Friday, March 19, 2021

Friday Night Links

  • The market, having long ignored signals like VW’s growing market share in electric vehicles in Europe, or its bullish capital expenditure forecasts, suddenly woke up. [FT]
  • Covid-19 has taught us that life and health are precarious—that the tiniest bit of our physical world, like a virus, can rob us of vitality, community, family and purpose, whether we got sick or not. This pandemic affected us all, costing so much, too much. Our time is limited and finite. Solitaire squanders what is precious. Don’t ever play solitaire again. [Tom Hanks]
  • Sunnyside is an impressive case of how well a poor quality business can do if bought at the right price. For seven years, book value has remained the same ($15) - meaning the occasional profitable years were offset by subsequent losses. The bank did not pay a dividend or buy back stock, either.  Owning it would have been like watching paint dry, or even worse. The only thing it had going for it as an investment was valuation - 63% of tangible book when Nate bought. Every year you would have been tempted to sell it because nothing was happening. There was no story to tell about progress or improvement. [Oddball Stocks]
  • I’m here to tell you the same thing is now unfolding south of the border in Mexico, which last year only built 158,000 new homes and apartments. This amount of homebuilding is absurdly low for a country with almost 130 million people that has twice the population growth rate as America. On top of that, 50% of the Mexican population is 29 or younger! S&P Global estimates that Mexico has already accumulated a shortfall of almost 10 million homes. [Aaron Edelheit]
  • I set out to capture key elements of Do the Math in a textbook for the Winter 2020 class, following a somewhat similar trajectory: growth limits; fossil fuels and climate change; alternative energy capabilities and pros/cons; concluding with a dose of human factors and personal adaptation strategies. I stayed just ahead of the class, issuing one chapter at a time as visually unappealing PDFs having a few key figures and tables. So I essentially wrote the book in early 2020. But that turned out to be the smaller end of the workload. [Do The Math]
  • There is now over $75 trillion of US debt assets of varying maturities. US Treasury bonds and notes account for $16 trillion of this and US Treasury securities of other maturities account for another $5 trillion. Holders of these debt assets will either hold them until maturity and endure the previously described terrible returns or sell them. Most holders of debt assets believe that they can sell them to get cash and to buy goods and services with. After all, the only purpose of holding financial assets is to be able to convert them into the buying of goods and services. The problem is that, at current valuations, there is way too much money in these financial assets for it to be a realistic expectation that any significant percentage of that bond money can be turned into cash and exchanged for goods and services. If any significant amount tried to make that shift a “run on the bank”-type dynamic would ensue. When such a dynamic—which I call a “reverse wave”—occurs there is no stopping it. It has to be accommodated the way it was accommodated in the 1930-45 period and the 1970-80 period (and hundreds of similar periods throughout history) via printing a lot of money and devaluing it, and restructuring a lot of debt and government finances, usually including large increases in taxes. History and logic show that central banks, when faced with the supply/demand imbalance situation that would lead interest rates to rise to more than is desirable in light of economic circumstances, will print the money to buy bonds and create “yield curve controls” to put a cap on bond yields and will devalue cash. That makes cash terrible to own and great to borrow. [Ray Dalio]
  • By 2018, about 19 percent of U.S. households with annual incomes of $100,000 or more were renters, up from 12 percent in 2006, according to U.S. Census Bureau data adjusted for inflation. That equates to about 3.4 million new renters who, given their incomes, probably would have been homeowners a generation ago. And they’re not renting where you’d expect. Less than 20 percent of them are around New York City and San Francisco, where sky-high real estate values have long limited homeownership. Their ranks swelled in places such as Houston, Denver, and Nashville, as well as in Cincinnati, Seattle, and San Antonio. These days the average tenant of both Invitation Homes and American Homes 4 Rent earns more than $100,000. Bruce McNeilage, who builds rental houses around Nashville and other southeastern cities and, once occupied, usually sells the properties to bigger landlords, said his typical tenants are six-figure earners, too. “I can’t think of anyone we’ve rented to recently who didn’t make $100,000,” he told me while we toured a neighborhood of thirty houses he was building south of Nashville with well-heeled renters in mind. The houses were outfitted with dark hardwood floors, powerful ceiling fans, tile trim in the bathrooms, a kitchen full of granite and stainless steel. There wasn’t anything to suggest the house was a rental. They leased for about $1,800 a month and McNeilage was having no trouble filling them. The houses were just up a hill from an elementary school in a corner of Middle