Looking Backwards …
LB #1
The first thing to do is to make note of an error that I have been making repeatedly. I wrote a piece about the B&B boys- Biden and Blinken, and I misspelled Antony Blinken’s name throughout. Antony doesn’t have an H. Errors must be quickly noted when made and not hidden, and now we can move on.
We still don’t have enough rare earth minerals to make the green pivot away from fossil fuels. In February we did a two part series on the challenges facing the green revolution because of the coming shortage of raw earth minerals and the lack of production capacity. Greenies believe that Teslas grow on trees and they forget that a barefoot kid in the Congo is out there now looking for more cobalt so suburbia can have a quick accelerating car to drive to the grocery store to pick up wheatgrass and flaxseed oil. We spoke of shortages in Tellurium, Neodymium, and Dysprosium, but this week it is manganese.
Alexandra Wexler writes for the Wall Street Journal that a little company in Mbombela, South Africa has generated massive interest from the world’s manufacturing elite. Manganese Metal Co. is the apple of their eye and as the world is trying to China-free its supply chains, this company is one of the few companies outside that has the know-how to manufacture battery -grade manganese. China controls 90% of battery grade manganese and it is used in the batteries for electric cars, smartphones, and laptops. China also just added stricter export restrictions to its rare earth mineral due to America’s further ban on chip making technologies. China has already responded to chip restrictions last year with a ban on germanium and gallium. America gets half of its germanium from China and all its gallium according to Markets Insider. This will be a fun tit-for-tat to watch as companies scan the globe for alternatives, but nothing has changed.
LB#2
The hyperloop was more technology that was going to change the world and how we travel. The hucksters spun a narrative straight out of the EV and greenie playbook. It was modeled after the bank tubes that used to whisk a deposit from a drive thru lane up and over to the bank teller only to return with a deposit slip for the customer and a candy for the child riding shotgun. The idea was postulated by Elon Musk in a white paper in 2013. I don’t understand the physics, but the Hyperloop was a floating tube of electrons, protons, and neutrons all financed by morons. Hyperloop One was financially backed by Richard Branson’s Virgin Group and despite funding from the Biden Administration’s Infrastructure Investment and Jobs Act, it has closed its doors and will sell off its assets. According to Zero Hedge, “All it took was a period of high interest rates to squash the next generation of sustainable high-speed transportation.” Like I said, financed by morons. Malinvestment rears its ugly head yet again and the American taxpayer’s ROI is poop, just like the hyperloop.
LB#3-
I want to focus on the Japanese export market for a minute as the United States has recently paid over a billion dollars for two key imports. Shohei Ohtani signed a 10 year $700 million deal with the Los Angeles Dodgers just weeks ago and then the Dodgers turned around and signed Yoshinobu Yamamoto for $325 million. That’s right, major leagues sports teams can drop over a billion in salaries in just weeks now. This salary for athletic talent craziness has been going on for many years, but what is interesting is Ohtani’s contract. He will only make $2M a year, only $2M I can’t believe I wrote that, but the $680 million dollars will be deferred until 2034-43. As long as he lives outside the state of California he can avoid $90-$100 million in state taxes. Oh, Triple G, Governor Gavin Gruesome, will not be happy with this new arrangement. He might have to get Biden something else for Christmas besides a Stairmaster to ensure that a federal law prohibits this behavior. Remember, California has a $68 billion deficit. I do have one other observation though as much as it delights me seeing California getting their nose thumbed. What will that money be worth when we get there? The rule of 72 tells us that any inflation over 7.2% on average for 10 years will double prices and leave Ohtani with half the purchasing power of today. That would make this $700 million contract look more like a $350 million contract to me. What was the average inflation rate during the inflationary decade of the 1970’s? 7.25%.
