"You knew this day was coming"

The already complicated accounting and business logic of Tesla is about to get even weirder.

Tesla? TESLA? BITCOIN!!!! Let's face it: you knew this day was coming. $TSLA $BTC https://t.co/jDJi0Y3v4P

— Charley Grant (@CGrantWSJ) February 8, 2021

From Grant in the WSJ:

Tesla Buys $1.5 Billion in Bitcoin: What Could Possibly Go Wrong?

GameStop mania was a wake-up call, but now the capital markets have truly reached ludicrous mode.

Electric-car maker Tesla said in a securities filing Monday that it has purchased $1.5 billion worth of bitcoin and that it expects to begin accepting payment in the cryptocurrency for its products in the future. Tesla shares and bitcoin both traded higher after the announcement. This follows social media posts by the auto maker’s influential boss, Elon Musk, that already had helped drive bitcoin’s price to a record. The announcement added roughly $100 billion to the combined market value of bitcoin and Tesla on Monday.

The investment is more than symbolic for the company, being equivalent to Tesla’s research-and-development tab for 2020. And while uniting two of the most popular investment themes under one roof is undoubtedly a winner today, the decision introduces even more risk to owning what is already one of the most speculative stocks of the current bull market.

As Tesla itself said in the filing, prices for digital assets such as bitcoin have been volatile in the past. Cryptocurrencies are a fairly recent development and their long-term adoption by consumers, investors and businesses is highly uncertain. That adds to the speculative fervor already gripping Tesla’s stock price in a feedback loop. Indeed, the manager of the most popular active fund recently, Cathie Wood of ARK Invest, has made big bets on both Tesla and a trust that owns bitcoin, fueling a record pace of inflows.

At a market value of about $800 billion, Tesla trades at about 6.5 times the combined value of Ford and General Motors , despite controlling a small fraction of the global auto market. And Tesla lately has been losing market share in Western Europe to competitors including Volkswagen , which has begun to compete aggressively in the electric category. The news of Tesla’s bitcoin investment eclipsed a negative headline for the company Monday about quality issues identified in the important Chinese market.

LA Times tweet repeat for morning readers: Musk, crytpo, financial speculation, methane drilling, private jet travel, carbon footprint, sustainable energy, mixed messages. https://t.co/5pJifejBcq

— Russ Mitchell (@russ1mitchell) February 9, 2021

Here's Mitchell:

Beyond financial considerations, there’s the question of how promoting and profiting from Bitcoin squares with Tesla’s stated mission, the advancement of sustainable energy, given the enormous amounts of electricity required to support the computing power involved.

A study published by science journal Joule said cryptocurrency computers pumped about 23 megatons of carbon dioxide into the atmosphere in 2018. Much of that is due to so-called cryptocurrency mining, in which massive banks of computers are used to solve the math equations that yield new coins. That’s attracted miners worldwide, many in regions mainly dependent on coal for electricity, although Iceland, where electricity is generated by cheap, clean hydropower, has become a center for cryptocurrency mining.

Those crypto-emissions are equivalent to the CO2 spewed by well over 4 million gas-powered cars each year. (According to U.S. government statistics, a typical internal combustion passenger vehicle emits 4.6 metric tons per year.)

The environmental issues sparked some backlash on Twitter. “Are ESG funds still able to invest ... after this?” said Harper Reed, an entrepreneur who helped Barack Obama win the presidency as the campaign’s chief technology officer. ESG stands for environmental, social and corporate governance, a hot new category for mutual fund and exchange traded fund investing.

And Hiltzik: 

Tesla’s Bitcoin announcement happened to coincide with a couple of doses of bad news for the company.

One was a Feb. 6 report in the Global Times, an English-language publication of the Chinese Communist Party, that the Chinese government had upbraided Tesla for lapses in quality control and consumer relations in China. That’s a concern because Tesla has enjoyed a very favorable relationship with the Chinese government, so far.

“Tesla has shown respect for the potential of the Chinese market, but not the same level of respect is given to Chinese consumers,” the publication reported, citing “analysts.”

The second was a report from German sources that the company’s German car and battery factories were facing months of construction delays, as well as reduced government subsidies for the battery plant.

Jamie Powell writing for FTAlphaville:

    The only certainty here, however, is that it will make Tesla’s GAAP profits, both pre- and post-tax, even further detached from reality than they were before. FT Alphaville notes that the company’s bottom line has been heavily distorted by the pure profit zero emission credits it sells to other auto companies, and wild swings in the price of bitcoin are only going to make unpicking the accounting reality from the headline numbers even harder. Particularly if the company does realise any gains from selling bitcoin to offset losses from its core business lines. A decision that could be taken by the company once it’s clear how a quarter’s numbers are going to pan out.

