Friday, January 28, 2022

Friday Morning Links

  • [T]o be cynical, one might think that a Fed speaker wants to get stern in front of the coming ‘base effects’ ebb, so that it looks to the gawkers in the cheap seats like they moved inflation by merely talking about it. And, in the worst case, you can back off the tough talk before you actually have to do anything. I think there are a lot of reasons that the Fed is not going to be hawkish in any traditional sense; they’re not going to restrain money supply growth by shrinking the balance sheet and squeezing bank reserves (even if they wanted to, that margin is very far away), and they’re not going to raise interest rates in anything like the aggressiveness of a traditional tightening cycle – partly because they won’t be able to stomach the wealth effect of the market reaction to sharply higher discount rates, partly because sharply higher interest rates would cause big problems with the federal budget deficit going forward, and partly because they have convinced themselves that inflation is currently just ‘paying back’ a long period of being ‘too low’ (whatever that means). For now, expect them to aggressively and triumphantly forecast that “inflation will moderate in the months ahead.” [Mike Ashton]
  • Due to “a chip shortage”, or the problem getting foam for seat cushions, or any one of a half-dozen other reasons – but perhaps also due to excessive government largesse – new car prices are now rising at 12% y/y. That was an unforecast “unknown unknown” early last year, and it is one reason that headline inflation ended the year at 7% rather than at 3%. Okay, so there was a “reason” for this surprise. But if you as an economist didn’t see that coming, what makes you think that you will see the next one…or that there won’t be a next one? [Mike Ashton]
  • In a recent report from the Geological Survey of Finland, researchers considered the minerals implications for achieving a so-called full transition; that is, using solar and wind to electrify all ground transport as well as to produce hydrogen for both aviation and chemical processes. They found the resulting demand for nearly every necessary mineral, including common ones such as copper, nickel, graphite, and lithium, would exceed not just existing and planned global production capabilities, but also known global reserves of those minerals. A recent analysis by the Wood Mackenzie consultancy found that if EVs are to account for two-thirds of all new car purchases by 2030, dozens of new mines must be opened just to meet automotive demands—each mine the size of the world’s biggest in each category today. But 2030 is only eight years away and, as the IEA has reported, opening a new mine takes 16 years on average. [Issues in Science and Technology
  • Canadian oil majors, royalty owners, and hydrocarbon pipelines are all priced as though disruption - actual replacement by wind and solar and electric vehicles - is going to happen in the next five years or so. But simple back of envelope economic calculations based on physics and energy density tell us that replacing fossil fuels (again, 80% of current world energy consumption) with those energy sources, the so-called "energy transition," is impossible. That means that the world is seriously under-investing in hydrocarbon production and traditional energy infrastructure, and over-investing in electric vehicles (TSLA) and in wind and solar boondoggles that will collapse the way the previous iteration (e.g. Suntech Power, Evergreen Solar, A123 Systems) did a decade ago. [CBS]
  • The main point of this trade is that, in a frothy market for fast-growing companies, you can sell $1 of the right kind of revenue for much more than $1, and so it is worth your while to create some revenue, dress it up to look like the right kind of revenue and then sell it to someone. [Matt Levine]
  • Businesses that create value return capital to their owners. The best businesses in history have been able to do this while growing. Think about it: what is a legitimate market signal that many more customers need to be served, and money invested in expanding to serve them, except profits? [CBS]
  • In 2020, the pandemic crisis year, the revenues of the S&P 500 fell by 3%. The revenues of three of the highest quality blue-chip companies in the S&P 500, all among the Top 15, Apple, Johnson & Johnson, Procter & Gamble – technology, pharmaceuticals and consumer products – were up between 0.6% and 5.5%. The revenues of the largest four North American securities exchanges rose by 15%. The operating margins of Apple, Johnson & Johnson, Procter & Gamble are high vs. the 14% margin of the S&P 500: between 24% and 28%. The average operating margin of the securities exchanges is over 40%. [Horizon Kinetics]
