Discover more from David Stevenson's Adventurous Investor Newsletter
Further reading: Assisted dying, revolting Dutch farmers and the role of sugar in boosting national productivity
A short collection of stories and links for this weekend. Apple's market cap now more than the Russell 2000. Plus the great army of unemployed young Chinese.
Programming note: I’m away in sunny (I hope) Croatia next week, so no letters next week I’m afraid.
Normal service is resumed on Monday 12th June.
Note 1: S&P Dow Jones’ Silverblatt on AI
Here’s veteran market analyst and commentator Howard Silverblatt from S&P Dow Jones reflecting on bar chatter on Wall Street about AI and investors:
“From my perch, that became self-evident when online learning and study tool company Chegg (CHGG) declined 48% for the day (-65% YTD) earlier in the month, as it warned that students appeared to be drawn to AI (ChatGPT), and its subscription rates (and therefore business) declined. If they weren’t studying those trades and missed out, the other side of AI showed up in Nvidia (NVDA), as it easily beat estimates and increased its forecast, citing current and expected AI sales, with the shares up 24% the day after the earnings (and guidance) release (up 159% YTD), as it joined the trillion-dollar club (but closed the month below it).
At the bar “they” spoke of the potential and their searches for “AI” in corporate text, with the conclusion that this was the start of great opportunity (and profits). In “our” conversation, we reminisced of the late ’90s Information Technology takeoff, when it posted a 77.6% gain in 1998 and 78.4% gain in 1999, to be followed by -41.0% in 2000, -26.0% in 2001 and -37.6% in 2002, with the five-year net being -13.6% (with many fortunes and bankruptcies), as we found ourselves mostly agreeing that it was the start of public AI investing, with great opportunity, but that the true intelligence was still in differentiating real product advancement and use, as well as integration into existing processes. At this point, to me, it seems that system learning via repetitive observations to improve processes, better quantify results and improve analysis of risk/reward would be a gift, empowering many, improving efficiency and maybe increasing the standard of living; it may (most likely) also bring layoffs, business failures, misinformation and social complications. From my Street perch, that all seems familiar to so many other technology and communication advancements, with the key to investment being to keep an eye on the actual product and use, not the hype or eventual (decades) higher use, and to differentiate between short-term investing (with set buy/sell limits) and long-term investments.”
Note 2: how much is that A380 in the window
I’ve long suggested owning shares in the fund Doric Nimrod 2, the owner of a bunch of A380 planes on long leases to Emirates. One of the tricky bits in trying to understand its valuation (and peers like AA4) is the potential resale value of the planes – to date, we’ve not had any sensible indications of the value of second-hand A380s. But Jefferies reports that we now have a deal to scrutinize (sadly no specific price is mentioned):
“European startup carrier Global Airlines announced it has acquired its first aircraft - an A380 from Doric Aviation. The price was undisclosed, but according to the airline is 'understood to be in the eight-figure range'. Furthermore, the airline has indicated that three more A380 acquisitions are expected to join its fleet in the coming months….
This doesn't appear to be one of DNA2 or DNA3's A380s as they still remain under lease to Emirates (the press release pictures the aircraft already with Global Airlines' livery). The seller Doric Aviation's leased fleet currently consists of 14 A380s in total, so it could easily be an asset from a private fund. Notwithstanding this, the acquisition still represents a long-awaited piece of transaction activity for the A380, crucially highlighting the existence of an additional buyer beyond Emirates. In turn, this should help create some semblance of price tension in the market at an opportune time for DNA2, given the expiry of the leases on all seven of its A380s over the next 18 months.”
Note 3: Apple’s market cap.
"Apple Inc. ... is now bigger than the entire market capitalization of the 2,000 smaller companies in the Russell 2000 index. It’s also bigger than the entire market cap of the Toronto Stock Exchange..." Link
Note 4: Unemployed young Chinese
With China’s youth unemployment rate at a record 20.4 percent in April, some six million young people are jobless, twice the number of before the pandemic. Together they amount to about 23 percent of all urban unemployed, estimates Goldman Sachs. With close to 12 million new graduates coming later this year, youth unemployment will likely top 25 percent, predicts Citigroup. Source Dexter Roberts
Note 5: Don’t you love French intellectuals
From social psychologist Rob Henderson, two absolute gems.
