Monday, January 17, 2022

January 17th Links

  • UChicago claims to rely upon “expert” opinion in structuring its COVID regime. Yet, even advisory committees at the FDA and CDC initially declined to recommend the COVID booster for those under the age of 65. The FDA’s Vaccines and Related Biological Products Advisory Committee made an official recommendation to approve Pfizer’s application for boosters only for those 65 and older and certain high-risk populations after rejecting, in a 16-2 vote, Pfizer’s application for broader approval for the general population. The committee cited a lack of data on potential adverse effects, particularly the risks of developing myocarditis and pericarditis. However, the FDA chose to cast aside this concern and granted “approval” anyways. ​​But even this “approval” is itself questionable. The FDA only granted approval to Comirnaty, a legally distinct version of the Pfizer-BioNtech vaccine that isn’t actually available in the United States. The version of the vaccine currently available in the US remains under Emergency Use Authorization, not formal approval. [The Chicago Thinker]
  • As a complement to vaccines, small-molecule therapeutic agents are needed to treat or prevent infections by severe acute respiratory syndrome coronavirus-2 (SARS-CoV-2) and its variants, which cause COVID-19. Affinity selection-mass spectrometry was used for the discovery of botanical ligands to the SARS-CoV-2 spike protein. Cannabinoid acids from hemp (Cannabis sativa) were found to be allosteric as well as orthosteric ligands with micromolar affinity for the spike protein. In follow-up virus neutralization assays, cannabigerolic acid and cannabidiolic acid prevented infection of human epithelial cells by a pseudovirus expressing the SARS-CoV-2 spike protein and prevented entry of live SARS-CoV-2 into cells. Importantly, cannabigerolic acid and cannabidiolic acid were equally effective against the SARS-CoV-2 alpha variant B.1.1.7 and the beta variant B.1.351. Orally bioavailable and with a long history of safe human use, these cannabinoids, isolated or in hemp extracts, have the potential to prevent as well as treat infection by SARS-CoV-2. [NLM]
  • Ten years(!) have passed since I wrote Why bitcoin will fail. And yet, here we are, still talking about bitcoin. Did it fail? According to the many cryptobots who pester me, apparently not. They still gleefully repost my old article periodically, pointing out that at the time, bitcoins were worth maybe three dollars, and now they're worth infinity dollars, and wow, that apenperson sure must feel dumb for not HODLING BIGTIME back when they had the chance, lol. Do I feel dumb? Well, hmm. It’s complicated. Everything I predicted seems to have come true. If your definition of “failure” is “not achieving any of the stated goals,” then I guess bitcoin has profoundly... not succeeded. But that doesn’t really tell the whole story, does it? A proper failure would be in the past tense by now. What I do know is I’ve learned some stuff in 10 years. [apenwarr]    
  • Every day, an individual will conduct a few economic transactions with other people, but they will partake in a far larger number of transactions with their future self. The examples of these trades are infinite: deciding to save money rather than spend it; deciding to invest in acquiring skills for future employment rather than seeking immediate employment with low pay; buying a functional and affordable car rather than getting into debt for an expensive car; working overtime rather than going out to party with friends; or, my favorite example to use in class: deciding to study the course material every week of the semester rather than cramming the night before the final exam. In each of these examples, there is nobody forcing the decision on the individual, and the prime beneficiary or loser from the consequences of these choices is the individual himself. The main factor determining a man's choices in life is his time preference. While people's time preference and self-control will vary from one situation to the other, in general, a strong correlation can be found across all aspects of decision making. The sobering reality to keep in mind is that a man's lot in life will be largely determined by these trades between him and his future self. As much as he'd like to blame others for his failures, or credit others with his success, the infinite trades he took with himself are likely to be more significant than any outside circumstances or conditions. No matter how circumstances conspire against the man with a low time preference, he will probably find a way to keep prioritizing his future self until he achieves his objective. And no matter how much fortune favors the man with a high time preference, he will find a way to continue sabatoging and shortchanging his future self. [The Bitcoin Standard: The Decentralized Alternative to Central Banking]
  • The advocates of the new minimalism are, by and large, urban dwellers, tied to stratospheric real estate markets in prime locations.  (Prime locations are, tellingly, never considered material “things” to be shunned.)  In a downtown studio, one simply cannot afford to have that many material goods.  As the dream of homeownership fades further away, it makes total sense to economize by buying a few, high-quality items and just accept the loss of capability from not having, say, a well stocked toolshed.  But what cities can provide are experiences, both new and interesting events in town and opportunities for international travel.  So “buy experiences, not things” is less a bold new philosophy than a mere rationalization of life choices that people have already been forced to adopt. But what this rationalization ignores is the extent to which tools and possessions enable new experiences.  A well-appointed kitchen allows you to cook healthy meals for yourself rather than ordering delivery night after night.  A toolbox lets you fix things around the house and in the process learn to appreciate how our modern world was made.  A spacious living room makes it easy for your friends to come over and catch up on one another’s lives.  A hunting rifle can produce not only meat, but also camaraderie and a sense of connection with the natural world of our forefathers.  In truth, there is no real boundary between things and experiences.  There are experience-like things; like a basement carpentry workshop or a fine collection of loose-leaf tea.  And there are thing-like experiences, like an Instagrammable vacation that collects a bunch of likes but soon fades from memory. [harold lee]
  • Housing costs are largely driven by zero-sum competition for good school districts and safe neighborhoods, which were in much greater supply in 1960. It’s true that houses have gotten larger, reflecting improved construction technology, so people are getting more house for their money. But part of the reason people are buying more house than they used to is that they’re using laws that indirectly discriminate against people you’d rather not have as neighbors, since the most effective ways to discriminate against bad neighbors have become infeasible. Minimum lot sizes, maximum occupancies, various environmental initiatives, and migration to exurbs all increase the amount of housing purchased. But people are buying more house not because they intrinsically like McMansions, but because what they’re buying is good neighbors and good peers for their children. Right now, McMansions are now the easiest way to do that. [harold lee]
  • Submission has been advertised as a dystopian novel about the Muslim takeover of France. But the dystopia he paints is not the Muslim takeover, but rather the state of French culture as it exists today. And on the personal as well as the political level, it shows the consequence of a culture without courage, and of a life lived on the principles of maximizing niceness and avoiding discord. In the long run, Houellebecq shows, it doesn’t look anywhere near nice, and its peacefulness is the peace of the grave. [harold lee]
  • What kind of peace do I mean? What kind of peace do we seek? Not a Pax Americana enforced on the world by American weapons of war. Not the peace of the grave or the security of the slave. I am talking about genuine peace, the kind of peace that makes life on earth worth living, the kind that enables men and nations to grow and to hope and to build a better life for their children--not merely peace for Americans but peace for all men and women--not merely peace in our time but peace for all time. [John F. Kennedy]
  • She is passionate about climate change, fighting racism and labor rights. And her political hero is Senator Bernie Sanders, the Vermont independent. “Bernie Sanders is my everything,” Ms. Carter said. “I love him more than anything.” Perhaps more disconcertingly for Starbucks as it tries to contain the union campaign, Ms. Carter appears to be representative of the kinds of people the company has hired over the years to reinforce its progressive branding. [NY Times]
  • There has been a big stride in the American public’s acceptance of the style of baking that I do – rustic, dark crusty breads. Obsessively laminated croissants baked with a slight mahogany hue. In my first few years in the early 2000s (Ken’s Artisan Bakery opened in 2001), my breads looked different to many people, over-baked or I often heard the work “burnt”. Fast forward 19 years later, I’m no longer one of the only bakers who bake it dark, or one of the only bakers who specialize in levain breads. This style of baking has become quite common. It was not back in the day. [Ken Forkish]