FT Alphaville isn’t sure what to make of this episode bar the fact its yet another distraction from Tesla’s ongoing struggle to make its core automotive business consistently profitable.

But then again, perhaps that’s the entire point.

HODLing with diamond hands

We've previously discussed how many of the Davids in the GameStop saga were crushed as badly as the Goliath was because they seemingly did not grasp the fundamental strategy of a short squeeze. If you know someone is legally obligated to purchase a stock or commodity and you can corner the market, you can sell at wildly inflated prices before the bottom falls out.   

It is a classic get-in, get-out play, but many of the investors who drove the squeeze are shocked and angered at those who sold at the peak. They often seem to be operating under the assumption that the idea was to lift the company's valuation to a new plateau and it was only the panic selling of the fainthearted that ruined the plan. 

Perhaps, though, there's more here than just misunderstanding. The very culture of what we might call, without too much exaggeration, this cult with its emphasis on fearless risk-taking and diamond hands (holding onto investments despite devastating losses) goes against the nature of rational investing. For an interesting parallel with the similar and often overlapping population of crypto traders, consider HODLing. 

Izabella Kaminska writing for FT Alphaville.

Since its biggest existential threat is anything that confirms the view its value may be anything but moon-landing exponential — such as market price corrections or whale-scale liquidations — that ritualised response became the “HODL”.

HODL harks back to the dark days of 2013, when the price of bitcoin had a tendency to go down as well as up. In one particular panic-stricken moment, the bitcoin faithful — gathered as usual in their online chat forums — took towards outlining their coping strategies for what in hindsight became known as one of the greatest testing periods of the early adopter faithful.

This is where the HODL was born.

“I AM HODLING” — wrote one particularly distressed disciple.

Whether the spelling mistake was intentional or strategic is unknown. What matters is that the context of the post struck a cord with the community.

WHY AM I HOLDING? I’LL TELL YOU WHY. It’s because I’m a bad trader and I KNOW I’M A BAD TRADER. Yeah you good traders can spot the highs and the lows pit pat piffy wing wong wang just like that and make a millino bucks sure no problem bro.

[…]

I’m not part of that group. When the traders buy back in I’m already part of the market capital so GUESS WHO YOU’RE CHEATING day traders NOT ME~!

It wasn’t, however, until the arch nemeses of all bitcoiners, the “nocoiner” Buttcoiners, stumbled upon the hilarious turn of phrase and began using it satirically that the phrase became a truly defiant battle cry for the long-only community.

HODL, however, is not a simple recasting of a buy-and-hold strategy. It’s much more than that. It is a cultic philosophy representing the greater strength of mind of the average bitcoin devotee compared to the flaky conventional day-trader.

Nowhere is this strength of mind better represented (especially in the face of a spiteful bear attack) than in the meme culture that accompanies it.

Defiance went in one fell swoop from (source: the internet):

… to:

Resistance, bravery and collective action in the face of panicked selling is exactly what HODLing is all about.

Gloating over Pyrrhic Victories

It will be a long time until the smoke clears enough to tell exactly who the winners were in the GameStop bubble, but it's not too early to spot some clear losers in this hybrid short squeeze/pump-and-dump. The Goliath of the story, Melvin Capital, lost tremendous amounts of money, but many, perhaps most, of the small investors swept up in the storm seem to have badly mistimed the spike and in some cases misunderstood the whole point of engineering a short squeeze was to sell on the peak.

As discussed previously, most small investors who followed the WallStreetBets mantra of go big and hold firm when the stock starts to dive appear to have taken horrible losses, which makes this latest development all the more bizarre and yet perfectly in keeping with the GameStop saga.

The spot that aired during the big game ran for only five seconds, consisting simply of a message paying tribute to the users involved in the GameStop stock frenzy.

Several users from the subreddit r/WallStreetBets helped rally shares of GameStop and other companies such as AMC this year, burning hedge funds who were trying to short sell the stock.

"Wow, this actually worked," reads the title of the ad, which broke into what looked like a car commercial with what resembled a post on Reddit's website.

"One thing we learned from our communities last week is that underdogs can accomplish just about anything when they come together around a common idea," reads an excerpt of the Reddit message. "Who knows, maybe you'll be the reason finance textbooks have to add a chapter on 'tends.' Maybe you'll help r/SuperbOwl teach the world about the majesty of owls."

