Thursday Morning Links

• Many of us still recall the story of Belshazzar’s feast, in which the foolish king’s crime was to take sacred vessels plundered from the Temple in Jerusalem, and use them to carouse merrily with his toadies. As they did so “they praised the gods of gold, and of silver, of brass, of iron, of wood, and of stone . . . which see not, nor hear, nor know: and the God in whose hand thy breath is, and whose are all thy ways, hast thou not glorified.” Then it was that there “came forth fingers of a man’s hand, and wrote over against the candlestick upon the plaister of the wall of the king’s palace: and the king saw the part of the hand that wrote.” The prophet Daniel, brought to interpret the writing, tells him, “God hath numbered thy kingdom, and finished it. Thou art weighed in the balances, and art found wanting.” I wonder if this portion of scripture is read often in Canterbury Cathedral nowadays. I suspect that any nation which neglects it will sooner or later face its own writing on the wall, as we do. [Peter Hitchens]
• So, given that, how does the market look today? The market today looks like it is priced correctly. The 10-year Treasury rate is 4% today, and the S&P 500 index P/E is 25.5x, almost exactly where it should be according to the model. Next year’s estimate P/E is 22x. In past bubbles, the rubber band was stretched. The table below is from an earlier post. Just before Black Monday, the rubber band was stretched as 10-year rates spiked to close to 10% while the earnings yield declined to 4.7%, creating a near 5% gap. On a price basis, the market was overvalued by 100%! During the internet bubble, the gap increased to 1.5% and the market was overpriced 40%. Today, there is no stretch in the rubber band. [The Brookyln Investor]
  
• Jamie Dimon was sitting on the 13th floor of his new headquarters on a Monday morning, sipping a Guinness and looking out at the Manhattan skyline. It was the first day that JPMorgan Chase’s massive skyscraper at 270 Park Avenue was opening to employees; the CEO had arrived with his architect to toast the building, a $3 billion monument to work. [WSJ] 
• Both Rayonier and PotlatchDeltic have also benefited from surging demand from solar-power generators for swaths of land, especially in the South. They each have options and lease agreements with solar developers covering tens of thousands of acres at rates that are upward of 10 times more profitable than growing pine trees. [WSJ]
• The U.S. retreat from its electric-vehicle ambitions is spreading around the globe. In Canada, Prime Minister Mark Carney paused an electric-vehicle sales mandate that was set to take effect next year. In the U.K., Prime Minister Keir Starmer has allowed for a more flexible timetable to hit the country’s EV targets. And the European Union last month bowed to pressure from automakers to rethink—a year earlier than planned—its 2035 target for eliminating carbon-dioxide emissions from cars. [WSJ] 
• General Motors said it is reducing its electric-vehicle manufacturing capacity and booking a $1.6 billion charge on its EV business as demand sinks. In a regulatory filing, the company said that EV sales are expected to fall with the end of government-funded subsidies and regulatory mandates that fueled EV growth. The automaker has dramatically scaled back EV plans after spending billions on the technology. In 2021, GM had said it was committing $35 billion on EVs and autonomous vehicles. Money went toward new models, EV battery development and converting traditional auto factories into EV plants. [WSJ]
• One thing I notice in reading the various things put out by Stahl is that he never talks much about valuations or at least how much he thinks the various investments held by HK and FRMO are worth. Granted TPL and GBTC are the main investments held by Stahl, so the smaller stuff is not hugely important to talk about, but even for TPL I don’t see much in the way of what Stahl thinks these businesses are intrinsically worth. Why is this? Am I just missing it? Like what is the calculation – however approximately – that Stahl is making? IDK why TPL is better than, say, a basket of other oil royalty companies with similar low-capex, commodity-price optionality that Stahl always mentions with talking about TPL (of which there are a good number that are cheaper on a conventional P/E and price-to-flowing-barrel basis). [Lemon Cakes Investing]
• I think this year we're really happy that we were able to cancel just over 2.5% of the shares outstanding. We've also found a few acquisitions that are kind of in the high teens IRRs. That's great as well. I think, again, on top of the dividend, we have still a significant wedge of incremental cash flow. Even though oil over the last three years has gone from $94 to $58 and gas is virtually at zero, we still have roughly $100 million of excess free cash flow a year. We just thought with the growth we've seen in the business and the strong free cash flow yield, it was a great opportunity to cancel shares. We're happy with the amount we've canceled this year. The debt repayment should continue through the back half of the year. [Prairiesky Royalty Ltd.]
• Testosterone has affected my life in ways both large and small. The best way I can describe it is that it uniformly lowered the activation energy required for pretty much every activity. When I get a message, I respond to it. When I need something from another room, I stand up and go get it. In fact, I have energy to burn; sometimes I find myself pacing in my office. I get 1-2 hours more peak productivity per day. [Cate Hall]
• Should people start taking lithium orotate, such as the low dose of 5 mg now, widely available as an unregulated supplement? The answer is no, even though we’d anticipate it would be safe, without worrisome side effects as seen with considerably higher doses of lithium carbonate used for BD. Yes, it’s tempting, with the body of evidence presented here that exceeds supplements in common use, but we need a clinical trial to prove that the new study translates to a human benefit. If lithium orotate does work, we don’t know the right or optimal dose. Even 10 mg would be a huge dropdown from the usual dose for lithium carbonate, which for BD in adults is between 600 to 1,800 mg/day. The amount of elemental lithium in lithium orotate is approximately 1/5th of lithium carbonate. [Eric Topol]

