Books Read - Q4 2021

Previously: Q1 2021 book reviews, Q2 2021 book reviews, Q3 2021 book reviews, our 2020 Book Review Compendium, 2019 book compendium and 2018 book compendium, and pre-2018 book compendium. 

• Going Down Tobacco Road: R. J. Reynolds' Tobacco Empire: The Gold Leaf and North Carolina (3/5) Written by Gene Hoots, who worked as a financial analyst for RJR in its heyday before the leveraged buyout (which is chronicled in a great book, Barbarians at the Gate). Starting in the late 19th century, "smoking slowly replaced chewing as the tobacco product of choice. America's transformation from a rural to an urban society accelerated this change. As population density increased, spitting tobacco juice became unacceptable; in addition to being unsightly, the public began to associate spitting with the spread of tuberculosis and other diseases." On Tsar Alexis' attempt to ban smoking in 1634: "He obviously didn't have much success, and current regimes aren't having much luck either. The main reason for their failure is no secret, but hardly ever mentioned: What else? Money. The industry makes money for so many people that the world in general, and governments in particular, refuse to kill it." A big day in tobacco history: "On April 1, 1970, tobacco advertising was banned from radio and television beginning in 1971. The year before the ban, cigarettes were the biggest television advertisers, spending $230 million. Now they would be limited to print media. An era had ended. Removing the ads from the air affected Americans' smoking not at all. The ban had a surprising positive effect on the cigarette companies' finances. Without television advertising, it would be nearly impossible for a new company to enter the business; even an existing company found it challenging to introduce a new brand. And since the companies all quit advertising at the same time, existing brands' market share were not relatively disadvantaged. Also of great help, this retreat from advertising reduced the anti-smoking advertisements on television as well. Cigarettes became even more profitable. Advertising savings flowed straight to the bottom line. RJR's profit margin on cigarette sales was 19.5 percent of sales from 1966 to 1969. The margin leapt to 24.7 percent in the years 1970 to 1974." Similarly with the increase in federal excise tax in 1983, which doubled from 8 cents to 16 cents per pack: "The industry was not totally displeased with higher taxes on cigarettes. Tobacco people knew that the more governments relied on tobacco revenue, the less likely that they would discourage cigarette sales. For decades to come, many would seek to fill their coffers with tobacco money while also condemning smoking, a love-hate relationship fostered by obscene amounts of cash." Starting in the early 1960s - when the Surgeon General report came out - RJR management had a big problem with worrying about the fate of the tobacco business, and attempting to diversify away by buying other businesses. The result: "RJR bought six companies totally or in part with common stock [...] that yielded a very low or negative return, handing out stock that eventually controlled 40 percent of the company. The shares provided their new owners $1.6 billion in dividends and $9.9 billion more when the leveraged buyout" took place. "Management was wrong twice - first paying up for not very good companies, and second using stock and trading away 40 percent of one of the most profitable businesses in the world." There were some skeptics at the time, like RJR's CFO in the early 1970s, who said, "I would rather own half the cigarette business than all the acquisitions we ever make." RJR traded at a low valuation (like 10x earnings) during the period in which it was making acquisitions for stock, and the "better" companies that they were buying, with stock, were acquired at higher multiples and mostly performed worse than the tobacco business. RJR management was afraid of being taken over, but there is no explanation for why they didn't just buy back their own stock to return capital and keep their shares too expensive for an acquirer. Quoting an RJR employee: "Sad to see a once great company with all its rich one hundred year plus southern heritage being reduced to this [...] set in motion years ago when the management shifted from tobacco men to outsiders. From then on the company, it seems, has been used and abused by its various holding company management for personal gain and glory with all their chest pounding adventures funded from the tobacco money they were publicly embarrassed to identify with..." The KKR buyout of RJR was incredibly leveraged. Into a $30.2 billion LBO, the GP put in $16 million and the LPs of KKR put in $1.48 billion, for a total of only $1.5 billion of equity (5%). The rest was financed with debt and preferred stock. While RJR was buying unrelated companies and then in an LBO debt service cash crunch, Philip Morris was focusing on tobacco. The result: "Philip Morris had a golden opportunity. While [RJ] Reynolds Tobacco's cash went to pay off junk bonds, the big rival plowed its profits back into the business. It beefed up its sales force, plastered the Marlboro Man on more billboards, and cozied up to wholesalers with incentives. By 1991, PM had grown its market-share lead to an impressive five points in only three years, to 43% vs RJR's 28%. PM tormented RJR mercilessly." Then, on "Marlboro Friday" (April 2, 1993), PM cut the price of smokes by 20%. A price war. In 1999, RJR Nabisco breaks up. Its Tobacco International subsidiary got sold to Japan Tobacco. Nabisco Foods was spun off - and then sold to Philip Morris. Then, in 2002 Tobacco started acquiring tobacco companies - Natural American Spirit. In 2003, it merged with Brown & Williamson, a division of British American. In 2014, Reynolds bought Lorillard (Newport cigarettes). That left Reynolds with Newport, Camel, Pall Mall, and American Spirit, plus Vuse for vapor. In 2017, BTI bought the part of Reynolds that it didn't own, ending the independent Reynolds name after 142 years. He ends with a thought experiment: "What if Bowman Gray and then Alex Galloway had said, 'We know the tobacco business. We don't know anything about food or any of this other stuff. We are first, last and always tobacco men. Let's just see how many cigarettes we can sell, and let's not stop in America. Maybe we can sell Winstons, Salems, and Camels in other countries. It's worth a try. We aren't tied to Forsyth County or even America."
  