If you want to watch for yourself, Reddit posted the ad on its Twitter account.

Elon Musk got what he really wanted out of the GameStop bubble and he didn't have to invest a penny

 

Gamestonk!! https://t.co/RZtkDzAewJ

— Elon Musk (@elonmusk) January 26, 2021

Here come the shorty apologists
Give them no respect
Get Shorty

— Elon Musk (@elonmusk) January 28, 2021

The practice of shorting stocks has been getting a lot of heat recently from across the political spectrum, much of it revealing a profound misunderstanding of how betting against the market works and why it's not a bad thing. Here Michael Hiltzik covers the basics.

How short selling works

A quick primer on short selling is perhaps in order here.

Short sellers honor the Wall Street mantra to buy low and sell high, but they do so in reverse order. First, they sell high, by borrowing stock from shareholders and selling it. Second, they buy low, by picking up shares at a lower price and returning them to the lenders.

Obviously, for this method to work, the shares must decline in price. That’s what short sellers are betting on. So they’re constantly searching for companies that are overvalued, whether because their business models have flaws unsuspected by investors, or they’re havens for fraud (think Enron), or any other reason.

This makes shorts very unpopular among corporate managements, which prefer that the investment community focus on their upside and swallow their optimistic press releases uncritically, rather than pointing out the downside.

Some executives get downright childish about it, such as Elon Musk, who revels in how shares in his Tesla electric car company have remained buoyant despite short sellers pointing out that it makes money not by selling cars but by trading auto emission credits.

Musk and other executives love to portray short selling as almost un-American.

I’ve taken it upon myself to defend them on numerous occasions, including back in 2014 when a respected Washington financial columnist joined a biotech company named Northwest Biotherapeutics in accusing, without a shred of evidence, a very good financial writer of conniving with short sellers to drive the company down.

Northwest was trading above $5 a share then; it’s now at $1.40 and its future was still in doubt a few months ago, so the short sellers were right to be skeptical.

In truth, short selling is not only proper but also essential for the smooth functioning of the financial markets. As I’ve explained before, although corporate managements believe that unalloyed investor optimism is nirvana, it’s unhealthy for capitalism, just as living on a diet exclusively of Twinkies would be for human beings.

Short sellers counteract this tendency. Shorts sounded early alarms about Enron and many other companies destined for collapse in ways that the investment world didn’t expect. Without shorts, not a few frauds would have continued, costing investors millions more than they did.

 

Musk has been relentless and (by proxy) vicious not just with investors who short his stock but with anyone he considers their allies.

Here's Felix Salmon:

With more than 22 million followers, Elon Musk knows exactly what happens when he uses his enormous Twitter bully pulpit to bully female journalists. Science writer Erin Biba, for one, has made that abundantly clear, with the story of what happened when he merely replied to one of her tweets.

Which is to say: If you don’t have a strong stomach, don’t look at Business Insider reporter Linette Lopez’s @-replies right now. Musk did much more than just reply to one of her tweets: He has gone on a veritable Twitter rampage aimed at her. A smattering:

@lopezlinette has published several false articles about Tesla, including a doozy where she claimed Tesla scrapped more batteries than our total S,X &3 production number, which is physically impossible.

— Elon Musk (@elonmusk) July 5, 2018

This is worse than just stalking: Musk is setting his army of fanboys loose on Lopez, he’s retweeting stuff they find, and he’s encouraging them every step of the way. Milo Yiannopoulos was banned from Twitter for setting mobs upon his enemies; Musk should be banned too, but won’t be.

Musk’s harassment of Lopez is obsessive and deranged, to the point at which it should worry every shareholder of any company where he serves as CEO. But since even former journalists seem to think that somewhere in the madness there’s a legitimate beef, let’s put that idea to rest. Lopez has been reporting aggressively on Tesla for a while; her sources include Tesla whistleblower Martin Tripp, whom Musk considers a saboteur for talking to the press. Lopez has also, in the past, written about Jim Chanos, a dogged investor who is shorting Tesla stock.

Chanos talks to many financial journalists—he was famously a key source for Bethany McLean when she was writing the story that brought down Enron—and sometimes he even hires them to leave journalism and make more money doing private research into companies.. Financial journalists and short sellers are in many ways kindred spirits; they both like uncovering companies’ dirty secrets. And here we get to Musk’s beef with Lopez: He’s accusing her as “serving as an inside trading source” for Chanos. This makes no sense.

...

