The Rising Influence of Rising Affluence

[marthambles]

Thanks. This is not something I have previously considered.

[DewDiligence]

If one created a GAAP-like balance sheet for the USA—listing both the USA’s assets and its liabilities at fair market value—the enormous federal landholdings and other fixed assets would offset much of the debt. True, the fixed assets are not liquid, but some portion of the fixed assets could be monetized if push came to shove.

[marthambles]

I would be interested in hearing why you're not worried.

[n4807g]

Not many individuals can afford private care, and the bulk of the Baby Boom generation are still independent but will soon begin to required assisted living. This is a huge problem people don't think about until they're confronted with it.

[Biowatch]

Retirees’ Life Savings Can_Vanish_in Continuing Care Bankruptcies
When continuing care retirement communities go bankrupt, residents or their heirs can lose deposits they were told would be refundable

https://www.wsj.com/articles/retirees-life-savings-can-vanish-in-continuing-care-bankruptcies-dfe55c7d

Robert Lange and his wife moved into a retirement community outside of Detroit more than a decade ago. The couple, in their 80s at the time, thought they were set for life. Then in 2020, Henry Ford Village filed for bankruptcy.

https://www.toptal.com/finance/fundraising/looming-crisis-in-continuing-care-retirement-communities-ccrc

[n4807g]

Agreed...why worry about something you can't control; counter productive. I just put it in perspective, try to anticipate the economic impact and how to invest accordingly.

[DewDiligence]

Krugman says not to worry, LOL:

https://www.nytimes.com/2024/06/06/opinion/national-debt-us-taxes.html

Actually, I am not all that worried about the US deficit and the national debt, although my reasons are not the ones that Krugman cites.

[n4807g]

CBO Jacks Up US 2024 Budget Gap Forecast by 27% to Nearly $2 Trillion
https://finance.yahoo.com/news/cbo-jacks-us-2024-budget-180000516.html

Huh...imagine that. Welcome aboard the Crazy train.

[DewDiligence]

FSRN—maker of Ocean EV-SUV—files for bankruptcy:

https://finance.yahoo.com/news/fisker-group-inc-files-chapter-062400106.html

"Fisker has made incredible progress since our founding, bringing the Ocean SUV to market twice as fast as expected in the auto industry and making good on our promises to deliver the most sustainable vehicle in the world," said a Fisker spokesperson. "We are proud of our achievements, and we have put thousands of Fisker Ocean SUVs in customers’ hands in both North American and Europe.

But like other companies in the electric vehicle industry, we have faced various market and macroeconomic headwinds that have impacted our ability to operate efficiently. After evaluating all options for our business, we determined that proceeding with a sale of our assets under Chapter 11 is the most viable path forward for the company."

LOL re the self-congratulatory comments above.

[DewDiligence]

Unusually heavy recent corporate-bond issuance is keeping US long-term interest rates (e.g. the 10-yr T-bond) higher than they would otherwise be.

[Biowatch]

HD to Offer up to $10 Bil_in_Bonds_to_Finance_SRS_Acquisition, Bloomberg Reports
9:05 AM ET 6/17/24 | MT Newswires

09:05 AM EDT, 06/17/2024 (MT Newswires) -- Home Depot (HD) is turning to the bond market to bankroll $7 billion to $10 billion of its $18.25 billion acquisition of construction products distributor SRS Distribution, Bloomberg reported Monday, citing a person familiar with the matter.

The home improvement and hardware retailer is selling bonds in the US investment-grade market in up to nine offerings, Bloomberg cited its source as saying.

Home Depot did not immediately reply to MT Newswires' request for comment.

(Market Chatter news is derived from conversations with market professionals globally. This information is believed to be from reliable sources but may include rumor and speculation. Accuracy is not guaranteed.)

