Wednesday, November 25, 2020

Thanksgiving Eve Links

  • Let’s look at a few bank management teams who respect investor capital and deserve thanks this holiday season, vs. a few burning the turkey. [Colarion]
  • The community of institutional investors who focus on bank stocks has struggled this year. Many bank stock investors focus on small-cap banks with less liquidity. We observed forced selling by this group of investors from March to September as these funds had to raise cash to meet investor redemptions. In talking with other bank investors, there is consensus that bank stocks are cheap, but everyone is already fully invested. This community is looking for new capital to put to work. [Gator Capital]
  • In terms of numbers, beetles are the most successful creatures on earth: about 350,000 species of beetles have been described since 1758. They range from tiny to gigantic, occupy sundry habitats, and eat everything. [Inordinate Fondness]
  • Participants were randomised to receive daily 60 000 IU of cholecalciferol (oral nano-liquid droplets) for 7 days with therapeutic target 25(OH)D>50 ng/ml (intervention group) or placebo (control group). [BMJ]
  • I’ve talked about the tenancy and eviction statutes in MA before. After going though six months to a year or more of struggle to evict a tenant while maintaining all the utilities and other service obligations (trash/recycling/snow removal), paying for lawyers, paying for Constables, paying for Sheriffs, and paying to store the evicted tenant’s belongings, I know of several people who simply gave up and decided never to to rent their available space again, or renovate it and seek more upscale tenants who have spotlessly clean criminal background checks and credit ratings. In MA you are less a “landlord” and “property owner” than you are a “provider of housing” under the law. Once you hand over the keys and sign the lease, the tenant takes “legal possession” of the dwelling with a “right to quiet enjoyment” and the only person who can return legal possession to the property owner and order an eviction is a judge. P.S.: This concern becomes particularly acute for a landlord if a minor child is involved. Housing court judges can be extremely reluctant to order the eviction of a delinquent tenant when there are one or more children involved. In cases that I know of personally, the soon-to-be deadbeat tenant knows this and uses the child as a shield against eviction. Move in, pay three or four months, stop paying rent, and then ride out the rest of the year or more for free while the landlord pays and jumps through the hoops. Once you’ve been on that rollercoaster once, do you don’t want to risk it again, so you decide: “No Children!” [Phil G]
  • There’re a bunch of useful qualities in founders, but I’ve narrowed it down to the 3 most important. The most important quality is determination. There’s got to be at least one founder who's super determined. I've seen so many smart and talented people fail because they couldn't stick with it when things got tough. Startups are really hard and take a really long time. There has to be at least one founder who's just a tower of strength. Part of being determined is being able to withstand rejection. People will think your idea is lame, customers won't be interested, investors will say no, reporters won't care. And they might not be polite about it either. But you can't let rejection discourage you. This is really hard for a lot of people. [Jessica Livingston]
  • The Aztek was noted for its styling, which was instantly controversial. Pulitzer Prize-winning automotive critic and syndicated columnist Dan Neil, in naming it one of the 50 worst cars of all time, said the Aztek "violate(d) one of the principal rules of car design: we like cars that look like us. With its multiple eyes and supernumerary nostrils, the Aztek looks deformed and scary, something that dogs bark at and cathedrals employ to ring bells. The shame is, under all that ugliness, there was a useful, competent crossover. [Wiki]
  • What is fascinating to me is that these tobacco stocks seem cheap at the same time that nicotine is making a huge comeback. Nicotine is a drug that, like ethanol and caffeine, has stood the test of time. Does society crave it now after having cut back so sharply? Maybe people will resume consuming nicotine at very high rates, but in a different form.  It is a concern that MO paid such a high valuation for its stake in Juul. On the other hand Facebook paid what seemed like high prices for two investments to defend its monopoly - and it worked. [CBS]
  • Remarkably, despite New York’s lofty number 1 rank, legislation was recently introduced in Albany to hike the state cigarette tax by another $1.89, to $6.24 per pack. If adopted, our model indicates that the state’s smuggling rate would leap to almost 61% of the market and cigarette tax revenue would actually decline by 15% as a result of increased tax avoidance and evasion. [Mackinac]
  • It often happens that of the forces in action in a system some vary as one power and some as another, of the masses, distances, or other magnitudes involved... the strength of an iron girder obviously varies with the cross-section of its members, and each cross-section varies as the square of a linear dimension; but the weight of the whole structure varies as the cube of its linear dimensions. It follows at once that, if we build two bridges geometrically similar, the larger is the weaker of the two, and is so in the ratio of their linear dimensions. [CBS]
  • Powell thought that only a tiny proportion of western lands - closest to water sources - were suitable for agriculture. He proposed to irrigate as much as could be irrigated economically, and to redraw the western states' boundaries based on their watersheds. His proposed map is great but would never appeal to people who like straight lines. For those lands that couldn't be irrigated economically, he thought that they should either be "conserved" or grazed with cattle. [CBS]