• The Devil's Playbook: Big Tobacco, Juul, and the Addiction of a New Generation (4/5) Read two books about vape startup Juul, this one was bigger and better than the other (Big Vape). One interesting find is that the founders of Juul, two Stanford graduate students in product design, were smokers who wanted to create a safer nicotine alternative for themselves. When they were starting, they mined a treasure trove of research, which was the document collection that was made public as part of the Master Settlement Agreement - "internal emails and handwritten letters, scientific studies and business plans, patents and product research, all of which opened an incredible window into a secretive industry that had spent billions of dollars over nearly half a century trying to develop a new, noncombustible cigarette." "Somebody had tried to disrupt the cigarette before: the tobacco companies themselves! [They] had simply failed miserably in their years' worth of attempts." Understanding the tobacco business today means understanding the regulatory and litigation history since the 1990s. In 1996, the FDA attempted to regulate tobacco products by declaring them drugs and drug-delivery devices. The Supreme Court ruled in 2000 (FDA vs B&W) that Congress never delegated authority to the FDA to regulate tobacco. Since FDA's mandate is to approve products that are safe and effective, and cigarettes aren't, "the inescapable conclusion is that there is no room for tobacco products within the [agency's] regulatory scheme. If they cannot be used safely for any therapeutic purpose, and yet they cannot be banned, they simply do not fit." This was a moment that really saved Big Tobacco, and Big Tobacco responded very shrewdly by switching to a strategy of regulatory capture instead of denial and fighting. "Philip Morris had announced that as part of its 'realignment' with society it would support FDA regulation rather than thwart it at every turn. This wasn't simply an act of goodwill. Under Parrish's tutelage, Philip Morris was masterfully positioning itself so that instead of locking horns with government regulators, it could work in concert with them to shape the details of any bill... The company had warmed up to the idea of FDA regulation, so long as the agency treated cigarettes as a complex product that, no matter how deadly, still could be accessed by smoking adults for continued legal use." So, in 2000 the Supreme Court punted the issue of tobacco regulation to Congress. Nothing happened for a decade, until the Family Smoking Prevention and Tobacco Control Act during the Obama administration. "[T]he new law was not a hands down triumph for public health. Instead, it was a compromise between the demands of public health authorities and tobacco companies, which lobbied heavily to shape the bill to their liking. For example, while the FDA was given new powers to control levels of nicotine in cigarettes, the agency was expressly forbidden from executing an outright ban on cigarettes or requiring the total elimination of nicotine in them..." Plus, "despite the FDA's new tobacco framework, e-cigarettes appeared to be in a legal grey zone. They weren't clearly enumerated in the new tobacco control act, and it wasn't evident they could be regulated under the agency's separate drug authority." A federal appeals court upheld an injunction against the FDA in 2010: "the FDA couldn't regulate electronic cigarettes as drug devices unless they were being marketed for therapeutic smoking cessation purposes." The Juul founders experimented with various nicotine salts (alkaline nicotine plus acid equals salt) and found that using benzoic acid gave vapers satisfaction equivalent to cigarettes. They filed a patent: "certain nicotine salt formulations provide satisfaction in an individual superior to that of free base nicotine." Juul also made its pods very strong: "Its five percent nicotine concentration was by far the strongest e-cigarette on the market. It would always amaze people [that] a single tiny Juul pod delivered an amount of nicotine equal to an entire pack of Marlboro Reds. Even with Juul's proprietary benzoic acid-nicotine salt formulation that made its hits smoother compared to others, its potency delivered a powerful zing." Here's something interesting about the vape business compared with cigarettes: "the Juul had no beginning or end [unlike a cigarette] so people could ingest large amounts of nicotine without even realizing it." "People were taking deeper and longer puffs the longer they had the device." In 2016, the FDA passed a rule "deeming" cigars and e-cigarettes to be tobacco products. Vapes that had been for sale before 2007 (very few) were grandfathered in, other vapes were allowed to keep selling while preparing premarket review applications (PMTA) to the FDA showing that the products met the standard of being "appropriate for the protection of public health." The applications were lengthy, costly, and onerous, which was a big advantage for large companies. The acquisition of Juul by Altria is easier to understand in light of this regulatory history. No tobacco product could be introduced, and no existing product modified, after August 2016. "By the time the company realized that Juul was an actual threat, any hope of actually innovating on MarkTen to make it better, or more appealing, had slipped away. The FDA's deeming rule had made it all but impossible. Companies were no longer allowed to introduce new products to the market, and they were forbidden from improving on any existing device." Altria's vape product, MarkTen, could not compete: "it had 1.8% nicotine, and it was in the inferior, harsh freebase form. Juul had 5% nicotine, and it was in the superior, smooth salt form. It was nearly a scientifically proven fact-Juul would hook more users than Elite." In other words, "Juul found a way to shoot more nicotine into the human body than anyone had ever thought possible." Like your typical SV startup, Juul cut corners - regulatory arbitrage, low product quality - to outmaneuver industry incumbents. Big tobacco was just very conservative because of the pummeling it took in the 1990s. This led to a "frustrating pattern" for Altria: "When little cigars started doing a brisk business, Altria started work developing its own branded product but wound up springing to buy John Middleton Inc., the maker of black and mild cigars, for nearly $3 billion. When smokeless tobacco grew in popularity, Altria tried to innovate with its own Marlboro branded smokeless products - Marlboro Snus, Marlboro tobacco sticks - before giving up and paying $10 billion for the leader in the category, U.S. Smokeless Tobacco Company. No matter how many Clayton Christensen or Klaus Schwab books its executives read or John Kotter consulting sessions they attended, Altria simply couldn't move much beyond rolling tobacco in paper."
• Big Vape: The Incendiary Rise of Juul (3/5) This was pretty redundant after reading the longer, more thorough Devil's Playbook covering the same subject. Note that both authors were pretty hysterical about the "vaping crisis." Why should I care if rich high school students use their parents' money to buy nicotine? Why do we need nationwide legislation and registration to control what goes on in these absentee parents' homes? Some highlights. When the Juul founders gave a presentation about their idea in their Stanford class in 2005, it said, "What if smoking were safe? And even better, what if smoking were actually not offensive to others?" They wanted to "create a whole new experience for people that retains the positive aspects of smoking, the ritual and everything, but that makes it as healthy and socially acceptable as possible." That's re-nicotinization. Again, it was the Family Smoking Prevention and Tobacco Control Act, signed in 2009, that gave the FDA authority to regulate tobacco products. But it was focused narrowly on cigarettes, smokeless tobacco, and loose-leaf tobacco, and for the FDA to "deem" something else a tobacco product, it needed to write a rule regulating that specific product. They didn't get around to doing this for almost seven years, which left a loophole that Juul (and others) drove a truck through. Altria, meanwhile, was too timid and inept to follow them. They never even tried to match the nicotine concentration and salt formulation of Juul. On the other hand, R.J. Reynolds (which is now owned by BTI) did figure this out, and they used a nicotine salt in their Vuse vapor product. (And also a high concentration, like Juul.)
• H. L. Mencken: Prejudices Vol. 2 (LOA #207): Fourth, Fifth, and Sixth Series (4/5) Read this back in 2018, was just rereading it for fun. Still his best pieces are the anti-chiropractor and anti-farmer ones. "[T]he only thing that keeps [farmers] from reducing us, at intervals, to actual famine is their own imbecile knavery. They are all willing and eager to pillage us by starving us, but they can't do it because they can't resist attempts to swindle each other. Recall, for example, the case of the cotton-growers in the South. They agreed among themselves to cut down the cotton acreage in order to inflate the price - and instantly every party to the agreement began planting more cotton in order to profit by the abstinence of his neighbors. That abstinence being wholly imaginary, the price of cotton fell instead of going up - and then the entire pack of scoundrels began demanding assistance from the national treasury - in brief, began demanding that the rest of us indemnify them for the failure of their plot to blackmail us!" "It was among country Methodists, practitioners of a theology degraded almost to the level of voodooism, that Prohibition was invented, and it was by country Methodists, nine-tenths of them actual followers of the plow, that it was fastened upon the rest of us, to the damage of our bank accounts, our dignity, and our ease. What lies under it, and under all the crazy enactments of its category, is no more and no less than the yokel's congenital and incurable hatred of the city man..." On Prohibition: "Perhaps the chief victims of Prohibition in the Republic, in the long run, will turn out to be the Federal judges. I do not argue here, of course, that drinking bootleg liquors will kill them bodily; I merely suggest that enforcing the unjust and insane provisions of the Volstead Act will rob them of all their old dignity." "That contempt of court should be an offense standing outside the purview of the Fifth and Sixth Amendments - that a judge should have the power to punish summarily all deliberate floutings of his dignity - this may be reasonably argued, though there are many sound considerations against it. But that it should be lawful to convert some other and wholly unrelated offense into contempt of court by a legal fiction, and so get around the Fifth and Sixth Amendments by a swindle - this is surely more than any sensible man would soberly maintain. When it is maintained, it is only by persons who are trying to put men into jail by processes that any average jury would revolt against - mill owners eager to get rid of annoying labor leaders, coal operators bent on making slaves of their miners, Prohibitionists lusting for the punishment of their opponents." On chiropractors: "[T]he doctrine that all human ills are caused by the pressure of misplaced vertebra upon the nerves which come out of the spinal cord - in other words, that every disease is the result of a pinch. This, plainly enough, is buncome. The chiropractic therapeutics rest upon the doctrine that the way to get rid of such pinches is to climb upon a table and submit to a heroic pummeling by a retired piano mover. This, obviously, is buncome doubly dammed." "To-day the backwoods swarm with chiropractors, and in most States they have been able to exert enough pressure on the rural politicians to get themselves licensed. Any lout with strong hands and arms is perfectly equipped to become a chiropractor. No education beyond the elements is necessary. The whole art and mystery may be imparted in a few months, and the graduate is then free to practice upon God's images. The takings are often high, and so the profession has attracted thousands of recruits - retired baseball players, plumbers, truck drivers, longshoremen, bogus dentists, dubious preachers, village school superintendents."
  