Thursday, January 13, 2022

Thursday Night Links

  • That has to be the beginning of any discussion of vaccine mandates, travel restrictions, or whatever – the vaccines in their current form never worked properly, don’t work at all any more, and what’s more, it should have been obvious to everyone involved in their creation that they wouldn’t work . There’s no point in getting bogged down on the ethical and moral dimensions of mandating vaccination when the vaccine in question doesn’t actually work to begin with! [The Antisocial Darwinist]
  • The waiting room at St. Lambert Lock in Montreal looks out at a quarter-mile of chain-link fence, six security camera towers, a blaze-orange derrick and a guardhouse. There, three armed men stare at a 750-foot stretch of placid, blue-green water waiting to lift 33,000-ton freighters up along the St. Lawrence Seaway. The lock is part of the oldest and most traveled inland waterway in America — a 2,300-mile corridor that connects the Atlantic Ocean with all five Great Lakes and the Mississippi River. Since deep draft navigation opened on the St. Lawrence in 1959, more than two and a half billion tons of cargo, worth around $375 billion, have traversed the seaway. [NY Times]
  • Then there’s Gordon Johnson. He worked at large investment banks before starting GLJ Research, where he covers 20 stocks. He’s bullish on uranium stocks and bearish on cannabis, but all anyone wants to talk about, he says, is his $67 price target on Tesla. “I’ve gotten death threats,” he says. “Now I don’t even answer the phone when I have unknown calls.” In Johnson’s view, there’s no reason to assume Tesla will do well in adjacent businesses. “You could take McDonald’s and say they’re going to start selling Nikes and chairs and pianos and add those valuations,” he says. In cars, he calculates that the stock price implies a production ramp-up that no car maker could achieve. “Selling cars is not selling iPhones or shirts,” he says. [Barron's]
  • You know, Ronald Reagan used to quote a Scottish philosopher, who predicted that democracies and civilizations wouldn’t last much longer than a couple hundred years. And John Adams wrote this, “Remember, democracy never lasts long; it soon wastes, exhausts and murders itself. There never was a democracy yet that did not commit suicide.” That’s John Adams. [Willard Romney]
  • Mainstream “super food” scams: Kale, spinach, soy, fake meat, fake milk (soy milk, oat milk, almond milk etc., quinoa veganism... The REAL superfoods: Home made sauerkraut, raw unpasteurized milk, yogurt, butter and kefir, meat stock, bone broth, bone marrow, organ meats. [link]
  • The nicotine stream from an e-cigarette becomes like the internet itself: constant, unbreakable and yearning for their attention. “I was like, ‘I am just consuming way too much nicotine,’” said Ms. Yara, who found herself inhaling more than one Juul pod a day, the equivalent nicotine of a pack of cigarettes. “I hated how if I couldn’t find a vape for a second, I could not do schoolwork.” Ms. Yara returned to cigarettes as a means of decreasing her vape use. So did Emile Osborne, a 22-year-old graphic designer. “I switched back to cigarettes because I thought it would be healthier than Juuling,” he said. “Cigarettes seem like a known evil, whereas vaping you don’t know the side effects at all. I can go out for a cig a few times a day. It’s a break from what I’m doing. That’s my nicotine fix for the day.” [NY Times]
  • Local real estate prices have served as a consistent and powerful predictor of bank stock prices in the US for the last 20 years. While many investors write banks off as difficult to analyze, this simple concept of using local real estate prices to explain the variation in individual bank stock prices can serve as a critical input in an investor’s bank stock selection. This is not the only relationship I’ve found in bank stocks, but it is one of the most impactful. Because they are heavily regulated, banks are forced to provide the public with additional transparency beyond that which is required of other industries. This results in more granular data relative to what is found in many other industries, making banks well-suited to implementing an industry-specific, data-driven investment strategy. [Verdad Cap]
  • In the past, I've worked as a software engineer, hacker, sailor, captain, and shipwright. I used to travel a lot; I've hopped freight trains across the US from coast-to-coast a bunch of times, have gotten some really great and some really terrible rides hitchhiking all across America, and have sailed a few near-derelict sailboats as far as I could take them. I currently live in California. I like computer security and software development, particularly in the areas of secure protocols, cryptography, privacy, and anonymity. But I also secretly hate technology. I like sailing, have a Master's mariner license, and used to do yacht deliveries world-wide. I'm interested in sailing without engines, and draw great inspiration from the likes of Moitessier, as well as the entire 1968 Golden Globe crew. I've spent enough time on the water to love the ocean, but also to be constantly terrified of it. [Moxie]
  • In suggesting that bitcoin should be labelled a game rather than an investment, I don’t mean to belittle it. Financial games provide value. A casino employs not only croupiers but also managers, marketers, cooks, cleaning staff, programmers, security guards, and more. These jobs help the economy. People fly to Vegas for a reason. In moderation, financial games are fun, sort of like how going to a horror movie provides thrills. Likewise, bitcoin’s price contortions can be entertaining. Combine this with the constant soap opera generated by the personalities involved in the space, and you’ve got a form of recreation that competes head on with Netflix, League of Legends, or the NFL. Bitcoin and its many ancillary services—exchanges, payments processors, and wallet providers—create jobs for programmers, marketers, lawyers, and economists. If financial games were illegal, then the provision of lotteries, poker, and other forms of betting would shift to the underground economy. Not only would the quality of the product decline, but violence could rise as criminal organizations fight to control their gaming turf. Bringing these activities into the light—in bitcoin’s case by implementing an open and transparent online version—makes society safer. And of course, there are times when bitcoin serves as more than just a financial game. In 2011, for instance, Wikileaks relied on bitcoin to maintain its connection to donors after being cut off from the banking system. This payments function was why bitcoin was originally created, but it has taken a distant back-seat to the technology’s dominant role as a decentralized financial game. Indeed, what makes bitcoin such a thrilling game—its rollercoaster peaks and troughs—is the very feature that militates against its usage as a medium of exchange. People don’t want volatile money, they want stable money. This gets me back to Brian Armstrong’s admonition to Coinbase’s customers to invest responsibly. His warning label just doesn’t cut it. No one invests in a zero-sum game, they play it. A casino owner daring to suggest that playing roulette is akin to investing would be justifiably pilloried for engaging in purposeful deception or, at best, sloppy word usage. Same with a lottery operator who advertises Powerball tickets as an investment. Likewise, people buying bitcoins should not be encouraged to believe that they are engaging in the age-old art of investment appraisal. They are playing a zero-sum game. The word “investment” should be reserved for the act of allocating capital to win-win games like shares in private businesses, publicly traded stocks, and bonds. [jpkoning]
  • What I want to know is, if in the 21st century, where in the 17 seconds spanned by when the clip starts to when the officer yells to his colleagues “go, go, go!” with the man pulled from the wreck just before the train arrives, if there isn’t some way, with all of the wonder-high-tech industry in California, that the train could be signaled to stop short? There is a Web site run by Kalmbach, the publisher of Trains Magazine, where railroad employees and train enthusiasts alike register to post blog comments to call people who risk being struck by a train, “idiots”, “morons” and “Darwin award recipients” because as anyone who knows anything about trains knows, “The train cannot and will not stop.” I know that too, but isn’t it a form of social-technological barbarism to have a steel Juggernaut as a mode of transportation? [Sailer]
  • It has been interesting over the last month to watch the curious saga of Scott Adams on Twitter. He has gone from being a bog standard normie to very nearly crossing the bridge to covid enlightenment, only to draw back from the brink and instead go full on Branch Covidian. Of course, to save face for how he and others have been so wrong so often while a bunch of anonymous right wingers on social media have been right, Scott has taken to portraying himself as merely “doubting the doubters,” casting their correct predictions as mere luck, a case of the crowd occasionally getting something right entirely by accident. Underlying all of this is Scott’s abiding faith in “experts,” and his corresponding incredulousness that non-experts, social media anons and the like, could have been right when the experts were wrong. It must be a fluke. Those who don’t think so are just engaging in confirmation bias, just”coping” (with what, being right when the experts were wrong?). Surely their rightness isn’t because they had access to better information or had better instincts than the experts, that’s impossible! All of this is even more ironic because Scott’s whole brand as expressed in his books and in his Dilbert comic strip is that those in positions of authority rarely know what is going on and the little guy drones in the trenches are the ones who really make things work. What this unmasks, I suspect, is ultimately that he is a product of his generation and cannot escape its assumptions, even when he tries to. The intellectual underpinnings for Boomers were formed when most of America’s institutions still actually worked as advertised. Their generation is used to assuming that things like government agencies and large corporations fundamentally operate for the good of those who they supposedly serve. This creates a normalcy bias that leads to undue trust being granted to them. Boomers have a great deal of difficulty coming to grips with the increasing institutional decay and dysfunctionality that characterises modern America. [Vox Day]
  • Many cite the Diamond Princess as instrumental in convincing them that SARS-2 was never a big deal, before lockdowns were even proposed. That natural laboratory is probably one reason why the narrative shifted so quickly from apocalyptic fatality rates to overwhelmed hospitals as March approached. Many realised something was wrong when the Spring 2020 wave failed to bring the promised disaster (or, in many places, even very many infections); or when Summer 2020 was used to consolidate and extend the containment regime, even though almost nobody was sick. The Floyd riots were a huge moment for Americans; the duplicitous public health messaging on behalf of the rioters did untold damage to the credibility of lockdowns in the United States, to an extent even I hadn’t realised. The absurdity and internal contradictions of many containment measures alienated a lot of people. One reader writes that it was Fauci’s double-masking campaign in Fall 2020 that pushed him over the edge. A final decisive moment was of course the vaccines. [eugyppius]
  • The serial asset bubbles instigated by the Federal Reserve (and front-run by Fed Board Governors and Congress members alike) has transformed the national character. The reigning zeitgeist from Silicon Valley to r/wsb is a mad, speculative dash to make enough money now that the country's problems won't apply to you come the 4th Turning. Arguably, if anything, Boomers' selfishness has insured the widely hailed, if slow to arrive, 4th Turning's inevitability. My fear is that the Boomers, like the Victorians, won't actually be around to experience that which they have wrought. [CBS]
  • The scarcity of cash results in lots and lots of political conflict over the value of money, which is part of a broader political conflict between creditors and debtors. Creditors need to be careful about thinking they have debtors cornered. Debtors outnumber creditors, so the rules can be changed. Drawing out the foreclosure process buys debtors time for reflation to rescue their claims. Another rule change is devaluation, which first was by going off the gold standard and then was through money printing. The post-2009 restructuring (no public auctions, quantitative easing) seemed to be designed to make sure that only the elites could get the benefit of the reflation. They weren't going to allow more Beals. [CBS]
  • CNRL puts an awesome metric in their investor presentations: "proved plus probable reserves before royalties (BOE) per common share". For 2020 year-end, it was 13.5 BOE, up from 8.3 BOE at the end of 2016. (This number can actually grow over times if accretive share repurchases and rising oil prices outpace depletion of the resource). So for $43.50 per share you are getting 13.5 BOE of 2P resource! Note that the BOE metric of course includes natural gas at a 6:1 BTU ratio with oil. If you look strictly at 1P (proved) crude oil reserves, it is an enterprise value of $6 per barrel, and that is ignoring natural gas as well as probable reserves. Remember what it is that we like about royalty trusts and long reserve life, slow decline Canadian oil companies. They both avoid the principal-agent problem that afflicts other types of oil and gas producers with small amounts of reserves that need to be replaced often in order for managements to keep their jobs. Those companies have a poor track record of creating long term value for shareholders because management's incentives are bad. They need to buy assets to keep their companies from liquidating (and losing their jobs), but they only have the money to buy assets at the top of the cycle when properties are expensive. The companies that fracked for shale over the past decade managed to transfer almost all of their investors capital (both equity and debt!) to sellers of land and service providers. [CBS]