The weirdest part of all this is that Musk is on an anti-short-selling rampage at all. Tesla is one of the most-shorted stocks in America, and that’s great for Tesla’s share price: The more shorts there are, the more upward pressure there is on the stock. Shorts only depress a share price when they sell; once you’ve gone public as having a substantial short position, the rest of the market will try to make your life as painful as possible by bidding the stock up. Whatever damage that Chanos has done to Tesla’s share price is in the past; at some point, he will have to exit his position by buying back Tesla stock, and that’s going to help drive the price upwards. Musk should be ecstatic!

It's entirely possible that Musk simply doesn't understand how shorting works -- his appearance of expertise in fields like engineering, AI, manufacturing, and recently medicine and epidemiology has a long history of dissipating the moment he goes off script -- or he might believe, quite reasonably that increased scrutiny of Tesla is not in his best interest.

Whatever his motivation, Musk has spent years mocking and demonizing shorting of Tesla in particular and of stocks in general. He's been remarkably successful persuading his followers, but the GameStop bubble has taken things much further, badly burning investors who shorted this and other stocks and convincing a large part of the public that there's something evil about the very idea of shorting.

u can’t sell houses u don’t own
u can’t sell cars u don’t own
but
u *can* sell stock u don’t own!?
this is bs – shorting is a scam
legal only for vestigial reasons

— Elon Musk (@elonmusk) January 28, 2021

 Side note: Tesla routinely makes sales then informs buyers that their car isn't ready. We won't even get into the practice of taking deposits on products that don't exist.

If you haven't seen this clip, you really need to check it out.

 I've included two versions from two very different sources. The Colbert version has more interruptions but also includes more of the actual interview.

Beyond its considerable amusement value, the clip also demonstrates how the sudden appearance of legal consequences (after decades of freedom from any form of accountability) is upending the model of conservative media.

Jesus Christ, the Virgin Mary and Tesla chief executive Elon Musk, with GameStop’s logo shining above them."

As mentioned before (see here, here and here), the standard democratization of Wall Street/little guys beat the big boys at their own game narrative never made much sense. Even viewed as zero-sum game, there were always more players at the table than just the hedge funds that went short and the traders on r/WallStreetBets. Certain hedge funds took horrendous losses in the massive short squeeze but on the other side of those trades were many investors like these two who went deep into a once and future five dollar stock when it was trading at somewhere between ten and one hundred times its likely post bubble value. Note how the second trader has not only wiped out his savings but is risking being fired by "sacrificing sleep and calling in sick to work."

 Drew Harwell writing for the Washington Post.

Evan Oosterink, a 19-year-old college student in the Netherlands, knew almost nothing about GameStop when in December he chose the company for one of his first big stock-market bets, calling it some kind of “American games shop where you can get all your games,” he said.

But his favorite Reddit forum, WallStreetBets, was increasingly obsessed with it, casting it as a way to crush billionaires, move the market and profit heavily in the process. Energized by its rising price, Oosterink said he invested another 8,000 euros last month — nearly $10,000, mostly from years of savings from his parents and some government college loans — leaving only about 30 euros in his personal account.

Had he sold last week, he could have pocketed a typical American’s annual salary. But as the stock has crumbled, he has turned to the forum for reassurance, posting a screenshot from his online-banking app showing the day’s losses, totaling about $9,000. He said he was “deep in losses but holding will prevail,” and included the emoji for a rocket and “diamond hands,” the forum’s lingo for not selling when a stock nose-dives.

“Being a part of WallStreetBets, it’s like a religion you’re devoted to,” he said on a Tuesday phone call from his parents’ home, where, in his bedroom, he has hung up a printed-out meme image featuring Jesus Christ, the Virgin Mary and Tesla chief executive Elon Musk, with GameStop’s logo shining above them.

“There’s this enormous power driving WallStreetBets, this energy: ‘Hold the line. We aren’t giving in. We aren’t giving up. We are in for that ride to that moon,’ ” he said, reiterating several of the forum’s catchphrases. “That is the power that keeps everyone holding their shares.”

______________________________________

Several other WallStreetBets believers said they aren’t budging, regardless of the damage. The Reddit poster Volkswagens1, who declined to give his name but said he lives in the Pacific Northwest, showed The Washington Post an image indicating roughly $400,000 in potential GameStop losses from the day but insisted he would not sell.

He said he has “been poor for too long” and works “a god awful amount of hours for a garbage company” and sees betting on popular “meme stocks” as a way to potentially strike it big.

“You can’t get good returns waiting on garbage stocks to increase. Who wants to invest in some boomer a-- SEARS or Macys stock, just to watch it tank,” he said in a conversation on Reddit with The Post.

