Tuesday, April 7, 2020

Dr. Reynolds Protocol for Coronavirus

[This guest post is by a new correspondent, Dr. Reynolds. We asked him to share his thoughts about treatments for the coronavirus. -CBS]

I am a neuromuscular neurologist, not a virologist, nor an infectious disease specialist; please keep that in mind as I share my thoughts on COVID19. I have been appalled by the federal government’s lack of preparation and leadership during the pandemic; but I will leave that to others to discuss. I am more interested in medicine than politics.

The development of effective treatment or prophylaxis against COVID19 is of paramount importance. At this point, only anecdotal evidence exists regarding the efficacy of COVID19 treatments. Testing existing treatments against COVID19 is the primary focus at this time, and each therapy mentioned in this letter is under active investigation for COVID19 application . Therapies with proven efficacy against other highly morbid coronavirus such as Severe acute respiratory syndrome-related coronavirus (SARS) or Middle East respiratory syndrome-related coronavirus (MERS) are worth considering first. One such drug is remdesivir, an RNA polymerase inhibitor that was previously tested against ebola. Remdesivir has demonstrated suppression of viral replication in humanized mouse models of SARS in both early treatment and prophylactic dosing regimens.  Remdesivir is dosed IV, which would make prophylaxis against COVID19 impossible, but would allow for treatment of infection. The first COVID19 clinical trials of remdesivir are due to report preliminary results in the coming weeks. Convalescent plasma is another candidate therapy with proven efficacy in SARS, though with limited data in COVID19. This involves transfusing plasma from recovered COVID19 patients into acutely ill patients. There are other promising candidates being tested as well, including hydroxychloroquine.

The tendency of a minority of Covid-19 cases to progress to respiratory and multiple-organ failure often followed by death is now well documented, and is mediated by a runaway immune response known as Cytokine Release Syndrome (CRS) or colloquially as “cytokine storm.” Interleukins (IL) 1, 6, tissue necrosis factor alpha and a host of other cytokines are all inappropriately up regulated resulting in a massive inflammatory response. CRS then becomes more deleterious to the patient than the viral infection itself. There are multiple lab abnormalities that may portend the development of CRS, including changes in IL-6 and ferritin, which could be used to guide treatment. Fortunately, there are multiple existing drugs that can reduce circulating cytokines. Tocilizumab is a monoclonal antibody used for rheumatoid arthritis. It targets IL-6, and has already been approved for certain cases of CRS prior to the COVID19 pandemic. Anakinra blocks IL-1, another culprit implicated in CRS. Clinical trials of anakinra for COVID19 are also ongoing. Many other potential treatments offer some hope in treating CRS, but often have obvious limitations: such as plasma exchange (too labor intensive for widespread use in a pandemic), IVIG (already limited by a pre- COVID19 shortage), and prednisone, and multiple trials are ongoing. Of course, the obvious risk of treating CRS with immunosuppressant therapy is of decreasing viral suppression and worsening infection.

The efficacy of zinc supplementation in treating the common cold, which is generally caused by rhinovirus or coronavirus, has been debated for years. There is some emerging consensus that zinc lozenges may reduce duration of cold symptoms if started at the onset of cold symptoms. It is not clear if zinc lozenges will successfully treat COVID19 or function as a prophylactic against COVID19 infection, and zinc toxicity is rare but possible.

I do not foresee any of the above therapies as a game changer on its own.  I suspect a multi-modal approach will be needed to reduce the mortality of severe cases of COVID19 until either a successful vaccine or "herd immunity" is established. A therapeutic approach including an anti-viral such as remdesivir IV, started on admission to the hospital, followed by immunosuppression in those showing signs of impending CRS may hold the most promise. 

My strategy to minimize my personal risk of COVID19 infection is to practice social distancing, get plenty of sleep, take a zinc lozenge immediately prior to making my rounds in the hospital and again at bedtime, and to wear an N95 mask to the extent possible. I own three N95 masks, and there is little prospect of obtaining more in the near future, and so I use a UV light to clean my masks between uses. Please consult your physician regarding zinc dosing and stay safe!


Dr. Reynolds

Monday, April 6, 2020

Conrad Industries 2019 Results and Enterprise Valuation

At $8 per share, the market capitalization of Conrad Industries (see) is now only $40 million. They have $96 million of current assets and $41 million in total liabilities, for net current assets of $55 million. Shares are now at three-quarters of net current asset value. Book value of the shipyards is a further $57 million, so the shares are trading at 35% of book.

When we first wrote about Conrad in 2011, it was trading at $10 with net current assets per share of $7; not an NCAV discount. It was trading at 80% of book value then.

The big difference between 2011 and now is that it has almost $10 million of net income then. Now, Conrad's business is experiencing a bust. They had basically breakeven net income in 2018 and 2019.

Conrad's spending on capex has been much smaller than depreciation the past few years. Their EBITDA was $8 million each of the past two years and their EBITDA minus capex ("free cash flow") was around $6 million.

When a company is trading below net current assets, its enterprise valuation is arguably zero or negative.

However, if you assume that they need to maintain a current ratio of 2.0 (that is, you couldn't just dividend out all the cash because it is needed as working capital), that would make the enterprise value $15 million.

That would mean that the EV/EBITDA is about 2x. I'm not forecasting that Conrad's business is going to turn around soon, but we have a company at a NCAV discount and a very low EV/EBITDA multiple.

