Friday, January 22, 2021

Friday Night Links

  • Youyang Gu, whose projections have been among the most accurate, projects that the United States will have reached herd immunity by July, with about half of the immunity coming from vaccinations and half from infections. Long before we reach herd immunity, however, the infection and death rates will fall. Gu is projecting that by March infections will be half what they are now and by May about one-tenth the current rate. The drop will catch people by surprise just like the increase. We are not good at exponentials. The economy will boom in Q2 as infections decline. [Marginal Revolution]
  • We estimate COVID-19 herd immunity (>70% of population immune) will be reached in the US during summer 2021 (Jun-Aug 2021). At a high level, herd immunity is a concept in which a population can be protected from a virus if enough people possess immunity. At the time herd immunity is reached, roughly half of the immunity will be achieved through natural infection, and the other half will be achieved through vaccination. New infections may become minimal before herd immunity is reached. But due to imported cases and localized clusters, it is unlikely that new infections will drop to zero until at least 2022. Deaths may drop to low levels even earlier (May-Jul 2021), in part due to a vaccine distribution strategy that initially prioritizes high-risk individuals. Once deaths fall to minimal levels, we may see a relaxation of restrictions. Summarizing the above findings, our best estimate of a complete “return to normal” in the US is mid-summer 2021 (June/July 2021). [Youyang Gu]
  • So what’s going to happen to a lot of these renewable-focused stocks — both those trading today and those set to come public via SPACs in the near future — is that they will trade lower. Some stocks fall more than others. Some of these companies will be winners in a newer, greener economy. Some of these companies will not make it. One of these companies might even be the “Amazon of EVs” or whatever it is that investor deck promises. But there are many companies today whose stock is trading like they will be the primary winner of a winner-take-most market. Obviously, this cannot hold. [link]
  • Ferroequiphilia, or the love of trains, requires a note of explanation. Trains and the railroads are no longer at the heart of small-town American life. The steam locomotive, often called the most human of machines created in the industrial age, is a rarity in this century, and its mournful whistle seldom beckons us to faraway places. As a child on Osceola Avenue, I listened in bed to the blasts of steam exhaust from teamed locomotives dragging wartime freight up the Short Line below St. Clair Park. Even before my first Lionel set, I was hooked on trains. I photograph them, chase them, read about them, pore over old timetables. I worked on the railroad for two summers, hitched illegal rides on freight trains, spent a night in jail. I scan the countryside for traces of long-gone lines. I build model trains and run them in the back yard. And I draw and paint them. [Dutton Foster]
  • Really good SEO is one of the truest moats that exist today. It takes years to build credibility, and Google is particularly vigilant about (and punitive towards) sites that try and game the system. Unlike a network effect, which can be overcome with a well implemented invite flow, Google’s ranking algorithm takes in lots of different signals that are much harder to come by: large volumes of high quality content, links from other high ranking sites, people using Google as a conduit to Reddit (i.e. appending “reddit” to the end of their searches), products built specifically to encourage Google’s crawler, and a close business development relationship with Google, just to name a few. The amount of traffic that comes from search is the main reason why an effort to migrate a community off Reddit wholesale (as r/changemyview tried to do) is doomed to failure, especially for well-established communities. [link]
  • None of this is likely to matter to Taycan buyers, though. Just as the Tesla faithful look past that company's quality and customer-service woes, we're guessing most Taycan buyers won't mind the Porsche's stunted range. A $204,330 electric Porsche like our test car is unlikely to be anybody's only vehicle—or their only Porsche, for that matter. [Car and Driver]
  • I can't find any previous instances of one sector monopolizing the market's highest echelon. In 1980, at the peak of an oil bubble, three of the six largest US stocks were oil companies: Exxon (#3 in overall market cap), Amoco (#5), and Mobil (#6). In early 2000, when the dotcom bubble crested, the tech companies with the highest market caps were Microsoft (#1), Cisco (#3), and Intel (#6). Additionally, the five biggest tech stocks account for 21.7% of the Standard & Poors 500's aggregate market cap. (The six biggest are 23.4%) The last time five stocks accounted for such a large share of the index was the 1970s. And back then the S&P's top echelon was more diversified. In 1970, for instance, the index's six largest constituents all belonged to different industries. So technology's dominance, with tech/internet companies holding all of the S&P's top slots and those slots being such a large share of the index, is unprecedented. [y0ungmoney]
  • If you're a startup and you think you have a truly disruptive innovation, then that's great news for you. It's a perfect answer to that awkward investor question, "What if [big company] decides to do this too?" because the honest truth is "their own politics will tear that initiative apart from the inside." The trick is to determine whether you actually have one of these exact "disruption" things. They're rare. And as an early startup, you don't yet have a historical plot like the one above that makes it clear; you have to convince yourself that you'll realistically be able to improve your thing faster than the incumbent can improve theirs, over a long period of time. [apenwarr]