[DewDiligence]

Former CDC director predicts bird flu pandemic:

https://thehill.com/policy/healthcare/4723753-former-cdc-director-predicts-bird-flu-pandemic/

Former Centers for Disease Control and Prevention (CDC) Director Robert Redfield said he predicts a bird flu pandemic will happen — it’s just a matter of when that will be.

… He also noted that bird flu has a “significant mortality” when it enters humans compared to COVID-19. Redfield predicts the mortality is “probably somewhere between 25 and 50 percent…” [vs. an estimated 0.6% for COVID].

…There is no evidence yet that the virus is spreading between humans. …Scientists have found that five amino acids must change in the key receptor in order for bird flu to gain a propensity to bind to a human receptor “and then be able to go human to human” like COVID-19 did, Redfield said.

…More than 40 cattle herds nationwide have confirmed cases of the virus. …Since cattle live close to pigs and the virus is able to evolve from pigs to humans, there is cause for concern.

… Still, [Redfield] argued, there is greater risk for the disease to be lab-grown. “I know exactly what amino acids I have to change because in 2012, against my recommendation, the scientists that did these experiments actually published them,” he said. “So, the recipe for how to make bird flu highly [infectious] for humans is already out there.”

Redfield, a virologist, was Director of the CDC from 2018-2021. His handling of the COVID pandemic has received much criticism.

I find this article perplexing insofar as Redfield says a bird-flu pandemic is all but inevitable while also opining that the risk from a lab-grown bird-flu virus is greater than the risk from eventual animal to human transmission. I cannot reconcile the two statements.

[DewDiligence]

China censors robotaxi mishaps:

https://www.nytimes.com/2024/06/13/business/china-driverless-car-safety.html

Images of the burned vehicle flew through the Chinese internet: An Aito M7 Plus electric sport utility vehicle, operated by an advanced assisted driving system, had crashed on a highway in Shanxi Province on April 26. A woman who said her husband, brother and son had been killed posted videos online and pleaded for an investigation. All of her postings soon vanished, and she said she would not discuss it further.

A Chinese business news outlet published a lengthy online investigation that questioned the safety of assisted driving systems. But that soon disappeared, too.

Robotaxis and state censorship: what could possibly go wrong?

[jbog]

Nucor sees Q2 EPS $2.20-$2.30, consensus $2.99

07:31
Nucor announced guidance for its second quarter ending June 29, 2024. Nucor expects second quarter earnings to be in the range of $2.20-$2.30 per diluted share. Nucor reported net earnings of $3.46 per diluted share in the first quarter of 2024 and $5.81 per diluted share in the second quarter of 2023. The largest driver for the expected decrease in earnings in the second quarter of 2024 as compared to the first quarter of 2024 is the decreased earnings of the steel mills segment, due primarily to lower average selling prices, and, to a lesser extent, lower volumes. The steel products segment is expected to have decreased earnings in the second quarter of 2024 as compared to the first quarter of 2024 due to lower average selling prices, partially offset by increased volumes. Earnings in the raw materials segment are expected to be higher in the second quarter of 2024 as compared to the first quarter of 2024 due to the increased profitability of our direct reduced iron facilities

Read more at:
https://thefly.com/n.php?id=3933639

[n4807g]

EU tariffs only apply to EV's, they don't apply to plug in hybrids. BYD has the product mix that works in the EU.

[DewDiligence]

One CLF director, Douglass Taylor, went against the grain and sold $500K worth of stock two days ago:

https://www.sec.gov/Archives/edgar/data/764065/000076406524000152/xslF345X05/wk-form4_1718317004.xml

Taylor still owns >100,000 shares (~$1.5M worth).

[DewDiligence]

CLF—Two more insider buys—$300K by one independent director and $100K by another independent director:

https://www.sec.gov/Archives/edgar/data/764065/000076406524000150/xslF345X05/wk-form4_1718303164.xml
https://www.sec.gov/Archives/edgar/data/764065/000076406524000146/xslF345X05/wk-form4_1718283217.xml

All told, there are now four insider buys this week, and five insider buys since 5/1/24—see #msg-174593789.