Monday Night Links

• Let’s suppose that the Gospels really are a historical account of real people and events, and not some later invention. Well the Gospels are full of named individuals, so we should expect the statistical distribution of their names to match that of the society from which they were taken. Sure enough, the fit is very good: if you go and tabulate the names found in first century Judaean ossuaries, the most popular ones by far are Simon and Joseph, and there are 8 distinct Simons and 6 different Josephs mentioned in the New Testament. The most popular female name at the time was Miriam (Mary). None of this is something that somebody making up a story centuries later would have known, and once again we find that the various apocryphal and gnostic gospels are full of weird names and names that were popular in other times and places. Because you see, the thing about names is they wax and wane in popularity very fast! The most popular names in first century Judaea were not the most popular names in third century Judaea. They weren’t even the most popular names in first century Alexandria! Most of the wealthy and assimilated Jews of the later Roman Empire, the ones that somebody trying to fake the Gospels would have known, were Alexandrine. But the name distribution in the New Testament fits the name rankings of cosmopolitan Alexandria very poorly (common Jewish names in Alexandria included Sabbatius and Dositheus), and that of backward and isolated Palestine very well. You can push the onomastics angle even further. Imagine that you have ten friends named Simon and one friend named Thaddeus. When you’re writing to somebody about Thaddeus, you might just call him Thaddeus, and when you’re writing about one of the Simons, you’d include extra information to disambiguate him. Every bit of the Gospels, down to the random side conversations, fits this principle perfectly. [Mr. and Mrs. Psmith’s Bookshelf] 
• The first pattern that you notice is that popular baby names change over time just like all fashion. What seems to happen is that certain sounds or phonemes become popular and that drives name choices with those sounds. For example, Ava, Emma, and Anna all seem to trend together in part because they share similar sounds. But if any name becomes too popular, it stops being used as much. This leads to shifts in popularity over time. [Explorations in Personality]  
• After that first visit I read the Essay on Development and found, as he did, that “to be deep in history is to cease to be Protestant.” In a gap year I read the Grammar. Back at Oxford, I made the Littlemore pilgrimage each feast day. I drifted from my D.Phil. topic in history into theology. On an Easter retreat at Littlemore, I wrote an essay about my conversion in the library. Then doors opened. [The Lamp]
• The most significant development is that the “scaling law” appears to be breaking down – more compute is no longer delivering proportionately meaningful gains in model performance. Indeed, it is even possible future models start to get worse on account of AI “pollution” of the training data set (discussed more below). Moreover, evidence is also emerging that LLMs have fundamental limitations in their capacity to reason, and in contrast to early speculative optimism, it appears they do not in fact have internal models of the world and are instead simply sophisticated imitation engines. Unreliable output, or “hallucinations”, are proving persistent, and may in fact be an incurable feature of LLM architectures, rather than merely temporary nuisances. To the extent this proves to be the case, LLMs may be a dead end and genuine breakthroughs in AI/AGI may require us to go “back to the drawing board” with RL and/or entirely new and more targeted architectures, potentially a tougher grind and setting us back decades relative to prior expectations. [Lyall Taylor]
• Management was recently authorized to increase Aztec’s buyback program to accommodate additional privately negotiated block purchases. This brings the total dollar amount of authorized buybacks to $8,750,000. Aztec will have repurchased a total of approximately $7,800,000 in shares since December 2024. Subsequent buybacks will be considered on a case-by-case basis. [Aztec Land & Cattle Co., Ltd.]
• BlackRock-owned Global Infrastructure Partners is in advanced talks to buy utility group AES people familiar with the matter said on Wednesday, a deal that could be one of the largest ever involving a U.S.-listed power company. [Reuters]
• [H]e was unhappy that, in two places in the piece, an editor had changed the word “but” to “however.” He made his case for a page and a half, and concluded, “But is a hell of a good word and we shouldn’t high hat it. . . . In three letters it says a little of however, and also be that as it may, and also here’s something you weren’t expecting and a number of other phrases along that line.” [The New Yorker]
• The other night, struggling to sleep, I was visited by a fantasy: The 2028 presidential election is coming to its conclusion and the candidates are Republican Sen. John Thune of South Dakota and Democratic Gov. Josh Shapiro of Pennsylvania. President Trump has quietly—I told you this is a fantasy—announced his intention to retire to the golf course. JD Vance, driven out of the campaign by disastrous polling, will caddy for him. [WSJ]
• Kennedy got into the habit, according to a person familiar with the matter, when he was living in Bedford, N.Y., an area sometimes described as the epicenter of Lyme disease. He liked to start the day by taking his dogs or hawks (Kennedy is an avid falconer) for a hunt or a hike, then hit the gym afterward. Wary of ticks, he wore jeans for his outdoor adventures and then just kept them on for his workout. [WSJ]