Monday, January 10, 2022

Guest Review: @pdxsag on "Boomers: The Men and Women Who Promised Freedom and Delivered Disaster" by Helen Andrews

 [This is a guest review by CBS correspondent @PdxSag of Boomers: The Men and Women Who Promised Freedom and Delivered Disaster.] 

Early reviews of Boomers: The Men and Women Who Promised Freedom and Delivered Disaster [4/5] suggested that author Helen Andrews had given the Baby Boomers the proper fisking they deserve. She is a conservative essayist and senior editor at The American Conservative, so I was hoping that her take-down of Boomers would be better grounded in reality than the typical criticisms that were coming from progressive Millennials (some say communists); essentially that Boomers weren't liberal enough.

Andrews modeled her book on Eminent Victorians by Lytton Strachey, which was a very popular criticism of a prior generation that had been held in undue esteem and was now getting a second reckoning. (An important distinction with Boomers is they are unduly esteemed only by themselves.) EV is four essays taking aim at four Victorians that were the ideological standard bearers for Great Britain's involvement in The Great War: Cardinal Manning ("Roman Catholic Archbishop and social progressive"), Thomas Arnold (inventor of the English public school as we know it), Charles Gordon (famous British general in the Raj) and Florence Nightingale. While EV was an unfair take-down – to which the author, a cynical, nihilstic, Modernist, freely admitted – it resonated among a war-weary public who wanted to blame someone for the mess Great Britain found itself in at the conclusion of the war.

In contrast to Strachey, Andrews intends her criticism to be fair, which it is. As with Eminent Victorians, Andrews' Boomers is a collection of essays taking aim at and knocking down a selection of Boomers who best exemplify the popular nostrums for which Boomers hold themselves in high and thoroughly undue esteem.

Andrews' targets are: Steve Jobs, Aaron Sorkin, Jeffery Sachs, Camilla Paglia, Al Sharpton, and Sonia Sotomayor. This cast of characters capture Boomers' narcissism, hypocrisy, and perhaps most of all mediocre talent and intellect trying to use irony in order to pass itself for genius.

