(Almost) Daily Musings

Evening all

Northvolt files for Chapter 11. Goldman is sent home packing with a USD 896m loss. Just months after convincing investors that the investment would be on track to beat the originally planned returns of 4.29x for a total of 6.0x MoIC.

So while some have unloaded their batteries I am off to bed to recharge mine.

Cheers
Philip

Today’s Stories

M&A

• Honeywell has agreed to divest its Personal Protective Equipment business to Protective Industrial Products for a hefty USD 1.325bn. In cash. Deal expected to close in the first half of 2025. For some context: This is just a few days after Elliott - notorious friends of the break up - have entered Honeywell by building up a USD 5bn stake.

Economic Philosophy

• Mean reversion is prevalent everywhere. Morgan Housel and Oaktree’s Howard Marks recently discussed this in a different setting: Cyclicality. Every thing moves in cycles. periods of low volatility give rise to exuberance, higher risk taking and the consequential high volatility. Periods of low debt lower the cost of borrowing, fuelling credit gears and driving debt laden defaults to eventually lead to lower levels of market credit. Daniel Kahneman had famously noted the Sports illustrated Jinx: An Athlete whose picture appears on the cover of a magazine is doomed to perform poorly the next season. A reversion to the mean one might say. If the previous performance was substantially above par, then by very nature the average will rise and the bar to not be closer to the mean has just gotten closer to oneself. In statistics there is a thing colled autoregressivness. Unless we are dealing with a random walk (AR coefficient = 1) or an explosive process, we are dealing with an AR process with the coefficient less than 1. The function reverts to the mean. Illustratively the lines below showcase this

Now where philosophy of sorts comes in: I believe this principles applies to pretty much all facets of life and strikingly also to nature: Nile water levels between 622 AD and1284 AD actually exhibit just that - a reversion to the mean. Mind you the sample size of 662 years should be large enough to validate statistical significance.

Chart Art

Macro

• Apollos Chief Economist Thorsten Slok just pointed to the similarities in inflation trends. Brings the fabled saying to my mind: does history rhyme or repeat. For those believing it rhymes: 1972 was the election of Nixon, who influenced the FED to keep rates subdued and boost the economy. A story often cited in relation to the expectation of Trump attempting to act with more influence over the Fed. With the same levers at work it could indeed be a Playback of the 80s and 70s. Time will tell. And even if it does not rhyme but beatbox, one thing is sure: Yields seem to agree that inflation is to rise again.

AI

• A System of Agents Brings Service-as-Software to Life:
  “Almost all companies have budgets for employee salaries; fewer have budgets for software. AI that performs full job tasks can now be classified as a personnel cost, accessing far larger budgets traditionally reserved for staffing.”

  
  Seems only fitting that corporate employee cutting in Germany is surging. Thyssen Krupp Steel just announced to cut about 11,000 jobs until 2030. Top of iceberg illustration of the recently announced job cuts in Germany below.

  
  Putting the momentum int context: AI now accounts for 33% of US VC-backed investments in 2024 (up from 14% in 2020)