How Saudi Aramco, world's largest oil company, became "Green"

Irony is my favorite kind of humor!  From Bloomberg:

The unlikely tie-up between Aramco and ESG began with the creation of two subsidiaries — the Aramco Oil Pipelines Company and the Aramco Gas Pipelines Company. Aramco sold 49% of the shares in each unit to consortiums led by EIG Global Energy Partners LLC and BlackRock Inc., respectively. These investors used bridge loans from banks to fund those transactions.

In order to generate cash to repay the bank loans, the EIG and BlackRock consortiums created two special purpose vehicles: EIG Pearl Holdings and GreenSaif Pipelines Bidco, both registered at the same Luxembourg address. These SPVs then sold bonds, which, since they had no direct links to the fossil-fuel industry, ended up getting an above-average score in a widely-used JPMorgan Chase & Co. sustainability screening based on third-party ESG scores.

From there, the bonds made their way into JPMorgan’s ESG indexes, which are cumulatively tracked by about $40 billion of assets under management. Investors in the SPV bonds include funds managed by UBS Group AG, Legal & General Investment Management and the investment arm of HSBC Holdings Plc.”

BOTTOM LINE: if you cannot measure it (ESG), you cannot control it.

What is a debt coverage ratio, and how does it affect apartment rents in Nashville ($1880)?

 From investopedia:

• The debt-service coverage ratio (DSCR) measures a business’s cash flow (Net Operating Income) divided by its debt payments, including principal and interest. 
• Lenders use a DSCR between 1.15 and 1.5 to determine whether to make a loan to a developer.

Here is an example, involving the cheapest loan available.

• A Nashville builder can build apartments for $167K/unit= $150K(construction) + $17K(land)
• FHA is willing to lend at $167K at 6% for 40-years, resulting in a debt payment of $986/month.  
• With FHA's DSCR of 1.15, the builder must make at least $1134/month in Net Operating Income (NOI) to qualify for a loan.  
• With 7% vacancy the expected NOI increases to $1213/month
• Add operating cost to NOI to get Rent=$667+$1213=$1880/month 

New apartment supply will enter the market when Nashville rents rise 20% to $1880.

HT:  Bill H.

Lobster Roll Strategy

FORBES:

He began with the fact that he could not get a decent lobster roll in Manhattan. Everything was off, Holden said. The price was too high, 30 dollars. The lobster meat was inferior with fillers, masks and diluters “to essentially hide the fact that the lobster meat wasn’t as high quality as it could be.”

Then there was the white table cloth service – ridiculous, and as far from the quintessential Maine lobster shack as you could get.

“I’m not a big fan of mayonaisse,” Holden added. “I really struggled to find a lobster roll in the city not drowning in mayonaisse.”

Here’s the recipe for a true Maine-style lobster roll: chilled meat, somewhere in the realm of a quarter-pound of fresh knuckle claw lobster meat; a New England top-split bun, which serves purely as a vessel for the super high-quality lobster meat.

Shave a little butter onto the sides of the bun, toast it golden brown, add a little mayo for texture, some secret seasoning and celery salt to accent the lobster, a little warm lemon butter to bring it all together. That’s all you need.

“That literally is the key to the program,” Holden said. “Once you start trying to do anything other than put your star of the show facing forward, you’re playing from behind. You have to lead with your best food forward. Lobster is the star of the show.”

...

The first day, Luke’s sold 500 lobster rolls. They were expecting to sell 100. Holden’s dad, Jeff, drove down more lobster meat from Maine overnight for the next day.

Then geographic expansion and vertical integration:

Ten years later, Luke’s is still in the East Village in its original location, but it also has 30 more locations in Maine, Boston, New York, Philadelphia, Washington, D.C., Chicago, Las Vegas, and Miami, plus 10 locations in Japan, and two locations in Taiwan.

Luke’s also has one of the largest lobster production facilities in the United States in Maine, where it manages the lobster for Whole Foods, among others. Luke’s Lobster Seafood Co. processes about 5 million pounds of lobster annually and 2 million pounds of Jonah crab.

HT: Giselle

Synthetic Diamond Disruption

Prices of synthetic diamonds have fallen dramatically.

About five years ago, lab grown gems sold at about a 20% discount to natural diamonds, but that has now blown out to around 80% as the retailers push them at increasingly lower prices and the cost of making them falls.

