Friday Night Links

• To the princess, it was an enigma why anyone would smoke, yet the answer seems simple enough when we station ourselves at that profound interface of nature and culture formed when people take something from the natural world and incorporate it into their bodies. Three of the four elements are shared by all creatures, but fire was a gift to humans alone. Smoking cigarettes is an intimate as we can become with fire without immediate excruciation. Every smoker is an embodiment of Prometheus, stealing fire from the gods and bringing it on back home. We smoke to capture the power of the sun, to pacify Hell, to identify with the primordial spark, to feed on the marrow of the volcano. It’s not the tobacco we’re after but the fire. When we smoke, we are performing a version of the fire dance, a ritual as ancient as lightning. Does that mean that chain smokers are religious fanatics? You must admit there’s a similarity. The lung of the smoker is a naked virgin thrown as a sacrifice into the godfire. [Still Life with Woodpecker: A Novel]
• The current COVID-19 pandemic serves to highlight the risk of using systemic corticosteroids and, to a lesser extent, other immunosuppressive therapy, in populations with significant risk of underlying strongyloidiasis. Cases of strongyloidiasis hyperinfection in the setting of corticosteroid use as COVID-19 therapy have been described and draw attention to the necessity of addressing the risk of iatrogenic strongyloidiasis hyperinfection syndrome in infected individuals prior to corticosteroid administration. [Astral Codex Ten]
  
• While the court has not yet ruled on the constitutionality of the requirements, the three-judge panel made clear that the lawsuits seeking to overturn the mandates “are likely to succeed on the merits.” They criticized the requirements as “a one-size-fits-all sledgehammer that makes hardly any attempt to account for differences in workplaces (and workers).” [link]
• If the amazing Lamborghini Urus is too expensive or too flashy for you, the 2022 Audi RS Q8 offers a similar package and nearly identical performance. The reason for the similarities is the close mechanical ties between these two top-tier hyper-performance SUVs. Although the Audi's version of their shared twin-turbo V-8 makes 50 fewer horsepower, its acceleration virtually as breathtaking. Despite commanding a six-digit transaction price the Audi could and should be considered a performance bargain considering that it costs about half as much as the Lambo. [Car and Driver]
• Every time the Federal Reserve comes up with an excuse for raging inflation and why it won’t last, the data knock it back down. Inflation hasn’t turned out to be temporary and has accelerated, reaching the highest in a single month since January 1990. It is high even when measured against pre-pandemic prices, so this isn’t merely catch-up for the deflation of last spring. It is no longer merely about a narrow set of Covid-disrupted supply chains, or demand for used cars and other popular items. Even the get-out-of-jail-free card of FAIT, the Fed’s year-old policy of flexible average inflation targeting, is wearing thin. The only explanation remaining is that inflation will still be transitory–not as temporary as hoped, but that it will go away on its own. Investors still buy the story, but the risk is rising that the Fed has to act much more aggressively. [WSJ]
• Contrary to Tesla’s accusation that JPMorgan’s adjustment was “unreasonably swift,” the Agreements call for an adjustment either “on or after the relevant date of such Announcement Event.” 2002 Equity Definitions § 12.3(d); Confirmation at 9. Thus, the Agreements would have permitted an adjustment immediately on August 7—which, as noted above, would have resulted in an even greater reduction of the strike price—but JPMorgan instead waited more than a week, allowing time for the market to absorb Tesla’s announcement and for JPMorgan to gather a robust data set to calculate the economic effect of the announcement. JPMorgan was not required to wait any longer, and it obviously had no clue that Tesla’s announcement was based on a lie or that those announced plans would be abandoned mere days after the announced hiring of multiple significant financial and legal advisors. [JPMorgan Chase Bank v. Tesla, Inc.]
• If you are currently under forty, you will shortly be traumatized by the sight of large numbers of your parents’ generation subsisting on cat food, and your generation will begin to save prodigiously. In such an environment, it will be very difficult to gain a comparative advantage over your peers. [William J. Bernstein]
• Until quite recently, the mainstream liberal argument was that burning down businesses for racial justice was both good and healthy. Burnings allowed for the expression of righteous rage, and the businesses all had insurance to rebuild. When I was at the New York Times, I went to Kenosha to see about this, and it turned out to be not true. The part of Kenosha that people burned in the riots was the poor, multi-racial commercial district, full of small, underinsured cell phone shops and car lots. It was very sad to see and to hear from people who had suffered. Beyond the financial loss, small storefronts are quite meaningful to their owners and communities, which continuously baffles the Zoom-class. Something odd happened with that story after I filed it. It didn’t run. It sat and sat. [Bari Weiss]
  
• Since the policy response to COVID, however, the inflation idyll has been decisively shattered. Manufacturers in many industries have been forced to shift strategies about passing through costs – strategies that are very hard to restore to the old way. The high inflation prints, especially in the context of product shortages, have emboldened labor in ways we haven’t seen for some time. Increased unionization is likely to follow an increase in the level and volatility of inflation, which naturally will help institutionalize levels of inflation that are not outrageous in the grand scheme of things but which are still damaging compared to the Way Things Were. Thus, I think we are out of the 2-percent-as-the-center-of-the-distribution era, and into an era where the middle is more like 3%. The bad part is that inflation regimes don’t usually stay stable except at low levels, so that we are going to have higher inflation volatility, and there’s a decent chance that equilibrium level bleeds higher over time. That’s the bet with 10-year breakevens. In the short-term, some of the “transitory” factors are going to ebb (prices won’t fall, but their rates of change will), although other factors will emerge too. The inflation derivatives market is pricing in headline inflation over 7% in the next few months, but that will likely be the peak. But rents are going to be pushing up, and core and median inflation are not going to go back to 2% very soon. I’ve seen some forecasts that by late 2022, core will be around 1.5%. I think that’s wrong by 200bps. There is one final point that I will explain in more detail in another post. Breakevens also should embed some premium because the tails to inflation are to the upside. When you estimate the value of that tail, it’s actually fairly large. But for now, let me just assure you: the train has left the station, but it is still making stops. There’s time to get on board. [Mike Ashton]
  
• A close read of the data so far suggests that the current price pressure is still confined to the same batch of idiosyncratic sectors that have been driving inflation all year. Moreover, measures of actual consumer behavior suggest that Americans are responding to higher prices not by hoarding in anticipation of even more inflation, but by postponing their spending in the expectation that affordability will improve. Things might change—and if they do, I’ll tell you—but so far, people are behaving as if they believe that today’s disruptions are temporary and will end relatively soon. [link]