• H. L. Mencken: The Days Trilogy, Expanded Edition (LOA #257) (3.5/5) Three autobiographical works by Mencken - his childhood in Baltimore, his work as a newspaper reporter, and his life as a public figure. Mencken was born in 1880, the same year as Douglas MacArthur, George C. Marshall, W.C. Fields, and Oswald Spengler. His father owned a cigar business in Baltimore, so Mencken is a part of American tobacco history in a way we never realized before. "On September 26, 1890, as I find by my father's bill-file, he bought a Swiss repeater watch paying $200 for it in cash - a strange transaction for him, for he commonly preferred barter, and settled most of his major bills in either cigars or leaf tobacco, or both." "My father and his brother and partner, like most reasonably successful American businessmen of the eighties, always had plenty of time on their hands. The business they were in had not yet been demoralized and devoured by the large combinations of capital that were to come later on..." "They drank straight whiskey straight, disdaining both diluents and chasers. I don't recall ever seeing my father drink a high-ball; the thing must have existed in his day, for he lived on to 1899, but he probably regarded its use as unmanly and ignoble. Before every meal, including breakfast, he ducked into the cupboard in the dining-room and poured out a substantial hooker of rye, and when he emerged he was always sucking in a great whiff of air to cool off his tonsils. He regarded this appetizer as necessary to his well-being. He said it was the best medicine he had ever found for toning up his stomach." "When the [cigar business headquarters] was built, in 1885, he simply hung out the sign, sent for the city councilman of the district, and gave him $20. This was in full settlement forevermore of all permit and privilege fees, easement taxes, and other such costs and imposts. The city councilman pocketed the money, and in return was supposed to stave off any cops, building inspectors or other functionaries who had any lawful interest in the matter, or tried to horn in for private profit." "In the matter of polygamy among the Mormons, which kept all the moral theologians of the country in a dither down to 1890, he was a champion of the Saints, and argued that it was nobody's damned business how many wives they had, so long as they paid their bills, which seemed to be the case." Mencken was a tobacco user: "[E]very reporter had a desk, and every desk was equipped with a spittoon. This was a great convenience to me, for I had acquired the sinful habit of tobacco-chewing in my father's cigar factory, and am, in fact, still more or less in its loathsome toils." "My father had brought me into the business in the hope that I would stay in it and follow him, for he had no confidence in his brother. I had not smoked as a boy, but when I went to work he suggested that I had better begin, for I could not learn anything about tobacco if I didn't. I soon developed a taste for its better and more expensive varieties, and used to sneak into the cellar, abstract a few leaves from a Havana bale, and make myself some smokes." "As we drove home to Mt. Washington on Summer afternoons he would launch into long lectures on the characteristics of different kinds of cigar tobacco, the management of labor, the vagaries of drummers, the elements of credit, and other such pertinent matters."
• The Sun Is a Compass: A 4,000-Mile Journey into the Alaskan Wilds (3.5/5) This young married couple from Alaska (author Caroline Van Hemert and her husband) did a 4,000 mile journey across Alaska, first paddling through the Inside Passage from Bellingham to Haines, AK, then crossing the coastal mountains (Saint Elias Range) on foot and skis, and packrafting down the Yukon River. A long portage through Tombstone Territorial Park takes them to the Mackenzie River, which they packrafted to its delta at the Arctic Ocean (Beaufort Sea). (Through the mosquito ridden delta!) They paddled and hiked along the Arctic coast through Arctic National Wildlife Refuge, then crossed the Brooks Range (Gates of the Arctic National Park) and floated down the Noatak River in a borrowed canoe to end their journey at Kotzebue. They were in their early 30s, passionate Alaska outdoor adventurers, and this was their last hurrah before settling down to have two children (so far). It took from March to September, and it sounds like they were pushing the season a bit late at the end with the cold. They must be kind of liberal because they went through thousands of miles of bear country with just bear spray, no guns, and towards the end actually got chased by a menacing black bear. (The bear spray was ineffective.) But they are impressive people, look at their off-the-grid cabin in Haines. She and her husband split their food rations based on body weight (60/40) which is a rational and fair system. They did get hungry at the end when a bush pilot was late making their food drop because of disorganization and weather. This trip seemed to be enough to quench her restlessness: "Suddenly, I feel the first real pull towards home. I realize now that staying in one place is not the same as being stuck. We've seen so much in the past five months, covering ten or twenty or forty miles at a time. But this isn't the only way of seeing. Here, it's the seasons, the animals, the shadows and sounds that change. In the series of paintings Francesco had shown us before leaving, every view of the lake looked slightly different; each cloud, each shade of green, each reflection on the water's surface colored by the mood of the day. It takes much more than a visitor's eyes to uncover such subtleties."
• The Cigarette Century: The Rise, Fall, and Deadly Persistence of the Product That Defined America (3/5) Reaching the point of diminishing returns in the tobacco reading program. It is funny to read these anti-tobacco books that have a mindset of late-1990s moral panic against smoking, when two decades later we have seen that there are worse outcomes than diseases caused by cigarettes, such as the ill health and disfiguring obesity caused by seed oils and refined carbohydrates (the hyperpalatable snack foods). When is the trial lawyers' playbook going to be wielded against snack food and seed oil manufacturers? Some highlights: the Camel billboard in Times Square from 1941 until 1966 that blew smoke rings. Designer Douglas Leigh called his billboards "spectaculars". Others involved in the promotion of cigarettes were Raymond Loewy (redesigned Lucky Strike package and did tons of midcentury logos), and Edward Bernays: "a relatively undifferentiated product, it traded on identities fashioned not through any intrinsic qualities but through advertising, public relations, and design. With these techniques, the rise of the cigarette closely followed the articulation of a mass consumption culture." Between 1880 and 1920, cigarette consumption per capita grew 10x. It doubled again over the consecutive decades. By midcentury, it had all but replaced alternative forms of usage like chew and cigars. This book has extensive history of the scientific debate over the connection between smoking and cancer. "The issue of causal criteria would be debated for decades. Absent some clearly articulated physical mechanism, was a statistical argument sufficient to prove that A causes B? Although their criteria would be refined and expanded, Doll and Hill brilliantly and explicitly outlined the basis for a systematic epidemiological approach to determining causality in noninfectious chronic disease. In this sense, modern epidemiology was constructed around the problem of determining the harms of smoking." In 1951, Doll and Hill began a prospective study of 60,000 British physicians. The study ran until 2006, but after only a few years a connection could be seen between smoking and cancer as well as mortality from other causes. The medical research into tobacco culminated in the release of the U.S. Surgeon General's report in 1964. What is interesting is that cigarette sales fell 15-20% in the first half of 1964, but the industry rebounded in 1965 and reported record sales. "Reports of the demise of Big Tobacco had been premature." One thing that did change after the report was much greater prevalence of filter tips on cigarette, which reached 90% by the mid-1970s. But, as a tobacco executive wrote, "the illusion of filtration is as important as the fact of filtration." Good info in here also about regulatory capture and the Baptist and bootlegger problem. The FTC mandated warning labels on cigarettes, but the upshot was: "it allowed the industry to insist - in court if necessary - that claims against the companies for negligence and deception were now moot. Every smoker would be repeatedly warned that 'smoking may be hazardous to your health.' The legislation would substantially assist in the industry's principal legal argument that smokers knowingly assumed whatever risks might be associated with the product." When tobacco ads were still legal to air on television, the FCC mandated a ratio of one antismoking announcement for every three cigarette advertisements. But in 1971, TV ads for cigarettes were banned. The industry actually benefited from this because the broadcast stations no longer had to provide the free time for antismoking announcements. The advertising ban saved the companies money and made it very difficult for a new company or new brand to ever launch. Divestment as a buying opportunity theme: "Industry spokespersons and other supporters of tobacco were always quick to remind the public that the cigarette was a legal product. But from a social and cultural perspective, the makers of that product had come under the kind of legal and moral scrutiny that they had scrupulously avoided for four decades. As the social and political status of the industry deteriorated, a number of institutions took actions to reduce the influence of the companies. Some universities, pension funds, and state governments divested their holdings in tobacco stocks." Buying opportunity! An investment in PM compounded at ~20% annually from that point through today. The Master Settlement was a victory for the industry, too: "attorneys general with little public health experience and their high-rolling trial lawyers eager to cut a deal might accomplish nothing except pull the companies back from the brink of obliteration." "The settlement preempted any future litigation brought by any 'settling states subdivisions (political or otherwise, including, but not limited to municipalities, counties, parishes, villages, unincorporated districts, and hospital districts), public entities, public instrumentalities, and public educational institutions.' This preemption did not apply to individual and class-action suits, but it eliminated a wide range of legal vulnerabilities for the industry." "The MSA, for all intents and purposes, was principally a new excise tax on cigarettes," and the four major tobacco companies raised their prices, passing the costs on to smokers. The states became financial partners with the tobacco industry: "there's no doubt that the largest financial stakeholder in the industry is our state governments."
  
• 1939: A People's History of the Coming of the Second World War (2.5/5) This is in the fall of 1938 in Berlin: "Dusk began to fall. There was always a bit of a crowd in front of the Chancellery - mostly provincial tourists, hoping for a sight of the Führer. Today's gathering was larger than usual, reflecting the dramatic international atmosphere and the attraction of a major parade. Directly across the street stood Berlin's oldest, grandest, hotel, the Kaiserhof, where Hitler had lived and established his headquarters in the weeks before he seized power almost six years earlier. In its elegant bar sat two equally elegant women in their thirties, celebrating the end of their working day with one, two, and then three Martinis." Supposedly, after Hitler signed the "Anglo-German Declaration" with Chamberlain, he said that he signed it because Chamberlain "seemed like such a nice old gentleman, and I thought I'd give him my autograph as a souvenir."
  
• The Millionaire Next Door: The Surprising Secrets of America's Wealthy (5/5) Key idea: wealth comes from frugality. Common denominators: 1) living well below means 2) "allocating time, energy, and money efficiently, in ways conducive to building wealth" 3) achieving financial independence more important as a goal than conspicuous consumption / materialistic status displays. An interesting observation is that people in higher social class occupations are pressured to "spend significantly more of [their] household income to maintain and display [their] upper-middle-class lifestyle." Other highlights: "The longer the average member of an ancestry group has been in America, the more likely he or she will become fully socialized to our high consumption lifestyle." "It's easier to accumulate wealth if you don't live in a high-status neighborhood." Expensive neighborhood means bigger house with bigger property tax, maintenance, utilities, furnishings; also means keeping up with the neighbors' expensive cars.
  
• Four Thousand Weeks: Time Management for Mortals (2.5/5) Thesis: "The average human lifespan is absurdly, insultingly brief. Assuming you live to be eighty, you have just over four thousand weeks." People have been talking about this one on Twitter, but it wasn't that good. A few highlights. "Pay yourself first... if you try to find time for your most valued activities by first dealing with all the other important demands on your time, in the hope that there'll be some left over at the end, you'll be disappointed... there is no moment in the future when you'll magically be done with everything and have loads of free time." "Limit your work in progress... [otherwise] each time a project starts to feel difficult, or frightening, or boring, you can bounce off to a different one instead." We read a great essay a few years ago with good arguments for limiting WIP: "[I]t’s a very bad sign to have a lot of projects that are '90% complete'... For any process that makes things, it’s a substantial savings to have a smaller inventory. A manufacturer buys raw inputs, does work on them, and ships them to a customer. Every moment between the purchase of inputs and the delivery of finished goods is a cost to the manufacturer, because of the time value of money. Smaller inventories are what it looks like to have a faster turnaround. If a lot of your projects are 90% complete, that means you’re spending a lot of time having invested a lot of work into them, but realizing none of the value of the finished product." An idea: "we should try to treat every experience with the reverence we'd show if it were the final instance of it." (The Last Time.) "To treat [all] moments solely as stepping-stones to some future moment is to demonstrate a level of obliviousness to our real situation that would be jaw-dropping if it weren't for the fact that we all do it, all the time." Couple other little ideas for device addiction - switching phone screen from color to grayscale, and using single purpose devices (like simple Kindle).
  
