Mining News

forget what search or series of searches led to me being hit with these ads. Don’t mind it.


An egg a day

Joe Weisenthal Tracey Alloway interview their colleague Tim Culpan about FoxConn and founder Terry Guo.

And so one of the first things Terry Guo did was he said, okay, I want all of my workers to eat well. So every single one of them would get an egg a day, so they could get a bit of protein. That was kind of a bit of a way out idea at the time. This was, just to be clear, this was in the eighties, seventies and eighties, seventies and eighties. And so Terry Guo is not an electronics guy. Most people in the tech industry have a tech background, they have an electronics background, maybe electronic engineering, Terry Guo studied at a maritime college in Northern Taiwan. So he really studied shipping and logistics, and then he moved into plastics. So his kind of opening business was plastic injection molding. And if you think of Taiwan in the seventies and eighties, it was known, as you know, ‘Made in Taiwan,’ cheap plastic toys, Barbie dolls, and everything else was made in Taiwan.

That’s my bold.

Some of the history of the world:

Joe: (13:44)
How did Apple find Foxconn?

Tim: (13:48)
Well when Steve Jobs came back, as we all know, the company was in trouble, they, Apple was actually making their computers — like physically making them in California, but over a period of time, many companies, you know, Michael Dell and Hewlett Packard, Compaq, and others were starting to outsource to Asia. And at some point during that period of time, Tim Cook, who was operating officer at the time, he’d not yet become CEO, would’ve discovered Foxconn and realize that, you know, these guys make the components. We should probably get to know them. And they really jumped into bed deeply when the iPod came out in the early 2000s.


Harsh

This morning, Coinbase CEO Brian Armstrong announced his firm will lay off roughly 18% of staff in a less-than ceremonious manner – via automatic removal of access to the office email server

wow. Cold. Almost Daily Grant’s continues:

On the bright side, the founder will be able to mull those fast-changing circumstances in style. From the Jan. 3 edition of The Wall Street Journal:

Coinbase Chief Executive Officer Brian Armstrong is the buyer of a $133 million Los Angeles estate, according to people familiar with the deal. The transaction, which closed in December, is one of the priciest single-family home sales ever completed in the L.A. area.

Is it a bad sign that some of the best daily / column comedy writing is coming from the financial world? Matt Levine’s Money Stuff is unstoppable, Joe Weisenthal, Terminal Value


The price of hay

A friend of ours who runs a horse barn told me the price of hay is up $5 a bale, from $27 to $32.

(I know what you’re thinking, that’s a lot for hay, but trust me, these horses are getting primo stuff.)

(painting is Rhode Island Shore by Martin Johnson Heade, at LACMA, not on display last I was there).


The Price of Gas

Along old US Route 66 in West Hollywood

It’s so high! How can people do anything? Yet shouldn’t we want the price of gas to be high, so we don’t cook up the planet quite as fast? Though, won’t the high prices cause estimates and spreadsheets and algorithms across the oil and gas companies to be adjusted? When the calculations are revised, it suddenly makes sense to drill more and deeper and in crazier ways in more chaotic countries? They’ll capitalize new and more projects, dredging up our oil faster than ever.

Is this merely the boom and bust cycle we all must toil under, written many times over in the history of every boomtown and oil craze? From Nantucket to Houston to the Bakken to Bakersfield to Alaska we are told this story. Above LA looms the Getty, named for a man whose father left Minnesota for a boom in Bartlesville, Oklahoma. The son took the lesson and was early in on Saudi Arabia. To get to the Getty from here you’d have to cross Doheny, he of Teapot Dome. But look, you saw the oil wells when you came in from the airport (in a car), and if you looked out the window of your plane as you landed at LAX you saw the diesel tankers and maybe even an oil tanker filling up at the offshore spigot. You get the idea.

Not so long ago I watched the documentary version of The Prize in small chunks, just before bed. Though the content can be bracing it is soothingly narrated by Donald Sutherland, and there is something relaxing about seeing how the pieces fit together. Finding the doc compelling I read Daniel Yergin’s original book, which is full of great characters and strange scenes:

In early March 1983 the oil ministers and their retinues hurriedly convened, ironically in London, the home court of their leading non-OPEC competitor, Great Britain.  They met at the Intercontinental Hotel at Hyde Park Corner, for what turned out to be twelve interminable, frustrating days – an experience that would leave some of them with an allergic reaction whenever, in future years, they set foot inside the hotel. 

and:

Later in the day, Silva Herzog was glumly eating a hamburger at the Mexican embassy, preparing to leave, when a call came from the United States Treasury saying that the $100 million fee had been rescinded.  The Americans could not risk a collapse.  Who knew what the effects would be on Monday?  And with that, the Mexican Weekend concluded, with the first part of the emergency package now in place.  

Some takeaways of value:

  • it’s not just the getting of the oil. It’s the refining. Rockefeller controlled the refining, and the shipping, and eventually everything
  • one of Rockefeller’s killer qualities: he was a visionary accountant. Can there be such a thing? Yes. Rockefeller.
  • The Great War, later World War One, was a gamechange for oil.  Railroads had been key in the US Civil War, but in World War One, the tank and the truck, oil powered vehicles, proved to be the crucial transport.  Churchill, head of the Admiralty at the time, switched the Royal Navy to oil from coal.  At the end of the war, the destruction of the Ottoman Empire left the British and French in control of oil fields in Mesopotamia.
  • both on the Eastern Front and in the Pacific in World War Two, oil was the key strategic factor. Really everywhere, but those offer clear examples. Decisions on how to invade the Soviet Union were based on gaining control of oil fields before the German forces ran out of oil. The Japanese navy’s decisions were bounded by limits on oil. The fleet had to be stationed near Singapore. The “Marianas turkey shoot” was a result of decisions made based on saving oil. There was not enough oil not only for active operations, but for pilot training.

How about this?:

When [J. Paul] Getty died in 1976, age eighty-three, the eulogy at his funeral was delivered by the Duke of Bedford.  “When I think of Paul,” said the Duke, “I think of money.” 

Many people and groups of people have attempted to control oil, but it’s unpredictable. Sometimes the board gets reshuffled: North Sea oil fields, Saudi, Alaska.  The North Sea oil fields saved the UK economy. Or did it ruin the UK economy? It saved Margaret Thatcher. You can’t send ships and helicopters to the coast of Argentina if you don’t have oil.

Look how rich Norway is. It doesn’t have to be this way, Norway used to be poor, that’s why Rose on Golden Girls is from St. Olaf.

Obama’s presidency coincided with a huge boom in US oil extraction. Is “coincided” the right word? Was it a coincidence? What’s at work here?

A character worth some study: Marcus Samuel. (Shell, the first oil tanker, Lord Mayor of London).

It was called Shell because his Iraqi Jewish family used to import and sell seashells. (That’s the story, anyway.)

Here’s a solid summary of The Prize.

Recall that Moby-Dick is about the oil business, and Ahab like Daniel Plainview is an oilman.


Tom Murphy

Mr. Murphy clearly wanted to grow the size of Capital Cities, but he never lost sight of the fact that growth through acquisition only creates value if it can be accomplished at sensible prices, nicely encapsulated in this quote:

“The goal is not to have the longest train, but to arrive at the station first using the least fuel.”

from this Rational Reflections post.


I am in a game

the game is very very easy if you have the right lessons in your mind.

Buffett says that to succeed at the game you need an IQ of about 120, but more than that is a hinderance.

Nothing shocking in Warren Buffett’s interview with Charlie Rose if you are a Buffett student. He drinks a Coke. That this interview exists is perhaps the most interesting thing: Charlie Rose is back? In this form? It’s not shot like Charlie’s PBS show.