Saturday, November 21, 2020

Estimating the Elasticity of Demand for Cigarettes

It took a gigantic price increase in Australia to crimp demand for cigarettes.


A correspondent writes in,
Starting out, I paid 16 cents a pack, in 1955. I can understand why it took a gigantic price increase to crimp demand. It's a tough addiction to break. It took me 8 years to quit.

If you think it will take a gigantic price increase to crimp demand, you should probably buy cigarette stocks.

Most recently regarding tobacco: outlawing vaping, Cigarette Sales Stabilizing?, Opportunity in the Big Tobacco Duopoly?.

Friday, November 20, 2020

Friday Links

  • Since during the life of the patents 'Shredded Wheat' was the general designation of the patented product, there passed to the public upon the expiration of the patent, not only the right to make the article as it was made during the patent period, but also the right to apply thereto the name by which it had become known. [Kellogg Co. v. National Biscuit Co.]
  • Imagine that Facebook begins with a positive price for both readers and advertisers (PR>0 and PA>0). Readers, however, are likely to be sensitive to the price so a small decrease in price will cause a large increase in readers (very elastic demand). Thus, imagine that Facebook lowers the price to readers and thus increases the number of readers. With more readers, Facebook can charge its advertisers more, so PA increases. Indeed, if the demand for advertisers increases enough, it can even pay Facebook to lower the price to readers to zero! Thus, the key to Facebook’s decision is how many more readers it will get when it lowers the price (the reader elasticity), how much those readers are worth to advertisers (the externality of readers to advertisers) and how high can it increase the price to advertisers (the advertiser elasticity). [MR]
  • Bitcoin believers rely entirely on the idea that bitcoin is limited in supply making it far more attractive than fiat currencies that are being printed like mad by central bankers around the world. However, bitcoin has already hard forked several times, multiplying the number and type of bitcoins in circulation. In fact, if you put together all the hard forks Bitcoin has undergone since it was first created, the number of total bitcoins has actually grown faster than the number of dollars. That’s a fact. [Felder]
  • The hedge fund sports owner hex strikes again. The latest victim: Harbinger Capital Partners’ Philip Falcone. Last week the minority owner of the Minnesota Wild ice hockey team agreed to settle civil charges with regulators, which will result in the Minnesota native winding down his hedge funds. Falcone thus becomes at least the third hedge fund manager in the past few weeks who either owns or has made a bid to buy a professional sports team who has suffered a big setback in his day job. [II]
  • Everything in biology is like this. It’s all exceptions to the rule. But biology, like computing, has a bottom, and the bottom is not abstract. It’s physical. It’s shapes bumping into each other. In fact the great revelation of twentieth-century molecular biology was the coupling of structure to function. An aperiodic crystal that forms paired helices is the natural store of heredity because of its ability to curl up and unwind and double itself with complements. Hemoglobin, the first protein studied in full crystallographic detail, was shown to be an efficient store of energy because of how oxygen atoms snap into its body like Legos, each snap widening the remaining slots, so that it loads itself up practically at a gulp. Most proteins are like this. The ones that drive locomotion twist like little motors; the ones that contract muscles climb and compress each other. Cells, too, are constantly in conversation, and the language they speak is shape. It’s keys entering locks: a protein might straddle the cell membrane, and when a cytokine (that’s a kind of signaling molecule) docks with it, it changes its shape, so that its grip loosens on some other molecule on the interior side of the membrane, as though fumbling a football—that football might be a signal itself, on its way to the nucleus. [James Somers]