He said he’s poured most of his saving and checking accounts into the stocks and spent the last week “doing as much research as possible,” including sacrificing sleep and calling in sick to work, to make sure he was staying on top of the market’s moves.

“I’m slightly agitated, but in the end, its just a gamble and Im willing to risk it all,” he wrote. “Ill have diamond hands until the end.”

I do not understand US politics

 This is Joseph

Americans are a mystery. Consider this cunning plan to primary senators:

West Virginia Sen. Joe Manchin and Arizona Sen. Kyrsten Sinema — who aren’t up for reelection until 2024 — are the first Democrats on their target list, the left-wing strategists shared first with POLITICO. Chakrabarti and Trent are also former aides to Ocasio-Cortez.

Manchin and Sinema’s opposition to eliminating the legislative filibuster — which requires a 60-vote threshold for most legislation — is the main reason No Excuses is putting a call out for possible challengers. Progressives have increasingly pressed Senate Democrats and President Joe Biden to end the filibuster, arguing that in an evenly divided Senate it will be nearly impossible to find enough Republicans to pass major pieces of Biden’s agenda.

“The only real way to pressure any of these folks and hold them accountable to their promises is to threaten their power, and threaten the seat that they hold and threaten their reelection,” said Chakrabarti, who is also a former chief-of-staff to Ocasio-Cortez. “We sort of have this theory that the voters in Arizona and the voters in West Virginia would care more about action, they care more about jobs and their community and money in their pockets than they do about an arcane Senate rule called the filibuster.”

In an email to supporters Tuesday, the PAC will say, “Help us find the next AOC to replace Manchin and Sinema.” 

Like how is this supposed to work? Consider West Virginia where the only major statewide office held by a Democrat is held by Joe Manchin. It is 15 points more Republican than the nation as a whole. The election is not for another 4 years so primary threats ring rather hollow at the moment. 

Now let us compare to Alexandria Ocasio-Cortez's district: NY 14 went 72-27 for Biden in 2020. This was the same margin as Alexandria Ocasio-Cortez herself had. West Virginia went 69-30 for Trump (see the huge imbalance in the opposite direction). In 2018 it was Machin 49.6% to Morrisey 46.3%.

In other words, Joe Manchin massively outperforms the generic Democrat vote in WV. If you primary him with a strong progressive, that is the sort of person who will struggle to not be annihilated in the actual election. How does majority leader McConnell help matters at all? 

As an outsider, if you want to strengthen the progressive wing of the party then the place to go is the safe seats. For example, Diane Feinstein could be replaced by a much further left senator without running any serious risk of losing a California senate seat. Kamala Harris was viable in California and in no serious danger of being picked off. That makes sense as a primary target if shifting the senate to the left is the goal. 

But if you put in progressives in places they can't win (e.g., deep red states) then you risk replacing Joe Machin with somebody like Rand Paul or Josh Hawley. Do you think such a senator would break ranks with their party over the filibuster? Or that there would still be 50 votes if you picked off (selectively) the right wing democrats? 

Arizona is more complicated, as it has the potential to be a swing state and I am less willing to comment on that case, except to say that Kyrsten Sinema's filibuster position is currently moot unless Joe Manchin changes his mind. I don't know what benefit there is in forcing a senator to make a tough vote that could hurt them politically unless it actually has the potential to be decisive.

Edit: Mark points me to this post

All the little guys... you know... Fidelity, Vanguard, BlackRock

 The LA Times indispensable Michael Hiltzik points out yet another flaw in the popular David and Goliath take on the Gamestop story.

You say you want a revolution? 

What’s most amusing about the GameStop story, in a sad way, is the notion among small investors that they’re striking a revolutionary blow against the Wall Street establishment. 

“My goal isn’t to get rich on this, my goal is to bankrupt these billionaires,” says John Motter, an unemployed Angeleno who invested more than he received from the government’s coronavirus stimulus check in GameStop, as my colleagues Daniel Miller, Suhauna Hussain and Hugo Martìn reported. “I would buy magic beans on the street from a stranger if he said they had the potential to ruin a billionaire’s life.... A lot of people are really angry, and no one’s forgotten 2008.”

In fact, many on Wall Street are enjoying the ride, even as proxies for small investors. As of last March, the three biggest investors in GameStop were the investment management firms Fidelity, Vanguard and BlackRock, which combined owned more than 50% of the shares.

BlackRock reported that as of Dec. 31 it still owned 9 million shares, which means that over the last month the firm and its clients added about $2.1 billion to the value of their holdings (on paper).

