Friday Night Links

• I'd like to think that last week's post got the ball rolling, because the impulse for the 5.6% rally in the S&P 500 over the past three days looks to be declining expectations for Fed tightening. I thought it was inevitable: a super-strong dollar, collapsing housing and commodity prices, and a huge increase in real interest rates were all but shouting at the Fed to back off and give the economy some time to digest things. [Scott Grannis]  
• This quarter's earnings season has been vindicating the "value vs growth" hypothesis. The "growth" companies that have long been considered bulletproof and which were valued very expensively are reporting falling earnings, while value companies that are valued less expensively are turning out to have pricing power and are reporting higher earnings. [CBS]
  
• The easiest thing to do as an investor is to buy what you and everyone else perceives to be a great company with great prospects at a full/expensive price. Anyone can do that (and almost everyone does); it requires no skill; and it tends to underperform in the long term. Why does everyone nevertheless do it? (1) It feels safer to own good companies, and those everyone agrees have good prospects; (2) most of the time, such stocks will outperform in the short to medium term, which seems to validate/reinforce the wisdom of owning such stocks. All the big long term outperformance/underperformance is in asymmetry and inflection points. Most of the time, popular expensive stocks with good prospects do ok to well, but occasionally they get slaughtered, and vice versa for stocks that are cheap and unloved. Why? As I've argued on multiple occasions, it's because investors overestimate their ability to predict the future - especially over the long time horizons required to justify very high or very low multiples. Unexpected change happens more often than people intuitively expect. Classic examples - thermal coal stocks are up 10-fold+ over past year and still trade at 2x spot earnings. Everyone was sure coal was dead forever. While META and BABA are down 70-80% on significantly deteriorated prospects & still trade at 15-20x current earnings run-rates. Outsized long term performance requires that you buy things that are genuinely cheap and which get on the right side of asymmetry. But that requires comfort with uncertainty; a willingness/ability to underperform for long periods; and a willingness to look stupid. Few have it. The challenge is that asymmetry pays off in large, concentrated bursts. Most people settle for small outperformance most of the time, coupled with short periods of dramatic underperformance for total underperformance through cycle, rather than vice versa. People also get unwittingly drawn in to investing that way because short term, the market will "teach" you the wrong lessons. This is one of reasons why investing is so difficult, and ppl don't always improve with experience. Most of time, the market rewards the wrong decisions. [Lyall Taylor] 
  
• Put the market caps together of Microsoft, Apple, Nvidia, Tesla and Amazon and compare that figure with their aggregate free cash flow and you get a multiple of over 50 times, down from nearly 70 at the start of the year. [Felder]
  
• Not only did PredictWise use this highly sensitive location data to monitor millions of Americans’ compliance with Covid lockdown decrees but it also combined this data with follow-up surveys to assign “Covid concern” scores to the people who were being surveilled. PredictWise then used this data to help Democrats in several swing states to target more than 350,000 “Covid concerned” Republicans with Covid-related campaign ads. [link]
• Many studies have been conducted purporting to show that antidepressants promote neurogenesis, and some have argued that this could be a fundamental and beneficial part of the antidepressant response. Many also consider neurogenesis to be useful because it could promote healing of neuronal damage that is purportedly caused by depression. At the same time, the assumption that neurogenesis is a beneficial effect of antidepressants should not be accepted uncritically. Neurogenesis is carefully regulated over the life span because cognitive functioning does not bear a simple relationship to the number of neurons in the brain. In fact, if antidepressants were really effective in promoting the proliferation of new neurons, clinicians would have to weigh any possible utility of antidepressants with the possibility that they could trigger brain tumors. However, there is growing in vitro evidence that antidepressants reduce gliomas and neuroblastomas, and these effects are mediated by neuronal apoptosis. In fact, a recent epidemiological study suggests that prolonged TCA use in humans may protect against gliomas, although antidepressants may increase the risk of other forms of cancer. Apoptotic effects are not limited to neoplastic tissue. Antidepressants have been found to cause cell death in non-cancerous hippocampal neurons in vitro  and in vivo. They have also been found to cause cell death in sperm cells. In short, there is good evidence from several different lines that antidepressants trigger apoptosis. It would be extremely odd if antidepressants directly and concomitantly promoted both neurogenesis and neuronal apoptosis. In fact, the evidence of antidepressant triggered neurogenesis is equivocal. At the heart of the matter is the fact that all the studies testing for neurogenesis use a method called 5-bromo-2′-deoxyuridine (BrdU). [Frontiers in Psychology]
• Almost 35 years ago American drug regulators approved Prozac, the first in a series of blockbuster antidepressants known as selective serotonin re-uptake inhibitors (SSRIs). Prozac and its cousins were lauded by patients and doctors as miracle drugs. They lifted low moods quickly and seemed to have no drawbacks. Divorce, bereavement, problems at work—a daily pill was there to help with that, and anything else which made you sad. Many people have stayed on these drugs for life. In Western countries today between one person in seven and one in ten takes antidepressants. [Economist]
  