Welcome, New Readers

We've been getting more traffic this month thanks to history finally happening again, and our blog posts documenting it. Some recent ones from ytd 2020:

If you are new here, a few of the most popular all-time CBS posts are below:
During the worst of the bubble years (2015-2020) where we mostly hid out in cash, blog became known for book reviews and notes (the Credit Bubble Stocks Review of Books) and our semi-weekly compilations of Links.

Over the years, we have also had ideas like: equity shorts (DSL, WLT, XCO, BCEI), capital structure arbitrage (CPE, RMIX, GMXR, KV-A, SHLD), micro cap value (CNRD, TVOC, OPST, SFBK, LINSA), and thoughts on interest rates.

Some of our readers may also be familiar with Nate Tobik and his blog Oddball Stocks, which he turned into the Oddball Stocks Newsletter in 2014. Nate also runs a software company called Complete Bank Data which tapped a market need at smaller banks and is now growing rapidly. It is taking up so much of his time that in 2018 he asked me to help out with the Oddball Stocks Newsletter. Since then, almost all of my writing about micro cap stocks has been in the Newsletter. If you liked reading my ideas on these over the years and want to keep seeing them, you should subscribe.

We will give CBS readers a free Issue of the Newsletter if they want to try it out. Just email "editor" at the oddballnewsletter (dot) (com) email address and we'll make it happen!

The proprietor of this blog also runs a boutique investment partnership to capitalize on some of the opportunities discussed here. If you are an accredited investor with a long-term investment horizon, you can reach me at "cbs" at the creditbubblestocks (dot) (com) email address to begin the conversation.

Sunday, April 5, 2020

April 5th Links

  • When I wrote my first observation of this crisis three weeks ago, I noted that there is a strange set of missing items from my local grocery store. I went back today and found, to my surprise, the list of missing items has increased. Not much, but a little. The list of missing items has expanded even though I thought we had all already got the panic-buying out of our system a month ago. [Spectator]
  • There are no investment-grade operators of fitness clubs, early childhood education facilities, building supply companies, veterinary clinics or virtually all 112 industries represented by our tenant base. Therefore, presuming a lack of resiliency would be to presume that entire essential sectors of our economy that people rely on every day would be at risk. [STOR]
  • It's March 18, and he’s staying calm and optimistic, using cheery phrases like "V-shaped recovery" and "major snapback potential." He says he's still "gung-ho" about the mall and the train, convinced that such a rapid deterioration in the market—faster than the 2008 financial crisis—augurs an equally speedy rebound. [Bloomberg]
  • There's a decile or so of the income/wealth distribution that is highly intelligent and doesn't really benefit from the demographic growth and attendant increasing rents and stagnant wages. These are non-oligarchs, they are upper middle class and drink good coffee but their kids don't inherit a franchise from them (professors, architects, lawyers). Spiraling rents mean that their children, who are reverting toward the mean of population IQ, are going to have to move to a cheaper part of the country and so they won't be able to see their grandchildren. This decile has access to high quality information about what is happening in the world thanks to the internet and is very slowly starting to organize for its interests. [CBS]
  • Wikipedia says it's either 165,000 or 174,100, PIMCO said 155,000, and the goldbugs think it is less due to exaggeration and double counting of paper gold. Call it 150,000 metric tons. That's 4.8 billion ounces. Only 2/3 of an ounce per person on Earth is the "fair share". So it would be pretty trivial to own a multiple of your fair share of gold. Incredibly little per person! There are about 12 million square miles (8 billion acres) of arable land in the world. That's just over one acre per person. The U.S. has about a million square miles, or 640 million acres, of arable land, which is just over two acres per person. M1 money supply is about $8,000 per person in the U.S. and M2 is $30,000. Try getting $30,000 in cash from a small bank branch someday. If oil reserves are 1.5T barrels (generous) than the amount per person is 250 barrels. You could buy that for the price of a decent car. The deliverable on an oil futures contract is 1,000 barrels and the initial margin for that contract is only $4500! There's only one cow for every three people in the U.S. What I am getting at is: it probably wouldn't be a bad idea to own more than your fair share of all of these resources. [CBS]
  • Mustard is a regional staple, ubiquitous in the humblest and the most exalted of restaurants. And while visiting Beaune, I would advise confining one's dietary program to a single major meal, followed or preceded by a delicious if more modest regimen of charcuterie, bread and mustard. The reason is that Burgundian cuisine's enduring reliance on butter is a constant with which one should reckon. [NY Times]
  • i think the USA is flopping hard. social justice and identity politics and modernity and intersectionality are ruining everything. and there is a non-zero chance it all burns down in my lifetime. so while the country may never recover, the spirit lives on. a spirit of individuality, respect for capitalism, and a shared belief that we are all created equal by God. i take this spirit wherever i go, and Korea is about to get a booster shot. [Ryan Kulp]
  • You don't do many RCTs on the effectiveness of masks during viral outbreaks for the same reason you don't do many RCTs on the effectiveness of parachutes during plane crashes. I know of no Western IRB that would approve a study like that. That's Tuskegee lab-level stuff. The thing is, we don't need a clinical RCT to make valid conclusions about mask effectiveness. It's directly observable. Take a white sheet of paper and cough into it. Put a mask on and do the same thing. Count the droplets deposited. There you have it, masks work. If the number of droplets is less when you're wearing a mask, that means those droplets aren't on a doorknob or somebody else's face. This should be enough for everybody who thinks about it for a second, but some people work themselves into an epistemic lockup. [SSC]
  • The terrible truth the virus has revealed is that the US and UK — as opposed to post-Communist Asia and post-Napoleonic Europe — are not even countries. They are free-trade zones. Our governments are not governments. They are bureaucratic anarchies with ceremonial elected monarchs. Pitting them against this ruthlessly objective virus is sending Don Quixote to Vietnam. We thought we had the best government in the world. It is quite a shock to find we have the worst — outside the Third World, of course. [Moldbug]
  • Let us assume that you, for reasons of choice or necessity, are spending time in close quarters with another person. You are then less inclined to visit corona-dangerous locations. In part you are altruistic toward the other person, and in part for selfish reasons you do not wish to lower the common standard of care. If you go to a dangerous location, the other person might decide to do the same, if only out of retaliation or frustration. In essence, by accepting such a tethered pair relationship, you end up much closer (physically, most of all) to one person and much more distant from the others. You are boosting your locational extremes. [Marginal Revolution]

