Monday, May 24, 2021

Monday Afternoon Links

  • The 2019–2020 vaping moral panic over adulterated black-market THC products (depressing to see how irresponsibly reported & alarmist this was, and how everyone attempted to frame nicotine for it2⁠. Naturally, no one involved has apologized or admitted fault—after all, their intentions were good⁠, “won’t someone think of the children”? The incompetence and/or dishonesty here emphasizes how 2020–2021 was business as usual, and the only unusual part is that reality happened so fast we saw some of the unseen⁠.) It couldn’t’ve been nicotine because people had been vaping for a decade and a half without widespread near-instantaneous lung-related fatalities! It had to be a new adulterant, and as soon as the first few black-market THC links surfaced, that meant the problem had to be THC-products-only because how would the same adulterant simultaneously get into the different supply chains? And yet, every article, health official, and activist did their paternalist best to suggest otherwise to pin the blame on regular vaping, no matter how many tests turned up clean, and it was the nicotine vaping products which got summarily banned. [Gwern]
  • A truly consequential innovation is one that makes possible entirely new business models that touch the lives of millions. The car enabled motels and shopping malls, the internet enabled e-commerce, and smartphones and GPS enabled ride-sharing. What business model that touches the lives of millions have cryptocurrencies such as bitcoin made possible? American motorists now know: ransomware. In such attacks, hackers encrypt and sometimes steal the victim’s data, demanding a ransom to decrypt and not release the data. Crypto is how Colonial Pipeline Ltd. paid hackers who earlier this month forced offline a conduit that supplies 45% of the East Coast’s fuel. A few days after the Colonial attack, Tesla Inc. announced it would no longer accept bitcoin as payment for cars because of the carbon emissions generated by the computer processing necessary to mint new coins. The two events underline how an innovation that was supposed to displace the dollar as a medium of exchange has proved largely useless for buying legal things yet frighteningly effective at facilitating extortion. [WSJ]
  • I think that we’re starting to see increasing numbers of crashes in this country and abroad, where drivers think that their car is far more capable. I think what is interesting to me was how the Tesla driver who got arrested for being in his backseat while he was driving vocalized that he’d already been warned once, and he defied the warning and did it again, and then said he would keep doing it because he knows Elon [Musk] knows what he’s doing. And he fully believes in Tesla. And so what I find most interesting about that statement is that one man is vocalizing what so many people believe. They believe that this technology really can be fully self-driving, despite all the warnings and despite all the statements and the owner’s manual, and you having to agree that you’re going to pay attention. Despite all of those warnings, there’s some belief likely based in calling a technology Full Self-Driving and calling it Autopilot where people believe in the religion of Tesla full self-driving, and that is dangerous. [Missy Cummings]
  • Hell's Gate is one of the most infamous obstacles in the off-roading world. It's a steep, undulating, smooth rock face in Moab, Utah that has long served as a legitimacy test for off-road drivers and vehicles alike. I personally have seen a fully built Lexus GX460 off-roading rig get halfway up, make it to a canted section, starve itself of oil, shut down, and roll back directly into another car as the power assist for the brakes gave up. It is no easy feat. Yet the 2021 Ford Bronco just did it, with no modifications, in reverse. [Road and Track]
  • Take a look through the top 100 Robinhood stocks. In particular, take a look at the following 19 companies trading at exceptionally high multiples of sales despite low profitability. These 19 companies are trading at a combined value of $1.63 trillion despite having only $74 billion of revenue over the trailing 12 months. That is 22 times trailing sales. (Be sure to read Jesse Felder's piece from a few years ago on the advisability of paying more than 10x sales.) The combined valuation of $1.55 trillion is equal to about 5% of the S&P 500 companies' value (although most of these 19 are not in the index). It is also equal to 7% of U.S. GDP. Only four of the companies are profitable, earning $1.3 billion, and those trade at a combined market capitalization of $880 billion. A funny thing is that some of these compete with each other (TSLA vs the other electric vehicle companies, UBER vs DASH), and the high valuation of any given one of those presupposes that it will win, and have a monopoly on, a winner-take-all market. I think the opportunity is to buy anti-bubble, value stocks (energy, tobacco, banks, coal, and timber are some cheap sectors) while simultaneously betting against the Robinhood bubble. I think that most of the 19 stocks that I posted above are worthless and a handful are maybe worth 0.1x the valuations they currently trade. That makes it a $1.5 trillion short opportunity, as big as the housing bubble shorts (including the mortgages) were when I started this blog. We know that we can't short them, because criminals and the innumerate can squeeze them to arbitrarily high levels before they collapse. The logical conclusion would be the same one that we came to in 2007-2008: long term put options. I have started to play with the risk/reward numbers on the Robinhood Bubble 19. It is actually hard to beat Tesla as a put option candidate - with NKLA for example, you have a more certain downside but more expensive options. [CBS]
  • It is my and the Advisory Board's feeling that the cryptocurrency market as currently constituted is extraordinarily risky and should not play a significant role in a prudent investor's portfolio. The risks go far beyond what we are used to dealing with in regulated market securities. like volatility or bankruptcy risk or interest rate risk. Crypto exposes you to non-market risks such as losing the keys necessary to claim your ownership of the tokens, having your tokens stolen by hackers or the operators of the exchange holding them, or having your tokens on an exchange seized by government agencies. All of these have already occurred on multiple occasions. And then there is the largest risk of all. In a very real sense, crypto tokens are already bankrupt. They have a literal value of nothing, they have a future value of nothing. Thus their price depends entirely on whether enough people are willing to ignore this fact and exchange real money for nothing. The only basis for buying them is the hope the the price will go up because it has gone up before. We have a 400 year history of fads like this in the financial markets, none of them ended well. [Bogleheads]

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