Daily Musings

Evening all,

Spent last week in San Francisco and learned a few things:

• You (maybe not you but I definitely) can get sunburned in November

• Deep Dish Pizza does, in fact, exist

• Modelo is allegedly the best-selling beer in the US. After extensive sampling (all in the name of science), I believe it true. And since this intel came from the ferry bartender—a person I trust implicitly—I’m taking it as fact

After a week away from the desk and fluorescent lights, I returned to save myself from further sunburn debacles and pick up where I left off. Back on home turf and musing away—today’s dispatch below.

Cheers,
Phil

Today’s Stories

Faber launches vintage No. 3 - Faber Tech III - at EUR 31m. Fund is anchored by EIF with contributions by the NATO Innovation Fund as well as Caixa Capital. Target size is EUR 60mm. Focus: deep tech ventures in pre-seed and seed stages, specifically Iberian/Southern European projects in applied science and digital transformation. Current portfolio includes Sword Health, Smartex, Mitiga, Luminate Medical, Unbabel, and Microharvest.

The US BNPL firm Affirm is taking it slow and steady expanding into the UK market. Here competition is stiff with Klarna, Zilch and PayPal already capturing significant market share. this is timely as the UK gov. is announcing new regulations that will see BNPL firms to have to carry out affordability checks on users before they sign up for the credit. Effective by 2026. If Affirm can navigate these requirements early on - as a first mover so to say - it might gain an edge over incumbents in the long run.

Bubble on Bubble. Bubble squared? Reminds of the CDO^2 notion that briefly floated structuring connoisseurs during the ‘07 frenzy. Today the notion relates to combining AI with private credit. Currently more than USD 11bn outstanding in credit for “neocloud” companies. Companies that provide computing power to AI tecchies. Examples are CoreWeave, Crusoe (which raised USD 500m this week led by Pether Thiel’s Founders Fund) and Lambda Labs. The lenders? The Wall Street gang: GS, JPM, MS as well as Blackstone, Carlyle and Magnetar. These loans are levered to the rim. USD 2,300mm financing in August 2023 for Coreweave on c. USD 25mm top line. The chips are also the collateral on some of these loans. Market participants are commenting:

• GPUs are a depreciating asset not appreciating

• NVIDIA is a monopoly with a list of clearly favoured partners. If you’re not on the party invite your loans risk souring

• Credit is often noted to reach bubble territory. Not to mention AI and its bubbliness. Double whammy to parlay my baseball lingo

Chart Art

The last day of presidential campaigns is underway in Pennsylvania. The race is tight and currently the FT is favouring Harris to win. Albeit Trump is pegged to win Ohio - historically the state that tended to earmark the winner of the presidential race. With the US election is around 48 hours away, with polls slightly favouring Harris, and the 10Y yield dropping. Markets view Trump as an inflationary pick, expecting a longer-term deficit increase under his potential administration.

Manfredi Caltagirone heads the International Methane Emissions Observatory (IMEO), using satellite data to pinpoint methane emissions and aid the c. 160 nations committed to cut methane pollution 30% by 2030. Since launching 2 years ago the informal police force earmarked 1,100 giant methane clouds escaping O&G facilities. Yet the verified and stopped releases can be counted on two hands. Tackling methane has been identified as a top priority in fighting climate change - still methane emissions from fossil fuels - including those emitted by coal mining - remain close to the record levels set in 2019. Stanford University’s Rob Jackson puts it simply: “There’s a huge disagreement between what companies say they’re emitting and what the scientific field thinks that they’re emitting”. Quick excurse on why methane reduction is essential. In the greenhouse gas arena, methane is the MVP. Trapping more heat than CO2. about 80x more on a 20 year time span. 28x times more on a 100 year time span (which is due to the atmospheric lifespan of CO2 being longer than methane)

AI spending frenzy continues at Big Tech players. And the drag on ROI continues. As Amazon is looking to bolster its data center and server expansion by USD 75bn this year, the fixed asset turnover for big tech spenders is continuously diminishing. And reaching levels not even seen in brick laden retailer businesses. Revenue as a multiple of holdings of property, computers, data centres and other chunky objects. Industry norms vary but still:

• Brick’n’Mortar: 2.5x

• Walmart: 5x

• Uber: 13x