Friday, April 20, 2018

Sears Capital Structure Mispricing?

Sears has two holding company debt maturities that are interesting to watch: there's an October 2018 maturity trading at 82 cents (~50% YTM) and then the 8% note due December 2019 that's trading at about 35 cents (>80% YTM).

Meanwhile, the equity market capitalization is $330 million. And there are options traded out to January 2020, which is after the 2019 debt maturity. For example, the $2 strike put which has traded for $1.00 recently. 

So if there's a capital structure mispricing, it should be possible to buy bonds and puts and come out ahead for the likely scenarios (restructuring vs survival) for the company.

Imagine that for every bond you bought 6.33 of the put option contracts. Given the current prices of $1 for the put option and $350 for each bond, there would be four possible scenarios that I can see:

First, if the company is able to repay in December 2019 but the stock is trading for more than $2 and the options expire worthless, the trade would make $650 in bond appreciation and $136 in interest per bond but lose the $633 of put premium on the offsetting hedge. That is a net profit of $153 on the current combined value of $983 per bond for a gross return on investment of 16 percent.

In the second scenario, if the company liquidates, it is quite possible that these bonds would have no recovery as they are subordinate to all of the company's other debt. However, in that case we would expect the stock to be worthless. If the $2 put options recovered full strike price, they would be worth double their current $1 value. That would be a profit of $633 per bond, minus the current $350 bond value, leaving $283 of profit on the current combined value of $983 per bond. Depending on when the company liquidated, bondholders would also receive some number of semiannual interest payments. The gross return for this scenario, not counting any interest received, would be 29 percent.

The third scenario is one where other creditors of the company (e.g. controlling shareholder and major lender Eddie Lampert) take their lumps in a massively dilutive out-of court restructuring that sees them exchanging their debt for practically all the equity. In this scenario, supposing that the stock declined to 50 cents and a bondholder held out from the exchange and received full payment, they would make $316.50 of profit on put options, $136 of interest, and $650 of bond appreciation for a total of $1,102 on the current combined value of $983 per bond.

A fourth scenario is one where something goes wrong that we cannot foresee. The question is whether Eddie and Sears have any way to wriggle out of the three scenarios above?

Thursday, April 19, 2018

Tearing Into Tesla's Model 3

Interesting to watch the 2020 put option prices. The $50 strike is about $4.5, the $100 is $11.25, the $200 is $34.50.

The 2025 bond (5.3% coupon) trading recently at 90 cents. 

