Friday, 24 November 2023 — Melbourne, Australia

By Greg Canavan Editor, Fat Tail Daily

[2 min read]

Dear Reader,

The private equity takeover of Origin Energy is not going well.

Good. These guys want it on the cheap. And they’re struggling.

Sadly, renewables advocates think the deal will solve all our problems. Tim Buckley, director of Climate Energy Finance, thinks the deal is in the public interest. In an interview with the Financial Review, he said:

‘At the end of the day, we do have an energy crisis, a cost of living crisis and a climate crisis. And all three of them can be solved by unlocking a huge amount of capital at speed and scale in alignment with building new capacity.

‘That will help solve the energy crisis, that’ll push our prices down, that’ll push inflation down [and] that’ll push the cost of living prices down. And at the same time, it helps mobilise capital to solve the climate crisis which is the elephant in the room.’

Voila!

You see, Brookfield doesn’t want to come in and make billions from the higher electricity prices that come with government-underwritten renewables projects. They want to solve the energy, climate, and cost of living crisis! So let them have the asset.

That anyone actually believes this is laughable.

But such is the fervour and emotion of the renewable advocates. Rational thinking goes out the window!

Don’t forget, even with existing subsidies the move to renewables is way behind the government’s timeline. Which is why Chris Bowen just threw more money at the problem via the Capacity Investment Scheme (CIS).

Here’s an edited version of energy analyst Saul Kavonic’s take on it, via X:

‘This CIS announcement is a big deal — a major market change. Labor is now well down the road towards a predominantly Government controlled and funded energy system. Government is resorting to taxpayer money to bail it out of the energy market mess it has created.

‘It's an admission that the government is very worried about blackouts and is trying to fix it. But without using the best solution which is gas, because they also need to pander to the greens. So they are resorting to more expensive and less effective solution at taxpayers expense.

‘The details are not disclosed and the reason for not disclosing is poor. There is every reason to believe taxpayers are on the hook for an expensive price.

‘It's questionable if our energy market will survive in any meaningful way after this government is done with all of its interventions.

Bowen’s policies will be an absolute disaster for Australia’s energy system. Our only hope is that he will not make it past the next election.

By Kiryll Prakapenka Editor, Fat Tail Daily

[3 min read]

Dear Reader,

I want to start with an apology.

I’m sorry.

I may have indulged in too much Reserve Bank talk lately.

The fault is two-fold.

One, most people are sick of hearing about it. Markets largely know what’s ahead for central banks.

And two, monetary policy isn’t a potboiler.

If Dan Brown wrote the RBA’s next Statement on Monetary Policy, it’d still get less readers than an Aldi catalogue.

I did watch Michele Bullock’s speech on Wednesday. I found it highly interesting. But I won’t speak on it here!

Enough RBA chatter. Enough Fed talk.

I did smuggle a reference in the latest What’s Not Priced In episode, but it served a higher purpose.

See for yourself.

In the latest episode, Greg and I discuss:

• Updates from Accent Group, Lovisa, Kogan, Temple & Webster, and Nick Scali and what they reveal about consumer demand
• Origin Energy takeover chaos
• Nvidia’s massive forecast beat, albeit one largely priced in
• How the high cost of capital is forcing investors to get serious about valuations
• Why now is a good opportunity for investors who can ‘do their homework’
• ‘Investing is not about what you believe but what you believe that’s different to what the market believes’
• AI is not a substitute for great, creative investment research

By the way, the podcast now has an email address. Send your questions and comments to wnpi@fattail.com.au.

Talking about AI

Now, onto something non-RBA related.

Artificial intelligence.

I know.

If people are tired of hearing about central banks, surely they’re tired of hearing about AI?

Bare with me. I am not going to talk about AI specifically. I’ll use it as background to throw into relief the main topic.

Juxtaposed next to AI, it really pops.

Earlier this week, our Fat Tail editors discussed the emergence of AI research tools.

AI technology, like Google’s Bard or OpenAI’s ChatGPT are powerful. And will become even more so.

But do they present a challenge to investors or a boost? In other words, is AI a research tool or a research substitute?

The former keeps the need for good researchers alive. The latter obviates it.

What’s stopping people from taking the research steps enabled by new AI technology and cutting out the middlemen? Intermediaries like financial advisors, hedge funds, asset managers, and research firms?

What’s stopping them is the lack of unique insight.

AI tools like ChatGPT are great at guessing what words follow other words based on the billions of data points scraped from the Web.

Large language models like ChatGPT stitch responses together based on statistical relationships observed in these massive datasets.

Using the datasets, these chatbots ‘see’ that some terms are more likely to be paired with others.

Therefore, their responses inherently reflect the ‘consensus’ view.

But great investing is all about being ahead of the consensus.

For the time being, the art of investing remains a human art.

Seeking the signal amid the noise

To highlight the point further, I raised this quote from hedge fund manager Dan Rasmussen in the episode.

Speaking at the recent Sohn Hearts & Minds event, Rasmussen noted investing is a game of meta-analysis:

‘Investing is not a game of analysis, it’s a game of meta analysis — not what you believe but what you believe that’s different to what the market believes.’

How much of what you believe is different to what the market believes?

And how much of that difference can be turned into a profitable trade?

Better yet, how much of your research focuses on areas where your ideas clash with the market’s?