  • Molecules that come close to an organelle tend to remain close to it for a while, and brush against it many times. The result of this is that if receptors for a protein p cover even a small fraction of the surface of an organelle, the organelle will be surprisingly efficient at recognizing p. As an example, if only 0.02% of a typical eukaryotic cell’s surface has a receptor for p, the cell will be about half as efficient as if the entire surface were coated with receptors for p. [A Computer Scientist’s Guide to Cell Biology]
  • That the western side of Glacier National Park was dense with bears was clear enough from the maps and signs, and clearer still from the dozen clumps of fresh scat along a nearby trail. My friend saw one just outside the campsite; so did that couple—they said it was massive. They said, too, that they heard another one poking around last night. In fact this place was so conspicuously teeming with bears that in the event of my tragic mauling my family and friends could very sensibly think to themselves, “He was asking for it.” [James Somers]
  • I began to wonder: what’s the relationship between the length of a road trip and the complexity of the route? Do most trips, long or short, require roughly the same number of steps? How many steps are there in the most complex route in the country? What’s the distribution of step counts for every possible route in the contiguous United States? [James Somers]
  • I suggest writing emails to your friends. Writing with an audience in mind makes the writing better, and writing to a friend means you won’t get hung up on how you sound. You’ll become closer, too, to whoever you share your thoughts with, and odds are you’ll draw the same thoughtfulness out of them. Your inbox will become less of a place for coupons and bullshit than for the thoughts of humans you like. Walk around with a pen and a scrap of paper. Write some meaty emails. Engage more intensely with this place. [James Somers]
  • The present study summarizes the data on Cannabis use, caloric intake, and BMI, establishing conclusively that Cannabis use is associated with reduced BMI and obesity rates, despite increased caloric intake. It then provides a theoretical, causative explanation for this paradox. This theory encompasses the causative role in obesity of dietary disruption of the eCB system by an elevated omega-6/omega-3 fatty acid ratio. Cannabis(or THC) results in downregulation of CB1R, leading to reduced sensitivity to AEA and 2-AG, leading to significant health benefits in the context of this diet. [NLM]
  • The President is allowed to use any means that he (and again, he needs no one else) considers necessary. This includes using the armed forces (which enables him to bypass the Posse Comitatus Act) and using the militia (which we’ll discuss in more detail below). The President’s ability to use force isn’t restricted to actual rebellion or insurgency. He can act against merely unlawful combinations and conspiracies. To be clear: If the President decides that a conspiracy has deprived people of a right and believes that authorities fail or refuse to protect the right, he can send in the troops. [Alexander Macris]
  • The President, by using the militia or the armed forces, or both, or by any other means, shall take such measures as he considers necessary to suppress, in a State, any insurrection, domestic violence, unlawful combination, or conspiracy, if it so hinders the execution of the laws of that State, and of the United States within the State, that any part or class of its people is deprived of a right, privilege, immunity, or protection named in the Constitution and secured by law, and the constituted authorities of that State are unable, fail, or refuse to protect that right, privilege, or immunity, or to give that protection. [10 U.S. Code § 253]