Could this room be more generic?

Warren:

I think about what the company’s gonna be worth in 10-12 years.

and:

most of them [Berkshire investors] give it away when they get through

What does “get through” mean here? Die?

Buffett mentions pitching some doctors at a place called The Hilltop House in Omaha. Sadly it no longer exists, I find this photo of it on the post “I Wish I Could Have Gone To: Hilltop House” on MyOmahaObsession and I share the sentiment.


Railroader: The Unfiltered Genius and Controversy of Four-Time CEO Hunter Harrison by Howard Green

Over his career Hunter Harrison ran four railroads: Illinois Central, Canadian National, Canadian Pacific, and CSX. His gospel was Precision Scheduled Railroading. He’s usually credited with the PSR idea, although we can’t overlook the role of “Pisser Bill” Thompson in formulating the concept. “Pisser Bill” was called that because wherever he was on the railyard, if he had to piss, he would take his dick out and piss all over the place. That’s what railroading was like when Hunter Harrison began his career oiling traincars.

Harrison kept score by one main metric: operating ratio. Operating expenses divided by revenue. He cared about other numbers of course, but only as to how they’d affect operating ratio. You want a lower operating ratio: less dollars spent for every dollar earned.

Harrison focused on the numerator: expenses. He was obsessed with smart use and purchase of assets. One of his sayings was that an unused asset is a liability. When he found unused assets he shed them. On the Illinois Central, which runs from Chicago to New Orleans, there were two parallel tracks. Hunter got rid of one of them. He wanted to save the cost of maintaining it.  (Sidings were kept so two trains didn’t run into each other). He knew pricing would take care of itself because the railroad is almost a monopoly. He didn’t care much about customers. He saw some stickers once at a BNSF yard that said “the customer is always right.” He had them torn down.  Ignoring customers caused him some problems politically, especially in Canada, but it didn’t stop him from getting the operating ratio down. 

Harrison was a fanatic about trainyard efficiency. He rose up as a trainmaster in the Frisco yard in Memphis. Although he never went to college, Harrison had a pure mind for railroad management. When Sue Rathe introduced him to a new world of computerized data at Illinois Central, he immediately understood the potential and how to use it.  (Although no one would argue Harrison could not be gruff, Rathe tells us not to miss the gentlemanly side. Harrison encouraged people with potential. His bookshelf was full of memoirs of great coaches, he viewed himself as a coach, he used coaching metaphors.)   

As CEO, Harrison got the Illinois Central’s OR down from like 90% to mid 60s. The employees didn’t always like him for it. But they came to respect him. The alternative might’ve been bankruptcy.  

What produced results was the approach he would preach for the next two and a half decades – what train velocity does for efficiency, what longer trains mean for efficiency, and on and one. He saw better processes for everything, base hit after base hit.

There’s not much about this point in the book, but I wonder if Harrison had one key world historical insight. Railroading had changed. The Staggers Act of 1980 deregulated railroads. After that there was some nominal oversight but really the railroads could charge whatever they wanted. (The Staggers Act was meant to be anti-inflationary, it was signed by President Carter).    

The news that railroads were now, like, businesses hadn’t caught on. Railroads still acted like federal bureaucracies. Everything was inefficient.  The labor force was notoriously lazy, naps and “leave earlys” were common, drunkenness not unknown.  

That was in the US. Up in Canada mind, CN at this time was still nationalized! In fact not even nationalized, it was a “Crown corporation,” legally speaking it was more or less Queen Elizabeth’s personal plaything.   

Harrison realized (if I understand the book right) that pricing would take care of itself. Don’t even think about it, charge whatever.  Focus on cutting costs and moving cars (cars, not trains, a key point). You’d make huge gains in operating ratio. That would get reflected in the stock price, and ultimately in Harrison’s personal compensation. By the time he was done he’d personally made something like $500 million, which he used on estates for show horses in Connecticut and Florida, filling trophy rooms.

It wasn’t just having the insight though. Harrison had the combo of skills to execute. No easy job.  There was a lot of what he called mud to scrape away.  He was not shy about confrontation. During some lost years as a young man he once woke up in a pool of his own blood after a bar fight. He took that attitude into his railroads.

Activist investor Bill Ackman saw the possibilities. He took a big position in Canadian Pacific and fought to get Harrison appointed CEO. After some board room battling, Ackman succeeded.

When Harrison took over CP in 2012, he went up the offices in Calgary. It was the week of the Calgary Stampede. Hardly anyone was at work.

“It’s Stampede,” said one of the secretaries.

“Who gives a shit it’s Stampede? This company hasn’t made a penny and we’re worried about Stampede, having a few shooters at noon?”

Harrison turned CP around, starting with the mailroom, where he was disgusted to find a box being FedExed to a destination eight miles away. By then he’d run two railroads. He had a playbook. It was almost too easy for him. In eighteen months he brought the OR down from 81% to 65.9%. Two and a half years later, CP’s OR was 59.8%. He had the railroad using 40% fewer locomatives, he’d closed yars, he was increasing velocity and train length without sacrificing safety (although absolutely sacrificing love from the work force, which he reduced by about four thousand).

For this reader, the least engaging part of Railroader: The Unfiltered Genius and Controversy of Four-Time CEO Hunter Harrison by Howard Green came as Harrison was exiting CP to run CSX for a final act of his career. The details about board politics and compensation packages just weren’t as thrilling as turning around a railroad. I can see why Green devoted so much time to this period, however. He’s an anchor on Canada’s Business News Network, and he had access to Harrison during this time. There was some resentment of Harrison’s manner at CP. Harrison himself acknowledged to Green that he’d mistakenly assumed Canada was just like the USA, and Canadians just like Americans, but the business culture there was smaller, closer, and more sensitive, less blunt.

By the time Harrison left CP and went to fix up the “spaghetti-like” CSX*, his health was in rough shape. He took over CSX in March, 2017, and died that December. His ashes were scattered in the Memphis railyard.

Green sums up Harrison’s worldview on page one:

He reshaped an industry by literally making the trains run on time. While Sir Richard Branson advised executives to focus on employees first, customers second, and investors third, Harrison reversed the priorities: investors came first. For him the game was capitalism, pure and simple. You either played it or you didn’t.

Harrison’s legacy lives on. His protege Keith Creel is now CEO at Canadian Pacific. Bill Ackman is taking another bite of that apple. The question is: has Harrison’s Insight is already played out?  The operating ratios for all the major railroads now are in the high 50s and 60%s.  Some of those numbers include real estate sales. The railroads were given a great deal of land to induce them and help them build, much of it indigenous land, a continued resentment.

Are these railroads just now juicing their numbers by scrapping off their parts?  Is that the ultimate end of capitalism, for a corporation to achieve ultimate efficiency and then begin consuming itself, or rather allowing the shareholders to consume it in a cannibalistic ritual?

I should confess/disclose I myself am long CP and UNP and (through Berkshire) BSNF. Good luck building another transcontinental railroad. Canadian Pacific was built in five years. California will take longer than that to go from Bakersfield to Merced, although in fairness we’re not importing 15,000 Chinese laborers nor will the deaths of 600 people be acceptable. Both CP and the UNP were built with the aid of corrupt schemes. Corrupt schemes may still be rampant but they’re less effective, at least in North American railroad building.