• The total amount of gold ever mined seems to be about 150,000 tons. Wikipedia says it's either 165,000 or 174,100, PIMCO said 155,000, and the goldbugs think it is less due to exaggeration and double counting of paper gold. Call it 150,000 metric tons. That's 4.8 billion ounces. Only 2/3 of an ounce per person on Earth is the "fair share". So it would be pretty trivial to own a multiple of your fair share of gold. Incredibly little per person! There are about 12 million square miles (8 billion acres) of arable land in the world. That's just over one acre per person. The U.S. has about a million square miles, or 640 million acres, of arable land, which is just over two acres per person. M1 money supply is about $8,000 per person in the U.S. and M2 is $30,000. Try getting $30,000 in cash from a small bank branch someday. If oil reserves are 1.5T barrels (generous) than the amount per person is 250 barrels. You could buy that for the price of a decent car. The deliverable on an oil futures contract is 1,000 barrels and the initial margin for that contract is only $4500! There's only one cow for every three people in the U.S. What I am getting at is: it probably wouldn't be a bad idea to own more than your fair share of all of these resources. [CBS]
• With global HY spreads currently at 613 bps, similar conditions have historically provided an attractive allocation point. Forward 1-year returns are positive, with the average returns resembling equity returns, in the high single digits/low double digits. As highlighted above we believe that valuations in portions of the high yield markets are starting to look cheap, with a strong preference for opportunities in the non-cyclical portions of the market. Investors do not have to sacrifice yield or credit quality for this trade, as we continue to see ample opportunities in this space. [Man Institute]
• For the past few years the most polarizing thing in finance has been crypto. Crypto is a set of ideas and products and technologies that grew out of the Bitcoin white paper. But it’s also, let’s be clear, a set of lines on charts that went up. When Satoshi invented Bitcoin, one Bitcoin was worth zero dollars: It was just an idea he made up. At its peak last November, one Bitcoin was worth more than $67,000, and the total value of all the crypto in circulation was something like $3 trillion. Many people who got into crypto early got very rich very fast and were very annoying about it. They bought Lamborghinis and islands. They were pleased with themselves: They thought crypto was the future, and they were building the future and being properly and amply rewarded for it. They said things like “Have fun staying poor” and “NGMI” (“not gonna make it”) to people who didn’t own crypto. They were right and rich and wanted you to know it. Many other people weren’t into crypto. They got the not-entirely unjustified impression that it was mostly useful for crime or for Ponzi schemes. They asked questions like “What is this for?” or “Where did all this money come from?” or “If you’re building the future, what is the actual work you’re doing?” or “If you’re building the future, why does it seem so grim and awful?” And the crypto people, often, replied: “Have fun staying poor.” And then, this year, those lines on charts went down. The price of one Bitcoin fell below $20,000; the total value of crypto fell from $3 trillion to $1 trillion; some big crypto companies failed. If you’re a crypto skeptic, this was very satisfying, not just as a matter of schadenfreude but also because maybe now everyone will shut up about crypto and you can go back to not paying attention to it. For crypto enthusiasts, this was just a reason to double down on grinding: The crash would shake out the casual fans and leave the true believers to build the future together. In a sense it’s a dumb time to be talking about crypto, because the lines went down. But really it’s a good time to be talking about crypto. There’s a pause; there’s some repose. Whatever is left in crypto is not just speculation and get-rich-quick schemes. We can think about what crypto means—divorced, a little bit, from the lines going up. [Matt Levine]
• It was the final candidate list to be "voted on" (members and alternates for the Central Committee), something around 380 names. It's an up/down to the whole list. And of course everyone in the entire Great Hall will vote yes. Everyone. No need to even look at the list. (The Politburo is 25 (now 24) of the Central Committee. The "Standing Committee" is just 7 of the Politburo, Xi being one of them). It is possible he was given an altered list, but Hu's folder probably had the exact same document as everyone else in the hall. It's just that he didn't need to be looking at it, noticing who has been removed, and apparently wishing to express his concerns on that subject. Bottom line is Hu is old and somewhat feeble, but he was not escorted out for medical reasons. The full video makes it clear it was because of the contents of the folder (the delegate list for voting) and who had been removed from the list, and the apparent situation that Hu was objecting to the document and likely to make further nuisance. Xi called over the Deputy Director of the Central Committee Office, who then sent over one of Xi's personal security staff, who nodded repeatedly at Xi's instructions and then escorted Hu out. It is unlikely that any of this scene was planned in advance. It just happened. There is informed commentary on the full video at the link below. The video is analyzed in detail. Everyone is identified by name and role. And the list is discussed including the actual specific removals that would have displeased Hu. There is at least one still photo closeup of the top page of the contents of the red folders. It is clear what the document was. [r/ADVChina]
• This morning, you opened your phone and started scrolling. Your screen presented you with the usual updates: the nth wave of plague, the growing supply chain crisis, and two nuclear powers exchanging confrontational threats. You yawned and went to start your day. Collapse gets old fast. Chances are the threat of imminent destruction didn’t stop you from hurrying to work. But to some, collapse can be a thrilling possibility. Keep scrolling, and you’ll eventually come across its devotees: they include backwood fundamentalists, deep green radicals, apocalyptic cults, and pessimistic online doomers, to name just a few. The collapse of society can seem to hold an opportunity. Imagine no longer having to clock into work or pay taxes. Imagine money losing its importance when beans and bullets hold all the value. Imagine scheming lawyers and bankers getting their due when their wealth belongs to those strong enough to take it. Imagine a blank slate for those who see no place for themselves in our corrupt civilization. Collapse enthusiasts tend to share a basic implicit assumption: if society as we know it ceased to exist, they and their ingroup would be better off in some important way. Sometimes, social ills seem so entrenched that no other way out exists than for the system behind them to self-destruct. Others see the social order as fundamentally stacked against them, with any hope for advancement requiring its total reset. [Adam Van Buskirk]