Wednesday, April 1, 2020

April Fools' Day Links

  • The 'weaponized autism' of all these internet people has dramatically outperformed our official institutions. It has done this, mostly, by just massively signal boosting relevant signals. It's not even really a failure of our institutions, it's just, like, (to use an analogy) we're here using the newfangled telegraph to communicate things in real time, and our institutions were built during an era of courier'd mail. It's not that they're even doing anything badly, it's just that we are moving faster than them because of fundamental differences in our toolsets. [Reddit]
  • So where is all this heterogeneity coming from?  Is it all just bad data?  That seems hard to believe at this point, and Iceland seems like a plausible source of reasonably good data. As for concrete conclusions, these heterogeneities should make us more skeptical about any models of the situation.  But it would be wrong to conclude that we should do less, arguably risk-aversion could induce us to wish to do more, including on the lock downs front. It is also worth pondering which heterogeneities are “baked in,” such as heat and age structure of the population, and which heterogeneities can be altered at the margin, such as forms of social mingling.  It is at least possible that studying these heterogeneities could make policy far more potent. Overall, I do not see enough people asking these questions. [Marginal Revolution]
  • I had never discharged multifocal pneumonia before. Now I personally do it 12-15 times a shift. 2 weeks ago we were admitting anyone who needed supplemental oxygen. Now we are discharging with oxygen if the patient is comfortable and oxygenating above 92% on nasal cannula. We have contracted with a company that sends a paramedic to their home twice daily to check on them and record a pulse ox. We know many of these patients will bounce back but if it saves a bed for a day we have accomplished something. Obviously we are fearful some won't make it back. We are a small community hospital. Our 22 bed ICU and now a 4 bed Endoscopy suite are all Covid 19. All of these patients are intubated except one. 75% of our floor beds have been cohorted into covid 19 wards and are full. We are averaging 4 rescue intubations a day on the floor. We now have 9 vented patients in our ER transferred down from the floor after intubation. [link]
  • In a chapter titled "This Will Kill That" of Notre-Dame de Paris, Victor Hugo presents his thoughts on the death of architecture, or rather, on the migration of civilizational content from the walls of the building to the pages of the book. Historical events, religious laws and cultural symbols were all, up until the fifteenth century, embedded in architecture. Statues, bas-reliefs, murals, and all the manner of other decorative techniques were used to inject the symbols of civilization into the architecture of a building, to let the stones carry and spread their meaning. With the invention of the printing press, that content migrated to the pages of a book, and this happened not only because printing was cheaper and easier in comparison to architecture, but because it was also more permanent. This was a new sort of permanence, not the permanence of the stone, which erodes and wears away over centuries, but the permanence of replication, the ability to produce an unlimited number of copies of the same thing. [link]
  • The modulus of rupture. The distance a shout carries in the city. The distance of a whisper. Everything possible about Hatshepsut's temple (try not to see it as 'modernist' avant la lettre). [link]
  • Over the years I've cultivated partnerships with friends and neighbors and worked with them to install freezers anywhere space was available. Then we made bulk purchases of poultry, pork, lamb, and beef directly from farmers. The meat is distributed between us and the cost is shared. Buying a whole cow, pig, or dozens of birds is the best way I know to get top quality local meat at the best price while supporting small scale diversified agriculture. City people need rural communities. And rural communities need the city. One byproduct of this arrangement is that we’re much less dependent on highly leveraged and centralized international corporate blah, blah, blah. [Granola Shotgun]
  • Only $377 billion of the $2 trillion package is directly targeted to this goal. These are loans to small firms (fewer than 500 employees), which are forgivable if the funds are spent on payroll, rent, mortgage interest and utilities. By using 2017 census data (the most recent available), we calculated the total expenditures in payroll, interest expenses and rents of U.S. small firms amounts to $258 billion a month. Unless the Trump administration introduces criteria for selective targeting, the money allocated in Cares will run out in a month and a half. [WSJ]
  • Clinical information has also emerged from Covid treatment. During the initial Chinese outbreak, Wuhan doctors observed that patients with lupus—a disease for which HC is a common treatment—did not seem to develop Covid-19. Of 178 hospital patients who tested positive, none had lupus and none were on HC. None of this Wuhan hospital's dermatology department's 80 lupus patients were infected with the novel coronavirus. The Wuhan doctors hypothesized that this may be due to long-term use of HC. They treated 20 Covid-19 patients with HC. Their result: "Clinical symptoms improve significantly in 1 to 2 days. After five days of chest CT examination, 19 cases showed significant absorption improvement." [WSJ]
  • The reason that the Constitution is so goofy is that the Federalist promoters who planned it cared about only two things (protecting property and getting revolutionary war debts paid off at par), and they did not think it would last that long (the Articles of Confederation hadn't), so they just did not put much thought into many of the provisions. The provisions that did get a lot of thought, debate, and negotiation were the ones where big/small states and northern/southern states were clearly at odds. [CBS]
  • There have been a few events where a single person infects tens of other people all at once. This should not be possible under droplet theory because droplets do not travel that far and it is highly unlikely that the infected individual spread droplets everywhere. Aerosols would provide a better explanation as it explains how somebody was able to infect others without standing close to them. An additional theory is that singing generates more aerosols than normal breathing. The super spreading events at a Korean church/cult and in an American choir practice are relevant to this theory. [Glenn Chan]
  • Anecdotally, almost all of my financier and tech friends have fled NYC. I think it's an open question exactly how effective the US lockdown is. That it can increase the doubling time from 3 days to something longer I have no doubt. 5 days? 7 days? At the cost of dispersing the virus all across the country? [Steve Hsu]

