Happy February. Kept it sort of short- running behind on a million things and hoping I can get home before I get stuck. The Ruff Wagon may have AWD but the tires are definitely bald.

By Charles Ruff, CFA

Cobalt Mining: A Short Summary of the ESG Conundrum


A well-written light-read on an Idaho cobalt mine that got me thinking.

Cobalt is currently a critical element for EV batteries. This means that these “green” supply chains must run through places like the Democratic Republic of the Congo where human rights and labor standards are nonexistent. Fortunately, innovations mean that companies can reduce or eliminate their need for cobalt. But behind cobalt are other elements and minerals critical to green technologies.

Mine production is growing in more responsible places (like Idaho) where environmental remediation and workplace safety standards actually exist. This is a good thing. But this also means that costs will rise in terms of both money and time: environmental precautions and remediation, legal settlements, regulatory approvals, etc.

But this also helps show why I dislike the current line-up of ESG-oriented strategies so much. In today’s world, a child, working in a muddy pit with no protective equipment, extracts a material. The material is shipped across the world on a ship burning high-sulfur fuel oil (HSFO) to China where it is refined and eventually manufactured. Eventually, the rock the child dug out ends up as a component in an EV battery. Investors rush to buy the EV maker for the perceived environmental flavor.

Far-flung supply chains are nothing new. We’ve covered these in our quarterly outlooks. But is this truly investing with Environmental, Social, and Governance issues in mind? There simply is not adequate transparency to carry out ESG standards. Making matters worse, deficient disclosures create a sense of misplaced certitude. From page 28 of Tesla’s 10-K…

Tesla Mining Report

Overview on the Ukraine Situation

Constraints and Prefrences of the Ukraine Saga

Alpine Macro is a group of former BCA macro analysts. They’re offering a free-trial right now- check it out.

Marco Papic is also the author of Geopolitical Alpha which is the best geopolitical book I’ve ever read so far.

Russia & Ukraine is the second-hottest geopolitical theater right now (after China & Taiwan, of course). Understanding the moving pieces in Russia & Ukraine is important for handicapping a major geopolitical risk. This webcast will bring you from 0-60 on what’s happening.

He walks through 5 constraints that are impacting Russia:

  1. Demographics. The Russian-speaking Ukrainians are not necessarily strongly in favor of Moscow. Additionally, the demographics that will do the fighting are more pro-Ukraine. Any insurgency against an invading Russian army will be serious.
  2. Politics- Moscow made a mistake by annexing Crimea and supporting rebellions in Donetsk and Luhansk which were the most pro-Russian parts of Ukraine. This allows Ukrainian politics to shift away from Russia.

    Could the massing Russian troops just be there to signal to try to instill confidence into the Russian-speaking Ukrainians?
  3. Geography- Ukraine is a massive country. Keeping supply lines open would be extremely difficult for Russia
  4. Russia’s military is probably not as strong as it appears.
  5. A response from the US and EU would be devastating to Russia.

In total, these constraints strongly suggest that a full, open war is highly unlikely.

Marco also breaks down five scenarios and assigns probabilities (43:55) the most likely of which is that this is a bluff.

Please take the time to go through this carefully. A unique perspective and very well presented.

Inflation, Courtesy of the Internets

Inflation Joke

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