Jobs and Sorkin representative of the numerous cultural icons that Boomers use to claim their generation's unique moral integrity. Of course, as narcissists and hypocrites, the Boomers' claims to moral integrity could not be further from the truth. And so likewise: Jobs is famously a narcissist's narcissist and a hypocrite's hypocrite. Sorkin is similarly a hypocrite in that he claims we wants to be a highbrow auteur, but his greatest success is a middle-brow, schlocky TV show: The West Wing. His biggest failure is Newsroom, an overwrought, self-important TV show about cable-TV news.

The irony is that these two Boomers are actually the anti-Boomers of the group: they are legitimately virtuosos of talent in their fields, and they were critical of the debased, laissez-faire cultural revolution that remains the defining characteristic of the Boomer generation. For Jobs it meant taking a hardline against online pornography. For Sorkin it meant trying to critique television broadly and cable TV news specifically. One must admit, Quixotic “hills to die on” are as anti-Boomer as it gets. Nonetheless, Boomers themselves conveniently glossed over these flights of fancy and ret-conned the rest of Jobs and Sorkin cultural criticisms as being supportive of Boomers' raison d'etre: cultural revolution.

  • When [Jobs] married Powell in a Zen Buddist ceremony in 1991, Jobs served an eggless, dairyless, no-refined-sugar wedding cake that many of his guests found inedible. This proves that his vaguely mystical asceticism about food was genuine, if we wasn't willing to let it slide for a special occasion. On the other hand, forcing your friends and admirers to eat a flavorless vegan loaf is also a power trip.
  • More than half the tech workers in Silicon Valley are foreign-born. A conservative journalist once analyzed the big tech companies' spending on lobbying to see which bills received the most attention. The top targets weren't patent protections or communications spending but visas for high-skilled workers. Cheap labor from Asia is one reason wages for computer programmers have been stagnant since 1998.
  • Apple had long been a holdout against outsourcing, in large part thanks to Jobs. He insisted that Macintosh be built in America, and the operations team complied, building a factory in Fremont, California. When investors in NeXT pressured Jobs to outsource manufacturing to Asia, he refused, even when Ross Perot resigned from the board in protest... It was Cook [also a Boomer] who cultivated Apple' close relationship with Foxconn.
  • They discovered that the tradition did not exist... At that moment, we realized we all must have been thinking about this episode of The West Wing where Leo asks for the cabinet resignations... I [Andrews] can personally confirm what must be, to people living outside Washington, a disturbing truth: a significant portion of our ruling class is made up of former West Wing obsessives.
  • Baby Boomers love idealism, but do they even know the difference between the real thing and the imitation? Is their appreciation of moral integrity real or just an affectation?

Sachs and Paglia embody the hubris of Boomers. The arc of many Boomer's career is that they always fail up. It is stiff competition, but Sachs may be the winner at failing up given his choice of career: foreign aide and economic redevelopment, certainly the most dismal field of the dismal science. Sachs CV includes such gems as Bolivia, Poland, Russia, before trying his hand in Africa, and finally creating his own NGO: The Millennium Villages Project.

Their hubris comes into play when they believe they can help succeed in reforming and developing the 3rd world when all prior attempts have failed. Paglia's hubris is that culture's vast unwritten norms, especially around sexual mores, can be deconstructed and  tossed aside without any consequence for the vast majority of society. As if that which is workable among upper-class, homosexual college students is in any way applicable to broad society. She validates every criticism aimed at the Ivory Tower stereotype.

  •  Looking at the consequences of television from politics to journalism [to investing -@pdxsag], one starts to wonder whether pseudo-knowledge might be worse than no knowledge at all.
    Two-thirds of the money USAID spent in Eastern Europe in 1991 went to “technical assistance,” which meant it was hoovered up by contractors like the Big Six accounting firms for their fees and expenses... Sardonic officials joked that USAID seemed to be solving the West's unemployment problem, but not Poland's.
  • Like Wilde, Paglia has dabbled in decadence as if it were a game. The pithy paradoxes, the valorization of glamour, the celebration of sexual daring, have to her been a way of striking a pose, a way to annoy all the academic frumps and feminist scolds who considered Madonna's Sex book beneath their attention. Paglia's tragedy, like that of her fin de siecle forebears, is that she toyed with forces that were much more dangerous than she imagined them to be, and they turned on her in the end.
  • In 1956 the concept did not exist at all. In 1966 it was full grown and dominant... the idea was this: no matter what the courts and the legislatures had traditionally deemed 'obscene'... the government could not suppress a book if it had merit as literature... This effectively cancelled almost all censorship at a stroke, for even in 1966 there was no work of art so repellent that it could not find a defender in some English department somewhere.
  • She [Paglia] realized that the so-called tenured radicals were not really radicals at all but apple polishing class president types, or else plain hucksters. All the real radicals had flamed out on drugs or dropped out of academia after one rejection too many by timid hiring committees. The universities were abandoned to “toadying careerists, Fifties types who wave around Sixties banners to conceal their record of ruthless beaverlike tunneling to the top.”
  • When they [college professoriat] see that they have the power to make a man who once would have been an adult with a wife and kid instead sit in a cage well into his midtwenties, taking creative writing from some goateed drudge, they don't worry whether they have the power to get away with a comparative bagatelle like gender-neutral pronouns.

Sharpton and Sotomayor embody mediocre talent and intellect trying to pass for genius. It is fitting that nowhere is this more true than in these two affirmative action cases. It is fitting that nowhere is this more true than in these two affirmative action cases. Probably the best two chapters in the book are these two because Andrews doesn't shrink from criticizing racial politics, something almost verboten outside of anonymous social media channels.

  • How could this calamity [school busing and forced neighborhood integration] be memory-holed so thoroughly that, to the extent anyone remembers it today, we talk as if the Holocaust survivors were the villains of the story? It is because the boomers themselves were too young to remember it. Most people born in the decade after 1945 would have been in their twenties when Judge Garrity's busing decision came down, too old to be in school and too young to have children of their own.
  • Preserving the boomers' liberalism on race was, in many cases, precisely why their parents had fled to the suburbs. Bernie and Roz Ebstein of Chicago had marched with Martin Luther King and were committed to staying in Merrionette Manor even as the neighborhood flipped, until their school-age sons started expressing racial resentments: “You believe this stuff about integration,” their eldest told them, “but we're living it.” The Ebsteins quickly moved to Hyde Park, where little David and Steven would no longer have their liberal opinions beaten out of them. Having high-status views on race was part of the middle-class life they wanted to pass on to their children, no less than material comforts and a college education. It is therefore a mark of white flight's success that so many boomers are willing to believe Ta-Nehisi Coates' lies about it.
  • The problem today is not that we have regressed to the old machine politics. It is that we have all of the old machine politicians' vices and none of their virtues. The D.C. mayor Marion Barry was quite a step down from the old Irish bosses. At one point he had nearly one in thirteen D.C. residents on the municipal payroll; Boss Tweed would have been appalled at the inefficiency. He would also have been appalled at the sanctimony. Barry cloaked his most brazen peculations in the high-flown language of civil rights, even after be was busted smoking crack on FBI surveillance video. In the eyes of his supporters, standing up to the white power structure justified any level of corruption and waste in the actual operations of the city government... Tammany rule was always punctuated by intervals of reform when voters got fed up, whereas Marion Barry held office in D.C. pretty much continually until his death, except for the brief period when he was actually incarcerated.
  • Anonymous quotations from clerks who worked with Sotomayor on the Second Circuit Court of Appeals piled insult on insult. “Not that smart and kind of a bully on the bench,” said one. “She has an inflated opinion of herself, and is domineering during oral arguments but her questions aren't penetrating and don't get to the heart of the issue,” said another. Rosen's idea of giving a balanced view was to quote a third clerk as saying, “She's a fine Second Circuit judge. Maybe not the smartest ever, but how often are Supreme Court nominees the smartest ever?”
  • The irony was that Tribe and Rosen had both defended affirmative action in the past... [Tribe] probably believed for the really important stuff, like Supreme Court nominations, affirmative action would yield to pure meritocracy.”
  • Some first-year justices lie low out of deference to the more senior justices. Not Sotomayor, whose interruptions – not just of lawyers, but of other justices in the middle of asking their own questions – are so frequent that Chief Justice Roberts sometimes has to reprimand her or give an attorney extra time to finish his remarks. During oral argument for Department of Commerce v. New Your, on whether the 2020 census could ask respondents their citizenship status, Sotomayor interrupted the soliciter general fifty-eight times in eighty minutes, a record number of interruptions for any justice that term. In 2013 she was so quick to seize the floor that she managed to talk over the famously taciturn Clarence Thomas' only intervention in a decade.

