Beer, baby milk, Siracha sauce, wheat, LNG terminals, washing machines and railways have one thing in common. SAAS and software cannot produce more of them. Making real things is hard but necessary. It's time for investors to get real.
Brilliant. I picked up a dog-eared cottage copy of FutureShock(1970), and found the chilling boast that America was poised to become the first country in the world with more white-collar workers than blue-collar. Included in white collar? Retail and other service workers. In the blue? People who actually made things. That this was considered the pinnacle of success 50 years ago explains in part how we got where we are. Terrific analysis here. Do you think money will shift from funding SaaS?
The reason why US LNG capacity is currently constrained is price volatility. Except for Golden Pass LNG (owned by XOM & Qatar), no US liquefaction capacity has been built on speculation (i.e., owners take all price risk). Except for this project, no liquefaction capacity has been built without buyer commitments. From 2015 to 2019, global oil and gas prices were exceptionally low, due to surging US tight oil production and the resulting price war with Saudi Arabia. Virtually no European gas buyers (except for Poland) were willing to make financial commitments to US LNG because Russian gas was relatively cheap. As European utilities could not pass the cost of supply security on to their customers, they could not afford to diversify. Without government support, buyers had to buy the cheapest gas, which was from Russia. The trap Putin was creating was obvious, particularly for those of us trying to sell US LNG capacity. But it was impossible to persuade buyers to bear the financial risk, until the risk became tangible.
This piece has finally pointed out over and over again, that the last 40 years of Economic Policy promoting just in time inventory, offshoring manufacturing, stock buybacks and other thing that have caused great damage to this country. I hope that those in charge start to change direction. The faster the better.
How does she do it? Another easy to read(and that is a HUGE compliment not saying in a negative way) article on something so basic and important yet so under our radar. I never would have fully realised that because of shareholder and returns pressure 'things' we need to survive were not sexy enough to invest in long term. Oopps guess that was a big mistake. Thank Pippa. Brilliant
I have a nagging feeling that this 'code is king' mantra has been getting too loud and going on for two long. But I could never lay it out as clearly as you have. It's as if I now have an extra pair of lens through which to view all news on economics, investing, security, ..., etc
Nice work. A couple of points. Deep-water horizon was a corruption issue. BP bribed the EPA guys who issue permits to give an exemption to standard safety measures (e.g. double BOP) that were required for decades already. The risk of litigation would have been close to zero if they hadn't been able to appeal to a centralised authority and exempt themselves from rules that any insurance company would have required. Also, LNG terminals have never been more numerous, especially since Trump legalised exports and in so doing saved the nation of Panama from bankruptcy. However, they take 7 years to come online, so require patient capital.
The craziness of an economy built on speculation in nonsense such as cryptocurrency. Even China has gone crazy investing in skeleton buildings in ghost cities that will never be lived in. Thank you for your summary in this article.
Proof positive is the fact that share repurchases in 2021 were about $830B by the S&P 500 while Capex grew to $689B. Perhaps it's time for company management to stop being paid in shares and instead simply be paid in cash
This is outrageously good and a long-overdue telling of it like it is. I have been involved with manufacturing for as long as I have been in business as an independent (my very first investment was in a manufacturerbof bottling equipment as it happns) and whilst the capital light economics of the software industry have almost alchemical allure, stuff still needs to get built and nit everything can be printed in 3D (especially not 3D printers). So well done for writing this and pointing out how far the financial elastic band has been stretched from the world of real things. Long overdue time for a snap back.
How did we get here..... Americans have an infinite capacity to pay less and less for the goods we consume, so we buy from the producers who have the lowest labor cost. Good short game. Bad long game.
Excellent Pippa! I wish our leaders would articulate these truths. I am a capitalist at heart but what has happened in recent decades has shown the "unacceptable face of capitalism" and allowed the socialist perspective (I include the greens in that area) to gain traction with a younger generation.
So many "bad" things seem to be coming together in the 2020s that it is difficult to see a way out. The USA has manifestly exhibited hubris since 9/11 when it had the support of the overwhelming majority of nations, to today, where a MAJORITY of nations are clearly siding with Russia and China. Can we re-shore fast enough, can we establish local resource supplies fast enough? I think its too late personally.....
Brilliant. I picked up a dog-eared cottage copy of FutureShock(1970), and found the chilling boast that America was poised to become the first country in the world with more white-collar workers than blue-collar. Included in white collar? Retail and other service workers. In the blue? People who actually made things. That this was considered the pinnacle of success 50 years ago explains in part how we got where we are. Terrific analysis here. Do you think money will shift from funding SaaS?