Tuesday Night Links

• Even free storage isn't helpful if the cost of energy from the solar arrays is more than natural gas. Lazard's yearly report is the industry benchmark for solar's cost per megawatt-hour. The 2025 edition pegs the best-case US cost at $38/megawatt-hour, equivalent to more than $11/MCF of natural gas. The trading hub price for natural gas has been $3-$4/MCF in 2025 (and many years before that), exposing a significant problem for our thesis. A closer look reveals the issue. The operating cost of a solar farm is very low at $4/megawatt-hour, but the capital cost comes in at $1150/kilowatt in the US, contributing $34/megawatt-hour. Commodity solar panels cost $80/kilowatt globally and $200-$250/kilowatt in the US, meaning there is a lot of waste (and opportunity) in today's solar farm capital cost. The first slash at these costs comes from co-locating the solar array with the storage system. More than $300/kilowatt of cost comes from preparing electricity for export or connecting to the grid. These items include inverters, medium-voltage transformers, switchgear, substations, high-voltage transformers, power lines to the grid, and all the project management overhead to build these systems. [Austin Vernon] 
• The world has arguably been energy-constrained for fifty years, with most economic growth coming in regions with significant coal reserves. Oil has been expensive and a brake on growth. The oil and gas industry has only grown its reserves with high prices. It cannot maintain price stability like in the pre-1973 era. Advancements like shale gas have so far been regional phenomena rather than global forces due to high transportation costs for LNG. The tyranny of oil supply could ease as the manufacturing capacity for solar PV approaches 1 TW/year, with no real constraints to further supply. Deployments at that scale will quickly saturate electric grids and stall solar growth without the development of complementary technologies. The age of solar PV is still young, and it could power humanity’s next leap in living standards. [Austin Vernon] 
• Scale is helpful for most businesses, but refining might be one of the most extreme examples. A typical rule of thumb in chemical engineering is that capital costs increase sublinearly with capacity, usually by (capacity ratio)^0.6. A plant with double the output is only 50% more expensive to build, and operating costs tend to follow similar trends. The reason behind this is that chemical plants and refineries are agglomerations of steel vessels and pipes. Vessel and pipe volume increases faster than surface area as size increases, decreasing steel and fabrication costs per unit of volume. Many items, like controls or operators, cost the same for a large component as they do for a small one. Rapidly expanding refining capacity means crashing costs. [Austin Vernon]
• Conservative intellectuals on Twitter and Substack are constantly sketching out their ideal society: a high-trust community rooted in family (fertility rates are high), self-sufficiency, and continuity with the past. They dream of a life lived closer to the land, with a strong sense of personal responsibility. By almost any of their metrics, the Faroe Islands is the most successful conservative nation on earth. And yet, it is also a profoundly liberal place. It’s cosmopolitan and highly educated. There is a massive social safety net and great equality, a deep belief in the collective over the individual, and a culture where economic aspiration doesn’t dominate life. It is, in many ways, the idyllic left-wing society. The Faroe Islands seems to have achieved the goals of both political tribes simultaneously, without any of the ideological warfare. [Daniel Frank] 
• The Hunt brothers, Herbert and Bunker, had a solid thesis for investing in silver.  Broad trends unfolding over 1960s and 1970s pointed to a high probability of an extreme supply and demand imbalance in silver, which would result in higher prices. Most of the world’s silver is not produced at dedicated silver mines but as a byproduct of mining copper, lead, or zinc mining.  Lower cost surface mines were depleted and had to be replaced with underground deposits that were more expensive to mine.  The sale of US government silver holdings that had been accumulated since 1934 was a temporary source of supply that would eventually be exhausted.  Silver supply could theoretically come from reclamation – melting down coins, silverware, or jewelry – but this would require a high enough price to garner attention of the numerous and disparate holders (one source of illegible silver supply was distributed across India and had to be smuggled out of the country to Dubai before it could enter global markets). [The Magic Bakery]

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]

Books - Q3 2025

Read 15 books this quarter. Two main themes: demographics (3) and financial services companies and banking (4). [See also first quarter 2025 and second quarter 2025.]

