Friday Night Links

• This situation is what’s known as an edge case, which is an event considered way out of the ordinary—a problem that tests the limits of a system. And Super Cruise makes you realize that driving inherently offers up an array of edge cases. Staying in your lane on a divided highway and keeping pace with traffic is the easiest task possible, low-hanging fruit for automation, and it’s still insanely difficult. There’s bleached-out pavement with faded lines combined with shadows across the road, construction zones with lane-shift chicanes, new sections of road that don't match the map. And, the biggest variable of all: other drivers. [Car and Driver]
• [O]f Chick-fil-A’s 1,836 U.S. freestanding restaurants outside of malls (those open and operated for at least a full calendar year, from a total of 2,023), average annual sales volumes clocked in at $8.142 million last year, with 849 of those, or 46 percent, producing figures at or above. One operator pushed $17.16 million. [QSR Magazine]
• The level of restrictions implemented seem to have been what pushed some people over the edge in determining to leave a state. Looking at the 20 most populous states, the severity of the COVID-related restrictions put in place explains half the variance in domestic migration. I.e., the more restrictive a state was, the more people left. There are other factors when one is deciding to move from one state to another: state taxes, weather, and increasingly important – housing affordability. However, looking at the table below (showing the top ten and bottom ten net migration states color coded by the Governor’s political affiliation), we believe it’s safe to say the restrictions put in place by municipal and state government were the most important facet. In some cases, the migration from 2020 to 2021 was just an acceleration of ongoing trends, like the outflow from the Northeast, and inflow to the South. But looking at the West region, the reversal in trend is shocking. In the year leading up to COVID (July 2019 – June 2020) the region saw net inflows of people. In the year when restrictions were put in place (June 2020 – July 2021) there was a massive net outflow of people. [link]
  
• I’m eternally bullish on gold. Gold competes against other brands of money. It competes against fiat currencies. It competes against credit, which is the promise to pay money. And with interest rates at zero, the competition was very easy. As interest rates rise, the competition will become more intense. I think the real test will be when rising rates impinge on the Federal Reserve’s determination to not only manage the economy, not only provide for a stable dollar, but act as a force for equity and for a labor market that is strong for all parties. [James Grant]
  
• The move toward organic has given small Lancaster County farms a new lease on life. The Organic Trade Association reported that in 2020, U.S. organic food sales jumped 12.8% to a new high of $56.4 billion. For Dutch Meadows in particular, interest in raw milk has steadily risen despite restrictive regulations on its sale. In 1987, the FDA outlawed interstate sales of raw milk, but many states have moved towards increasing access in the last two decades. In 2004, raw milk was illegal in 19 states; as of 2022, it’s dropped to six. Today, 10 states have legalized retail sales, and 17 allow direct farm-to-consumer sales. Seven allow herd share agreements, where consumers buy an ownership stake in a cow or herd, and are able to obtain milk proportionate to their share. [link]
• The Acura NSX answers the question "What if a big company took engineering seriously?" Most big companies have engineers, to be sure, but that doesn't mean they are valued. Think about it: if a big company is losing money, the president will never say "I wish we had engineers like those guys at Toyota who figured out how to make cars that don't break." No, it is always "we need better advertising, better marketing, fancier financing, higher salaries for executives", i.e., "we need more MBAs just like me." [Phil G]
• I also think that the pandemic establishment (sit venia verbo), at least since the eradication of smallpox, has been running a fairly obvious scam: First, they accumulate advisory roles and funding by hyping the threat of anomalous, freak pathogens like Nipah, Marburg and SARS, which are so poorly adapted to human hosts that they cause terrible disease but get nowhere. Then, they take their newly won powers and deploy them against the viruses that actually infect people, which are so mild that nobody ever thought of asking the pandemicists for help with them. Since 1918, the truly lethal pandemic virus has remained elusive, a public relations fiction. It shouldn’t surprise us, then, that the disease bureaucrats jumped so hard on SARS-2. It was widespread, it looked superficially like one of those scary fundraising viruses, and it wasn’t an ordinary influenza. Opportunities like that don’t come along every day. Experience shows that you can’t place prior restraints on government power. The best way to keep our states out of the virus eradication business, is to remove their ability to perceive or react to problems in this entire area, by shutting down the pandemicists. The public health offices, the departments of epidemiology, the virological institutes – one way or another, they have to suffer a long period of official neglect, minimal funding and obscurity. [eugyppius]
• Our first post ever about old Peabody (pre-bankruptcy) in 2015 when it had subordinated debt trading at a yield to maturity of 40%. How things have changed. Now Peabody is free cash flow positive, deleveraging, and has debt trading close to par. Peabody's current market cap is $1.9 billion, and I count $2.2 billion of net debt, for a total enterprise value of $4.2 billion. The FCF/EV yield is 41%. I think we could call that a cheap cyclical! With Peabody's $420 million of cash from operations in 2021, they spent $165 million in capital expenditures, a reinvestment ratio of 39%. In Q4, they reinvested only 10% (net) of their operating cash flow in capex. This is the same pattern we saw at the integrated oil majors, which are investing less than half of their operating cash flows in maintaining production. It is amazing watching these natural resource management teams - Canadian oil majors are a great example - so scarred by the recent bear market that they want to run basically deleveraged companies. They're using free cash flow to pay off debt with negative real yields! [CBS]