The reason why US LNG capacity is currently constrained is price volatility. Except for Golden Pass LNG (owned by XOM & Qatar), no US liquefaction capacity has been built on speculation (i.e., owners take all price risk). Except for this project, no liquefaction capacity has been built without buyer commitments. From 2015 to 2019, global oil and gas prices were exceptionally low, due to surging US tight oil production and the resulting price war with Saudi Arabia. Virtually no European gas buyers (except for Poland) were willing to make financial commitments to US LNG because Russian gas was relatively cheap. As European utilities could not pass the cost of supply security on to their customers, they could not afford to diversify. Without government support, buyers had to buy the cheapest gas, which was from Russia. The trap Putin was creating was obvious, particularly for those of us trying to sell US LNG capacity. But it was impossible to persuade buyers to bear the financial risk, until the risk became tangible.
This piece has finally pointed out over and over again, that the last 40 years of Economic Policy promoting just in time inventory, offshoring manufacturing, stock buybacks and other thing that have caused great damage to this country. I hope that those in charge start to change direction. The faster the better.
Fantastic. I was just talking to a friend about investing.
How the dot com crashed.
That people making millions off of air. Not brick and mortar so to speak.
Investing in non tangible seems insane to me.
How does she do it? Another easy to read(and that is a HUGE compliment not saying in a negative way) article on something so basic and important yet so under our radar. I never would have fully realised that because of shareholder and returns pressure 'things' we need to survive were not sexy enough to invest in long term. Oopps guess that was a big mistake. Thank Pippa. Brilliant
I have a nagging feeling that this 'code is king' mantra has been getting too loud and going on for two long. But I could never lay it out as clearly as you have. It's as if I now have an extra pair of lens through which to view all news on economics, investing, security, ..., etc
Thanks.
Nice work. A couple of points. Deep-water horizon was a corruption issue. BP bribed the EPA guys who issue permits to give an exemption to standard safety measures (e.g. double BOP) that were required for decades already. The risk of litigation would have been close to zero if they hadn't been able to appeal to a centralised authority and exempt themselves from rules that any insurance company would have required. Also, LNG terminals have never been more numerous, especially since Trump legalised exports and in so doing saved the nation of Panama from bankruptcy. However, they take 7 years to come online, so require patient capital.
The craziness of an economy built on speculation in nonsense such as cryptocurrency. Even China has gone crazy investing in skeleton buildings in ghost cities that will never be lived in. Thank you for your summary in this article.
Proof positive is the fact that share repurchases in 2021 were about $830B by the S&P 500 while Capex grew to $689B. Perhaps it's time for company management to stop being paid in shares and instead simply be paid in cash
This is outrageously good and a long-overdue telling of it like it is. I have been involved with manufacturing for as long as I have been in business as an independent (my very first investment was in a manufacturerbof bottling equipment as it happns) and whilst the capital light economics of the software industry have almost alchemical allure, stuff still needs to get built and nit everything can be printed in 3D (especially not 3D printers). So well done for writing this and pointing out how far the financial elastic band has been stretched from the world of real things. Long overdue time for a snap back.
This storm is not over and it is too early to start clean up. For a little perspective, a link to a 2009 Peter Linneman interview follows:
https://knowledge.wharton.upenn.edu/article/peter-linneman-on-real-estate-the-storm-is-over-the-wreckage-remains/
How did we get here..... Americans have an infinite capacity to pay less and less for the goods we consume, so we buy from the producers who have the lowest labor cost. Good short game. Bad long game.
Excellent Pippa! I wish our leaders would articulate these truths. I am a capitalist at heart but what has happened in recent decades has shown the "unacceptable face of capitalism" and allowed the socialist perspective (I include the greens in that area) to gain traction with a younger generation.
So many "bad" things seem to be coming together in the 2020s that it is difficult to see a way out. The USA has manifestly exhibited hubris since 9/11 when it had the support of the overwhelming majority of nations, to today, where a MAJORITY of nations are clearly siding with Russia and China. Can we re-shore fast enough, can we establish local resource supplies fast enough? I think its too late personally.....
Hitler hated and admired the USA for being 100% self sustaining.
War ended.
Daddy Bush brought Nazis here…
Globalist thrived. And here we are.