Global Market Comments
September 15, 2023
Fiat Lux
Featured Trade:
(FRIDAY, OCTOBER 6 FRANKFURT, GERMANY STRATEGY DINNER)
(THERE ARE NO GURUS),
(THE PRICE TAG FOR CLEAN COAL),
(KOL), (UNG), (PGE), (BTU)
I wanted to get the low down on clean coal (KOL) to see how clean it really is, so I visited some friends at Lawrence Livermore National Laboratory in California.
The modern-day descendent of the Atomic Energy Commission, where I had a student job in the early seventies, the leading researcher on laser-induced nuclear fission, and the administrator of our atomic weapons stockpile, I figured they’d know.
Dirty coal currently supplies us with 35% of our electricity, and total electricity demand is expected to go up 30% by 2030. The industry is spewing out 32 billion tons of carbon dioxide (CO2) a year and the great majority of independent scientists out there believe that the global warming it is causing will lead us to an environmental disaster within decades.
Carbon Capture and Storage technology (CCS) locks up these emissions deep underground forever. The problem is that there is only one of these plants in operation in North Dakota, a legacy of the Carter administration, and new ones would cost $4 billion each.
The low estimate to replace the 250 existing coal plants in the US is $1 trillion, and this will produce electricity that costs 50% more than we now pay. In a gridlocked constrained congress, this is a big ticket that is highly unlikely to get picked up.
While we can build a wall to keep out illegal immigrants from Latin America, it won’t keep out CO2. This is a big problem as China is currently completing one new coal-fired plant a week.
In fact, the Middle Kingdom is rushing to perfect cheaper CCS technologies, not only for their own use but also to sell to us. The bottom line is coal can be cleaned but at a frightful price.
Coal once had a huge price advantage over other energy sources that disappeared when the price of natural gas (UNG) collapsed for $17 BTU to $2/MM BTU. Yesterday, gas closed at a feeble $2.70.
Cost savings aside, virtually every utility in the country would love to get out of the coal business because of the litigation it invites. Read the prospectus for new securities issued by any of them, and you will find a litany of lawsuits over diseases caused by Sulfur Dioxide (SO2), Nitrous Oxides (NO2), and a host of other asthma and cancer-causing pollutants.
Burning natural gas only emits carbon dioxide (CO2) (only half the amount that crude oil derived bunker fuel does) and water (H2O). Sorry, but my inner chemist is speaking.
California closed its last coal-fueled power plant a 20 years ago, switching to natural gas, accidentally creating a windfall for consumers. Much of the money saved was used to modernize the grid buy installing statewide smart meters which allow customers to both buy and sell electricity back to utilities generated from home solar installations and charged up 1,000-pound 100 kWh lithium-ion Tesla batteries.
These moved are expected to save our local Pacific Gas and Electric (PGE) the capital cost of building two new major generating plants. This is not your father’s utility.
Although it is unlikely that another coal fired power plant will ever be built in the US again, don’t expect coal giants like Peabody Energy (BTU) to disappear anytime soon. There is still a massive export business to China, as the Burlington Northern freight trains that rumble near my home testify (love that midnight whistle).
But don’t ever confuse a stock price that has gone down a lot with “cheap.” The shares of these companies could remain in the dumps for a long time, and possibly forever, creating a classic value trap. That is, until the Chinese buy them out for pennies on the dollar.
These are jobs I don’t mind exporting to China. They can have them.
When I checked the price of the old coal ETF (KOL) I discovered that it had ceased trading in 2020 after its asset under management fell from $908 million to just $35 million. At that level Van Eck was losing money running the fund. Most pension funds had banned investing in coal companies.
That alone tells you a lot right there.
Coal's Popularity is Fading Fast
Global Market Comments
September 14, 2023
Fiat Lux
Featured Trade:
(SEPTEMBER 29 ZERMATT SWITZERLAND STRATEGY SEMINAR)
(THE BLOCKBUSTER READ IN THE HEDGE FUND COMMUNITY)
Come join me for the Mad Hedge Fund Trader’s Global Strategy Luncheon, which I will be conducting high in the Alps in Zermatt, Switzerland. The event begins at 12:00 noon on Friday, September 29, 2023.
A three-course meal will be provided and there will be an open discussion on the crucial issues facing investors today will take place. You are welcome to attend in your mountain climbing gear, if necessary. One year, a guest descended from the Matterhorn summit to attend.
I’ll be giving you my up-to-date view on stocks, bonds, foreign currencies, commodities, precious metals, energy, and real estate. And to keep you in suspense, I’ll be throwing a few surprises out there too. Tickets are available for $277.
I’ll be arriving early and leaving late in case anyone wants to have a one-on-one discussion, or just sit around and chew the fat about the financial markets.