It's like a David and Goliath story where David slays Goliath then Goliath falls on David crushing him to death

Or maybe David dies from friendly fire. I'll admit that I don't have all of the details of the analogy worked out but than neither have most journalists covering the story and that hasn't slowed them down.

One place where they do have a grasp of  the complexities is Marketplace. In particular, the weekly wrap does a good job taking apart the standard narrative. (You're probably already familiar with the excellent Catherine Rampell, but Linette Lopez is another journalist you should be following, especially if you like to annoy Elon Musk)

 

Please make it stop

This is Joseph

From the Washington Post:

Meanwhile, the inexorable arithmetic of dollars times demography has taken us past the point of no return. It’s no longer possible to say that, by starting now, we can avert massive, and massively unfair, changes in the promises we have made, or that current beneficiaries have nothing to worry about. That line was crossed even before the emergency budget blowout of 2020 added trillions to the debt tab we will dump on younger generations.

 Honestly, how do we even address this one? First, national debt includes investment (like purchasing a house) and debt used to increase investment can actually improve the long term fiscal outlook of the nation. Second, there is not a shortage of resources to pay for social security. Before you call this an question of all of the programs, note this piece:

A start on mitigation would be for the Social Security Administration to begin including in beneficiary bulletins a disclosure that, starting soon, the system cannot fulfill all of its commitments. The disclosure could then provide sample calculations of the amount of savings a given recipient will need to replace those expected payments under alternative scenarios.

This is not a "Medicare only" concern. But are we really, as a nation, incapable of generating enough wealth to pay social security benefits? By 2035 (somewhat of a demographic local peak), these benefits are projected to rise from 5% of GDP to 6.1% of GDP. But there is room for large tax cuts apparently, such as TCJA. Note that we could cover this entire gap by (for example) raising taxes to the levels of France or Germany. 

This is not to say that there are not risks in budget deficits. But these risks are just as real for tax cuts as they are for entitlement expenses. Similarly, the idea that you should never increase taxes is bonkers, but rather that this needs to be balanced. You could find the difference by dropping military spending to UK levels, for example, and still have revenue to spare. Or follow Matt Yglesias on the road to One Billion Americans, and drop the cost as a % of a much larger GDP. 

There are lots of decisions that can be made. Why are the retirement security programs always the first things on the chopping block? Because it looks like a declaration of values rather than a financial necessity. 

Be very wary of the standard Gamestop narrative

 We'll be coming back to the hopelessly wrong-headed short-seller take (when your arguments come from Elon Musk...), but you should also take a hard look at the "little guys beat the big boys at their own game" headlines. This spike certainly did screw over a multibillion dollar hedge fund, but that doesn't mean that the small retail investors are on the whole going to come out ahead on this. If this is a once and future $5 stock, it's safe to say that a lot of RobinHood traders will not (did not?) time the peak.

 Putting aside the complicated options discussion for a later time, we have reason to  believe that for every individual investor who bought at $20 and sold at $200, there are a few who jumped in after the stock had gone up 1,000%. 2021 is not likely to go well for the latter group.

 

Battlespeech pic.twitter.com/kiMV70O9qR

— Looposhi (@22loops) January 19, 2021

 

As always, for a smart take on a muddled story I recommend Hiltzik.

If I had waited three years, I would have had much better examples

 The big difference that jumps out at me comparing the view now and then is that in 2017 I felt compelled to make the case that the delusional fringe was big enough to threaten the GOP.

 

Tuesday, August 15, 2017

The GOP needs the crazies more than the crazies need the GOP.

The following is not really a voting paradox, but it is kind of in the neighborhood. You have three stockholders for a company. A holds 48% of the shares, B holds 49%, and C holds 3%. Assuming that any decision needs to be approved by people holding a majority, who has the most power? The slightly counterintuitive answer is no one. Each shareholder is equal since an alliance of any two will produce a majority.

Now let's generalize the idea somewhat. Let's say you have N shareholders whom you have brought together to form a majority. Some of the members of your alliance have a large number of shares, some have very few, but even the one with the smallest stake has enough that if he or she drops out, you will be below 50%. In this scenario, every member of the alliance has equal veto power.

I apologize for the really, really basic fun-with-math explanation, but this principle has become increasingly fundamental in 21st-century politics. At the risk of oversimplifying, elections come down to my number of supporters times my turnout percentage versus your number supporters times your turnout percentage. Arguably the fundamental piece of the conservative movement has been to focus on ways to maximize Republican turnout while suppressing democratic turnout. (Yes, I'm leaving a lot out but bear with me.)

