Thursday, December 16, 2021

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]

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