• War No More: Three Centuries of American Antiwar & Peace Writing (2/5) Checking out more Library of America tomes after reading their Mencken collections. I thought that this would be interesting since I really liked Thomas Woods' We Who Dared to Say No To War, and this LOA volume is much bigger. Surprise, however: there was virtually no overlap in the essays or authors included. Both have speeches by Eugene V Debs, but Thomas Woods used his speech "The Subject Class Always Fights the Battles" and Lawrence Rosenwald used a much less important speech that Debs gave to the jury in his trial for sedition. The essays that Woods compiles tend to identify the wars conducted by the United States as financial scams benefiting the elite, while the Rosenwald essays opposed war for pacifist (e.g. Quaker or pro-communist) reasons. I wouldn't be surprised if Rosenwald supported Israel in the Six-Day War even though he opposed the Vietnam War.
• Cigarettes are Sublime (2.5/5) Richard Klein, a Cornell professor of French literature, wrote this as "therapy" in 1994 when he was trying to quit smoking. He means sublime "in the Kantian sense of sublimity: beautiful, but counter-purposive." The book "aims to be simultaneously a piece of literary criticism, an analysis of popular culture, a political harangue, a theoretical exercise, and an ode to cigarettes." Good observation on tobacco moral panics: "It is no easy task to praise cigarettes at this time in America. We are in the midst of one of those periodic moments of repression, when the culture, descended form Puritans, imposes its hysterical visions and enforces its guilty constraints on society, legislating moral judgments under the guise of public health, all while enlarging the power of surveillance and the reach of censorship to achieve a general restriction of freedom. The present hysteria concerning cigarettes bears comparison with other moments of violent antitabaginism in this country; it contrasts starkly with times in America's history when great mobilizations of the people were called for - during wars, for example, when cigarettes were deemed to be necessary not only to survive (General Pershing wrote that they were as vital to his troops as food), but to live while surviving..." An interesting point from Pierre Louys, that tobacco was "the only decisive advance in the knowledge of pleasure that modern European culture had achieved over antiquity." Highlights: "Americans today, as always forgetting their own history, aroused to paroxysms of antismoking sentiment, think they invented it. At the turn of the century, as well as in the 1920s and 1930s, powerful political forces combated the 'demon weed.' Then, as know, protests on behalf of the health of the citizenry masked moral objections..." "The beauty and benefits of cigarettes have been repressed and forgotten in America... Nowhere these days does one hear voices lifted to praise cigarettes, as one often does in wartime, for their multiple psychological and social benefits, for their cultural value, or for their aesthetic power. But as time goes by, the circle turns. This book proceeds on the hunch that the present climate may change, perhaps gently as the result of something like fashion - an effect of the turning of an obscure process of cyclical historical development - perhaps violently, under the pressure of widespread social tensions." "It cannot be an accident that cigarette smoking always find propitious conditions in times of political crisis or social stress. It was not, however, until the Second Empire that Louis Napoleon, a compulsive user of all kinds of tobacco, and a fifty-cigarettes-a-day man, legitimized their use by the aristocracy. James B. Duke and his machine made them democratic." Klein calls cigarettes "the most powerful device that universal society has devised for finding prayerful consolation and resolute resignation in the face of danger."
• The Gilded Leaf (3/5) This was in my tobacco reading stack. It is a history of the early days of RJ Reynolds and the Reynolds family, from the perspective of the grandson of the founder. Birth year determinism: Richard Joshua "R. J." Reynolds was born in Virginia in 1850. James Buchanan Duke (creator of the American Tobacco Company) was born in Durham in 1856. The ATC was dissolved in 1911 for antitrust reasons and RJR was spun back out, selling Camels. ATC sold Lucky Strikes and became part of British American Tobacco in 1994. The two biggest late 19th century American tobacco fortunes were created by RJR and "Buck" Duke. RJR ran his business from the South. Buck, on the other hand, "sensing that the way to the very top required the rubbing of shoulders with those who had the greatest leverage," moved his headquarters to New York. "As with Andrew Carnegie and other great salesmen who moved to New York at decision points in their careers, he was in the lair of the devil to use the leverage of the great financial institutions - to sell his ideas to the men who were crucial to the process of creating the big public companies. To reach them, Buck gave up corn liquor and the spittoon, took up champagne and cigars..." "Buck watched and learned as John D. Rockefeller set up the first trust, the Standard Oil Company, and decided to do the same for the tobacco business." While the ATC trust held together, it made almost all of the cigarettes in America, and RJR was a Buck/ATC employee. RJR the friendly entepreneur: "Nearly alone among the giants, RJ consistently took the steps that would make his relatives, friends, and senior employees millionaires." RJ's biggest mistake was waiting until very late in life to have children. He got married at 55 to his 25 year old cousin and his youngest child was born when he was 61. He died at age 68. His wife quickly remarried and died only six years after RJR. The result was that RJR's four children were orphaned but left with giant trust funds. His oldest son (Dick; RJR Jr) killed a man while drunk driving and had six children with four women. (Patrick is from his second marriage.) His youngest son died at age 20, shot by his second wife. Dick disinherited all of his children. You can read Gilded Leaf, then, as a case study of historic wealth that collapsed into ignominy and dissolution. If Bernie or Pocahontas read books, they could use this as an argument for a confiscatory estate tax on large fortunes.
  

Thursday Night Links

• Facetious mock-erudite plurals in -i or even -ii are sometimes found for words ending with a sound (vaguely) similar to -us. Examples are stewardi (supposed plural of stewardess) and Elvi (as a plural for Elvis imitators). The Toyota corporation has determined that their Prius model should have the plural form Prii, even though the Latin word prius has a plural priora, the Lada Priora having prior claim to that name—though the common plural is Priuses". Conversely, Toyota has also said that the plural of their Lexus line is Lexus. The Winklevoss twins were famously referred to as "the Winklevi" in The Social Network. [Wikipedia]
• Bull markets make stocks expensive, expensive stocks leave little room for error, and little room for error increases the odds of bull markets ending. Same thing in the other direction. Recessions cause pessimism. Pessimism causes underproduction, underproduction leads to scarcity, scarcity leads to a new boom. People and companies, whose behaviors are changed by their own success, are vulnerable to the same cycles. I’ve noticed a pattern: Getting rich can be the biggest impediment to staying rich. It goes like this. The more successful you are at something, the more convinced you become that you’re doing it right. The more convinced you are that you’re doing it right, the less open you are to change. The less open you are to change, the more likely you are to tripping in a world that changes all the time. There are a million ways to get rich. But there’s only one way to stay rich: Humility, often to the point of paranoia. The irony is that few things squash humility like getting rich in the first place. [Morgan Housel]
• Things got real interesting with MMT in the last few weeks as Turkey’s currency imploded. What’s interesting about it is that Warren Mosler, MMT’s founder, had recommended interest rate cuts to “firm the Lira”. And Turkey seemed to be listening because they cut rates within a few days of that. And each rate cut caused the Lira to collapse. Within a few months the currency had imploded -50%. It’s not just a downturn. It’s a total meltdown. It validates one of my long running criticisms of MMT – what is their inflation control policy? I haven’t seen a single MMT advocate call for countercyclical fiscal policy, ever. Not even during 2021 when inflation is raging around the world. And they seem to get interest rate policy exactly backwards. So what’s left? They love price controls, but price controls are well founded to work only with other broader policies. And their federal Job Guarantee would exacerbate inflation in a place like Turkey because the unemployment rate is high and it would add to the deficit in addition to putting a floor under wages. So what’s left for them to control inflation? It all begs the question – MMT has all these great ideas for huge procyclical government policies, but how will they control inflation when it actually comes? Because so far, the real-time track record does not look good. [Cullen Roche]
• One of the amazing things about the coronavirus “pandemic” of the past is how it has created winners and losers – even companies in the same industry. For example, as we will see below, educational publishing company Goodheart-Willcox (GWOX) had a great 2020. Meanwhile, its fellow educational publisher William H Sadlier, Inc. (SADL; which we won't cover in this Issue) did not have a great 2020. But the dispersion in performance this past year was nothing new, it just continues the trend of the past several years where things have been getting better at GWOX and worse at SADL. [Oddball Stocks]
• Here's something I think about constantly. I don't really want to live in a world where there are only two asset classes. Long volatility and short volatility. But I'm also not going to spend my life tilting at windmills. So, I have this list of strategies I slowly want to build out over time. And when a new idea pops into my mind the main thing to determine is if it's really just long/short volatility? Because if it is, it still might be useful, but it also has to go to the bottom of the list. I don't really have a fast way to determine this other than to keep it in my mind for a while and stare at it until my brain figures it out. And 9/10 times, after a few days of mulling it over, I conclude the new idea is really just long/short volatility. Long/short vol is really long/short S&P 500 vol. Obviously other things exist...but it's hard to come up with things that are truly uncorrelated. Activism is probably the biggest. But there are others. [Adequate Ryan]
• This may be the last prediction contest, or at least we may take a break from having a 2021 contest. For the contest itself was really a multi-year experiment in the folly of prediction. The year 2020 illustrated that for us perfectly. No one ever thought to include a pandemic, or lockdowns, or riots and curfews in hundreds of cities, or burned down police stations as potential events. And what probability would anyone have given, one year ago, to this event: "The S&P 500 will hit an all time high during a week when passenger air travel (as measured by TSA checkpoint throughput) is down 75%"? Or how about this event, what probability: "Elon Musk will become the second richest person in the world, without demonstrating a new battery technology, establishing level 5 autonomous driving, or even selling more than half the units of Ford's F-series of trucks"? The winners of the contest are never the same from year to year. The one constant is that the overconfident do poorly. Having extremely confident predictions (e.g. 90% or 10%) on any event that is contentious among participants (has a high standard deviation) is associated with poor performance in the contest. The better performing contestants seem to have an easier time intuitively feeling the range of outcomes that a trip through life's quincunx can deliver. What seems to happen specifically is that a very rigid set of expectations, a very definite view, a simple narrative, crashes on the rocks of reality. In fact, I am learning to avoid any kind of simple narrative for thinking about the future. Consider predictions such as, "there's going to be hyperinflation / a crash / a civil war" next year. Reality is a lot more complicated. Bitcoin hit an all time high and oil hit an all time low in 2020. What probability would anyone have given that? And does it fit a simple label like "hyperinflation"? [CBS]
• Food was expensive, the largest part of people's budgets, even though they were doing things like raising vegetables, keeping chickens, or making their own wine. Rent was the least expensive! Fuel and electricity were quite expensive. The villagers thought it was extravagant for Wylie to try to keep his house at 65 degrees during the winter. An interesting observation about farming: "One could never establish from a farmer's records exactly what his real income is... to discover his real income Pascal would have to be shadowed for three hundred sixty-five days of the year so that each of his many little transactions could be recorded..." When civilization had less division of labor, less specialization, and more self-help, people's economic concerns were less legible to the state and harder to tax. [CBS]
• This is a very American story: a ship carrying goods from Jacksonville to Puerto Rico for Wal-Mart (including fructose in tanks to give them diabetes). The ship was owned by MBA types in Seattle, by people who had never done the job of a ship captain. My theory on this is that people who have not done the job they are asking someone else to do are unable to tell if their employees are lying when they say they cannot do something. The way they deal with this is to just demand an outcome and then see what happens. The type of person who is an employee (not entrepreneur) does not understand this tactic and desperately tries to do the impossible. So, under pressure to meet the schedule, the master of the El Faro sailed this forty year old rustbucket right into a hurricane and killed everyone on board when it sank. [CBS]
• But if you delegate your food preparation - whether to a restaurant or a processed food manufacturer - they will use these bad fats because they are much cheaper and also easier to work with. This is one of many manifestations of the principal-agent problem. (The generalized form being one of my intellectual progressions over the past decade.) Fixing this health stuff makes life a lot better, and more productive. A day feeling sick or lethargic is a day that is not really fully lived, or useful to advance any goals. It is shocking how many Americans are wandering around so fat and sick that they must feel far worse than I ever did. No wonder they watch 40 hours of television per week, and can't think straight. Which reminds me - the reason that I had to become an entrepreneur was that I could not get a job for a big corporation doing things that I found interesting because I did not have "experience". There must be so few Americans with the intelligence, curiosity, and neuroplasticity to learn how to do something new that big corporations will only hire people who have done the exact function that they need performed for years on end. When you think about how sclerotic the world is, remember that everyone's neural synapses are now made of oxidized fats from soybean oil. [CBS]
  