Tuesday, March 31, 2020

Guest Post by "Louisiana": "Time to Assess Practical Risk"

[This guest post - the "high agency" approach to surviving this pandemic - is by our long time correspondent Louisiana. You might remember that he won the 2018 Prediction Contest, so read carefully. Also, be sure to read our previous posts and guest posts on coronavirus. -CBS]

It is time to assess practical risk. The economy will open back up soon, and the virus will not be contained (too late). We need to prepare to be infected and know the risk if it happens.

I took it upon myself to build a spreadsheet model comparing Covid risk to background risk of dying by age using SSA actuarial tables.

I direct everyone to the very solid statistics being kept by the Center for Evidence Based Medicine at Oxford. The current best estimate overall Case Fatality Rate for CV19 is 0.51%. The current best estimate overall Infection Fatality Rate is conservatively about 0.2% (probably lower). That is, about half of infections are asymptomatic or never severe enough to be tested. Thus the actual fatality risk is about 40% of the case fatality risk.

While the Chinese CFR is inflated as explained by the link, we can derive relative risks by age, comorbidity, and sex. For sex, best to look at Italian data since similar percentages of men and women smoke there, unlike in China where many more men smoke.

If you make a copy of the spreadsheet, you can input your own data. For myself, as a 40 year old male with no comorbidities, the best estimate is that I have a 1 in 4266 chance of dying if infected with Covid-19. The overall risk of dying for a man my age, according to the SSA life table, is 1 in 413.

Getting infected with Covid, then raises my overall death risk by 9.7%. That is, my death rate if infected over the next year is equivalent to a 42 year old instead of a 40 year old. This is not the sort of risk, for me, that is worth the lockdown measures being taken.

In fact, it’s arguably not worth it for anyone without comorbidities. For almost everyone, the relative risk is about 10%. For example, for a healthy 70-year-old, the odds of dying if infected are 1 in 416. The odds of dying in general are 1 in 43. Only a 10.4% elevated risk.

What if you have comorbidities?

The news isn’t that bad. Take a 70 year old male with some health problems. You would have a 1 in 100 chance of dying from covid compared to the general risk of 1 in 43 from social security data. However, if you have these comorbidities, your base risk of dying anyway is elevated and the SSA actuarial data is not accurate for you. At worst, you’re talking about a ~40% increase in death probability, more likely about 20%. Again, not worth shutting down the entire economy.

CV-19 seems to be killing people by temporarily knocking out some percentage of the lung's capacity to deliver oxygen. Thus, those with more "buffer" - younger, less weight, more trained cardiovascular systems - are much less likely to die. If you don't have enough buffer, you end up on oxygen or a ventilator, the latter of which makes you more vulnerable to bacterial infections.

No one is helpless. People can take action right now to fight this. Start exercising, hard. Aerobic capacity starts to improve almost immediately, and within a week you will have built a real buffer that could save your life. Second, if overweight start losing weight by eating much less food. All weight loss, regardless of the type of diet, involves burning body fat and putting the body into ketosis at least for part of the day, which boosts immune function.

The weight loss itself means less tissue for your infected lungs and heart to support, and less likely to end up on a vent. This is not the time to eat a bunch of comfort food.

Books Read - Q1 2020

Read 16 books during Q1 2020. That's actually exactly the same as Q1 2019.

