Tuesday, June 11, 2024

Tuesday Night Links

  • You see way more stocks that are dramatically overvalued in your career than you will see stocks that are dramatically undervalued. I mean there — it’s the nature of securities markets to occasionally promote various things to the sky, so that securities will frequently sell for 5 or 10 times what they’re worth, and they will very, very seldom sell for 20 percent or 10 percent of what they’re worth. So, therefore, you see these much greater discrepancies between price and value on the overvaluation side. So you might think it’s easier to make money on short selling. And all I can say is, it hasn’t been for me. I don’t think it’s been for Charlie. It is a very, very tough business because of the fact that you face unlimited losses, and because of the fact that people that have overvalued stocks — very overvalued stocks — are frequently on some scale between promoter and crook. And that’s why they get there. And once there — And they also know how to use that very valuation to bootstrap value into the business, because if you have a stock that’s selling at 100 that’s worth 10, obviously it’s to your interest to go out and issue a whole lot of shares. And if you do that, when you get all through, the value can be 50. In fact, there’s a lot of chain letter-type stock promotions that are sort of based on the implicit assumption that the management will keep doing that. And if they do it once and build it to 50 by issuing a lot of shares at 100 when it’s worth 10, now the value is 50 and people say, “Well, these guys are so good at that. Let’s pay 200 for it or 300,” and then they could do it again and so on. [Warren Buffett]
  • “One side or the other is going to win,” Justice Alito told the woman, Lauren Windsor, at an exclusive gala at the Supreme Court. “There can be a way of working, a way of living together peacefully, but it’s difficult, you know, because there are differences on fundamental things that really can’t be compromised.” [NY Times]
  • Today, the FDA rescinded the MDOs issued in June 2022 to JUUL Labs, Inc. This action is being taken, in part, as a result of the new case law, as well as the FDA’s review of information provided by the applicant. Rescission of the MDOs is not an authorization or a denial and does not indicate whether the applications are likely to be authorized or denied. Rescission of the MDOs returns the applications to pending status, under substantive review by the FDA. The FDA's regulations significantly limit what the agency can disclose regarding the content of pending applications. [FDA]
  • They then review the geophysical and geochemical processes that take place in the mantle, the crust and the atmosphere and describe the redox states of minerals in the mantle and how the atmosphere on the surface is held at a more oxidized state by hydrogen escape. (This chapter is the most in-depth and best introduction to the field of geochemistry that I’ve ever read.) The reduced state of the mantle and the oxidized state of the atmosphere turns the Earth into a giant redox battery (which has precisely the right energy difference to run the organic reactions of life) with the barrier being the crust itself and hydrothermal vents acting to concentrate this diffuse redox energy to specific points on Earth. [Fermi's Envelope]
  • The software’s design and growing reach have raised questions among real estate and legal experts about whether RealPage has birthed a new kind of cartel that allows the nation’s largest landlords to indirectly coordinate pricing, potentially in violation of federal law. Experts say RealPage and its clients invite scrutiny from antitrust enforcers for several reasons, including their use of private data on what competitors charge in rent. [Pro Publica]
  • Jacobson held that mandatory vaccinations were rationally related to “preventing the spread” of smallpox. Jacobson, however, did not involve a claim in which the compelled vaccine was “designed to reduce symptoms in the infected vaccine recipient rather than to prevent transmission and infection.” The district court thus erred in holding that Jacobson extends beyond its public health rationale—government’s power to mandate prophylactic measures aimed at preventing the recipient from spreading disease to others—to also govern “forced medical treatment” for the recipient’s benefit. [United States Court of Appeals for the Ninth Circuit]
  • Nowadays, in rereading a Bond novel or one of Fleming’s brilliant short stories, I find the experience is more wistful—it is like taking a holiday to a far-off time where men were still men, women still women, and little green men from Mars still little green men from Mars; where the exhausts of the luxurious airplanes smelled strongly, one cigarette followed another, and every trip was an exotic adventure. Our cauterized and neutered era seems bland and gray in comparison. It really pays off, by the way, to read the books and stories if you haven’t. They are similar, but never the same as the movies based upon them. You will recognize the dashing Bond you already know, but will spend more time with him driving through England thinking more conservative thoughts than you would expect and fussing around in a prissy way about how his eggs are prepared. In the books you will be amused to learn that Bond harbors a particularly strong dislike for tea. [Eduard Habsburg-Lothringen]
  • There are three main techniques for making green steel. One of the most promising but early-stage from Electra and others uses electricity and chemistry during production. The other two substitute hydrogen for fossil fuels and trap emissions with carbon capture. These two methods have shown promise but still face significant cost and logistical challenges despite government subsidies.
    Electra’s technique for making clean iron begins by dissolving iron ore in an acid-based solution, a step that is similar to putting salt in water. The company runs electricity through the system to separate pure iron from impurities. Another electric current is then used to turn the iron into plates roughly the size of door frames. [WSJ]
  • The market tries, but just can't shake its Phillips Curve instincts, which is why any news that is considered to increase the likelihood of interest rates being "higher for longer" is deemed bad for the economy and bad for stocks, and vice versa. It's not surprising that this is so, since decades of experience have taught the market that recessions reliably follow periods of tight monetary policy. ("Tight" being defined, traditionally, as high and rising real interest rates, and a flat to inverted yield curve, and a strong currency. I've maintained for many years, however, that a better definition of tight money would include high and rising credit spreads.) What the market is missing is that the Fed in 2009 adopted an abundant reserve regime that changed everything. Higher interest rates since then have not equated to bad news for the economy because abundant reserves mean abundant liquidity, and that in turn is what keeps the economy on an even keel and credit spreads low. [Scott Grannis]
  • Last week, I had a drink with a Catholic priest friend who works with young people in custody. Inevitably, our talk turned to how radically unchurched they are – not badly disposed to Christianity, just unfamiliar with much of the doctrine and almost all the forms of worship, even though many had a Catholic granny or a non-practising parent. He mused over the startling speed of the secularisation of society. ‘Protestantism has collapsed,’ he said, and not in any triumphalist spirit. [The Spectator]
  • “Enforcement against illegal e-cigarettes is a multi-pronged issue that necessitates a multi-pronged response,” said Brian King, director of the FDA’s Center for Tobacco Products. “This ‘All Government’ approach – including the creation of this new Task Force – will bring the collective resources and experience of the federal government to bear on this pressing public health issue.” [Tobacco Reporter]