Guest Post on Egg Nog Recipes by @PdxSag

[From our guest correspondent, @pdxsag, responding to Jeffrey Morgenthaler's eggnog recipe in our December 16th Links.]  

Stopped at the liquor store... they didn't have amontillado sherry, so I was looking up whether amontillado was sweet or dry (it's dry). I couldn't remember the egg-nog guy's website, so I hit up yours to get to his. (Why didn't I just search amontillado sherry? I had that written down. Boomer moment. We all have 'em.)

I made 3 different kinds of egg nog using Morgenthaler's recipe: Tequilla-Sherry, Rum-Brandy, Rum-Bourbon (made it on Sunday, I didn't have Sherry on hand so I substituted bourbon, then let it rest until last night). They are all good. My first time making egg nog from scratch. Never was into the store-bought stuff: too thick, suspicious. couldn't trust it. Making it myself, got over not knowing what it was and the consistency was more natural, which I take as validation of my instincts about the store-bought stuff.

First swig of the tequila-sherry was surprisingly tasty and easily the best. Would/will make again. By the bottom of the glass, though, the tequilla smell started coming through. I hate that smell. I reckon just be careful to keep glass safe distance from nose when not drinking. I think as the egg-nog sticks to the sides of the glass, the tequilla aroma gives off more as the glass empties. Nonetheless: 5/5

Rum-Brandy. Very good. Classic egg-nog. Can't go wrong: 4/5

Rum-Bourbon. First taster, bourbon was over-powering everything. Big disappointment. Then went ahead and filled glass and palate must have adjusted and it was really good. Was getting both rum and bourbon notes. Would/will do again: 4/5

Rum -- Sailer Jerry's. My stand-by for mixing. SJ's & coke is sublime. Like SJ made his to pair with coke.
Bourbon -- Elijah Craig special reserve (or something like that, it was a bad buy. Normally like EC, but this was way too sweet. Worked good for egg nog though)
Tequilla -- mid-priced anejo, don't remember the brand

Sherry and brandy were pedestrian high-vol producers. Liquor store here has a dozens of whiskeys and vodkas. Decent selections of rums, tequillas, and gins. But few (4-5) brandies and very few (may be 3?) sherries.

Guest Post: "A Trip to Bentonville and NW Arkansas" by Harold Watson

[Credit Bubble Stocks correspondent Harold Watson recently visited Bentonville, AR and his trip report is below.]

On the recommendation of a friend from Nashville with whom I took several long road bike rides, I drove to Bentonville to see what all the buzz was about. This friend has recently moved back to Fort Smith, so I was also looking forward to seeing him again. He told me that if I visited NW Arkansas I’d want to buy there.

I left Nashville a bit too late on a Thursday to make it all the way to Bentonville, so I decided to drive halfway to Poplar Bluff, MO via Paducah and across southern Missouri. The drive to Paducah was quick and all freeway. The mid-November early sunset meant that the drive on secondary roads into Missouri would be dark and watchful. After driving for a while on a two-lane road (KY 286) I arrived at the small town of Wickliffe, where my nav system directed me through some town streets to another two-lane highway, US 51. Before I knew it I was driving over the Ohio River on an old two-lane cantilever bridge built in 1938 and over a mile in length. The semis heading east on the other side were only a foot or so away from my driver’s side mirror. The darkness and width of the river below were a bit ominous. As soon as I crossed the Cairo Ohio River Bridge I made a left onto US 62 and immediately found myself on another old and narrow cantilever bridge, the Cairo Mississippi River Bridge, also about a mile long. I slowed to 20 mph as another large semi approached on the other side. Briefly, I darted my eyes to the right and was struck by the vastness of the river below. I breathed a sigh of relief as soon as I entered the west bank on the Missouri side. From there, I took US 60 to Poplar Bluff, four lanes all the way.

I stayed at the Hampton Inn in Poplar Bluff and stored my mountain bike in the room. I checked Yelp and decided on The Wine Rack down the road. The food was passable and I passed on a drink, settling for some mineral water. The hotel was quiet and clean, and I slept soundly.

The next morning I drove on to Bentonville through the Ozarks, passing Springfield and Joplin before heading south on I-49 to Bentonville. I was struck by the emptiness of the landscape, but the fall foliage was at its peak. Very few towns appeared until Springfield. The roads were in excellent condition and traffic was light.

As soon as I entered Bentonville, I could understand its explosive growth. It was clear that it and its neighboring towns are the economic engine of Arkansas. Three Fortune 500 firms—Walmart, JB Hunt and Tyson’s Foods are headquartered in the area, and the University of Arkansas is located just to the south in Fayetteville. As I drove through the hilly streets towards my Airbnb just west of the central square, I saw a number of walkers and mountain bikers using the many interconnected trails. The houses are well-maintained and the downtown is charming and full of artisanal shops and restaurants. Since I was a bit early, I dropped by Heroes Coffee and had a latte. The girls at the register were super-friendly and laughed when I told them that I’d never been to Chick-Fil-A. Given Walmart’s influence over the town, I certainly didn’t admit that I’d only been to a Walmart once in my life.

After coffee, I did a reconnaissance tour of the town and located the trailheads and the Crystal Bridges Museum of American Art, which was packed. The area around the museum, and the buildings themselves, are stunning, situated in a forested area minutes from the downtown. I decided to visit two days later, on Sunday morning, en route to Eureka Springs.

Before self-checking into my Airbnb, I dropped by Gearhead Outfitters, an exclusively Specialized shop. I thought it might be prudent to have them check the sealant level in my tires and, sure enough, they needed a refill. I also bought some new Smith sunglasses and a pair of mountain-biking pants, since the weather was in the 40’s. The young folks who work there are friendly and knowledgeable and gave me some good tips regarding the trail network.

I was impressed that my Airbnb had a garage, which made storing the mountain bike a snap. The condo itself was immaculate and well-furnished and provisioned. After unpacking, I headed into town for an early dinner since I hadn’t eaten all day. The Airbnb was a 6-minute walk to City Square, where most of the bars and restaurants are located. On the way to The Tusk and Trotter, which had been recommended to me by the folks at Gearhead, I passed some great bike stores and a Raffa boutique. Raffa is a high-end London-based cycling wear company and they have moved their North American operations to Bentonville. There’s also a great outfitter in town, Moosejaw, with a large selection of all the Yuppie hiking and outdoors brands. I picked up an Arc’teryx fleece as a Christmas gift for my son there. As in all the stores and restaurants, the staff was friendly, young and knowledgeable. My kind of town!

I sat at the bar and ordered a few appetizers and a salad for dinner. The bartender showed me how to make an Old Fashioned using turbinado sugar, which I filed away in my memory to try at home. I had a nice conversation with a couple of older gals about the town and the Walton family’s philanthropy. They are really committed to making the region an upscale and outdoorsy locale, with a dollop of high culture included. I was told that Alice Walton, the force behind Crystal Bridges, was also establishing a medical school in Bentonville. Talk about a city and an area punching above its weight!