Monday, April 16, 2018

April 16th Links

  • But, as is often the case in small, family-run businesses, those making the compensation decisions and those receiving the compensation are one and the same. That dynamic can be problematic. It is made even more so when the self-interested decisions are made without proper documentation (in the form of board minutes or otherwise) and without objective evidence supporting them. [...] The contemporaneous evidence of the board’s "process" with respect to the stock option grants is, in a word, thin. Consequently, the Court was left to view the process through a retrospective lens ground in the after-the-fact testimony of the conflicted fiduciaries who made the decisions. As conflicted fiduciaries, Defendants were obliged to prove that the stock options they granted themselves were entirely fair; that is, their burden was to prove that the grant was the product of a fair process that yielded a fair result. They failed to carry that burden. Consequently, I find that Defendants breached their fiduciary duty of loyalty with respect to the option grants. [Delaware Chancery]
  • Palantir's serial failure to convene annual stockholder meetings is problematic. Palantir admits that it has not held stockholder meetings, but states that there is no wrongdoing because stockholders have elected to act, instead, by written consent. Even so, the questions remain whether and to what extent KT4 and other stockholders have been (or have not been) provided an opportunity to participate in decision making by written consent and whether all stockholders have been provided with the kind of basic information they could expect to receive from Palantir at an annual stockholder meeting. Accordingly, I find that KT4 has met its low burden of demonstrating a credible basis to suspect wrongdoing as to Palantir's failure to hold annual stockholder meetings. [Delaware Chancery]
  • Palo Alto attorney Abramowitz and his firm invested an initial $100,000 in Palantir in 2003. Together with subsequent investments, their stake is now worth about $60 million, according to the judge's opinion. [link]
  • Dr. Mark Connolly, a cardiovascular surgeon, has always lived in apartments in and around New York. He has focused his collection on Italian red wine. But using a storage service has created its own problem: an overabundance of wine. Because Dr. Connolly, 63, never had to worry about managing his inventory, he just kept collecting. He has 7,000 bottles, and he knows he will never finish them in his lifetime. "I always tell my kids, 'You can't sell it,'" Dr. Connolly said. "'You have to drink it or give it to your friends.'" [NY Times]
  • I think we need a poll. Which pic is more effective at evoking a dystopian future run by Silicon Valley overlords? Bezos & robot dog or Zuck w/the VR Bugmen? [Twiter]
  • For those who stay the course to become Cravath partners, it is a lifetime career that comes with a guaranteed annual salary of several million dollars. Underscoring the "lifetime" part are traditions such as the Cravath Walk: every partner is entitled to a procession of past and present partners at their funeral, after which the assembled lawyers chant: "The partner is dead, the firm lives." [FT]
  • We have incurred net losses in each year since inception, including net losses of $38.7 million in 2015, $44.6 million in 2016 and $55.8 million in 2017. As of December 31, 2017, we had an accumulated deficit of $279.9 million. While we have experienced significant revenue growth in recent periods, we are not certain whether or when we will obtain a high enough volume of sales of our products to sustain or increase our growth or achieve or maintain profitability in the future. [EDGAR]
  • I have known for many years that statins are likely to cause damage to nerve cells. Probably through a direct effect on inhibiting cholesterol synthesis. Synapses are made, primarily, of cholesterol. Cholesterol is required to maintain the health of the myelin sheath, that surrounds and protects neurons. Glial cells in the brain, sustain the myelin sheath by synthesizing their own cholesterol and transferring it across to neurons, and suchlike. [link]
  • High reporting odds ratios for ALS and ALS-related conditions span many statins, in a setting in which 'negative' randomized and population-based studies cannot exclude causal occurrence (due to expectation of bidirectional effects on relevant mechanisms). Given the seriousness of this condition, the apparent excess reporting of ALS on statins warrants attention. When patients develop an ALS-like condition on a statin, a possible connection should be considered. This study does not address the impact of statin withdrawal. However, until better evidence is available, prompt statin withdrawal should be considered, given (1) the observational relations between higher cholesterol levels and both longer survival and slower progression in patients with ALS; (2) known mechanisms by which this may be causal; (3) reports (though rare) of arrest and even reversal of ALS-like conditions with statin withdrawal; and finally (4) the important context that estimated median expected life extension with statins is minimal. [link]
  • As profit margins have declined, more of the value in each dealership is in the land it sits on. In the past, owners often chose to hold on to their real estate and rent it to the person who bought their dealership. But commercial real-estate values in the U.S. have risen more than 25% above pre-recession highs, according to the real estate research firm Green Street Advisors, and this has owners increasingly wanting to sell everything. [WSJ]
  • In 1969, long-simmering Sino-Soviet tensions were at the boiling point when, by some accounts, Brezhnev was preparing a preemptive strike to nip the nascent Chinese nuclear threat in the bud. According to Chinese historian Liu Chenshan, "Soviet diplomats warned Washington of Moscow's plans 'to wipe out the Chinese threat and get rid of this modern adventurer,' with a nuclear strike, asking the U.S. to remain neutral." The plan was discouraged, however, when the Nixon administration, preferring to maintain China as a counterbalance to Soviet power, threatened a nuclear strike against Russia if Brezhnev proceeded. [link]
  • In 1958, LG Electronics was founded as GoldStar (Hangul:금성). It was established in the aftermath of the Korean War to provide the rebuilding nation with domestically-produced consumer electronics and home appliances. LG Electronics produced South Korea's first radios, TVs, refrigerators, washing machines, and air conditioners. GoldStar was one of the LG groups with a brethren company, Lak-Hui (pronounced "Lucky") Chemical Industrial Corp. which is now LG Chem and LG Households. GoldStar merged with Lucky Chemical and LG Cable on February 28, 1995, changing the corporate name to Lucky-Goldstar, and then finally to LG Electronics. [Wiki]
  • A group that is suing Harvard University is demanding that it publicly release admissions data on hundreds of thousands of applicants, saying the records show a pattern of discrimination against Asian-Americans going back decades. The group was able to view the documents through its lawsuit, which was filed in 2014 and challenges Harvard’s admissions policies. The plaintiffs said in a letter to the court last week that the documents were so compelling that there was no need for a trial, and that they would ask the judge to rule summarily in their favor based on the documents alone. [NY Times]
  • Rust Belt metros of Cleveland, Pittsburgh, and Detroit fall victim to what Romem calls "negative income sorting"; that is, the median household that moves in earns less than the median household moving out. Overall, the chart shows the polarized economic sorting going on across America's metro areas. [link]
  • MacArthur accomplished a great deal with little resources in the southwest Pacific theater during the Second World War. He was able to bypass the Japanese Empire's fortified island bases (like Rabaul), leaving them to wither on the vine, and strike at the enemy's more vulnerable points. This strategy stood in stark contrast to what the US Navy and Marine Corps were doing at the time, which was to make costly frontal assaults on islands that in some cases were of dubious value. [link]
  • Even the most die-hard crypto enthusiasts prefer in practice to rely on trust rather than their own crypto-medieval systems. 93% of bitcoins are mined by managed consortiums, yet none of the consortiums use smart contracts to manage payouts. Instead, they promise things like a "long history of stable and accurate payouts." Sounds like a trustworthy middleman! [link]
  • Long-term use of antidepressants is surging in the United States, according to a new analysis of federal data by The New York Times. Some 15.5 million Americans have been taking the medications for at least five years. The rate has almost doubled since 2010, and more than tripled since 2000. Nearly 25 million adults, like Ms. Toline, have been on antidepressants for at least two years, a 60 percent increase since 2010.[NY Times]
  • To eat out in New York is to drown in choices. Which neighborhood? Which cuisine? Updated or traditional? Speedy or stately? Loud or just moderately loud? [NY Times]
  • The Fortress financing, which closed on December 11, 2017, provided Theranos with up to $100 million of liquidity, subject to product and operational milestones. The first funding tranche of $65 million gross was released at closing. The release of a second tranche of $10 million gross was contingent upon FDA approval or CE marking of the Zika assay for use on the miniLab. Achieving that milestone within the first half of 2018 was crucial to our business plan. Development of the Zika assay has taken longer than anticipated. [link]
  • The reverberations of the region’s 1920s housing boom are still felt today. During this decade, the City of L.A. permitted somewhere between 210,722 and 232,000 new homes. (City figures show 210,000 between 1921 and 1930, another study by the Guarantee Building and Loan Association counted 232,000 from 1920-1929). These buildings are still a major source of the housing that we rely on to this day. [link]
  • Fifty years ago, if you had a strong analytical mind and were good at generating ideas, the best way to get paid for that was to call your clients and get the trade. The fee structure was very rich then. Today, things are different. Good execution is a very material concern for our clients, with the best liquidity, and also with the best costs. Trading is about technology, scale, and liquidity. It requires capital. Research is about none of these. Research is only about intellectual capital. At New Street Research, what we want to do is to be 100%-focused on research. Every dollar our clients pay is directly financing research. [Barron's]