Tuesday, June 4, 2024

Tuesday Night Links

  • Measured by growing stock, the United States enjoyed its forest transition around 1950, and, measured by area, about 1990. The forest transition began around 1900, when states such as Connecticut had almost no forest, and now encompasses dozens of states. The thick green cover of New England, Pennsylvania, and New York today would be unrecognizable to Teddy Roosevelt, who knew them as wheat fields, pastures mown by sheep, and hillsides denuded by logging. The forest transition, like peak farmland, involves forces of both supply and demand. Foresters manage the supply better through smarter harvesting and replanting. Simply shifting from harvesting in cool slow-growing forests to warmer faster-growing ones can make a difference. A hectare of cool US forest adds about 3.6 cubic meters of wood per year, while a hectare of warm US forest adds 7.4. A shift in the US harvest between 1976 and 2001 from cool regions to the warm Southeast decreased logged area from 17.8 to 14.7 million hectares, a decrease of 3.1 million hectares, far more than either the 0.9 million hectares of Yellowstone Park or 1.3 million of Connecticut. [Jesse H. Ausubel]
  • In a cogent sense, I have spent, at this writing, about eighty-eight years preparing for Wordle. I work with words, I am paid by the word, I majored in English, and today I major in Wordle. On the remote chance that someone in the English-speaking world who is unfamiliar with Wordle ever happens upon this essay, I should explain that Wordle is a simple, straightforward online game. Each day, a five-letter word is hiding in the cloud, and you have six guesses to name it. On a grid five squares wide and six rows high, you enter your first guess. If your first guess is correct, it was something like a fifteen-thousand-to-one shot and feels like winning a lottery. Wordle responds to your first guess by filling in the background of each of your letters with one of three colors. The background turns charcoal gray if the letter is not part of the day’s secret word, yellow if the letter is in the word but not in that position, and green if the letter is right for the position it is in. [John McPhee]
  • When Bill was at Oxford, studying P.P.E. (Politics, Philosophy, and Economics) as a Rhodes Scholar, he not only played basketball for the university but also flew to Italy to play professionally for a Milanese meatpacker called Simmenthal. In his second Oxford year, he wrote to me asking that I go to Trenton and buy from the state government a book titled “New Jersey Civil Practice Laws and Rules.” I sent it to Oxford. Widely predicted to be a future governor of Missouri, Bill was weaving the first threads of a carpetbag. [John McPhee]
  • Altman has added to his startup stakes by drawing on a debt line from JPMorgan Chase, his longtime personal bank, allowing him to pour hundreds of millions of dollars more into private companies. Altman’s strategy, not previously reported, is rare among venture capitalists given the volatile nature of startup investing, where high percentages of young companies go bust. Taking on such personal levels of debt is a risky gamble. [WSJ
  • Each block on the diagonal of this graph represents a person, or a family, whose only “identity” in 2024 is this transient echo of their genes. All traces of their name, their birthplace, their life, hopes, dreams, loves, and losses are lost forever. In all probability, they lived and died in a community that didn’t produce any kind of written records. But with technology and math we can find the echo of their existence in the relatedness of a few hundred living descendants today. Even though I did this work in about 2019, I was reminded of it recently because of my work on the scroll prize and the question of how much of our lost past can be recovered with statistics and skill. Even though this sort of genetic analysis extends some limited genealogical knowledge about a century beyond paper records in NW Europe, it has its limitations. Every generation scrambles the data and cuts the signal by a factor of two. [Casey Handmer]
  • Mortality rates in the United States fell more rapidly during the late nineteenth and early twentieth centuries than in any other period in American history. This decline coincided with an epidemiological transition and the disappearance of a mortality "penalty" associated with living in urban areas. There is little empirical evidence and much unresolved debate about what caused these improvements, however. In this article, we report the causal influence of clean water technologies--filtration and chlorination--on mortality in major cities during the early twentieth century. Plausibly exogenous variation in the timing and location of technology adoption was used to identify these effects, and the validity of this identifying assumption is examined in detail. We found that clean water was responsible for nearly half the total mortality reduction in major cities, three quarters of the infant mortality reduction, and nearly two thirds of the child mortality reduction. [David M. Cutler and Grant Miller]
  • The access capitalist enjoys a number of advantages over his progenitor, the Washington lobbyist. For a start, he stands to become very rich, very quickly. The lawyer-lobbyist merely rents his influence. The access capitalist effectively sells the present value of all his influence, in perpetuity, each time he makes a phone call. What’s more, the access capitalist can plausibly represent himself as a higher social type—a businessperson rather than an influence-peddler—which gives him an edge if he decides to return to politics. But perhaps best of all for those who have spent their lives in politics, the access capitalist doesn’t really need to know much about business. Wall Street has proved brutal to the many beginners, such as David Stockman and Larry Speakes, who have gone there to work from Washington. That true capitalism requires something more than connections is the source of Carlyle’s appeal: only a merchant bank that trades more on whom one knows rather than on what one knows can provide a real home for the access capitalist. [The New Republic]