• Super Agers: An Evidence-Based Approach to Longevity (2/5) Just published but this reads like it was written in 2020. Surprisingly many references to climate change by the woke author, cardiologist Eric Topol, who wants us to know that red meat consumption has a big greenhouse-gas footprint. He also says, "food deserts are real." At the same time, the book is a decent survey of the cutting edge in conventional medicine. He says that he has become convinced that we are in the early stages of generalized anti-aging drugs. He is very excited about the GLP-1 drugs for several reasons: "a disassociation between side effects and efficacy," as well as reduction of inflammation throughout the body. (Carl Lumma predicts: "We will eventually have a pill that 1B+ people take every day. It will be the most successful drug in history.") One thing he cautions about is that ultra-high protein diets (like keto) could potentially promote atherosclerosis because they are so high in leucine. On the other hand, taurine supplementation could be useful for antiaging. As you would expect, he is opposed to supplements - he does not have an anti-aging stack. He gives sensible advice on lifestyle factors (except for his total abstinence from red meat): exercise, avoiding ultra-processed foods, very low alcohol consumption, avoiding environmental toxins. (Air quality is an underrated concern.) Topol quotes someone saying that "AI will not replace pathologists - it will only replace those who do not use AI." A friend of CBS calls this "augment" theory: AI/LLMs will augment human workers and be especially useful to smarter ones who think of good questions to ask. Finally, "if an infection causes a disease, it makes sense that there could be a vaccine for it." Does he know about Greg Cochran's theory? Best takeaway: focus on diet and exercise so that you don't end up in the hands of a doctor who believes in food deserts.
• Empty Planet: The Shock of Global Population Decline (1/5) Another woke book, written by two Candian wordcels who have noticed the declining birth rate and aging population problem, but whose proposed solution is mass immigration from the third world. The problem with their "solution" is that the immigration seems (to us) to contribute to the falling native birthrate, so you end up with a positive feedback loop and a replacement of the natives with migrants. But if you replace everyone in Canada with Indians, don't you just end up with a cold India? The intellectually dishonest authors dismiss all of these types of concerns with "nativism" and "racism" name-calling. They have Trump derangement even though the reason that Trump got elected may have as much to do with the Iraq war disaster (which was supported by both parties) as with immigration policy. These guys are wordcels so the book unfortunately has no modeling of different scenarios or quantitative analysis of the implications of different scenarios. What we really want to know is: how much demand for oil and coal there is going to be in 2050? How about real estate? The Twitter account BirthGauge posts TFR data which continues to show steep declines. The number of births in Poland is down 10.5% for the first half of 2025 compared with 2024. The Baltic and Visegrad TFRs are plummeting. Something that we have figured out with the help of Empty America is that these population collapses are paradoxically bullish for the big cities. People leave rural areas and small towns and crowd into the biggest population centers. Another question that we have is, assuming that you have high fertility subpopulations, how long will it take - and how big of a drawdown in population will there be before those subpopulations dominate, both numerically and politically? The Amish have a TFR of 6 but their population of 400k is too small to make any difference. And how will politics change when virtue signalling leftists with sub-replacement TFR are replaced? Cornucopian theory predicts that energy availability will continue to increase. So if energy abundance and rising standard of living is causing leftism then expect more leftism. On the other hand, religiosity (and political belief) is heritable, and the religious are having more children. The 21st century will be a test of which of these forces (increasing energy/abundance/affluence vs increasing religiosity) is stronger. 
• Buffett's Early Investments (3/5) 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.) One thing that we had never heard before is that Buffett's Berkshire Hathaway conglomerate holdco was essentially a copy of Graham & Newman's company Philadelphia & Reading. "Buffett saw up close the power of total control - all the many levers an intelligent investor can pull not when he influences management, but when he becomes management. Nearly all the characteristics that became famous hallmarks of Berkshire Hathaway - the 19th century industrial beginnings, the irreversible secular decline of the original business, the initial cheap valuation, the fight for full control, the partial liquidation of inventory to raise cash, the reallocation of capital towards new and better businesses, the clever management compensation, the behind-the-scenes tax minimization strategies, the reliance on personal friendships to source deals, and the fundamental integrity and trustworthiness of company leadership as the foundation of a sprawling conglomerate - had some antecedent or inspiration in the way Ben Graham and Micky Newman transformed and built P&R."
• Dune (2/5) Empty America says, "I think the Frank Herbert Dune series is the 'deepest well' of ideas in any one series of books." The novel was published in 1965 and was made into a movie in 1984 (David Lynch), TV miniseries (2000) and movie again in 2021 (Denis Villeneuve). Perhaps what Empty America likes about it is that in the "Duniverse," a transhuman civilization that has banned all "thinking machines", including computers, robots, and artificial intelligence. "Thou shalt not make a machine in the likeness of a human mind." Otherwise, it seemed rather thin in terms of ideas -- we are not seeing what Empty America sees here. (Normally he is a great source for worthwhile books.) The idea of an underground burrowing worm that is a quarter-mile long and over 100 feet in diameter is preposterous. A good science fiction author should be thinking about friction and the square-cube law. Also the power required to move that much sand out of the way. Highlight: "A world is supported by four things: the learning of the wise, the justice of the great, the prayers of the righteous, and the valor of the brave."
• The Death of the Banker: The Decline and Fall of the Great Financial Dynasties and the Triumph of the Small Investor (2/5)  Ron Chernow worked on financial policy studies for a while in the 1980s. Unlike his tedious biographies, this is a short little pamphlet that gives his theory of why banking dynasties centered around a particular family have not been a permanent feature of economic life but rather a fleeting developmental economic phase. Best quote: "As we have seen repeatedly in our own day, any successful business that engenders a large surplus is, potentially, an embryonic bank. In the absence of special regulatory restrictions, banking seems to spring spontaneously from other forms of economic activity." His model is that there are suppliers of capital (creditors/investors), users of capital (governments, industry), and intermediaries (investment bankers) and that the relative bargaining power - the bottleneck or fulcrum - has shifted over time. That makes sense, although he does not really have good reasons for why it shifts. He ought to be thinking much more about regulation, the way that Charles Calomiris does. Big problem with Chernow: too much biography, not enough economics.
