Investment Ideas From the Edge of the Bell Curve
Tentatively, the drama is over.
Sam Altman is back as OpenAI’s CEO days after the board fired him.
OpenAI said it reached an agreement in principle for Altman to return as CEO with a new board comprised of Bret Taylor, Larry Summers, and Adam D’Angelo.
We have reached an agreement in principle for Sam Altman to return to OpenAI as CEO with a new initial board of Bret Taylor (Chair), Larry Summers, and Adam D'Angelo.
We are collaborating to figure out the details. Thank you so much for your patience through this.
— OpenAI (@OpenAI) November 22, 2023
i love openai, and everything i’ve done over the past few days has been in service of keeping this team and its mission together. when i decided to join msft on sun evening, it was clear that was the best path for me and the team. with the new board and w satya’s support, i’m…
— Sam Altman (@sama) November 22, 2023
Beleaguered lithium hopeful Lake Resources [ASX:LKE] said new drilling has led to ‘significantly larger resource estimates’ for its Kachi lithium project in Argentina.
Measured and indicated resources rose from 2.9Mt of lithium carbonate equivalent to 7.3Mt, defined to a depth of 600 meters over 145 square kilometres.
Out of the updated total resource of 10.7Mt of lithium carbonate equivalent, 3Mt is measured. The rest is either indicated or inferred.
Here’s a dry definition of a measured resource, contained in Lake’s 158-page announcement today:
‘A ‘Measured Mineral Resource’ is that part of a Mineral Resource for which quantity, grade (or quality), densities, shape, and physical characteristics are estimated with confidence sufficient to allow the application of Modifying Factors to support detailed mine planning and final evaluation of the economic viability of the deposit.’
Lake said the measured resource only extends to 400 metres in depth.
$LKE updated its total resource estimate for the Kachi lithium project.
The market was unmoved. $LKE.AX is down ~2% in late Wednesday trade. $LKE is down 85% over the past 12 months. pic.twitter.com/dHh5eXKXW4
— Fat Tail Daily (@FatTailDaily) November 22, 2023
$LKE's resource update used a 10 mg/l cut-off grade.
However, $LKE.AX expects that cut-off grade to be 'revised downwards in the future'. $LKE is betting on long-term LCE prices to be >US$20k and/or mining & transportation costs to fall.
Realistic? pic.twitter.com/Jhcxv4CgyO
— Fat Tail Daily (@FatTailDaily) November 22, 2023
Lithium prices are falling.
Just because demand for electric vehicles is surging doesn’t mean lithium prices will always rise.
(EvercoreISI chart) pic.twitter.com/YlLP4zV5xk— Shane Oliver (@ShaneOliverAMP) November 21, 2023
And interpretations are rolling.
The Wall Street Journal fears falling lithium prices are bad for EV uptake. Economists aren’t so sure.
An absolutely bonkers example of the bad-news bias (and a failure to take Econ 101) in econ reporting: The @WSJ observes that the price of metals used in electric vehicles are crashing, and somehow infers that it will create shortages and snarl adoption of EV's. pic.twitter.com/nG9eM8EEP6
— Justin Wolfers (@JustinWolfers) November 21, 2023
Another economist ventured a defense.
Low lithium prices disincentivize producers from expanding production or would-be miners from entering production.
https://twitter.com/ben_golub/status/1727051831531143430
Some of the best-performing stocks in recent decades are quite pedestrian compared to the likes of Nvidia or Microsoft or Apple.
But their mundane businesses haven’t precluded success.
$CTAS God Damn Uniform rentals +45,169% pic.twitter.com/nuzXXmo5VE
— Q-Cap (@qcapital2020) November 20, 2023
Investment platform for the wealth administration industry Praemium [ASX:PPS] is down over 25%.
Not the best background for holding an AGM. Which Praemium is doing, right now.
In its prepared remarks, Praemium management gave a trading update for the first four months of the current financial year.
The average revenue margin is down 2 basis point, reflecting ‘lower trading volumes and cash balances than the previous six months’. Importantly, management does not know how long ‘this relatively subdued activity is likely to persist’.
That wasn’t all.
Praemium implemented five ‘strategic initiatives’ in recent months, aiming for long-term gain through short-term pain.
This short-term pain will lead to 1H24 EBITDA being down 20% on 1H23.
$PPS Praemium is down 25% after an AGM trading update revealed 1H24 EBITDA is expected to fall 20% on 1H23. #ASX $PPS.AX pic.twitter.com/Z2SUTZK1ka
— Fat Tail Daily (@FatTailDaily) November 22, 2023
Healthcare stock Healius [ASX:HLS] is down 35% after rattling the tin at a discount.
The institutional 1 for 3.65 entitlement offer raised $154 million at $1.20 per new share. Healius ended up issuing ~156 million new shares, about 27% of the firm’s existing shares on issue.
Quite the dilution.
A further retail offer is expected to raise about $33 million.