Tuesday, May 28, 2024

Tuesday Night Links

  • Economic Growth Makes Physical Stuff Cheap and Time Precious [Byrne Hobart]
  • Our techno-capital machine is a thermodynamic mechanism that systematically hunts for and then maximally exploits the cheapest energy it can find. When it unlocks cheaper energy, first coal, then oil, then gas, and now solar, it drives up the rate of economic growth, due to an expanded spread between energy cost and application value. [Casey Handmer]
  • For those based in the vice-regal capital of Mexico City, everywhere else were the "provinces." Even in the modern era, "Mexico" for many refers solely to Mexico City, with the pejorative view of anywhere but the capital is a hopeless backwater. "Fuera de MĂ©xico, todo es Cuauhtitlán" ("outside of Mexico City, it's all Podunk"). [wiki]
  • For many years, I felt that my slow reading was holding me back. I would be wiser, I would be smarter, I told myself, if I could just read faster. I often keep going back over the same sentences again and again, trying to decipher their inner meaning. This slows me down to a tortoise’s pace—and it’s frustrating. But now I believe slowness was a benefit. My learning was deeper and more mind-expanding because I didn’t rush it. By the way, I did the same thing when I learned jazz piano. I spent months learning things that could have been mastered in days. But by the time I was done, I had internalized my learning at a deep level. Life is not a race. The journey is its own reward. If we could make the trip instantaneously—like they do with those teleporters in Star Trek—it wouldn’t be worth anything. [Ted Gioia]
  • I’ve always had too much reverence for books, and want to keep them pristine. But to get the full benefit of reading, I have to mark them up. I need to underline key passages. I have to add comments in the margins. Sometimes I even insert post-its or cut out reviews of the book from the newspaper and fold them into the pages. The very process of doing this makes me a more attentive reader. As I read, I am constantly on the lookout for key passages or larger connections or surprising statements. But the greater benefit happens later—when I return to that book months or years after I read it. Now my markings allow me to re-experience all my initial impressions. [Ted Gioia]
  • Here’s the conventional wisdom when I was a teenager: The biggest global threat of my lifetime would be the Soviet Union: Everybody absolutely knew this was true—they didn’t even argue about it. The US-Soviet conflict was in the news every day, and served as the undercurrent of virtually every political discussion. In all fairness, there were some serious thinkers who didn’t see the USSR as a threat (more of an opportunity), but even they believed that the very existence of the Soviet Union was the most inescapable and irrefutable political fact of modern life. For those true believers, it was just a matter of time before we all followed in its footsteps—Marx had actually proven that scientifically, they claimed. So I’m not exaggerating when I say that the entire public discourse of the day was driven by the US-Soviet conflict, which would loom over our entire lifetime. [Ted Gioia]
  • In one incident, when our Peruvian nanny was applying for a green card, I was helping her. She had a form to fill out at the immigration office. She had no trouble checking Hispanic as opposed to non-Hispanic, but then it asked for race. And she goes, “What do I put down?” She said she’s mestiza, mixed Spanish and Indian, but of course there’s no mestiza category on American forms, even though that’s a very common identity in Latin America. Now, you might say, “Well, she’s part Indian. Can’t she put down that she’s Native American or Indian?” No; because of lobbying from American Indian groups who don’t want to share the resources of the Bureau of Indian Affairs, American Indians or Native Americans are defined as being of Canadian or U.S. tribal origin. Latin American Indians don’t count. One reason these classifications are so crude and arbitrary is that no one thought too much about them at the time they were made, in the 1970s. If you go back to 1970, the last census year before Directive 15 came into being, the United States still had a largely black-white binary population. About 12 or 13 percent of the population was African American. Over 80 percent was non-Hispanic white, and the 5 percent of the population that was Hispanic (although it wasn’t called that then) was generally classified as also white. Basically, you had a large majority of whites, a significant minority of blacks, and then you had less than 1 percent of the population identified as Native American or Asian. So no one was paying much attention to those categories. [Cato's Letter]
  • The third thing that I think is important about this book is the celebration of what are, in some sense, the greatest forces that have pushed human well-being forward: a combination of technological and scientific inquiry, decentralization and economies of information made possible by markets. It’s an extraordinary truth that I always stress in teaching students economics. There is not a single person anywhere on the planet who, in an entirely self-sufficient way from their own knowledge, could create a ballpoint pen—the ink, the liner, the tip, the packaging, everything with all the inputs to those things. And yet we go into stores without the slightest doubt that we will be able to obtain a ballpoint pen at negligible cost. That idea that things can happen and progress can be made without central direction and without a central plan is a crucial lesson. It is perhaps the most important lesson in a different way from evolutionary biology, and it is the most important lesson that comes out of a contemplation of the market economy. [Cato's Letter]
  • Beginning in the mid-1800s, there began to be a break in the orthodoxy of the more educated, higher-class churches and the more backwoods-type churches. The city-based, mainline Protestant churches began to question key parts of historical faith, including the resurrection, miracles, the afterlife, and biblical accuracy. The backwoods churches responded to this by organizing the fundamentalist movement to restore the fundamentals of the faith. One result of this divide was the loss of intellectual leadership the high churches had provided historically to restrain the backwoods churches from their own worst tendencies. The Roman Catholic Church, in criticizing the Reformation, had charged that the Protestants were trading one pope for a thousand little popes. I think the Catholics were right that it was naive historically to expect that people could responsibly interpret the Bible for themselves. They would tend to gather around charismatic, largely unaccountable Bible teachers who would do it for them, instead of an institutional church to keep everyone on the same page. [The Tom File]

