spreading it into more asymmetric trades
4. Mean reversion: Excessive outperformance is usually matched by equal or greater underperformance
5. It’s not the view; it’s the application of the view that matters.
6. “Bull markets are born in pessimism, grow in scepticism, mature in optimism and die in euphoria.” -John Templeton
7. “When everybody thinks alike, everyone is likely to be wrong because no one is thinking.” - Humphrey Neil
Tweet
Loved this little exchange, as it speaks to so many metrics/assumptions I take issue with currently, be it shale CAPEX as per below, LCOE vs fully integrated cost, or GAAP vs Non-GAAP accounting and the ridiculous exclusion of stock-based compensation from P/Ls.
Charts
Where is all the cash going to go?
Something I'm Pondering
How long it takes for the below line of thinking to get shot to shit.
“The higher the cost of traditional fuels, the bigger the incentive to continue the transition,” said Ole Sloth Hansen, head of commodity strategy at Saxo Bank.
The energy crisis roots lie in building low EROI energy sources (wind and solar) and pretending they are high EROI. The high EROI getting more expensive doesn’t mean the low EROI become viable; it means they no longer make sense.
Just as they’re sending the price of a barrel of oil up, green technologies and materials are starting to get cheaper again after two years of rising costs. Just look at lithium. While oil soared, the price of the battery and electric-vehicle material recorded its 16th straight trading day of losses on Tuesday. It's down over 58% so far this year. That’s made it easier for carmakers such as Tesla Inc. to slash prices as more and more EVs hit the market.
The price of other important materials have fallen as well. Solar-grade polysilicon, used to make panels, is more than 30% cheaper than last year’s peak. The steel used in wind turbines has dropped 40% in Europe and more than 20% in North America from their high in 2022.
This line of reasoning is similar to the “transitory” narrative. Yes, the rate of change can bounce around, but the absolute number is heading nowhere but up over time.
The “learning curve” is going to meet the same fate as “transitory inflation”.
I hope you’re all having a great week.
Cheers,
Ferg
P.S. I enjoy occasionally doing a timely show which, in this case, was a bit of panic shopping in the markets. It was Sunday prior to the market open on 13th March when the banking debacle gave me some great fills.
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