Spending weeks researching the adoption of EVs is a fruitless exercise since it’ll end up with you believing what the market already does.

Another thing to note is the point made by economist Herbert Simon: a ‘wealth of information creates a poverty of attention’.

We have access to a massive wealth of information. The existence of ChatGPT only adds to it.

But we have a fixed quantum of attention to spare. We can’t pay attention to everything.

So in investing, the differentiating factor is where we direct our attention.

What is extraneous information and what is necessary information?

It’s important to know the difference.

AI won’t help you there.

Regards,

Kiryll Prakapenka,
Editor, Fat Tail Daily

By Bill Bonner Editor, Fat Tail Daily

[4 min read]

Dear Reader,

We are celebrating Thanksgiving with two of our sons, our wives, and grandchildren. We will sit down to dinner of turkey, onions, stuffing, beets, pumpkin pie…and who-knows-what-else, prepared by the women of the household. Before tucking in, your editor will rise to say grace. As the oldest member of the family, it falls to him to offer up a prayer suitable to the occasion.  

But unlike so many others, he will not put a sugar glaze — such as you might find on the sweet potatoes — over the facts. After tapping his glass, and rising to his feet, he will give it to them, like the Jameson whiskey aperitif, straight:

Dear Lord (or whatever power, higher or lower, might be held responsible), we have so much to be grateful for, we scarcely know where to start. So, let’s begin in the beginning.

We are thankful to be alive. Our hearts still beat. We breathe in and out and enjoy each sunrise, happily counted among the quick, rather than the dead.

But many are not so lucky. The average lifespan of American males is falling rapidly. On the rise are what are called ‘deaths of despair,’ where people are so forlorn they take drugs or do themselves in. We are grateful not to be among them.

We give thanks, too, because we are not at war. Instead, we pay the Ukrainians and Israelis to do the killing, and/or dying.

Trillions (with a Capital T)

Job openings are plentiful, too; that’s something to be grateful for…even though many of these jobs are not the good-paying, ‘breadwinner’ jobs our fathers had.  More and more, we’re forced to take low-paying employment in the service sector in order to keep up with our credit card payments. And more than ever, people don’t work at all. Retired, disabled, worn out, witless…or just lazy…we don’t know, but they’re millions of them and they all must be supported by those of us who still get up in the morning, put our pants on and go to the jobsite.

Thank God, too, that we have plenty to eat. We’re not like those poor people in Gaza that we’re helping to starve. Here in America, we have so much food that 7 out of 10 of us are overweight. And doctors have come up with a whole new maladie — diabesity — to describe an epidemic now sweeping the country.

And we’re not broke….yet. Our Thanksgiving dinner will cost 25% more than it did four years ago…but a bit less than last year. And we can put the whole thing on our credit cards, and pay 21% interest on it — forever.

Yes, that is really what makes America great…it’s what we have to be especially thankful for — credit. What other country can run up $33.7 TRILLION [we will emphasise the TRILLION as if it were a demon from Hell for the benefit of the 2-year-old at the table]…and keep on borrowing?

This week’s Treasury auction (at which the federal government raises money to pay for projects it doesn’t need with money it doesn’t have) went surprisingly well.  Lenders were willing to give the US government — which must be run by some of the most irresponsible numbskulls on the planet — their money in exchange for a promise to pay just 4.408% interest (on 10-year Treasuries).

[At this point, the turkey is getting cold…and the family is looking at the wall sockets for a plug that they can pull…]

Slaves to Interest

But wait…there’s more! There’s the latest news [we raise our right arm for dramatic effect…and take a crumpled news item from our jacket pocket]

Here’s another thing we have to be thankful for. This is America, dammit. [We’re actually in Ireland…but they will get the point]. And in America, we’re free. Sort of. Here’s an update, from Fox Business.

American taxpayers are now slaves to interest payments

Interest on the federal debt is now so immense that it’s consuming 40% of all personal income taxes. The largest source of revenue for the federal government is increasingly being devoted to just servicing the debt, not even paying it down. 

The problem is getting worse daily and will eventually result in even more pain for taxpayers.

The recent monthly Treasury statement from the Fiscal Service showed that the Treasury Department paid $88.9 billion in October on interest for the federal debt. That’s almost double what it paid in October of the previous year. Worse, the Treasury is projecting interest payments for the fiscal year to exceed $1 trillion. Every month that goes by, the Treasury increases that forecast as the outlook worsens.

Yes, dear…dear…family. We are now prisoners…forced to slave away to pay for things we didn’t want, didn’t get…and never will have. Like Jacob Marley, we drag the heavy chains of past perfidy…recklessness…and corruption.

A total interest of $1 trillion/year…divided among, say, 100 million families …each American family pays $10,000 per year for interest on federal debt.  

What exactly does it get for the money? The answer: nothing! The services and products were delivered, often so long ago that we don’t remember what they were for. A war against Iraq? Salary increases for members of Congress and federal employees? Subsidies…pay-offs…aid…agencies — where did it all go? We don’t know. All we know is that it is gone…our generation [we will point a finger towards our own chest] spent it. And now, you, my poor, dear…dear…family…you’ll be paying for it — and much more! — all your lives.

Amen.

Regards,

Bill Bonner,
For Fat Tail Daily