Monday, November 16, 2020

Monday Night Links

  • That moment was notable not just because the McLaren had finally been beaten. It marked the arrival of a new era of performance cars, one in which software would play an ever larger role. The McLaren requires its driver to conquer a challenge. The Veyron is as much computer as car, incorporating a dual-clutch gearbox, all-wheel drive, and launch control. This phenomenon cascaded. Supercars became quicker and easier to thrash. More accessible cars became faster than they had any right to be. When five-second 0-to-60 runs became leisurely, and times under three seconds grew common, stats became less impressive. After all, smaller numbers are harder for humans to perceive and are therefore less intuitive. And as cars rely more on computers to hit baffling figures, involvement and engagement are sacrificed. Instead of managing the car, drivers manage laws: the laws of society on the road and the laws of physics on the track. [Road and Track]
  • There’s another game genre that has become popular recently. These are games like Football Manager or Europa Universalis 4. Games that require immense time investment, thinking and strategizing. These games were fun when I played in them university or grad school. But I tried to play them recently and I couldn’t. They resembled jobs to me. And I already had a job. I was burning out trying to keep my team winning, scouting talent in obscure places in latin America and Africa. Europa Universalis is basically a spreadsheet simulation manipulating your dormant nationalist and religious impulses. If you take these games seriously as an adult you’ll burn out and lose your real job. That’s not fun. [Paul Skallas]
  • Yglesias explained why pushing back against the “dominant sensibility” in digital journalism is important to him. He said he believes that certain voguish positions are substantively wrong—for instance, abolishing or defunding police—and that such arguments, as well as rhetorical fights over terms like Latinx, alienate many people from progressive politics and the Democratic Party. [The Atlantic]
  • While researching the paper I found this quote from Neely and when I read it I knew we were going to be published in a good journal: "As long as I am allowed to redistribute wealth from out-of-state companies to injured in-state plaintiffs, I shall continue to do so. Not only is my sleep enhanced when I give someone’s else money away, but so is my job security, because the in-state plaintiffs, their families, and their friends will reelect me." That is what you call anecdotal gold. To be clear, when Neely was looking for a law clerk he advertised: "America’s laziest and dumbest judge” seeks “a bright person to keep (the judge) from looking stupid,” and gave preference to University of Virginia law students “who studied interesting but useless subjects at snobby schools." [Marginal Revolution]
  • Participants were randomised to receive daily 60 000 IU of cholecalciferol (oral nano-liquid droplets) for 7 days with therapeutic target 25(OH)D>50 ng/ml (intervention group) or placebo (control group). Patients requiring invasive ventilation or with significant comorbidities were excluded. 25(OH)D levels were assessed at day 7, and cholecalciferol supplementation was continued for those with 25(OH)D <50 ng/ml in the intervention arm. SARS-CoV-2 RNA and inflammatory markers fibrinogen, D-dimer, procalcitonin and (CRP), ferritin were measured periodically. Greater proportion of vitamin D-deficient individuals with SARS-CoV-2 infection turned SARS-CoV-2 RNA negative with a significant decrease in fibrinogen on high-dose cholecalciferol supplementation. [BMJ]
  • For the last four years half the country was all “Trump is illegitimate! He’s not my president! He stole the election!” so on and so forth, and that was all based upon nebulous ideas about “Russian Interference”, The Russian Interference mostly boiled down to them buying ads on Facebook, or having fake bots trolling on Twitter last time. This time the actual giant megacorporations, Facebook, Twitter, and Google themselves have actively censored stories in order to protect their candidate. So you think after this pile of suspicious election clusterfucks that makes the game look totally rigged, the other half of the country is going to accept Joe Biden as legitimate? [link]
  • I think mature adults should have the freedom to undergo medical transition. But teenagers are another matter. Social contagions exist, and teen girls are particularly susceptible to them. The book takes a hard look at whether the sudden spike in transgender identification among teen girls is yet another social contagion to befall girls who, in another era, might have fallen prey to anorexia or bulimia. [WSJ]
  • Other friends who are still stuck abroad (unable to get a flight or a visa) are missing a succession of delicacies: the crayfish season, the lychee season, the waxberry season, the durian season, the gordon euryale seed season, the sugar fried chestnut season, the pork mooncake season have all gone by. Will they catch the end of the mitten crab season, or will they have to wait another year? [LRB]
  • For instance, Zoom Communication's peak market capitalisation was recently about US$200bn. Even to trade on a relatively high 20x earnings, it would need to earn US$10bn after tax. Are investors aware of how few companies there are in the world that actually make US$10bn? It's about as much money as Coca-Cola and Visa make, for instance - two of the world's finest enterprises. Very few companies make more than US$10bn, because that is a lot of money, and the world is not infinitely big. [LT3000]
  • Some Tesla skeptics think that the S&P 500 selection committee can be talked out of adding Tesla to the index. I doubt it. The market cap is now $350 billion and growing. What are they going to do, not have a top ten (by market cap) company in the index? To exclude it on the basis of skepticism or suspicion would be an active choice of security selection. It would imply that the market could be hugely inefficient, that the entire philosophical predicate of indexation was wrong! No, the whole philosophy of the S&P 500 index is one of freeloading: the active participants in the market are supposed to set prices, which passive investors can then take as fair. So if the market says that Tesla is worth $350 billion, that is not something for index investors generally or the S&P committee to second guess. [CBS]
  • There are dozens of entities also hoovering up coins, many of which are not likely sellers in the near term. Almost every week, we learn of a new vehicle with big marketing resources behind it. Do you think Fidelity is launching their Bitcoin vehicle without a substantial marketing campaign? In their mind, unless they raise a few billion dollars, their fund has been a failure. Just think about what that sort of inflow would do to such an illiquid market. [AiC]