Tuesday, April 10, 2018

Distressed Debt Watch - April 2018

  • FTR (Citizens Communications Co) 7.875% due January 2027, trading at 54 ytm ~19%.
  • EGLT 5.5% due April 2020 trading at 36 ytm 70%
  • XCOOQ (in bankruptcy) both notes trading 13-14 cents
  • Sears 8% due December 2019 trading at 35 yielding ~90% to maturity
  • Windstream Corp 6.375% due August 2023 trading 57 cents yielding ~19% tm
  • GNC 1.5% due August 2020 trading 73 cents ytm 15%

Monday, April 9, 2018

Apr 9 Links

  • THE Sons of Mary seldom bother, for they have inherited that good part; But the Sons of Martha favour their Mother of the careful soul and the troubled heart. And because she lost her temper once, and because she was rude to the Lord her Guest, Her Sons must wait upon Mary's Sons, world without end, reprieve, or rest. [Kipling]
  • It's a mild, early March Saturday in Nashville: the first real weekend of bachelorette season. By 10 a.m., they've already descended on the Gulch, a neighborhood that looks like it was constructed in The Sims: everything built at the same time, in the same slick, clean-lined style. Fifteen years ago, it was a rail yard — an actual gulch. Today, it's a collection of brunch spots (the most popular is Biscuit Love, included in every respectable bachelorette blog post), a Frye Boots store, an Urban Outfitters, a Google office, a place called "Two Old Hippies" selling $200 dresses and tea towels printed with spunky messages, a blowout bar, a juice bar, and an actual bar. [Buzzfeed]
  • In 1910, just 5% of American babies named "Charlie" were girls. Over 100 years later, girl Charlies took over their male counterparts for the first time in 2016—making up 51% of the share. With little fuss or fanfare, Charlie has gone gender-neutral. [link]
  • It is well known that non-classical anti-cancer drugs, such as metformin, aspirin and resveratrol, demonstrate promising and synergistic efficacy when combined with other chemotherapeutic drugs. Most importantly, nearly all these drugs can activate the AMPK signaling pathway to inhibit cancer cell proliferation. As the critical energy sensor, AMPK monitors intracellular energy alterations and is conserved across all eukaryotes. AMPK is activated by a decrease in intracellular ATP concentration and a concomitant increase in the amount of AMP. Upon ATP depletion or various other stress conditions, AMPK is phosphorylated at 172 Thr by LKB1 and other upstream kinases. Then, AMPK inhibits mTOR signaling and protein synthesis, which has been reported to be critical for tumor growth in experimental animal models as well as in cultured cells. Therefore, AMPK activation is a feasible therapeutic strategy for cancer treatment. Interestingly, as we mentioned in this review, metformin, aspirin, resveratrol, berberine, lovastatin, epigallocatechin gallate (EGCG) and capsaicin activated AMPK and demonstrated anti-cancer effects, regardless of whether they were used alone or in combination with other chemotherapeutic drugs. Noticeably, metformin, aspirin and berberine could also resensitize cancer cells, even those that were resistant to doxorubicin or radiotherapy. [link]
  • In our view, much of the difference between the artificial values of the dot-com era and the genuine value created by the Internet can be explained by the difference between the Metcalfe-fueled optimism of n2 and the more sober reality of n log(n). [IEEE]
  • Several animal phyla lack bilateral symmetry. Among these, the sponges (Porifera) probably diverged first, representing the oldest animal phylum. [Wiki]
  • What everyone except the MAGA-sphere has figured out is they can push Trump around without consequence. He's just a gutless windbag. This migrant horde will cross the border and be turned lose in your neighborhood, while Trump is on twitter demanding the Democrats support his DACA plan to legalize a million new Democrat voters. Trump is turning out to be a crude, blustering version of Jeb Bush. [Z Man]
  • From the perspective of the ruling class, a Democrat House is the ideal solution to their Trump problem. For the remaining two years of his tenure, nothing will make it out of the House that can pass the Senate, and nothing the President wants will pass either house of Congress. Trump will go into his primary against someone like Ben Sasse, financed by globalist money, having nothing to show for his first term in office. The ads showing a wide open border with the sound of Trump promising a wall will cripple his campaign. [A]t some point, one has to assume the public will notice that voting makes no difference. Right now, voting seems to make things worse. If a populist candidate or party does well, the political class punishes the voters with even more globalism. The results thus far suggest staying home is the best way to promote your interests. Eventually, even Trump voters will figure this out and disengage. [Z Man]
  • Why do individuals become entrepreneurs? We develop a model in which individuals signal their unobservable ability to employers (e.g., via educational qualifications). However, signals are imperfect and individuals whose ability is greater than their signals convey to employers choose entrepreneurship. [SSRN]
  • Before these theories of light were unified in stack of abstractions, each theory had to start with a fundamental concept of light from the ground up. This involves making up a fresh set of unrealistic assumptions. Newton's ray optics modeled light as a spray of particles that could be attracted to, or repelled from, solid matter. Huygens modeled light as a longitudinal pressure wave through a mystical medium called "ether". He modeled light like sound. [link]
  • This morning every stock in my portfolio is down — excepting United Health (UNH), which reported stronger than expected higher profits. As I complete this post, my portfolio is down 3%, which is huge. As I eye the red ink, I am beginning to believe that Trump's anger (and ignorance) will seriously hurt the stockmarket's prospects for the rest of this year. [Technology Investor]
  • "It turns out my maternal ancestry is from Yerevan," a user wrote on the website Eksi Sozluk, where thousands of comments have appeared on the issue. "My paternal ancestry meanwhile is Georgian. I am in shock." [NY Times]
  • John William Friso and his wife are the most recent common ancestors to all currently reigning European monarchs. This is a distinction he has held since 1938, when Franz Joseph II -a descendant of John William Friso, succeeded Franz I - who was not a descendant, as Prince of Liechtenstein. [Wiki]
