Thursday Night Links

• Private investing (historically private equity and increasingly recently private credit) has arguably delivered attractive returns over the period we’re discussing (I say arguably, as there are lots of issues with figuring out what the average investor really made net of massive fees and compared to the right beta x the market). Of course, at the start of this period, it was viewed as a “bug” to have illiquidity, opacity, and valuation that wasn’t marked to market. A bug is something you get paid extra for bearing, i.e., you get a higher expected or average return. Well, it is very clear that modern investors now mostly view each of these things as a “feature.” In a world of volatile markets and crazy ups and downs for rational strategies relative to markets, many investors clearly enjoy being able to say—as many did—in a terrible year like 2022 that their private investments were “flat to slightly down.” Of course, that was never true. Privates can be marked-to-market any time private managers want to. [Clifford S. Asness]
• Consider the light metals in the top right quadrant in the electrochemistry figure. Al and Mg both have far higher strength/weight ratios than steel; they resist corrosion much better; their production is already electrified; and their ores are arguably easier to find– Al is the most common metal in the earth’s crust, Mg is extractable directly from seawater. Both metals are more expensive than Fe today, primarily because they take much more energy to produce. But in a world with cheaper clean electricity – the world we need if we want to decarbonize steel production anyway—in the future we want, we should expect more use of Al and Mg, and much less use of steel. As you can see with these 'idiot indices' (cost of metal divided by cost of ore plus energy of reduction), these light metals have vastly more room to come down in cost too. So why are hundreds of startups looking to electrify steel production, but you can count the enhanced Ti or Mg projects on the fingers of one hand? [Ian McKay]
• The part of the South known as Languedoc, by contrast, was isolated. It was isolated from the North by the enormous Massif Central, and it was isolated from itself by an undulating landscape of dense forests, narrow ravines, and hidden coves. The culture of the South was one of fiercely independent cities and towns, and a whole crazy kaleidoscope of minor nobles plotting against each other and against their suzerain, the Count of Toulouse. That’s right. They were hill people. Even the peasants had rights — Roman law still held sway through much of the South, which meant that tenant farmers had to be paid for their work, and could move to a different area if they didn’t like their local lord. Secluded places always hold onto the old ways for longer, and the great barbarian invasions that sloshed over Europe lost much of their violence by the time they made it over the mountains. Other signs of this: the Roman architecture that still stood in many a place (you can still go see it today), the Occitan language lacking much of the Germanic vocabulary that made it into French, and the locals cooking with olive oil rather than butter. [Mr. and Mrs. Psmith’s Bookshelf]
• A road is how you get from one place to another: it creates value by transporting people as quickly and easily as possible between places. A street, on the other hand, is the framework for building a place: it creates value by being a site for people to build, maintain, and improve their human environment. But the awkward middle ground, the “stroad,” is too fast to provide an effective platform to build a real place and yet too slow to connect places efficiently. But America is full of them! [Mr. and Mrs. Psmith’s Bookshelf]
• Despite the variety of composers who have written them, and despite too the breadth of his non-fugal output (though the idiom is rarely far distant), Bach is the writer of fugues par excellence, and the fugue is perfectly brought to consummation in his compositions. All fugues start with a theme or “subject” that is successively introduced by each of the voices, every voice being an independent and equal line. As the second and following voices state the subject, the voices that have previously done so utter complementary material, typically called a “counter-subject.” When all the voices have spoken—in Bach fugues between two and seven, most often three or four—the so-called exposition is completed. What follows is a slight relaxation of the preceding rigor, in which the subject is given a rest and other, related material, still in strict counterpoint, acts as an “episode” before the next iterations of the subject, now usually in a different key. [The New Criterion] 
• Consider that we have already reached that situation in the bond market. You cannot invest money in most bond markets today and make a reasonable return (the risk-free return has been recast as return-free risk). In addition, we are at or are approaching that point in many real estate markets as well. In many capital cities today, you’re lucky to be able to get more than a 4% gross rental yield on residential real estate (25x sales). After costs (including property management) and tax, that’s somewhere in the order of 40x earnings. Stocks are currently one of the last bastions of reasonable returns. But there is no inevitability that that situation will persist. Opportunity does not exist just because it is needed or desired. If markets were to melt up to 50x, it would feel good for a while (if you were invested). However, your future stream of dividends would not have increased, so in truth you would be no wealthier, and furthermore, you would be confronted with the reality of poor reinvestment returns on dividends and corporate stock buybacks. [The LT3000 Blog]