Friday, November 13, 2020

Friday Night Links

  • "Rolling up your sleeves and actually shipping something is much, much more valuable. If you take no other advice from me ever, ship something." [patio10]
  • If anyone in the Trump administration is listening, there is exactly one useful thing you can do now. The President has exactly one unilateral power which is dangerous to the regime: the power to declassify. This power can be trivially slowed to zero by the bureaucratic process, which is what happened when he tried to use it normally. Instead, the President can order the US Marshals to seize and publish the documents. Which documents? All the documents—not just those about his specific beefs (though certainly those as well). [Gray Mirror]
  • From 2010 through 2016, the New York Times ran an average of a couple of articles per week complaining about the Supreme Court’s 2010 Citizens United decision freeing up campaign spending. But then in 2017, it dawned on the Times that Hillary had spent twice as much as Trump, so now unchecked campaign spending was a good thing. [Sailer]
  • And speaking of the rule of law, is there much of it left in America anymore? Antifa and BLM rioted for months with impunity. Public figures (including the woman who may soon be President of the United States) raised money to bail criminals out of jail, law enforcement was told to stand down, the media lied, and the madness just kept rolling. Now, here we are a few days after the election, and the public shrugs (at best) at the idea of election fraud. At locations where votes were, and are, being counted, and in defiance of the law, corrupt Democrats have refused Republicans access. It’s been heartbreaking to see small bands of patriots having so little power, even with legal documents in hand, as they confronted corrupt Democrats who’ve denied them access. Where were the federal Marshalls and where was AG Barr? [American Thinker]
  • "Nate insisting that the polls akshually got it right and he personally nailed the election is a good reminder that success mostly comes down to ego and a willingness to blindly push through any negativity and shower yourself in glory no matter what. Very Trump-like." [@L0m3z]
  • You hop on your Kangaroo and lead a radical labour strike in Sydney demanding free Victoria Bitter for miners in West Australia. A handsome man in a Lenin cap approaches you with love in his eyes. But he is only 5'10". Wat do? LOL! I’m sure I'd make polite conversation, but I'm totally allergic to leftist men and short guys, so it wouldn't be likely to go anywhere too exciting! [niccolo]
  • We have also seen a stabilization in the financial condition of many airlines. Buoyed by government support, significant funding in the capital markets, and the ability to reduce costs, airlines have significantly extended their cash runway. Since the coronavirus outbreak, we have seen an extraordinary response from governments around the world to support their airlines. This includes almost $200 billion of direct assistance in the form of loans, payroll support and other initiatives, as well as billions more of indirect support provided by many countries. Governments around the world recognize that airlines are a critical part of the global infrastructure and country-specific economies. Airlines have also raised a record amount of funding from banks and the capital markets. The U.S. airlines alone have successfully raised over $40 billion since March. These factors, combined with the rise in passenger traffic and the reduction of their expenses, will enable the vast majority of the world's airlines to navigate through this crisis. We at AerCap have experienced the improved conditions as well in the form of a significant increase in our cash collections and a marked slowdown in rent deferral requests. [AER]
  • I’m speaking, of course, of the world that Richard Stallman predicted in 1997. The one Cory Doctorow also warned us about. On modern versions of macOS, you simply can’t power on your computer, launch a text editor or eBook reader, and write or read, without a log of your activity being transmitted and stored. It turns out that in the current version of the macOS, the OS sends to Apple a hash (unique identifier) of each and every program you run, when you run it. Lots of people didn’t realize this, because it’s silent and invisible and it fails instantly and gracefully when you’re offline, but today the server got really slow and it didn’t hit the fail-fast code path, and everyone’s apps failed to open if they were connected to the internet. [Jeffrey Paul]
  • Consider as a thought experiment a state law requiring that all votes be counted in secret by an unelected board named by the party in power.  Could it survive a constitutional challenge? [American Thinker]

