Ferg's Finds
This is a short weekly email that covers a few things I’ve found interesting during the week.
Article
The Harsh Truth: We're Using More Oil Than Ever
Most forecasts had oil hitting 105mbd by 2030, which, in theory, gave the “transition” (EVs and renewables required to charge them) time to ramp.
We are currently on track to hit 105mbd sometime during 2024.
Podcast/Video
Louis touches on a few companies I own, which I found interesting: Größte Investmentchance in Schwellenländern - Makroausblick mit Louis-Vincent Gave.
Quote
"Economists are excellent at understanding the economy ... and hobbyists when it comes to markets and what to do about that ... they can be right 80% of the time on their calls and not make money."
Tweet
I was looking through my bookmarked Tweets and came across this one, which got me thinking about “real” vs. “nominal/perceived” GDP for economies.
Charts
How much of Western Countries’ GDP are luxury services, i.e. Netflix, Meta, Google, Microsoft, Snapchat etc.
Not cold hard industry, materials and energy?
Another way of looking at this is tangibles vs. intangibles.
All the tangible assets have headed to the developing world.
Something I'm Pondering
What if AI is going to commoditize tech and all those over-valued services with them?
Commodities had the breakup of the Soviet Union, resulting in massive commodity dumping, China 7x its coal production, and finally, the shale boom providing an abundance of cheap commodities and energy up until now.
I can see AI combined with internet adoption across developing countries having this effect across the tech space, driving down margins as if something can be easily recreated; why does it deserve a fat margin?
This piece from Lyall Taylor hit the nail on the head:
“Take Webjet, for instance - and Australian flight booking company. The company takes about $30-50 per flight booking, which can easily be 10% or more of the price of the flight. Ask yourself, is Webjet really providing 10% of the value add? What about the pilots and flight staff; the maintenance engineers; the petroleum engineers finding, producing, and refining fuel; and the manufacturers of the aeroplanes, as well as their financiers (leasing cos)? The truth is, Webjet is actually providing something more akin to perhaps 1% of the realistic value add, and so it is therefore currently significantly overearning. It's like a stock-broker charging a 10% commission on a trade. Stock brokers also used to charge enormous commissions, but they were significantly overearning, and the forces of competition therefore lowered it over time, to levels that today are practically zero.”
Maybe I’m just looking for a narrative to explain why cyclicality will play out…
I hope you’re all having a great weekend.
Cheers,
Ferg
P.S. If you’re interested in my story and why I started this Substack, you can read the story here.
I'm highly skeptical of big tech valuations but comparing "fat margins" at MSFT, GOOGL, AMZN etc. companies enjoying network effects, scale, scope and regulatory capture to an obscure Australian flight booking website... Is a bit of a reach.
If anything your argument may be turned on its head and you may find that these companies will be able to maintain market dominance with much lower costs due to AI, actually boosting their margins.
I'd also add that a lot of the industries you're mentioning as having left, were *intentionally* offshored because the workforce got too educated. Highly-trained labour will naturally seek the highest value-add industries for the highest financial reward.
For example: TSMC might make the semiconductors but they're almost exclusively designed here. The machines that make them? Also designed in the West. Oil and gas fields in Africa/Asia? Try getting one running without Halliburton and Baker Hughes.
We moved up the value chain because our labour force became the best-trained in the world.
Commodities remain criminally undervalued but if the pendulum swings you'll find a lot of that production will come back home real quick.
I have to chuckle a bit when the once august publication Bloomberg writes out "Climate Crisis" and that it's "getting hotter by the day".
I remember a time when statements like that were flagged by the editorial staff - as they needed to be proven. Now it's all narrative.
If that's how they'll play it, then the positioning you're talking about here has a nice strong tailwind.
Great links as always TF.