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]