Wednesday, April 5, 2023

Technical difficulties

Blogger's been playful today.  (Apparently the confirm button is now optional)

Posted by at No comments:

My apologies to Popehat (Ken White)

This is Joseph.

One thing that I often used to say was that Canada's limits on free speech showed how you could have a well organized country in which speech was limited. Some recent examples have made me a bit less enthusiastic. Let us start with the big one.

In 2015, an OPP officer was charged with drug trafficking. In 2018 he was convicted  He is still on the OPP payroll to this day, because of reasons shielded by privacy:
This was initiated on Nov. 14, 2018, but the hearings were “delayed multiple times,” OPP spokesperson Bill Dickson said Friday. The process continued until November 2022 when the adjudicator sided with the OPP and ordered Redmond be dismissed.
Citing privacy concerns, Dickson wouldn’t elaborate on the nature of the delays.
He was then charged with sexual assault on Oct 15, 2021 and even now:
. . . is still facing “17 additional serious criminal charges including assault, aggravated assault, assault with a weapon and others in connection with multiple victims.”
What is chilling is how often these failures have been shielded by press blackouts, which reduced the pressure to do something and failed to bring attention to how the Ontario Provincial Police are completely incapable of pursuing consequences for bad behavior.


Meanwhile, the premier of Alberta is threatening a defamation suit. For accurate reporting on what she actually did. I will outsource this one:


Now the issue is that she may have been speaking poorly, a defense raised by Jen Gerson:
Complicating matters is that Smith at this time had an embarrassing habit of publicly conflating Crown prosecutors — ie; "our prosecutors" — with justice department officials. This point was noted by columnist Lorne Gunter; it's therefore not entirely clear whether Smith is telling Pawlowski that she is poking members of her own justice department (which could be appropriate, if ill-judged) or individual Crown prosecutors overseeing COVID files (which would be entirely out of line.) 

But how can it be helpful for the reporting on an actual recording to be a part of a defamation suit? This could so easily have a chilling effect on legitimate reporting and is clearly a point of public interest. 


So  maybe the first amendment, with all of its flaws, has some benefit for government accountability? 



Posted by at No comments:

Tuesday, April 4, 2023

2022 was a bad year for conventional wisdom [Trump/DeSantis edition]

August, 2022

 Hear Me Out: Trump Won’t Run Again by Jeremy Stahl writing for Slate.

April, 2023

 DC Insiders and GOPs Wake Up and Smell the Coffee by Josh Marshall

It seems like the whole political world is waking up to the reality that absent some dramatic and unlikely new development, the 2024 GOP primary isn’t just Donald Trump’s to lose, it’s very difficult to come up with a scenario in which he does lose. One new poll illustrates numerically what is clear enough from the news in front of us. In a head-to-head race, A Yahoo/Yougov poll showed Donald Trump jumping to a 26-point lead over Ron DeSantis (57%–31%) from a 8-point lead less than two weeks ago. As recently as February, it was a 4-point lead. In a ten-candidate field — the more real-world scenario — Trump holds 52% support while DeSantis falls to 21%. 

...

Something like this state of affairs may continue for the better part of the year, with Donald Trump dominating the race with no clear and credible challenger. Or we may see another candidate like Virginia Gov. Glenn Youngkin rocket forth like a GOP primary memestock harnessing the same latent Trump-skeptical votes that fueled Ron DeSantis’s rise in late 2022. But those boomlets are fueled by the hope that the chosen candidate might be able to unseat Trump rather than any particular attachment to the candidate themselves. So it can crater as quickly as it rises. Once it becomes clear they can’t unseat Trump, most of the support disintegrates. 

If I have the time, I'll go back and do a deep dive into the Stahl piece, which was awful as a piece of analysis, but was pretty good as a bad example. For now though we'll just leave it up as a reminder that almost all of the mainstream press (the NYT, Slate, Politico, and who knows how many others) were fully invested in the DeSantis Ascendant/Trump in Ruins narrative. We called this out as wishful analytics at the time, making many of the same points we made in 2015 in response to the first incarnation of the "Trump won't get the nomination" narrative.