  • When Trump indeed did win, he started to look like he might have some superhuman grasp of the dynamics of power and influence. But that looks absurd today. Trump's rebellion is minor, and the Republican Party is in charge, shouting about wonderful tax cuts as voters prepare to give them the boot. [VF]
  • "Right-wing Asian" often refers to someone who hates the Constitution, views free speech as a confused historical aberration, and pledges to ban guns on every survey. [Sailer]
  • We generally obtain licenses for two types of rights with respect to musical compositions: mechanical rights and public performance rights. With respect to mechanical rights, for example, in the United States, the rates we pay are, to a significant degree, a function of a ratemaking proceeding conducted by an administrative agency called the Copyright Royalty Board. The rates that the Copyright Royalty Board set apply both to compositions that we license under the compulsory license in Section 115 of the Copyright Act of 1976, and to a number of direct licenses that we have with music publishers for U.S. rights, in which the applicable rate is generally pegged to the statutory rate set by the Copyright Royalty Board. The most recent proceeding before the Copyright Royalty Board set the rates for the Section 115 compulsory license for calendar years 2018 to 2022. The Copyright Royalty Board issued its initial written determination on January 26, 2018. [EDGAR]
  • They got 200 miles of range (against a spec of 310 for the $56,000 car) in weather just below freezing. Will Tesla 3 passengers who aren't starstruck by Elon Musk say "I feel like I'm riding in a tin can mounted on top of a marine battery"? [Phil G]
  • This aggressively minimalistic approach results in some strange and unsuccessful attempts to reinvent the automotive interior. The process required to move the mirrors and to manipulate the power-adjustable tilting and telescoping steering wheel incorporates both a menu within the touchscreen and the finicky steering-wheel scroll buttons. Changing the direction of airflow from the HVAC vent that stretches across the full width of the dash is, similarly, a multistep affair in which you must pinch and swipe a display within the climate-control menu that resembles a not very addictive smartphone game. [Car and Driver]
  • Netanyahu figured that unloading 16,000 of Israel's 35,000 African immigrants onto to goyishe kopf white gentile countries would be a masterstroke. But Bibi's rightwing frenemies objected that it would be a concession that Israel couldn't unload the other 19000 back to their native continent on the grounds that it would be inhuman to return Africans to Africa, a precedent that could well destroy the Jewish State over the rest of this century. [Sailer]
  • Much of the class hatred in America stems from the suspicions of the intelligentsia that plumbers and mechanics are using their voodoo cognitive ability of staring at 3-D physical objects and somehow understanding why they are broken to overcharge them for repairs. Thus it's only fair, America's white-collar managers assume, that they export factory jobs to lower-paid China so that they can afford to throw manufactured junk away when it breaks and buy new junk rather than have to subject themselves to the humiliation of admitting to educationally inferior American repairmen that they don’t understand what is wrong with their own gizmos. [Sailer]
  • Parents in Japan regularly send their kids out into the world at a very young age. A popular television show called Hajimete no Otsukai, or My First Errand, features children as young as two or three being sent out to do a task for their family. As they tentatively make their way to the greengrocer or bakery, their progress is secretly filmed by a camera crew. [link]
  • Don't watch TV, don't read magazines, don't even listen to NPR. Create your own roadshow. The nexus of space and time where you are now is the most immediate sector of your universe, and if you're worrying about Michael Jackson or Bill Clinton or somebody else, then you are disempowered, you're giving it all away to icons. This is shit-brained, this kind of thinking. That is all cultural diversion, and what is real is you and your friends and your associations, your highs, your orgasms, your hopes, your plans, your fears. [link]
  • It is said among merchant mariners that, yes, a captain has the authority to refuse orders he deems to be unsafe—but probably only once. [Vanity Fair]
  • Spencer Fullerton Baird (February 3, 1823 – August 19, 1887) was an American naturalist, ornithologist, ichthyologist, herpetologist, and museum curator. Baird was the first curator to be named at the Smithsonian Institution. He would eventually serve as assistant Secretary of the Smithsonian from 1850 to 1878, and as Secretary from 1878 until 1887. He was dedicated to expanding the natural history collections of the Smithsonian which he increased from 6,000 specimens in 1850 to over 2 million by the time of his death. He published over 1,000 works during his lifetime. [Wiki]
  • The water imposes strict constraints. To thrive in it, mammals must be just the right size—big, yes, but not too big and not too small. And Gearty could calculate the boundaries of this Golidlocks zone with a set of equations that connect a mammal's size with the heat it loses to the water and the rate at which it can find food. These equations predicted both the optimum 1,100-pound average that seagoing mammals have evolved toward, and the narrow range of sizes around that ideal. [Atlantic]
  • After more than a week of deliberations, the North Carolina Business Court has ruled in favor of Raleigh-based First Citizens BancShares' efforts to suspend Smithfield-based KS Bancorp's "poison pill" provision – at least while the litigation between the two banks continues. [link]
  • Among US adults aged 51 years and older, loss of wealth over 2 years was associated with an increased risk of all-cause mortality. [JAMA]
  • For instance, in a conversation with one of Mr. Pruitt's closest aides, Mr. Chmielewski sharply objected to a proposal to buy a $100,000-a-month charter aircraft membership that would have allowed Mr. Pruitt to take unlimited private jet trips for official business. [NYT]
  • Magazines, in Langewiesche's opinion, are great beasts that have to be fed, constantly. If they're not fed they die, and so they're desperate for material. But they're usually fed poorly. [link]
  • In mathematics it's been a tradition for hundreds of years to make papers as formal and austere as possible, often suppressing the very visual aids that mathematicians use to make their discoveries. [Atlantic]

