Tuesday Night Links

• I picture the gods of straight lines as innumerable hovering spirits, just in the corner of your vision, vanishing as you turn to look at them directly. It’s hard to tell if they’re still or in motion. But they’re always there, as the world glides forward on its trajectory. And when that trajectory shifts, or something disruptive happens, they slide in, and they gently push it back on track. They take joy in the work, I think. Or amusement, at least, at all the narratives that humans develop to explain why each thing happened. It’s not that those narratives are false—but they almost always miss the point. [Richard Ngo]
• Extrapolating is risky business, but at present rates solar power will reduce in price by a factor of 10 every 17 years. Continuing that trend, in 2050 power will be cheap enough to artificially refill rivers parched by global warming with pumps and desalination, for example. This trend need not stop in 2050. It is my belief that by the time I die, historians will see the period between 1973 and 2013 as an anomaly, a blip, a detour into computing on an otherwise unbroken industrial trend towards ever greater deployment of useful energy for peaceful humanitarian purposes. What is The Program? The Program is a vision for the mass deployment of solar power, smart grid technology, grid storage, and electric vehicles. [Casey Handmer]
• All we really do is take the opposite side of the time risk decision that the professional investment community does. They need high near-term returns and won’t take the risk of underperforming their benchmark while waiting: look like the market to not underperform the market. We want securities that offer a suitable long-term return. We’ll take the time risk—and the discount that’s usually offered to take it—that other investors don’t want, because a long time horizon gives us better odds of being right. How can a ten-year estimate be more reliable than a one-year estimate? [Horizon Kinetics]
  
• Immediately after the combination with Praxair, Linde announced substantial price hikes, and it has continued to increase prices ever since. In the last quarter of 2023, for instance, according to Linde’s investment documents, its sales in the U.S. grew by 6%, “driven by 5% higher pricing and 1% volumes.” And the root of its pricing power isn’t hidden; in 2022, its 10% boost in profit was, according to the corporation’s annual report, “primarily due to higher pricing… driven by merger related assets.” Operating margins went from about 10% in 2019 to 16% in 2022 to 27.6% in 2023. In 2023, the company paid out 50% more to investors than it invested into the business. Today, the industry is a lot like Verisign, on a larger scale. Industrial gases are essential to customers, but also an afterthought, because they are usually a small percentage of the customer’s cost. No one really cares if there are price hikes, as long as the gases are delivered. It’s also hard to switch, distribution is a bottleneck, and long-term supply contracts are common. The result, for Linde, is high operating margins, low investment, and lots of dividends and buybacks. There are a few other big companies in the market, like Air Liquide, but the merger cut price competition substantially. Last year, Linde fortified its position in distribution, buying one of the biggest packaged gas distributors in America, nexAir. And its executives have announced they are looking for ‘tuck-in’ acquisitions, meaning they want to keep buying mid-market firms as a consolidation play. Unless you are buried in a supply chain somewhere, most people will never hear about the industrial gas price increase. But as with Verisign, a few pennies are coming out of your pocket every day because of this economic termite. [Matt Stoller]
• Not every business model is as as safe as Coca Cola. Indeed almost every business model is more dangerous than Coca Cola. A not financially levered mining stock can halve five or six times. If you have a mining company that mines coal at $40 per tonne, has no debt and the price is $60 a tonne it is going to be really profitable. But prices below $40 (highly possible) will take profits negative. Add in some environmental clean up and some closing costs and it is entirely possible that a stock loses 95 percent of its value. Averaging down when down 40%, some more when it halves, and then halves again and it will still lose two thirds of its value. The difference between averaging stuff like that down and doing what Bill Miller did is only one of degree. [John Hempton]
• The Alaska Permanent Fund Corp. has received cash from a different kind of borrowing: private-equity managers making payouts that come not from investment gains but from loans they have taken out to appease cash-starved pensions and other investors. That is frustrating for the investment chief, Marcus Frampton. He estimated that his fund, which invests mineral revenue and other state money, could borrow on its own at lower cost. So far, this practice doesn’t appear to be widespread. The $80 billion Alaska fund has been getting more cash from its private-equity program than it has put in. But it still missed out on around half a percent worth of stock gains—or about $40 million—over the past year after private equity tied up more cash than expected, causing the fund to run a smaller than planned stock portfolio, Frampton told the fund’s board last month. Board members decided to reduce real-estate and cash holdings instead. They also voted to scrap a goal set a year ago to reduce the share of assets in private equity. [WSJ]
• To me, this raises the question: where is the popular front against Trumpism? If he is indeed as bad as most Democrats seem to believe—i.e., we’re one step away from fascism, it’s Weimar Germany 1932 all over again—shouldn’t Democrats be casting the net as wide as possible, compromising on anything and everything to make their party maximally accessible to persuadable voters? After all, we’ve got to stop fascism here! But that’s not what’s happening. Despite their dire assessment of the threat posed by Trump, moves to compromise on contentious issues that persuadable voters care about are few and far between. Look what’s happening with the immigration issue that has come to the fore in the negotiations over aid to the Ukraine and Israel. Instead of eagerly embracing a deal to move the aid forward that would include fairly modest reforms to the asylum system and other changes to tighten border security, Democrats are evincing the greatest reluctance to make such a deal. And this is despite the reality that voters, including most persuadable voters, view the Democrats as absolutely abysmal on the issue of border security. It’s hard to understand. And the great irony here is that progressive Democrats, who are precisely the ones who are most hysterical about the threat posed by Trump and Trumpism, are also the ones most adamantly opposed to making any compromise on border security as part of this deal. Or really anything else for that matter. This is not a recipe for success. I suppose that’s because they don’t really want a popular front against Trumpism but rather a popular front for all the stuff they feel comfortable supporting. But that’s not how a popular front works and it’s certainly not how Democrats are going to rebuild and expand their coalition for 2024. Instead, such a sectarian approach simply enhances the very real possibility that Donald Trump will (gulp) win next November. [Ruy Teixeira]
• It is easy, then, to see why each party’s rebranding is imperative but hard to see how either effort succeeds. Both Democrats and Republicans can draw consolation from the knowledge that it will not be necessary to perform the work perfectly, or perhaps even competently. It should suffice to secure the inside track to electoral dominance by becoming the political party that does the second-worst job of revising its raison d’être in order to assemble the coalition that might most plausibly secure a durable majority. An old joke about two imperiled hunters ends with one telling the other, “But I don’t have to outrun the bear. I just have to outrun you.” [William Voegeli]
• As I detailed in Life After Capitalism (2023), wealth, unlike money, is essentially knowledge commanded by the owners. Wealth is not material resources as Robeyns and Alfani suppose, but a fabric of ideas and commitments, expectations and insights, experiments and projections, that together constitute the worth of the venture. As economist Thomas Sowell wrote back in 1971, “the Neanderthal in his cave had all the natural resources we have.” The difference between our age and the Stone Age is entirely the growth of knowledge. The growth of knowledge is learning, which conveys the essence of economic growth. As manifested in “learning curves,” ubiquitous in enterprise, costs of production predictably drop by 20-30% with every doubling of sales. [George Gilder]