I really like Marshall's memestock analogy. It captures the bubble mentality around not ______ candidates, from Scott Walker to Ron DeSantis to whoever the press corps' next GameStop is going to be.


Posted by at No comments:

Monday, April 3, 2023

A long shot you might want to keep an eye on

I've never voted for a Hutchinson and I probably never will, but I've never underestimated one either.

For around three decades now, the Hutchinsons have been the most powerful political family in Arkansas. I have never called any of them overly principled, but they do tend to be smart, none more so than Asa.

Hutchinson is in a sense doing the opposite of nearly every other prominent National Republican. While almost everyone else is embracing more and more toxic positions in an attempt to out Trump Tump, Hutchinson has for the past few years relied on his solid conservative bonafides to allow him to step back from these unpopular stands while keeping his support from the base. By the admittedly insane standards of 2023, while the rest of the competition has chained themselves to stances that poll in the mid thirties to high teens, he has done a remarkably good job of setting himself up as the reasonable and electable conservative.

Hutchinson is making a long shot bet here, but it's a smart one and he has been pursuing it with a high degree of skill and success. If the fever does break within the next 12 months and Republicans start thinking about the election in terms of viable candidates and broadly popular appeal, Hutchinson will be at or near the top of the list. The base will never forgive Mitt Romney and, barring black swans, the general electorate is highly unlikely to embrace the platform or elusive personal charms of Ron DeSantis, but Asa appears to have hit the sweet spot.

Politico has a recent piece on Hutchinson's old school Republican pitch. The policy sections are well reported. The political analysis is considerably weaker. It buys into the assumption made by pretty much all the candidates except Hutchinson that the GOP can somehow get rid of Trump without losing Trump voters. I've always been skeptical of the party's chances of pulling that one off.

Posted by at No comments:

Friday, March 31, 2023

"The Future is a Dead Mall - Decentraland and the Metaverse"

I've found Folding Ideas annoyingly inconsistent. Line Goes Up remains perhaps the definitive overview of the NFT mania, but most of his other videos had left me definitely underwhelmed.

"The Future is a Dead Mall" doesn't reset the high score but it is certainly the second best thing I've seen on the site. The story of Decentraland is wonderfully absurd and rich with telling details about the culture that produced it. The length is a bit daunting (though still shorter than "Line Goes Up"), but there's more than enough content to fill the time. 

To get the full comic effect (and further lower your opinion of the ever credulous NYT), check out this article on virtual real estate from the height of the bubble. (You can find it here. It does not deserve another direct link.)

The Metaverse Group has a real estate investment trust, and it plans to build a portfolio of properties in Decentraland as well as other realms including Somnium Space, Sandbox and Upland. The internet may be infinite, but virtual real estate is not — Decentraland, for example, is 90,000 parcels of land, each roughly 50 feet by 50 feet. Among investors, there’s a sense that there’s gold in those pixelated hills, Mr. Gord said.

“Imagine if you came to New York when it was farmland, and you had the option to get a block of SoHo,” he said. “If someone wants to buy a block of real estate in SoHo today, it’s priceless, it’s not on the market. That same experience is going to happen in the metaverse.”

Last week, Tokens.com closed an even larger land deal in Decentraland’s fashion district for roughly $2.5 million. The company, which says the real estate transaction was the largest in metaverse history, plans to develop the area into a virtual commerce hub for luxury fashion brands, à la Rodeo Drive or Fifth Avenue.

Mr. Kiguel estimates his portfolio in the metaverse is valued at up to 10 times more than its purchase price, and much of the reasoning will sound similar to anyone who has ever bought or sold real estate.

“It’s location, location, location,” he said. “A parcel of land in the downtown core, which has a lot of visitor traffic, is worth more than a parcel of land in the suburbs. There’s a scarcity value.”