Wednesday, April 4, 2018

Books Read - Q1 2018

  • Against the Grain: A Deep History of the Earliest States (3/5) The neolithic revolution as a "deskilling" of men. As Alexis de Tocqueville said regarding division of labor in The Wealth of Nations: "What can be expected of a man who has spent twenty years of his life putting heads on pins?" States appeared and disappeared for several thousand years before becoming a permanent fixture of human life. Citizens of early (or all?) states are somewhere on a slave-serf continuum. Why was not Yahweh anywhere to be seen prior to 1,000 B.C.?
  • The Soul of a Tree: A Master Woodworker's Reflections (4/5) Wonderful furniture by George Nakashima. His children are still producing at his workshop in Bucks County, PA. One of his pieces (like a coffee table) is worth high five figures today.
  • The Eames Lounge Chair: An Icon of Modern Design (3/5) It turns out Charles Eames was a Steve Jobsian character! Did Don Albinson really design one of the only good Eames designs? Pat Kirkham said Eames was "not very mechanical or scupltural"! People are not happy to hear about this. (Remember Henry Ford was like this as well. A new archetype.)
  • Navy SEAL Mental Toughness: A Guide To Developing An Unbeatable Mind (1/5) This book is about how tough SEALs are not about how they get that way. What's the point of having mental toughness if you use it to be a neocon pawn? The real wisdom is knowing when to persist and surmount obstacles and when to try applying yourself to something else.
  • Based on a True Story: Not a Memoir (2/5) Norm Macdonald is only funny when he is not trying to be. Terrible standup and joke writer but very funny in casual conversation.
  • Love in the Ruins: Modern Catholics in Search of the Ancient Faith (3/5) Catholicism was repealed and replaced in 1965. The same year that Hart-Celler Act opened immigration floodgates to the U.S.
  • Good Strategy, Bad Strategy (See review: 4/5)
  • Retreat From Kabul (4/5) The current British NATO occupation of Afghanistan is their fourth. During the first time, in 1842, the British presence was led by Major General Sir William Elphinstone who was too timid to fight with the result that all of their fighting force of 4,500 (but one man) were killed trying to leave Kabul.
  • Enter Jeeves: 15 Early Stories (4/5) See Sailer on P.G. Wodehouse: "Wodehouse hit a long peak from his early 40s into his early 60s with six straight Jeeves novels rated above his career average". And Jeeves says: "If you have ever studied psychology, sir, you will know that respectable old gentlemen are by no means averse to having it advertised that they were extremely wild in their youth."
  • Structural Holes (3.5/5) Know lots of people who know lots of people but who don't know each other. Then you can make money as a broker like Irving Lazar or Michael Ovitz. Summary of theory: "most social structures tend to be characterized by dense clusters of strong connections, also known as network closure. The theory relies on a fundamental idea that the homogeneity of information, new ideas, and behavior is generally higher within any group of people as compared to that in between two groups of people. An individual who acts as a mediator between two or more closely connected groups of people could gain important comparative advantages. In particular, the position of a bridge between distinct groups allows him or her to transfer or gatekeep valuable information from one group to another."
  • Moon Barcelona Walks (4/5) A very walkable city! Avoid the most touristy places and the hideous Gaudí architecture. A cityscape of five and six story apartment buildings (with retail on the ground floors) and everything connected by moped, pedestrian friendly sidewalk, or mass transit is the way to live. Wear dark earth tones and a navy blue or black pea coat to fit in best. Drink Spanish vermut on the rocks (with standard orange & olive garnish). Brilliant of them to sit out both World Wars.
  • Nature's Metropolis (3.5/5) This is an economic history of Chicago during the 19th Century. Chicago got its start by marketing midwestern grain, lumber, and meat. It beat St Louis because railroads beat barges. As an example, the changing seasonal height of the Mississippi River made it hard to site grain elevators along the riverfront in St Louis, which made Chicago the better city to site grain elevators. (Grain elevators came into being in Chicago. The first one was built in 1838 while St Louis didn't have one until after the Civil War.) From elevators you have the grain exchange (CBOT) and then financial and intellectual capital in place for deeper and wider marketplaces (Merc). See also our old dual review of Floored & The Futures books. Another way to put it: "In the mid-19th century, the railroads won out over the river boats in a bitter struggle for supremacy in transportation. This helped establish the mastery of the Great Lakes and East Coast ports, and strengthened the economy of the North." Suggested book to look at is a novel called The Pit.
  • World of Carbon (3/5) This is an old one by Issac Asimov, who actually wrote a fair amount of nonfiction. There are two halves of chemistry, organic and inorganic. Being the "world of carbon," this is about inorganic. Might be interesting to followup with his World of Nitrogen, which is about organic nitrogen-containing compounds.
  • Artemis (3/5) This is second book by the author of The Martian. Favorite idea was having "soft landed grams" be the unit of currency on the moon. Not as good as his first but wouldn't be surprised if it gets made into a movie too. Critics hate the book: "takes that same genial dad-joke personality and superimposes it onto a main character who’s supposed to be a take-no-shit brilliant young woman", "offers the same flat, sweary prose, fistfights and scientific mini-lectures - on the moon," "the author seems to be offering up this one as some sort of gift to the gods of political correctness". I think he still doesn't have a day job anymore though. See his conversation with MR. 
  • Dark Star Safari (3/5) Yet another Paul Theroux book - picked this up at a used bookstore before a long flight. Important to remember that he's a 76 year old former Peace Corps hippie; sometimes his books say more about him than the places he's visiting. "He resides in Hawaii and Cape Cod, Massachusetts" according to Wikipedia.
  • Massacre at Montségur (4/5) A history of a forgotten episode from 13th Century France. During the 11th C in the Languedoc region of France, Christianity spun-off a sect called Catharism, a Gnostic revival named after a Greek word καθαροί for the "pure ones". Cathars eventually spread to Eastern Europe (Bulgaria) as well. Cathars thought that the Old Testament God (YWH) was the evil God, in addition to being sole creator of the physical world. (Why doesn't anybody realize that Christianity is polytheistic?) Catharism in France was also a reaction to corruption of the Church. In reaction to this threat, Pope Innocent III launched the Albigensian Crusade against these fellow Christians. Might makes right, so Cathars' goofy beliefs (like not reproducing themselves) resulted in martial weakness and a dead end as a Christian sect. The ethnic cleansing was brutal (burning the "heretics") and Dominican inquisitors created what may be the first modern-style police state. The phrase "Caedite eos. Novit enim Dominus qui sunt eius" ("Kill them all, the Lord will recognise His own") comes from one of the slaughters of Cathars in this crusade. Author's conclusion: "From the thirteenth century onwards we no longer find saint or doctor in the Catholic Church bold enough to assert that a man who errs in religious matters is still one of God's creatures."