  • Congruent Exercise: How To Make Weight Training Easier On Your Joints (3/5) Author Bill DeSimone is a personal trainer who is concerned about the effects of heavy weight lifting on joints and connective tissue. Notes: "You may be surprised that many of the joint motions you're used to seeing in conventional exercise contradict safe joint motions as described in biomechanices textbooks. Part of that comes from compromised sports, dance, and martial arts movements working their way into exercise." "Consider avoiding exercises that draw a fine line between 'safe' and 'dangerous' and don't allow room for fatigue and distraction." "Most of the skeletal muscles operate at a considerable mechanical disadvantage. Thus, during sports and other physical activities, forces in the muscles and tendons are much higher than those exerted by the hands or feet on external objects or the ground." "From the levers alone, it would appear that the human machine is built for speed, not strength." "There are several concerns with most 'back' exercises. First, you don't really know what is happening at the level of the discs, at least until symptoms occur. The consequence of mis-loading the discs may not be immediate; it may just accelerate long term wear. You may voluntarily try to keep your back tight during a squat, deadlift, etc, you may appear as if you are, but the weight is definitely trying to bend your spine forward. Since you can't see into the spine, you don't really know if each of the deep muscles is holding the vertebra in place; the may not be, creating the impingement/herniation, just not yet at a noticeable level." He suggests some other books to read: The Concise Book of Muscles, Clinical Kinesiology, and Prime Mover: A Natural History of Muscle. There are two big concerns with trying to pack on a lot of muscle through something like Rippetoe's program, joint/ligament health and also "powerlifter belly" / insulin resistance from the high calorie diets. Rippetoe (watch him make a protein shake) gets pretty heated when the subject of "six packs" (people with low bf%) comes up. Coach Rip's attitude about bf% and insulin resistance makes me wonder how careful he is about joints.
  • The Starship & the Canoe (4/5) A profile of Freeman and George Dyson (remember Baidarka in Q4), by Kenneth Brower. Excerpts: "British Columbia's coast range is a nine hundred mile fold in the Earth's crust. Vancouver Island and the Queen Charlottes are parts of a parallel seaward fold, most of it submerged. Both folds - the entire Inside Passage province - were covered by the Cordilleran ice sheet, which in grinding its way over Georges's country carved the final touches upon it. The glaciers were enormous, and so are the land and seascapes they left behind. The fjords are deep and labyrinthine. The landforms are all out of scale, belonging on a larger planet. The peninsulas between the fjords are big, steep, and dark, like negatives of the vanished tongues of ice. The darkness is less geology than botany. A dense forest of Douglas fir, cedar, Sitka spruce, and hemlock has sprung up after the thaw. As the forest colonized above waterline, the Pacific and its seaweeds were colonizing below, and today the two influences make for a jarring disconformity. Above waterline a traveler sees subboreal forest; when the tide is running, he might be on any northern river, or, when the tide is slack, on any northern lake. But below waterline he watches kelp lean with the current; from time to time a seal surfaces, or the fin of a porpoise. He's not on any northern river or lake. The water is salt. The lower boughs of the hemlocks are trimmed straight by the high tide. The river is the Pacific, and it flows both ways.""The Inside Passage is a country shaped by water. Water is responsible for its character, just as wind is responsible for the butte country of the Southwest, or meteors for the surface of the moon. Water, in one form or another, did all the work. Glacial ice carved the country steep. Heavy rainfall dark-greened it. Fog grooved the needles of the conifers and tipped the guard hairs of the wolves. Cold stream currents thickened the pelts of the mink and otter, fattened the grizzlies, streamlined and silvered the flanks of the trout, chambered the salmon's indomitable, homeward-leaping heart. The high annual precipitation sends the Douglas firs up two hundred feet and more, broadens their boles to seventeen, furrows their bark, and then, after a millennium or so, undermines their roots, topples and sends them out to the Pacific, which soaks and rolls and deposits them, smooth, barkless, and colossal, in the beach windrows whose chips feed George's fire at night." "Most of the Inside Passage lies under water, in one or another of its forms. The Pacific insinuates from the west, and year-round snow covers the summits to the east. The dry land between is seldom truly dry. Parts of the coast receive more than two hundred inches of rain a year. Streams run everywhere. Rivers rise at every opportunity and after a few turns become mighty, running clear when their source is snow, milky when their source is glacier. The glacial milk is ground up continent in suspension, for inland the ice continues its whittling. The Ice Age is not over in George's country, and continues to enlarge it for him." "I soon realized that much of the British Columbia coastline was either inaccessible or posed extreme danger to such vessels. Most of British Columbia's vast system of open coast and intricate tidal waterways is outside the limits of what is considered a safe path for modern travel and can be viewed only briefly and at a distance through such means." "The Aleuts were master kayakers out of necessity. The Aleutian Islands have one of the dreariest climates on Earth. When gales are not whipping the islands, dense fogs are smothering them softly."
  • Pleading Your Case: Complaints and Responses (4/5) A big change in formalism - today there is one form of action (a civil action); no longer three areas called contract, tort, and equity. She emphasizes "read the rules," like the FRCP or the local rules. A complaint is built around causes of action - theories of recovery for wrongs, which arise out of torts, contracts, or statutes. Each cause of action has elements, and the failure of a complaint to allege sufficient facts to support all the elements of a cause of action enables a defendant to seek dismissal of the complaint on the ground of "failure to state a claim". The elements of common law causes of action are set out in case law in the relevant jurisdiction. The next things to check are the statues of limitation for the causes of action and the standing of the plaintiff. Causes of action have to be matched to the relief they provide, such as money damages or equitable remedies like injunctions and specific performance. The Delaware Court of Chancery "has jurisdiction to hear and determine all matters and causes in equity" and "shall not hear any matters for which an adequate remedy exists at law or which can be heard by any other Delaware court." Another issue is venue, which is decided by court rule or a statute. Venue can often be proper in either a state