Written by Dan Olson and Nathan Landel 

 Produced and performed by Dan Olson 

Posted by at No comments:

Thursday, March 30, 2023

Thursday Tweets -- valid until “21 years after the death of the last survivor of the descendants of King Charles III.”


What Does 'Throw Shade' Mean? - Merriam-Webster

"Shade is a subtle, sneering expression of contempt for or disgust with someone—sometimes verbal, and sometimes not."






Another example of the PayPal Mafia's superior intellects.


 And more deep thoughts from Silicon Valley.




As frequently mentioned before, Bonier was the poll analyst to watch in 2022.








Steele has had almost as long and strange a journey as his ex-brother-in-law.



Contagion.


Pepper's whiteboards are more interesting than they ought to be.


We'd all be better off if we start listening more to Magaret Sullivan and Jay Rosen


Finally seeing some attention paid to the grid.





Feral disinformation.



In case there's someone out there who hasn't signed up yet.

Bezzle aftermath from the indispensable Linette Lopez.

LLM dept.


And general nerd stuff.*



* Language nerds would point out that's not the correct useage of 'stuff.'

Posted by at No comments:

Wednesday, March 29, 2023

"Not ____________" candidates are always the product of projection, wishful thinking, and convergent systems

Catching up with my DeSantis thread puts me in the odd position of partiallyagreeing with Candace Owens.






Political analysts love meaningless historical precedents ("no governor running for president for second time who lost his first primary..."), but they are really bad at learning from history. Case in point...

First off, what do we mean by a "Not ____________" candidate? 

Frequently, a divisive candidate will manage a formidable lead early in the campaign. This is usually followed by interest converging on an alternative candidate or series of candidates. In the moment, the rise of these candidates seems impressive. They shoot up in the polls, everyone likes them (other than the front runner), and at first they appear to be perfect compromises with minimal baggage. The press embraces the new narrative, visibly relieved to be talking about horse races instead of issues and policy.Then, almost inevitably, the alternative candidate fades away.

This always catches the political establishment (including well-paid pundits) off guard, but it is not difficult to explain when you think about how the process works.

All non-incumbent primaries are at least partially Keynesian beauty contests -- voters are trying to balance their personal preference with the perceived general appeal of a candidate -- but you might call the search for alternative candidates extra Keynesian. The objective of these searches is to find someone to take out the front runner. The threshold for personal acceptability drops and the emphasis shifts to finding someone everyone else can live with.

You can kinda, sorta think of this as symmetry breaking where support will converge dramatically and almost randomly on an alternative, usually caused by little more than noise and novelty. From a distance, this noise amplification looks a lot like momentum and it's easy to assume that the voters have taken a close look at the new guy and like what they see.

Often it's just the opposite: people think they like the new guy only because they haven't taken a good look. Almost by definition, non-front runners are less well known. This allows people to fill in the blanks with whatever they'd like to see. When someone actually becomes a potential front runner, this effect goes away quickly.

Consider this passage from the NYT which we discussed here. [Emphasis added]

Should Mr. DeSantis and Mr. Trump face off in a primary, the poll suggested that support from Fox News could prove crucial: Mr. Trump held a 62 percent to 26 percent advantage over Mr. DeSantis among Fox News viewers, while the gap between the two Floridians was 16 points closer among Republicans who mainly receive their news from another source.

 The piece push hard for the unstoppable DeSantis narrative, so it's not surprising that it leaves out this bit of important context: Fox viewer are the segment of the GOP that have gotten the most coverage of the governor. 

Steve Contorno writing for the Tampa Bay Times

(from August of 2021):

The details of this staged news event were captured in four months of emails between Fox and DeSantis’ office, obtained by the Tampa Bay Times through a records request. The correspondences, which totaled 1,250 pages, lay bare how DeSantis has wielded the country’s largest conservative megaphone and show a striking effort by Fox to inflate the Republican’s profile.

From the week of the 2020 election through February [2021], the network asked DeSantis to appear on its airwaves 113 times, or nearly once a day. Sometimes, the requests came in bunches — four, five, even six emails in a matter of hours from producers who punctuated their overtures with flattery. (“The governor spoke wonderfully at CPAC,” one producer wrote in March.)