  • Brokerage & Closure (3.5/5) This is the sequel to Burt's Structural Holes mentioned earlier this year. "Brokers do better." People who bridge groups are more likely to have creative ideas and be able to implement them. Creativity by brokerage is moving an idea mundane in one group to another where the idea is new and valued. Ways of thinking are more homogeneous within than between groups so people connected to otherwise segregated groups have more optionality from more ideas. Other ideas: Homophily in friendships [e.g.]. Paul Revere as a broker [Han paper]. (See also Using Metadata to Find Paul Revere.) Closed network ~ high trust society on macro scale. Schumpeter on heirs who have inherited his wealth without his ability (link).
  • Geek in Japan: Discovering the Land of Manga, Anime, Zen, and the Tea Ceremony (3/5) Worth studying a culture that produces (by far and away) the most reliable automobiles in the world. This author (who's a nerdy white guy) thinks it is partly a product of moving very slowly and deliberately in decision making. Half of the 130mm country lives in Tokyo-Yokohama-Chiba (with 38mm) or Kyoto-Osaka-Kobe (Keihanshin, 20mm). The greater Tokyo area has the population of California! Few movie theaters - they prefer comic books? The best selling Japanese musician is Ayumi Hamasaki. Not mentioned in the book but here is a great tweetstorm by Marcin Wichary "things that surprised/amazed me about Japan".
  • Scalia Speaks: Reflections on Law, Faith, and Life Well Lived (3/5) This is a collection of Scalia's speeches on various topics (law, religion, etc) published after he died. Scalia thought that the new constitutional law system where the Supreme Court legislates its opinion on social and moral issues, came from the Warren Court (1950s and 1960s). However, the anti-Federalists (such as "Brutus") predicted that the Supreme Court would be a super-legislature and would have no check against its power, being superior to and not coequal of the other branches. (All of the defects in the goofy Constitution that the anti-Federalists pointed out quickly came to pass.) For some reason Scalia repeatedly recommends that listeners read the Federalist Papers but never once the Anti-Federalist Papers. Scalia is the classic conservative as principled loser. He was "dear friends" with RBG who would like nothing more than to confiscate guns from Scalia's people so they can be ethnically cleansed. Scalia is also recognizably un-Anglo Saxon in his attitudes, which was perfect for the unrepresentative Court. He also believed that the 4th amendment did not protect against government wiretapping. Overall, it is no wonder that the country is in such marked decline with a guy like this representing "our" interests. If I have to acknowledge one positive thing about him, it would be his dissents.
  • Capitalism without Capital: The Rise of the Intangible Economy (3/5) Intangible assets are a greater and greater share of the investment component of GDP. Intangible asset heavy companies change how to think about financial statements, e.g. price to book becomes much less meaningful because investments in the intangible assets are expensed not capitalized. Coca-Cola trades at 11x book value. (And over 400x tangible book value!) Mentions something interesting about this, The End of Accounting. (Of course, non-GAAP has already happened: "between 2003 and 2013, the proportion of public companies reporting non-GAAP (“pro forma”) earnings doubled from 20% to 40%.")
  • Measuring America: How the United States Was Shaped By the Greatest Land Sale in History (3/5) Agrees with Spoils of War - restrictions on interior land purchases helped provoke colonials like GW to rebel. This ban and the Boston harbor blockade were mistakes by George. The result is the ultimate historical disaster, the American Revolution, which led the colonies to mistakenly believe they had anything in common. The U.S. is a nation of land speculators (like GW was) and every political decision happens to maximize value of raw land. Unrelated but good quote: "When you can measure what you are speaking about, and express it in numbers, you know something about it; but when you cannot measure it, when you cannot express it in numbers, your knowledge is of a meagre and unsatisfactory kind..."
  • Sibley's Birding Basics: How to Identify Birds, Using the Clues in Feathers, Habitats, Behaviors, and Sounds (5/5) This was a great one. Author David Allen Sibley and (competitor Roger Peterson) are the kings of North American ornithological field identification guides. Look at their collections: Sibley and Peterson. Sibley says to train yourself to see details so you can make comparisons, and figure out what species of bird you are looking at. Form follows function, so many of the characteristics that differentiate are features that are specific to a certain lifestyle. He says the scientific names are less accessible but more valuable. And then once you are looking at the scientific names, think in terms of genera rather than just species. (Egrets and herons are both Ardea, for example.) Mentions the American Ornithological Society's Birds of North and Middle America Checklist - the official source on the taxonomy of birds. So you could see that there are many, many species of hummingbirds (and genera) all in the family Trochilinae.
  • Against the Gods (3/5) Peter Bernstein treatment of the big names and discoveries in probability, statistics, and then finance and behavioral finance. I actually confused him with William Bernstein, author of the Birth of Plenty and Splendid Exchange books. Anyway, did not know that Edmund Halley (of the comet) put together life tables which were maybe the first ones since Ulpian in 225 AD. Speaking of probability, I thought that this Bayesian Python book looked interesting. 
  • Nature: An Economic History (4/5) By Geerat Vermeij, the blind Dutch evolutionary biologist. I mentioned this one all the way back seven years ago to talk about investor genotypes in an investing ecosystem. Decided to reread without any investing notions in mind. Plants make nitrogen or carbon toxins as defenses (depending on which is relatively more available in their environment), but never phosphate because it's so rare. So nothing was naturally resistant to our organophosphate pesticides. There are a million species of insects and 80% are parasitic. C4 photosynthesis has evolved 30+ times. Agriculture has evolved ten times and nine of the times are fungus farming insects! The equatorial zone is more extravagant in the number of species, their aggression, color, etc. Apparently the numbers on mass extinctions weren't truly compiled until 1984? The terminal Cretaceous extinction had a 96% species kill rate! No tetrapods weighing more than 25kg survived. The Chicxulub crater was identified in 1990 as the impact of the 10km asteroid. (A million times more explosive force than the biggest nuclear weapon.)
Q1: 24
YTD: 24

