Global Warming Is a Real Problem, But The Left Is Wrong About a Solution

The latest IPCC report is the occasion for ever more wailing and gnashing of teeth in the media and on the left. If only they proposed a realistic solution.

Global warming is a real problem, but it is not a catastrophe that should cause authoritarian strictures on people to the point they can’t live full, productive and free lives, nor is it worth paying an infinite cost to remedy.

The leftist program of raising energy prices to the point of great pain is unrealistic and inhuman. It will not happen, because people will not accept the effect on their lives.

If there is a solution, it will be technological, not an attempt to turn back energy usage per person to the year 1900. The real zeitgeist behind the leftist program of deprivation is that mankind should pay a painful penance for their sins against Mother Earth. This is ridiculous. It should be looked at as a simple engineering problem to solve at an acceptable and lowest cost possible.

When the left starts to look at solutions through the lens of real world cost-benefit analysis, I will take their doomsday predictions more seriously. I won’t be holding my breath.

See also:

The Big Hack: How China Used a Tiny Chip to Infiltrate U.S. Companies – Bloomberg

Why China Is Growing More Belligerent – Barron’s

Lessons from Howard Marks’ New Book: “Mastering the Market Cycle – Getting the Odds on Your Side”

“What the pupil must learn, if he learns anything at all, is that the world will do most of the work for you, provided you cooperate with it by identifying how it really works and aligning with those realities. If we do not let the world teach us, it teaches us a lesson.”
— Joseph Tussman

That Was Quick: Musk Reverses Course & Settles With the SEC

Yesterday, the SEC announced Elon Musk and Tesla settled their securities fraud case based on his errant tweet of “funding secured.” I imagine Tesla stakeholders are glad to hear this news as Elon is allowed to remain CEO.

Two new independent directors are to be added to the board, Musk will be required to step down as Chairman for 3 years, and Tesla is creating new processes to vet Mr. Musk’s tweets before they go out. This is all to the good and is perhaps a sign that Elon is growing up a bit. A bit less pointless drama would be very welcome.

It would also be good if he would end his obsession with short-sellers and trying to “burn” them. Such distractions are harmful as they take away focus from his duties running Tesla. Make Tesla successful and cash flow positive and you will take care of that problem and be vindicated. As well, many stories of unhappy endings are there for CEOs of companies loudly focused on “getting the shorts.” Best to stick to your knitting and ignore the noise.

The next task should be finding someone to be COO — on the order of Steve Jobs finding Tim Cook. This would be good for the company and for Mr. Musk. Him burning himself out on operational details is in no one’s best interest. Happily for SpaceX, he has found himself such a person, so it shouldn’t be impossible.

Musk and Tesla: Bonfire of the Vanities

Yesterday’s revelation that Elon Musk has been sued by the SEC for securities fraud based on his errant “funding secured” tweet is a real bombshell. But what is truly damning about the story is that Musk had a deal on the table that let him and Tesla off the hook and he rejected it out of what can only be described as moral vanity. In my previous post outlining my admiration of Musk’s abilities and my trepidation at his managerial behavior, I identified a disconnect at the core of Tesla as an investment.

The fact that he had a very generous deal from the SEC and that he couldn’t bring himself to agree to it for the benefit of Tesla, its employees, its shareholders, and its customers just shows that nothing matters more to Elon than his own ego and sense of himself as never having made a mistake. This is very selfish and poor judgment that calls into question his mental stability.

He may escape this compound disaster of his own making, but in my mind he has further disqualified himself from being CEO of a public company. Either he cannot see that what he did was wrong, in which case he is delusional and should not be trusted in such a position, or he thinks he is above the law and his brilliance excuses his horrible temperament and behavior. In any case, I stand affirmed in my judgment that Elon Musk cannot and should not be trusted with my capital, particularly without some serious adult supervision. He is just too unreliable.

That his fanboys cultists are incapable of seeing his flaws and acting accordingly also brings into sharp relief their own poor judgment. Houdini may escape this trap, but he needs serious help, both psychological and operational. And he needs to be reined in. Those enabling and egging on his aberrant and destructive behavior are not doing him or his company any favors.