Looking Forwards…
LF#1
Argentina, whose previous government had grouped itself with the BRICS nations, turned away as new President Javier Milei said that his country would veer toward supporting America and Israel. He has said that he wants to replace his failing peso with the US dollar, and this seems to be a step in that direction. He is facing massive protests against his austerity measures as he takes his chainsaw to price controls in energy, laying off of government workers, and eliminating whole sections of government bureaucracy. If you are moving toward freedom, limited government, and free markets then I expect this move away from China is logical. Despite being trading partners with them, most of the world forgets that their own people are still living in a centralized communist controlled state where successful people like Jack Ma can be “disappeared” for awhile. The island of Hong Kong was brought quickly back under mainland control by disappearing some of the more vocal leaders. Freedom is not a Chinese right it seems. China is now trying to pull the strings of Argentina as they have suspended a $6.5 billion currency swap agreement. China is also a huge buyer of Argentina soybeans and by isolating China it might worsen the Argentina plight. But is doing the right thing easy, and the question becomes, should we have such open borders with countries that don’t have freedom? That is a bigger question than we have time for today.
LF#2
Chicago Mayor Brandon Johnson has lamented that his city has a migrant crisis. He lamented people. NIMBY. Not in my back yard. No, Brandon you have an idiot crisis and you are the crisis. It has been amusing to watch Democratic cities, which just about all American cities are, cry for help with migrants being bussed into their cities and dropped off. Meanwhile on the southern border they are coming in on trains and the sieve that is border control allows thousands per day. Chicago is just getting a taste and not the entire entrée. Whose fault is that? Well currently it’s Joe Biden’s America and his border policy, but he can’t complain about the policy so instead he blames states like Texas. I don’t blame the migrants as we have written about their incredible courage to make the journey and the chance for a better life here in the land of giveaways. The giveaways are yet another reason why our deficit is exploding. We are at $33.96T and I am anxious to see if we get to $34 before the new year ball falls. Ryan King writes for the New York Post that Chicago has about 15,000 people living in shelters in Chicago.
“What Governor Abbott is doing is, quite frankly, it’s reckless,” the mayor said. “… We recognize that there are challenges, significant challenges at the border, and we do need real substantive immigration reform and policies that allow us to have a structure and a pathway to citizenship.
“But again, sending buses all over the state of Illinois and all over the country is reckless and, quite frankly, is dangerous.”
2.8 million migrants have had an encounter with authorities so far in 2023, and now estimate how many didn’t have an encounter with authorities and made it into this country. Chicago has 15,000 Brandon, but New York City has received 161,000 in the last year and a half so it sounds like the great city of Chicago isn’t pulling its fair share from this crisis, I hope that Abbott sends more buses to the Windy City backyard, because their windy mayor doesn’t get it. Let’s go Brandon.
LF#3
Online retailer Zulily is shutting down. According to CNBC, it was launched in 2010 and based in Seattle, Zulily specialized in children’s and women’s apparel. It was worth $9B at one time according to the Wall Street Journal. The retailer was long considered a staple of Seattle’s tech scene, and in 2019 signed a multiyear sponsorship deal with the Major League Soccer team Seattle Sounders. More recently, Zulily became known for its aggressive advertising across social media platforms.
How could a slick company with money to sponsor sports teams suddenly vaporize $9B. Ahh, it was worth $9 B on paper. You see these phony valuations are something to behold. They are right up there with forward looking interest rates and what our beloved Charlie Munger’s calls EBITDA, bullshit earnings. That’s all they are. The article also mentions that Zulily closed shortly after Jane.com and that both failed to overcome competition from better-capitalized competitors. That’s right, they ran out of money. Their competitors might be just as shitty, but they haven’t ran out of money yet. When people talk about funding, rounds of funding, and the like just know that eventually someone has to make money in these businesses or eventually it will go the way of the Zulily. This is what happens when money isn’t free. The good news is that they had to lay off their staff who are now free to look for better jobs at places that actually make money. Taking quality human capital and moving it to profitable endeavors is what recessions and business failures are supposed to do.
Thank you for listening today and you can find all of our articles and more on our website cthomasprinter.com.