Thursday Night Links

• We never believed the Fed could get out of the box it placed itself in after years of overly aggressive and intrusive monetary policy. Ultimately, we expect Chairman Powell will be forced to admit he doesn’t have a house in the Hamptons and will once again pull out the Fed’s worn-out playbook and abruptly shift policy. In effect, the Fed will have to admit that a hawkish monetary stance is incompatible with current debt levels and an economy overly dependent on asset inflation. At that time, we expect a growing number of investors will discover what we’ve longed believed—the Fed is trapped. And if the Fed wants to get nuts by continuing to tighten, let's get nuts! We're prepared for it. [Eric Cinnamond]
• One of the main goals of financial repression is to keep nominal interest rates lower than would otherwise prevail. This effect, other things equal, reduces the governments’ interest expenses for a given stock of debt and contributes to deficit reduction. However, when financial repression combined with inflation produces negative real interest rates, this also reduces or liquidates existing debts. It is a transfer from creditors to borrowers. The financial repression tax has some interesting political-economy properties. Unlike income, consumption, or sales taxes, the repression tax rate is determined by financial regulations and inflation performance that is opaque to most voters. Given that deficit reduction usually involves highly unpopular expenditure reductions and (or) tax increases of one form or another, the relatively “stealthier” financial repression tax may be a more politically palatable alternative to authorities faced with the need to reduce outstanding debts. [Carmen Reinhart]
• So, I'm very interested in tobacco. I've never used it at all. Shoutout to Credit Bubble Stocks, that is kind of I think, it's one of the best newsletter blogs out there, on the idea that society is 'under-nicotined'. [Andrew Walker] 
  
• Trump and his supporters need to ensure that Trump remains MAGA priority No. 1. There are a hundred legitimate things to get angry about right now (crime, gender madness, immigration, Covid and vax regs, the economy), and Ron DeSantis has proved himself expert at tackling every one of them. So Trump and his grifters have to redirect your anger away from your problems and toward theirs. They also have to make you believe that America can’t be “fixed” until Trump’s honor is restored and he regains the presidency. This is tricky, as Trump had the presidency and proved himself the opposite of DeSantis in terms of being an effective executive. Which brings us to Bannon’s newest con, unveiled last week. See, it was “the swamp” that made Trump ineffective. Not his own hiring practices, not putting Kushner in charge of the border. Not Ivanka, Bolton, Kardashian, or the other morons he surrounded himself with. No, ’twas the swamp wot dun him in! [David Cole]
• I propose, not as definitive but provisional, three related explanations for elite behavior that fit the observable facts. First, the elites’ top priority is simply to stay in power and self-perpetuate as a caste; what they do with their power is secondary. Second, they think only short-term. Whatever they need to do in the here and now, to get them through this or that crisis, they will do, long-term consequences be damned. Third and perhaps most important, they are in the grip of a faith-like ideology that they cannot question. None of it has been thought through, but its basic tenets (the doctrine) are known to all and treated like scripture from which it is heresy to deviate. [Michael Anton]
  
• Ducey, who co-chairs the Republican Governors Association (RGA), is part of an informal group of governors and ex-governors trying to maintain free-market principles, limited government, and fiscal discipline far from the madding Washington and Mar-a-Lago crowds. He praises governors like Glenn Youngkin in Virginia, where Republicans hold only one house in the state legislature, and Phil Scott, who is "standing in the breach" in "Bernie Sanders's Vermont" with both houses under Democratic control. Under Ducey's watch, Arizona has become a kind of policy mecca for the states. One political strategist told me that if a controversial issue comes up at an RGA conference, someone inevitably asks, "what's Arizona doing?" Ricketts has championed tax relief and regulatory reform in Nebraska. So has Baker — who, unlike Ducey and Ricketts, has had to cope with a Democratic state legislature. The consequences of good government are evident. "Americans vote with their feet," says Ducey. "Ronald Reagan said that had the Pilgrims landed on the west coast, they would have never bothered to settle the rest of the country, and yet now there's an exodus from California. Look at states like Arizona and Texas, Florida, Tennessee, places like Nebraska. Look at what Mitch Daniels did in Indiana." Indeed, eight of the top 10 states for net domestic migration today are led by Republican governors. [National Affairs]
  
