F1: Then vs Now

 I got into F1 back in the early 2000's during Schumacher's hey day. Ferrari's budget was astronomical, qualifying was an hour where any number of laps was permitted. There were two tire manufacturers to choose from. Cars weren't filled with gas for the entire race, so there was more strategy around fuel weight vs number of pit stops. If memory serves, there weren't limits on engine changes, gear box changes, or off season testing. 

Ferrari dominated so much and the fans got bored so F1 decided to through in a bunch of arbitrary rule changes. Qualifying divided in to three segments so the top guys have to run at least three times. All the DRS and KERS. Now cars are fuelled for the entire race and they have to use a certain number of tire compounds all from one manufacturer. Changing too many components has punitive damages now. And even after all of this, one team and driver has dominated winning 7 championships. 

Was it all for naught? Maybe. F1 is maybe cheaper to participate in, but what's the point of having Haas in the series? They have no chance of really adding to spectacle other than getting in shouting matching on the Netflix series. 

I guess I'm not a fan of rule changes solely for the sake of trying to make the racing more interesting. The NBA didn't change a bunch of rules when the Bulls were crushing everyone. The NFL hasn't followed suit with the Patriots' domination. And the NHL didn't do anything when the Red Wings were the definition of consistency. As far as I know, rugby didn't make any changes to try and hamper the All Blacks.

F1 engineers are so good that they can optimize right up to the rule right after it's been changed. Just look at BAR winning with Jenson Button. That's maybe the real issue: there's a very finite supply of very talented engineers and not every time has access. At this point F1 is quickly closing in on becoming a stock car league with fewer options around engines and chassis putting the onus on the driver's talent. Maybe it's a good thing, maybe not.

 

Talking Your Book #45

 Well of course more shots will offer protecting against omicron. Especially if it is pharma companies telling us this. Not a biased opinion at all. Everyone talks their book at all times. Remember that. Why are we listening to them at this point?

Everything Will Change

 Our friends will pass on, our families too. Our favourite spots will disappear. Leave your mark while you can. Or don't. And shut the fuck up and stop complaining.

Get Outside

 The best antidote for Covid is to get outside and not look a screen for an hour or two. It's a great way to forget the current state of the world.

Comfort Zone

 The longer we stay in our comfort zone, the smaller it gets.

Natural Gas Market

After hitting about $1.50 a month or so ago, the March/April spread is now around $0.17, signalling that winter in the Lower 48 is over and there's next to no chance of running out of gas before the summer injection season. This spread typically will not trade below -$0.10 and has the potential to explode back over $1.00 if any weather shows up or if a pipeline fails or if someone gets caught excessively short and cannot defend their position.

Interestingly, the end of March 2022 storage level was trading around 1,400 bcf when March/April was at $1.25 and is now closer to 1,500 bcf with March/April at $0.17. Easy to say in hindsight, but a 1,400 level to exit winter is probably safe to enter the injection season with and March/April was way overvalued. A 1,400 level is very tough to reconcile with March/April trading at very lofty levels. The only thing I can think of from a distribution of outcomes perspective is the levers gas would have to pull on in order to turn off demand to balance the market during the winter:

• Turn off Mexican exports at some price above $7
• Turn on fuel oil and diesel power generation along the eastern seaboard between $10 and $12
• Turn off LNG exports (60-90 days in advance, mind you) at prices over $30

As long as these leavers were on the table as substantial balancing mechanisms one could argue that March needed to price in some probability of having to do some heavy lifting. April would not rise as much because the weather is typically much more subdued and the market can balance at a much lower price.

Natural gas classically overreacts in both directions. And now, in early December it is throwing in the towel. This with European and Asian prices holding over $30 with well over 100 days remaining in the withdrawal season. I am a natural gas bear and so mentioning March/April as a potential buy for its potential convex payoff means I have overcome some degree of bearish AND gotten bullish.