Throughout this book are accounts of high stakes dinners and meetings at places like the Mount Royal Club in Montreal or The Breakers in Palm Beach. I know I’m not cut out to be a railroad CEO because I was reading and thinking, sure, sure this is a faceoff over control of the board but: what’s the food like? What’re people eating? I wanted the flavor! One meal that got my attention was a hasty conference at a Chick-Fil-A near Atlanta. That was the kind of food Hunter Harrison liked.

Cheers to Alex Morris, @TSOH_investing on Twitter, I think that’s how I heard about this book. I read it because I wanted to learn a bit about running a railroad, and I did!

* an example of Harrison’s mind: he could look at the map for CSX railroad and see that “stripped down, CSX wasn’t spaghetti; to Harrison it was more or less a square” with the corners being Selkirk, NY near Albany, Willard Ohio (60 miles south of Toledo), Nashville Tennessee, and Waycross, Georgia.


Pipelines

To understand the Kremlin’s motivations in regard to its smaller, and relatively impoverished, neighbor, the key fact to know is that Russia supplies 40% of Europe’s heating-fuel supplies — namely, natural gas.

To get it there, Russia relies mostly on two aging pipeline networks, one of which runs through Belarus and the other through Ukraine. For this, Russia pays Ukraine around $2 billion a year in transit fees.

Russia is a petrostate and relies on oil and natural-gas sales for about 60% of its export revenue and 40% of its total budget expenditures. Any crimp on Russia’s ability to access the European market is a threat to its economic security.

so writes Lukas I. Alpert in Marketwatch. Samuel Bailey is credited for the below map, found on the Wikipedia page, “Pipeline Transport.”

Ironically the cost for Russia will be “decertification” of Nord Stream 2 pipeline.

Closer to home: big news came from the Supreme Court today re: the Dakota Access Pipeline. The court declined to hear Energy Transfer’s plea to avoid a legally mandated environmental review.

The ruling is a huge victory for North Dakota tribes including the Standing Rock Sioux Tribe which rallied support from across the world and sued the US government in a campaign to stop the environmentally risky pipeline being built on tribal lands.

It signals the end of the litigation road for the Texan energy company, but the pipeline, known as DAPL and open since 2017, will continue to operate as the review is carried out.

You gotta be on the side of the tribes here, they don’t want a pipeline under their lake. But on the other hand, aren’t pipelines a pretty good way to transport oil? What’s better, trucks? Trains?

Oil and gas is extracted in inconvenient places and is messy to move. The limited pipelines create chokepoints. Remember when “hackers” shut down Colonial? 45% of all the fuel consumed on the East Coast comes through that one pipeline.

A map of US pipelines made using a tool at FracTracker.

Here in greater Los Angeles we have refineries, so several pipelines flow out. If I understand right, just two pipelines, one from here and one from Utah, bring all the necessary jet fuel, heating oil, and gasoline to Las Vegas.

You’d think there’d be one of those books called like Invisible Veins: How Pipelines Run Our Lives but I couldn’t find one. If you look up “pipeline” in books on Amazon, you get a graphic novel, some books about metaphorical “pipelines” like in education and income, and this one:

Beautiful cover. The target audience for that one seems to be those involved in legal matters:

In this edition of Oil and Gas Pipelines in Nontechnical Language, Tom Miesner and Bill Leffler leverage the hundreds of courses they have taught in the past decade, along with the interaction with their audiences, clients, and opposing attorneys to present a totally understandable view of pipeline inception, planning, construction, start-up, and operation. Those experiences allowed them to expand but simplify the complexities of pipelines, including a totally revised chapter on equipment that provides a complete view of pipeline components. A separate chapter on control systems updates this technology.

At over $100 that’s too expensive for a probably very boring book right now, but we did get this one:

and will report

In this lyrical manifesto, noted climate scholar (and saboteur of SUV tires and coal mines) Andreas Malm makes an impassioned call for the climate movement to escalate its tactics in the face of ecological collapse. We need, he argues, to force fossil fuel extraction to stop–with our actions, with our bodies, and by defusing and destroying its tools. We need, in short, to start blowing up some oil pipelines.

Haven’t read it yet, but blowing up an oil pipeline seems like one of the messiest things you could possibly do! You really gotta believe in the ends justifying the means etc. if you’re blowing up pipelines to help reverse ecological collapse.

I wonder if we ought instead to say a prayer for the health and safety of all pipelines!

We’ll let Malm make his case.


Munger speaks, 2022

The Daily Journal annual meeting gave Charlie Munger an occasion to hold forth.

Getting rich is gonna get harder:

It is hard. It’s going to be way harder for the group that’s graduating from college now. For them to get rich, stay rich, and so forth is going to be way harder than it was for my generation.

Think what it costs to own a house in a desirable neighborhood in a city like Los Angeles. I think we’ll probably end up with higher income taxes too, and so on.

I think the investment world is plenty hard. In my lifetime, 98 years, it was the ideal time to own a diversified portfolio of common stocks that updated a little by adding the new ones that came in like the Apples and the Alphabets and so forth. I’d say people got maybe 10 or 11% if you did that very intelligently before inflation and maybe 8 or 9% after inflation. That was a marvelous return. No other generation in the history of the world ever got returns like that. And I don’t think the future is gonna give the guy graduating from college this year nearly that easy an investment opportunity. I think it’s gonna be way harder.

He’s not that worried about global warming (his term):

I’ll be very surprised if global warming is going to be as bad as people say it’s going to be The temperature of the Earth went up, what, one degree centigrade in about 200 years. It’s a hell of a lot of coal and oil that was burned and so forth. It was one degree. I’m just skeptical about whether it’s as bad as these calamity howlers are saying.

On his weird dorm:

Question: What was it specifically that prompted the idea for windowless dorm rooms? Please walk us through this decision. This is in regards to your design for student housing.

Charlie Munger: Nobody in his right mind would prefer a blank wall in a bedroom to a wall with a window in it. The reason why you take the windows out is that you get something else from the design considered as a whole. If you stop to think about it big cruise ships have huge shortages of windows in bedrooms because too many of the rooms are either below the waterline or they’re on the wrong side of the aisle. So in the very nature of things you get a shortage. You can’t change the shape of the ship. You have to do without a lot of the windows to have a ship that’s functional. That’s required by the laws of hydrodynamics.

So we get the advantage of a big ship but it means a lot of the rooms can’t have windows. Similarly, if you want a bunch of people who are educating each other to be conveniently close to one another, you get a shortage of windows. In exchange, you get a whole lot of people who are getting a lot of advantage from being near one another, and they have to do without a real window in the bedroom. It doesn’t matter. The air can be as pure as you want and the light that comes in through an artificial window can mimic the spectrum of daylight perfectly.

It’s an easy trade off. You pay $20,000/week or something on a big cruise ship to have a room with an artificial window. For a long time on a Disney cruise ship, they had two different kinds of window rooms, one with a window and one without a window. They got a higher price in rent for the one with an artificial window than they got for a real one. In other words, they reduce the disadvantage to zero. In fact, they made it an advantage.

So it’s a game of trade offs. That poor pathetic architect who criticized me is just an ignoramus. He can’t help himself. I guarantee the one thing about him is that he’s not fixable. Of course, you have to make trade offs in architecture.

Emphasis mine.

You’re lucky if you’ve got four good assets.

Some of his:

Question: How will this all play out? And what’s the best advice you have for individual investors to optimally deal with the negative impact of inflation other than owning quality equities?

Charlie Munger: Well, it may be that you have to choose the least bad of your options. That frequently happens in human decision making. The Mungers have Berkshire stock, Costco stock, Chinese stocks through Li Lu, a little bit of Daily Journal stock, and a bunch of apartment houses. Do I think that’s perfect? No. Do I think it’s okay? Yes. I think the great lesson from the Mungers is that you don’t need all this damn diversification. You’re lucky if you got four good assets. If you’re trying to do better than average, you’re lucky if you have four things to buy. To ask for 20 is really asking for egg in your beer. Very few people have enough brains to get 20 good investments.

