Welcome! If this is your first time reading one of my postcards, catch up on my back issues here. And if you have questions or comments, shoot us a note anytime here or at feedback@rogueeconomics.com. | Gratitude for Greta Thunberg By Tom Dyson, Editor, Postcards From the Fringe CUSHING, OKLAHOMA – Hamish Norton, the president of one of the world’s largest shipping companies, said this on a call with analysts the other day: “The shipping industry owes a debt of gratitude to Greta Thunberg.” Norton is the president of Star Bulk, which owns 116 gargantuan ore-carrying vessels. What did he mean by that? More below... [Featured: Early investors drooling over this new tech cash cow.] On the Road Again Greetings from the pipeline crossroads of the world… My family and I are on the road again this week. We drove 2,600 miles from Idaho to Florida last week to spend Thanksgiving with Kate’s parents. We had a great time. Now we’re driving 2,600 miles back home to Idaho. I’m writing to you today from Cushing, Oklahoma. We’re about halfway home… Cushing is a key location in America’s downstream oil business. It’s the hub of America’s oil pipeline network. And it has a huge tank farm for storing crude oil and other petrochemicals. (Pipelines are nearly the perfect investments. Once they’re built, they pump out dividends into perpetuity and hardly require any maintenance.) I used to analyze pipeline investments when I wrote my income advisory, The 12% Letter. I’ve wanted to visit Cushing for years. Here I am… Finally made it to Cushing, Oklahoma Gas was very cheap in Cushing We have a (casual) goal of taking our kids to every state in America. This week we checked off five more states from our list: Arkansas, Illinois, Missouri, Kansas, and Oklahoma. The kids have been to 45 states… Shipping’s Fortunes Are About to Turn Back to Greta Thunberg and the shipping business… The shipping business has been a terrible business for the last 12 years. Generally speaking, there have been way too many ships and rates have been (broadly) terrible. Many shipping companies have gone out of business. The ones that are still in business have scraped by. Investors haven’t made money in shipping in years… But the fortunes of the shipping industry are about to be turned around… by the environmental movement. Here’s what I mean… Ship engines are floating power plants. Inland power plants get tons of scrutiny, especially coal and nuclear. Why wouldn’t ship engines face the same scrutiny? They produce smoke and greenhouse gases. Actually, regulators have been catching on... Ship propulsion is a major target of the environmental movement to reduce air pollution. They’ve already had to deal with big, new rules on sulphur. New rules are coming surrounding emissions, carbon, propulsion efficiency, and maybe even the fuel ships can burn. The International Maritime Organization (IMO) is shipping’s regulator. It’s part of the United Nations. According to the IMO’s website, the IMO aims to phase out greenhouse gasses from the international shipping industry as soon as possible in this century. You might think this is a bad thing for shipowners. And you’d be right. These are government regulations. It’s a giant pain in the neck and expensive to comply with. Of course, you’d never hear a shipping CEO say this publicly… But over the last three years, the shipping industry collectively has spent more than $12 billion complying with new regulations. It’s basically been a giant tax! The industry has paid the “environmental tax” on its existing ships. So that’s good. But what comes next? No one knows yet. But you don’t spend $100 million on a giant supertanker or bulker if there’s any chance your vessel won’t meet regulations or be allowed to sail. And that’s why, as we wrote last Wednesday, shipping companies aren’t buying new ships right now. If shipping companies don’t buy ships, what do they do with their income? They give it to shareholders, and they pay back debt. (And they stop borrowing money.) Also, the market tightens because there aren’t as many ships in service. Rates go up. And they stay up. Ships become more profitable. In short, any time shippers cannot build ships is a great time to be a shareholder in shipping companies. This is what Hamish Norton is referring to with his quote above. And it’s why I’m so fascinated in oil tankers as cash flow investments right now... – Tom Dyson P.S. If you’re not a paid-up Tom’s Portfolio subscriber yet, find out how to get access to my full list of oil tanker stocks right here. P.P.S. The environmental movement is going to cause huge changes to the energy business in America and Europe over the next 10 years. I’m not sure how well investors understand this yet. The shipping industry is just one example. Refineries, pipelines, wind farms, nuclear power… they’ll all be affected. Like what you’re reading? Send your thoughts to feedback@rogueeconomics.com. FROM THE MAILBAG In a late October postcard, Tom shared a Milton Friedman resource that he and Kate are using in their Libertarian school in the mountains. A reader urges caution around Friedman’s theories… Reader comment: Your P.P.S. about Friedman’s series was interesting to me. I have one reservation about Friedman’s view, and that is the problem of externalities. Free markets only work to the extent that the problem of passing costs off on others is avoided. If I pollute the air and you have no other choice but to breathe air, then I’ve passed costs off to you. If my work puts microplastics in the ocean, which reduces the ocean’s ability to function as the lungs of the world, then under the free enterprise system, without some other mechanism, I’m able to transfer my costs to you without penalty. If I do something that poisons a lake for the next 1,000 years, again, I have appropriated value without compensation. The problem is equally evident, even if the damage doesn’t show up for years. The current property rights in countries that share a heritage of British Common Law are structured so that we can do what we want, as long as we compensate those who can prove we’ve hurt them through our activities. We have to prove the hurt after it happens. We can’t, under today’s