court or federal court. A plaintiff picks the initial venue, although there's the possibility that the defendant can change it (for example by removing a case from state court to federal court). (Regarding removal, there is a special statute that ensures that a large group of insurance cases, which would otherwise be removable to federal court, cannot be removed.) After venue, another issue is jurisdiction, which encompasses subject matter jurisdiction and personal jurisdiction over the defendant. The US Code gives federal courts subject matter jurisdiction over certain types of cases, such as those involving a "federal question" or those between citizens of different states where the amount in controversy exceeds $75,000. (Also included in federal court jurisdiction are admiralty/maritime cases, bankruptcy cases, patent/trademark/copyright cases.) Federal courts also have supplemental jurisdiction "over all other claims that are so related to claims in the action within such original jurisdiction that they form part of the same case or controversy." Unlike personal jurisdiction, subject matter jurisdiction cannot be waived by the parties to the case. Advice: "Be sure that you have included in your complaint all the causes of action that arise out of the set of facts you have." (See: the entire controversy doctrine in NJ.) Amendments: "if events have occurred since you filed the complaint or if new facts have come to light, through discovery or in some other fashion, you may ask the court for permission to amend." After receiving a complaint, a defendant can either answer or move to dismiss (FRCP 12b) some or all of the complaint. Once the court rules on the motion to dismiss, the defendant has to answer any remaining claims. She thinks that judges "disfavor" disposing of a case via a MTD.
  • Chasing Paper: The Keys to Learning About and Loving Discovery (3/5) By the same author as Pleading Your Case. Per the SDNY court discovery guide: "Discovery is the process through which the parties exchange information that may be helpful to prove their claims or defenses. The discovery process is governed by Federal Rules of Civil Procedure 26–37, 45, and the court’s Local Civil Rules.  Discovery generally begins after the defendant files an answer, the parties hold a discovery planning conference, and the judge issues a scheduling order." The goal of discovery is to obtain "admissible documentary evidence to prove your view of the facts to a judge or jury." She says that if you "read the rules" you will understand "how discovery dovetails with motion practice and trial practice." Other highlights: "The civil rules have evolved to force openness among the parties, to avoid ambush litigation." "The important documents you have found during discovery are key to taking depositions of witnesses that lead to admissible, helpful, relevant evidence at trial." Regarding admissibility: "If you have a cooperative adversary, stipulate to authenticity and admissibility, otherwise, you must figure out which witness you will use to authenticate the document in court." I watched Lin Wood struggle with introducing documents into evidence during the Unsworth v Musk defamation case.
  • Fishing with John (4/5) Continued reading about the waters of the Salish Sea and Inside Passage. A New York writer (including for The New Yorker), Edith Iglauer, moved to British Columbia, married a commercial fisherman, and joined him on his commercial salmon fishing trips. The New York Times called her the "Bard of Canada" when she died last year at the age of 101. The book was made into a movie called Navigating the Heart. She wrote another book about the annual construction of an ice road from Yellowknife in the Northwest Territories to a silver mine on Great Bear Lake, above the Arctic Circle.
  • Examples & Explanations: Civil Procedure (4.5/5) Key topics in civil procedure: choosing a proper court (the "three rings" must be satisfied in that plaintiff's choice of court must have personal jurisdiction over defendant, subject matter jurisdiction to hear the case, and it must be an appropriate venue), what law should apply in federal court cases (federal vs state), sculpting the lawsuit by joinder of additional parties (permissive, although the court must have jurisdiction over the additional parties and claims), steps in the litigation process (complaint, motion to dismiss, answer, amendments, discovery, summary judgment motions), and the effect of the judgment (res judicata and collateral estoppel). Personal jurisdiction can be general (based on establishment of a significant relationship to the foreign state) or specific (based in minimum contacts with the state that give rise to the claim in suit). Personal jurisdiction can be challenged in the court in which the original action is brought ("direct attack" in the rendering state) or in another state where enforcement of the judgment is sought ("collateral attack"). The collateral attack assumes the defendant ignores the first suit entirely until a collection attempt is made in a state where the defendant has property; it is a risky strategy because it can only challenge the personal jurisdiction and not the merits of the defaulted suit. Subject matter jurisdiction of federal courts is governed by Article III of the Constitution (subject to limitations under 28 USC Ch 85), and consists of cases that arise under federal law and cases between citizens of different states (diversity cases). The statutory grant of jurisdiction to federal courts to hear diversity cases under 28 USC 1332 is narrower than Article III: it includes an amount-in-controversy requirement of $75,000 and requires complete diversity. The amount plead by the plaintiff controls unless it appears "to a legal certainty" that the claim is really for less. A defendant can "second guess" a plaintiff's filing in state court by removing it to federal court provided that the federal court would have jurisdiction. Unlike subject matter jurisdiction, venue and personal jurisdiction can be waived. Plaintiffs can sue together ("joinder") if they assert claims arising out of the same transaction or occurrence, and their claims involve common questions of law or fact. Similarly, a plaintiff can sue multiple defendants in a single action if the same criteria are met. For every claim, subject matter jurisdiction must be analyzed separately. There is a tension between the federal rules "which encourage broad joinder of related claims to promote efficiency, and the strict Article III limits on federal court jurisdiction." Also: "subject matter jurisdiction is as absolute as you can get in the civil procedure business." An alternative to answering a complaint is to file a rule 12(b) motion to dismiss, with defenses such as lack of subject matter jurisdiction (12(b)1), or failure to state a claim (12(b)6). The standard for amendment of complaints is very liberal: "cases should be tried on their merits rather than the technicalities of pleadings." Also: "the bug news in civil procedure over the last century has been the demise of pleading and the rise of discovery." Summary judgment is not meant to try the facts but only to determine whether there are genuinely contested issues of material fact. Prerequisites for res judicata preclusion: (1) final judgment (2) on the merits (3) same claims in first and second suits and (4) same parties. Collateral estoppel is a doctrine that prevets relitigation of issues previously raised.
