There’s a good reason why adventure movies feature imminent threats to the hero and his love interest’s lives by a clear and present physical enemy. For hundreds of thousands of years, humans died young from warfare, predation, or accident. We are evolutionarily well-equipped to conceive of and react to imminent physical threats like those posed by killer lions or Spectre, for instance.

We are evolutionarily ill-equipped to deal with more subtle threats that may take years to play out, such as congestive heart failure. This disease is relentless – essentially drowning the patient in their own bodily fluids slowly and surely over a decade or more. Treatment is not dependent upon defeating a lion or a psycho with a machine gun; instead it requires the patient to fundamentally change their way of living, especially by eating foods that are low in fat and high in fiber,  and by consistent, appropriate levels of exercise.

Most sufferers of congestive heart failure – such as my father, who passed away from the disease in 2013 – are incapable of effectively fighting the disease. They are incapable not because eating right is any more difficult than fighting a lion, but because they do not perceive that one helping of chicken fried steak and gravy when out with friends for a monthly get-together as an imminent threat.

When I was a lad, the imminent geopolitical threat was the Soviet Union. As the Iron Curtain came down, it became Columbian drug lords. After 9/11, it was al-Qaeda. Now, it is ISIS. The treasure expended to combat these imminent threats runs into the tens of trillions of dollars and hundreds of thousands of lives – both US and foreign.

All the time we were fighting those evolutionarily easy-to-conceive-of threats, we were slowly and silently being drowned in our own bodily fluids. Digging up sequestered carbon resources (coal, oil, natural gas), burning them for fuel, and coating our planet’s thin and fragile ribbon of atmosphere with the waste. This process – one that has been very well understood by science for 150 years or more – has slowly contributed to rising land and sea temperatures over the last century.

Those of you who are familiar with my work know how methodically I approach analysis and how skeptical I am of unfounded claims. Since around 2005, I have been reading academic papers and books related to climate science and have, as an untrained layperson, attempted to understand the work of scientists all over the world. I am convinced. Not because I believe in Anthropogenic Global Warming (AGW), but because I understand the structured, refereed process that represents the scientific method and trust that it works to advance human knowledge.

Over the past 10 years, there have been an explosion of excellent sites that explain the complexities of climate scientists to non-experts like me. My favorite is Skeptical Science. Our readers are encouraged to look through the arguments presented there and other reputable sites (Yale Environment 360, NASA Climate), call your US Representative (you have one) and your Senators (you have two) to voice your support for sensible government policies regarding carbon and other pollution. Also, the next time you need to drop off a video or pick up a book at the library, consider bicycling or walking. You may not feel as sexy or heroic as James Bond at the Baccarat table, but you will be making an heroic choice nonetheless.

Here is a curated list of important stories outside the main headlines that caught our attention this week.

Debt pile-up in US car market sparks subprime fear (Financial Times). While not as large of a loan market as housing, there are still roughly $1.2 trillion in auto loans outstanding in the US – a 70% rise from 2010’s nadir. There are various reasons why even a collapse of this market will not be as damaging as the housing market crash was, not the least of which is that the structured product market for auto loans is much less important to global investors than the market for US home loan derivatives were. That said, this article claims that many of the excesses in the home loan market in the mid-2000s seem to be being repeated in the auto loan market today. One anecdote that struck me was this: of 11 auto loans made by Santander – a prominent subprime lender – the borrower’s income as stated on the loan application was verified as correct, three borrowers’ incomes could not be verified, and the remaining seven were all overstated with a minimum overstatement of $45,324 a year. Add to these issues a suggestion that the market for used cars is oversupplied, and some listed used car dealerships and subprime auto lenders could be in for a world of hurt.

Once Costly Deep-Sea Oil Turns Cheap, to OPEC’s Dismay (Bloomberg). When we worked on our analysis and valuation of National Oilwell Varco NOV more than a year ago now, we assumed that if oil prices didn’t head back up toward $80 / barrel pretty quickly, deepwater drillers and the companies that serve them would be in deep trouble. This article suggests that our linear outcome projection was wrong – the market has adapted and has been able to cut the cost of deepwater production significantly. The article suggests that soon, even $50 / barrel (bbl) prices would be profitable for deepwater drilling. I expect that much of the cost-cutting has to do with overcapacity in the offshore equipment leasing space, but some may be due to changes in procedure and technology. Deepwater drilling boomed in the late 2000s in places like the Gulf of Mexico, offshore Brazil, and the Sakhalin Islands – each area bringing its own distinct environmental and engineering challenges. Solutions to these challenges can now be applied to other areas and other wells.

No matter the root cause, if deep offshore wells become profitable in the $50 / bbl range or below, this is bad news for Middle Eastern potentates and their national economies. OPEC is no longer the “swing producer” of oil so can no longer effectively manage supply. This related Bloomberg article looks at how alternative transportation technology and a general shift toward renewable energy might affect the demand side of the equation for oil as well.

Wilbur Ross and the sugar barons: How a Mexican trade deal got sticky(Financial Times). President Trump campaigned on his purported acumen in negotiations and the fact that he would bring hard-bargaining businessmen in to sweep up the detritus that politicians and bureaucrats had wrought through their inferior deal-making ability. Now, the bureaucratically-negotiated Trans-Pacific Partnership (from which President Trump withdrew the US on Day 1 of his administration) is reportedly emerging the administration’s model for a renegotiated NAFTA. If that is not confounding enough, even before NAFTA is renegotiated, a kerfuffle has re-arisen regarding Mexican imports of sugar into the US and which has a deadline for finalization by Monday, June 5. This negotiation, which US Secretary of Commerce, Wilber Ross, looked to for an easy, early win for himself and the Trump administration, threatens to become the first skirmish in what we believe may turn into a full-scale trade war with our southern neighbor.

According to this FT article, the US sugar industry has a very powerful, well-funded lobby and spends a good bit of money making sure politicians stay sweet. To make the politics more difficult, Jose Fanul, one of two Cuban-American sugar barons, contributes heavily to the Republican party and is a long-time personal friend of Ross. Suddenly, the negotiations are looking less like an easy win for Ross, and contentious sugar negotiations may bode ill for future NAFTA renegotiation as well.

What a Trump exit from the Paris deal means for the US (Financial Times). An excellent explanation of the mechanism of the Paris Accord and the likely impact of Trump’s withdrawal. Unsurprisingly, Trump based his decision to pull out of the agreement on faulty, biased, and unreliable data. The US’s abandonment of the climate deal will, in our opinion, hurt the economy of the US much more than the Trump administration claims it will help.


The world order America created is in peril (The Economist). In a hundred years, my great-grandchildren will be learning in school that US hegemony lasted for roughly 70 years and started to fall roughly at the same time of the fall of the Soviet state. US is the world’s pre-eminent military power – our spending on the military dwarfs that of our largest rivals. But anyone growing up during my lifetime has seen the limits of military power in places like Viet Nam, Iraq, Afghanistan, Syria, and Libya. The reason that the US held the role of post-War hegemon was certainly related to our ability to project military power overseas, but was also deeply intertwined with our support of economic cooperation between nations and liberal democratic social principles. As Secretary of Defense, James Mattis remarked, every dollar cut from the State Department is spent buying bullets for the Department of Defense. Get ready to buy more bullets (which, by the way, will likely be a tailwind for Vista Outdoors VSTO, a company we recently featured in a 5-Minute Valuation video).