Friday, November 6, 2020

Friday Night Links

  • The December 2022 contract offers oil for $81.48 per barrel. That's $20.96 cheaper than the front month price! That's an IRR of -2.7%, if you buy a barrel of oil today, short a futures contract, and wait for delivery. Another way to put that: the oil futures market says that a dollar will buy 2.7% more oil every year, compounded, from now through December 2022. The treasury yield for 8.5 year paper is 2.3%, so the combined rate of return is 5%!Who says yields are low? Sitting in treasuries can be expected to buy you 5% more oil - more BTUs - every year from now through 2023, compounded! [CBS]
  • Looking at states no one expected Trump to lose, his overperformance is even more stark. The polling average for West Virginia was Trump +17; he won it by 39. Kansas was estimated at +9; the result was +15. Throughout the day the president was also outperforming his expected result in key states such as Arizona, Georgia, Michigan, Minnesota, Nevada, North Carolina, Pennsylvania, and Wisconsin. He even, for a time, looked like he was within striking distance in Virginia, a state Hillary Clinton won by five points in 2016. At one point the New York Times’s “meter” had Trump’s chances in North Carolina at 92%. The needle was also sliding in the president’s direction in Arizona and Georgia, among others. And then, suddenly, the counting stopped in at least five states (or parts of states): Georgia, Michigan, Nevada, North Carolina, Pennsylvania, and Wisconsin; all but one with a Democratic governor (coincidence, surely!). When has that ever happened? [American Mind]
  • Elections have worked this way in big cities for as long as America has had big cities. Boss Tweed never ran for office because why bother? He controlled the vote-counting, so he could hire and fire elected officials at will. City-dwellers tolerated machine politics because they were rootless folks who had moved to the city in search of opportunity. If Tammany Hall became too incompetent to keep the streets safe for business, people could just pack up and leave, voting with their feet. [Jim]
  • We have one party in America that openly wants to fundamentally change our entire form of government into a one-party totalitarian state.  They plan to add several states to gain permanent control of the Senate.  They pitched adding enough justices to the Supreme Court to change it into a leftist legislative body of last resort.  They said the filibuster was toast. If this is what these people want to do, and they said it, who among us thinks they plan to play by the rules when counting votes?  Is there anyone on the planet who doubts that when a Democratic state government in a critical electoral state stops counting votes when their party’s opponent is ahead will open the morning discovering thousands of “found” votes? [American Thinker
  • Every statewide race in Montana went Republican this week, with record voter turnout: president, Senate, House, governor, attorney general, secretary of state, auditor. And both houses of the state Legislature retained a Republican majority. Come 2021, for just the fourth time since 1921, Republicans will hold Montana’s house, senate and governorship. [NYT]