After a good night’s sleep, I bundled up and got on my bike and headed to the trailhead for the Slaughter Pens trail complex. Although chilly, the day was bright and sunny with no wind. The trails in the morning were pretty empty and I rode all of the blue trails and enjoyed all of the jump, drop and roll features. All the riders I met on the trails were friendly and chatty. I met up with a small group and we did one of the black diamond trails, which I usually avoid; however, this one wasn’t too scary and the other riders led the way.

After returning to the trailhead, I could appreciate why Bentonville bills itself as the MTB capital of the country, although there are many worthy competitors. The third generation Waltons are big outdoors people and the one son (third generation) hired the top MTB trail developer from Belgium to design the trails. With the Walton billions behind them, they did a stellar job. It’s always interesting to see how third generation money usually becomes more effete, with rarified tastes, when compared with the roughnecks who established the family empire.

On the way back to the condo, I stopped in town for a late lunch at Tavola Trattoria. I sat outside in the sun and had a light lunch, although as soon as the sun moved over the rooftops, it was time to flee.

After cleaning up and reading a bit, I heard from Marcos, my friend from Nashville who had returned to NW Arkansas. He was at a friend’s wedding reception, so we decided to meet at a wood-fired pizza joint across from my Airbnb. He was pretty jolly from the open bar, so there were a lot of laughs. He informed me that he has told his Arkansas friends about one of my impolitic acronyms, to their great amusement. He also expressed his disappointment that he couldn’t join me on the ride. Fortunately, his girlfriend lives in the area so he planned to stay there rather than drive back to Fort Smith.

The next morning I used the Keurig in the Airbnb, but needed something more substantial, so I walked to Heroes and had a large cappuccino with a double shot. Back at the condo, I packed up and headed over to Crystal Bridges just as it opened at ten. The admission is free and the museum has an unexpectedly well-curated collection of American art, including a few by Charles Willson Peale. One really should spend a whole morning there. I also had a ticket to visit the restored Frank Lloyd Wright house on the property, which is about a five minute walk from the main building. With the sunny fall day and foliage, the house looked like jewel box from afar. Inside, they provide a headset which expertly guides the visitor through the first floor and provide a detailed description of the surfaces and furnishings.

After my too-short visit, I headed towards Eureka Springs for more riding. En route, I pulled into the Pea Ridge National Battlefield, where a Civil War battle was fought in March 1862. The whole area was wooded and lonely, with vast meadows where the armies clashed and where many cannons are still set up. I’d never heard of this battle, which resulted in a Union victory. It was worth the detour.

The drive to Eureka Springs through the deep ravines and plateaus of the Ozarks is superb, especially on a nice autumn morning. My Airbnb cottage sat on a ridge above the center of Eureka Springs. The host was cleaning it but allowed me to change into my MTB gear so I could experience the local trails.

My first stop was the Lake Leatherwood Gravity Project. I took the shuttle to the top of the trail and enjoyed the steep ride down. I heard that the Waltons also financed these trails. From there I drove to the other side of town for a long leisurely cross-country ride through the woods around Christ of the Ozarks on the Genesis Trail. I only saw one other rider. On the way back to the cottage, I stopped at the well-stocked Eureka Springs Market to buy some locally roasted coffee and some organic whipping cream so I wouldn’t have to settle for the Folgers and Coffeemate on offer at the Airbnb.

When I got back to the cottage the sun was setting and the temperature was dropping. I cleaned up and checked email before heading down the steep Jacob’s Ladder to the town center in the dark. The town was pretty quiet on a Sunday Night in mid-November. I headed up the hill to the Take 5 Bistro and grabbed a seat at the bar. The food was quite good and I had an informative conversation with the bartender. Later, her friend, the chef, joined us and added to the local color. They urged me come back in the spring. I recommend the restaurant.

The cottage was so full of antiques and tchotchkes that I almost tripped. The floors were off-camber but at least the heat was on and I slept deeply. I got up around 5:30 and brewed a half pot of coffee and was ready to head back to Nashville at 7:00 am.

The eight-plus hour drive back home wasn’t bad at all. I chose US 62/412 across northern Arkansas and across the Missouri boot and then I-155 over the Mississippi near Dyersburg. The roads were all wide and fast. An hour east of Eureka Springs presented a lonely landscape of rural poverty and addiction. I later read that NE Arkansas is a major meth zone. The little burgs along the way always featured a Dollar General and an assortment of unheard-of Protestant sects. I would recommend this route since it avoids Little Rock and the Memphis metro area and is only a few minutes longer.

Verdict on NW Arkansas: highly recommended and worth a return visit.

Monday Links

• In Macklin’s patients, semaglutide reduces the drive to engage in a wide spectrum of dopamine-fueled behaviors, including drinking alcohol and shopping. “People say they’re on Amazon way less,” observes Macklin. The animal research backs this up, reporting that semaglutide and similar drugs reduce alcohol intake in alcoholic monkeys and the use of a variety of dopamine-spiking addictive drugs in rodents. So one reason why semaglutide is so effective may be that it curbs food intake from two angles: our brain’s perceived need for calories (hunger), and our tendency to be seduced by food even when we aren’t hungry (reward). [Stephan Guyenet]
• EIA reported an overwhelmingly bullish oil storage report this week. The most important figure in the release today was the material jump in implied oil demand. The increase of 3.354 million b/d w-o-w to 23.191 million b/d makes it the highest demand ever recorded. And on a 4-week basis, this is the highest demand for this time of the year. In the product demand breakdown, you can see a large spike in propane and propylene demand. Distillate fuel oil is also very strong with residual oil moving higher as well. Gasoline is right at the norm and jet fuel demand remains below the historical averages. This indicates to us that if jet fuel demand recovers, we will be well above where we were historically on demand. There are profound implications from this, because IEA, at the moment, is assuming global oil demand from the OECD countries to be below that of 2019 on the foundation that jet fuel demand is below the norm. While that is factually accurate, it doesn't take into account that the aggregate demand is already at the 2019 level even in the absence of jet fuel demand recovery. [HFI Research]
• Rapamycin known in the clinic as Rapamune or Sirolimus, was unlucky from the start, however. Twenty years ago, it was labeled an immunosuppressant and used to treat renal transplant patients. If rapamycin had been labeled an immunomodulator and anti-inflammatory drug instead, it would sound much more appealing now. At anti-aging doses, rapamycin “eliminates hyperimmunity rather than suppresses immunity” or, more figuratively, it “rejuvenates immunity”. This enables rapamycin and everolimus, a rapamycin analog, to act as immunostimulators, improving immunity in cancer patients and the elderly. For example, rapamycin reduces the risk of CMV infection in organ transplant patients, improves antipathogen and anticancer immunity in mice, prolongs lifespan in infection-prone mice and protects aged mice against pneumonia. Rapamycin also inhibits viral replication. As a noteworthy example, rapamycin inhibits replication of the 1918 flu virus (the deadliest flu virus in history) by 100-fold, and also protects against lethal infection with influenza virus when administered during vaccination. Still, as Dr. Allan Green advises, patients taking rapamycin should be carefully monitored for skin and subcutaneous bacterial infections, which should be treated with antibiotics. [NLM]
• Blake Masters: Capitalism works. It’s a really good system for generating wealth. The problem with capitalism is that can work too well in a sense, it can create the conditions for people to grow complacent, which ultimately, as Ross Douthat has written, contributes to the sort of decadence we’re experiencing today. Capitalism’s an incredible engine of material progress, but it’s not a self-contained moral system. It has its own incentives, but those incentives aren’t always necessarily correlated with a conception of the good. Companies under capitalism just respond to profit incentives. If you act on them you’ll generate a lot of wealth, but it won’t tell you what to do with that wealth, which is why a parasite like Wokeness can basically spread and take over. An example is offshoring. Maybe it’s good for GDP, but if you have too much of it, that’s clearly really bad for the country and most people living in it. It crushes the middle class by sending jobs overseas by the millions. But such are the incentives that the capital owners are responding to. So I think problems like Woke Capitalism, or ‘globalization’, are actually much older and bigger problems than people think. Because you can’t just be a capitalist country, because a country is not just an economy. You also need a conception of yourself as a nation, as a people, and as a culture. And that’s what America is increasingly lacking today. [Mark Granza]
• Omicron Spike protein mediates deficient cell entry and is inefficiently cleaved compared to Delta spike. We tested viral entry mediated by Wild Type, Delta and Omicron spikes using a pseudotyped virus system, infecting primary 3D lung alveolar organoids. Omicron Spike protein induces relatively poor cell-cell fusion compared to WT and Delta. We expressed spike in cells stably expressing split GFP, so that Green signal could be measured over time upon cell-cell fusion and syncitia formation. The difference is significant. What does this all mean? Efficient infection of lung cells could correlate with severity of lung disease. Syncitia or fused cells are often seen in respiratory tissues taken following severe disease. Delta was very good at both, in contrast to Omicron. Further work is needed. We also tested how well antibodies from vaccinated individuals neutralised Omicron v Delta. We found that Omicron was poorly neutralised after two doses of mRNA or Ad vectored vaccine compared to Delta, but that the third dose (mRNA vaccine) rescued this at an early time point. In summary this work suggests that Omicron does appear to have become more immune evasive, but that properties associated with disease progression *may* be attenuated to some extent. The significant growth of Omicron nevertheless represents a major public health challenge. [@GuptaR_lab]
• How often do you hear back from the subjects of your impressions? RB: We did a thing with Michael Caine at the Albert Hall, and he was very nice. You can see it. Anthony Hopkins I met in Los Angeles and he said, [does an Anthony Hopkins voice] “I loved The Trip. Loved The Trip.” This was after we’d done the first one and the Italian one hadn’t come out. And I said, “Well, in this new one, the Italian one, we’re on a yacht and we do you in The Bounty.” And he started doing it! He started going, “Turn your back away, Mr. Fryer!” And then I was doing it back to him. We were in a car and I got rather giddy. Hopkins! [Vulture]
• Self-actualization is, of course, different from empathy. And while some forms of empathy are surely teachable — there are books, meditations, soup kitchens, hospices and family members that offer great opportunities for empathetic practice — it feels very unlikely that watching impressive people talk about their lives is going to do it. The selling point here seems to be more about comfort and validation. The course is as cozy as reading a picture book about Ruth Bader Ginsburg to a child at bedtime, as righteous as planting an “IN THIS HOUSE WE BELIEVE NO HUMAN IS ILLEGAL” sign on an upscale suburban lawn overlooked by security cameras. [NY Times]
• It has especially clever use of well-chosen music – at the Circus Christmas party, everyone sings along to ‘The Second Best Secret Agent in the Whole Wide World’ (the theme song to Lindsay Shonteff’s License to Kill!) and the Soviet national anthem sung in Russian, while Cumberbatch’s Guillam invades the Circus to steal a crucial record book to the tune of George Formby’s ‘Mr Wu’s a Window Cleaner Now’ (which makes even a surveillance eavesdropper’s foot tap), while the entire climax of sniper retribution is similarly played out as a music video clip (‘Beyond the Sea’). [link]
• Nuclear fusion, says Klinger, is “the only primary energy source left in the Universe” that we have yet to exploit. Ever since the process that powers the stars was harnessed in the 1950s for hydrogen bombs, technologists have dreamt of unlocking it in a more controlled manner for energy generation. Existing nuclear power plants use fission: the release of energy when heavy atoms such as uranium decay. Fusion, by contrast, produces energy by merging very light nuclei, typically hydrogen, which can happen only at very high temperatures and pressures. Most efforts to harness it in reactors involve heating the hydrogen isotopes deuterium (D) and tritium (T) until they form a plasma — a fluid state of matter containing ionized atoms and other charged particles — and then fuse (see ‘Fuel mix’). For these isotopes, fusion starts at lower temperatures and densities than for normal hydrogen. D–T fusion generates some radiation in the form of short-lived neutrons, but no long-lived radioactive waste, unlike fission. It is also safer than fission because it can be switched off easily: if the plasma is brought below critical thresholds of temperature or density, the nuclear reactions stop. What makes it so difficult to conduct in a controlled manner, however, is the challenge of containing electrically charged plasma that is undergoing fusion at temperatures of around 100 million kelvin — much hotter than the centre of the Sun. Generally, researchers use magnetic fields to confine and levitate the plasma inside the reactor. But instabilities in this infernal fluid make containment very difficult, and have so far prevented fusion from being sustained for long enough to extract more energy than is put in to trigger it. [Nature]
• From the time he was twenty until he was fifty-five, Old John drank steadily, but throughout the last thirty-two years of his life he did not take a drop, saying, “I’ve had my share.” Except for a few experimental months in 1905 or 1906, no spirits ever have been sold in McSorley’s; Old John maintained that the man never lived who needed a stronger drink than a mug of stock ale warmed on the hob of a stove. He was a big eater. Customarily, just before locking up for the night, he would grill himself a three-pound T-bone, placing it on a coal shovel and holding it over a bed of oak coals in the back-room fireplace. He liked to fit a whole onion into the hollowed-out heel of a loaf of French bread and eat it as if it were an apple. He had an extraordinary appetite for onions, the stronger the better, and said that “Good ale, raw onions, and no ladies” was the motto of his saloon. [New Yorker]
• Our sample of OTC-listed banks is 2100 bps cheaper on tangible book value than our sample of publicly traded banks despite earning a significantly higher ROE, having higher capital, having lower non-performing assets, a touch better demand deposits, and buying back more stock year over year. Note that both sets (which number a couple dozen banks each) are very small banks with average market capitalization under $500 million. We find this really fascinating because for the first time, using sets of companies in the same industry that are highly comparable, we are demonstrating a discount that is stemming from not being public – or, conversely, from being OTC listed. If the Oddball Stocks Newsletter stands for anything, it is for harvesting this OTC valuation discount. [Oddball Stocks]
  