Remember from the 2017 book post that the goal was to read two a week, which we did achieve for Q1. Did not hit the goal of having a higher batting average, but part of that is that I am plowing through a lot of books that people have given me over the years. How does anyone like the new "brief note" for each book, and then an occasional (rare) review (e.g.)?

Monday, April 2, 2018

April 2nd Links

  • This week is the fifteenth anniversary of the beginning of the Iraq War, an illegal intervention that continues to immiserate millions. The war is a moral wrong and a criminal act, which condemned the war and its proponents long before the first munitions claimed their first victims. By the time the consequences of the war unfolded, they should have been damned irrevocably. The hideous fruits of the Iraq War – the human suffering, the interminable and metastasizing violence, the wanton squandering of wealth, corruption, outright looting, the hundreds of thousands or more Iraqi and over 4800 coalition dead before the initial 2011 withdrawal – are not the product of some unforeseen twist of fate. They fell well within the predictions and warnings of its opponents, offered openly at the time. [link]
  • "We have incurred net losses in each year since we were formed, including net losses of $282.7 million, $232.9 million and $163.5 million for fiscal 2016, fiscal 2017 and fiscal 2018, respectively. As of February 2, 2018, we had an accumulated deficit of $1,142.6 million and our net cash used in operating activities was $116.5 million in fiscal 2018. We may not achieve sufficient revenue to attain and maintain profitability." [EDGAR]
  • Pivotal has no future. The products are not sustainable. If you had to start a new company today, would you decide to use the fake "open source" bloated, octopus-dependency, poorly maintained Pivotal platform they try to charge $5 million to $50 million for, or just use stable industry-standard solutions already out there? [Matt]
  • Say you want to make money without the responsibility of creating working products. A good way to start is by founding a software company. Software frauds give you deniability. Software is generally considered so complex it's basically treated as an "unknowable" quantity. You can't be blamed for your failures because everything is just so gosh darn hard. [Matt]
  • In Craven's 4th and final paper, published less than a year before his death, he updated his trial of aspirin as a prophylactic against coronary thrombosis. His final count was 8,000 patients who had taken aspirin daily, 9 of whom had died of what appeared to be "heart attacks." Autopsies were performed on all 9 patients who died, and the cause of death proved to be ruptured aortic aneurysm rather than coronary thrombosis. Once again, these observations were presented with the caveat that they were not obtained under controlled conditions. This 1956 paper conveyed another significant observation: aspirin might also prevent "little strokes" (or transient ischemic attacks): no patient had experienced stroke. [NLM]
  • "Right now, you're serfs. You're well-paid serfs, but you're serfs. They've debased your currency, and so you're continuing to underwrite debt for sovereign governments at zero interest rates, so you're always on the spinning wheel like a little hamster, trying to get ahead," [Heartiste]
  • I continue to be amazed in the present era where you compare the confidence and self-assurance of the self-appointed ruling class on television with the results they are getting. You'd think that with their societies crumbling around them on a daily basis, they might be humbled and start to wonder if the direction they are urging us all in is actually working. It is their special gift to be nearly impervious to feedback. No matter what happens they continue to blame the problem squarely on the existing limitations on government power (which are increasingly non-existent) and believe with religious style zeal that the earthly paradise is always just one more emergency legislation session away. Only a temporary extension of State power, you see... until the "crisis" passes. Except every week there seems to be a new "crisis." [link]
  • Most Alaska Marine Highway System vessels are built for multiple-day voyages due to the large distances between ports. For example, it takes just under three days to travel from Bellingham to Skagway, and 18 hours for the Sitka to Juneau "milk run". Because of this, larger vessels (MV Tustumena and larger) come with staterooms, while all mainline vessels have solariums, showers, and lounges for sleeping. Hot food services and, on the MV Columbia, a sit-down restaurant are also offered. [Wiki]
  • MV Lituya is a shuttle ferry for the Alaska Marine Highway System. Lituya was built by Conrad Shipyards in Morgan City, Louisiana in 2004. The Lituya is the smallest vessel in the ferry system and, as of 2006 exclusively serving the 16.5-nautical-mile (30.6 km) Metlakatla–Ketchikan shuttle route. [Wiki]
  • "I feel like what we keep in our minds is more important," he wrote to me over WhatsApp recently. "The accuracy of it is... mah." This is his disdain for this digital accuracy, and it captures something. There's an obvious, almost legalistic veracity of moment-to-moment logging, but that loses a truth that the impressionism of memory catches better. I didn't fall in love with him word by word or sentence by sentence. I fell in love with him slowly and steadily through time, in the spaces between the words, held up by the words. Losing the words sometimes feels frustrating, but that forgetting also removes the scaffolding from a finished past—a past that was never really containable in a logfile. [link]
  • In the case of birds, the result is particularly delightful: one clade of dinosaurs escaped extinction at the end of the cretaceous period, and at our present position in "the age of mammals," living dinosaur species outnumber the extant mammal species by more than two to one. [link]