Monday, November 2, 2020

Election Week Links

  • The more I read about polling, the more confused I get. From what I understand, the industry used to rely on normal people to pick up their old landline phones and talk to pollsters. Now, apparently, the response rate is very low and very non-representative. So pollsters apparently “correct” for their non-representative samples by overweighting some demographics and underweighting others. But isn’t this entirely circular reasoning? The whole point of polling is to determine how many of each group will show up to vote, and an initial assumption about the makeup of the electorate will shape the poll’s outcome. I’ve been listening to a lot of FiveThirtyEight podcasts recently, and they’ve done nothing to answer my questions. For “elections gurus” their analysis is surprisingly non-technical and superficial. Not to mention arrogant and smug. The more I listen to them, the more I suspect that their predictions might be substantially off. Also, they all have “NPR voice”. Extremely grating. [Sailer]
  • It offers an end to fracking and other Cuckoo California dreams that will cost the economy and the people who most need work right now. “Good-paying green jobs” are probably not jobs for Pittsburgh, or Cleveland, or Toledo, or Youngstown. [PPG]
  • The effect of inflation on real bank profits has been widely discussed in the economics and finance literature. Two competing and conflicting models exist. Alchian and Kessel (A-K) argue that banks are net monetary creditors (i.e., their nominal assets are greater than nominal liabilities). Rising prices would then decrease the value of their nominal assets more than diminishing the value of their nominal liabilities. Consequently, banks will lose during an inflation. On the other hand, the inflation tax school has argued that since banks' demand deposits are a portion of the money supply, they should capture a portion of the inflation tax and therefore gain during an inflation. We will show both the A-K and inflation tax hypotheses are correct, but only under special and differing circumstances. In brief, if inflation is unanticipated and continues to be unanticipated, then banks, being net monetary creditors, will lose. On the other hand, if inflation is fully anticipated, all interest rates will rise to include an inflation premium; the real value of all assets and liabilities, except demand deposits and reserves, will then be unchanged. Demand deposits, net of reserves, however, will shrink in value as prices rise. Consequently, the liabilities of the bank fall in real terms and banks gain. Otherwise put, the banks then have captured a portion of the inflation tax. Whether banks gain or lose depends crucially on the particular circumstances of expectations and portfolio adjustments. [link]
  • [L]ess informed investors earn the highest (and lowest) rates of return on their total portfolios because they irrationally believe they have a more favorable risk-return opportunity and hence invest in securities with a higher return. In effect, their ignorance effectively diminishes their risk aversion, and in the long run allows a lucky few of them to reap the financial rewards that would accrue to the less risk averse (one could call it the 'Forrest Gump' effect). As opposed to speculation weeding out the irrational traders and making only the best opinions matter, the irrational can dominate the class of winners. [CBS]
  • What is clear is that Exxon will keep bleeding cash at current oil prices. Its operating cash flow can’t cover outlays needed to maintain the business and to cover dividends. In fact, Exxon needs West Texas Intermediate prices to be at roughly $50 a barrel for it to manage its payout and maintenance-level capital expenditures from operating cash flow, according to Pavel Molchanov, equity analyst at Raymond James. [WSJ]
  • Neglected stocks — I measure it by the ratio of market cap to average dollar volume. 15% of my portfolio is allocated to such stocks, but I would be happy for it to be 50%, if not more. Many of my companies have a single large holder or group — Industrias Bachoco, National Western Life Insurance Company, CVR Energy, and Berkshire Hathaway. These companies have few analysts; there is no way for a brokerage to make money off of them. Yes, there is a control discount for such companies, because they can’t be taken over, except by the dominant owner. But if they are well-run, they can be great places to invest. The dominant investor has his interests aligned with yours over the long haul. This means that in good and bad times, a large amount of the stock is locked up, and is not available to be bought or sold. Strong hands hold the stock, which is typically a good place to be. [Merkel]