[DewDiligence]

May PPI data…

https://www.bls.gov/news.release/ppi.nr0.htm

PPI: -0.2% MoM; +2.2% YoY (down from 2.3% in April)
Core* PPI: flat MoM; +3.2% YoY (unchanged from April)

See link above for further details.

*Excludes food, energy, and trade services.

[DewDiligence]

CLF—more insider buying—independent director bought $1M of stock on the open market today:

https://www.sec.gov/Archives/edgar/data/764065/000076406524000148/xslF345X05/wk-form4_1718294709.xml

For other recent insider buys, see #msg-174340346 (CEO) and #msg-174587787 (CFO).

[DewDiligence]

There are no current plans to take on more debt.

[jbog]

I don't get what you're saying, didn't they just say they'd be comfortable taking on another $1 billon in debt for the new buyback plan, What other word would you use for taking on $1 billon of more debt?

They need to take care of the steel industry first. Prices are way down and stagnant at best.

[DewDiligence]

I know that, but you're playing word games. Spending money to repurchase shares is not "borrowing."

CLF is ok with the balance sheet as it stands. A moderate amount of financial leverage is not a bad thing.

[jbog]

They spent >$575 mil to buy 30.4 million shares. They could have paid the bond down and reduced debt and interest.

[DewDiligence]

Huh? The transactions were a swap—net debt remained constant.

[jbog]

Is it borrowed money? Do they pay interest?

Same thing

[DewDiligence]

CLF didn’t borrow $525M recently. Rather, CLF swapped 2026-maturing bonds for (newly issued) 2032-maturing-bonds (#msg-173971746).

[jbog]

I don't consider borrowing $575 mil to buy shares 4 months ago that are now worth less than $460 mil a prudent move. He's buying on margin.

[DewDiligence]

Ha! I don't agree that Celso has mismanaged the company's coffers.

[jbog]

Let's hope he does better than what he did with the company's coffers.

[DewDiligence]

CLF CFO, Celso Goncalves bought $100K of stock on the open market today:

https://www.sec.gov/Archives/edgar/data/764065/000076406524000144/xslF345X05/wk-form4_1718212569.xml

Celso Goncalves owns about $5M worth of CLF stock at the current market price.

p.s. CLF’s CEO, Lourenco Goncalves, is a much larger shareholder (#msg-174340346).

[DewDiligence]

IEA forecasts oil glut by end of decade:

https://www.reuters.com/business/energy/oil-demand-set-peak-by-2029-major-supply-glut-looms-iea-says-2024-06-12/

Global oil demand will peak by 2029 and begin to contract the following year while the U.S. and other non-OPEC countries add to supply, the International Energy Agency said on Wednesday, resulting in a major surplus this decade.

…Its view contrasts with the outlook of oil producer group the Organization of the Petroleum Exporting Countries (OPEC), which sees demand rising long after 2029 in part due to a slower shift to cleaner fuels and has not predicted a peak.

They can’t both be right, LOL.

[DewDiligence]

CAT hikes dividend—increases buyback authorization:

https://finance.yahoo.com/news/caterpillar-inc-increases-dividend-increases-143000701.html

The new annualized dividend is $5.64 (up 8% from $5.20). At the current share price (~$330), the new payout equates to a dividend yield of 1.7%. CAT has increased its dividend for 30 consecutive years.

The new $20B buyback authorization, added to the $1.8B remaining from the $15B 2022 authorization (#msg-168886038), gives a total buyback authorization of $21.8B. If CAT implements the full buyback authorization and (for the sake of discussion) buys shares at an average equal to the current market price, the share count will be reduced by about 14%. However, there is no time limit on the buyback authorization.

[n4807g]

Tariffs on EU EV imports....let the tit for tat begin. Putting a tariff umbrella over the EV market will probably result in higher prices, less drive for efficiency and a greater push by Chinese manufacturers to dominate other markets. Apparently the EU and USA have conceded the NEV race to China.