  • My Kitchen Wars (2/5) A memoir by Betty Fussell, the ex-wife of Paul Fussell who wrote the important Class, a true 5/5. Her writing isn't that great, would suspect that she road Paul's coat-tails and resents the fact that everyone realizes it. Funny quote from Betty: "to cook French, eat French, drink French (California wines didn't yet count, and couldn't be mentioned in polite conversation unaccompanied by the word 'varietal') was to become versant in the civilized tongues of Europe as opposed to America's barbaric yawp." She mentions that Paul "took to wearing nylon bikini briefs in Day-Glo colors" and also started took a strong liking to his male students. (Which led to their divorce.) She's still alive at age 92, he died in 2012.
  • The Annotated Pride and Prejudice (5/5) The classic by Jane Austen, improved somewhat by annotations (since many of them are clarifying obvious aspects of the book, but some are insightful). One of the annotations mentions the Duke of Wellington describing his soldiers as "the very scum of the earth". The high regard in which soldiers are held by modern Americans is a bizarre outlier - this would not have been true throughout human history (examples). Another bit from an annotation: "Pride, makes us esteem ourselves; Vanity, makes us desire the esteem of others. It is just to say, as Dean Swift has done, that a man is too proud to be vain." Mr. Darcy on humblebrags: "Nothing is more deceitful than the appearance of humility. It is often only carelessness of opinion, and sometimes an indirect boast."
  • Classic Krakauer (2/5) A collection of Jon Krakauer essays. I thought Eiger Dreams was a great collection, but these were weak. One essay (After the Fall) is about what happened to Patagonia founder Yvon Chouinard's original climbing equipment company: it succumbed to a wave of product liability litigation. Chouinard Equipment filed for bankruptcy protection and was sold to a group of employees; it survives as Black Diamond Equipment. You can still buy some of Chouinard gear on eBay. Phil Greenspun has talked about the effect of product liability litigation on the affordability of general aviation.
  • The Boring Diet (5/5) Emphasizes grabbing the low hanging fruit of improving diet: avoid sugar in all its forms (soda, juice, candy) and err on the side of feeding the body boring but nutritious foods when it claims that it is hungry. Successful without being dogmatic (i.e. "keto" "paleo" etc), the method is consistent with the hypotheses of Stephan Guyenet; essentially that too much food variety and palatability are key contributors to obesity. As S.G. says, "the most seductive foods are combinations of dopamine-releasing nutrients, especially carbohydrate + fat.  Sugar alone is tasty, but sugar + fat is delightful." From the book: "Pick one breakfast and stick to it. Breakfast, because it is not typically a social meal, is your one opportunity to hit 100 percent adherence to the program, and it sets the tone for the rest of the day. The more you treat meals like a menu instead of boring nutrition, the less effective the neurocognitive retraining will be." As readers probably know, I am an egg maximalist - very bearish on breakfast cereals and sugary yogurts. Warren Buffett still lives in a world of breakfast cereal, and his food investments will probably end up getting crushed - not that they are that big of a proportion of Berkshire's assets. (More by @whsource: "Froot Loops play a special role in The Hungry Brain.  They're the food that suggested to researcher Anthony Sclafani in the 1970s that human palatable foods might be a particularly effective way to fatten rats.")
  • The Framers' Coup: The Making of the United States Constitution (3/5) Written by HLS professor Michael Klarman, who is the brother of hedge fund manager Seth Klarman (author of the overrated Margin of Safety). Summary: "the Constitution was a conservative counterrevolution against what leading American statesmen regarded as the irresponsible economic measures enacted by a majority of state legislatures in the mid-1780s, which they diagnosed as a symptom of excessive democracy." The irresponsible economic measures were a response to a post-Revolutionary economic depression: "per capita gross national product plummeted nearly 50 percent in the fifteen years after Americans declared their independence." Sadly and ironically, the tax burdens increased post-Revolution because of the cost of the war. It is debatable whether American independence was a good idea in the short, medium, or long runs. Federal regulation of interstate commerce was meant to prevent things like Pennsylvania and New York punishing New Jersey with import duties for using their ports. That grant of power to Congress "was intended as a negative and preventive provision against injustice among the states themselves, rather than as a power to be used for the positive purposes of the general government," according to Madison himself! Another surprise: "that judges could invalidate legislation was a fairly radical concept in 1787". However, faith in legislatures by the rich "had been shaken by the capitulation of state assemblies to populist pressure for tax and debt relief." Charles Beard's economic interpretation of the founding was that the supporters of ratification who were creditors "determined to suppress state debtor relief laws and inflationary monetary schemes, as well as speculators in government securities who stood to make a fortune from the creation of a powerful national government possessed of sufficient taxing power to pay off its debt at face value. Antifederalists, according to Beard, were mostly debtor farmers." What is most striking is that the post-revolutionary rich were absolutely determined to protect their wealth from a currency devaluation, but it was not long at all before the elite were generating schemes for currency devaluation that they could control. Other notes: the Bill of Rights of ten constitutional amendments was winnowed down from 40 that were seriously proposed. Overall - the reason that the Constitution is so goofy is that the Federalist promoters who planned it cared about only two things (protecting property and getting revolutionary war debts paid off at par), and they did not think it would last that long (the Articles of Confederation hadn't), so they just did not put much thought into many of the provisions. The provisions that did get a lot of thought, debate, and negotiation were the ones where big/small states and northern/southern states were clearly at odds.