He’s anti gamer:

Some of the games are kind of constructive and social and others are very peculiar. Do you really want some guy 40 hours a week running a machine gun on this television set? I don’t. But a lot of the games are harmless pleasure. It’s just a different technique of doing it. I like the part of it that’s constructive but I don’t like it when people spend 40 hours a week being an artificial machine gunner.

Speaking (admiringly) of the history of modern China. (tw if you find abortion to be nasty):

China could never have handled its life with a government like ours. They wouldn’t be in the position they’re in. They had to prevent 500 million or 600 million people from being born in China. They just measured the women’s menstrual periods when they came to work and aborted those who weren’t allowed to have children. You can’t do that in the United States. It really needed doing in China. And so they did what they had to do using their methods. I don’t think we should be criticizing China, which has terrible problems, because they’re not just like the United States. They do some things better than we do.

Agony:

If you stop to think about it, what makes capitalism work is the fact that if you’re an able-bodied young person and you refuse to work, you suffer a fair amount of agony. It’s because of that agony that the whole economic system work. The only effective economies that we’ve had that brought us modernity and the prosperity we now have, they imposed a lot of hardship on young people who didn’t want to work

Finally a stock pick:

But I would argue that if I was investing money for some sovereign wealth fund or some pension fund with a 30,40, 50-year time horizon I buy Costco at the current price. 

full transcript put up by Oliver Sung of Junto Investments.


Peabody

Came across a story about coal company Peabody Energy, and went looking into the founder of the company, Francis S. Peabody. (Is he the Mr. Peabody mentioned in John Prine’s song Paradise? Think so).

There are prominent Peabodys in the history of Massachusetts but this Mr. Peabody was from Chicago.

And how does a coal baron die? He died of a heart attack during a fox hunt on his own estate.

Only a year after Mayslake Hall was completed, Francis Peabody died of a heart attack during a fox hunt on his property. He was 63.

(source for that photo: MichaelBNA on Wikipedia)


Warren Buffett on horse race wagering

And when the Buffett family moved to Washington, D.C., Warren just had one request for his dad:

“When we got to Washington, I said, ‘Pop, there’s just one thing I want. I want you to ask the Library of Congress for every book they have on horse handicapping.’ And my dad said, ‘Well, don’t you think they’re going to think it’s a little strange if the first thing a new Congressman asks for is all the books on horse handicapping?’”

But Buffett reminded his father of the help he gave him during the winning campaign, and pledged to be there for him again during his re-election. So Howard got Warren hundreds of books about handicapping horses.

“Then what I would do is read all these books. I sent away to a place in Chicago on North Clark Street where you could get old racing forms, months of them, for very little. They were old, so who wanted them? I would go through them using my handicapping techniques to handicap one day and see the next day how it worked out. I ran tests of my handicapping ability – day after day – all these different systems I had in mind.”

I was looking for someone who’d compiled up every reference Buffett and Munger made to horse race wagering, and I found it here, “DRF Legend Steven Crist on Value Investing and Horse Betting,” by Dillon Jacobs on Vintage Value. (Note that much of that quotes from The Snowball.)

Buffet on Value and DRF

Buffett noted that a bookie actually took action inside Washington’s Old House Office Building.“You could go to the elevator shaft and yell, ‘Sammy!’ or something like that and this kid would come up and take bets.”

Even Buffett himself did some bookmaking for guys who wanted to get down on the big races like the Preakness Stakes. “That’s the end of the game I liked, the 15 percent take with no risk,” Buffett said.

Buffett got along well with his high school golf coach, Bob Dwyer, and the two frequently rode the Chesapeake & Ohio railroad together from Silverspring, MD to Charles Town racetrack in West Virginia. Dwyer taught Buffett how to better understand the Daily Racing Form.“I’d get the Daily Racing Form ahead of time and figure out the probability of each horse winning the race. Then I would compare those percentages to the odds,” said Buffett, who bet from $6 to $10 to win. “Sometimes you would find a horse where the odds were way, way off from the actual probability. You figure the horse has a 10 percent chance of winning, but it’s going off at 15-to-1.”

That last part sounds a lot like Crist on Value, doesn’t it?

This method, looking for overlays, is at the heart of every serious book about horse wagering.

Going broke one day at Charles Town

One day, Buffett went to Charles Town by himself. He lost the first race and his performance went from bad to worse until he was down $175. Feeling depressed, he went to an ice cream shop and bought himself a sundae with the last of his money.

While eating, Buffett thought to himself that he had just lost more money than he made in a week.“And I’d done it for dumb reasons. You’re not supposed to bet every race. I’d committed the worst sin, which is that you get behind and you think you’ve got to break even that day. The first rule is that nobody goes home after the first race, and the second rule is that you don’t have to make it back the way you lost it. That is so fundamental.”

This was an important lesson that definitely influence Buffett’s investing later in life. You’re not supposed to be every race. Instead, just wait for the right pitch.

What Buffett and Munger both discovered is that making money in the stock market is much, much easier than making money at horse betting. For one thing, there’s no 14-25% track takeout. But it’s interesting how both markets teach similar lessons.


Antwerp

Authorities have seized 88 metric tons of cocaine stashed in containers from Latin America this year, nearly 10 times the figure in 2014. It is far more than any other European port, as traffickers flood the continent with so much cocaine that it may now be a bigger market than the U.S., according to the Drug Enforcement Administration.

from “Inside Europe’s Cocaine Gateway: ‘A Repeat of Miami in the 1980s’ Antwerp, now the No. 1 port in Europe for cocaine busts, has seen a rise in gang violence and corruption” by James Marson in the WSJ.

The cash tsunami is distorting Antwerp’s economy, officials say, jacking up prices for real estate and existing businesses.

“Bad money drives out good money,” said Antwerp Mayor Bart De Wever. “They will chase out honest people.”

Some companies are used to launder money, from restaurants to luxury car dealers. Far more widespread and pernicious are companies that undermine and disrupt the legal economy, said Yve Driesen, director of the Federal Judicial Police in Antwerp.

Drug traffickers buy restaurants or shops to give the impression that their fortunes derive from legal commerce. Front companies also use legal activities to hide their illegal drugs-related work. For example, a transport company that extracts cocaine from shipping containers could also carry out legal transport on behalf of multinationals.

“They will win contracts because their prices are lower than competitors,” said Mr. Driesen.

Other companies have popped up to service the criminals. Resellers of encrypted phones depend on drug gangs who are the only ones able to afford contracts that can cost thousands of dollars a year, officials say. Companies rent out luxury cars for the equivalent of $1,000 a day and more.

My reaction to this is: time to legalize it? It seems clear that Europeans want cocaine really bad. What we’re doing isn’t working. If we imagine legalization causes a massive spike in cocaine use, can that be worse than the warping effect of trying to defy reality? The most urgent cocaine related problem here in Los Angeles at the moment is people dying from cocaine laced with fentanyl. Would that problem be made better or worse with legalization? Honestly some of the high octane coffee people consume around me seems as mind-altering as cocaine.

You can’t put law on people if it’s not in their hearts

as a Florida law enforcement official once put it to me, in a conversation about Key West.