Friday, May 24, 2024

Electrification Bottleneck: Transformers

  • The heart of the transformer is the core coil assembly. So, it's the piece that takes the high voltage and it converts it to a lower voltage. So, you have a coil winding that's slowly bleeding off the energy. I guess, that's the best way that I would describe it. And then, you have an electrical steel core that surrounds that coil, to help generate the drop in voltage. It's a very specialized steel. And in the United States, there's literally one manufacturer that makes grain-oriented steel, and that's Cleveland-Cliffs. And their plant is essentially operating at a hundred percent capacity, it's at a hundred percent output. And so, the ability to get more grain-oriented steel into the transformer market is challenged. Now, there's foreign sources of steel as well, and I know a lot of my competitors are using foreign sources of steel. It cost for that one up, right? There was tariffs put in place in order to, I don't know, protect the market. I don't know why the tariffs were put in place, but there are foreign sources of steel. And then, of course, there's an alternate material that is becoming talked about a lot more in the industry, and that's amorphous steel. And again, similar to grain-oriented, only one manufacturer of that in the United States. So, it's a pretty risky supply chain when it comes to the inner workings of a transformer. [link]
  • The NREL team is the first to quantify the number, capacity, age, and use of the nation’s current transformer stock. This was no small feat, as the nation’s transformers are owned by over 3,000 municipal, cooperative, and investor-owned utilities. About 20% of transformer capacity is privately owned by large commercial and industrial customers, according to the report authors. The study found that utilities are experiencing extended lead times for transformers of up to two years (a fourfold increase on pre-2022 lead times) and reporting price increases by as much as four to nine times in the past 3 years. According to the researchers, the increased demand is due to increased electrification, increased clean energy going to the grid as well as an aging electric infrastructure that needs replacement. Preliminary analysis estimates that overall stock capacity needs to grow 160% to 260% by 2050, compared to 2021 levels to meet increasing energy demands across residential, commercial, industrial and transportation sectors. [link]
  • Given that it can take decades for transformer manufacturers to break even, many are reluctant to make the investments required to expand production. The same manufacturers that acquired the technology and financial capital in the 1980s, are enjoying full production slots and higher margins because of increased global demand. In turn, this limits their motivation to expand and risk financial instability. [link]
  • Prolec GE, a subsidiary of the U.S. manufacturer's joint venture with Mexico-based Xignux, said in mid-December it will spend $85 million in a new factory in Monterrey, Mexico to meet North American demand for single phase pad-mount transformers. Construction is expected to begin this year with operation in 2025. The joint venture also announced this year an estimated $29-million expansion of a plant in Shreveport, La. to build more transformers for wind and solar energy projects that will be at full capacity by June. “I applaud Prolec GE for recognizing the business growth opportunity presented by the shift to cleaner fuel sources,” Louisiana Gov. John Bel Edwards (D) said. The expanded facility is located in the congressional district of House Speaker Mike Johnson (R-La.), who has been been a critic of added federal clean energy funding. There also is speculation that other leading global manufacturers such as Germany-based Siemens AG could ramp up U.S. transformer capacity. "There's never been a better time to invest in critical electrical infrastructure and green mobility to support the backbone of America's economy," said Roland Busch, Siemens president and CEO, in announcing new investment last year in U.S. battery plants, semiconductor facilities and electrical vehicle charging. [link]