Thursday Morning Links

• The “Great Replacement” is happening, not just in America but throughout the West. Elites both deny and affirm it. When they write op-eds in The New York Times entitled “We Can Replace Them,” that’s a good thing and the phenomenon under discussion is absolutely right and just. When you notice and express the mildest wish not to be replaced, it’s a racist conspiracy theory that you are evil for even mentioning—your evil being further proof that you deserve to be replaced. They get to say it; you’re required not merely to pretend that you didn’t hear it but also to insist that they never said it. No majority stock in any nation has ever deliberately sought its own replacement, much less insisted that those who might have misgivings lie to themselves that it’s not happening. [Michael Anton]
• The catalyst for the value vs growth inflection will be the economy reopening combined with shortages stemming from a year of lockdown socialism and the printing of $3.4 trillion in a year. The pent up demand for many types of goods and services is so high that we could see a one-time price spike, almost like a currency devaluation, that benefits old-economy goods producing companies and ends the bubble in the Robinhood fad stocks. [CBS]
• Presently the “skunk at the garden party” is Big Oil whose residue has been linked to greenhouse gases that contribute to Global warming. Worse still is the accusation of deceitfulness as it has been reported that Exxon was well-aware of the risks of climate change from their own studies as early as 1977. While I will not opine on the veracity of either of the above, the general zeitgeist well-echoes the fight over Big Tobacco thirty years ago. Somewhat similarly, it was revealed that tobacco producers had significant internal research that linked smoking to lung and heart disease yet continued to profit from their business. The tobacco litigation all came to a head in November 1998 with the Master Settlement Agreement where the “big four” tobacco firms were released from liability in exchange for $206 billion dollars to be paid over the next 25 years. One might have thought this was the time to “short” Big Tobacco, but on the contrary, this started their great ascent. Notice Altria (the old Philip Morris) and British American Tobacco significantly outpaced the SPX until the recent tech boom launched the FAANG stocks into orbit. (The remaining “big four” were merged.) The Stone Age did not end because we ran out of stones; rather the creation of superior products closed the quarries. Similarly, regulations that restrict oil and gas exploration may serve as good public policy over the long-term, but over the next decade I suspect Big Oil’s earnings will cover their above market dividend and may well have price appreciation via P/E expansion. The big five Western Integrated oil/gas firms have an unweighted P/E of 12 with a dividend of 4.9%. [Convexity Maven]
• Corporate lawyers always prefer to lurk in the background, leaving the limelight to clients and their game-changing deals. Yet, in a trio of recent decisions, a prominent Delaware judge, vice-chancellor Travis Laster of the Delaware Court of Chancery, has not only scorched company executives for wrongdoing in mergers and acquisitions gone bad, he has zeroed in on the conduct of lawyers who assembled the deals. Elite law firms were not initially targets of misconduct allegations. But the discovery of emails and other documents revealed that aggressive lawyering was central to the treachery the judge attributed to their clients. Most American public companies are legally domiciled in Delaware. Part of the state’s appeal is its sophisticated corporate law along with a judiciary respected for its even-handedness in deciding litigation between shareholders and companies. But it is also a small state where the community of plaintiff and corporate-side lawyers, either in Wilmington or visiting from New York, remains genteel. Laster’s increasingly harsh words about members of the bar have raised eyebrows and questions about whether it is he or the profession that has changed. [FT]
• The idea to spin añejo tequila and Amontillado sherry into a traditional egg nog as the new bar manager of Clyde Common came from a place of insecurity: I’d just moved here from the college town I’d been living in, and I was afraid that Portlanders were too cool for my brandy and spiced rum egg nog that had become so popular. And so a line of quirky, fun. unexpected nogs was born in my head. Every week, I told myself, I would introduce a new egg nog to the restaurant, all season long. There was a Manhattan egg nog with rye whiskey and Spanish vermouth. There was a Cynar egg nog. And it would all start with this one: Week One was going to be a tequila-sherry egg nog. It’s the perfect combination of flavors for egg nog. The añejo tequila has a brandy-like quality with a much less sweet profile than, say, Cognac. And the Amontillado sherry brings this dry, nutty flavor to the party that’s perfect for the holiday flavor palate. [Jeffrey Morgenthaler]
• Usually civilization follows a cycle of four generations back and forth between these poles, popularized as the 'four turnings' or somewhat unfairly as the 'hard times / strong men' cycle, but the invention of birth control negated the normal population pressure that should have begun pushing us back into Scarcity around 1995, two full generations after the baby boom. This has allowed us to swing to more a extreme Abundance mentality than usual. In addition, an organization in the late stages of decay will actively promote the Abundance lifestyle: its increasingly incompetent leaders require followers that are either even more incompetent themselves or too busy partying to care. This explains the strong official support for LGBTQ, the ultimate frontier of the Abundance mentality. Even though only 3.5% of Americans are not-straight, and only 0.3% are transsexual, LGBTQ issues are consistently front and center, e.g. the United States Embassy in Kabul tweeting about gay rights rather worrying about the Taliban retaking their country. Since we have now moved so far towards the Abundance pole (Hazard High School made the news recently for an assembly where male students in bikinis gave teachers lap dances), the inevitable mean reversion to Scarcity will likely overshoot spectacularly. [Ploink]
• In Issue 31, we mentioned a Delaware Chancery case (Sahara Enterprises) that established that in
  Delaware shareholders have an absolute right to know how “directors and senior officers are compensated and whether they are the beneficiaries of any related-party transactions.” This Delaware Supreme Court opinion seems to push the law further in shareholders' direction. [Oddball Stocks]
• Unfortunately for some Americans, especially those living on and near the Pacific Coast, Germany holds no monopoly on dummkopfs. For evidence, consider that the formerly great state of California will soon begin the process of shutting down its last remaining nuclear power facility. The Diablo Canyon Power Plant has been cranking out carbon-free electricity for almost 40 years. It supplies nearly 8% of the state’s total power needs and 10% of what it produces for itself (this might come as a shock to our readers, but California suffers from extreme NIMBY Syndrome, and prefers to import roughly a quarter of its electricity needs from other states). As a share of the state’s baseload power, Diablo is an even more critical asset delivering approximately 20% of the state’s needs. As of this writing, we can find no credible plan to replace this steady and reliable grid anchor. [Doomberg]
• The results from initial studies of the omicron variant of the coronavirus are starting to roll in almost daily, and early suspicions are gaining more support. The mutation is much better at infecting—70 times faster than delta and the original strain. But the severity of illness is likely to be much lower, according to a study from the University of Hong Kong, echoing earlier observations from doctors in South Africa where the variant was first observed. The supercharged speed of omicron’s spread in the human bronchus was found 24 hours following infection, according to the university. However, the study found it replicated in lung tissue much less efficiently than earlier mutations, which may signal “lower severity of disease.” Here’s the latest on the pandemic. [Bloomberg]
  