• Intellectuals: From Marx and Tolstoy to Sartre and Chomsky (4/5) Good summary: "Intellectuals asks whether the despicable personal behavior of several influential thinkers disqualifies their far-reaching theories about how people should live." But it was not just "several." Every single leftist so-called "intellectual" from the past two centuries has been disloyal to friends, dishonest, vicious, and sexually immoral. One thing that Johnson missed, but that our generation has picked up on, is that these leftists - Marx, Sartre, etc. - were hideously deformed: bioleninism. (Another term to describe them is spiteful mutants.) Johnson: "I want to focus on the moral and judgmental credentials of intellectuals to tell mankind how to conduct itself. How did they run their own lives? With what degree of rectitude did they behave to family, friend, and associates? Were they just in their sexual and financial dealings? Did they tell, and write, the truth?" Answer: they were all monsters. Highlights: "Kipling was not an intellectual. He was a genius, he had a 'daemon' but he did not believe he could refashion the world by his own unaided intelligence, he did not reject the vast corpus of its inherited wisdom." "By the summer of 1949, thanks to a good deal of double-dealing and outright lying, Brecht had exactly what he wanted: an Austrian passport, East German government backing, a West German publisher, and a Swiss bank account." Hemingway: "My sympathies are always for exploited working people against absentee landlords even if I drink around with the landlords and shoot pigeons with them." Something interesting that Johnson has picked up on is that the Great Depression was horrible for book sales, and it caused the intellectual class to become communist, which it has remained now for nearly a century. Possible that there would be no Somalis in Minneapolis today without the Great Depression. 
• Style Drift (4/5) The latest (4th) installment in the Robert Fairchild Shipping Man series by Matthew McCleery, who is the president of a shipping industry information business called Marine Money. We thought the original book was a 5/5 and the sequels (Viking Raid, Exit Strategy, and this one) have held up well. Highlights: "'You'll take Dogecoin but you won't take gold?' 'Dog money is gold. For people who aren't fossils like you.'" "Picture the biggest warehouse you've ever seen. Raiders of the Lost Ark big. It stretches in every direction. Cool, dry air. Stacked to the rafters with rent-paying items." "Robert had learned early in high-stakes finance that big pitches had to be made face-to-face even if that meant flying across the world for a single lunch meeting." "Serendipitous run-ins between finance pros used to only happen in New York - but ever since COVID, the southeast coast of Florida had become equally fertile ground."
• Sleeping Beauties: The Mystery of Dormant Innovations in Nature and Culture (3/5) We mentioned earlier this year that scientific papers which are "sleeping beauties" should be part of cornucopian theory. (The LFP battery chemistry took off because of scarcity of lithium and cobalt, but it has been known as a possible cathode material at least as far back as 1996.) The biological analogies are interesting - like the paper about the different biochemical pathways for plants to make caffeine - but we were expecting much more about the sleeping beauties in science. Here is a paper that looked at academic literature using a quantitative beauty coefficient. ("The results indicate that many SBs become highly influential more than 50 years after their publication, far longer than typical time windows for measuring citation impact.")
• A Term at the Fed: An Insider's View (3/5) Good timing since the July Fed meeting had dissents from two Fed governors who were Trump appointees (Bowman and Waller). (And now Trump has fired a Fed governor!) The author Laurence Meyer was appointed to the Federal Reserve Board by Clinton in 1996. Clinton's first choice was Felix Rohatyn (see Q1 books) but Republicans controlled the Senate and thought that Rohatyn was too dovish. (You always want tight money if you oppose the administration and loose money if you are in charge.) Meyer ended up being pretty hawkish most of his term. An evident change thirty years later is that politicians are now much less concerned about inflation. Meyer mentions that for a presidential administration to comment on monetary policy was unthinkable - no longer! If they are appointed for a full term, Fed governors serve for fourteen years and have a very cushy job, working in a pink granite and marble building, with staff to do all of the actual work. There must be some kind of a travel budget because they make speeches all over the place, although their salary is pretty low. (Meyer: "If you ran down your wealth year after year, as we were doing, you wouldn't be able to retire well.") Surprising: "I ended my term not sure I had ever influenced the outcome of an FOMC meeting." Greenspan was the chairman during Meyer's entire term and was dictatorial. For 19 years, the U.S. economy was partially centrally planned by one man. Powell is probably getting much more pushback today than Greenspan ever experienced. Greenspan's big view, the reason he didn't tighten during the mid-1990's: "newborn technological innovations take years to become productivity-accelerating tools." Other highlights: "Each wave of innovation brought with it an acceleration in productivity, while pauses in the pace of innovation were reflected in low productivity growth." "Unfortunately the Thai currency didn't really 'float.' It sank." The Federal Reserve is an institution that represents capital. The Fed's job is to make sure that labor is never the bottleneck in the economy, that labor can never earn economic rents. 
• Lincoln: A Novel (3/5) This is one of Gore Vidal's historical fiction novels. Something interesting about Abraham Lincoln is that despite having four sons, he appears to have no living descendants, the last one having died decades ago. Are WASPs not just declining politically but actually going extinct? Good review of the novel when it was published (1984) in the Claremont Review: Lincoln as Nihilist. Gore Vidal was something of a libertarian, so this novel really hammers the Lincoln (and Seward) as dictator theme. You don't often see that. "There were times when Seward felt that Chase shared his imperial vision. But those times were few. Essentially, Chase was a man in thrall to a single cause - the abolition of slavery. It was a cause that tended, in Seward's view, to drive men quite mad, assuming that they were not already mad to begin with and so turned to the cause of abolition as a means of legitimizing the furies that drove them."
• Churchill (3/5) To be clear, Paul Johnson is an essayist and not a historian. So his short biographies (this one, or his Napoleon) or his histories (Civil War) are worth reading because they are opinionated, punchy, and very readable, but they are certainly not the last word on controversial aspects of history. While Andrew Roberts loved his subject (Napoleon), Paul Johnson made a convincing case that Napoleon ruined Europe. (Note that Andrew Roberts has also written a 1,152 page biography of Churchill.) Paul Johnson seems old to us today because he was born a century ago (1925), but Churchill was half a century older than Johnson. He lived from November 1874 – January 1965. Churchill is a figure from the distant past, and Johnson was expressing a great nostalgia for Churchill (and for his teenage WWII years) when he wrote this book in 2009. Johnson is unabashedly pro-Churchill: "no man did more to preserve freedom and democracy and the values we hold dear in the West." Could Paul Johnson not see, towards the end of his life, where the road taken by the British in WWII was leading? Churchill himself bizarrely said early in his career, "the British Empire is the world's greatest Moslem power." Some highlights: "This safe seat [Epping in Essex], near London, was of enormous benefit to his career. He never had to worry about it." "From the start of the crisis [WWI], he was a prominent member of the war party. The issue to him was Belgium and her ports, especially Antwerp. Britain had always been opposed to these ports, aimed like pistols at her coast, being in the hands of a major power, especially France. That was why Britain gave a solemn guarantee of Belgian independence. Now Germany was the threat, and when the right wing of the German army, as part of the 'Schlieffen Plan' to subdue France, swung through Belgian territory, Churchill was enthusiastically in favor of Britain sticking to the guarantee - 'a mere scrap of paper' as the kaiser bitterly called it." One of Churchill's great enjoyments was his country house, Chartwell.