Thursday, May 23, 2024

Thursday Night Links

  • Something there is that doesn’t love a wall, that sends the frozen-ground-swell under it, and spills the upper boulders in the sun; and makes gaps even two can pass abreast. The work of hunters is another thing: I have come after them and made repair where they have left not one stone on a stone, but they would have the rabbit out of hiding, to please the yelping dogs. The gaps I mean, no one has seen them made or heard them made, but at spring mending-time we find them there.
    [Robert Frost]
  • In 2007, I didn’t think there was much of a housing bubble. Maybe prices were a little too high, but I wasn’t panicking about it. Then 2008 and 2009 came, and everyone started saying, “Oh my goodness, there’s a housing bubble!” Our financial system almost fell apart, and I started signing on to the view that there had been a housing bubble. The way prices have evolved over the past ten years indicates that the original 2007 prices were not a bubble. So, I’ve swung back to my earlier view. There was some kind of strange collective panic in 2008 and 2009, but most of the prices have been validated or even exceeded. Back then, everyone said, “Oh, we built too many homes!” And today, everyone says, “Oh, we haven’t been building enough homes!” Not that many people have raised their hand and said, “Wait, both of these can’t be true.” Homes are pretty durable. Did we build too many homes outside of Orlando? Yes, we did. But for the most part, building more homes was the correct decision. The shadow banking system was the more fundamental reason for the global financial crisis. Hardly anyone understood it. When people woke up and realized that that system didn’t necessarily have all the proper safeguards – and it didn’t – they panicked. They didn’t have to panic, but they did, and things came close to falling apart. So, I changed my mind about that twice – maybe the third time is yet to come. [Tyler Cowen]
  • The Third Circuit held that each of the factors weighs in favor of a de novo standard of review. First, because demand futility is a pleading issue and the plaintiff’s allegations must be accepted as true, district courts are no better positioned than appellate courts to decide whether demand should be excused as futile. In fact, just like district courts, when appellate courts confront the dismissal of an action, the court reads the facts alleged in the complaint, assumes the truth of those facts, and decides whether those facts state a claim under the applicable legal standard. [Faegre Drinker
  • That uptick coincided with a steep drop in the number of Asian matriculants and tracks the subjective impressions of faculty who say that students have never been more poorly prepared. One professor said that a student in the operating room could not identify a major artery when asked, then berated the professor for putting her on the spot. Another said that students at the end of their clinical rotations don't know basic lab tests and, in some cases, are unable to present patients. "I don't know how some of these students are going to be junior doctors," the professor said. "Faculty are seeing a shocking decline in knowledge of medical students." And for those who've seen the competency crisis up close, double standards in admissions are a big part of the problem. "All the normal criteria for getting into medical school only apply to people of certain races," an admissions officer said. "For other people, those criteria are completely disregarded." Led by Lucero, who also serves as the vice chair for equity, diversity, and inclusion of UCLA's anesthesiology department, the admissions committee routinely gives black and Latino applicants a pass for subpar metrics, four people who served on it said, while whites and Asians need near perfect scores to even be considered. [link]
  • We use high-frequency interbank payments data to trace deposit flows in March 2023 and identify twenty-two banks that suffered a run—significantly more than the two that failed but fewer than the number that experienced large negative stock returns. The runs were driven by large (institutional) depositors, rather than many small (retail) depositors. While the runs were related to weak fundamentals, we find evidence for the importance of coordination because run banks were disproportionately publicly traded and many banks with similarly bad fundamentals did not suffer a run. Banks that survived a run did so by borrowing new funds and then raising deposit rates—not by selling liquid securities. [Federal Reserve Bank of New York]
