Thursday Night Links

• Recently I asked the question: what counties in the US were the most underbirded. I found that the Central and Southern United States were severely underbirded, and was surprised at the large discrepancy in effort across the United States. For example the #1 county by submissions, Los Angelos county, has an impressive 181,000 checklists submitted all time. This would rank #7 worldwide, just behind the United Kingdom if L.A. was considered it’s own country (luckily its not). Now compare this to Martin, Kentucky with only 12 checklists submitted EVER. Clearly data from these two counties are not similar. The reason this might matter is Los Angeles county ranks 2nd in total species seen with 534 while Martin county ranks 2nd TO LAST with 71. While Southern California certainly is more birdier than the Kentucky, it’s not that much birdier. We know that an increase in search effort increases bird diversity. More birders in an area inevitably find more birds, especially skilled birders, which certainly exist in LA but possibly not Martin county. Additionally, birding brings tourism and a groundswell of conservation for a region. Here in Texas countless tracks of important and birded lands are owned by private groups (Houston Audubon, The Nature Conservancy, Texas Ornithological Society), the state of Texas, and federal agencies (USFWS and FS). These sites remain regionally important and well managed partly because of the large interest by birders. These contrasting levels of effort can hamper research using eBird, particularly when researchers want to calculate species diversity of timings using presence data. [birderboone]
• I’ve said before, and people think I’m crazy, but options are the underlying. It is the full distribution of potential outcomes. Equity values, bond values, asset values are ultimately a summary of much more rich, probabilistic information that lies underneath the surface. And I think that acceptance and understanding are slowly happening not just to institutions, but to human beings. It doesn’t happen overnight. But in a world where we’ve created an ETF and ETN for every style, and every factor, the fact that we’re still betting on up and down, and live in two dimensions is nonsensical. So I very much believe that if you look 20 years in the future, the Option Chains are the underlying. [Kris Abdelmessih]
• Momentum is a divergent strategy while “value” is a mean-reverting strategy. Several years ago the research team at OSAM published edifying papers on how these approaches work. Value works by fading overreaction. Momentum is attributed to underreaction. In a name trending higher, the sellers are discounting the substance of new information too aggressively. In dork world, we call this anchoring. If you pay attention to “anomalies” you may recognize the concept of post-earnings drift as an acute example of anchoring. [Kris Abdelmessih]
• I’ve never had the shots and never will. In fact I suffered great personal losses to refuse them. That said, my refusal was not because I’m fearful of the side effects. From all I’ve observed the side effects appear to be real and quite a bit more common than any other “vaccination” that doctors give. Sure. But, also, on the whole, still pretty rare. Just like all the fear from the left side of the aisle about essentially the whole world dropping dead if little Timmy removed his mask at recess didn’t pan out, neither did all the fear from the right. The shots do not, apparently, sterilize people, or kill them. “Vaccine shedding” is not a threat at all, and frankly of even dubious validity. How would that even work? Yes, there does seem to be an uptick in myocarditis across the globe following the mass injection program, and that’s notable and concerning, but, on the whole, most people are okay. At the end of the day neither the Left’s fear of the virus nor the Right’s fear of the vaccine were justified. At least, mind you, on the grounds on which they tried to justified them. As I say, I refused the jabs for another reason which I feel is justified, but that’s neither here nor there for this post. But notice what happened. “The Reality”, or “The System”, or “The Notnilc”, whatever you want to call it, presented the world with two opposing views, each frightening and oh so terrible. On the left hand we had a potentially life ending, if not world ending scenario and on the right we had the same. On each hand the fear was the same, the only difference was what the fear was about. This my friends is the hallmark of black magic, of the work of wizards. For you see, the ancient art of deception is this: to present two lies, and get the people arguing viciously about which is true. [matsumoto]
  
• As a MLP unitholder, your proportionate share of the partnership’s depreciation expense is included in your share of the MLP’s taxable income. The amount of depreciation expense allocated to you is determined by a variety of factors, including your purchase price. Additional depreciation from new investments in infrastructure by the MLP also may be generated. The depreciation deduction essentially means that your overall tax bill may be deferred. The extent to which your MLP distribution is treated as deferred depends on your share of an MLP’s taxable income. Because many MLPs have little or no taxable income, cash distributions in excess of taxable income received from an MLP are tax-deferred. These tax-deferred distributions are considered to be a “return of capital” because they reduce your tax basis in the MLP. This tax-deferred characterization makes sense when you consider the assets that tend to be owned by an MLP. The underlying assets of an MLP (such as pipelines) are extremely long-lived, with lower obsolesce risk and low maintenance expenditure requirements. Properly maintained, pipelines have a multi-decade lifespan – with the value of their “right-of-ways” arguably having a lifespan exceeding that. However, for tax purposes, pipelines depreciate faster than they wear out (their economic usage). This resulting depreciation shield can provide an attractive tax deferral for an MLP investment, particularly in its early years. The mechanics behind the tax deferral can be rather complex. You may be familiar with MLP lore that 80% of an MLP’s distributions tend to be tax-deferred. This is an oversimplified assumption (and highly dependent on the timing of your investment in a particular MLP). In our experience, we have found the amount of tax deferral associated with an MLP investment to be variable, based on specific circumstances of each MLP, as well as the timing and price of the investment in an MLP. [Tortoise Ecofin]
