December 3, 2017
December 3, 2017


Are you going to start publishing Leather Apron Letter again? I enjoyed it.

I enjoyed it too, however I wasn’t the publisher. Some friends of mine had the idea for the letter and I liked it so much that I linked to it and contributed some content, but it isn’t my letter. My friends took a hiatus as they have actual jobs at hedge funds and this was a hobby, however they have promised to restart it soon. Stay tuned…

Kuppy, read your banking article. I guarantee you that everyone else is taking money out of their homes too. When does this all crash?

I take an Austrian view of things. It won’t crash until the until the rate of growth of money printing goes negative–I’m not sure when that happens. QE in the US may be subsiding, but the ECB just ramped theirs up. The world is so global, that I think we need to look at global central bank balance sheets, and not just the Fed, like we used to. Without this cash out re-financing, the economy would be a whole lot weaker, and it’s not strong today to begin with. I am staying away from shorting and being patient–but i don’t have a whole lot of longs on either.

hi kuppy, i agree completely with your facts in kashagan but not so sure about “a trend that you can bet on for decades into the future”. have you considered the impact of new forms of energy that are increasingly cost-effective, like solar panels where tech is advancing inexorably, or perhaps a long-shot like fusion, that could derail the bull market in oil?

Ray Kurzweil, a genius who is now Google’s director of engineering said a year ago:

“Larry Page and I are convinced that within five years we will reach a tipping point where energy from solar will be less expensive per watt than from coal and oil.” “We also see an exponential progression in the use of solar energy,” he has predicted. “It is doubling now every two years. Doubling every two years means multiplying by 1,000 in 20 years. At that rate we’ll meet 100% of our energy needs in 20 years.”

That all is a very long time in the future still. Petroleum will be running the world for the next few decades at least.

Firstly, thank you for them recent insightful articles on corruption and Ukraine. The first article truly opened my eyes to the endemic corruption in the US government. We think we are immune, because it takes a more sophisticated form here. A recent story describing Elon Musk’s attempts to break the monopoly on the launching of government satellites exposed the movement of administrators from the government agency awarding the launch contracts to lucrative ‘consulting’ positions at the very contactors holding those high-dollar launch contracts. What a sad joke!

Do you think the recently-announced natural gas deal between China and Russia will affect business in Mongolia? If so, how?

I think this will be a huge positive for Mongolia. You have two trading partners that suddenly want to do a lot more business with each other, and you have Mongolia in the middle of them. Mongolia is a country that desperately needs all sorts of infrastructure to grow its economy. China and Russia definitely seem determined to build this infrastructure (railroads, highways, pipelines, etc.) to make it easier to trade between each other and Mongolia; will get to use this infrastructure for its own needs, get fees for shipping products through Mongolia and get a whole lot of investment while these projects are built. Based on estimate that I’m hearing, these projects are fully funded, are being fast-tracked for geopolitical reasons and they’re in the $US tens of billions. Not bad for a country with less than a $12 billion GDP last year.

What is your updated view on EGD? Mineral continues to struggle, which isnt really a surprise. Stock is certainly cheap, but I just wonder what changes that. Valuation just hasn’t mattered here. Thanks

You’re buying an industry leader with a great balance sheet at what it likely a cyclical bottom. Valuation doesn’t matter when the sector is hated. When things recover, a bunch of competition will have disappeared and EGD will shine. Unfortunately, I don’t know if that’s in a month or a few years. It’s been a very frustrating investment for sure.

In regards to the retailers, investors generally do not treat operating leases as debt until it is.

So true, so true…

A thought on your Gadzooks post:

– Buffett said something interesting about retail turnarounds ~10 years ago: “How many retailers have really sunk, and then come back? Not many. I can’t think of any.” (source)

Yes, retail is one very difficult business, that seems to trade at huge multiples when it’s going well—but it probably isn’t deserved.

Great note on Gadzooks…I have been trying to convince myself to bargain hunt with ARO but have held off because of the reasons you mentioned

Question on Russia/China energy deal and speculation regarding currency deals between the two…Since Mongolia is in between both countries how does the seemingly closer and closer alignment (economically and politically) between Russia and china impact Mongolia? Does local business view this as a positive trend or a risk?

I think these failed retailers are just minefields for investors. That’s why I wrote the article. I also keep watching ARO thinking it’s cheap at some price, but it keeps on melting….

As for Mongolia, it looks like a whole lot of infrastructure will be built in Mongolia, to connect China with Russia—which is clearly a huge positive for Mongolia in terms of FDI and fees that the country can make off of this infrastructure.

A possible slight knick on the Mongolia Express: http://monetaryrealism.com/china-asks-how-much-will-it-cost-us-to-make-solar-cheaper-than-coal/

Interesting article, so I re-posted it.However, I don’t think this will have much impact on Mongolia. Mongolia mainly exports high grade coking coal for steel making, not the lower quality coal thermal coal for electricity.

Kuppy, not a question, or maybe it is.

In a recent column, you closed with; “At some point in the next few years, they’ll get another bailout—it’s inevitable—these guys haven’t learned the right lessons from 2009.”

Ummm, then again, maybe they have. Last time the higher ups in Shittybank got big bonuses and fat options gains for making bad loans, until the bubble popped. Then, they lost the bonuses but kept their jobs. Likely not even a pay cut. Extra money and no real downside. So what lesson didn’t they learn?

I would do it again in their position!

Great point!!

I keep investing/thinking like a business owner focused on shareholder returns, as opposed to a big company CEO out for his own upside. Maybe that’s why I hate investing in these big businesses…

Thanks for keeping it all in perspective for me.