There are few surprises when DeSantis goes live with Fox. “Exclusive” events like Jan. 22 are carefully crafted with guidance from DeSantis’ team. Topics, talking points and even graphics are shared in advance.

Once, a Fox producer offered to let DeSantis pick the subject matter if he agreed to come on.

In other words, the Republican voters who have actually taken a good look at the governor are far more likely to prefer Trump.

 None of this is to say that DeSantis is destined to rapidly fade away. For one thing, I doubt we've ever had a front runner this erratic or self-destructive before. Simply holding onto the second place spot for the next twelve months might be good enough for the nomination. 

But however things turn out, the standard narrative of the rise of DeSantis is badly flawed, and the journalists pushing it need to learn their history.

Posted by at No comments:

If this weren't a family-friendly blog, we could have a lot more fun with this one

 Matt Levine gives us a great example of the sometimes Orwellian world of business names.

 Ethical Capital Partners! Yes look if you are setting up a brand-new private equity firm with five of your lawyer/cannabis-investor buddies for the sole purpose of buying a porn company, you will be tempted to name it, like, Porn Capital Partners, or We Bought a Pornhub LP, or 69/420 Capital Partners, or, I mean, I’m sure you have worse ideas. But “Ethical Capital Partners” is a much better idea. Just a thin but necessary layer of deniability there. Your public-pension-fund limited partners, at their board meetings devoted to environmental, social and governance issues, can be like “and this quarter we allocated some funds to Ethical Capital Partners,” and the directors will be like “ah yes that sounds very ethical, what exactly do they do again,” and then there’s an awkward silence and the investment team is like “well they do porn.” But if they don’t ask then it’s great.

It's a dirty little non-secret that investors will pay a huge premium for businesses that are cool, sexy, and/or are adjacent to the next big thing. By the same token, investors will often initially shy away from companies with negative class connotations (both in the economic and in the broader sense of the word). The legendary Peter Lynch made many fortunes by seeking out hopelessly uncool businesses with sound fundamentals then waiting for the market to turn efficient. 

If you own one of these enterprises and you don't want to wait for investors to come around, you can try to move into one of these hot fields (usually a bad idea) or you can just create the impression that you did and the easiest way to do that is a name change.  Let's say you owned a low-end shoe lace in 1960. You might change your name from Acme Laces to Lacetronics. In the early eighties, you might have tried Bio-Lace. And, of course, Laces.com would have been the default option a few years later. Cashing in on ESG by calling a porn company 'ethical' is par for the course (and considerably less embarrassing than trying to work in 'block chain').

Posted by at No comments:

Tuesday, March 28, 2023

Electric cars

This is Joseph.

This video is quite entertaining to those of us following the saga of Tesla:


This is also the company that tried offering a steering wheel as an upgrade to a default steering yoke and then ran out of steering wheels to sell. Not all electric cars are Teslas, but it is quite remarkable how far the stock price of Tesla can go on hype. Given the price differential between Tesla and other car companies, it is clear that the valuation is based on continued fast growth. 

In general, I see electric cars as a good idea but, like a lot of good ideas, it is amazing how pushing too hard on it can cause problems. The sort of fast growth that Tesla projects has some practical infrastructure hurdles that are outside of Tesla's control. Here is a Peter Zeihan video talking about some of the challenges that going fully electric with cars would cause:


Electric cars are also a very good solution to one type of problem (commuting) and a very poor solution for inter-city travel. The long charging times (and issues like people poaching the charger) make it a much less efficient method of long distance travel. Commuting 15 miles to work, everyday, easy. Driving from New York to Los Angeles -- you need to build a lot more charging stations. To date we have not even worked out a universal charging plug, which is crazy, In a dense urban area, this sort of network lock in might even be a sensible strategy but for a cross country trek, it makes no sense to have multiple stations in Wyoming. Imagine if gas pump handles were not universal? It would pay havoc with the long distance travel world.