  • Eventually this will come to an end. I agree with David Einhorn who says that tech stocks are in an enormous bubble. It’s not the same as 2000, where tech stocks had no profits. It is different, as tech stocks have extremely high valuations relative to their profits. And that may be no difference at all, as the sum of the weights of technology and communication stocks have hit an all time high this year. The highest weight sector tends to underperform. The only question is when does the momentum fail. I’m not giving up. My principles have a strong theory behind them. My efforts are not just value, but deep value, and I have gotten my share of kicks to the gut as a result. At some point the tide will turn, even if it is private equity absorbing value stocks out of the market. The investment math is hard to break. If companies are cheap on net worth and earnings, they will appreciate. [Merkel]
  • A modern employee, let’s use a white collar office worker as an example, will usually get around 8 hours of sleep, will work around 8 hours a day, spend 4 hours commuting going to the gym, having meals, and then end up with 4 hours to him or herself during the day. So they own 4 hours. We can call this class of people 4HLers. It may seem vulgar to reduce a person’s life to the amount of hours he has free in a day, but then again, how many hours you have to yourself is kind of a big deal. Time is an important concept to a 4HLer. He is obsessed with time. he has to be. His livelyhood depends on it. So he has an alarm clock, because he has to wake up at the same time everyday, he has to take lunch around the same time everyday and get off of work around the same time everyday. He has deadlines that are due and he has to be reliable. It’s his job to be reliable. But wait, isn’t his job to do his job? Not quite. [Paul Skallas]
  • America had this massive home building boom in the 20th century. But like the nouveau riche that they are they focused on square feet instead of Lindy rich ceiling height. [Paul Skallas]
  • Space doesn’t “grab” the human like other things grab the human. I can’t tell you why. Maybe it’s because there is nothing out there. But that isn’t what this newsletter is about. I’m just sharing you something visceral and obvious that no one wants to talk about. Space fascination is held up by the government, 20th century hack Sci-fi culture and media tricks. It’s not on the level. It can’t hold up on its own without help. The human doesn’t feel drawn to it. There is no “pull”. [Paul Skallas]
  • Twitter is a great tool. News was traditionally, throughout history, a two way street. You gave news and you received news. Like a barber shop. So you can create a lindy compatible community to engage with rumor/gossip. But what happens is people treat it like the 20th century media monoculture, where they just rained bad news on you in a one way communication. They get the upside (clicks, salaries) you get the downside (anger, messing up your mood). You lose in this transaction. [Paul Skallas]
  • I was inundated with cheap companies, more than I had capital for.  I started to experience analysis paralysis, I couldn't decide which cheap companies were the best, or what "best" even meant.  Did I want better FCF yields, or a lower NCAV, or better dividends?  In the end I decided that I needed a sound system, one that could be followed and one that was simple.  I decided to buy stocks trading at 2/3 of NCAV, that were profitable, paid a dividend, and were stable companies. [Oddball Stocks]
  • Long time readers know that I've toyed with the Japanese net-net market.  I've done numerous posts on Japanese equities, and even bought a few Japanese net-nets.  Each time though I keep coming back to the same problem, there are so many Japanese net-nets, how do I choose the ones to invest in?  I've translated financial statements in an effort to pick the "best" cheapest companies.  I've built out spreadsheets of various metrics, yet I've never had the feeling that I'm fully capturing the cheapest companies.  Do I purchase the ones at the lowest P/NCAV, or the ones with the highest ROE, or the ones with the best dividend yield?  I really don't know what will work the best in the future. [Oddball Stocks]