Friday Night Links

• It’s interesting to think about the risk and return characteristics of leveraged relative-value trades compared to long-only trades, like owning an unleveraged portfolio of fifteen individual equities. With the stock portfolio, it’s difficult to estimate its expected return, but less difficult to forecast its volatility. Sure, a portfolio of equities exhibits a fat-tailed return distribution, but the big outlier events are not as large as the outcomes we have seen with relative-value trades. And of course, a long-only unleveraged portfolio has a well-defined maximum downside—the portfolio goes to zero. By contrast, with leveraged relative-value trades it’s relatively easy to estimate the expected gain, assuming you don’t get blown out of the trade due to mark-to-market losses, but more difficult to define, and assign a probability to, how bad things might get prior to convergence. That’s the trade-off you have: the more you can tie down the expected return as of some date, the less sure you can be as to value fluctuation over the time it takes to get to that date. [Victor Haghani]
• Imagine a gleaming new Federal Reserve bank on the shore in Miami and another in the Phoenix desert. This isn’t a fanciful dream but a real possibility. The Federal Reserve Board has the power under Section 2 of the Federal Reserve Act to change the existing regional bank structure and even create new districts. It’s one of the many reforms the Fed should consider. [WSJ]
• As more homes are put up for sale, owners are finding that demand isn’t there at the prices they expected. Of the 3.06 million properties listed at the start of this summer, only 28% sold, based on data from housing analytics firm Parcl Labs. That leaves 1.96 million homes left on the market going into the fall, a fifth higher than this time last year. Realistic sellers will cut the price. Others are either delisting their properties to wait for market conditions to improve, or becoming accidental landlords: 2.3% of the homes that were for sale this summer ultimately switched to rentals. The share is higher in certain Sunbelt cities where conversions to rentals topped 5%. [WSJ]
• Neoclassical economics was designed and promoted by landowners and their hired economists to divert attention from George's extremely popular insight that since land and resources are provided by nature, and their value is given by society, they - rather than labor or capital - should provide the tax base to fund government and its expenditures. [Mason Gaffney]
• Putting an “I bought this before I knew he was a Nazi” bumper sticker on your Tesla is middle class, indicating your deep concern with social respectability. The upper-middle thing is to put it on your Ford, a cleverly ironic gesture that simultaneously displays your historical knowledge and mocks middle class status anxiety. To be category X today, you’d have to put it on a Volkswagen. [Mr. and Mrs. Psmith’s Bookshelf]
• Not sure that anyone really needs to be thinking about common stock investments that Warren Buffett was making in 1950, seventy-five years ago, but here we are. On the other hand, it does say something that you could have a strategy of buying low quality companies at a big discounts to liquidation value in 1950 and have it still work three-quarters of a century later. You could bring Benjamin Graham and Jerome Newman (born in 1894 and 1897) back today and they could set right to work making a good return with basically nothing changed about their strategy. There is very little actively managed money involved in small bank investing right now, so you can buy small banks for under 1x tangible book value and around 7x earnings. (These are not even low quality businesses necessarily.) [CBS]
• The U.S. Food and Drug Administration (FDA) announced that it will mail materials to 300,000 retailers nationwide that sell vapes, including convenience stores, with a reminder of which products stores are legally allowed to sell. The materials include a list of the 39 vapes (Logic, NJOY, VUSE and JUUL products) and 20 ZYN nicotine pouch products that are authorized by the FDA and can be legally marketed in the United States. [Tobacco Insider]
• Alberta will submit by spring of 2026 an application for a new crude oil pipeline for fast-track approval by the federal government, the province said on Wednesday, even though no private company has said it will build the project. Canada's main oil-producing province said it will act as the formal proponent for the proposal, taking the lead on early planning and engineering work aimed at determining the route, size and cost of a pipeline. Alberta Premier Danielle Smith said her government has no intention of building or owning the pipeline, but expects one or more private sector proponents will come forward if a pipeline is successfully designated a project of national interest. [Reuters]