- Psychopaths are 20-25 times more likely than non-psychopaths to be in prison. 93% of adult male psychopaths in the U.S. are in prison, jail, parole, or probation. (source).
- In 1977, a petition to the French parliament calling for the decriminalization of sex between adults and children was signed by Michel Foucault, Jean-Paul Sartre, Jacques Derrida, and Simone de Beauvoir. (source).
Note 6: Uranium prices strengthen
From Ocean Wall who have been bullish on the uranium market for the last few years. As am I (I’m invested in Yellow Cake, an AIM listed vehicle).
”In the largest move of the year, uranium equities rose 7% across the board during trading hours yesterday, adding c$2.5bn to the sectors market cap. It gave a small reminder of the convexity that uranium can provide investors, with large-cap Cameco finishing +9% with daily highs of +12%. It also reminded how little it takes to provide such large moves in the sector. Cameco traded over 19m shares, 5x average daily volume, UEC traded 12m shares versus an average of 6m, and SPUT 1.5m shares versus an average of 500k. It was a day that also saw both sequesters have large moves, with the spot price +7.5% on the month (+13% YTD). Both YCA and SPUT remain at discounts to NAV of 7.4% and 4.8% respectively. A reminder that once SPUT trades at a premium to NAV they are able to activate their ATM facility to raise capital for further uranium procurement. “
The limits to assisted dying
The debate around assisted dying is full of difficult, weighty issues, not least the slippery slope arguments put forward by many opponents of legalized medical interventions (if you allow for it a few, it’ll end up dragging in many more).
I’m sure readers will have completely diverse views and I’ve always found the whole subject deeply fascinating but also profoundly difficult. There are no easy answers. Whatever your opinion, I strongly recommend reading a fantastic comment piece by the Canadian liberal conservative writer David Brooks in the Atlantic (he normally writes for the NYT). Like me, he’s cautiously in support of a tightly controlled legalization agenda but is deeply aware of the slippery slope argument, especially as it’s playing out in Canada where the definitions have been very substantially expanded over the last few years.
In 2021, the criterion that natural death must be “reasonably foreseeable” was lifted. A steady stream of stories began to appear in the media, describing how the state was granting access to assisted suicide to people who arguably didn’t fit the original criteria.For example, the Associated Press reported on the case of Alan Nichols. Nichols had lost his hearing in childhood, and had suffered a stroke, but for the most part was able to live independently. In June 2019, at age 61, he was hospitalized out of concern that he might be suicidal. He urged his brother Gary to “bust him out” of the facility as soon as possible. But within a month, he applied for a physician-assisted death, citing hearing loss as his only medical condition. A nurse practitioner also described Nichols’s vision loss, frailty, history of seizures, and general “failure to thrive.” The hospital told the AP that his request for a lethal injection was valid, and his life was ended. “Alan was basically put to death,” his brother told the AP.
Brooks, I think rightly, situates some of the assisted dying arguments within a broader liberal worldview that suggests full bodily autonomy i.e. what I do with my body is my choice. In effect bodily autonomy rules. Brooks tries to suggest that there is an alternative form of what he calls gifts-based liberalism that isn’t based on this body autonomous liberalism – I’m not sure I buy his argument and I have my doubts about whether his idea of gifts-based liberalism would ever work but his general discussion of a very difficult moral question is utterly compelling.