  • While the Trumpian strategy of fishing in the Rubicon got blown up by a Praetorian drone after some of his drunken buddies decided to put on waders and go into the Rubicon, it is not just Trumpism that the Coup of 2021 has exploded. What did Trump think he was doing when he asked his people to “fight” and promised to “never surrender”? He was either plotting the Viking pillage of the Senate—or just running his mouth. In the histrionic story—as well as the hypochondriac story—it was the former. But not even Trump was that crazy. [Curtis Yarvin]
  • Viewed in this light, it’s easy to understand just how predatory our technological revolution has been. We are all Ned Ludd now, looking on in horror as a new machine does all the easy stuff and leaves us the nightmare occupations. The profits, naturally, go to the owner of the machine, who uses them to do things like ridiculous prole-level social engineering and/or buying up all the farmland a la Bill Gates. There is an answer to this societal misery, of course, and it’s drawn directly from old-school liberal thought. You tax the proverbial living shit out of the machines’ profit, distribute that to the unemployed as “basic income”, encourage them all to do something meaningful with their lives like paint or sing or cut bonsai trees, then significantly raise the salary for the remaining miserable jobs so the incentive to fill them is positive (you can buy more stuff than the basic income crowd) rather than negative (you can afford to eat a meal when others can’t). You would think that almost everyone could agree on this. Even a red-state normie conservative like Brother Bark could probably go for it; the moral equation of taxing machine profits at an 80% marginal rate is nothing like taxing a doctor or even an attorney at that rate. [Jack Baruth]
  • The most critical lesson of all, however, is this: If you can bring yourself to do it, stop thinking about politics and focus on your family, yourself, your future. I don’t care if you’re an Antifa soldier in Portland or the grandmother of a Proud Boy. These violent delights have violent ends. We are going to see some nasty stuff in the future. Try not to be part of it. You think that you’ll become famous, or at least notorious. You won’t. You’ll end up like the fellow hit in the head by a falling statue, who will be living with the consequences of that long after everyone forgets the incident. Or you’ll end up like Ashli Babbitt, mis-shot at point blank by a murderer in a $300 suit. Take that energy and put it into the people you love, instead of directing it at the people you hate. It will have a greater effect. Last but not least, I’d like to ask that we all keep our personal lines of communication open, even with the people who disagree with us about this incident and others. If you think this really was an insurrection, don’t stop loving your cousin or neighbor who thinks it was the Boston Tea Party — and vice versa. If we let this news media, this social media, and this “pandemic” atomize us, then I guarantee The Bad Guys Will Win. It doesn’t even matter who you think the Bad Guys are. [Jack Baruth]
  • Joe Biden was elected president to sign a more substantial COVID-19 relief bill, to clean up Trump’s mess by containing and defeating COVID and to start rebuilding the American economy. Instead of focusing on the virus which had killed over 400,000 Americans, which is killing both Democrats and Republicans and conceivably bridging the partisan divide by mobilizing the country against a common enemy, he seemed to focus more on the boogeyman of “white supremacy.” It seems like a major blown opportunity to me. I think he should have focused on the virus, putting people back to work and overcoming political division. Couldn’t Joe Biden have smiled and just said something like, “I’ve got great news. Donald Trump is gone and everyone is getting $2,000”? This would have been far better received. [link]
  • A couple people have pointed out that oil service stocks have lagged the S&P since the book was published. I was surprised that they haven't been able to generate value for shareholders despite industry revenues tripling. Without oil services, that leaves just the royalty trusts. And what sets royalty trusts apart from the E&P and services companies? No reinvestment of cash flows! [CBS]
  • Tom Ward (of Sandridge) and Aubrey born were three days apart in Oklahoma. In his January letter on luck and timing, Howard Marks mentions that the Microsoft, Sun, and Apple founders were all born 1953-1956 and that "all four founders of [M&A firm] Wachtell, Lipton, Rosen and Katz [were born] in 1930-31". As he says, "The bottom line is simple: it’s great to be in the vanguard of a new development. Talent and hard work are essential, but there’s nothing like getting there early and being pushed ahead by the powerful trends in demographics and taste that follow." [CBS]
  • One very interesting point by Sirower is that the U.S. legal system encourages acquirers to overpay. As a shareholder of a company that makes a stupid acquisition, you have no recourse. The managers are protected by the business judgement rule. But the shareholders of the target have much more protection against their corporation being sold "too cheaply". The equilibrium result is that acquisition prices are too high and transfer value from acquiring firm shareholders to target shareholders. [CBS]
  • In general, gamblers (like the retail investors who buy worthless stocks), prefer bets that offer the greatest maximum return even though they have very poor (negative) expected returns. "[T]he rich are stupid because they contain a disproportionate number of lucky morons who did not realize they were taking as much risk as there were," see "Noise Trader Risk in Financial Markets". Philosophically, "the idea that financial courage [to take risk] produces a strictly increasing and linear expected payoff to risk bearing is contrary to the payoffs to every virtue, which all require moderation and trade-offs with competing virtues" He points out that "a theory that implies a ubiquitous linear payoff to an action like exposure to volatility, regardless of context or quantity, would be unprecedented." [CBS]

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