The event will be held at a central Zermatt hotel, the details of which will be emailed directly to you with your confirmation.
I look forward to meeting you, and thank you for supporting my research. To purchase tickets for the luncheons, please the BUY NOW! button above or click here.
About a year ago, I received a call from a friend of Tony Robbins, the renown, six foot seven inch motivational speaker. He said he was looking for billionaires to participate in a future project.
I answered that I wasn’t a billionaire yet, but that he should call me in a couple of years when I might be there.
Last week, the end result of the project landed on my desk, his book, Money, Master the Game, The 7 Simple Steps to Financial Freedom, by Tony Robbins.
Since it was a near miss of a project of my own, I thought I would give it a quick read. I wasn’t expecting much. After all, the guy walks on burning coals for a living.
I couldn’t have been more wrong. Tony has put together a very coherent, readable, and extremely well researched tome. He has even put to use a formidable research team of his own to produce some fascinating findings about the very long-term returns of different investment strategies.
I was so impressed that I called a hedge fund friend to see if he had heard of the book. Not only had he heard of it, but his CEO had read it and ordered everyone in the company to read it, down to the kid in the mail room. A call to another hedge fund garnered the same response.
Five minutes later, I was on the Amazon website ordering copies for all of my adult kids.
Read the book and you can’t help but notice that Tony Robbins seems to know everyone on the planet. Warren Buffet and Bill Gates? Sure thing. The Dalai Lama? No problem. That is not faint praise, as I am not a slouch at name-dropping myself.
What is useful to both you and me is that Tony has interviewed at length the leading investment lights of our age and extracted their innermost investment secrets.
Name the top dozen investment gurus of the last 40 years and they are all there; hedge fund legends Ray Dalio and Paul Tudor Jones.
Index fund creator John C. Bogle. Legendary long-only managers David Swensen, Mary Callahan Erdos, and Sir John Templeton. The iconoclasts T. Boone Pickens and Carl Icahn are also there.
I know most of these people myself, and you have read their interviews in the hallowed pages of this newsletter. He certainly skimmed the cream.
The introduction is a bit retail. I suppose that Tony is trying to ease the amateur investors in there slowly and prepare them for the rude shocks that follow.
Then he shatters reader preconceptions outlining his nine investment myths. I have been hammering away at my own followers for years on many of these.
The sad truth is that much of Wall Street is trying to skin you alive, leaving your investment well-being at the bottom of their list of priorities. Almost no one reliably beats the market year after year, except myself and a handful of others, and it took me 50 years trying to get there.
Fees are always larger than you think. Published mutual funds results overstate profits, as they have a strong survivor bias. Target-date mutual funds can be disastrous. Fund managers close their losers as fast as they can to skew their results.
Annuities don’t fit into the modern world. Trading means losing for most people. Almost no one can time the market (except me, again). Chasing manias can be the perfect buy high, sell low strategy.
At the end of the day, a balanced portfolio of index mutual funds and Treasury bonds rebalanced annually is probably the best solution for most.
Let me make it clear. This is not a “how to trade” book. Nor is it a “get rich quick scheme.” It is a sober and thoughtful analysis of how the average working person should invest their savings over the course of their lifetime.
At 565 pages, the book is a bit of a wristbreaker. But it is one of the best investment books that I have ever read. And I have read most of them published over the last 100 years.
In fact, I didn’t even read the book, I listened to it on an audio book from Audible.com while backpacking in the High Sierras, which is also owned by Amazon.
As I spend so much time researching and writing these letters, I have little other choice.
To buy Money, Master the Game, The 7 Simple Steps to Financial Freedom
at discount amazon pricing, please click here at http://www.amazon.com/MONEY-Master-Game-Financial-Freedom/dp/1476757801/ref=sr_1_1?s=books&ie=UTF8&qid=1427240026&sr=1-1&keywords=Money%2C+Master+the+Game%2C+The+7+Simple+Steps+to+Financial+Freedom%2C
Enjoy.
Global Market Comments
September 13, 2023
Fiat Lux
Featured Trade:
(SEPTEMBER 29 ZERMATT SWITZERLAND STRATEGY LUNCHEON)
(TRADING DEVOID OF THE THOUGHT PROCESS)
(SPY), (INDU), (TLT), (USO)
(ON EXECUTING TRADE ALERTS)
From time to time, I receive an email from a subscriber telling me that they are unable to get executions on trade alerts that are as good as the ones I get. There are several possible reasons for this:
1) Markets move, sometimes quite dramatically so.
2) Your Trade Alert email was hung up on your local provider’s server, getting it to you late. This is a function of your local provider’s capital investment and is totally outside our control.
