November 1st Links

• Naive linear extrapolation predicted that cigarettes were doomed because usage dropped from 21% of adults in 2005 to 14% in 2019. (And only 8% of 18-24 year olds.) But notice that huge numbers of high school students used tobacco products when e-cigarettes became widely available. Nothing about human biology has changed that would make people not want to use nicotine. The desire is there but it has been suppressed because of cigarettes and lung cancer. There are now far safer ways of consuming nicotine than cigarettes - vaping and oral nicotine products. It would make all the sense in the world if nicotine made a huge resurgence due to two reinforcing factors coinciding at the same time: a reversal of the moral panic pendulum plus a change in fashion of usage. Imagine if instead of "dying," big tobacco experienced say 50% revenue growth over the next decade as nicotine consumption went from 14% back to 21% of the population. All that would be needed would be re-nicotinization, which is a Lindy bet, and regulatory capture of the FDA by big tobacco. The investment return could be spectacular given that the increased profit would likely be accompanied by multiple expansion. [CBS]
• Switching rates were lower among smokers who purchased the JUUL System ("JUUL") in the UK, where regulations limit nicotine concentration to 20 mg/mL versus N.Am. (United States and Canada), where higher concentrations are available-before and after controlling for differences in smoking and ENDS use characteristics. These results suggest availability of ENDS in nicotine concentrations greater than 20 mg/mL may be associated with increased switching among adult smokers. [NLM]
• Yesterday, Altria’s Board of Directors (Board) authorized the expansion of Altria’s existing $2 billion share repurchase program to $3.5 billion. Altria expects to complete the expanded program by December 31, 2022. Share repurchases depend on marketplace conditions and other factors, and the program remains subject to the discretion of Altria’s Board. Through September 30, 2021, Altria repurchased: 6.7 million shares at an average price of $48.35, for a total cost of $322 million in the third quarter. 20.2 million shares at an average price of $48.17, for a total cost of $972 million in the first nine months. Following the expansion of the share repurchase program, Altria has approximately $2.5 billion remaining in the $3.5 billion share repurchase program. In the third quarter, Altria paid $1.6 billion in dividends. In August, Altria’s Board increased Altria’s regular quarterly dividend for the 56th time in the past 52 years. Altria’s current annualized dividend rate is $3.60 per share, representing a dividend yield of 7.5% as of October 25, 2021. Altria maintains its long-term objective of a dividend payout ratio target of approximately 80% of its adjusted diluted EPS. Future dividend payments remain subject to the discretion of Altria’s Board. [Altria] 
• As I said once, "0% inflation feels like deflation for people who have made commitments that depend on gradual currency devaluation." Remember Trump carping about the Fed and interest rates? How much of that was his reelection prospects, and how much was his own personal balance sheet? So it starts to seem that the people in this country who make the decisions are not even interested in playing the old deflationary squeeze game because, even if their precarious balance sheets could withstand it, their political Mandate of Heaven probably couldn't. Plus, baby boomer rich are very unlike the old school rich - they do not like seeing things marked down on their net worth spreadsheet. (Every baby boomer has a net worth spreadsheet.) If a big devaluation is going to happen, it would be best to own attractively priced assets that will grow earnings at least as fast as the currency is devaluing. Luckily for us, a major inflationary shock is brewing at the same time that people allocating capital are under the delusion that electric vehicles have "disrupted" oil. [CBS]
• The lesson yet again is that civil and individual rights should never be contingent upon a medical procedure.  Never.  Requiring informed consent – which means giving every American the ability to give or withhold consent without coercion – is the last and final backstop to the dangers that result when we permit the government to decide what must be injected or placed into or onto our bodies.   This is no hyperbole as the current state of affairs is that you cannot sue the manufacturers for Covid-19 vaccine injuries, cannot see the data underlying the licensure of the vaccine, cannot discuss Covid-19 vaccine injuries on social media, and cannot say no to the vaccine if you want to keep your job or attend many universities.  Whatever your views are on the Covid-19 vaccine itself, every American should reject letting the government decide what medical procedures they must engage in to participate in civil society. [link]
  
• What caused all the supply chain bottlenecks? Modern finance with its obsession with "Return on Equity." To show great ROE almost every CEO stripped their company of all but the bare minimum of assets. Just in time everything. No excess capacity. No strategic reserves. No cash on the balance sheet. Minimal R&D. We stripped the shock absorbers out of the economy in pursuit of better short term metrics. Big businesses are supposed to be more stable and resilient than small ones. And economy built around giant corporations like America's should be more resilient to shock. However the obsession with ROE means that no company was prepared for the inevitable hundred year storms. Now as we're facing a hundred year storm of demand, our infrastructure simply can't keep up. The global logistics companies have no excess capacity, there are no reserves of chassis (trailers for hauling containers), no extra shipping containers, no extra yard space, no extra warehouse capacity. The brands have no extra inventory. Manufacturers have no extra components or raw materials on hand. Almost nobody has any employee loyalty because they haven't been willing to take care of their people through thick and thin of business, and thus they can't staff up quickly to meet surging demand. All businesses now complain about employee loyalty, but have we earned it? To show larger profits and return on equity to juice their stock price, companies now use FIFO or LIFO accounting that doesn't account for the full costs of replacing the units in a rising price environment. The proper way to do accounting is *Next * in First Out (NIFO). This means you price your goods against the cost of replenishment. If you buy 100 widgets for $100, and then their price of replenishing them goes to $150, under LIFO or FIFO you can sell at $120 and recognize $20 in accounting profit. But under NIFO you would never sell them below $150. [Ryan Petersen]