Recalling what former mayor of London Ken Livingstone said during a campaign in 2012:

Equally, because I have been around for a long time, I’ve also learned how much of what you are told is bulllshit. And when I hear so many people in the City say they’re all going to go [because of higher taxes], the simple fact is we really only have one rival, and that is New York. You are not going to have major banks in the City relocate to Shanghai because there’s a degree of political uncertainty, perhaps decades ahead. They are not going to Frankfurt because young men want to go out on the pull and do a load of cocaine and they can’t really do that easily in Frankfurt. So you need to have a dynamic city. Our only real rival is New York.

(Livingstone lost that election, Boris Johnson won.)


Buffett and Munger speak: Berkshire Hathaway 2021 oddities and highlights

Augy18400 for wikipedia

I always feel like I’m getting both nutrition and entertainment when I read the Berkshire Hathaway annual meeting transcript, found here at Rev.com

Asked about the morality of owning an oil and gas company like Chevron, Charlie Munger poses and then answers a strange hypothetical:

You can imagine two things. A young man marries into your family, he’s an English professor at, say, Swarthmore, or he works for Chevron. Which would you pick? Sight unseen? I want to admit, I’d take the guy from Chevron. Yeah.

Did not know this about the origin of the rear view mirror:

Warren Buffett: (01:35:54)
Maybe that’s why they called it Marmon. And that we’re proud of the fact that the company in 1911 named one of the first Indianapolis 500. It also was the company that invented the rear view mirror. I’m not sure whether that was a big contribution to society. And certainly around your household rear view mirror, you don’t want to emphasize too much. But they, the car that was entered in Indianapolis 500, the guy who normally sat next to the driver and looked backwards to tell what the competitors were doing, he was sick. So they invented the rear view mirror. So let’s just assume that you had decided that autos were this incredible thing. And someday there’d be an Indianapolis 500 and someday they’d have rearview mirrors on cars. And someday 290 million cars would be buzzing around the United States or autos or trucks there.

On BNSF railroad:

15% of the interstate goods move on our railroad

Competition for BNSF, and for Geico:

This question comes from Glen Greenberg, it’s on the profitability of GEICO and BNSF. He said, “Why do these companies operate at meaningfully lower profit margins than their main competitors, Progressive and Union Pacific? Can we expect current managements to at least achieve parity?

Warren Buffett: (02:33:25)
Was it GEICO and-

Becky: (02:33:27)
BNSF.

Warren Buffett: (02:33:28)
Oh, actually, if you look at the first quarter figures, you’ll see that the Berkshire Hathaway/Union Pacific comparisons has gotten quite better. Katie Farmer’s doing an incredible job at BNSF, and it’d be an interesting question whether five years from now or 10 years from now, BNSF or Union Pacific has the higher earnings. We’ve had higher earnings in the past, Union Pacific passed us. The first quarter, you can look at and they think they’ve got a slightly better franchise. We think we’ve got a slightly better franchise. We know we’re larger than Union Pacific, we will do more business than they do. And we should make a little more money than they do, but we haven’t in the last few years. But it’s quite a railroad, I feel very good about that.

 And it’s a very interesting business, both Progressive and GEICO were started in the ’30s. I believe I’m right about Progressive on that, and we were started in ’36. We have had the better product for a long, long time, I mean, in terms of cost. And here we are 80, 85 years later, in our case, and we have about 13% or so of the market, whatever it may be, and Progressive as just a slight bit less. So the two of us have 25% of the market, roughly, in this huge market, after 80 something years of having a better product. So it’s a very slow changing, competitive situation, but Progressive has done a very, very good job recently. We’ve done a very, very good job over the years, and we’re doing a good job now, but we have made some very significant improvements.

Is Flo just more appealing than the Geico Gecko? Ajit Jain doesn’t think so:

Progressive has certainly done better, but when it comes to branding, GEICO is, I think, miles, excuse me, ahead of Progressive. And in terms of managing expenses as well, I think GEICO does a much better job than anyone else in the industry.

On interest rates:

I mean, interest rates, basically, are to the value of assets, what gravity is to matter, essentially. …

I mean, if I could reduce gravity, it’s pull by about 80%, I mean, I’d be in the Tokyo Olympics jumping. And essentially, if interest rates were 10%, valuations are much higher. So you’ve had this incredible change in the valuation of everything that produces money, because the risk-free rate produces, really short enough right now, nothing. It’s very interesting. I brought this book along, because for 25 or more years, Paul Samuelson’s book was the definitive book on economics. It was taught in every school and Paul was… he was the first Nobel a prize winner. It’s sort of a cousin to the Nobel prize, they started giving it in economics, I think, in the late ’60s, he was the first winner from the United States, Paul Samuelson. Amazingly enough, the second winner was Ken Arrow, and both of them are the uncles of Larry Summers. Larry Summers had the first two winners as uncles.

Weird, did not know that. Buffett goes on:

But if present rates were destined to be appropriate, if the 10 years should really be at the price it is, those companies that the fellow mentioned in this question, they’re a bargain. I mean, they have the ability to deliver cash at a rate that’s, if you discounted back and you’re discounting at present interest rates, stocks are very, very cheap. Now, the question is what interest rates do over time. But there’s a view of what interest rates will be based in the yield curve out to 30 years and so on.


It’s a fascinating time. We’ve never really seen what shoveling money in on the basis that we’re doing it on a fiscal basis, while following a monetary policy of something close to zero interest rates, and it is enormously pleasant. But in economics, there’s one thing always to remember, you can never do one thing, you always have to say, “And then what?”

Buffett goes on to invoke the St. Peterburg paradox.

On, basically, what’s cool about the stock market:

we’ve got the greatest markets the world could ever imagine. I mean, imagine being able to own parts of the biggest businesses in the world and putting billions of dollars in them and take it out two days later. I mean, compared to farms or apartment houses or office buildings, where it takes months to close a deal, the markets offer a chance to participate in earning assets on a basis that’s very, very low cost and instantaneous, huge, all kinds of good things, but it makes its real money if they can get the gamblers to come in because they provide more action and they’re willing to pay silly or fees and all kinds of things.

On the market as a casino:

Well, the stock market, we’ve had a lot of people in the casino in the last year. You have millions and billions of people who’ve set up accounts where they day trade, where they’re selling… Put some calls, where they, I would say that you had the greatest increase in the number of gamblers essentially. And there’s nothing wrong with gambling and they got better odds than they’ve got if they play the state lottery, but they have cash in their pocket. They’ve had action. And they actually don’t have a lot of good results. And if they just bought stocks, they do fine and held them.


But the gambling impulse is very strong in people worldwide, and occasionally it gets an enormous shove and conditions lead this place where more people are entering the casino than are leaving every day, and that creates its own reality for a while. And nobody tells you when the clock is going to strike 12:00, and it all turns to pumpkins and mice. But when the competition is playing with other people’s money, or if they’re playing foolishly with their own money, but the big stuff is done with other people’s money, they’re going to beat us. I mean, we’re not… that’s a different game and they’ve got a lot of money, so we’re not going to have much luck on acquisitions while this sort of a period continues.

Charlie Munger saying Bernie Sanders “has won,” but he didn’t mean it in a complimentary way:

MUNGER: And I think one consequence of the present situation is that Bernie Sanders has basically won. And that’s because with the, everything boomed up so high and interest rates, so low what’s going to happen is the millennial generation is going to have a hell of a time getting rich compared to our generation. And so the difference between the rich and the poor and the generation that’s rising is going to be a lot less. So Bernie has won. He did it by accident, but he won.

Charlie is asked, given high tax rates, what keeps him in California?

