Thursday, April 22, 2021

Thursday Night Links

  • It was just over two years ago Diego Parrilla first joined me on the podcast to discuss his framework for analyzing financial bubbles and what he calls, “antibubbles.” You may have noticed that the topic of bubbles and antibubbles has come up in both of my recent interviews with James Davolos, on the topic of inflation, and Adam Rozencwaig, on the mania in green energy stocks. Considering how relevant Diego’s framework is to the current market environment and how dramatically the macro backdrop has changed since we last spoke, I thought it would be an opportune time to have him back for a follow up conversation. In this episode, Diego shares his views on the misconceptions underpinning all sorts of asset bubbles at present and how a paradigm shift in inflation threatens to play the role of pin to each of them. He also discusses why he believes cryptocurrencies are, in fact, a bubble and how they have created another opportunity in what he sees as one of the oldest and most enduring of antibubbles: gold. [Felder]
  • I believe we have a Big Problem with Fiat Currencies, Asset Bubbles, and Inflation. I also believe that Blockchain and Crypto are great technological innovations that have the potential to disrupt certain industries. I do however believe that Bitcoin and Crypto are quickly becoming a clear enemy of the Central Banks. The old adage warns us to “Never Fight the Fed” as we know they will do “whatever it takes” to keep their monopoly over fiat money and the privilege of Seigniorage, and thus why investors should be ready for additional regulation, taxation, or even outright prohibition as illegal tender. In addition, I believe the thesis and narrative have fundamentals flaws, including the Scarcity Fallacy or Value Creation Fallacy, and thus why, overall, my personal conclusion is “Bitcoin is 80% Bubble and 20% Anti-Bubble”. [Diego Parrilla]
  • Imagine a network of 100,000 members that we know brings in $1 million. We have to know this starting point in advance—none of the laws can help here, as they tell us only about growth. So if the network doubles its membership to 200 000, Metcalfe’s Law says its value grows by (200,000^2/100,000^2) times, quadrupling to $4 million, whereas the n log( n ) law says its value grows by 200,000 log(200,000)/100,000 log(100,000) times to only $2.1 million. In both cases, the network’s growth in value more than doubles, still outpacing the growth in members, but the one is a much more modest growth than the other. In our view, much of the difference between the artificial values of the dot-com era and the genuine value created by the Internet can be explained by the difference between the Metcalfe-fueled optimism of n2 and the more sober reality of n log(n). [IEEE]
  • Norway’s population rose by about 2 percent 2017-2020, but road traffic volumes also decreased by just over 1 percent 2018-19. There is a whole master’s degree in the data involved. From a high level though, one statistic seems worth focusing on: From 2017-2019, total sales of petroleum products decreased by only 3.3 percent, while EV market share more than doubled from 20 percent to 45. From 2015-2019, total sales of petroleum products decreased by about 6 percent, while EV market share nearly tripled. Norway makes it very, very attractive to buy an EV. Cities and bigger towns offer free parking. Tolls are reduced by at least half, and sometimes more. EVs are exempt from both road taxes and a 25 percent European VAT. Company EVs receive substantial tax breaks. Norway has 9 percent of the total charging stations in Europe, despite making up only 0.7 percent of the population. [BOE Report]
  • We leave Newport Beach (yes, yes, we know, we know) in the midst of the 49th monsoon to hit Southern California this year. Ugly nimbus clouds roll in off the sea. There are ten of us, high-type professionals all. There are eight automobiles: two American (a Pontiac 6000STE and a Dodge 600ES); two Japanese (a Datsun Maxima and a Toyota Cressida); and four from Europe, where this brand of machine was born (a new Audi 5000S, a Volkswagen Quantum, a Saab 900 Turbo, and a Volvo 760GLE). Euro-sedans. Four-doors. Priced between $10,000 and $20,000, bracketed by the likes of the Honda Ac­cord on the low side and the BMW 528e on the high. The mission: a two-day, 1150-mile, America-versus-the-world run to Cabo San Lucas at the tip of Baja, then a one-day layover in the sunshine and two days back. Our destination to­day is an oasis in the central Baja desert called San Ignacio. [Car and Driver]
  • Cycling in America is a competitive-wannabe hobby dominated by manufacturers trying to sell performance products to weekend warriors. Not unlike the hifi electronics industry, manufacturers would quickly put themselves out of business if they leveled with their customers and sold them just the products they need. [CBS]
  • Japan is a good example of IQOS’s continuing domination of the HNB category despite challenges from the likes of British American Tobacco (BTI), Imperial Brands (OTCQX:IMBBY) (OTCQX:IMBBF), and Japan Tobacco (OTCPK:JAPAF) (OTCPK:JAPAY). PM HTUs have now reached a 10%+ share in 12 markets, including Italy (11.3%), the Czech Republic (13.8%), Portugal (12.2%), and Hungary (17.0%). Italy (population 60m) is one of biggest tobacco markets in Europe while the other countries mentioned each has a population of approx. 10m. PM HTU's market share in key cities also shows the long-term potential for national market shares, especially outside IQOS's key current markets in Japan, Southern Europe, and Eastern Europe. IQOS has reached a high-single-digit share in Munich and Zurich, a 5.1% share in London, and a 12.3% in Kuala Lumpur in Malaysia. With respect to the mid-point of 2021 guidance, PM shares are trading at a 15.7x P/E and a 7.0% FCF Yield. Net Debt / EBITDA was at 1.92x, down another 0.1x sequentially, and Philip Morris “remain on track” to resume share buybacks in H2 2021. [Seeking Alpha]
  • The secret menu reveals a business model that goes beyond a right-to-repair issue, O’Sullivan argues. It represents, as he describes it, nothing short of a milkshake shakedown: Sell franchisees a complicated and fragile machine. Prevent them from figuring out why it constantly breaks. Take a cut of the distributors’ profit from the repairs. “It’s a huge money maker to have a customer that’s purposefully, intentionally blind and unable to make very fundamental changes to their own equipment,” O’Sullivan says. And McDonald’s presides over all of it, he says, insisting on loyalty to its longtime supplier. (Resist the McDonald’s monarchy on decisions like equipment, and the corporation can end a restaurant’s lease on the literal ground beneath it, which McDonald's owns under its franchise agreement.) So two years ago, after their own strange and painful travails with Taylor’s devices, 34-year-old O’Sullivan and his partner, 33-year-old Melissa Nelson, began selling a gadget about the size of a small paperback book, which they call Kytch. Install it inside your Taylor ice cream machine and connect it to your Wi-Fi, and it essentially hacks your hostile dairy extrusion appliance and offers access to its forbidden secrets. Kytch acts as a surveillance bug inside the machine, intercepting and eavesdropping on communications between its components and sending them to a far friendlier user interface than the one Taylor intended. The device not only displays all of the machine’s hidden internal data but logs it over time and even suggests troubleshooting solutions, all via the web or an app. [Wired]
  • The mission of a manufacturer is to overcome poverty by producing an abundant supply of goods. Even though water from a tap is a processed product with a price, no one objects if a passerby drinks from a roadside tap. That is because the supply of water is plentiful and its price is low. The mission of a manufacturer is to create material abundance by providing goods as plentiful and inexpensive as tap water. This is how we can banish poverty, bring happiness to people's lives and make this world into a paradise. [Panasonic]

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