So what backs the stock. I go back to the first video. 

UPDATE: After I wrote this, I realized that it meshes very well with a point that Mark likes to make -- that the majority of the benefit would actually come from hybrid cars. Hybrid cars have long ranges and can handle not being around a charging station, Emissions are a big improvement. 

Consider:

and note that a Prius battery is a lot cheaper, has far lower storage capacity, and thus stresses things like lithium reserves less. It also is a lot less of a tragedy when it wears out. 

There is a huge opportunity to cut back on emissions here for commuter vehicles. Tesla gets you to zero, but maximizes costs to the grid and the need for a parallel infrastructure that is not yet even standardized. Driving a Prius for commuting halves the emissions of driving a normal sedan (and it has a longer range than a Corolla so it is actually a better cross country driver). The pick-up truck is even worse (let along the tank sized F350 where mpg is like 20% that of the Prius). 

Since less than 10% of sales are currently hybrid or electric, there is huge opportunity here for hybrids to massively impact emissions. And, I may be in trouble with my editor for this, if we taxed F350's to make then undesirable as commuter vehicles that would also help with emissions considerably. 


Posted by at No comments:

Testing to destruction

This is Joseph

One of the great paradoxes of Canada is how we can take a very good idea and then push it until it starts to show cracks. Today, the example is immigration. Immigration is a massive social good, creating benefits for everyone involved. But the question of just how much there should be is complicated. 

Canada's population's increase hit a million for the first time. The rate of 2.7% is on pace to match other fast growing countries, like Nigeria. The mix was 97% of growth due to international immigration. In fact, this is a very fast pace of growth:
If it stayed constant in years to come, such a rate of population growth would lead to the Canadian population doubling in about 26 years.

The United States is running around 0.38%, by comparison. 

So why do I worry that we are pushing this otherwise good things. Well, housing costs 40% more in Canada than the United States.  The conventional wisdom as to why (supply, low interest rates, and foreign buyers) are all deeply linked to immigration, except for the interest rates which do not explain why it is so much cheaper in Canada than the US (which has also had a period of affordable rates). Housing starts in Canada are low, for example Ontario is clearly under target. 

The issue is that you need to be able to house all of the new Canadians if you want a brisk growth rate. 

International students also create a risk if we ever stop being a popular destination for students. Ina  recent auditor report, Ontario noted that one College (Algoma):

As a result, international students accounted for 76% of Algoma’s tuition revenue for all campuses combined in 2020/21.

Obviously this makes the College extremely exposed to changes in the international studies market and means that a change in these volumes could impact the solvency of the institution.

That said, immigration is very, very good for a country. People do not want to move to weak and failing states. Immigration is a sign of strength and prosperity. But if you want to do a massive amount of it then it makes sense to plan for a general expansion of the capacity of the country.  

Posted by at No comments:

Monday, March 27, 2023

“Gradually, then suddenly.” (I thought I'd have more time.)

I'm not surprised that we're seeing early signs of buyer's remorse, but I didn't expect to be so soon or so dramatic. As recently as the beginning of last week, the dominant narrative still had DeSantis with a comfortable hold on the nomination. There was some concern over Trump playing the martyr card over the indictment, but even if that did become a serious issue, that was hardly something you could blame the governor for. Hadn't not just Fox but the NYT, Politico, and the rest of the mainstream media had told us ad nauseam that DeSantis was a master politician who had made himself the new face of the Republican party. In the space of a few days, the convention wisdom has gone from optimistic to highly skeptical.

We were skeptical pretty much all along. It has been obvious for a while now that DeSantis isn't actually that good at politics. He lacks charisma and other relevant talents. He had a mediocre record until 2022, when he ran hard MAGA  in a heavily MAGA state where the Democratic party had recently imploded. On the national stage, he was if anything under-performing given the unprecedented PR build-up he'd received. These points are not so controversial now, but we were in a very lonely place when we made them back in August.