  • The most involved whisky experience available. After meeting at the distillery to put on your wellies (provided), this experience will start with a walk to the water source for Laphroaig where you will enjoy a picnic lunch with a dram of Laphroaig cut, if you wish, with the source water. A short drive will then take you to the peat banks where you will be challenged to cut some peat by hand before being awarded your next dram. Back at the distillery the malt on the floor will need turned and the fire stoked before visiting the rest of the distillery. In warehouse 1 the whisky will be waiting! Taste from a selection of casks before using a valinch to bottle your favourite. This experience is guided by a Laphroaig Host who will share Laphroaig stories and secrets along the way. This experience will last around 4.5 hours. [link]
  • The whole moral of any type of story like this is that it pays to listen to what old timers have to say, and it also pays to examine their lives and to model the parts that make them successful, not just in business but in life. As a young kid thrown into the pits, I sought out and asked for advice from the grizzled old guys who started trading as early as the late 1920s - early 1930s (there were still a few of them around). I also learned to ignore the advice of real old clerks, etc. (There was a reason they were old clerks). It was and is my contention that if someone is a speculator for 40+ years, no matter what, he's a success if he's still in the game. They had seen it all and done it all, and I will say that taking some of advice is the difference between a 2 year speculation career and a 40 year career. Rich or poor, or in between, a 40 year veteran is going to have a superb defensive game, and a strong defense is more important to longevity than a great offense (in my opinion). [Niederhoffer]
  • One of the things you will find, which is interesting and people don't think of it enough, with most businesses and with most individuals, life tends to snap you at your weakest link. So it isn't the strongest link you're looking for among the individuals in the room. It isn't even the average strength of the chain. It's the weakest link that causes the problem. It may be alcohol, it may be gambling, it may be a lot of things, it may be nothing, which is terrific. But it is a real weakest link problem. When I look at our managers, I'm not trying to look at the guy who wakes up at night and says "E = MC 2" or something. I am looking for people that function very, very well. And that means not having any weak links. The two biggest weak links in my experience: I've seen more people fail because of liquor and leverage – leverage being borrowed money. Donald Trump failed because of leverage. He simply got infatuated with how much money he could borrow, and he did not give enough thought to how much money he could pay back. [CoBF]
  • Successfully predicting that something will become a big hit seems impressive. Managers and entrepreneurs who have made successful predictions and have invested money on this basis are promoted, become rich, and may end up on the cover of business magazines. In this paper, we show that an accurate prediction about such an extreme event, e.g., a big hit, may in fact be an indication of poor rather than good forecasting ability. We first demonstrate how this conclusion can be derived from a formal model of forecasting. We then illustrate that the basic result is consistent with data from two lab experiments as well as field data on professional forecasts from the Wall Street Journal Survey of Economic Forecasts. [SSRN]
  • "The major problem with caffeine is it promotes a surge release of noradrenaline (brain version of adrenaline) which gives a burst of energy. However, this surge DEPLETES its precursor, L-phenylalanine, thus promoting the eventual crash or letdown. A superior and healthier way to optimize caffeine intake than the "cycling" suggested by this article is to provide the brain with the raw materials it needs to make noradrenaline (L-phenylalanine, Taurine, Glycine, some vitamins & minerals) along with the caffeine for sustained energy levels throughout the day." [link]
  • But even as a boy, he was aware of the miasma of falsehood that surrounded him in Cold War Czechoslovakia, and it spurred his respect for facts. "I'm the creation of the communist state," he says, recalling how, as a child, he heard that the Soviet Union had increased production of passenger cars by 1000% in a single year. "I looked at it and said, 'Yeah, but you started from nothing.'" Officials would claim they had exceeded their food plan, yet oranges were never available. "It was so unreal and fake," Smil says. "They taught me to respect reality. I just don't stand for any nonsense." [link]
  • The majority allows the Gayes to accomplish what no one has before: copyright a musical style. "Blurred Lines" and "Got to Give It Up" are not objectively similar. They differ in melody, harmony, and rhythm. Yet by refusing to compare the two works, the majority establishes a dangerous precedent that strikes a devastating blow to future musicians and composers everywhere. [link]
  • Few monogamists have been as genetically reproductive as he, and none more musically productive. In addition to fathering twenty children, he brought into the world more than a thousand works (some of them massive things like the Art of Fugue and St. Matthew Passion) with hundreds presumed lost. [link]
  • Sessions exploits this uncorrected flaw. Under the law, 6.6 pounds of pure methamphetamine makes you eligible for the death penalty. See 18 U.S.C. 3591(b)(1). This does not mean a one-time deal of 6.6 pounds. It means over the course of time a person deals 6.6 pounds. Decades ago, 6.6 pounds of pure meth made you a kingpin. Today, 6.6 pounds of pure meth makes you a low to mid-level dealer. Sessions exploited a flaw to leverage the death penalty against low to mid-level dealers. The result will be either execution, or, more likely, a significant amount of persons pleading guilty to the mandatory minimum of ten years in exchange for their life. These persons are drug addicts, not kingpins. No civilized society would execute them, let alone leverage the threat of execution to incarcerate them longer. [link]
  • March in Nebraska's Platte River valley, when more than 80 percent of the world's sandhill cranes, more than 550,000 in all, congregate in the area. [NY Times]