3) The spreads on deep-in-the-money options spreads can be quite wide. This is why I recommend readers place limit orders to work in the middle market. Make the market come to you.
4) Thousands of market makers read Global Trading Dispatch. The second they see one of my Trade Alerts, they adjust their markets accordingly. This is especially true for deep-in-the-money options. A spread can go from totally ignored to a hot item in seconds. I have seen daily volume soar from 10 contracts to 10,000 in the wake of my Trade Alerts.
On the one hand, this is good news, as my Trade Alerts have earned such credibility in the marketplace. It is a problem for readers encountering sharp elbows when attempting executions in competition with market makers.
5) Occasionally, emails just disappear into thin air. This is cutting edge technology, and sometimes it just plain doesn’t work. This is why I strongly recommend that readers sign up for my free Text Alert Service as a back up. Trade Alerts are also always posted on the website as a secondary back up and show up in the daily P&L as a third. So, we have triple redundancy here.
The bottom line on all of this is that the prices quoted in my Trade Alerts are just ballpark ones with the intention of giving traders some directional guidance. You have to exercise your own judgment as to whether the risk/reward is sufficient with the prices you are able to execute yourself. Sometimes it is better to pay up by a few cents rather than miss the big trend. The market rarely gives you second chances.
Good luck and good trading.
John Thomas
Global Market Comments
September 12, 2023
Fiat Lux
Featured Trade:
(THE GREAT AMERICAN ONSHORING TREND IS ACCELERATING),
(GE), (TSLA),
(MURRAY SAYLE: THE PASSING OF A GIANT IN JOURNALISM)
(THE LAST PEARL HARBOR ARIZONA SURVIVOR)
Onshoring, the return of US manufacturing from abroad, is rapidly gathering pace.
It is increasingly playing a crucial part in the unfolding American industrial renaissance. It could well develop into the most important new trend on the global economic scene during the early 21st century. It is also paving the way for a return of the roaring twenties to our home shores.
Of course, it is hard to quantify this assumption with hard data. US government statistics are a deep lagging indicator and are unable to keep up with a rapidly changing, interconnected, fluid world. No doubt, they will tell us this epoch-making sea change is underway in ten years.
However, it is possible to track what a single company is accomplishing. In 1973, General Electric (GE) ran the largest home appliance manufacturing facility in the world. Its Appliance Park in Louisville, Kentucky, employed 23,000 workers packed into six gigantic buildings, each as large as a shopping mall. It was so big, it even earned its own postal zip code (40225).
After that, the offshoring mania kicked in, with the firm motivated by a single factor: hourly wages. You could hire 30 men in China for the cost of one American union worker. The savings were too compelling to pass up, and The Great Hollowing Out of US manufacturing was off to the races.
GE tried to sell the entire operation but was too late. The 2008 financial crisis decimated the market for Midwest industrial facilities. You could only get the scrap metal value, or three cents on the dollar. By 2011 employment at Appliance Park had plunged to 1,863, and the region’s new “Rust Belt” sobriquet was well earned.
Then, almost imperceptibly at first, the trend started to reverse. Decades of 20% a year wage increases took the cost of a skilled Chinese worker from $300 a year to $25,000. The 2011 Japanese tsunami, followed by huge floods in Thailand, caused massive disruptions to the international parts supply network.
A minor strike by the Longshoreman’s Union at the Port of Oakland in California brought the distribution channel to a grinding halt. Business plans that looked great on an Excel spreadsheet turned out to be not so hot in practice.
It gets worse. When Chinese workers walked across the street to collect bigger pay packages, they often took blueprints, business plans, and proprietary software with them. Six months later, a local competitor would show up with a similar, although inferior, product at half the cost. Suddenly, globalization was not all it was cracked up to be.
In the meantime, the American labor force, reading the Chinese characters on the wall, evolved. Unions were disbanded. Antiquated work rules were tossed. The unions that were left agreed to two tier wage structures that had entry level employees coming in at $13.50 an hour, a fraction of the original rate.
Then management got smarter. By removing the assembly line from the marketplace, companies lost touch with customers. Designers lost contact with the manufacturing process, creating products that could only be built expensively, or not at all. Quality plummeted. Innovation suffered. By bringing manufacturing home, firms not only solved these problems, they were able to build better ones for less money.
China turned out to be farther away than people thought. Having middle management jet lagged up to three months a year proved to be very expensive. It takes six weeks to ship an appliance from the Middle Kingdom to the US if the shipping schedules are perfect.
An American plant can truck product to most US stores within two days. That wasn’t a problem when consumer products saw lives that ran into decades. It is a big deal when rapidly accelerating technological improvements require them to be turned over every three years or less, as they are today.