There are at least a couple of obvious inherent dangers in this approach. The first is that there is an upper bound for turnout percentage. This is especially worrisome when the number of your supporters is decreasing. Sen. Lindsey Graham was alluding to this when he observed that they weren't making enough new old white men to keep the GOP strategy going.

There is, however, another danger which can potentially be even worse. When you need nearly 100% of your supporters to show up to the polls in order to win, you create a situation where virtually every faction of your base has veto power. One somewhat perverse advantage of the large base/low turnout model is that groups of supporters can be interchangeable. You have lots of situations where you can alienate a small segment but more than make up for it elsewhere. In and of itself, this allows for a great deal of flexibility, but the really important part is the power dynamic. You have to represent a large constituency in order to wield veto power.

Probably since 2008 and certainly since 2012, pretty much every nontrivial faction of the GOP has held veto power which means the question is no longer who has it, but who is willing to use it. The Tea Party was the first to realize this. Now the alt-right has caught on to the dynamic as well.

Even with increasingly aggressive and shameless voter suppression techniques, Republicans tend to get fewer votes. It is true that they have, through smart strategy and tactics, managed to get an extraordinary number of offices out of those votes, but it is a precarious situation. We can debate how many people really believe in shadowy Jewish banker conspiracies or Martian slave labor camps, but it is almost certainly a large enough group to sway some close elections if the crazies collectively decided to go home or, worse yet, opt for a third party.

Ed Kilgore (whom I follow and generally respect) had a badly ill-informed post Trump Should Emulate Buckley and Tell Racists: ‘I Don’t Want Your Vote.’ That simply won't work for Trump or the GOP. They need the crazies more than the crazies need them.

 

Smullyan's vampires and and insane humans might come in handy

Particularly at a time when identifying the truly crazy has become a high priority.

For those not familiar with the late, great mathematician-philosopher-magician's work...

Inspector Craig Visits TransylvaniaInspector Craig of Scotland Yard was called to Transylvania to solve some cases of vampirism. Arriving there, he found the country inhabited both by vampires and humans. Vampires always lie and humans always tell the truth. However, half the inhabitants, both human and vampire, are insane and totally deluded in their beliefs: all true propositions they believe false, and all false propositions they believe true. The other half of the inhabitants are completely sane: all true statements they know to be true, and all false statements they know to be false. Thus sane humans and insane vampires make only true statements; insane humans and sane vampires make only false statements. Inspector Craig met two sisters, Lucy and Minna. He knew that one was a vampire and one was a human, but knew nothing about the sanity of either. Here is the investigation: Craig (to Lucy): Tell me about yourselves. Lucy: We are both insane. Craig (to Minna): Is that true? Minna: Of course not! From this, Craig was able to prove which of the sisters was the vampire. Which one was it?— From Logician Raymond Smullyan

This may not be the perfect bitcoin story, but it's pretty damned close

This sort of thing happens more often than you'd expect... unless you've kept up with the crypto world, in which case this sort of thing happens exactly as often as you'd expect.

 From CNN:

 A British man who accidentally threw a hard drive loaded with bitcoin into the trash has offered the local authority where he lives more than $70 million if it allows him to excavate a landfill site.

IT worker James Howells got rid of the drive, which held a digital store of 7,500 bitcoins, between June and August in 2013. He had originally mined the virtual currency four years earlier when it was of little value. 

But when the cryptocurrency shot up in value and he went in search of it, he discovered that he had mistakenly thrown the hard drive out with the trash.  

Now, with his lost bitcoin having soared even further, Howells has approached Newport City Council in Wales to ask for permission to dig a specific section of the landfill site where he believes the hard drive ended up. 

...

"The value of the hard drive is over £200m (around $273 million) and I'm happy to share a portion of that with the people of Newport should I be given the opportunity to search for it. Approximately 50% would be for investors who put up the capital to fund the project, and I would be left with the remaining 25%," he added.

Of course the city, realizing the vanishingly small likelihood of finding and retrieving data from a hard drive thrown away almost seven years ago, has chosen not to approve this, but hope is not yet lost for Howells. Fortunately for him, the kind of people who would invest millions in a bitcoin scheme seldom have a really strong grasp of the concept of expected value.

"So it would appear that, in August of the election year, we have a political party not so subtly suggesting that its nominee should drop out."

I had forgotten about this bit of wishful thinking from the GOP almost five years ago.

 

Thursday, August 4, 2016

"On any other day, that might seem strange"

[I didn't realize it until I started doing the background reading, but the parts about the Collegiate Network fit nicely with the origins-of-conservative-media-in-the-seventies thread that started yesterday and will continue when I get around to commenting on this.]