• American Express: The People Who Built the Great Financial Empire (3/5) Capital allocation and corporate strategy has come a long way since the 1960s and 1970s. American Express stumbled through the mid-century with two CEOs in particular (Howard Clark and James Robinson) who could not figure this out. For a long time, there was a question internally of whether AmEx was a travel services company or a financial services company, with reluctance to embrace the financial services view. James Robinson (1935-2024) became CEO at age 41 (which would never happen today) and had the wrong goal, to grow reported net income instead of intrinsic per share value. Though the shares were "out of favor," there was no thought of repurchases, rather acquisitions. Robinson actually tried to make an acquisition that would have been fantastic: McGraw Hill (now known as S&P Global, a $170 billion company). But they couldn't come to terms. Imagine if, instead, AmEx had just bought a friendly 10 or 20% stake in McGraw Hill and held onto it? One thing we didn't know is that at one point Chase owned 97% of AmEx, but was forced to sell after the Depression. Something interesting is that managements had no concept of "disruptive innovation" or the dilemma that innovators face. When debating whether to create a charge card, Amex execs worried that it would "undercut" the traveler's check - what we would now call "cannibalization." But they did not have the language needed to discuss and understand this concept. It seems so common historically in corporate America for acquisitions to have underperformed share repurchases. But managers have figured this out. In 1994, the S&P 1500 firms' market capitalization was $12 trillion. They spent $110 billion on dividends, $56 billion on repurchases, $65 billion on acquisitions, and $351 billion on capex. In 2018, the combined market capitalization was $24 trillion and they spent $525 billion on dividends, $875 billion on repurchases, $505 billion on acquisitions, and $823 billion on capex (link). Repurchases went from 13% of the amount spent on acquisitions and capex to 66%. Something else - remember that Jamie Dimon worked for American Express as an assistant to Sandy Weill from 1982-1985, after getting his MBA. Then the two of them bought a consumer finance company from Control Data and created Citigroup. We have the Dimon biography (Last Man Standing) on our list to read; he writes a good shareholder letter at JPM.
• Breakneck: China's Quest to Engineer the Future (3/5) Should have known that Tyler Cowen's recommendation was not worth much, but gambled on this because we have Linked to the author, Dan Wang, before. (Unless the reason that I thought this book seemed trite was because I have already read Wang's ideas on his website?) Noah Smith asks a good question in his review: "you should wonder whether modern China is best modeled as 'America with different leaders', or 'America 75 years ago.'" Dan Wang ways that China is an engineering state that builds and the U.S. is a lawyerly society that blocks everything. But China is less developed - that could be an alternative explanation. Good quote: "The greatest trick that the Communist Party ever pulled off is masquerading as leftist." "The state is enacting a right-wing agenda that Western conservatives would salivate over: administering limited welfare, erecting enormous barriers to immigration, and enforcing traditional gender roles." Other highlights: "Financial investors have seen that there is no relationship between Chinese stock market performance and GDP growth. Although the economy has grown by a factor of eight in real terms between 1992 and 2018, the Shanghai Composite Index has been one of the worst performing major indices." China's current five-year plan demands that the manufacturing share of the economy stay constant - we have seen that is not necessarily a good idea. Mentions a book called "The Morning Star of Lingao" which imagines 500 people traveling back in time to 1628 to try to start an industrial revolution in China. Big story is China's one child policy and upcoming demographic collapse. Mao was not Malthusian: "It is a very good thing that China has a big population. Even if China's population multiplies many times, it is fully capable of finding a solution. That solution is production. The absurd argument of Western bourgeois economists like Thomas Malthus that increases in food cannot keep pace with increases in population was not only thoroughly refuted in theory by Marxists long ago but has also been completely exploded by the realities in the Soviet Union and China." However, Mao's successors found that production was falling short under their central planning system, so they blinked and instituted savage population control measures under Deng Xiaopeng: "Rather than acknowledge that it could not deliver the goods, the Communist Party decided instead to blame the people. It was their 'overpopulation' that was the problem, not the inadequate economic system that the leadership insisted on." (We have mentioned Song Jian previously. He was interested in Cybernetics.) Speaking of unreliable population figures, China did not have a census until 1982, so their modeling was based on shaky estimates. "Chinese leaders were just enough exposed to the West to absorb their neo-Malthusian doomerism, without being exposed enough to the Western pushback against it." Also talks about Covid: "China doesn't have a robust system for political contestation; engineers will simply follow the science until it leads to social immiseration." Anyway, Wang thinks that it's great that China builds so much, but they don't build the right stuff.
• After the Spike: Population, Progress, and the Case for People (2/5) Wow, another woke book (like Empty Planet) about falling population. It's unclear why woke leftists are taking such an interest in population decline, but their biases make it difficult for them to reason clearly. The premise of the book is absurd: that people will choose to have 0 or 1 children for many generations in a row. These co-authors worry that since TFRs have never risen above replacement after dropping below, they never will - ever. They briefly consider population subgroups with different fertility - the Amish - but they are blank slatists who think that these differences are cultural. ("For heritable fertility to prevent depopulation, a high-fertility subpopulation would have to hang together, generation after generation...") In reality, much of fertility differences are driven by personality differences that are genetically determined and heritable. (Greg Cochran would rip this book to shreds.) The authors themselves are examples of this. Co-author Michael has only one child because his wife's "work was important to her and she didn't want pregnancy to compromise her ability to serve the communities that she worked with." What we are experiencing right now is a major selection event against that type of behavior: pathological altruism. Empty America tweet: "There probably isn't anyone you can vote for who will voluntarily tolerate population loss. Above a certain level of power/wealth, national population loss is direct personal negative for them and their own families. They will find some way to get people in." We need to build a better population model with subgroups that have different, partially heritable fertility rates. Mentions The Escape from Hunger and Premature Death, 1700–2100 by Robert Fogel.
• Last Man Standing: The Ascent of Jamie Dimon and JPMorgan Chase (4/5) We should have read this earlier. JPM has had a total return of 12.5x since it was published in October 2010. The stock traded for less than book value from the financial crisis until 2016, and again in 2020 and 2022. Shares outstanding are down by 30% since 2010. Jamie Dimon is kind of a Warren Buffett of banking. We were really impressed with his shareholder letter for 2024. (Example: "I’m a fanatic about proper accounting. Accounting can lead you to the wrong answer. Regulatory rules can lead you to the wrong answer.") That may seem trite, but it makes a big difference if you act that way. We remember talking to bankers before the interest rate spike this cycle who said that rising yields wouldn't matter to the value of their loans and bonds because they are allowed to mark them at cost, so they wouldn't show a loss. Dimon's first letter, as CEO of regional bank Bank One in Chicago, was great too. He used Bank One to take over J.P. Morgan Chase & Co., which is now the biggest bank in the world, with a $900 billion market cap. Highlights: "Dimon's is not a Horatio Alger tale. He has spent the majority of his life within the same five blocks on Park Avenue." Regarding trying to buy Fireman's Fund in 1985: "American Express couldn't do a deal if Sandy [Weill], Morgan Stanley, and Warren Buffett were on the other side." "Weill's taste for martinis led to afternoon naps on the couch in his office." (Also a big cigar smoker, Sanford Weill is still alive, age 92.) Playbook: "fortress balance sheets that gave the wherewithal to make acquisitions during downturns, when assets were cheap." "Dimon considers information systems one of the core competencies of a financial services company, and he thought the function (and any associated information technology strategy) belonged in-house." Buffett on Dimon: "Jamie writes a great letter. He writes it like he would write it to me if I owned 100 percent of the bank. It's a very sensible and literate letter from a manager to his owners. You can't find many like that. You particularly don't find them in financial services."