DeSantisis's only viable path to the nomination and to the presidency has always been actuarial, secure the number two spot and hope that something takes Trump out before the convention and Biden out before the election.
It's not clear who the Republicans could tap if not DeSantis, so don't expect the establishment to give up on him quite yet.
I have a number of DeSantis pieces in the draft folder. I'll still tey to get them out, but they won't seem nearly so prescient.
Posted by at No comments:

Friday, March 24, 2023

The NYT is surprisingly comfortable with fascism, but they draw the line at putting ketchup on your steak

 

It often seemed like the problem the mainstream press (particularly the New York Times) had with Trump was based less on his far right, borderline fascist positions and more with the general boorishness of the man. This was certainly consistent with the relatively cozy treatment received by Jared and Ivanka. 

With the rise of Ron DeSantis, however, we got something close to a natural experiment for separating the effects of politics and personality. On every major policy issue, the governor was to the right (often far to the right) of the ex-president, but the former was a conventional politician from a conventional background with a conventional style. 

The relief felt by most of the press was palpable. Here was a potential leader of the Republican Party who wouldn't embarrass you (as long as you ignored his politics). Someone who wouldn't constantly give lie to the insistence that both parties were fundamentally the same, that the GOP was still the party of Bob Dole and the Rockefellers. 

DeSantis's treatment by the NYT et al. was, in its way, as positive as what he got from Fox. He was portrayed as a serious figure and a savvy politician. His abuses of power, his persecution of the LGBTQ community, his efforts to scrub the schools of an mention of civil rights, his alliance with anti-vaxxers, and all the other disturbing aspects of his administration were either downplayed or ignored. He might be moving the country closer to fascism, but at least he doesn't put ketchup on his steak.

          Politico: How Ron DeSantis won the Pandemic

 Some journalists have kept things in perspective. Josh Marshall has been characteristically clear-eyed. Jonathan Chait has been loudly banging this drum. Michael Hiltzik and the LA Times have, as usual, pushed back against the bullshit. The New Yorker has done good work here. 

And we should definitely single out Molly Jong-Fast.

DeSantis has his media cheerleaders on the right. Over at Rupert Murdoch’s New York Post, columnists have gushed over DeSantis, with one last week dubbing him “the sane choice to revive the US.” Some mainstream news outlets, meanwhile, though not heralding DeSantis, seem to be normalizing his authoritarianism. The New York Times is not alone in this department, but as the paper that most sets the nation’s news agenda, its framing of DeSantis certainly warrants scrutiny.

In one recent problematic headline, the Times, summed up DeSantis’s right-wing assault on education on in Florida, where book bans are on the rise, as the governor building “his brand.” Another recent Times article touted DeSantis’s “preparation and the way it allows him to control his political narrative.” (Sure, you’re able to control the political narrative when you rule like a despot and shut out the press!) That Times piece, as NYU journalism professor Jay Rosen put it, was “almost pure horse race,” with a focus on “either strategy decisions, or the management of postures and appearances.” 

A third recent Times article described DeSantis, along with South Dakota’s Kristi Noem and Virginia’s Glenn Youngkin as having “emphasized making their states family-friendly.” As New York magazine’s Rebecca Traister responded, “Stopped dead reading Times story this am by repetition of claim that DeSantis, Noem & Youngkin want ‘family-friendly’ states w/o acknowledgment of how they define ‘family-friendly:’ anti-trans, forced pregnancy, book bans, curtailed education. Why regurgitate their false frame?”

Jong-Fast left out the memory holing of the anti-vaxx element and the wishful analytics of the NYT data science team, but in her defense, there's just too much to cover in one piece.

Posted by at 1 comment:

Thursday, March 23, 2023

Janan Ganesh points out one upside of a cult of personality

A couple of days ago, I wrote the following as part of a post on the increasingly nasty fight for the GOP nomination. It's a point we've been making for a while, but recent events have made it more important.