If, like me, you're spending way too much time on political news lately, you certainly heard about this report from ABC's Jonathan Karl:

Republican officials are exploring how to handle a scenario that would be unthinkable in a normal election year: What would happen if the party's presidential nominee dropped out?

ABC News has learned that senior party officials are so frustrated — and confused — by Donald Trump's erratic behavior that they are exploring how to replace him on the ballot if he drops out.

As the reliable Josh Marshall has pointed out, there is no direct evidence from the Trump camp that the candidate has any thoughts of dropping out. These rumors look something like trial balloons, albeit an odd one, since the event in question is unlikely and, more to the point, the people floating the balloon have no say in whether it happens.

Rather than speculate on the intent of the message (hint, empty threat, groundwork for intervention, blowing off steam -- I'm kidding about that last one), I think it's more interesting to think about the path this and other stories take to get to our news feeds. In situations like this, the source of the rumors is often more telling than the content. In this case, that would be Karl, and that is remarkably informative.

Karl is not just a conservative journalist, he is a carefully cultivated product of a decades-long, highly successful conservative movement media initiative.

The Collegiate Network (CN) is a non-profit tax-exempt 501(c)(3) organization that provides financial and technical assistance to student editors and writers of roughly 100 independent, conservative and libertarian publications at leading colleges and universities around the United States. The CN estimates that member publications have a combined annual distribution of more than two million[citation needed]. Since 1995, the CN has been administered by the Intercollegiate Studies Institute (ISI), headquartered in Wilmington, Delaware

...

In 1979, the Institute For Educational Affairs (IEA) responded to the request of two University of Chicago students for start-up funding for a new conservative newspaper, Counterpoint. By 1980, the grant program had been expanded and named the Collegiate Network, and by 1983, under the continuing administration of the IEA, had added both internships and persistent operating grants for conservative campus newspapers. In 1990, the Madison Center for Educational Affairs merged with the IEA to maintain funding for what had expanded to 57 conservative student publications. The Intercollegiate Studies Institute took over operations in 1995 and has since administered the CN from Wilmington, Delaware.

Take a look at a few of his fellow alumni: Matthew Continetti, Ann Coulter, Dinesh D'Souza, Laura Ingraham, Rich Lowry, John Podhoretz, Ramesh Ponnuru, and Peter Thiel.


Here's a characteristically blunt take on the relationship from Charles Pierce back in 2013:

Long ago, Congresswoman Marcy Kaptur of Ohio once told me that she thought my craft went bad when it became the province almost exclusively of the over-educated, that it had professionalized itself out of its traditional role, that she wished there were a few more people practicing journalism who'd first worked on a loading dock, or in a mine, the way people used to come to the job. Here, with Karl, we apparently have a perfect product of the well-financed and staggeringly successful network of conservative institutions and programs launched more than 40 years ago by The Powell Memo. Assuming the FAIR report is accurate, then Jonathan Karl was not trained as a journalist, because the Collegiate Network doesn't produce journalists. It produces partisan warriors. He was not trained as a reporter, because the Collegiate Network doesn't produce reporters. It produces propagandists. He was not trained as a newsman, because the Collegiate Network doesn't produce newsmen. It produces hacks.

This is, of course, indelicate for someone in my business to say but, at every level of his steady rise in the business, some executive should have looked at Karl's resume, seen The Collegiate Network there, and then shitcanned the thing before the interview process even began. Are there conservatives who are good reporters? Absolutely. But all the ones that I know came up the same way I did, and none of them came up through the coddled terrariums of the activist Right. They learned their craft. They were not trained to be spies in the camp of the enemy. They were not trained to be moles. And every damn one of them would have checked those phony e-mails before throwing them out to the public, and most of them wouldn't have fallen for them, because they are journalists, reporters, and newsmen. They are not partisan warriors, propagandists, or hacks. If Jonathan Karl doesn't like being called a hack, then he should stop being a hack. Here's one way to do it.

Like many successful journalists including Woodward and Bernstein, Karl's career is largely based on his close relationship with a network of well-placed contacts. In this case, the contacts are overwhelmingly in the Republican Party and the conservative movement. At the risk of putting too fine a point on it, when Jonathan Karl breaks the story, it is usually something that the leadership of the GOP would like to get out there.

So it would appear that, in August of the election year, we have a political party not so subtly suggesting that its nominee should drop out. Even if nothing comes of it, that is an extraordinary development.

But these  are strange times.