Special event — On October 12th I’ll be speaking on a panel hosted by the Brandes Institute, “Quality Shareholders: Who They Are and How Do They Add Value?” The event is free but requires registration:
https://event.on24.com/wcc/r/3387163/679FB3CFE1C65D8A18F54245CE8D718B?partnerref=speakers
Date: Tuesday, October 12, 2021 /// Time: 09:00 -10:00 AM Pacific Daylight Time
Summary: By one definition, a “quality shareholder” analyzes company fundamentals, holds substantial stakes in a few for the long-term, and engages with management on specific challenges. Today, such shareholders appear to be the minority. Our panelists will explore the implications of this dynamic and related topics such as governance and performance potential.
Facts and Figures
Nine of the 10 most-active trading days for call options have taken place in 2021. (Source: WSJ/CBOE Global Markets)
Almost 39 million options contracts have traded on an *average* day in 2021, up 31% from 2020 to the highest level since the market’s inception in 1973. (Source: Options Clearing Corp.)
The U.S. market for junk-rated bonds and loans has seen more than $786 billion of new issues so far in 2021, topping the previous high for any prior full year. (Data goes back to 2008. Source: WSJ/S&P Global.)
“U.S. mutual funds and exchange-traded funds investing primarily in China held $43 billion in net assets at the end of August, up 44% from 12 months earlier, according to Morningstar. Over that time, investors added about $13 billion in new money. More than one-fourth of the total assets of these funds has come in over the past year alone—just in time for a long march of losses. Since its peak in February, the MSCI China index has lost 30%.
“What about the longer term? Between its inception at the end of 1992 and this Aug. 31, the MSCI China stock index has returned an average of 2.2% annually, including dividends. Over the same period, the MSCI Emerging Markets index grew 7.8% annually; the S&P 500, 10.7%. That covers a nearly 30-year period in which China’s economy often grew by at least 10% a year.” (Source: Jason Zweig, WSJ)
Books
The Big Switch: Rewirting the World from Edison to Google — This book’s premise (that cloud/distributed computing is similar in impact to the electrical grid) has held up pretty well since its publication 7-8 years ago. It’s well written and worth a read. (Thanks to Will F. for recommending this to me.)
Unsettled: What Climate Science Tells Us, What It Doesn’t, and Why It Matters — At risk of touching a so-called third rail of public discourse, I won’t wade into the topic itself.1 This book is certainly controversial, although in an attempt to soothe some feathers author Steven Koonin writes on the first page that “Yes, it’s true that the globe is warming, and that humans are exerting a warming influence upon it.” From there he launches a series of arguments that admittedly leave both sides unsatisfied, but I think the book is worth consideration both for the questions it asks and as an exercise in critical thinking. Koonin is a multidisciplinary scientists with a background in theoretical physics who served as Under Secretary for Science in the US Department of Energy in the Obama administration. It would be very interesting to pair this book with Bill Gates’s recent effort “How to Avoid a Climate Disaster” in a debate or compare-and-contrast setting.
The reviews were, somewhat predictably, mostly negative. But one of them, in the WSJ, had a snapshot that I fully agree with: “The book is no polemic. It’s a plea for understanding how scientists extract clarity from complexity. And, as Mr. Koonin makes clear, few areas of science are as complex and multidisciplinary as the planet’s climate.”
A few of other reviews/op-eds worth reading include “A Critical Review of…” in Yale Climate Connections, “A New Book Manages to Get Climate Science Badly Wrong” in Scientific American, and “A Controversial Book…” in The Conversation.
Articles
A Bad Solar Storm Could Cause an ‘Internet Apocalypse’ — Some cheerful, light reading here. In all seriousness, the multiple risks we face in our electrical grid (and internet infrastructure) remind me of the pandemic risks we’ve faced — daunting odds, dire consequences, and more a question of “when” than “if.” And just as with the pandemic, the last major solar storm was a century ago, in 1921.
“SCIENTISTS HAVE KNOWN for decades that an extreme solar storm, or coronal mass ejection, could damage electrical grids and potentially cause prolonged blackouts. The repercussions would be felt everywhere from global supply chains and transportation to internet and GPS access. Less examined until now, though, is the impact such a solar emission could have on internet infrastructure specifically. New research shows that the failures could be catastrophic, particularly for the undersea cables that underpin the global internet.”
Abstract from the original paper: “Black swan events are hard-to-predict rare events that can significantly alter the course of our lives. The Internet has played a key role in helping us deal with the coronavirus pandemic, a recent black swan event. However, Internet researchers and operators are mostly blind to another black swan event that poses a direct threat to Internet infrastructure. In this paper, we investigate the impact of solar superstorms that can potentially cause large-scale Internet outages covering the entire globe and lasting several months. We discuss the challenges posed by such activity and currently available mitigation techniques...Moreover, the US has a higher risk for disconnection compared to Asia.”
Why Taxing Stock Buybacks is the Wrong Fix for Executive Pay — It just boggles the mind. Repurchasing a company’s own stock is simply not a complicated topic, but it generates more nonsense than just about anything else.
Saving Par — Jimmy Dunne of Sandler O’Neil would likely have perished in the 9/11 attacks had it not been for golf. I already knew parts of this story, but it’s worth reading either way.
Scientists drove a robotic surfboard into Hurricane Sam, and the waves are incredible — Amazing…
The Airline Safety Revolution — It’s been well over a decade, comprising billions of passenger-flights, since the commercial aviation industry’s last fatal crash. The once-unthinkable levels of safety now made routine by the industry are a story of incentives, technology, engineering, leadership, and regulation centered around a voluntary system of reporting accidents, mistakes, and near-misses. The lessons and implications run deep.
“We were seeing the same mistakes made over and over, but nobody talked about them” until it was too late, according to the then president of North America’s largest pilots union. “It was an incredible breakthrough,” according to Ray Valeika, former head of engineering and maintenance at Delta. “We actually patted people on the back” for divulging mistakes. “But if management found it and you didn’t tell us,” he added, “then you could lose your job.”
Early successes revealed common pilot errors, such as veering from assigned altitudes due to distractions or failing to properly position wing flaps and other flight-control surfaces for takeoffs. Some solutions were as simple as having the flight crew physically point to cockpit computers—which control altitude changes, for instance—while both pilots double-checked out loud that the correct information had been entered.
Voluntary revisions to internal airline rules proved faster and less obtrusive than changes imposed by regulators. Airlines later developed more complex solutions to prevent dangerous piloting errors in which planes approached runways too fast, descended too rapidly or landed too far down runways to brake safely. Strict self-imposed rules by carriers required crews to abandon approaches under such conditions, leaving enough time to safely climb away from the field.
The promise of the approach was best summed up by Nick Sabatini, the FAA’s top safety official from 2001 to 2009, who would reassure audiences at safety conferences: “The data will set you free.” He urged greater reliance on information gleaned from routinely downloading and examining incident details from flight-data recorders. As the efforts gained momentum, airlines could compare themselves with competitors or the entire industry.
Suffice it to say that my own, less-than-expert view tends toward an approach combining the odds of an insurance underwriter with a bigger-than-normal adjustment for uncertainty and a huge consideration for human suffering.