Gifts-based liberals, like autonomy-based liberals, savor individual choice—but our individual choices take place within the framework of the gifts we have received, and the responsibilities to others that those gifts entail. (This understanding of choice, I should note, steers a gifts-based liberal away from both poles in the American abortion debate, endorsing neither a pure abortion-rights stance rooted in bodily autonomy, nor a blanket ban that ignores individual circumstances and pays no heed to a social consensus.) In our lives, we are citizens and family members, not just individuals and property owners. We have obligations to our neighbors as well as to those who will come after us. Many of those obligations turn out to be the sources of our greatest joy. A healthy society builds arrangements and passes laws that make it easier to fulfill the obligations that come with our gifts. A diseased society passes laws that make it easier to abandon them.
More at https://www.theatlantic.com/magazine/archive/2023/06/canada-legalized-medical-assisted-suicide-euthanasia-death-maid/673790/
Stimulants to growth
Last week the Free Exchange column at the Economist was on top form with a great piece on the role that stimulants play in increasing productivity and economic growth. Free Exchange wonders whether the recent scarcity of Adderall in pharmacists might have impacted macro numbers and then dives into the economic history of stimulants, notably sugar and coffee. A must-read for any economic history nerd (like me).
Until the start of the 18th century calories were a significant constraint on Western economic growth. In 1700 total food supply per person in Britain was equivalent to around 2,000 calories a day—enough for the average man to survive, but not to do a great deal more. Workers were therefore inefficient. Many of the poor, who survived on even more meagre diets, barely had the energy to move, let alone do anything useful.
This changed when sugar imports from Britain’s colonies increased. Annual sugar consumption per person rose from around 5lbs a year in 1700 to 20lbs by 1800—several times higher than in continental Europe. After 1800 imports then soared as Britons developed a taste for sweet tea and cakes. The change from a fibre-heavy to a sugar-heavy diet, noted Robert Fogel, a Nobel prize-winning economist, “raised the proportion of ingested energy that [could] be metabolised”.
Some observed that a growing share of Englishmen were getting fat. But the imports also gave Britain’s economy a sugar high. In France in the late 18th century about 10% of people could not work for lack of nourishment. In Britain, by contrast, only the bottom 3% were incapable. In the 18th century British gdp growth was seven times as fast as France’s. Fogel reckoned that “bringing the ultra-poor into the labour force [and] raising the energy available for work by those in the labour force” explains about one-third of Britain’s economic growth in the 19th and 20th centuries
Coffee, meanwhile, pushed the middle classes to do bigger and better things. Joel Mokyr of Northwestern University has stressed the importance of a “culture of growth”, the title of a book he published in 2016, in explaining Europe’s industrialisation. During this period science became less academic, and more focused on solving real-world problems. Over time it became the handmaiden of inventions, such as the internal-combustion engine, which massively lifted living standards. Coffee houses, which some at the time called “penny universities”, played a crucial role.
By the early 18th century central London was home to as many as 600 coffee shops. The Marine Coffee House in London was an early location for a set of lectures on mathematics, Mr Mokyr points out. The London Chapter Coffee House was the favourite of the fellows of the Royal Society, the intellectual godfathers of the scientific revolution, and was where people gathered to discuss how science could be applied. Caffeine lubricated the discussion in a way that alcohol—a depressant—never could. The chemical increases both selective attention (focusing on the relevant stimulus) and sustained attention (maintaining it).
Lab-grown meat and its carbon footprint
Regular readers will know that I am fascinated by the potential for a huge revolution in the food and nutrition system, not least the replacement of animal meat by alt proteins – see the FutureFoodFinance website.
The dominant alt protein at the moment is based on plants but there are severe drawbacks to this approach, which is where lab-grown or cultured meat comes in. This is slowly working its way out of pharmaceutical labs and bioreactors into mainstream products – Singapore already has lab-grown chicken nuggets and outfits like Blue Nalu are moving fast into high-end fish substitutes. The idea here is to grow meat in a bioreactor that looks and tastes like meat but involves no animal slaughter. The challenge comes from scaling up the process and moving from pharma-grade bioreactors to food industry systems.
The important point about cultured meat is that if it works, it’ll be popular because it involves no animal suffering but will still appeal to those – like me – who like meat. Some proponents have also argued that this will be good for the planet as we won’t have lots of methane-burping cows wandering around. But a recent paper cited by the Zero Hedge website suggests that the carbon footprint of meat grown in a pharmaceutical grade bioreactor might actually have a WORSE carbon footprint.