I've been an unabashed critic of the Boomers since the 90's. I've been an unabashed critic of the Boomers since the 90's. And, so far as I am aware, my ire towards them is rivaled only by that of fellow Gen X-er VoxDay. I wanted a vitriolic fisking of the Boomers. As Andrews explains in the preface, this book is not that. I can do no better than to quote Andrews herself on this point:

“[F]or Eminent Victorians his [Lytton Strachey's] ironic prose only helped. It gave the book a light touch. The Victorians could survive being proven wrong. They could not survive being made to look ridiculous...

“I don't feel this book was written in a spirit of meanness. As I was drafting a list of boomers to profile, I found that I had no interest at all in writing about buffoons and psychopaths... Instead, I was drawn to the boomers who had all the elements of greatness but whose effect on the world was tragically and often ironically contrary to their intentions. Their destructiveness came from their virtues as much as their vices.”

“I began this book thinking that it could articulate the same anti-boomer brief that all my millennial friends seemed to be arriving at independently. Boomers were the people who scolded us for complaining about student loan debt when, in their day, you could work off a semester's tuition in a few shifts sweeping floors at the biology lab. They're the parents who ask why we're still single when their example of broken homes and sexual anarchism didn't leave us with much to go on. They're the ones who discredited the old uncomplicated patriotism and replaced it with worship of – themselves.”

After completing Boomers, I agree that Andrews' choice of a light touch was the correct one. There's an old attorney joke that when the facts are on your side, pound the facts, when the law is on your side pound the law, and when neither the facts nor the law are on your side, pound the table. Well, the facts are on her side, so yelling, as much as I think I would have enjoyed it, really isn't necessary.

Nonetheless, I do have two criticisms. The first is among her selection of six Boomers to pan, she did not include anyone to represent the financial nexus of government and Wall Street. Two easy and obvious choices here are Ben Bernanke and Larry Summers. Perhaps this is to be expected owing to her primarily political journalism, but to ignore the economic destruction of the middle class is to miss the elephant in the room.

Boomers were gifted the richest inheritance the world has ever known. Yet, not content with that birthright, they also mortgaged their children's and grandchildren's financial futures. The serial asset bubbles instigated by the Federal Reserve (and front-run by Fed Board Governors and Congress members alike) has transformed the national character. The reigning zeitgeist from Silicon Valley to r/wsb is a mad, speculative dash to make enough money now that the country's problems won't apply to you come the 4th Turning. Arguably, if anything, Boomers' selfishness has insured the widely hailed, if slow to arrive, 4th Turning's inevitability. My fear is that the Boomers, like the Victorians, won't actually be around to experience that which they have wrought.

My second criticism is that, like so many other millennials, Andrews completely ignores that there exists a generation between hers and Boomers: Gen X. Millennials are always complaining about their Boomer parents and the hash Boomers have made of things for them and their future. Fair enough. However, Millennials are not the only ones to have Boomer parents. Many Gen X have Boomer parents too. 1991 had a pretty ugly recession. Being a college grad in 1991 was as harrowing a situation as being a college grad in 2008, such as Andrews was. I'm not sure Millennials know this, but latchkey kid was a common term of art in the 1980's. In contrast, “snowflake” is all Millennials' own.

So why the difference? There are many, of course, but one that I've not seen discussed on the interwebz is the difference among Boomers themselves. Boomers that skipped or dropped out of college, got married soon after high school, and had their kids in their early 20's (ie. late 1960's and through the 1970's) were more culturally conservative than the Boomers that went to college, joined the white collar work force in predominately blue urban-metros, then got married and started having their kids in the 1980's. This cultural bifurcation in Boomers has made a generational bifurcation between Gen X and Millennials. So now we see Millennials largely share a similar narcissistic “communism for me, but not for thee” that their Boomer parents essentially have.

Andrews herself (~1986) is a perfect example in form, albeit not function. She dedicates the book to her father, who was born in 1953. She describes her father as a “liberal Southern lawyer of the Atticus Finch type,” and of her mother, “a bit of a hippie when she was younger – she majored in pottery at a college that no longer exists.” Holy Frig. "Fiscally conservative, but socially liberal" called, and they want their Bush tax cuts back. Seriously.

I think being from the South narrowly saved Andrews from being yet another progressive liberal punched out of the Ivy League-Atlantic-NPR assembly line. However, by way of contrast, my parents were born just one year before Andrews' father, yet I graduated from college before Norm MacDonald was doing Dan Akroyd doing Bob Dole.

In fact, Gen X are the truest libertarian, live-and-let-live generation since the Frontier was still open. They are under-represented in politics because they mostly DGAF about trying to micro-manage everyone else living according to their best judgment. The exceptions prove the rule. You have to go to the judiciary, the least political of the three branches of government, to find any Gen X-ers on the national stage with household names: Kavanaugh, Gorsuch, and Barrett. And how are their politics best described? Probably BoomerCon-lite. It's amazing when you think about it. The few Gen X you can find are in their positions because they are essentially Boomers-lite.

My point of bringing up Gen X is to make clear there is a third way. What's missing from the Boomer v. Millennial zero-sum fight over how much largess from the public purse each is due, is how about less public purse. Instead of fighting over who gets the most value-transferred, let us have less value-transference. The GI Generation, for all their Big Gov/Big Corp deference, on the individual level were rugged individualists and irrepressable entrepreneurs. By not exploring this avenue, I feel Andrews left an important question unsettled.