Another bearish indicator: the April/October spread has moved into contango, now trading around -$0.11, April below October, signalling a loosening balance in the summer. And after trading around -$0.34 for the past couple of months, the October/January spread has widened out to -$0.40, slowly moving from an under fill situation to a more balanced end of summer inventory level. The width of this spread is indicative of running out of storage capacity at the end of summer, the wider it is, the higher the chance of of running into issues at the end of October.

Fun Markets

 Last week was very volatile and it was chalked up to the following: 

• Omicron
• The Fed removing the word 'transitory' from 'inflation'
• A potential increase in the speed of the tapering process
• Higher probability of rate hikes
• Lack of liquidity
• And correlations going to 1 as everyone who is (leveraged) long panic sells at the same time and buys USD and Treasuries

The part I do not get is how much of this is really new information? Maybe only the increase in the speed with which the Fed is going to stop buying bonds? We were already expecting rate hikes galore in 2022. 

Cleary market participants can't keep a position on to save their lives and roll out of it the moment it goes against them. I get the argument that index levels were elevated because of the liquidity being provided by the Fed and the chance of this disappearing would lead to a repricing.  But wasn't that priced in as well?

Hedge funds got throttled trying to make some returns before the end of year. 

Being In The Moment When It Is Uncomfortable

There seems to be a push to always move away from the uncomfortable. There's a pill, something to eat, something to buy, a place to go, a person to see. Anything to get out of the current spot. How can one get better at being on the edge? By sitting there and being in it. Nothing fancy. Just observe what it is like. How the body feels. What's tight. What's open. What's closed. The only way is to move towards and not away. 

 It may still feel uncomfortable but it will be begin to feel familiar. The fear will fade, replaced with acceptance. And the sense that everything will be ok no matter what. Also, if one is truly in the moment, there are no outstanding issues. Those only arise when the focus is pointed towards the past or the future. 

The rewards from this are a much more peaceful and serene backdrop for all life will inevitably throw at us.

Read This

It is not in the easiest format and I am posting it a little late, but it's worth a read nonetheless.

George Hincapie Documentary Preview

Finally...

The Tour De France for prisoners is well under way [NYT]

Not Many

The title sums up my recent posts. I have come across lots of interesting stuff lately, but for one reason or another, I have decided not to post about.

Zerohedge always has interesting posts as does Abnormal Returns. Zerohedge provides some of the best insight I have come across in recent memory. I am amazed at the volume of posts over there. Abnormal Returns collects a bunch of links that are varied enough to almost always have something interesting.

On the economy front, I think I am still bearish overall. With the stock market recovering, a lot of people thought we were out of the woods. I still think that we will need to see the job destruction slow down before we really start making any actual headway. I think the price of oil is too high and so is the price of natural gas. The CAD/USD FX rate overshot. I think the CAD should be in the 1.16-1.20 range. If it appreciates too much it hurts Canada's recovery because exports in USD will be relatively high.

On the cycling front, not a ton going on. The Dauphine just finished and the Tour of Switzerland is going on. Both are used as final tune ups for the Tour. I guess there is some unrest over at Astana. Contador views Armstrong and Levi as adversaries and Val Verde has said he would help Contador in a sort of Spanish solidarity thing.

But that could all be moot if Astana's money runs out. And that could happen today. Apparently, they need to have a sizable chunk of change in the banks as a deposit for the second half of the season, but if they do not, that could be all folks.

Almost

It was not quite what I was looking for, but Toni Colom tested positive (Katusha) for EPO in an out of competition test in April. I do not think he raced in the Giro, so this is not what I was thinking in my previous post.

Interestingly, news broke earlier this week that Katusha wanted its riders to sign an agreement that stipulated that they would pay 5 times their salary to the team if they tested positive. I wonder if Colom had signed yet, I wonder if it is retro-active.

Today also saw a statement from Bernard Kohl regarding his doping protocol from the past few years. I have to say that it is refreshing to see someone be so honest and forthright about this side of cycling. His nonchalant attitude is a bit worrisome, as are his accusations that everyone is on something, but who knows...maybe he is right.