The preprint study, which has yet to undergo peer review, concludes that the energy needed and greenhouse gasses emitted during all stages of production of lab-grown meat is far greater than traditionally raised beef.
Researchers conducted a life-cycle assessment of the energy needed and greenhouse gases emitted in all stages of production and compared that with beef. One of the current challenges with lab-grown meat is the use of highly refined or purified growth media, the ingredients needed to help animal cells multiply. Currently, this method is similar to the biotechnology used to make pharmaceuticals. This sets up a critical question for cultured meat production: Is it a pharmaceutical product or a food product? -UC Davis
"If companies are having to purify growth media to pharmaceutical levels, it uses more resources, which then increases global warming potential," according to lead author and doctoral graduate Derrick Risner, of the US Davis Department of Food Science and Technology. "If this product continues to be produced using the “pharma” approach, it’s going to be worse for the environment and more expensive than conventional beef production."
The scientists considered the 'global warming potential' to be the carbon dioxide equivalents emitted for each kilogram of meat produced - and found that the global warming potential of lab-based meat using these purified media is up to 25 times greater than the average for retail beef.
Revolting Dutch farmers
One of the foreign stories that the British media have completely missed is the rural populist revolt underway in the Netherlands. Over the last few years, Dutch farmers – an incredibly successful, efficient bunch – have been protesting about a slew of green policies. That protest has now taken political shape in the emergence of a new conservative rural party called BoerBurgerBeweging (BBB), or Farmer-Citizen Movement which trounced all the other parties in recent provincial elections. Foreign affairs publication New Lines magazine has a great, short piece on the party/movement, which is well worth a read.
The movement started in May 2019, when the animal rights group Meat the Victims occupied a pig farm in the town of Boxtel. The second event occurred in September that year, when Parliament introduced the first of several proposals to cut nitrogen emissions. Feeling threatened, farmers responded with mass protests organized through ad hoc advocacy groups like Agractie and Farmers Defense Force. In October of that year, a procession of 2,200 tractors crept along the highway to The Hague, causing chaos for thousands of commuters. Near Zwolle, farmers barricaded a distribution center of the supermarket chain Albert Heijn, preventing 230 locations from restocking their shelves. In Hilversum, just southeast of Amsterdam, they demanded airtime on the national evening news.
“Now it’s our turn,” a BBB candidate told Smouter on the eve of their victory. Still, it’s difficult to tell what the future of the Netherlands will look like, partly because the party that will shape that future is still in the process of inventing itself.
The BBB’s official website paints a rather pleasant picture, not unlike the meadows and windmills that adorn the overpriced tins of filled waffle cookies (stroopwafels) sold at Amsterdam’s Schiphol Airport. The expected items are there, including the need to secure adequate farmland and maintain current levels of food production. But so are tentative plans to create a national care fund, invest in food banks and provide free menstrual hygiene products.
Yet campaign promises can be deceiving and, although the BBB presents itself as moderately conservative — the party of “normal” or “ordinary” people who, as van der Plas puts it, “don’t ask many questions, like to drink beer during the weekend, drive their caravan to France and pay their taxes on time” — it has on occasion flirted with far-right extremism. Its website refers to immigrants as “fortune seekers” who should be “sent back to their own country as quickly as possible” and voted in favor of a motion to “stop accommodating refugees leeching off our welfare state,” introduced by member of Parliament Gidi Markuszower of the PVV, a party headed by the openly anti-Muslim politician Geert Wilders. Echoing U.S. Republicans, the BBB wants to prohibit “teachers from spreading their ideologies,” whatever they may be, and set up hotlines so students and parents can report them if they do. Additionally, universities should go back to reinstate Dutch as the official language of higher education in the country and limit their number of international students who study in English.
More at https://newlinesmag.com/spotlight/how-disgruntled-farmers-uprooted-dutch-politics/