As our host pointed out in his review of A Generation of Sociopaths (also about the Boomers, by Bruce Gibney), the Boomers are not old enough to be directly responsible for all the bad ideas attributed to them:

If I had to defend the boomers at their trial, like John Adams and the soldiers in Boston, the key to their defense would be that the oldest boomers were only in their 20s when the economic collapse of the middle class in the U.S. began. (It's important to get our collapses straight, because we live in a fractal of increasing collapses within collapses.) Take a look at the website WTF Happened In 1971? as well as the related twitter account. The year 1971 is when middle class compensation in the U.S. decoupled from its productivity, and all gains from increased productivity went exclusively to oligarchs, making the distribution of wealth much more unequal. Other disquieting trends started at the same time: increasing age at first marriage, the obesity epidemic, falling beef consumption per capita. What happened in 1971 was that it was the date of the second of the U.S.'s three big dollar devaluations so far. (The first was in 1933, and the third is happening right now.) The year 1970 was also the nadir of foreign-born in the U.S. labor force, which went from 5% in 1970 to (at least) 17% today. Boomers simply cannot have been responsible for this - they were too young. I think what we can say in fairness to the boomers is that they did behave selfishly because by the time they were adults, their nation had been repealed and replaced with a free-for-all economic zone. Smashing the middle class (via central banking and imported serfs) and making their neighborhoods no-go zones was not something the boomers did, it was something they responded to by adopting a code of "every man for himself." So of course boomers fled to the suburbs and committed architectural atrocities. People (including boomers) build cheap disposable houses because the U.S. middle class is a stateless people whose neighborhoods can be targeted for destruction at any time. (Twitter account @wrathofgnon feigns ignorance about the real reasons for our pathetic suburbs.) 

Andrews also makes clear in her chapters on Sachs and Sotomayor that the Boomers were not old enough to be directly responsible for all the bad ideas attributed to them. At best they were useful idiots (perhaps naive would be more correct owing to their age). The liberal, modernist ideas then circulating primarily among academics, think-tanks, NGO's, and the upper-echelons of the administrative government were not yet taken seriously among the general public.

However, Boomers' student protests gave the ideas the appearance of popular support they wouldn't have been able to otherwise claim. So, does one blame Boomers or does one blame the largely Silents and GI Generations that indulged them? I argue it is as with spoiled children: when they are children, you blame the parents; when they are adults, you blame the person. In the case of the Boomers, as they left college and moved into adulthood they did not correct course on any of the progressive agenda, especially when they directly benefited from it. If it benefited them, they doubled-down. In contrast, when it personally cost their cohort money, they could and did reverse course. I blame the Boomers.

Andrews is an essayist and it comes through very strongly in Boomers. She takes each of her subjects to task with the speed and precision of Zorro. It's fabulous and absolutely makes the book worth the price of admission, earning it a solid 4/5 rating. As I was reading Boomers I would tag lines that I thought would make for interesting collection of quotes. By the time I concluded I had over 32 tags, and this was being scrupulous because I figured at most I would only be able to quote a couple per chapter. As I flipped through the book to write this review I was struck by how many quotable paragraphs I didn't tag. I could easily double the number of quotes still not have hit all of them. Like this one:

“Proletariat” comes from the Latin proles, “child,”  meaning it is the class that has no wealth but its offspring. Today's proletariat has had even that taken away from them. 

This one stuck with me most of all when I read it. The rage among tech bros and the YOLO speculative crowd is “generational wealth” – make so much money that you set-up not only yourself, but your kids and grandkids to be a self-actualizing free people not beholden to money and status-striving rat-race that the wage-slaves find themselves trapped in. This is the X Class as Fussell originally described it, before the term was applied to an entire demographic cohort. The truth is, generational wealth conceived that way is a chimera. Humans are not meant to be idle, rich or no. The FIRE bros show us where that leads. Wealth is the legacy you create with your children. Instilling (investing) into them strong moral fiber, an appreciation for the history and culture which they are the products of, and a high agency mindset – arete.

Sunday, January 9, 2022

"Cryptocurrency’s failure to scale beyond relatively nascent engineering"

Very interesting essay by "Moxie Marlinspike" consistent with my thinking on cryptocurrency and blockchain; excerpt:

“It’s early days still” is the most common refrain I see from people in the web3 space when discussing matters like these. In some ways, cryptocurrency’s failure to scale beyond relatively nascent engineering is what makes it possible to consider the days “early,” since objectively it has already been a decade or more.

However, even if this is just the beginning (and it very well might be!), I’m not sure we should consider that any consolation. I think the opposite might be true; it seems like we should take notice that from the very beginning, these technologies immediately tended towards centralization through platforms in order for them to be realized, that this has ~zero negatively felt effect on the velocity of the ecosystem, and that most participants don’t even know or care it’s happening. This might suggest that decentralization itself is not actually of immediate practical or pressing importance to the majority of people downstream, that the only amount of decentralization people want is the minimum amount required for something to exist, and that if not very consciously accounted for, these forces will push us further from rather than closer to the ideal outcome as the days become less early.

When you think about it, OpenSea would actually be much “better” in the immediate sense if all the web3 parts were gone. It would be faster, cheaper for everyone, and easier to use. For example, to accept a bid on my NFT, I would have had to pay over $80-$150+ just in ethereum transaction fees. That puts an artificial floor on all bids, since otherwise you’d lose money by accepting a bid for less than the gas fees. Payment fees by credit card, which typically feel extortionary, look cheap compared to that. OpenSea could even publish a simple transparency log if people wanted a public record of transactions, offers, bids, etc to verify their accounting.

However, if they had built a platform to buy and sell images that wasn’t nominally based on crypto, I don’t think it would have taken off. Not because it isn’t distributed, because as we’ve seen so much of what’s required to make it work is already not distributed. I don’t think it would have taken off because this is a gold rush. People have made money through cryptocurrency speculation, those people are interested in spending that cryptocurrency in ways that support their investment while offering additional returns, and so that defines the setting for the market of transfer of wealth.

The people at the end of the line who are flipping NFTs do not fundamentally care about distributed trust models or payment mechanics, but they care about where the money is. So the money draws people into OpenSea, they improve the experience by building a platform that iterates on the underlying web3 protocols in web2 space, they eventually offer the ability to “mint” NFTs through OpenSea itself instead of through your own smart contract, and eventually this all opens the door for Coinbase to offer access to the validated NFT market with their own platform via your debit card. That opens the door to Coinbase managing the tokens themselves through dark pools that Coinbase holds, which helpfully eliminates the transaction fees and makes it possible to avoid having to interact with smart contracts at all. Eventually, all the web3 parts are gone, and you have a website for buying and selling JPEGS with your debit card. The project can’t start as a web2 platform because of the market dynamics, but the same market dynamics and the fundamental forces of centralization will likely drive it to end up there.

Regarding those "market dynamics," also see our guest writer Louisiana's post from last year on meme stocks. I've been using that post as a notebook to record thoughts about how "cryptocurrencies" are simply gambling tokens, just like shares of stock in worthless companies.