DeSantis, on the other hand, has a personal hold on almost no one. His support comes all but entirely from the combination of far-right positions, perceived viability, and a protected spot in the political hothouse, and the last two of those are quite fragile. When the fighting began in earnest, it was obvious he was going to lose that right-out-of-the-box shine quickly.

Janan Ganesh writing for the Financial Times hit on a similar idea and delved much deeper into the implications

There was always one benign feature of the Trump personality cult. Because millions of voters are unconditionally faithful to the 45th president, he doesn’t need to say or do anything in particular. His flock is there if he builds a wall against Mexico, and there if he doesn’t. It is there when he flatters the dictator of North Korea, and there when he threatens to crush him. It is there as he promises an infrastructure splurge, and there as his successor Joe Biden does much more to bring one about. It is even there when he recommends vaccines against Covid-19.

Trump doesn’t live or die by his policies. That is the point of a personality cult. He has no incentive to become ever more extreme (though also no incentive not to). I suspect he could turn into a pro-trade liberal and China dove and keep the greater share of his following.

DeSantis has no such license. What makes him so deceptively risky is that he must keep earning and retaining the trust of populist voters through his actions. His conventional Ivy League résumé, his photo-op with Biden during Hurricane Ian, even his personal stiffness: moderate Republicans hope that these are the marks of a pliable company man.

But these are also liabilities that he will have to counteract in a primary contest. So, expect more gestures in the vein of his Ukraine statement, or his call for a grand jury to look into vaccines, or his rolling war on woke. No US politician in recent years has been more resourceful in finding causes to fight. That owes something to imagination. It owes even more to insecurity about his place in his party.

 

 

Posted by at No comments:

Wednesday, March 22, 2023

The Growth Fetish -- twelve years ago at the blog (SVB edition)

Linette Lopez (someone you should definitely be following) did perhaps the best deep dive on the collapse of SVB and on the culture that caused it. The whole thing is worth a read but I want to highlight this section because it dovetails with one of our longstanding threads.

In Silicon Valley the highest priority for any business is growth. That means if a certain trend is making money, the entire industry will pile in headfirst. Silicon Valley Bank thrived on these trends. It turned itself into the kind of asset VCs would want to own during the peak of this bubble: a high-growth business with a client list full of well-connected VCs, pedigreed startups, and depositors capitalizing on the latest craze. It was the Valley reflected back on itself in a bank balance sheet. SVB built its chummy relationships in classic tech fashion, winning over startups and their founders with an array of products meant to weave clients deeper into Silicon Valley's financial fabric. From direct equity investments to personal mortgages to founders, it was part of the plumbing that connected the industry. It was a part of tech culture, and it's that culture that ultimately did it in.

But to grow at the breakneck speed of its clients, Silicon Valley Bank executives had to change things in Washington. After the financial crisis, institutions with $50 billion or more in assets were designated "systemically important" and subjected to more-onerous rules. These requirements made the banks safer, but they also tamped down SVB's ability to grow. So the bank launched a lobbying campaign to neuter these regulations. The Trump administration and Congress finally gave SVB what it wanted in 2018, raising the "systemically important" threshold to $250 billion in assets.

Once that was accomplished, the bank was able to balloon, growing deposits from just under $50 billion in 2019 to nearly $200 billion in 2021. SVB's customers were growth-focused tech companies sensitive to interest-rate hikes. These customers all had the same sensitivity to rising interest rates and a slowing economy. They were startups depending on rounds of money that would get cut off in a downturn. They were crypto firms that faced the mounting threat of increased regulation. SVB took on a client base with a risk profile like none other in the country, and it then invested their money in assets that were sure to decline as rates rose. There was no hedging. SVB's balance sheet reflected complete trust in the Silicon Valley model: grow fast, grab customers, bet it all, and figure the rest out later. But, ironically, the very industry that the bank modeled itself on bailed at the first sign of trouble.

We've been thinking about investors' irrational focus on growth for a long time. 

Thursday, September 15, 2011

The Growth Fetish

[This is a big topic so I'm just going to lay out the bare bones for now and flesh things out later, hopefully with a little help.]