Tennessee that had been recently opened to subur­ban development by a new outer beltway. McNeilage envisioned bathrobed parents sipping coffee and watching from their kitchen windows or back porches as their children ambled down the hill to school. Renting to the relatively well-to-do is an enticing proposition for a landlord. They can afford a lot more rent and they’re usually more consistent in paying it than lower earners. A sick child or car troubles don’t cost them hours at work and income. Neither does a pandemic. High earners also tend to stay put, willing to absorb regular rent hikes if it means not having to move their children to new schools. “Very early in this business, we figured out that the cost to replace the HVAC unit is, for the most part, the same on a $1,200 or $1,300 rental as it is on an $1,800 or $1,900 rental,” Tanner, Invitation Homes’ CEO, once told investors. [American Affairs Journal]
  • “Diable,” said Monte Cristo compassionately, “it is a hard blow for a third–rate fortune.” “Third–rate,” said Danglars, rather humble, “what do you mean by that?” “Certainly,” continued Monte Cristo, “I make three assortments in fortune—first–rate, second–rate, and third–rate fortunes. I call those first–rate which are composed of treasures one possesses under one’s hand, such as mines, lands, and funded property, in such states as France, Austria, and England, provided these treasures and property form a total of about a hundred millions; I call those second–rate fortunes, that are gained by manufacturing enterprises, joint–stock companies, viceroyalties, and principalities, not drawing more than 1,500,000 francs, the whole forming a capital of about fifty millions; finally, I call those third–rate fortunes, which are composed of a fluctuating capital, dependent upon the will of others, or upon chances which a bankruptcy involves or a false telegram shakes, such as banks, speculations of the day—in fact, all operations under the influence of greater or less mischances, the whole bringing in a real or fictitious capital of about fifteen millions. I think this is about your position, is it not?” “Confound it, yes!” replied Danglars. “The result, then, of six more such months as this would be to reduce the third–rate house to despair.” [link]
  • Now, along comes the demographic transition—the recent shift to lower death rates and then lower birth rates. Malthusian catastrophe was averted, but the price of relaxing selection has been moving the mutation-selection balance toward an unsustainable increase in genetic diseases. Various naturalistic experiments suggest this meltdown can proceed rapidly. (Salmon raised in captivity for only a few generations were strongly outcompeted by wild salmon subject to selection.) Indeed, it is possible that the drop in death rates over the demographic transition caused—by increasing the genetic load—the subsequent drop in birth rates below replacement: If humans are equipped with physiological assessment systems to detect when they are in good enough condition to conceive and raise a child, and if each successive generation bears a greater number of micro-impairments that aggregate into, say, stressed exhaustion, then the paradoxical outcome of improving public health for several generations would be ever lower birth rates. One or two children are far too few to shed incoming mutations. No one could regret the victory over infectious disease and starvation now spreading across the planet. But we as a species need an intensified research program into germline engineering, so that the Enlightenment science that allowed us to conquer infectious disease will allow us to conquer genetic disease (through genetic repair in the zygote, morula, or blastocyst). With genetic counseling, we have already focused on the small set of catastrophic genes, but we need to sharpen our focus on the extremely high number of subtle, minor impairments that statistically aggregate into major problems. I am not talking about the ethical complexities of engineering new human genes. Imagine instead that at every locus, the infant received healthy genes from her parents. These would not be genetic experiments with unknown outcomes: Healthy genes are healthy precisely because they interacted well with each other over evolutionary time. Parents could choose to have children created from their healthiest genes, rather than leaving children to be shotgunned with a random and increasing fraction of damaged genes. Genetic repair would replace the ancient cruelty of natural selection, which only fights entropy by tormenting organisms because of their genes. [John Tooby]
  • Another compelling image shows Lyndon Johnson's car, behind Kennedy's in the parade, with Johnson nowhere to be seen. He was on the floor of the car, hiding from the gunfire he expected. The view from Oswalds's supposed sniper's nest is very interesting, too. It shows that Oswald could have shot Kennedy repeatedly as his car approached the Book Depository. But instead Oswald is supposed to have held his fire until Kennedy's car made a slow left turn onto the street in front of the Depository, after which Oswald is supposed to have fired through foliage at the car departing to the right. [CBS]


Wide Moat said...

Wow, the Do the Math is a tour de force--thank you! Can't recommend highly enough, my book of the year!

CP said...

Tom Murphy is a hell of a lot smarter than Elon Musk!