• Anarcho-tryanny is better understood, or defined, as a method of oppression in which a political regime facilitates civil disorder, and uses social and state power to pathologize or criminalize any independent resistance to that disorder in order to terrorize its political enemies and to manipulate the rest into supporting the regime and its political goals. Stated simply, the Regime uses disorder (anarchy) to terrorize its opponents and uses state power to protect the anarchical element and to crush any resistance to disorder (tyranny). This oppression serves the regime’s political and social goals. Disorder, in other words, is a feature, not a bug, of the system. Since this method requires a disorderly element, there must be a group of people willing to be disorderly on their own initiative. Disorder itself cannot be the official policy of the Regime; for if it were, the anarchic element would be de jure state actors. Their disorderly conduct must be self-willed. The ruling class can then deny responsibility for the disorder, while at the same time maintaining the background conditions for it. The best anarchic element is an aggrieved minority. This allows the ruling class to frame the disorder with measured positivity and redirected blame. [Stephen Wolfe]
• It is very difficult (and rare) to work long hours and also work smart. The highest-ROI hour worked is one that was spent building a scalable system, to limit the time spent on an activity in the future. I've met very few people who can do that for 12+ hours per day; humans were just not built for it. The problem isn't the low-ROI hours that follow the high-ROI ones. The problem is that a founder's ability to recognize people is finite, and in rewarding long hours or the incremental win ("one more customer!"), they reduce the emphasis on high-ROI hours. This results in a team that doesn't create enough scalable systems and therefore is less likely to generate strong results in the future. [link]
• If you’re like me, losing your wallet is the worst thing in the world—not because of the $200 cash that was in the wallet, but because of all the time you have to spending replacing the wallet, the credit cards, and—fuck—getting a new driver’s license at the DMV. Who has time for that shit? Well, go to the DMV and see the types of people who are hanging out there. They have all the time in the world. [link]
• This idea is counterintuitive – that some stocks actually become worse buys as they are falling to lower prices, but the explanation is psychological, not financial. Stocks trading at excessive valuations require a fan base to sustain their share prices. That fan base is often a bandwagon-jumping melange of traders and investors who are attracted to recent gains. Yes, they’ll latch onto the fundamental story, but the fact that the stock has been and currently is going up is the main thing. When the stock breaks, so too does the fandom. And when the fan base moves on to greener pastures or runs out of money, a new fan base will not form for this stock with its chart in decline. Broken growth stocks become orphans. There is no natural place for them to find a home. Dan’s other point is equally important: There’s a lot of room between where a broken growth stock can fall from and where a more value-oriented buyer might be compelled to take a look. In the case of the Bubble 500, you could drive a truck through current valuation and an attractive entry point for fundamental investors, even after the recent plunge! [Josh Brown]
• Strong forms of the stakeholder model of corporate governance hold that, in making business decisions, directors should consider the interests of all corporate constituencies (employees, customers, suppliers, shareholders, etc.) in such a way that directors may sometimes decide to transfer value to a non-shareholder constituency even though doing so produces no net benefit for shareholders even in the long-term. This article makes four main points about the stakeholder model. First, although its advocates often speak as if the model placed all corporate constituencies on a par, in fact the model uniquely disadvantages shareholders: since the claims of other constituencies arise in contract or by law, directors have no power to invade these claims for the benefit of shareholders; hence, business decisions made under a stakeholder model will often transfer value from shareholders to other constituencies but never from other constituencies to shareholders. Second, although critics of the stakeholder model have long argued that the model provides no definite standard by which directors may decide what to do in particular cases, this greatly understates the point. In fact, the stakeholder model leaves business decisions radically indeterminate, for it includes no normative criteria by which any business decision could be judged to be any better or any worse than any other. Third, some normative criteria that can be added to the stakeholder model and might seem to solve this problem in fact fail to do so; this includes criteria based on Kaldor-Hicks efficiency, on hypothetical bargains among the corporate constituencies, or even on Delaware doctrines about allocating merger consideration among classes of shareholders. Finally, the article notes a surprising point of agreement between advocates of stakeholderism and its critics, viz., that decisions made under a stakeholder model would be essentially political in nature. That is, they will be based not on rational, normative considerations but on the varying abilities of different constituencies to pressure or lobby the directors—i.e., business decisions become essentially rent-seeking contests. [Stephen Bainbridge]