The energy picture is undercutting the arithmetic that used to justify offshoring. Oil prices levitating near $100 a barrel are up 400% in 14 years, elevating the cost of production in Asia and shipments to the US. In the US, the fracking boom has let lose a gusher of cheap oil. It has also freed up a few centuries worth of low carbon burning natural gas, giving American manufacturers a further cost advantage.
Better American management techniques are giving US based factories an edge. I saw this up close at the Tesla (TSLA) factory in Fremont, California, where workers have the ability to improve the assembly process daily and are incented to do so. The place was so clean and quiet, it felt more like a hospital than a factory. It turns out that a drive train with only 11 parts doesn’t require much labor to assemble it, and robots do most of that.
By adopting similar techniques, GE, is building the same number of appliances as it did during the 1960’s peak, about 250,000 a year, with one third of the employees.
Using the new thinking, many companies are finding out that offshoring was a big mistake in the first place, and are bringing production home. Some business analysts estimate that up to a quarter of the companies that offshored lost money doing it.
The fact that GE is onshoring is important. It is considered by many to be the best-run industrial company in the United States, and when it leads, many follow. On the heels of the GE move, Whirlpool has relocated its mixer assembly from China to Ohio, and Otis has brought home elevator making from Mexico.
Even Wham-O has jumped on board, the maker of Frisbees, Slinkies, and Hula Hoops, and a company that is dear to my heart (I dated the founder’s daughter in high school), moving production from the Middle Kingdom back to Southern California.
If I am right, and onshoring speeds up into the next decade, we may get another opportunity to relive the roaring twenties. By then, a shortage of workers will lead to higher wages, greater consumer spending, and rising standards of living. The price of everything will rocket, including your stocks and homes. US GDP growth will surge to 4%-5% a year. Inflation will, at long last, make its long-predicted return.
It will be an economy in which Jay Gatsby will feel right at home.
A Trend Reversal?
The Roaring Twenties Are Headed Our Way
I was saddened to hear of the death of my close friend, the Australian, Murray Sayle, after a long battle with Parkinson's disease at the age of 84.
Murray was one of the giants of journalism in the second half of the 20th century. He started by editing the newspaper at University of Sydney, where his incendiary opinions got him expelled from school. It seems there was a problem with his suggestion to erect a statue of Priapus at the administration building honoring the chancellor, but only at the back door.
He moved on to London's Fleet Street in 1952, arriving as a wet behind the ears, but sassy colonial, and landed a job with a small paper named The People. This was when the media was then dominated by giant daily broadsheets. He went on to become the quintessential war correspondent, reporting for the London Times, known in the trade as the “Thunderer”, because the building shook when its giant presses ran.
I first met Murray in 1975 at a Mensa meeting in Tokyo where I was presenting a paper on the chemical structure and properties of tetrahydrocanabinol. Murray was on the hunt for a story, as always. He was cooling off after a decade of dodging bullets, bombs, shrapnel, and napalm covering the war in Vietnam.
Murray once told me that since his writings were often perceived as antiwar, it was a tossup who would shoot him first, the Vietcong or the Americans. Murray told me that the Foreign Correspondents' Club of Japan had one of the best English language libraries in the country, and that he would be happy to sponsor me for membership; thus inadvertently, launching me on a career in journalism.
Murray moved into a converted 19th century silkworm grower's farm house in a small mountain hamlet three hours outside of Tokyo with his wife Jenny, his tireless and loyal supporter. There, they raised three children who went through the local Japanese school system, soldiering on in their 19th century black German cadet uniforms as the only white kids in the district, emerging as flawless interpreters. I often made the long and arduous trip to Aikawa-cho (“Love River”) on weekends, spending long nights over endless flasks of hot sake listening to Murray drunkenly quote extended passages verbatim from Rudyard Kipling.
We passionately debated the issues of the day until we fell asleep at the kotatsu. If I learned nothing else, it was that there is always another way to look at any issue. As I had the tendency to always turn up with a different Japanese girlfriend, his pet name for me became 'Randy'.
Over a career that spanned nearly 70 years, Murray scored countless interviews with notoriously difficult to reach figures, like Ché Guevara and Yassir Arafat. Murray would regale me with tales of Ugandan dictator 'Big Daddy' Idi Amin, who stored the severed head of his wife's former lover in his refrigerator.
Murray won numerous awards for his Vietnam coverage and for his description of the barbarous downing of a Korean Airlines flight 007 off the coast of Japan by a Russian fighter in 1983, which killed 269 helpless civilians.
Just before he died, the university that shamefully ejected him 65 years earlier, made amends by awarding him an honorary doctorate. The wit, candor, and insight of this larger-than-life figure will be sorely missed.