laws, say “stop” on the presumption that something will cause harm in the future. Compounding the problem, when the costs are very small to each individual, it’s not worth our while, as individuals, to pursue compensation. That gives the person imposing the externality a huge advantage – they essentially get a “bye.” If we can’t address this problem by rejigging property rights, then we’re forced back to regulations. And to my mind, that’s the role of government – to set the boundaries of the sandbox of economic activity using the best knowledge available. It is to ensure a fair playing field. Of course, that becomes political very quickly. The current players have lots of incentive to “tilt the table,” and they get disproportionally more benefit from the tilting, compared to the dispersed harm done. Not an easy problem. So please, as you show your kids Friedman’s stuff, also challenge them to think about the externality problem. Here is a simple example that you can use. Who gets to use the lake – swimmers or power-boaters? In a truly libertarian world with no rules, what is the final result of swimmers and power boaters? Private lakes? But who can afford private lakes? And which group (power boaters or swimmers) are likely to be able to out-bid the other? Does equity count for anything? Thanks for reading this long note. It’s an important discussion with no easy answers. Meanwhile, the bitcoin conversation continues… Reader comment: I think bitcoin seems to many like a solution to current problems of mankind, but it doesn’t offer it. It creates the illusion of a better system, but in reality, it is a worse system than a gold standard – or even the current system. Even fiat money is backed by something. The backing of fiat is the work of the people as taxes have to be paid only in government money. Imagine a world where bitcoin really won and displaced all other money. Is it a better world? Would we not be very limited and restricted? The distribution of wealth would be extremely asymmetrical. Nobody wants to have bitcoin as it is. It has no use in itself. Even if you believe in crypto, generally, as money (which I don’t), bitcoin is probably one of the worst coins with huge energy requirements (!) and lack of scalability. But all bitcoin investors want other people to invest their hard-earned money in bitcoin so that they themselves get more of other people’s wealth without having to give anything in return. Investing in such a way can work well for a very long time and bring huge profits, as we can see from the bitcoin price. Due to the novelty of the phenomenon, and the difficulty of understanding the subject of money itself, it is very difficult to see through the illusions behind it. But to invest in this way is, under the condition that you are fully aware of it, deeply immoral. Even if gigantic profits attract, it is not good to wish that other people invest money in something that is ultimately worthless or bad for everyone. That is the case with bitcoin. I think it is different with gold than with bitcoin. Gold always has a value. It is incredibly beautiful (in many cultures it is even considered divine) and has many uses, not just as money. It is difficult for me to put all my thoughts about it in a short letter to the reader. Bitcoin now may make “the belly full” because many people buy into it, but in my feeling, it also makes the “heart empty” because it is antisocial. In this opinion, I am not alone. You surely know Charlie Munger. In his words, he says the same thing about bitcoin that I have also recognized for myself. Reader comment: A thought on bitcoin. Like you, I have doubts about the long-term value of bitcoin as a currency, and hence as a store of wealth. I agree with one of your correspondents, however, that lugging round sacks of gold is not a realistic prospect. One solution might be a very high-efficiency, low-energy consumption, cryptocurrency-tied 100% to audited physical gold, stored in vaults outside the banking system. Such crypto tokens have been created by various companies but what if the London Bullion Market Association (LBMA) created such a token backed by all LBMA members? They store and trade more physical gold than anyone else in the world. I think it would stabilize the value of goods relative to gold so people wouldn’t need to worry about inflation/deflation, although it would totally trash paper money if it was widely adopted. You could see other major gold markets joining the LBMA scheme if it started to become widely adopted. All the manipulation of the gold price relative to paper currency has been done through the non-audited gold certificates market and they would no longer have any value. Why buy a non-audited gold certificate, when you don’t know if there is any gold backing it at all, when you can trade audited physical gold directly using a crypto token? And finally, readers share their thoughts on trading and gold… Reader comment: Hi Tom, I’ve been trading for 25 years. One thing that has been keeping me from failure is that no matter what I sell (a stock at a 5% loss, for example), I can always get back in anytime if it turns more favorable. That way, I have a chance to re-evaluate my thinking, not run on hope or try to impose my will on the market. It’s tough to come back from a 25% or 50% loss. Hope it helps. Reader comment: Tom, enjoying the adventures and analysis, as usual. I saw a graphic that hammers home your point on our asymmetrical bet on gold. I’m moving to Japan in a couple weeks with our family of four, so we’ll enjoy an international adventure for the next few years. Hope you and your family can get back on your globe-trotting adventures soon as well. Aloha. Tom’s note: As always, thank you for your messages! Please keep sending in your questions to feedback@rogueeconomics.com and I’ll do my best to answer them in a future Friday mailbag edition. IN CASE YOU MISSED IT… Welcome to an empire of debt Our credit system is currently sitting at $68 trillion. It's the largest debt ceiling in the history of the world – in fact, it's more than twice the value of every single home in America put together. 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