MUNGER: Well, that’s a very interesting question. I frequently say that I wouldn’t move across the street to save my children 500 million in taxes and stuff. So I have that, that’s my personal view of the subject, but I do think it is stupid for states to drive out their wealthiest citizens, the old people that don’t commit any crimes, they donate to the local charity. Who in the hell in their right mind would drive out the rich people? I mean, Florida and places like that are very shrewd and places like California are being very stupid. It’s contrary to the interest of the state.

I love the dodge here on a question about Bitcoin:

Yeah, I knew there’d be a question on Bitcoin. I thought to myself, “Well, I’ve watched these politicians dodge questions all the time.” I always find it kind of disgusting when they do it. But the truth is, I’m going to dodge that question because we’ve probably got hundreds of thousands of people watching this that own Bitcoin, and we’ve got two people that are short. We’ve got a choice of making 400,000 people mad at us and unhappy and/or making two people happy. That’s just a dumb equation. I thought about it. We had a governor one time in Nebraska, a long time ago. He would get a tough question, what do you think about property taxes or what should we do about schools? He’d look right at the person, and he’d say, “I’m all right on that one,” and he’d just walk off. Well, I’m all right on that one and maybe we’ll see how Charlie is.

A quality of a great business:

Well, we’ve always known that the green business is the one that takes very little capital and grows a lot, and Apple and Google and Microsoft and Facebook are terrific examples of that. I mean, Apple has $ 37 billion in property, plant, equipment. Berkshire has 170 billion or something like that, and they’re going to make a lot more money than we do. They’re in better business. It’s a much better business than we have, and Microsoft’s business is a way better business than we have. Google’s business is a way better business.

I thought this was funny. The question was re: Robinhood.

But they have attracted, maybe set out to attract, but they have attracted, I think I read where 12 or 13% of their casino participants were dealing in puts and calls. I looked up on Apple, the number of seven day calls and 14 day calls outstanding. I’m sure a lot of that is coming through Robinhood and that’s a bunch of people writing… They’re gambling on the price of Apple over the next seven days or 14 days. There’s nothing illegal about it. There’s nothing immoral. But I don’t think you would build a society around people doing it. If a group of us landed on a desert island, we knew that we’d never be rescued, and I was one of the group and I said, “Well, I’ll set up the exchange over and I’ll trade our corn futures and everything around it.” I think the degree to which a very rich society can reward people who know how to take advantage essentially of the gambling instincts of, not only American public, worldwide public, it’s not the most admirable part of the accomplishment. But I think what America has accomplished is pretty admirable overall. And I think actually, American corporations have turned out to be a wonderful place for people to put their money and save, but they also make terrific gambling chips.

Odd anecdote from Warren, Munger is talking about state lotteries (he doesn’t approve):

Charlie Munger: (04:40:03)
The states in America, replaced the mafia as the proprietor of the numbers game. That’s what happened.

Warren Buffett: (04:40:03)
Yep.

Charlie Munger: (04:40:03)
They pushed the mafia aside and said, “That’s our business, not yours.” Doesn’t make me proud of my government.

Warren Buffett: (04:40:03)
When I was a kid, my dad was in Congress, they had a numbers runner in the house office building, actually.

On the potential CP/KSU railway merger, which would strengthen a rival to Berkshire’s own BNSF:

In terms of the price that’s being paid, like I say, if you can borrow all the money for nothing, it doesn’t make much difference to people. This would not be being paid under a different interest rate environment. I mean, it’s very simple. There’s no magic to the Kansas City Southern. I think their deal with Mexico ends in 2047. It’s the number of carloads carried. I mean, it’s not going to change that much, but it is kind of interesting. There’s only two major Canadian, what they call Class I railroads, and there’s five in the United States. This will result in, essentially, three of the units being Canadian, four being U.S., which is not the way you normally think of the way the development of the railroad system would work in the United States.

We looked at buying CP. Everybody looks at everything. We would not pay this price. It implies a price for BNSF that’s even higher than what the UP is selling for. But it’s kind of play money to some degree, I mean, when interest rates are this low. I’m sure from the standpoint of both CP and CN, there’s only one K.C. Southern. They’re not going to get a chance to expand. They’re not going to buy us. They’re not going to buy the UP. The juices flow, and the prices go up.

Charlie Munger: (03:37:15)
They’re buying with somebody else’s money.

Warren Buffett: (03:37:18)
Yeah. It’s somebody else’s money, and you’re going to retire in five or 10 years. People are not going to remember what you paid, but they’re going to remember whether you built a larger system. The investment bankers are cheering you on at every move. They’re just saying, “You could pay more.” They’re moving the figures around. The spreadsheets are out, and the fees are flowing.

The juices flow, indeed.


North American Pacific

(acqua scissors for Wiki)

I can barely keep up with the story of Canadian Pacific and Kansas City Southern railways merging to form a transcontinental, Canada to Mexico super railway.

On April 13, Brooke Sutherland in Bloomberg reported on some potential bumps to the CP/KSU merger:

Canadian Pacific Railway Ltd.’s plan for taking over Kansas City Southern in a $29 billion transaction has drawn pushback from the Department of Justice. The Surface Transportation Board is the rail industry’s primary regulator and has the final say, but the DOJ is allowed to express its opinion and this week it asserted a “statutory right to intervene” in major railroad mergers. The DOJ takes primary issue with Canadian Pacific’s plan to close the deal on a financial basis in advance of regulatory approval by putting the acquired Kansas City Southern shares in a voting trust. It rightly points out that companies in other consolidated industries frequently have to wait a year or more to close transactions and they manage just fine without a voting trust that risks compromising the target’s independence and future competitiveness. The DOJ — along with rival railroads and some key shipping groups — also wants the STB to waive Kansas City Southern’s exemption from tougher 2001 merger rules that require major carriers to prove a transaction is in the public interest. While Kansas City Southern remains the smallest major North American railroad, it’s much bigger than it was, in part because of the 2005 acquisition of Mexico’s TFM railroad. Canadian Pacific issued a response to the DOJ, arguing that the pre-2001 rules are rigorous enough for its merger and that a voting trust is essential to make the transaction work. The voting trust is useful in staving off a counterbid from the private equity firms that were circling Kansas City Southern last year, but I’m less convinced of its public interest benefits. If there are any, Canadian Pacific should have to prove that. 

Look I would never tell CP CEO Keith Creel how to do his job, but I worry about CP losing control of the story here. Creel may come off a little too confident in the 2001 merger rules putting him in the right here. This is the Surface Transportation Board’s time to shine, they’re gonna flex their muscles. Creel will need to win them over, not just bowl them over, to make this merger happen. What about a PR campaign? Creel should:

  • remind the Surface Transportation Board that although the company may be called Canadian Pacific, he’s from Alabama.
  • remind the Surface Transportation Board of where he comes from in a deeper sense. Creel is a protege of great Tennessee railroader Hunter Harrison. Harrison’s goal was simple: more efficient railroading. That’s good for the consumer, it’s good for partners, it’s good for rail customers, it’s good for traffic, it’s good for reducing congestion, it’s good for the environment, it’s good for America.
  • sell the glorious, international, free trade vision he’s seeing here. The Canadian Pacific / Kansas City Southern railroad merger would create a true transcontinental railroad, rolling from Canada to Mexico and through Chicago by the way.
  • should the new company be called North American Pacific, or even American Pacific? While no one would want to take away from the beautiful history of Canadian Pacific, flattering American regulators and winning over the American people should absolutely be the strategy for now.
  • could HQ be moved from Calgary even? Just spitballing!


The beauty of this railroad isn’t a tough sell, people love thinking about this new, enormous railroad once you help them see it. At least I do.

It’s a question of storytelling here. CP needs to tell the story, and not let the DOJ come up with a darker, more unpleasant story.