  • The Role of Federal Military Forces in Domestic Disorders 1877-1945 (3/5) Good summary here: "One of three volumes on the domestic police role of the United States Army... until the 1870s the military dealt with domestic violence only when federal authority was directly challenged, as in the Whiskey Rebellion or southern resistance to Reconstruction. Burgeoning industrialization and class conflict after the Civil War led to a new duty for the army when local police and state militias could not contain labor conflicts or race riots." A class struggle, like in the previous book (Framers' Coup): "Workers and their supporters criticized the army as a tool of the industrial magnates, while the propertied classes regarded federal intervention as essential when local forces were inefficient or unreliable." Ultimately: "a less whiggish conclusion: that the army mirrored domestic political attitudes and changed its perceptions and tactics as those attitudes changed."
  • How the North Won: A Military History of the Civil War (3/5) Some highlights: "at the outset, the north has 110,000 manufacturing establishments employing 1,300,000 industrial workers; the South contained 18,000 establishments with 100,000 workers." "The South built only 4 percent of all the locomotives produced in the United States during 1860 and only 3 percent of the firearms." "Even the North's crops, produced with the air of almost all of the nation's labor-saving machines, amounted to more annual worth than those of the predominately agricultural South." "Recent military developments also favored the Confederacy. In the Mexican War, Santa Anna's essentially frontal attack at the Battle of Buena Vista failed decisively in spite of a numerical superiority of nearly three to one." "Much speculation exists among historians as to whether or not the Confederated could have captured Washington (after Manassas) ... 'it seems from the vantage point of today that the bold course of attempting to capture Washington should have been adopted...'" "The radical senators' experience at Bull Run and the panicky retreat of raw troops also reinforced the popular idea that war consisted of battles and military science consisted solely of leadership in combat. School history emphasized such major engagements as Cannae, Marathon, Hastings, Crecy, and Bunker Hill, to the almost total neglect of other aspects of military operations... This view emphasized courage and enthusiasm in combat and overlooked logistics and strategy." Lincoln on his "general idea of the war": "we have the greater numbers, and the enemy has the greater facility of concentrating forces upon the points of collision; that we must fail unless we can find some way of making our advantage an overmatch for his; and that this can be done by menacing him with superior forces at different points..." "While the federal government effectively coordinated the North's economic power and took new liberties with the U.S. Constitution, the southern citizenry often held stubbornly to the fundamental ideals of limited government, even if that should result in the new nation's failing to survive." "The role of public opinion in the Union and in the Allied situation in World War I differed ironically. Much of the civilian-military tension in the Civil War revolved around a civilian demand for direct offensive action and a military insistence that the defense was too strong. The soldiers were correct. In World War I the allied generals persisted, to the dismay of many civilian leaders, in piling up huge casualties in attacking the entrenched enemy." The radical abolitionists were incredibly bloodthirsty, and the Civil War ended up killing several percent of the entire population. The class conflict interpretation (see Charles Beard from the Framers' Coup) of the CW was that "[A] social cataclysm in which the capitalists, laborers, and farmers of the North and West drove from power in the national government the planting aristocracy of the South".
  • The Inside History of the Carnegie Steel Company: A Romance of Millions (3/5) We've talked about making steel before on the blog: met coal and iron ore. Carnegie started out as a telegraph messenger boy in the Pittsburgh Office of the Ohio Telegraph Company. Some highlights: "During the summer of 1867 the manufacturers affected by the strike raised a fund and sent to Europe for workmen to take the places of the refractory puddlers. There being no contract labor law to prevent it, a large number of foreigners were engaged and brought over." Lake Superior iron ores averaging "over sixty-eight percent" iron per ton. Wikipedia: "The major constraint to economics for iron ore deposits is not necessarily the grade or size of the deposits, because it is not particularly hard to geologically prove enough tonnage of the rocks exist. The main constraint is the position of the iron ore relative to market, the cost of rail infrastructure to get it to market and the energy cost required to do so." Regarding accounting: "The minutest details of cost of materials and labor in every department appeared from day to day and week to week in the accounts; and soon every man about the place was made to realize it. The men felt and often remarked that the eyes of the company were always on them through the books." In a frequent practice of his, Carnegie once tried to squeeze out his partner William Shinn at an unfair price. Shinn sued and got an order for the production of the books: "for obvious reasons this was a measure distasteful in the highest degree to the Carnegies," and they settled. 
  • White Feathers: The Nesting Lives of Tree Swallows (3/5) Latest by Bernd Heinrich. "The swallows had indicated that they provide incentives to offspring for leaving the nest, then keep track of individuals, have expectations, vocalize mutually to communicate their presence or location, and remember where individuals should be, in the midst of changing circumstances. There seemed a deliberateness about their behavior that, if observed among humans, would likely be interpreted as understanding."
  • Triumphs of Experience: The Men of the Harvard Grant Study (3/5) This is about the Harvard Grant Study which was a longitudinal study of 268 specially selected Harvard college sophomores from the classes of 1939–1944. Because the underlying Harvard group, even back then, was select and also because the study founders tried to choose the most promising of the sophomores, there seem to be to be limits to what the study could reasonably infer. This author, the fourth director of the study, does not mention how this restriction of range is a problem. He thinks that intelligence is not that important to success, and while I would agree that many other things are important, it is not a valid conclusion from the study design. One thought from the study is that alcohol abuse is "by far the greatest disrupter of health and happiness." He thinks that it was the main cause of divorce and was also strongly associated with cigarette smoking and shortened lifespan. This is alcohol abuse, not necessarily use. Funny quote: "Some readers may object to my classifying a hundred visits to a psychotherapist as a statistical manifestation of mental illness." Key factors for being happy and well at age 80: "a stable marriage, a mature adaptive style, no smoking, little use of alcohol, regular exercise, and maintenance of normal weight." I've given my thoughts on this topic before: "If you're smart and manage to be high-status, you'll live a happier and longer life and accomplish more."