See also:

The Importance of Intangible Assets — Bill Nygren

Howard Mark’s Latest Memo: The Seven Worst Words in the World

Beware of Leveraged Loans as the Riskiest Lending Has Migrated to BDCs and Alternative Lenders: Caveat Emptor

U.S. Farm Sector Braces For Protracted Trade Fight

“Investing is the intersection of economics and psychology.”
— Seth Klarman

Sing a Song of Tesla: A Public Venture Capital Play

Tesla is best thought of as a public venture capital play with a visionary CEO who can’t be bothered with something small like managing the business for profits and cash flow. After all, he is in it to Change The World Through Innovation. His habits of over-promising and under-delivering plus his distaste for economic moats don’t bode well for the stock price in the long term. Not to mention his hostility toward analysts asking reasonable questions about the long term viability and funding needs of Tesla the business.

In the end, if it doesn’t generate cash, it’s not really a business. I see his chances of success by this metric at maybe 1 in 8. With his non-business attitudes he should be running a nonprofit with his own money. Luckily for him, there are plenty of sheep willing to give him seemingly unlimited funds with blind faith. Although if you look at your “investment” more as a donation with a call option attached, maybe it can provide psychic rewards no matter the financial outcome. And just maybe the lottery ticket will pay off.

Elon Musk is a brilliant guy and a visionary, although his genius doesn’t excuse him for continually issuing unrealistic guidance that is all but impossible to meet. What he has done with SpaceX is very cool. I hope he succeeds in his endeavors at Tesla. But he won’t do it with my capital.

See also:

Consumer Reports raises concerns over Tesla Model 3 braking

The Last Temptation of Elon Musk

The Information: Oracle’s aggressive cloud sales tactics push away customers

“The optimal payout ratio for a corporation is one that provides for a realistic rate of growth at a high return on equity, with the rest of profits returned to shareholders.”
— Josh Peters

The Economy Looks Great. Will Trump Screw It Up With a Trade War?

Putting aside the coarseness and unpleasantness of President Trump, we are faced with a couple of objective facts about his economic policies. His policy of deregulation has removed the wet blanket from the economy that President Obama’s oppressive regulation and hostility to business caused. The tax cuts, particularly the corporate ones, are good for growth and will make US companies more competitive worldwide. At the margin, the tax changes will encourage more jobs at home and reduce the incentive for offshoring. That plus our cheap energy resources from the fracking boom create big tailwinds for the economy and could even draw back some manufacturing.

Growth is already strong and unemployment is low, so the average worker may be starting to see decent wage growth. And the economic expansion may have been given a new lease on life, though increased deficits and adding stimulus with such a low unemployment rate could lead to higher interest rates and inflation. These factors need to be watched, but tax policy combined with deregulation look to be very positive for the economy on balance.

Trump’s Trouble With Prosperity

But as we’ve seen with the President in the past, he seems to have a hard time handling prosperity. The one real threat to this Goldilocks moment seems to be his looming trade moves. A trade war will reverse all of the economic progress that has been made under his administration.

A trade war equals higher prices for consumers, screwed up supply chains, retaliatory actions by other countries, inflation, and a potential downward spiral like with the Smoot-Hawley Tariff, which deepened and lengthened the Great Depression.

To protect industries that can’t compete, he will raise prices on all consumers, which is a giant tax increase. America has much more to lose than gain from this. Expect farmers to be some of the first to feel the pain of retaliatory tariffs.

Trade Protection Feels Good, But Hurts You More Than The Other Guy

The problem with Protectionism is that it feels really good, but it ends up hurting you more. It is the economic equivalent of Mutually Assured Destruction. It likely ends in a feedback loop of retaliation that hurts everyone severely. Like burning down the house in order to save it.

Is Trump Really Smart Like He Says?

One of the President’s biggest problems is a lack of impulse control and thoughtfulness. I hope he will step back and think hard about the situation and the second and third order effects before he stubbornly undoes all of the good of his deregulation and tax policies. If he fouls up the economy with a trade war, that could likely be enough to push even loyal Republicans off of his bandwagon. I would think it would also make a major defeat for Republicans very likely this fall and increase the chances of his impeachment and potential removal from office in 2019. Don’t do it Mr. President. Discretion is the better part of valor in this case. Impulse control now!

See also:

The Infrastructure Boom: 5 Ways Investors Can Play It

Warren Buffett’s Annual Letter to Berkshire Shareholders for 2017

Complexity Bias: Why We Prefer Complicated to Simple

The Sustainability of Growth vs Return on Invested Capital

Excessive Diversification is Pointless & Damages Returns

Making History By Doing Nothing — Morgan Housel

“The whole trick in life is to get so that your own brain doesn’t mislead you.”
— Charlie Munger

“We want to do business in times of pessimism, not because we like pessimism but because we like the prices it produces. It’s optimism that’s the enemy of the rational buyer.”
— Warren Buffett