  • Management offered another surprise by bringing forward the timing of its pivot to 100% free cash flow payout to shareholders. Formerly, it planned to pay out 75% of free cash flow when its year-end 2023 net debt balance fell by an additional C$1.5 billion. It now intends to distribute 100% of free cash flow when it reaches that point. Another positive change is that management now intends to favor share repurchases over dividends. Its goal is to maximize total returns, not only income or capital appreciation. As long as Suncor shares trade at a discount, it believes share repurchases remain the most effective way to increase value on a per-share basis. We agree. In the long term, income investors will also benefit from repurchases, as dividend payout potential increases on a per-share basis with a falling share count. Management’s official guidance calls for its debt target to be hit next year, but CEO Kruger hinted that the target could be achieved by year-end. This was yet another positive surprise on the call that caused Suncor's shares to trade higher. [HFI Research]
  • The ShotSpotter critique is emblematic of the RJA mentality. We are to believe that white neighborhoods are experiencing an epidemic of drive-by shootings and other crimes that the residents and the police ignore. If only ShotSpotter sensors were placed in white neighborhoods, they would pick up a proportional number of white shooters and white victims to match what is recorded in black and Hispanic neighborhoods. The belief that violent-crime rates are highest in minority communities is, according to RJA supporters, a function of over-policing, not of over-offending. But the bodies don’t lie. In 2021, blacks between the ages of 10 and 24 nationally died of gun homicide at nearly 25 times the rate of whites in that age cohort, according to the CDC. No one is hiding from the authorities the white corpses that would level that disparity. Black juveniles in New York, Chicago, Los Angeles, and Philadelphia were shot at 100 times the rate of white juveniles from March 2020 to December 2021. No one prevents white shooting victims from going to a hospital emergency room and getting counted in a city’s gun-violence data. [City Journal]
  • We find that what one buys can explain what type of payer they are, even after controlling for various socio-demographic variables and credit scores. For instance, buying cigarettes or energy drinks is associated with a higher likelihood of missing credit card payments or defaulting, while purchasing fresh milk or vinegar dressings is linked to consistently paying credit card bills on time. Using item-level survey ratings, we find suggestive evidence that buying healthier but less convenient food items is predictive of responsible payment behaviors. Furthermore, we observe a positive and robust correlation between displaying greater consistency in various dimensions of grocery shopping behavior and making timely credit card bill payments. For example, cardholders who consistently pay their bills on time are more likely to shop on the same day of the week, spend similar amounts across months, and purchase the same brands and product categories. [Using Grocery Data for Credit Decisions
  • Why does it cost so much to build a home? We formalize and evaluate the hypothesis that land-use regulation reduces the average size of home builders, which limits their ability to reap returns from scale and their incentives to invest in technology. Our model distinguishes between regulation of entry, which acts as a fixed cost and increases equilibrium firm size, and project-level regulation, which reduces project and firm size. If larger firms have stronger incentives to invest in technology, then such investment partially offsets the harm that regulation of entry does to consumers, but reduced investment exacerbates the negative impacts of project-level regulation. We document that the US has higher production costs than comparably wealthy countries, and that these costs are higher in more regulated American cities. Homes built per construction worker remained stagnant between 1900 and 1940, boomed after World War II, and then plummeted after 1970 just as land-use regulations soared. Residential construction firms are small, relative to other industries like manufacturing, and smaller firms are less productive. More regulated metropolitan areas have smaller and less productive firms. Under the assumption that one half of the link between size and productivity is causal, America’s residential construction firms would be 91% percent more productive if their size distribution matched that of manufacturing. [Why Has Construction Productivity Stagnated?]
  • Until Argentina’s fiscal problems are solved, peso inflation must continue, if only to service the national debt. In fact, to the extent currency holders can shift into dollar holdings more easily, inflation may even accelerate. The base of peso holdings to be taxed by inflationary seigniorage would grow ever narrower, necessitating an ever-higher inflation tax to keep the government in business. [Tyler Cowen]