[wow_happens28]

Looks like gold is making an old fashion pennant or ragged bull flag.

https://finviz.com/futures_charts.ashx?t=GC&p=w

[n4807g]

Wow...thanks for the link. I have considered the increase need for resource, but I had no idea of the absolute scale. When you consider the world requirements going forward it's astounding....again thank you!

[DewDiligence]

From the same article:

Training OpenAI’s GPT-4 required an estimated 21 billion petaFLOP (a petaFLOP is 10^15 floating point operations). For comparison, an iPhone 12 is capable of roughly 11 trillion floating point operations per second (0.01 petaFLOP per second), which means that if you were able to somehow train GPT-4 on an iPhone 12, it would take you more than 60,000 years to finish.

On a 100 Mhz Pentium processor from 1997, capable of a mere 9.2 million floating-point operations per second, training would theoretically take more than 66 billion years.

We often read about the outsized computing required for AI training, but these factoids really put it in perspective.

[marthambles]

Interesting article about the challenges of building AI data centers.
https://www.construction-physics.com/p/how-to-build-an-ai-data-center

[wow_happens28]

Welcome back Oakes!!!!!!! Your knowledge in so many areas is incredible, albeit above my pay scale, and I love your humor. I totally enjoy your posts.

I don't know where you live, but have you seen any EVs in your city driving around with "Impossible Burger" signs on top delivering Impossible Burgers to homes like Domino's Pizza does with gas powered cars?

[DewDiligence]

I think I understand enough of that content to be reassured as a CLF long. Thanks for such an informative post!

[OakesCS]

i dont see how electrolytic refining of iron and processing into Fe plates (not clear to me if they are actually making steel) is cheaper than conventional processes. I agree that it looks like smelting would still be required. I suspect that it could be possible to create steel sheets, by growing from an aqueous solution, that had similar properties to steel produced via conventional methods, but i'd bet the cost difference would be huge. I dont think that cost difference would ever go away. Any process involving water will require very large quantities of water, acids, bases, and recycling. When all of the associated energy and CO2 production costs are added up, I'd bet that such Green processes are actually Blacker than an old Pittsburg blast furnace.

Since cost is often a good proxy for energy efficiency, i doubt that the processes in the WSJ article are actually "green". For example, the article mentions that the Boston Metal process involves heating iron solutions to 3000 F while electrolytically reducing the dissolved iron to metallic iron. My intuitive reaction, based on some experience with heating aqueous solutions to 1500 F, is that it is an absolutely nutty idea for a commercial process. Aside from the energy required to heat large quantities of water to 3000 F, aqueous solutions at 3000 F tend to be hard on equipment lifespans. Whatever is reducing the iron in that case is oxidizing something else. I'd like to know what that something else is.

Somewhat as an aside, an aqueous solution at 3000 F has no resemblance to hot liquid water containing dissolved salt that people might casually envision when reading the article. Some people might be inclined to point to the critical point of pure water but if the process started with dissolved iron, then the system is compositionally far removed from pure water and the critical point of water is only peripherally relevant. I would be very surprised if there were only 1 or 2 fluid phases in addition to the liquid iron in such a system. Turbulence due to temperature gradients could be extreme and might cause process/handling problems. In addition, those different fluid phases would contain finite quantities of dissolved stuff and those dissolved things tend to poop out, either as yet additional fluids or solids, as soon as they hit a lower pressure and temperature. Again, very non-trivial process problems that cause me to think such ideas are commercially nutty and uneconomic.

The only advantage i see is the ability to process lower grade iron ore. I suppose that might make the process economically viable in some niche markets.

[DewDiligence]

Nucor's PR doesn't say which car parts the Econiq-RE will go into.