  • “In keeping with campus-wide initiatives to ensure that Bard is a place of inclusion, equity, and diversity, the Stevenson Library is conducting a diversity audit of the entire print collection in an effort to begin the process of decanonizing the stacks. Three students, who are funded through the Office of Inclusive Excellence, have begun the process which we expect will take at least a year to complete. The students will be evaluating each book for representations of race/ethnicity, gender, religion, and ability.” [New Criterion]
  • Last year, I laughed at how xenophobic people were towards Asians when this virus reached our shores but realized pretty quickly that this was a killer!  I quarantined myself up until scientists let me know that attending #BLM demonstrations was not a threat to my personal health since the virus would not treat it as a superspreader event.  I somehow got Corona anyway around 10 days later and was intubated for four months despite being a healthy 5'9, 325 lbs. man with Asthma and Type 2 Diabetes.  What I'm trying to get at here is that your criticisms of today's science are without merit, undemocratic, and probably racist too. [Scott Locklin]
  • Whether you know it or not, once you’ve bought an actual road bike you’ve subjected yourself to a certain level of scrutiny. It’s like running for office—everything you do is now a matter of public record and fair game for the press. If you don’t know the fundamental rules of cycling, that’s fine—as long as you learn them quickly. And Rule #1, before “Don’t sit on a stranger’s wheel” and “Don’t let a stranger ride your bike,” is “Get rid of the pie plate!” [Bike Snob NYC]
  • Thank you for your ongoing efforts to implement Senate Bill (SB) 13 (87th Regular Session), the Oil & Gas Investment Protection Act, by Sen. Brian Birdwell, R-Granbury. As you know, this law says Texas should not contract with or invest in companies that boycott energy companies. Because I strongly believe we need to prioritize and protect our state’s and nation’s energy independence, I made the passage of SB 13 a high priority. As you prepare the official list of companies that boycott energy companies, I ask that you include BlackRock, and any company like them, that choose to hurt Texas oil and gas energy companies by boycotting them in violation of Senate Bill 13. As I have stated before, if Wall Street turns their back on Texas and our thriving oil and gas industry, then Texas will not do business with Wall Street.[Lt Gov Dan Patrick]
  • One of the best improvements you can do to your life is serendipity-maxing. Just increase your exposure to potential fortunate events (this basically means increasing your exposure to other people, since in our day and age most fortune flows from interpersonal connections). There's an insane focus on hard work and self-improvement in our culture which covers up the huge role dumb luck plays in daily life. Ask boomers, odds are they met their spouse and even got jobs by dumb luck. You can't max luck, but you can max the # of "dice throws" you get. [@acczibit]
  • If you are incompetent at manufacturing and have to scrap a lot of parts, you can prevent or delay any financial statement impact of this by keeping the parts on the books as inventory even if you have already thrown them away. It is very simple, comically so, and it makes your gross margin and profit figures look better. The only problem is it is a crime! [So, if you were a Silicon Valley company doing this, you would need to provide illegal sex and drugs to accounting firm employees, SEC employees, and journalists. One good time to do this and get them on tape for blackmail would be an "anything goes" festival in the desert, where you could have "boom boom tents". It might also help to learn that trade from a master.] Based on emails that have come out in the Tesla and Martin Tripp litigation (he was a whistleblower whose phone Tesla bugged, and they tried to assassinate him), Tesla distinguished between "physically" scrapping and "virtually" scrapping parts. In an email from Michael Bowling to Chris Lister and Jens Peter Clausen, Michael Bowling wrote to "request permission" to write off an inventory inaccuracy. He said that "during the inventory we realized 1718 modules in WIP that have already been scrapped physically [were] never scrapped virtually." In the email below, it said that for the week of April 2, 2018, scrap for the Model 3 was $1,920 per car! It is strange that "permission" would be needed to do this. If a subordinate tells you that an asset on your balance sheet does not exist, you either write it off or you are a fraud. But Jens Peter Clausen wrote, "We properly want to go deep this quarter?" And Adithya Vijayakumar wrote that Mike was "working with the finance team to get the buy off on scrapping the modules for the second quarter." That makes it sound like actual ground truth is not the final arbiter of what appears in Tesla financial statements. [CBS]

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