Tuesday, May 21, 2024

Tuesday Night Links

  • The reason to be bullish gas pipeline cos is not AI. The reason to be bullish is that the 2025-6 wave of LNG will basically max out remaining spare & last mile capacity from existing pipes and current regulatory system makes greenfield interstate pipes very difficult. They will be collecting max rate for a decade, and most will get to reset max rates a bunch higher in their next rate case to catch up to general inflation. [Dirty Texas Hedge]
  • Devon Eriksen recently pointed out that today's Marxists are hostile to space flight and off-world colonization. But in Cold War times, Marxists who ran countries were aggressively futuristic about space, treating it as the empire of their dreams. What caused this turnaround? To understand this, it's helpful that to notice that spaceflight is not the only technology about which Marxist attitudes have done a 180. Nuclear power is another. More generally, where Marxists used to be pro-growth and celebrate industrialization and material progress, they're now loudly for degrowth and renunciation. But the history of western Marxism is more interesting than that. Western Marxists flipped to strident anti-futurism in the late 1960s and early 1970s while futurist propaganda in the  Communist bloc did not end until its post-1989 collapse. That 20-year-long disjunct was particularly strong about  nuclear power, with the Soviets providing ideological support and funding to the foundation of European Green parties and the US's anti-nuclear-power movement at the same time as they were pouring resources into nuclearizing their own power grid. And that's your clue. Domestic Marxism  favored making power cheap and abundant, while their Western proxies pushed to keep it expensive and scarce and preached degrowth rather than expansion. Futurism vs. anti-futurism: why? [Eric S Raymond]
  • On October 17, the Ethics and Public Policy Center filed an amicus brief in the Fourth Circuit Court of Appeals in Mahmoud v. Montgomery County (MD) Board of Education. This case was brought by parents of children enrolled in Montgomery County Public Schools after the School Board denied parents’ request to opt their children out of the Board’s new sexuality and gender curriculum. The brief, co-authored by EPPC fellows Eric Kniffin and Mary Rice Hasson, argues that the district court improperly downplayed the conflict between the curriculum and their religious exercise. It shows that the curriculum does more than teach “diversity” and “inclusion”: it advances gender ideology. Drawing on the work of EPPC’s Person & Identity Project, the brief shows that gender ideology is fundamentally incompatible with Christian anthropology and Catholic teaching. [EPPC]
  • Industrialisation leads to relaxed selection and thus the accumulation of fitness-damaging genetic mutations. We argue that religion is a selected trait that would be highly sensitive to mutational load. We further argue that a specific form of religiousness was selected for in complex societies up until industrialisation based around the collective worship of moral gods. With the relaxation of selection, we predict the degeneration of this form of religion and diverse deviations from it. These deviations, however, would correlate with the same indicators because they would all be underpinned by mutational load. We test this hypothesis using two very different deviations: atheism and paranormal belief. We examine associations between these deviations and four indicators of mutational load: (1) poor general health, (2) autism, (3) fluctuating asymmetry, and (4) left-handed-ness. A systematic literature review combined with primary research on handedness demonstrates that atheism and/or paranormal belief is associated with all of these indicators of high mutational load. [Edward Dutton]
  • It is a concern that the miners are expanding met coal production even while the commodity price has been weak and their own shares have been "cheap". Warrior's new Blue Creek mine is expected to produce 5 million tons per year and Peabody's North Goonyella / Centurion mine is supposed to produce 3 million tons per year. To put that in perspective, 8 million tons of new capacity is about equal to what Warrior produces in total now. It seems like a possible "base case" is that the miners' predictable over-investment in capacity will result in the commodity price trending towards marginal cost. The miners will be able to earn a profit margin during times of strong steel demand, but we are not really seeing anything that would show us that mining has become a good business or that the executives recognize that they are not in a good business. [CBS]
  • At current (January 2023) coking coal prices of about $190 a tonne, both hydrogen and MOE production routes will be probably become cheaper than the conventional blast furnace approach within a few years. (I’m assuming $40 a MWh for renewable electricity for use in either alternative process). Moreover, a carbon tax/border adjustment of $100/€100 a tonne will make coal-based steel entirely uneconomic against both hydrogen and MOE. [Carbon Commentary]
  • In the MOE cell, an inert anode is immersed in an electrolyte containing iron ore, and then it’s electrified. When the cell heats to 1600°C, the electrons split the bonds in the iron oxide in the ore, producing pure liquid metal. No carbon dioxide or other harmful byproducts are generated, just oxygen. Furthermore, MOE does not require process water, hazardous chemicals or precious-metal catalysts. The result is a clean, high purity liquid metal that can be sent directly to ladle metallurgy — no reheating required. [Boston Metal]