The top (5/5) books year-to-date:

The Vanished Landscape : A 1930s Childhood in the Potteries (Q1)  

Rocket Boys: A Memoir (Q1)  

Class: A Guide Through the American Status System (Q1)  

Civil War America: 1850-1870 (Q2)

The Fundamental Index: A Better Way to Invest (Q2) 

Monday Night Links

• All kidding aside, though, the best way to know where you fall in America’s class system is to pay attention to which part of Fussell’s book make you feel uncomfortably seen. When you cringe and say, “Oh gosh, how did he know?!” that’s when you’ve found your your people. [Mr. and Mrs. Psmith’s Bookshelf] 
• This is the most common theory of Bitcoin, especially among the cryptocurrency’s supporters (the most avid of whom are called “maximalists”). In fact, this was the original idea of Bitcoin — it was supposed to replace fiat currencies like the U.S. dollar. Generally, money isn’t a very good investment. Even if money didn’t depreciate via inflation, it still wouldn’t go up in value very fast — even if there was steady deflation, the cash wouldn’t offer the returns of, say, the stock market, or a house. Those things are risky, and thus their returns will always be higher than that of cash. Instead, the case for really spectacular Bitcoin returns is that Bitcoin is not now money, but will eventually be money. If this is true, then demand for Bitcoin will eventually be much, much, much higher than it is now, since people will need it to buy everything. Higher demand will mean much higher prices. In other words, the idea is that by buying Bitcoin now, you’re getting in on the ground floor of the future currency of the land. [Noah Smith]
• Wyden is no shrinking violet when it comes to making big bets. His fund is the single largest shareholder in Houston’s RCI Hospitality, operator of over 40 gentlemen’s clubs and parent company of Rick’s Cabaret. Wyden built his 10% position beginning in late April 2020, when the coronavirus led investors to believe that in a world of masks and social distancing, a company built on drunken bachelor parties and lap dances was toast. But Wyden reckoned that as the pandemic ebbed there would be pent-up demand for RCI’s clubs, many located in Florida and Texas, and that they would reopen fast. Another plus: It’s exceedingly difficult to obtain a strip club license, meaning the company has a deep moat around its business. [Forbes]
• As it happens, RICK fell seventy percent, and Wyden went maximally contrarian, catching the falling knife on the belief that pent-up demand would soon catapult the stock. And what initially looked like a doofus move turned out to be genius. Within a year, RICK climbed sevenfold, and Wyden’s fund assets increased to $350 million. His share? $100 million. Now, knowing well that these newfound riches do get taxed at some point, Wyden waved goodbye to NYC and fled to Miami, where he got busy right away. He built a $4.1 million home, flipped it for a $1.4 million profit, and then bought a larger, waterfront mansion for $13.88 million. The thirty-seven-year-old hedge funder was on top of the world and claimed in an interview with Forbes, “If I never raise another dollar again, I’m going to become a multibillionaire.” [Waterboy Stocks]
• Similarly, in one of many, often repetitive, and laudatory (toward President Trump) but superfluous allegations, the pleader states, “‘The Apprentice’ represented the cultural magnitude of President Trump’s singular brilliance, which captured the [Z]eitgeist of our time.” [PRESIDENT DONALD J. TRUMP v. NEW YORK TIMES COMPANY]
• There is something discomfiting about watching Rudy Giuliani perform “I’m a Little Teapot” for a few hundred dollars. Or George Santos, the disgraced congressman, filming wry videos on demand to mark birthdays or provide pep talks. But British politician Nigel Farage hasn’t just mastered the business of selling short video greetings on the Cameo website. He has turned it into one of the main planks in his campaign to become the U.K.’s next prime minister. [WSJ]
• In his 2008 book The Logic of Life, Tim Harford uses a slightly different phrase describing the uncorrupt in corrupt organizations with a similar meaning. "Your option to escape means you can’t be relied upon." I have seen this phenomenon in a number of different organizational situations that I and my family members have experienced throughout our lives. Organizations like employees who are dependent upon the organization. Thy fear independent employees. For example, I was rejected for the first civilian job I applied for: a real estate agent at a prestigious firm. They had an application that, to a large extent, was designed to determine how independent you were. The woman who interviewed me was unhappy, and said so, about my West Point education, significant savings account, the fact that I already owned rental property, and had no wife and kids to support. She frankly told me that the best salesmen were over a financial barrel, had nowhere else to turn, and had to hustle to pay their many bills. In other words, things I thought should be considered virtues were, instead, considered unattractive—simply because they put me in a position where I was able to resist the boss’s demands. [John T Reed]
• The maximal number of face turns needed to solve any instance of the Rubik's Cube is 20, and the maximal number of quarter turns is 26. These numbers are also the diameters of the corresponding Cayley graphs of the Rubik's Cube group. In STM (slice turn metric) the minimal number of turns is unknown, lower bound being 18 and upper bound being 20. [Optimal solutions for the Rubik's Cube]
• For anybody who’s been under a rock the last 5+ years, the writing is on the wall that Li batteries have won for hours-to-days and perhaps even days-to-weeks energy storage. Solar PV plus Li batteries are poised to change the world. The missing piece as everyone knows is in longer duration storage. But long duration energy storage is a fundamentally weak business. The money you make in energy storage is proportional to the number of times you get to sell energy per year, so as durations increase, profits dry up. Imagine a theoretical dirt cheap electrochemical battery made entirely of pig iron. You can approximate cost as CapEx per unit of energy / cycles * discount factor. Even if the battery were made out of the cheapest and most abundant metal on our planet you’d still be out of the money: ($0.35/kWh energy content of iron) / (1 cycle per year for 20 years) * 4.5 (15% discount rate) = meaningful arbitrage only with seasonal electricity price swings > $0.10/kWh. And of course real batteries cost much more than the constituent materials, don’t give back all of the energy you put in, and have other imperfections in proportion to how cheaply you make them... seasonal energy storage is hard! [Orca Sciences]