It's obvious that our economy is suffering from a lack of growth but for a while now I've come to suspect that in a more limited but still dangerous sense we also overvalue growth and that this bias has distorted the market and sometimes encouraged executives to pursue suboptimal strategies (such as Border's attempt to expand into the British market).

Think of it this way, if we ignore all those questions about stakeholders and the larger impact of a company, you can boil the value of a business down to a single scalar: just take the profits over the lifetime of a company and apply an appropriate discount function (not trivial but certainly doable). The goal of a company's management is to maximize this number and the goal of the market is to assign a price to the company that accurately reflects that number.

The first part of the hypothesis is that there are different possible growth curves associated with a business and, ignoring the unlikely possibility of a tie, there is a particular curve that optimizes profits for a particular business. In other words, some companies are better off growing rapidly; some are better off with slow or deferred growth; some are better off simply staying at the same level; and some are better off being allowed to slowly contract.

It's not difficult to come up with examples of ill-conceived expansions. Growth almost always entails numerous risks for an established company. Costs increase and generally debt does as well. Scalability is usually a concern. And perhaps most importantly, growth usually entails moving into an area where you probably don't know what the hell you're doing. I recall Peter Lynch (certainly a fan of growth stocks) warning investors to put off buying into chains until the businesses had demonstrated the ability to set up successful operations in other cities.

But the idea of getting in on a fast-growing company is still tremendously attractive, appealing enough to unduly influence people's judgement (and no, I don't see any reason to mangle a sentence just to keep an infinitive in one piece). For reasons that merit a post of their own (GE will be mentioned), that natural bias toward growth companies has metastasised into a pervasive fetish.

This bias does more than inflate the prices of certain stocks; it pressures people running companies to make all sorts of bad decisions from moving into markets where you don't belong (Borders) to pumping up market share with unprofitable customers (Groupon) to overpaying for acquisitions (too many examples to mention).

As mentioned before we need to speed up the growth of our economy, but those pro-growth policies have to start with a realistic vision of how business works and a reasonable expectation of what we can expect growth to do (not, for example, to alleviate the need for more saving and a good social safety net). Fantasies of easy and unlimited wealth are part of what got us into this mess. They certainly aren't going to help us get out of it.

 

Posted by at No comments:

Tuesday, March 21, 2023

Godzilla vs. Rodan

You can't really root for either, but it's still fun to sit back and enjoy the spectacle.




2022 was a remarkably bad year for conventional wisdom pretty much across the board from the Red Wave to Russia's inevitable conquest of Ukraine to DeSantis eclipsing a rapidly fading Trump.

Marshall is being sarcastic here, since the rest of his timeline has been prominent Republicans and conservative influencers defending Trump and often attacking DeSantis. It's true that the indictments have turned up the heat, but the underlying trends we've been seeing for weeks haven't shifted. 

We all knew that Trump wasn't going to be a good sport and go away quietly. His relationship with the GOP has always been purely transactional. There was no reason for him to play nice for the good of the party and every reason for him to do everything in his power to get the nomination. Add to that his personal hold over a large segment (possibly a plurality) of the party and a vindictive nature, and you've given non-cult Republicans everything to fear.

DeSantis, on the other hand, has a personal hold on almost no one. His support comes all but entirely from the combination of far-right positions, perceived viability, and a protected spot in the political hothouse, and the last two of those are quite fragile. When the fighting began in earnest, it was obvious he was going to lose that right-out-of-the-box shine quickly.

Perhaps the best guide to the battle is Ron Filipkowski, who reads GOP/MAGA tweets so we won't have to.



A brief note to those making the "they all line up behind the nominee" argument. That was true in the past, and the rest of this post suggests it will be true if Trump wins, but are you really confident usually US political precedent to predict the behavior of this cult of personality?


Remember how the establishment press embraced Vance as an alternative to Trump?





 






One final interesting twist.
Posted by at No comments:
Subscribe to: Posts (Atom)