Thursday, January 6, 2022

Thursday Night Links

  • I got bored of COVID and stopped thinking about it. However with Omicron (thanks to a ping from Dom) I started to follow events again. Preliminary data suggest we may be following the evolutionary path of increased transmissibility but reduced lethality. The data from UK and SA already seem to strongly support this conclusion, although both populations have at least one of: high vaccination level / resistance from spread of earlier variants. Whether omicron is "intrinsically" less lethal (i.e., to a population such as the unvaccinated ~40% of the PRC population that has never been exposed to COVID) remains to be seen but we should know within a month or so. If, e.g., Omicron results in hospitalization / death at ~1/3 the rate of earlier variants, then we will already be in the flu-like range of severity (whereas original COVID was at most like a ~10x more severe flu). In this scenario rational leaders should just go for herd immunity (perhaps with some cocooning of vulnerable sub-populations) and get it over with. I'll be watching some of the more functional countries like S. Korea, PRC, etc. to see when/if they relax their strict lockdown and quarantine policies. Perhaps there are some smaller EU countries to keep an eye on as well. [Steve Hsu
  • My specific economic predictions for 2022 are: (1) Shrinking corporate profit margins, especially for non-essential goods. This is currently not happening, so we would need to see a change in this trend. (2) Wage growth continues to lag inflation substantially, especially in the white-collar portion of the economy. This is already happening, so I predict this trend to continue. (3) Huge profit growth for basic industries, especially the most irrationally disfavored and essential one, fossil fuels. I’m super excited about some of my own investments given the 20% cash flow yields of some oil producers while oil consumption is nearly recovered to pre-pandemic levels. This is particularly true if Omicron turns out to be nature’s vaccine. [The Tom File]
  • It is difficult to look at the paired comparison of Bank of the James and Centric Bank without concluding that Centric is the better bank. Centric is certainly more efficient and more profitable. But the valuation difference is thirty percent of tangible book value. We find this really fascinating because these paired comparisons, using industry competitors of similar size, demonstrate a discount that arises purely by virtue of being OTC-listed instead of public. If the Oddball Stocks Newsletter stands for anything, it is for harvesting this OTC valuation discount. [Oddball Stocks]
  • AFBA is a standout as a very small bank with a very high return on equity that trades at a 12% discount to tangible book value as of June 30, 2021. Based in Oswego, Illinois (southwest Chicago exurbs), it started as a credit union for American Airline pilots in 1994 and converted in 2000. Our guest writer Catahoula first mentioned it in Issue 26 (August 2019) at $1 so it has returned 8.5x since. The current market capitalization is $16 million at $8.50 per share which is 88% of TBV. (We use a 1,911,892 total share count which assumes that 139,995 shares of convertible preferred stock that were issued under TARP are converted to common.) [Oddball Stocks]
  • This broader global context makes clear that prohibitionism was not conservative; it was progressive. It was not a culture clash of the propertied classes trying to “discipline” the have-nots. Just the opposite: Temperance was a weapon of the weak against imperialism, against predatory capitalism, and against an autocratic state that promoted and profited from ordinary people’s subordination to an addictive substance. Prohibitionism wasn’t reactionary; it was revolutionary. [The Atlantic]
  • The upcoming midterm election is of little interest as it just means the Republicans gain some seats. The focus is on the 2024 election, which they now view as the great battle between “our” democracy and the imaginary insurrectionists, otherwise known as Trump voters. They have no intention of allowing Trump to win and take office again. This strikes normal people as a bit strange. After all, what was plain in the Trump years is he is no threat to the regime. If he returned to office, he is not going exact revenge on those who wronged him. He will crawl on his belly for their approval. The regime, on the other hand, cannot see this. They always project their own qualities onto their enemies and in this case, they assume Trump would seek murderous revenge. After all, that is what they would do if they were him. They will not allow it. This offers another insight into regime thinking. They assume Trump would act like they would act if in the same position. That means they assume he will have them jailed and tossed into dungeons on made up charges. They see this as a threat to “our” democracy, which then justifies any means necessary to stop it. This is how the 2020 election was fueled by widescale fraud. They told their election volunteers that any means necessary was acceptable. Looking ahead, what this suggests is that a military coup of some sort is in the cards within the next decade. Since the generals are all super-woke, it probably means something like a hybrid civilian-military junta. The leaders of the Democratic party will lock arms with the military leadership to “defend our democracy” by overturning the elections and imposing a form of martial law. Some Republicans will be arrested as conspirators and insurrectionists. There is another thing evident in these posts that offers some insight into what will happen in the near term. These super-woke generals are just as delusional as the super-woke regime leaders. Would the rank and file in the armed services support a scheme to “defend our democracy” from Boomers waving flags? The most likely result would be a schism in the services. Instead of being a show of strength, a coup would turn into another display of weakness and incoherence. Another iron law of the universe is that managerial regimes become decreasingly competent over time. This was what brought down communism. The Soviet system was so corrupt it was no longer functional in the end. That is the most likely end for the regime’s coup plans. The will is there but the system has simply become too incompetent and corrupt to do it. There will be tanks in the streets, but they will be broken down and abandoned like the regime itself. [Z Man]
  • I can recall many years ago Tyler saying he couldn't imagine know which watershed he lived in. I can't imagine not being interested in watershed. But, lots of people aren't. The first decade I lived in Chicago, I kept asking locals where exactly the continental divide between the St. Lawrence (the Great Lakes basin) and the Mississippi was. It had to be in the Chicago suburbs somewhere because rain in suburban rivers flowed past New Orleans while rain in the Chicago lakefront eventually flowed past Quebec into the North Atlantic. But nobody seemed to grasp what I was talking about. Finally, I found a fellow who understood my question and explained that the dividing line was in suburban Summit, IL, about 12 miles up the Chicago River, where there was a 30 foot tall statue of Joliet and Marquette. It turns out that Ben Franklin was extremely cognizant of the easy divide between the St. Lawrence and Mississippi and in 1760 advised the British government not to trade Quebec City back to the French for a sugar island because whoever ruled the two entrances to the center of America -- Quebec and New Orleans -- would dominate the world from 1900 onward. [Sailer]
  • Shares are trading where they were in 2004-2005. That is a pattern common to all of our "cyclical" company investments. The Dorchester Minerals partnership units trade where they did 15 years ago too. So do Suncor shares, British American Tobacco, Pardee Resources, and many other "hard asset" and "resource" type companies. The energy sector ETF (XLE) has been flat (with big swings, of course) for fifteen years. During the same period of time, the NASDAQ 100 has gone up about tenfold. Over the past 15 years, you couldn't go wrong buying a "compounder," couldn't go right buying a "cyclical". So now you can buy a steelmaker for 1x tangible book value (historical cost less depreciation) and under 2x earnings. Meanwhile, $7 billion would barely buy you anything in the Ponzi growth part of the market. [CBS]

Wednesday, January 5, 2022

Cheap Cyclicals and Value vs Growth

The market capitalization of United States Steel Corp (X) is only $7 billion. That's about equal to its tangible book value (see latest 10-Q), which is pretty impressive since it was incorporated by J.P. Morgan in 1901.

I think they are something like 10% of U.S. steel production market share. For the first nine months of 2021, they had $14.7 billion of revenue and $3.1 billion of reported net income. Their capex is actually less than depreciation so free cash flow is meaningful as well. They're using it to pay off debt, pay a larger dividend, and buy back stock.

Shares are trading where they were in 2004-2005. That is a pattern common to all of our "cyclical" company investments. The Dorchester Minerals partnership units trade where they did 15 years ago too. So do Suncor shares, British American Tobacco, Pardee Resources, and many other "hard asset" and "resource" type companies. The energy sector ETF (XLE) has been flat (with big swings, of course) for fifteen years.

During the same period of time, the NASDAQ 100 has gone up about tenfold. Over the past 15 years, you couldn't go wrong buying a "compounder," couldn't go right buying a "cyclical".

So now you can buy a steelmaker for 1x tangible book value (historical cost less depreciation) and under 2x earnings. Meanwhile, $7 billion would barely buy you anything in the Ponzi growth part of the market.

  • Beyond Meat has a $4 billion market cap.
  • The EV scam company Nikola still has a $4 billion market cap - with no revenue.
  • The 30th largest cryptocurrency by market capitalization ("Fantom") is the same market cap as U.S. Steel.