Tuesday Morning Links

• There is nothing better than the beginning of a new wave, when the opportunities to envision, invent, and build world-changing companies leads to money, fame, and glory. But there is nothing more dangerous for investors and entrepreneurs than wishful thinking. The lessons learned from investing in tech over the last 50 years are not the right ones to apply now. The way to invest in AI is to think through the implications of knowledge workers becoming more efficient, to imagine what markets this efficiency unlocks, and to invest in those. For decades, the way to make money was to bet on what the new thing was. Now, you have to bet on the opportunities it opens up. [Jerry Neumann] 
• The capital cycle approach would tell you that you want to avoid the companies and sectors that are spending the most on capex right now - certainly in relative terms, but probably also in absolute terms. So, it's obviously not a great sign that the tech companies are in a capex arms race and are the biggest capex spenders in the entire economy. Nor is it a good sign that those companies' valuations are so expensive. [Credit Bubble Stocks] 
• The answer may be found in a combination of factors: high barriers to entry due to permitting restrictions for landfills; asset intensive networks which are regulated, and which can have monopoly-like characteristics within a local region; inelastic demand where customers appear to be relatively price-insensitive given that waste disposal is a necessity and may represent a small part of operating expenses; and industry consolidation, through which the main players have successfully improved route densities, improving returns within their fixed asset networks. Pricing power has been the outcome of these factors and has been the key to revenue growth in recent years – waste disposal pricing has far outpaced inflation. [Robert Anstey]
• The subtext to our prior article related to the systematic undervaluation of those assets endowed with large reserves and favourable geology since, over time, the value of the assets increases as they benefit from the steepening and upward shift in the cost curves of projects facing greater technical and geological challenges. Capex inflation is nonlinear throughout the cost curve, leading to a disproportionate increase in the economic value of large, low-cost reserve bases over time. With absolute capital requirements for new mines elevated relative to the base capital employed in producing assets, and the time to bring new projects on stream stretching beyond a decade, the execution risk associated with such ‘greenfield’ projects increases along both the time and cost planes. For the company (read equity holder) considering such greenfield investment, the required rate of return is therefore greater than when projects could be brought on line within a shorter timeframe. [Alex Duffy]
• Although a complete shift to BEVs would be negative for PGM demand, specifically palladium which is most heavily exposed to gasoline auto catalysts, rising penetration of hybrid vehicles is less
  cataclysmic as the majority of the toxic emissions which PGM based catalysts seek to remove occur upon ignition. Hybrid vehicles, with ‘stop/start’ technology, require a higher platinum loading per catalyst than is the case for an ICE equivalent. Since ICE engines remain in excess of 80% of global auto production and the rate of BEV share gains is slowing, the obituary for PGM catalysts may have be premature. PGMs also have other uses with jewellery accounting for 20% of platinum demand and other industrial uses a further 35%. In addition, while BEVs impact light passenger vehicles, it is unclear how such technology would apply to the global truck fleet which requires a higher PGM loading. [Alex Duffy]
• Being able supply an abundance of food to front line troops is arguably the best sign of military excellence. Munitions get priority. So if you can supply your combat troops with hot food with a decent variety, it’s a major flex of your logistical sophistication. In WWII, the US Navy built ice cream barges that would produce ice cream at scale for US forces. The Japanese military couldn’t even imagine doing something like that. It would have stressed their supply networks too much. Same with the US military delivering Burger King to the most remote bases in Afghanistan or wherever. When you see this stuff showing up, you know you are dealing with a seriously capable military. [TheMindScourge]
• A Tricolor ABS issuance this year showed that more than two-thirds of its borrowers lacked a credit score. For those with credit scores, the average was 614. More than half didn’t have a drivers’ license, which suggests they may lack permanent legal status. President Trump’s deportations raise the chances of a surge in defaults by migrants who leave their debts behind as they leave the U.S. [WSJ]
• Phillips 66 (NYSE: PSX) announced today that it has entered into a definitive agreement to acquire the remaining 50% ownership interest in WRB Refining LP from subsidiaries of Cenovus Energy Inc. for total cash consideration of $1.4 billion, subject to customary purchase price adjustments. WRB Refining LP is a 50/50 joint venture between Phillips 66 and Cenovus Energy Inc. that owns the Wood River refinery in Roxana, Illinois, and the Borger refinery in Borger, Texas. Phillips 66 has operated both facilities since the inception of the joint venture in 2007. [Phillips 66 Company]