Sunday, January 15, 2023

Sunday Night Links

  • In his fascinating, frustrating book “Where Is My Flying Car?” J. Storrs Hall argues that we do not realize how much our diminished energy ambitions have cost us. Across the 18th, 19th and 20th centuries, the energy humanity could harness grew at about 7 percent annually. Humanity’s compounding energetic force, he writes, powered “the optimism and constant improvement of life in the 19th century and the first half of the 20th century.” But starting around 1970, the curve flattened, particularly in rich countries, which began doing more with less. In 1979, for instance, Americans consumed about 10.8 kilowatts per person. In 2019 we consumed about 9.2 kilowatts a person. To a conservationist, this looks like progress, though not nearly enough, as a glance at CO2 emissions will confirm. To Hall, it was a civilizational catastrophe. His titular flying car stands in for all that we were promised in the mid-20th century but don’t yet have: flying cars, of course, but also lunar bases, nuclear rockets, atomic batteries, nanotechnology, undersea cities, affordable supersonic air travel and so on. Hall harvests these predictions and many more from midcentury sci-fi writers and prognosticators and sorts them according to their cost in energy. What he finds is that the marvels we did manage — the internet, smartphones, teleconferencing, Wikipedia, flat-screen televisions, streaming video and audio content, mRNA vaccines, rapidly advancing artificial intelligence, to name just a few — largely required relatively little energy and the marvels we missed would require masses of it. [NY Times]
  • There are two possible scenarios that I can see: (A) Earnings multiples have become permanently elevated due to an increase in the supply of capital. (This implies that capital has been accumulating; not being dissipated through consumption and in malinvestments. But we should also notice some clues that society has been living off of capital. Under-investing in infrastructure, doing things to hide costs like pensions where assumed return on investment is implausible.) And also, profit margins have become permanently elevated and will no longer experience sizable periodic fluctuations. (Coincidentally at the same time as the cheap capital has become available, even though one might have expected the cheap capital to result in more competitive entrants bidding away the high profit margins.) (B) This is just another mania, bull market, or bubble and the arguments regarding the above are special pleading and/or motivated reasoning by people who are forced participants in Investing Musical Chairs. This includes the lazy/lucky rich and the type A people who are not comfortable doing nothing or who would not be allowed to do nothing by their clients. [CBS]
  • At present, a clear sign that a value investor is being unduly influenced by what has recently worked is if they have wound up with most of their top positions in software/tech names trading at high valuations. This didn't happen overnight. Instead, they have been slowly and steadily seduced, by years of market action, into thinking these are the best stocks to own. No doubt, they started slow, and as the stocks they bought quickly moved up after purchase, they became emboldened by positive reinforcement to add more, and then even more. This goes on for a while and they end up loaded up in popular, expensive, crowded names at the peak of the cycle, despite believing themselves to be contrarian value investors that go against the crowd (the same thing happened in the late 1990s). Furthermore, the above is particularly the case if the said investors have also underperformed over the past five years. If they have owned tech/software over the past five years, they should be massively ahead of the index. If they are not, they have loaded up their portfolio in expensive quality/growth compounders very late, and are performance chasing - even if they don't themselves yet recognise it. Unfortunately for many of these investors and their clients, they will probably only realise what has happened after a secular change in market momentum/flows dynamics occurs, and they end up substantially underperforming as the cheaper, lower-quality stocks they eschewed and once owned surge ahead. They will be left to reflect on what went wrong. No doubt, they will then pivot back to what worked well during their recent period of underperformance - cheap/unloved companies. [Lyall Taylor]
  • This sort of longstanding relationship is unsurprising to anyone who knows Cucinelli personally. So much of his life is guided by consistency, down to his daily routines. “Our family has hundreds of rituals,” he says. Every Sunday, for example, he wakes up at 6:30 in the morning and walks to a local pastry shop, where he buys a package of flaky, freshly baked brioches for each household in his family: his daughters, Carolina and Camilla, and their families both live within walking distance, as does Cucinelli’s father, Umberto, who will turn 100 next month. Cucinelli leaves a bag on each of their door handles, then continues on home. Other habits can be traced back to his childhood: He and Federica grow their own vegetables in the villa’s garden, and keep rabbits and chickens. Their grandchildren help collect the eggs, just as Cucinelli did as a boy. Also, Cucinelli prefers to pass the evenings without electric lamps. “In the night I live by candlelight,” he says. “I sit in front of the fireplace in silence and get drunk on beautiful thoughts.” [NY Times]
  • Higher interest rates also mean that the interest on the $31 trillion federal debt grows, which is a positive feedback loop since the debt is not being serviced. And high interest rates choke the economy, which is unpleasant and also lowers tax revenue - worsening the debt spiral - and causes banks' loans to default. So it has seemed clear to us that printing money to buy bonds (yield curve control, capping bond yields) is the path of least resistance, 'kick the can' approach that the regime will choose. [CBS]

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