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Economics

“Here’s the essential conundrum: investing requires us to decide how to position a portfolio for future development, but the future isn’t knowable”
risk Capture

Howard Marks – Risk Revisited: http://www.oaktreecapital.com/MemoTree/Risk%20Revisited.pdf

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Leave it to the old sage, Jeremy Grantham, to provide some interesting insights.  A few brief excerpts from GMO’s latest quarterly letter – available here.

 

“The main potential reward, especially in an economy that is having the slowest recovery ever recorded, is in job creation. Job creation turns out to be an incredibly complicated economic issue, depending on the unique circumstances of each project and how it interacts with competing projects. If there were armies of unemployed welders and other construction workers sitting around, one could easily imagine that almost every job needed would draw from the unemployment pool and would be true job creation. But what if there were intense competition for every welder, every oil worker, and most heavy construction workers? Then we would not be in the job creation business but in the job competition business, deciding which potential employer will bid up wages and which will go without workers. A recent Bloomberg article opened with the question, “How high is the demand for welders to work in the shale boom on the U.S. Gulf Coast?” It then answered, “So high that you can take every citizen in the region of Lake Charles between the ages of 5 and 85 and teach them all how to weld and you’re not going to have enough welders,” citing a source from Huntsman Corp. “So high that San Jacinto College in Pasadena, Texas, offers a four-hour welding class in the middle of the night” because the equipment is finally available then.”

***

“Considering the above, it is clear that the XL Pipeline will not “create” jobs. Every one of its potential workers, almost all of whom already travel widely for jobs, could get a job several times over if given an hour on the telephone. What is happening here is an allocation of limited manpower resources: will we use them to extend chemical plants to capitalize on the incredible U.S. advantage in cheap natural gas; will we extend our fracking of U.S. sweet crude; or will we transport Canadian diluted bitumen, the most dangerous and toxic of all fuels, in order to increase the price for a handful of Canadian Tar Sand producers who currently suffer from constrained delivery capabilities and hence lower local prices? Even ignoring the severe environmental risks, it should be an easy decision on economic grounds alone.”

 

Emphasis mine. 

Normally articles about big oil spending tons of money wouldn’t surprise me but this stat jumped off the page:

WSJ: Chevron, Exxon Mobil, and Royal Dutch Shell spent more than $120 billion in 2013 to boost their oil and gas output—about the same cost in today’s dollars as putting a man on the moon.  (emphasis mine)

Woah.

bigoilcapex

A fascinating approach to the hierarchy of innovation based on Maslow’s hierarchy of needs.  Go check out the full post at Rough Type.

hierarchy of innovation“The focus, or emphasis, of innovation moves up through five stages, propelled by shifts in the needs we seek to fulfill. In the beginning come Technologies of Survival (think fire), then Technologies of Social Organization (think cathedral), then Technologies of Prosperity (think steam engine), then technologies of leisure (think TV), and finally Technologies of the Self (think Facebook, or Prozac).”

***

“One of the consequences is that, as we move to the top level of the innovation hierarchy, the inventions have less visible, less transformative effects. We’re no longer changing the shape of the physical world or even of society, as it manifests itself in the physical world. We’re altering internal states, transforming the invisible self. Not surprisingly, when you step back and take a broad view, it looks like stagnation – it looks like nothing is changing very much.”

Source: Rough Type

Found via The Big Picture