But then, this morning, a twist! Canadian National, Canada’s other enormous railway, threw their hat in the ring to buy KSU and achieve the continental super railway!

Again, Brooke Sutherland in Bloomberg is on the case. We have to understand the CP/CNI rivalry, it’s over hundred years old:

Century-Old Rail Rivalry Flares Up Over a $30 Billion Prize

as Bloomberg puts it, Kevin Orland reporting:

The very formation of Canadian National made Canadian Pacific “apoplectic” that it now had to compete with a government corporation, and Canadian National’s public backing was a sore spot for decades, Anastakis said. Even when Canadian National was privatized in 1995, it was initially run by Paul Tellier, a former high-ranking government official.

The two firms also reflect regional and political tensions in Canada, with Calgary-based Canadian Pacific representing the western, conservative part of the country, and Montreal-based Canadian National embodying the more liberal, elite character of the east, Moore said — as well as the bilingual nature of Quebec.

I dunno, I might be biased as a CP shareholder, but this CNI bit seems weak to me. Didn’t they argue against any merger with KSU at all? A deal used to mean something in railroading. I’m afraid I have to root even harder for CP now.

Will the Surface Transportation Board see the phony arguments of CNI were just some Canadian pettiness, and be more inclined to allow the merger?

As Brooke Sutherland reports:

no one really knows at this point what the STB will or won’t allow

Note the headline:

Forget Bitcoin. Railroads Are the New Bubble.

Look, I’m just an enthusiast here.


The simulated world

“Investors will not be able to quantify which aspects of growth, earnings and the economy are organic, and which aspects are the result of a simulated world where monetary and fiscal excess artificially create a facade of health and wealth,” he said. “There won’t be real clarity for a couple of years.”

from “Stock Bulls Bet It All on Earnings Guesses With Troubled Record” by Lu Wang in Bloomberg today. Also of note:

Hypothetically speaking, should earnings fail to catch up and the market’s multiple return “back to normal” — the long-term average of 16, the S&P 500 is at danger of losing a third of its value.


Munger and Lee Kuan Yew: Figure Out What Works and Do It

Charlie Munger, age 97, recently held forth at the annual meeting for Daily Journal Company. Blunt and entertaining as ever. “Amateurs talk about Buffett, professionals talk about Munger” as the old saying goes.

Our long fascination with Munger has been a frequent topic on this site, resulting in some wonderful communication and connection with the secret world of Mungerists out there.

Munger was asked a question that got me thinking. It was about the founder of modern Singapore, long time prime minister, Lee Kuan Yew:

Question: Charlie, you have been a long-time admirer of Singapore and Lee Kuan Yew. You once said to study the life and work of Lee Kuan Yew. You are going to be flabbergasted. I would be curious to know how you started your interest in Singapore and Lee Kuan Yew. Have you met Lee Kuan Yew in person? And if there is one thing the world could learn from Singapore, what would that be?

Charlie Munger: Well, Lee Kuan Yew had the best record as a nation builder. If you’re willing to count small nations in the group, he had probably the best record that ever existed in the history of the world. He took over a malarial swamp with no army, no nothing. And, pretty soon, he turned that into this gloriously prosperous place.

His method for doing it was so simple. The mantra he said over and over again is very simple. He said, figure out what works and do it. Now, it sounds like anybody would know that made sense. But you know, most people don’t do that. They don’t work that hard at figuring out what works and what doesn’t. And they don’t just keep everlastingly at it the way he did.

He was a very smart man and he had a lot of good ideas. He absolutely took over a malarial swamp and turned it into modern Singapore—in his own lifetime. It was absolutely incredible.

He was a one party system but he could always be removed by the electorate. He was not a dictator. And he was just so good. He was death on corruption which was a very good idea. There’s hardly anything he touched he didn’t improve.

When I look at the modern Singapore health system, it costs 20% of what the American system costs. And, of course, it works way better than our medical system. That’s entirely due to the practical talent of Lee Kuan Yew. Just time after time, he would choose the right system.

In Singapore, you get a savings account the day you’re born. If you don’t spend the money, you and your heirs get to spend it eventually. In other words, it’s your money. So, to some extent, everybody buying medical services in Singapore is paying for it themselves. Of course, people behave more sensibly when they’re spending their own money.

Just time after time he would do something like that. That recognized reality and worked way better than what other people were doing. There aren’t that many people like Lee Kuan Yew that have ever lived. So, of course, I admire him. I have a bust of Lee Kuan Yew in my house. I admire him that much.

Sometimes Munger’s harsh rationality has an edge that makes me a little uncomfortable. The unabashed admiration of Singagore’s Lee Kuan Yew is an aspect of that. I’ve never visited Singapore. I’d like to, and see these weird tree buildings and eat the street food. In my travels I’ve met several people from Singapore. What discussion we had of Lee Kuan Yew was pretty ginger, because I’m too ignorant to have much of an opinion, because it’s polite to be sensitive when discussing another country’s main founding guy, and because, well, I get the sense in Singapore you don’t really criticize Lee Kuan Yew. Though LKY is dead, his eldest son is still in charge. That sense that we’re dealing with a bit of an authoritarian is what makes me uncomfortable.

Thomas Meaney has a review of Michael Barr’s history of Singapore in the LRB which gives me just the kind of context I need.

Lee Kuan Yew, by contrast, made no such attempt. ‘That’s the end of the British Empire,’ he told one of his classmates at Raffles College when the first blasts were felt over the city. Lee, then in his late teens, not only learned Mandarin and Japanese during the occupation, but worked as a translator of Allied news reports for the main Japanese propaganda bureau in the Cathay Building. A few floors down, Yasujirō Ozu, freshly arrived in Singapore, produced propaganda about the Indian National Army’s fight against the British Empire. ‘The three and a half years of Japanese occupation were the most important of my life,’ Lee wrote in his memoirs. He admired the ruthlessness of the Japanese, and believed it had toughened up his generation. The efficiency of their brothels impressed him. Spotting the head of a Chinese looter hanging from the marquee of a movie theatre, he thought: ‘What a marvellous photograph this would make for Life magazine.’

how about this?:

The key was to make Singapore appealing to US investment by ensuring laws favourable to corporate capital, and prioritising economic prerogatives over political freedom. With no local capitalist class to discipline the workforce, independent Singapore resorted to what Christopher Tremewan calls ‘forced proletarianisation’. The city-state’s notorious public order laws – lashes and prison for spitting, graffiti and public urination; swift execution for drug possession – were part of a breakneck effort to make Singapore’s citizens the most cowed and reliable semi-skilled workforce in Asia. ‘Disneyland with the death penalty’ was the way William Gibson described it. Free hospital care – which scandalised Milton Friedman when he learned of it – was ended. Lee consolidated all the trade unions into a single union under his control. With the Central Provident Fund, he could force workers to save part of their salaries for retirement, adjusting amounts at will, which allowed him to raise and lower wages in co-ordination with the needs of foreign industry. American corporate elites marvelled at such a partner. Lee personally escorted visiting CEOs around the island. The result was a boom of massive proportions, with Singapore leading the region in electronics assembly, ship repair and food processing. Full employment was achieved within a decade.

I don’t want anyone making me cowed, even if I am at best semi-skilled.

Here is Balaji Srinivasan on the Tim Ferriss podcast, articulating why CEO types seem to like LKY so much:

What Lee Kuan Yew did, really, the reason I think he’s so important, is I think he’s a piece of the 21st century that fell into the 20th, to paraphrase. Basically, I think he was the first startup CEO of a country, of a city state. And I think we’ll see a thousand more like him.