I Am Waiting

The Giro D'Italia ended on Sunday. All in all it was a pretty exciting race: lots of attacking on the climbs, unusual stages, drama and weather all added to the mystique. The only thing missing was positive drug tests.

I'm not an expert in testing procedures, but I think roughly 6 riders get tested per day: the top 3 finishers of each stage and 3 random riders. So after 21 stages that is just over 120 tests. And no positives. Could it be that the guys taking drugs could not win a stage? Or is there another generation of drugs that are under the radar?

I have a hard time believing everyone in the professional peleton is clean. I wish that was not the case, but at least this sport is taking a hard line approach.

Tour De Felon

Apparently French prisoners are going to be participating in a bike tour of France to develop skills that will help them on the outside. Since it's probably the closest I'd ever get to riding in the real Tour, I may have to go to France, commit a crime and hope I get picked for the team.

I foresee no issues with this event. The prisoners will be on their best behaviour and will not try to ride away from the guards on bikes.

I think it is going to take them forever to make their way around France--the distance seems rather ambitious. I highly doubt the guards will get them on regimented doping programs, so be prepared for passed out prisoners scattered over the highways of France.

Giro D'Italia

Pretty interesting day in the Giro today. It was a crazy 60km TT with tons of turns and lots of elevation change. I think everyone I saw had clip-ons on some sort of road/TT hybrid. Menchov ended up winning the stage, which was quite surprising. His form looked crazy good and I don't think he had anything left when he got to the line. He left absolutely everything on the course.

Di Luca lost a bunch of time and is now out of the jersey in 2nd. He kinda bugs me, although I'm not really sure why. Levi had a good ride and is in 3rd.

The top 3 are separated by 40 seconds and then the next gap is 2 minutes. This should set up nicely for some attacks and breaks in the remaining mountain stages.

The plot thickens....

Cycling And Economic Crises

Looks like the problems affecting the Kazakh sponsored Astana cycling team have (sort of) made their way onto Bloomberg. No wonder the team hasn't been paid in a while: companies, some of which are partly owned by the government, are defaulting on their bond (principal and interest) payments.

The team is riding in the Giro D'Italia with the sponsor's logos faded out. The only ones that can be seen properly are the ones that have paid in full: Nike, Trek and maybe another one.

I hope they get some financing in place by the time the Tour De France rolls around. The team is looking decent now, and will be much fitter and motivated in July.

Ouch, That Hurt My Ego

I entered my first road race on the weekend and boy was it humbling. I had been training quite a bit over the winter, so I figured I'd be in decent shape.

But that was not the case.

Oh oh oh, that was not case.

I fell off the back of the group about 5 minutes after the race started and I could not get back on. I don't think I quite redlined it, but I probably should have. It would have been worth it to use up a couple match sticks to get back and recover a bit.

So me and a guy from another team took turn dragging each other around the course. It was a great introduction to racing.

I learned that it is so important to always be near the front, that way when the group surges around a corner you won't fall off.

Point taken: for the next race stay near the front at all costs.

Go Figure

On the eve of the Giro D'Italia, it looks as though Astana's sponsorship is about to fall through. A few days ago news broke that the Kazakh sponsors hadn't paid the team and weren't returning phone calls. No one saw this coming? Borat references aside, I doubt Kazakhstan has the best institutional framework to support following up with people/corporations who don't honour their contracts.

Now the rumour mill is churning out the possibility that Lance may secure backing from the US and possibly from himself. Isn't this the same guy who said that the Discovery Team ended because it was too hard to get new dollars into the sport because of the all doping? He thinks it's going to be easier now, given the current economic climate and the ongoing blood doping and regular doping investigations?

I'm not as confident. I think that the riders will pay their own way during the Giro and might even dawn the Mellow Johnny jerseys worn by Lance, Levi and Chris at the Tour of the Gila.

The Fed Is Propping Up The Economy

Very good read on ZeroHedge about how the Federal Reserve is basically responsible for the 'recovery' we've seen so far. If they were to pull out, everything would come crumbling down...