Friday, October 27, 2023

Earnings Season Links


  • Why do firms exist? That is a question of first-order importance for many fields of microeconomics. Alchian has two papers worth mentioning explicitly. First, Production, Information Costs, and Economic Organization with Harold Demsetz. This was chosen as one of AER's Top 20 articles in its first 100 years. The fundamental problem that Alchian and Demsetz point to is Hayekian. Alchian, once again, carrying important ideas. Information isn't free! With team production, paying each worker their marginal product isn't straightforward. People will specialize in monitoring and metering workers. [Economic Forces]
  • If you ever come across an economic argument that seems to make sense but goes completely against conventional economic wisdom, it’s probably “reasoning from an accounting identity.” Run in the other direction. Accounting does not explain anything. That’s why we have price theory. [Economic Forces]
  • It is not possible to reduce our dependence on oil unless we can find a better, cheaper, more plentiful supply of energy. This third potential outcome looked hopeless as recently as a decade ago, but now looks inevitable to those working at technology’s vanguard. The key technology, cheap solar photovoltaic (PV) power, seems obvious in retrospect. The industrial revolution was kicked off when we discovered how to create mechanical work from rocks (coal), bypassing animal muscle as the primary industrial energy source. Later we found ways to convert between heat-derived mechanical force (steam engines) and electricity. Thus, there is a rough hierarchy of energy by utility and ease of interconversion: heat, steam, mechanical motion, electricity, and chemical fuel. Solar is steadily ascending this ladder as the default source of energy for particular applications. [Casey Handmer]
  • I think a very real concern is that we could go through an era of very strong inequality like we've never seen before. When you have selected or engineered humans that are very different from the wild type, and 90% of the world population is still wild type, you’re going to have a breakaway elite. There was a period of time where aristocrats in England were quite a bit taller than normal people just because they had better nutrition growing up, while the lower classes were nutritionally deprived. Imagine a guy in his evening jacket with a cane who’s literally a head taller than his carriage driver. That guy could have attended Oxford and been educated on Euclid, or Gauss, while his shoe shiner was illiterate.  People often forget that this happened, but that was the norm in most countries just 100 or 200 years ago. One can imagine a future where the edited/selected people are tall, beautiful, athletic, and live to be 200 years old—at dinner they’re discussing convex optimization of objective functions in complexified tensor spaces, while the server has no hope of ever understanding their discussion no matter how hard they study. In our recent past inequality has been mitigated by nutrition and mass education, but it would become far more entrenched if the difference was purely from genetic enhancements. [Steve Hsu]
  • I said “I think a basket of banks will likely do very well over the next few years.” I just wanted to emphasize the term “basket” there; there are just too many idiosyncratic issues that can happen at a bank (I tweeted two from FHN / RF that are hilariously over the top for how dumb they are). I kind of look at buying good / overcapitalized banks around book value as a positive EV bet, but one with huge left tails. Banks are in the business of making loans; they generally don’t have positive surprises that take their book value unexpectedly up 20%…… but they do have one off negative surprises that could do the reverse and cut book value substantially. So I think you want to play banks in some type of basket versus a “focus on your favorite idea” play so that you get the benefit of the positive EV where a bunch of winners can make up for one or two idiosyncratic losers. I obviously could be wrong, and the size of the basket is up for debate, but that’s just my view! [Andrew Walker
  • Simultaneous invention makes biographies of inventors philosophically uninteresting. Who cares about the idiosyncrasies of somebody who discovered something at the same time as two other people? Note that the oldest of the three official Black-Scholes discoverers was Fischer who was born in 1938 and the youngest was Robert Merton who was born in 1944. Right place, right time; like Aubrey McClendon and Tom Ward who were born three days apart in Oklahoma. Similarly, J.S. Bach and G.F. Handel were both born in 1685. [CBS]
  • Toyota Motor Chairman Akio Toyoda, when asked about electric-vehicle challenges including a recent lull in U.S. demand, said the industry was coming to recognize that there isn’t a single answer to reducing carbon emissions. “People are finally seeing reality,” Toyoda said Wednesday, speaking in his capacity as the head of the Japan Automobile Manufacturers Association. Toyoda, who stepped down this year as Toyota chief executive after nearly 14 years on the job, has long said the auto industry should hedge its bets by continuing to invest in hybrid gasoline-electric cars and other options beyond just electric vehicles. As EV sales momentum lags behind in the U.S. and more buyers gravitate to hybrids, he may be enjoying an “I told you so” moment. [WSJ
  • Ford Motor said Thursday that many customers in North America are no longer willing to pay a premium for an electric vehicle over an internal-combustion or hybrid alternative. As a result, it’s postponing about $12 billion in planned spending on new EV manufacturing capacity. Customers’ reluctance to pay extra for EVs has complicated Ford’s ambitious and expensive plans to sharply increase production of those vehicles. [CNBC]
  • The planned collaboration between Honda and General Motors on a range of cheaper EVs has been canceled. The joint project, which was announced in April 2022, was supposed to develop a new platform for use in lower-cost EVs for North America, South America, and China, with cars appearing in 2027. But on Thursday, the two companies revealed that the plan is no more. [Arstechnica]
  • The Marlboro maker said its domestic cigarette shipment volume decreased 11.6%, primarily driven by wider declines across the industry and competition from illicit e-vapor products, among other factors. In a conference call with analysts, Altria CEO Billy Gifford said the lack of regulation of illicit e-vapor products has come at the expense of legal operators and approved. It said enforcement by the FDA has been "inadequate and ineffective." [CNBC]
  • Shares of Siemens Energy tumbled 35% on Thursday after the company sought guarantees from the German government. The wind power giant made headlines earlier this year, when it scrapped its profit forecast, citing a “substantial increase in failure rates of wind turbine components” at its wind division Siemens Gamesa. The company had also warned that major setbacks at Siemens Gamesa could drag on for years. [CNBC]
  • Hershey's North America Confectionery segment net sales were $2,457.6 million in the third quarter of 2023, an increase of 9.9% versus the same period last year.  Organic, constant currency net sales increased 10.1% as double-digit price realization more than offset volume declines related to price elasticity. [The Hershey Company]

1 comment:

Anonymous said...

The top is in for "inequality" when we become a republic again, the gap will narrow overnight.