A fellow on Twitter has put together something called the "Double Dog Index": it is a basket of companies that are projected to "earn the majority of [their] mkt cap in FCF in next 4-6 quarters," have "a relatively clean capital structure (i.e., not over-levered or w/ debtholder vs stockholder conflicts)," have "reasonable management (i.e., not a stock that 'nobody will touch' due to past mgt transgressions)," are "not publicly opposed to capital return," and are not "special situations". 

His list has coal companies (including ones with significant revenue from metallurgical coal for steelmaking), U.S. Steel and Canadian Steel maker Stelco Holdings, Chilean copper producer Amerigo Resources, nitrogen fertilizer producer CVR Partners, pulp and paper manufacturer Resolute Forest Products, Israeli shipping company ZIM, lumber company GreenFirst Forest Products, and nitrogen fertilizer company LSB Industries. 

It is particularly interesting to see this undervaluation of cyclicals in industries besides coal or oil. That means it is not just the "energy transition" or fossil fuel divestment responsible for the low multiples. In fact, those themes, if they in fact played out, ought to be bullish for steel demand in particular. Here is how the Double Dog author describes the disconnect:

You need to understand that the $ARCH investment setup is available across a wide range of commodity sectors at the moment. Don’t waste your time trying to understand ‘what’s wrong’ or that ‘somebody knows something’ about ARCH. Frankly, a lot of talented commodity equity folks have been blown out in the last decade. We have just come out of a fallow period and there is max macro uncertainty. On top of this, you are messing with the oldest cyclical maxim in the book - you want to pay a high multiple when things look dire, not a low multiple on blowout earnings. There is so much pattern recognition out there that this is how you trade these stocks - and this is another reason why you are seeing this opportunity on your screen.

Yes, macro could be abysmal from here. Yes, there is evergreen idiosyncratic risk in all of these names. But if you truly believe you are generating this amount of cash on a debt free company with somewhat competent management, you just have to bet. What you’re not even considering is that the duration of these high prices could last longer - who knows what could cause the next bottleneck. You are also buying in Year 1 of a bull market after a vicious bear market that restrained investment in many different commodity subsectors. The ‘never pay a low multiple maxim’ was usually a good rubric when we were many years into an upturn. And by the way, Buck, I actually think we might have a real economic recovery in the next 3-5 years, not that pathetic post Financial Crisis drivel that we all struggled through!

What is happening with cheap cyclicals is a perfect example of a redemption flywheel, as described by Lyall Taylor in his two important essays, Market inefficiency, liquidity flywheels and Unravelling value's decade-long underperformance (and imminent resurgence). As I wrote last March,

Lyall’s liquidity and redemption flywheel theory would mean that instead of a bubble making it so that you have to sit on your hands, a bubble causes the tide to go out from investments that are “cold” and we should be looking for those. Based on the theory, they would be investments that had done poorly recently for whatever (possibly idiosyncratic) reasons of their own and suffered a positive feedback loop of selling. His theory implies that the very end of a secular trend in growth vs value would be a crescendo of selling in some areas (that creates the "value") and buying in the other areas (momentum ones, which become very overvalued). And then after the crescendo, the trend would reverse sharply.

If Lyall's model is correct, it is clear where the value isn't - the stuff that went parabolic at the same time it had big inflows of capital:

And it's also clear where the value is, or should be. The stuff that has been in a bear market for fifteen years; the cyclicals:

I want to wrap this up by emphasizing that, while I used X as an example, X is by no means unique in the commodity space. Near across the board, I’m seeing commodity companies that have been minting cash flow for the past ~6 months but are trading at insanely low valuations / haven’t seen their stocks budge despite the record cash flow. [...]

All I’m trying to point out is that these stocks have not budged after six months of producing record results, and the cash flow to remaining enterprise value dynamics are getting pretty wonky. Each has idiosyncratic risks, but it sure seems like a basket of them will do well absent an [imminent] and deep recession.
There is so much cheap stuff it's hard to pick. We are already full on hydrocarbons (royalties and Canadian oil), pipelines, tobacco, and small financials. But with incremental capital (dividends and new inflows) it seems compelling to diversify into other cheap cyclicals.

Sunday, January 2, 2022

Guest Post: Christmastime Movie Reviews from @pdxsag

There’s something interesting going on in Alaska. I think the extreme environment draws extreme people so rather than a normal distribution of personality types, you get a bi-modal distribution of the left and right wing. Call it the High Agency Horseshoe.

Last winter our family got into “The Last Alaskans” [5/5]. It was easy to sense the families that were the subjects of the series were conservative. Living off the land – resource extraction – does that to a person.

In contrast, a couple days ago the wife and I caught “ReWilding Kernwood” [3/5, 5/5 for unintended social commentary], which was about an artist couple — value transference — that were "decommissioning" the homestead they worked some 20 years to build. Suffice to say the artists come across as the stereotype of insufferable NPR liberals that made a carpetbagger like Bernie Sanders possible. And, in case you had any lingering doubts, their physiques – and recurring complaining about their bodies giving out due to aging, though they were only upper 60’s when they started the filming production – drove the point home.

About the only nice thing I can say to their credit is rather than doing the most Boomer thing ever (sell the rights to their homestead to a Cali-douche for $1M+), they instead did the second most Boomer thing ever (tear it down so no future generation can benefit from their investment).

I have said Boomers are childless in spirit, and this movie perfectly captures that narcissism. In fairness to them, personally, their son died in 2012, a month before his 26th birthday, and surely that had a deep psychological impact on them. Liberal boomers create millennial children, but more on that in a future guest post. Nonetheless, of the entire state of Alaska, that they could not find a worthy successor for leaving a legacy speaks volumes.

Pivoting to physique... a much better movie where aging figures in as one of the subtexts is “Dirtbag: The Legend of Fred Beckey” [5/5], about a largely self-taught alpinist from the Pacific Northwest. He was first-to-summit the most North American peaks of anyone in history. He was a young-ish member of the GI Generation and manifest the rugged self-reliance and will to competitive success that their cohort is famous for. Despite a reputation for being a cheapskate among a group notorious for being cheapskates, “dirtbag” rock climbers, and taking urban gleaning to an extreme art-form, he maintained a strong physique and ability to hike, if not successfully climb, mountains into his 90's!

Add another win for strength training which, autistic "fit-twit" is always talking about.

I'll close with a recommendation for another great adventure movie I've caught recently, “Go Fast. Go North" [5/5] about a group of millennial “Canadian bros,” in a barely sanctioned sailboat race from Port Townsend, WA, to Ketchikan, Alaska. It's a 750 mile race of the inside passage with only two rules: no motors, and no outside support.

Where are the Gen X-ers in all of this? No surprise, they are conspicuously absent. They are DIY-ing on YouTube. The few feature films [5/5] about them, are invariably indie projects put together by millennial aspiring auteurs.

Last thing: Blue-collar bf, Lib-writer gf ... once you see it [1/5], you see it all the time. My brothers, there is only one way to tame these flighty mares: you must take them to the sea and show them their survival depends on your masculine energy. They must see you battle nature at its most wild and raw, and win. If you fail to demonstrate your superiority, they will abandon you and your presumably unworthy children when they have their mid-fertility-life crisis, and go full Eat-Pray-Love.