• There’s a vast literature of epidemiological research that has come to the conclusion that there are a class of diseases that are known collectively as Chronic Diseases, Non-Communicable Diseases, Western Diseases, Diseases of Civilization, and probably other names. These diseases are not caused by known pathogens or acute toxins, and typically are found in societies that have an advanced level of agriculture, and universally in countries that have adopted industrial methods of food production; but are absent in those that have primitive methods of agriculture, or depend on hunting and gathering. The evidence that this phenomenon exists is massive, incontrovertible, and to my knowledge is nowhere disputed. There are many hypotheses for why this phenomenon exists, many of which are covered in the works above, and the introduction of vegetable oils into the human diet is one hypothesis. There are only a limited number of foods that are added to the diet when an industrial diet is adopted, and seed oils happen to be one of them. So, Nick’s claim, “From what I can tell, almost all of the claims regarding the negative health effects of vegetable oils are essentially rooted in mechanistic research,” must reflect a lack of familiarity with the evidence. As far as I am aware, there is not a single population that does not eat seed oils that suffers from the chronic diseases. That’s a rather notable bit of epidemiology, and it’s one that likely won’t be valid for much longer, as even the few remaining populations are being drawn into the modern food supply. [Yelling Stop]
• The parallel with 2000 is that certain sectors are exploding with supply - IPOs, insider lockup expirations, and VC dumps - but there is little new supply in low-tech sectors like legacy financials. Focusing on banks, IPOs in the sector remain rare, and multiples are inline with historical standards at 12-14x for regionals. This is partly because banks were perceived as low rate losers through 2020 - 2021, suppressing IPOs, and rates only now appear to shown signs of rising slightly. [Colarion]
  

"Unprecedented" by Michael Anton

Link:

If forced to bet, I would have to place my chips somewhere between imminent collapse and drawn-out decline. I occasionally read theories of triple bank-shots and four-dimensional chess—they really know what they’re doing!—only to marvel. Our regime cannot, at present, unload a cargo ship, stock a store shelf, run a clean election, handle parental complaints at a school board meeting, pass a budget bill, treat a cold variant, keep order in the streets, defeat a third world country, or even evacuate said country cleanly. And that’s to say nothing of all the things it should be doing, that all non-joke countries do, that it refuses to do. If our ruling class has a plan, it would seem to be to destroy the society and institutions from which they, at present, are the largest—one is tempted to say only—beneficiaries. Do they think they can benefit more from the wreckage? Or are they driven by hatreds that blind them to self-interest? Perhaps they’re simply insane?

Whatever the case, couple all this unprecedentedness with all this incompetence, and going long on Wokemerica seems a sucker bet. But, to end where we began, the very unprecedentedness of our situation means that all bets are off.

Monday Night Links

• Amongst the vast flock of contested facts that wheel around this virus like a murmuration of starlings, darkening the skies and addling the mind, one stands out. It is the single fact that blows a cathedral-shaped hole in the strategy being pursued by governments at present, and which offers a glimpse into the crypt. It is the fact that these vaccines, whatever their efficacy in other areas, do not prevent transmission of the virus. This single fact - which has long been known but is barely ever mentioned - blows apart the case for vaccine passports, segregation, lockdowns of the 'unvaxxed' and all such similar measures. Even if you believe (or pretend to) that this virus is dangerous enough to justify the radical new forms of authoritarianism which have emerged around it - and I certainly don’t - those forms will fail anyway if both vaccinated and unvaccinated people can spread it; which we know they can. [paulkingsnorth]
• Last year I shared with readers some of the Christmas albums that were a large part of our family's holiday tradition. Mostly they were CD's I bought in the mid and late 90's, which we listened to every year from Thanksgiving to Christmas. They were an eclectic mix of standards with the one thing in common that they all sounded great. Years later I learned about the importance of dynamic range and realized there was a objective reason I never tired of listening to these every Christmas, year after year. They sounded great because they had excellent dynamic range. While those albums will always have a special place in our Christmas tradition, with streaming services now broadly available, over the last few years I have added some new favorites to our listening rotation. Last year's guest post was so well received I took it as an invitation to write another post sharing some of our newer favorites. (Ed: Absolutely, Allan!) Many of these albums I listen to via streaming service so I don't always have dynamic range measurements from the CD's to compare. Rest assured they all sound great. [Allan Folz] 
• An exercise in simple arithmetic may be sobering to those counting on EV growth to dampen oil demand. The number of vehicles on the road powered by internal combustion engines (ICE) will continue to grow until EVs achieve a near-total share of new vehicles sold. This is because the size of the total ICE passenger vehicle fleet is dictated by flows in and out (i.e., the removal of ICE vehicles from the road). In the first half of 2021, the EVs represented just 2.4% of all new passenger vehicles sold in the US. Modern vehicles have incredible reliability and longevity. New vehicles sold today tend to remain on the road for decades. [Doomberg]
• That leaves the S&P 600 price-to-earnings ratio at about 68 per cent of the S&P 500, among the lowest levels since the dotcom bubble at the turn of the millennium. Small-capitalisation value stocks, companies that are considered to be priced inexpensively when compared with corporate fundamentals like book value, are trading at an even steeper discount as investors have piled in to quickly-growing companies instead, according to William Heaphy, head of William Blair’s value equity team. The valuation gap has grown even as the S&P 500 and 600 have both more than doubled from their coronavirus-induced lows last March, showing how investors need to pay richly to scoop up shares in the biggest US groups. [FT]
  
• Two former Democratic senators from rural states, Max Baucus of Montana and Heidi Heitkamp of North Dakota, lobbied against the Biden proposal and quickly won over Senator Jon Tester, the current Democrat from Montana, who killed it in October in the name of “our family farms, ranches and small businesses.” [NY Times]
• Initially, the tannins leached into a wine are smaller molecules. With time, these tannins start to combine and form larger chains—a process called polymerization. One theory is that this aging process reduces the tannins’ reactive surface, which produces a softer mouthfeel. These tannin chains become so long that they fall out of suspension, which creates a deposit and leads to sediment in some bottles. [link]
• As you may know, soybean oil is very popular among professional pizza operators, and that is certainly true of the large pizza chains, and especially those that specialize in the American style of pizza that call for large amounts of soybean oil in the doughs. Examples include Papa John's, Pizza Hut and Domino's. I believe that the main reason for their using soybean oil in their doughs is because it is perhaps the cheapest, if not the cheapest, edible food oil available for commercial use. [link]
• It is a recurring theme with Oddballs and value investing: if there isn't something a prospective investor could complain about, it isn't going to be cheap. The question is pricing the flaws. The K-Banks we have mentioned (FIEB, OPBK, UNIF) are all pretty similar but OPBK is NASDAQ listed and better about returning capital to shareholders. It is also much more expensive. [Oddball Stocks]
• What ends up happening with mutual companies is that the people managing them eventually realize that they can help themselves to a lot of the retained earnings by demutualizing. What would be most intuitive would be for a mutual to simply distribute shares to its customers or members, perhaps per capita or else pro rata if it were possible to measure the amount that each customer had contributed to building up the surplus. But this is NOT how demutualizations work. Instead, the a demutualizing company will do an IPO and sell stock, raising capital that it typically does not actually need. The real purpose of this is to make sure that the successor company will be owned by the management (which probably were not customers) and whatever customers were sophisticated enough to understand the con, and liquid and rich enough to participate meaningfully. The other key ingredient in looting the customers' surplus is to underprice the IPO. This is all disguised from the small mom and pop customers' noticing thanks to an intimidating and discouraging sounding prospectus, as well as accounting treatment of unsold mutual shares that disguises their value. [CBS]