The funds will be used to ‘reduce Healius’ net debt and reset its balance sheet with appropriate gearing’.
With interest rates rising, now is a good time to reduce your debt servicing burden. But it’s not ideal when you do so at the expense of existing shareholders.
When the funds hit HLS’s bank account, FY23 net debt would be $263 million.
Onto local news now.
The Reserve Bank released its meeting minutes yesterday.
The minutes showed officials considered the case for raising the cash rate the more persuasive one.
The reasoning is telling.
The RBA does not think financial conditions are ‘especially restrictive’.
From the minutes:
‘Members also noted that the staff’s broader estimates of required household debt repayments (as a share of disposable income) implied that the debt repayment burden was not as high as it had been 15 years earlier. More generally, members noted that fixed-rate borrowers were tending to roll onto (more expensive) variable-rate loans without a noticeable adverse effect on their ability to service their loans. At the same time, housing prices were continuing to rise and loan approvals had increased over prior months, both of which might indicate that financial conditions are not especially restrictive.’
RBA officials also worried that inflation was most prevalent in items ‘for which inflation typically took longer to subside (such as services)’. That means it would ‘take some time for inflation to return to target’.
Which also means it will take some time for interest rates to fall.
Worse yet, if inflation will take some time to return to target, inflation expectations may rise. (I wrote about this risk here).
This risk contributed to the RBA’s decision to hike:
‘Members noted that the risk of not achieving the Board’s inflation target by the end of 2025 had increased and that it was appropriate that monetary policy should be adjusted to mitigate this. They observed that delaying such an adjustment would create a risk that a larger monetary policy response might be required in coming months, especially if inflation pressures turned out to be stronger than expected. More generally, members noted that it was important to prevent inflation expectations from increasing significantly, given the costs of that eventuality. They agreed there was a risk of inflation expectations increasing if the Board left the cash rate target unchanged at this meeting, particularly given the Board’s repeated statements that it has a low tolerance for inflation returning to target after 2025.’
RBA minutes confirmed it considered holding but decided to hike give increased risks regarding inflation, to prevent inflation expectations rising & with RBA forecasts assuming one or two more hikes. The minutes reiterated the RBA's less hawkish data dependent tightening bias.. pic.twitter.com/AsTuvzEHP9
— Shane Oliver (@ShaneOliverAMP) November 21, 2023
Let’s start with the big news in cryptoland.
The largest cryptocurrency exchange in the world agreed to pay US$4.3 billion in fines for anti-money laundering and US sanctions violations.
Its founder and long-running chief executive, Changpeng Zhao, also pleading guilty. CZ, as he’s nicknamed, agreed to pay a criminal fine of US$50 million.
Binance and its CEO Changpeng Zhao pleaded guilty to criminal charges for anti-money laundering and US sanctions violations and agreed to pay over $4 billion in penalties, US Attorney General Merrick Garland said https://t.co/hZAzOk0oDg pic.twitter.com/zEI8MqVQyf
— Bloomberg (@business) November 21, 2023
It’s not been a great year for large cryptocurrency exchanges. What with the FTX collapse and Sam Bankman-Fried’s guilty fraud verdict.
CZ took to Twitter (I won’t call it X) to announce his departure:
Today, I stepped down as CEO of Binance. Admittedly, it was not easy to let go emotionally. But I know it is the right thing to do. I made mistakes, and I must take responsibility. This is best for our community, for Binance, and for myself.
Binance is no longer a baby. It is…
— CZ 🔶 BNB (@cz_binance) November 21, 2023
How was the news received? As you’d expect.
Here’s economist Justin Wolfers.
Shocked to learn that of the two biggest crypto exchanges, one was stealing and the other was money laundering. Starting to think the Feds should look at whoever #3 is.
— Justin Wolfers (@JustinWolfers) November 21, 2023
And here’s venture capitalist Jason Calacanis:
Lord, give me the confidence to plead guilty to federal charges, pay a $4b+ fine, and have the audacity to offer myself up as an advisor to startups! 🤦😂🫡
Crypto folks are built different https://t.co/NApclzD5Aa
— @jason (@Jason) November 21, 2023
Kiryll here! Hope you’re well.
It was a big news day overnight.
OpenAI boardroom drama rolled on.
Binance agreed to pay a US$4.3 billion fine. Its CEO and founder Changpeng Zhao then also resigned.
Nvidia again beat analyst forecasts but the stock traded flat after-hours.
The US Fed released its meeting minutes, as did our own central bank. Both were cautious on their rate outlook. Rate cuts are nowhere in sight.
And the Bank of England‘s governor warned markets are underestimating the ‘potential persistence’ of inflation.
Oh, and we have local companies reporting today. Like Webjet, whose sales are rebounding from last year. Plenty of firms are also hosting their AGMs today.
All up, a busy day.
Let’s discuss and unpack.
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Investment ideas from the edge of the bell curve.
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