Synthetic gems have been around for decades, but it appears that their costs have recently fallen. The resulting price decreases have increased synthetic diamond demand considerably. This is causing the longtime incumbent monopoly on natural diamonds, De Beers, no small amount of pain.

In June 2022, De Beers was charging about $1,400 a carat for the select makeable diamonds. By July this year, that had dropped to about $850 a carat.

Will DeBeers become the most recent in a string of now defunct market leaders? We are used to seeing digital disruption of traditional retailers, e.g., Blockbuster Video, Borders Bookstores, and Encyclopedia Britannica. It is harder to find recent non-Internet related examples.

HT: Marginal Revolution

Should the Justice Dept be more concerned with Google's complaining competitors or their enthusiastic customers?

Judge Mehta:

A dominant firm like Google does not violate the law, however, merely because it occupies a monopoly market position. It must act in a manner that produces anticompetitive effects in the defined markets. [e.g., that harm consumers].

Mozilla CEO testifying on behalf of Google (page 109 of MSJ transcript):

...consumers are choosing Google. We’re making search easy for them, and we added choice in a product in a way that no one else had or even thought of. We’re making it easy. ...

In response, the Justice Dept. is trying to exclude testimony about Google's quality. They seem to miss the irony that this makes them seem as if they are more concerned with Google's complaining competitors than their enthusiastic customers.

UDPATE:  the judge ruled against the DOJ, in essence telling them they should be more concerned with what Google's customers are saying.

Dollar General strategy shifting, but not too much

 From WSJ:  

• 1000 new stores in rural areas, 
• Target demographic <$40,000 income/year, 
• Its workers earn about $16,000/year.
• Experimenting with upscale brands, DGX

Multi-family apts priced 10%-15% too high relative to bonds

 Using logic straight out of Chapter 9, the NYTimes suggests apartments are mis-priced:

Owning commercial property is a bit like owning a corporate bond, only slightly riskier: You bet on the solvency of a tenant, with more uncertainty about the value of the capital you’ll get back. For at least the past 20 years, investors in U.S. real estate have required a return premium of 1.9 percentage points over the yield on investment-grade corporate debt, according to Green Street’s director of research, Cedrik Lachance.

Right now, real estate only offers a 1.3 percentage point premium. For the relationship to return to normal and make property attractive again, U.S. real-estate prices need to fall a further 10% to 15%.

CAVEATS:  

• All real estate is local and this refers to National data.  
• If I really knew, I wouldn't be teaching school and I probably wouldn't tell you.  

Price Discrimination saves lives: Glaxo's AIDS drugs

Link to article:

Some 28 shipments [of low-priced AIDS drugs] were diverted from African countries to Paris and Brussels, then moved to Antwerp, where the customs officers noticed something was amiss. The drugs then moved into the normal wholesale chain and were sold at European prices - up to £3.80 a tablet instead of the 50p Glaxo charges in Africa.

If Glaxo cannot prevent this kind of arbitrage, they may move to a uniform price which would price much of Africa out of the market.

Regulations deter the movement of assets to higher valued uses: Germany

 Two examples from WSJ: Germany is losing its mojo:

German privacy laws made it impossible to run key studies for cancer cures, BioNTech’s co-founder Ugur Sahin said recently. German approvals processes for new treatments, which were accelerated during the pandemic, have reverted to their sluggish pace, he said.

Germany ought to be among the nations winning from advances in medical science, said Hans Georg Näder, chairman of Ottobock, a leading maker of high-tech artificial limbs. Instead, operating in Germany is getting evermore difficult thanks to new regulations, he said.

One recent law required all German manufacturers to vouch for the environment, legal and ethical credentials of every component’s supplier, requiring even smaller companies to perform due diligence on many foreign firms, often based overseas, such as in China. 

Näder said his company must now scrutinize thousands of business partners, from software developers to makers of tiny metal screws, to comply with regulation. Ottobock decided to open its latest factory in Bulgaria instead of Germany.

 

Why shale-oil drilling in the US, but not in Europe?

If you give people secure property rights, they have the incentive to move the property to its highest valued use:

'Whoever owns the soil, it's theirs up to Heaven and down to Hell." So goes the ancient common-law principle. Today, however, almost no major country recognizes full subsurface private property rights, except for the United States.