So he’s a very important person to study, his life and history, because here’s the thing: he did what he did with minimal coercion. He’s not famous for winning some giant violent conflict. He’s not famous for some activist movement. He stands for delivering results. That’s actually really, really interesting. He’s famous for boosting prosperity and zero-to-one-ing a society. He was really a lion, really a great guy.

But what about the collaborating with the Japanese?

In any case, I am trying to figure out what works in my own life, and do it. Munger’s right, it’s not that easy! Of course, there’s a question of how we’re measuring what works.” Posting thought-provoking stuff here on Helytimes works, that’s for sure, so I’ll keep doing it. Let us know what you think! We’re working to keep the posts “medium length.”


Canadian Pacific and Kansas Southern

Terry Cantrell for Wikipedia

Canadian Pacific Railway Limited and Kansas City Southern today announced they have entered into a merger agreement, under which CP has agreed to acquire KCS in a stock and cash transaction representing an enterprise value of approximately USD$29 billion1, which includes the assumption of $3.8 billion of outstanding KCS debt. The transaction, which has the unanimous support of both boards of directors, values KCS at $275 per share..

Following the closing into a voting trust, common shareholders of KCS will receive 0.489 of a CP share and $90 in cash for each KCS common share held.

so reports Business Wire.

Some thoughts:

  • Kansas Southern has one of the most compelling color schemes in railroading, a field noted for compelling color schemes.
  • Arthur Stilwell founded Kansas Southern.

His writing attracted attention because in them he maintained that he had based many of his life and business decisions on the whispers of what he called fairies or brownies. In his memoirs published in 1927 he reframed this as hunches.

He also founded Port Arthur, Texas.

  • CP CEO Keith Creel is a protege of Hunter Harrison, the king of railroad executives. He seems to have a reputation as a very effective railroad runner.
  • The map of the combined rail lines is so pleasing. Imagine one unified train line from Vancouver to Mexico City
Combined Network Map: Creating the First U.S.-Mexico-Canada Rail Network (CNW Group/Canadian Pacific)
  • The merger has to be approved by the Surface Transportation Board, as well as Mexican regulators. I know very little about the Surface Transportation Board. From FreightWaves:

“The regulatory consideration is an important one because in 2016, during CP’s attempted takeover of Norfolk Southern (NSC), the attempt ended after heightened scrutiny from the Obama administration on antitrust issues,” said Deutsche Bank analyst Amit Mehrotra. “But we note at that time NSC rejected CP’s offer, whereas [this] announcement is a friendly deal, and KSU is only about one-fourth the size of NSC from a revenue standpoint — i.e., pro forma for the deal CPKC will still be the smallest Class I rail.” CPKC stands for the name for the new company.

from High Plains Journal:

Some rail analysts have said STB approval is more likely because in this case, there is no overlap in the route networks that would be merged. “Whenever a merger or acquisition is proposed, red flags are particularly raised among customers when the two companies have a similar geographical footprint. This does not guarantee that significant portions of service will be disbanded or eliminated, but it often portends that,” said Steenhoek.

However, he added, “As one can see from reviewing the current Canadian Pacific and Kansas City Southern network maps, the two railroads currently have very little service overlap. This provides some degree of encouragement among customers–including agricultural shippers—that this particular proposed merger may result in increased service options.”

I see here an estimate of the chance of the deal going through at 67%

  • some financial analysis of the deal.
  • Today, Tuesday March 30, you can buy a share of KSU for $258.76. If the deal goes through, you will get .489 share of CP plus $90, something like $275. An 8% gain after about a year and a half. That may not be especially attractive, with your money tied up for awhile, most of the investors I can find who analyzed it on Twitter pass. But, the puzzle of calculating and weighing the risk reward there and comparing to other alternatives is kind of interesting. If the deal doesn’t go through, you’d still own part of an obviously valuable railroad network. It’s hard for me to think of a better example of an economic moat than an enormous railroad with no competition. Anyway, I’m not giving financial advice, I just like thinking about this magnificent railroad!


humorous chart

from The Wall Street Journal, “Robinhood Trader’s Battle Cry: ‘It’s All Just a Game to Me’,” Intelligent Investor column by Jason Zweig.

If this is what the charts and information are, can you blame these bros for ignoring?

(actually, very good analysis in the piece, respect for Zweig, I understand he is being semi humorous:)

As of March 23, 95.9% of the slightly more than 3,000 stocks in the Wilshire 5000 Total Market Index had a positive total return over the prior 12 months, according to Wilshire. No other one-year period has come close to that since the end of February 2004, when 93% of stocks had positive 12-month returns.

You could have made good money even with bad stock picks. It was like being invited to bet on black, without limits, at a roulette wheel on which 37 of the 38 pockets were black.


NFTs, digital artifacts

Somebody asked me* if I have any opinion on NFTs, or if I’d be doing an episode of Stocks: Let’s Talk about them. Truth: I do not understand them. I’m trying to gain insight. Why you’d pay lots of money for “ownership” of a digital artwork, or even stranger, pay $2.9 million for “ownership” of Jack Dorsey’s tweets, I don’t get. I’ve read through a lot of message boards and arguments that tend to cycle through the same stuff:

  • why would you own something anyone can look at?
  • well what about “owning” the Mona Lisa, anyone can look at that but it’s still valuable?
  • why would you need to “own” a Picasso, just for bragging rights, this is same as
  • what about Walter Benjamin’s “aura”?
  • there’s too much money around
  • the art market has always had an element of money laundering
  • it’s a speculative bubble, it’s like the Dutch tulip craze (contra: we don’t understand the Dutch tulip craze, there was no Dutch tulip craze)

Here’s my one attempt at an original thought, or at least a thought I haven’t seen before: what if people are speculating is that these early NFTs (Beeple’s art, or Jack Dorsey’s tweet) will someday be valuable as digital artifacts, as early works from a new scene, or even a new kind of art?

There’s a scene in the movie Basquiat where Andy Warhol (David Bowie) flips through some postcards offered by Basquiat. I’ve watched that scene and thought, damn, a Basquiat has sold for $110.5 million, if you had just one of those postcards from back then you could at least trade it for enough cash to buy a sweet beach house!

I’ve also pondered in idle moments whether Madonna, who dated Basquiat, has more wealth in the form of Basquiat paintings than she does in her own music catalog. Surely it’s possible she has four or five of her ex-boyfriend’s paintings lying around, which could equal $100 mill easily. (Worse, what if she destroyed them in a fit of grief or jealousy?)

What if people are just betting that the NFT, or the ownership of the image of a tweet, or something, will someday be valuable just as an artifact or sample from this insane time, a time that was pretty interesting in terms of its invention?

The authentication of art has always been an issue, and a challenge. Consider John Berger talking about how much time is spent proving a Leonardo is a Leonardo at the National Gallery:

The Museum of Fine Arts in Boston has so many Impressionist paintings they don’t know what to do with them all, they’ve got a Van Gogh they keep in storage.

At the time the MFA’s greatest patrons were acquiring art, a Van Gogh wasn’t even that valuable. What was considered valuable art at that time, I once asked a curator there? Stuff like this, she said:

Maybe this is all just marketing spend for crypto/blockchain speculators, as someone suggested somewhere, I can’t remember.

Art speculation is hard! My guess is that NFTs will end up about as valuable as a complete set of 1986 Topps baseball cards, which I once speculatively bought myself as a youth.

Good luck to all the players.

*always funny when someone uses “since people have asked” or “someone asked me” as a setup for writing. In this case I swear I being honest! It was Eben!