Thursday, May 16, 2024

Other Earnings Notes (Q1 2024)

[Previously regarding Lamar Advertising, Intercontinental Exchange, Marriott International, Royal Gold, and Sprouts Farmers Market.]

Lamar Advertising
The market capitalization of LAMR at $122 per share is $12.5 billion and the enterprise value is $16.8 billion. During the first quarter of 2024 (release), the company reported net income plus depreciation and amortization of $154 million, up 3% from $149 million a year earlier. The quarter's NI+D yield on the market capitalization annualizes to 4.9%. Revenue for the quarter was $498 million, which was up 5.7% from the prior year quarter.

Intercontinental Exchange
For the first quarter of 2024 (release), ICE earned $877 billion of adjusted free cash flow on $2.3 billion of total revenue (less transaction-based expenses) for a royalty-like 38% free cash flow margin. Revenue (less TBEs) was up 21% from the prior year and adjusted FCF was up 30%. (The diluted share count is up 2.5% y/y.) The current market capitalization of ICE is $79 billion and the enterprise value is around $100 billion, so at a 3.5% free cash flow yield on the enterprise value it is not super cheap. We like ICE's M&A goals: "deepen moats, gain intellectual property, increase customer wallet-share".

Marriott International
For the first quarter of 2024 (release), MAR earned $1.09 billion of adjusted EBITDA (less SBC) on $1.5 billion of total revenue (excluding cost reimbursements) for a royalty-like 71% margin. Revenue (excluding reimbursements) was up 5.2% from the prior year and adjusted EBITDA (less SBC) was up 2.6%. The current market capitalization of MAR is $67 billion and the enterprise value is around $80 billion. The adjusted EBITDA (less SBC) annualized yield on the enterprise value is 5.5%. The diluted share count was down 6.2% year-over-year. Despite being a $67 billion market capitalization company, Marriott spent only $109 million on capital expenditures in the first quarter. The company spent $1.1 billion on share repurchases and $151 million on dividends, for a shareholder yield of 7.7%.

Royal Gold
Reported results: Royal Gold's net income plus depreciation was $86 million for the first quarter of 2024 versus $110 million the prior year. The company spent $100 million on debt repayment and $26 million on dividends. Net liabilities are down to $55 million. The market capitalization is $8.45 million so the enterprise value is $8.5 billion. The NI+D yield on the market capitalization is 4.1% (annualized).

Sprouts Farmers Market
We wrote about Sprouts back in October 2023. At that point, the market capitalization was $4.3 billion and the enterprise value was $5.8 billion. Shares have been on a tear and the market capitalization is now $7.7 billion at $77 per share (+79% since we wrote about it.). 

The enterprise value is $7.7 billion if you ignore the non-current $1.4 billion of operating lease liability, since the landlords finance their stores and they have no net financial debt (see 10-Q). They generated $213 million of cash from operations less stock-based compensation in the first quarter, and spent $51 million on capital expenditures, for $162 million of FCF. (A 8.4% annualized yield on the EV, or 7.1% if you capitalize the store leases into EV.) They bought back $60 million of stock and built the cash balance by $110 million. (The cash build was because of restrictions on being able to buy back shares.) Share count is down 2.7% year over year. They earned $1.12 per share so P/E is 17x. Sprouts is a growth monster at a reasonable price. They opened 7 stores in Q1, bringing total to 414 in 23 states.