Wednesday, October 16, 2024

Wednesday Morning Links

  • We have come to think that investors do not make money off of information edges nearly to the extent that they think they do, perhaps not even at all. Corporate profits after tax are up almost 20 fold in nominal terms since 1982, and the ten year bond fell from 10% to nearly 0%. Goldstein was aligned with a very favorable macro tailwind. If you are cornucopian or at least not a doomer, you might figure that this trend will continue. It seems like you should be able to add an immense amount of value by picking good businesses at reasonable valuations and staying fully invested. [CBS]
  • The real crunch, the reason large families are still low status even if they’re rich enough to fly everyone to Lake Como for spring break, is the limited supply of parental time and energy. Raising kids “right” is supposed to mean devoting every waking moment to them, and you simply can’t intensively parent a whole houseful of kids the way you do one. You can’t hover over little Ashurnasirpal in the sandbox narrating his play at the same time as you stage-direct wee Sophonisba’s ascent of the jungle gym, and you certainly can’t do that while you also monitor the swings to make sure young Tiglath-Pileser isn’t going dangerously high. And you know what? Good. Carney describes what he jokingly calls “detachment parenting”: once your kids hit the developmental level to handle it — beginning around eighteen months or so, depending on the kid, and definitely by three — sometimes you need to just let them be. Let them figure out what to play and go, I don’t know, read a book or something. Do the crossword. Call a friend. Cook dinner. Start a Substack! (Or deal with the baby your relaxed approach made you feel like you could handle.) This is good, sensible parenting — but let’s not pretend it’s high status behavior. Nobody is looking at the lady sitting on the park bench with a book while her kids frolic and thinking, “Wow, what a great mom.” [Mr. and Mrs. Psmith’s Bookshelf]
  • Jamie Dimon is a good banker, but he's also the salesman of the century: he can say something like "I wouldn't buy back JPMorgan Chase stock here, and none of the smartest investors in the world think it would be a good idea, either," and phrase it in such a way that people listening decide that it would be a good idea to buy a little JPM. That was one result of this quarter's earnings report. Another interesting note was that the company noted, several times, that it's seeing less yield-seeking behavior from depositors than usual. One of the worries about banks last year was that their "deposit beta," i.e. the fraction of a rise in the Federal Funds rate that gets rapidly reflected in the rate they have to pay on their own savings accounts to avoid customer outflows. At a deposit beta of zero, banks are a wonderful business because they can buy long-duration assets and ignore price fluctuations; at a deposit beta of 1, anyone can replicate that payoff profile by levering up a fixed income portfolio, and one thing they'll replicate is a nonzero chance of getting wiped out when rates go up. Banks have value because the cost of wrapping this transaction in an operating business is less than the upside, as measured in some combination of lower funding costs and higher rates on riskier loans. So it's good to see signs that that model is intact. [The Diff]
  • CME Group, the world's leading derivatives marketplace, today announced that its international average daily volume (ADV) reached a record 8.4 million contracts in Q3 2024, up 29% year on year. Reflecting all trading reported outside the United States, the record volume was driven by growth across all asset classes, with the highest trading volumes coming from interest rate and equity products, which accounted for three-quarters of the growth in volume. [CME Group]
  • In my last airship article, I expressed some doubt that cargo airships were startupable. Airship development and certification is capital intensive. I thought and still believe that airships can very likely match the economics of trucks. But even if you succeed at building a great cargo airship, if you are limited to charging trucking prices, the margins will be very thin. No one wants to invest a lot of capital in a risky endeavor for thin margins. But if, as I am now convinced, operating margins could be huge by competing directly in the air freight market, then airships are definitely startupable. [Eli Dourado]
  • I aspire to run the most transformative and highest-return hard tech investment syndicate on the planet. Here's the thesis: High conviction and low volume. The incentive and strategy for most syndicate leads is to take a large number of shots on goal. I believe that startup success is highly non-random and outsized returns are possible by adhering to a disciplined investing philosophy. The minimum bar: zero market risk. The unique value proposition of hard tech investing is that if the team can do the thing, people will definitely want to buy it. All of the risk is compressed into execution: can the team actually do the thing? If they do the thing and that's still not obviously a multi-billion market, we're not going to invest. This discipline reduces market and competitive risk, offsetting the capital intensity of hard tech relative to software investing. [Eli Dourado]
  • As an airship increases in size, both the volume and the area of the airship increase, but the volume always increases faster than the area. The volume is a function of length cubed, while the area is a function of length squared. This simple square-cube law means that, in principle, the performance of an airship gets better as it gets bigger. Forever. If your airship performance isn’t good enough, just double it in size. The lift will increase by a factor of 8, the drag will increase by a factor of 4, and the lift-to-drag ratio will therefore double. Still not good enough? Do it again. To do cargo airships right, we need to make the biggest flying objects ever created. A modern cargo airship would make the Hindenburg puny by comparison. [Eli Dourado]
  • Cheap natural gas is spurring Chinese truckers to switch to rigs powered by the fuel, damping the country’s appetite for oil and contributing to a “catastrophic” sales drop for the China unit of one of the world’s largest truckmakers. While the country’s rapid adoption of electric cars has been in the spotlight, significant change has also been taking place in China’s freight industry. Analysts said the swift rise of natural gas-powered trucks, particularly heavy-duty vehicles of 14 tonnes and above, had helped thrust China past peak diesel demand and moved it closer to reaching peak oil. [FT]

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