Ferg's Finds
This is a short weekly email that covers a few things I’ve found interesting during the week.
Article(s)
I really look forward to when these papers drop each year: J.P Morgan Eye on the market| 14th Annual Energy Paper Electravision
This was also a treat from the Godfather of energy: Halfway between Kyoto and 2050: Zero Carbon is a highly unlikely outcome by Vaclav Smil
Podcast/Video
Macro Outlook Q1 2024 w/ Luke Gromen
Quote(s)
“The maturation of every investor starts with absorbing almost everything and ends with filtering almost everything.”
-Ian Cassel
Tweet
“Skate to where the
pucknewbuild economics are going to be the highest.”-Wayne Gretzky
Charts
Between all the talent pouring into tech and AI I feel the margins will get squeezed, and old economy sectors will be the place to be for the coming decade.
Something I'm Pondering
This chart might as well be displaying market sentiment rather than fund flows.
AI and by default, semiconductors are no longer deemed to be that cyclical (just see the first three google results with the search “semiconductors cyclicality”.
When the reality is: “The semiconductor industry is notorious for its cyclical nature, with periods of high demand followed by periods of low demand.”
History is full of statements declaring cyclicality is dead because "this time is different", usually when valuations are stretched.
The other side of this is a marked increase in arguments for energy abundance, in that cyclicality is dead, and there isn't a price to pay for years of under-investment, but at the bottom of the cycle.
Rule number one: most things will prove to be cyclical. Rule number two: some of the greatest opportunities for gain and loss come when other people forget rule number one.
-Howard Marks
I hope you're all having a great week.
Cheers,
Ferg
P.S. If you’re interested in my story and why I started this Substack, you can read the story here.
I am completely in accord with the cyclicality of things and the fact that as cycles stretch one way or the other, there is usually a hue and cry that things have changed forever. I am old enough to know they haven't
On AI euphoria and "this time is different" sentiment: I'm a single data point/perspective, and have the bulk of my investments in energy for all the reasons we discuss here. But after spending 20+ years as a "white collar" open source human rights researcher (meaning 90% of my sources are freely accessible online with no pay wall), I found that in a few weekends of designing a ChatGPT 4 subset, teaching it to apply the core principles I use, it can do foundational research tasks that took me 5 hours in 1 min. It still needs a human to examine the results, add nuance, source/factcheck, construct papers and give presentations. But the short of it is, after a few weekends of tinkering I have the equivalent of a team of 3 nearly free grad/law school-level interns (about equivalent output from what I've seen from humans with that level of experience). Who knows what happens from here, but I think the impact so far is it already takes that expensive labor and transfers the lifting to tech companies, which they most definitely can charge for. It will be interesting to see what happens when these things truly blossom and having an AI intern costs far more than $20/mo, but is still well worth paying for. I think profits are poised to grow, despite the hype and dotcom comparisons. Even if there's a colossal SP500 smack, it's hard to see Alphabet, for example, not continue its climb. Of course, I'm playing the energy side for all the reasons we're here (and hopefully leaving the salaried world before I'm dead weight).