• I am now in the hole drilling phase. I built an earth auger, which would have worked really well in other parts of the country, but in Oregon, where I live the drilling is not so easy. I have increased the power of my auger 20X and I'm getting ready to dive back in. [EcoRenovator]
• I wanted to wait till the early evening before heading out so I took a nap. After grabbing my stuff, I walked up an extremely steep hill to the University of Coimbra, one of Europe’s oldest, founded in 1290. It has an enrollment of 30,000 and is one of the top universities. The campus is beautiful and its massive and multi-tiered botanical gardens are far superior to Lisbon’s. In addition to the earlier architecture, the history faculty and the main library are built in the Art Deco monumental style, with socialist realism-type statues of powerful half-naked men and women. Unsurprisingly, these were constructed under Salazar in the 30’s. This style wasn’t at all just relegated to fascist and authoritarian regimes. Examples abound in the US as well; for example, 30th Street Station in Philadelphia and the Hoover Dam, to mention a few. [Carlos]
• The first thing that stood out to me was how the share count continues to slide. FFBW is cannibalizing itself and it has been fun to witness the pace at which they have managed to do so! As the press release notes, the third 10% repurchase since the conversion was initiated in the second quarter and FFBW has already worked through that at pace, having bought another 4.3% of shares outstanding at 6/30. Subsequent to quarter end, they repurchased another ~220,000 shares so they are already approaching completion of that 10% tranche. Per CEO Ed Schaefer, they can do 20% a year (from March to March) so I expect they’ll of course follow up this another 10% buyback sometime in the coming months. With the TCE ratio at an extremely conservative 25.4%, they have the capital to spare. It would also seem FFBW demonstrated a willingness to repurchase at slightly higher valuations - up to avg. price of $12.40 which is ~90% of TBV, somewhat higher than I recall in the past. I think Ed understands there's a case to be made for buying shares below private market value even if those repurchases are also modestly above TBV. Only time will tell if that’s the case or if it will even be necessary though. [Conversion Confidential]
• Lamar is not super-cheap like our Canadian oil investments, but it is a high quality, niche real estate investment. (Our pipelines are also real estate investments, with impenetrable barriers to entry.) Most of the world's businesses are crappy. They have to advertise to remind people that they exist. It would not be too surprising if Cracker Barrel's percentage of sales spent on marketing is higher than its ultimate profit margin. Lamar is a beneficiary of that. [CBS]
• DeSantis has savagely locked Trump in private, according to Vanity Fair. And while he's thus far demurred from presidential speculation, the Sunshine State governor reportedly told donors that he would face a Trump challenge 'head on.' 'He calls him a TV personality and a moron who has no business running for president,' a staffer told the outlet. The report suggests his plan of attack would largely focus on showing Trump's broken promises and empty threats as just bluster. An unnamed Republican source recalled him telling donors, '[T]he only way to beat Trump is to attack him head-on. He says he would turn to Trump during a debate and say, "Why didn’t you fire Fauci? You said you would build the wall, but there is no wall. Why is that?"' [Daily Mail]
• By the way, as resurrecting Ice Age fauna comes closer to reality, let me resurface my suggestion that if you are looking for a contained place where the beasts couldn’t get away, would feel more or less at home with the cold climate, would be isolated from modern diseases, and would have a lot of room without conflicting with an indigenous human population, the uninhabited island of Grand Terre in the Kerguelen Islands in the remote Southern Indian Ocean would be an ideal spot for an Ice Age Park. Nobody lives on the Kerguelen Islands except for a few dozen French researchers. Grand Terre is big, about 3/4th the size of Corsica although some of it is covered with a glacier. It’s only 49 degrees south, which compares to the American-Canadian border at 49 degrees north, but the Roaring Forties wind howls all the time, so there are no trees and it’s unattractive to humans. [Sailer]
• Air Canada today welcomed the Government of Canada's decision to lift remaining COVID-19 restrictions, including requirements for wearing masks on aircraft, testing and quarantine, and the compulsory use of ArriveCan beginning October 1, 2022. "Air Canada welcomes the removal of these restrictions, acknowledging that air travel is safe and that the measures were not justified by science. We believe it will greatly facilitate travel, help to continue stabilizing the country's air transport sector and support Canada's economy. Customers and crew will still have the option to wear masks and we also encourage customers to monitor their own health to be sure they feel well and fit to travel," said Craig Landry, Executive Vice-President and Chief Operating Officer at Air Canada. [Air Canada]