Thursday, December 23, 2021

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]

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