Monday, July 15, 2019

July 15th Links

  • We are often asked, "what protection does cash give investors against inflation?" Most people assume the question relates to consumer price inflation (CPI), for which the year-over-year average over the last five years has been 1.3%. The answer is, barely. The average yield on the 5-year U.S. Treasury note has been 1.4%, before taxes. The irony is that the well-to-do investor's well-being would not be threatened by consumer price inflation rates two or three times the current level. Compared to most of the population, he or she spends only a modest portion of income or wealth on consumables, while expending a far greater portion on asset purchases, the prices of which have inflated dramatically in recent years. Nothing will destroy the wealth of the wealthy as fast as deflation in financial and real assets. Only cash protects against that risk. Interestingly, we rarely get the question, "how do I protect my portfolio against asset price deflation?" Ironically, CPI deflation will precipitate or accompany asset price deflation. Cash, the all-purpose hedge, ends up being the perfect asset in both scenarios. Of course, most investors think they are not getting their money's worth when they see their investment manager holding large amounts of cash. Some "enterprising" investors may gradually realize instead that they are paying someone who has demonstrated the necessary expertise to buy cash as a call option when it is utterly out-of-favor and thus compellingly cheap, despite the agonizing wait for bargains to appear. Such careful thought and deliberate inaction may chip away at the foundation of the institutional imperative that only sees value creation where there is activity. Enlightened passivity is expected of philosophers, not investment managers. [Frank K. Martin]
  • The main thing to comprehend about China is scale. There are easily ~350M (i.e., population of US) people here living roughly first world lives: with access to education, good jobs, climate controlled apartment in major city, good public transportation, fast internet access, etc. Probably the number is twice as large depending on how one defines the category. For one thing, this means that the supply of engineers, technologists, lab scientists, project managers, entrepreneurs, etc. is very large. There are certainly poor people who lack opportunity, but the size of the population for which the education and economic system are working reasonably well is very large. Possibly a billion people out of ~1.4B. [Hsu]
  • The news that a globalized cabal of billionaires and politicians and journalists and Hollywood bigwigs might be flying around the world raping teenaged girls will not surprise them in the least because it is what they have long suspected. For the rest of us it is like finding out that the Jersey Devil is real or turning on cable news and finding Anderson Cooper and his panel engaged in a matter-of-fact discussion of Elvis's residence among the Zixls on the 19th moon of Dazotera. [The Week]
  • Of course, once too many illegal immigrants' children show up in an urban school district, the white people tend to up and move. But a lot of minority parents don't want to send their kids to those schools, either, so they try to follow the whites to the 'burbs, which then turn into slums, too. Much of the Housing Bubble / Crash that set off the Great Recession, for example, was a result of minorities fleeing California's old barrios for new inland exurbs, whose home prices deflated once they turned into new barrios. There's no stable resting point in this system. It leads to a constant churning of the population across the landscape. (Needless to say, real estate developers, real estate agents, and mortgage brokers consider that a feature, not a bug.) [Sailer]
  • I favor the Texas Sailermander, not because I think it will solve anything, but because if we want an autonomous national homeland at some point it will be necessary for Red America to demonstrate an ability to impose on Blue America as much as the opposite has been demonstrated. [Blair Nathan]
  • It turns out that the previous Boeing CEO who made the decision to just "upgrade" the 737 was an MBA with no experience in aviation. (He has never had any type of pilot certificate!) He did have a career at GE, including in jet engines, but his first job was in "brand management" at Procter & Gamble. So what are the common elements at Boeing and the U.K. firms, which you would not find at German or Japanese owned firms? There seem to be two: company managers with no technical or scientific knowledge and weak, ignorant shareholders who also lack technical knowledge. [CBS]
  • My impression is that whatever woke craziness happens, expensive law firms like Baker McKenzie will still come out on top. If tomorrow there were a Khmer Rouge coup in Washington and the government began executing people who wear glasses, the big time law firms would just add free laser eye surgery to the employee benefit list and carry on unimpeded. [Sailer]
  • Everything happens faster these days. It took Christianity three hundred years to go from Christ to Constantine. It only took fifty for gay pride to go from the Stonewall riots to rainbow-colored gay bracelets urging you to support your local sheriff deparment. [SSC]
  • I had a friend whose father had 1,800 acres of tung-nut oils down in the Gulf, in Mississippi. You put tung-nut oil into the paint, it was the best marine paint in the world. And therefore the U.S. Navy specifications, for decades, required this big percentage of paint in all the Navy vessels to have to come from the tung nut. And so this family, with this very productive supply of tung-nut trees, and this absolute requirement that the Navy use tung-nut oil, the paint with the tung-nut oil in it, they flew back and forth in a private plane between the Cypress Point Country Club and their home, and they minted money. And then, suddenly, two things happened: No. 1, advanced chemistry got so they could make better artificial oil than the tung-nut tree could, and 2, all the trees died. I watched this family go from enormous prosperity to nothing. It is dangerous. Who would think of that? It wasn't just one thing that happened, it was two. They couldn't replant or anything, even if they were prepared to wait, because their whole advantage from having tung-nut oil, which was better, went away. [Munger]
  • The fact that an age-related clinical event developed in approximately 1 out of 3 healthy individuals in the upper tertile of insulin resistance at baseline, followed for an average of 6 yr, whereas no clinical events were observed in the most insulin-sensitive tertile, should serve as a strong stimulus to further efforts to define the role of insulin resistance in the genesis of age-related diseases. [NLM]

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