[jbog]

CHARLOTTE, N.C.,
March 20, 2024
/PRNewswire/ -- Today, Nucor Corporation (NYSE: NUE) announced that it has signed an agreement with Mercedes-Benz to supply Econiq™-RE for Mercedes-Benz models produced at their Tuscaloosa, AL manufacturing plant.

Since its inception in 2022, Econiq™ has led the global steel industry in certifying low-embodied carbon materials. By using Econiq™-RE, an evolutionary category of Econiq™ that certifies Nucor steel or steel products made with 100% renewable energy, greenhouse gas emissions can be reduced to less than half that of extractive blast furnace-based steel production (Scopes 1, 2 & 3).

"Nucor is grateful for the opportunity to partner with Mercedes-Benz as a strategic supplier of lower-embodied carbon steel, which will reduce carbon emissions throughout their supply chain," said Dan Needham, EVP of Commercial. "Our Econiq™ brand is helping steel end-users meet their growth and sustainability goals, and we are proud that it is going to be a key piece of Mercedes-Benz's path towards a net carbon-neutral new car fleet along the entire value chain."

In 2023, Nucor announced Net-Zero science-based greenhouse gas (GHG) targets for 2050 and used an average of nearly 80 percent recycled scrap through the company's circular production process. Nucor is also the largest recycler in the Western Hemisphere. With its continued investment in breakthrough technologies to lower emissions across the supply chain, Nucor is committed to reshaping the industry by not only making steel more sustainably but enabling partners to reach their own carbon reduction goals.

[DewDiligence]

Why would you say that?

CLF's CEO, Lourenco Goncalves has stated numerous occasions that EAFs cannot meet the demanding specifications of the automotive industry. Was he was referring specifically to EAF output produced from scrap steel, or to EAF output in general? My understanding was the latter, but I could be wrong.

[jbog]

run though an EAF. If true, this would render the resulting steel unusable for high-end applications such as those in the automotive industry.

Why would you say that?

EAF steel made from scrap metal would have problems but what's different from EAF made steel from virgin material? The key in my view would be to keep the tramp materials out.

[DewDiligence]

ABT launches over-the-counter CGMs:

https://finance.yahoo.com/news/abbott-receives-u-fda-clearance-120000542.html

• Abbott's consumer biowearable, Lingo, is designed for general consumers who are looking to improve their overall health and wellness

• Libre Rio is designed for adults with Type 2 diabetes who do not use insulin and typically manage their diabetes through lifestyle modifications

• Both products are based on FreeStyle Libre sensing technology, the world's most widely used1 continuous glucose monitoring (CGM) systems, pioneered by Abbott and used by about 6 million people globally

ABT’s Freestyle Libre has annualized sales of ~$6B and is the largest-selling medical device in history.

[DewDiligence]

Re: Green steel

From the article you posted, it sounds as though the iron plates produced by Electra (and other “green steel” startups) must be run though an EAF. If true, this would render the resulting steel unusable for high-end applications such as those in the automotive industry.

Comments?

[jbog]

Green Steel

Nice Article
https://www.wsj.com/science/environment/steel-production-startups-carbon-footprint-80a9e8ec?mod=hp_lead_pos10

[DewDiligence]

More on JNJ’s talc liability; from my prior post:

The [ovarian cancer] settlement excludes mesothelioma plaintiffs, but 95% of these have cases have already been resolved.

The remaining 5% of mesothelioma cases may yet be a material burden—a jury just rendered a $260M verdict (of which $200M comprised punitive damages):

https://www.fiercepharma.com/pharma/oregon-jury-says-johnson-johnson-must-pay-260m-mesothelioma-talc-case

JNJ will appeal, of course.

[n4807g]

Everyone will be trying to compete with BYD on a worldwide basis, with little success outside the US and EU.

[semi_infinite]

Lexus Rz is bloated, overpriced and low range relative to competition like Hyundai Genesis. TM needs to have dedicated EV skateboard platform and not jerry-rigged from ICE/HEV.