The Digest #83

Published on May 28, 2021

“You can draw any kind of picture you like on a clean slate and indulge your every whim in the wilderness in laying out a New Delhi, Canberra or Brasília, but when you operate in an overbuilt metropolis, you have to hack your way with a meat ax.”

— Robert Moses


Can Removing Highways Fix America’s Cities? by Nadja Popovich, Josh Williams and Denise Lu, May 27, 2021. I kept thinking about Robert Moses as I read this article about removing many of the highways that were hacked through American cities in the middle of the twentieth century. Perhaps no other individual is more responsible for the strategy of massive highway building and “slum clearance” than Robert Moses, the subject of Robert Caro’s epic biography, The Power Brokerwhich I reviewed last year. As these highways reach the end of their useful life, many cities are opting to remove them rather than to rebuild. This has the potential to revitalize cities but has many people concerned about side effects such as gentrification. (New York Times)

DoorDash and Uber Eats Are Hot. They’re Still Not Making Money by Preetika Rana and Heather Haddon, May 28, 2021. Food delivery has been a booming business throughout the pandemic, but as Grubhub CEO Matt Maloney says in this article it, “is and always will be a crummy business.” An average DoorDash order is lucky to have a low single digit margin for the company, with most of the economics captured by the restaurant and delivery person. However, restaurants take a big haircut on such transactions, it isn’t clear whether delivery drivers are happy with their gigs, and food often is delivered cold or otherwise degraded. I’ve never seen the attractions of ordering food for delivery or the economics of the business model. (WSJ)

Inflation and Investing: False Alarm or Fair Warning? by Aswath Damodaran, May 24, 2021. Professor Damodaran takes a look at one of the hottest topics on the investing landscape today — the question of how potential inflation will impact the prospects for different asset classes. Before getting into market impacts, the article goes into how inflation is measured, causes of inflation, and the impact on currencies and exchange rates. This is the best article on inflation that I have read in recent months because, as usual, the author dispassionately analyzes the data and examines various possible scenarios that could result in the coming years. (Musings on Markets)

Memo to SEC: don’t enable the bitcoin bubble by Roger Lowenstein, May 27, 2021. This is the first article posted by Roger Lowenstein on Substack. He argues that the SEC should not approve a proposed bitcoin exchange traded fund that has been proposed by VanEck. Although the SEC does not normally judge the investment merits of ETFs, Lowenstein suggests that it should in this case because the ETF could end up in retirement accounts that receive favorable tax treatment by the government. As most readers know, Lowenstein is the author of several books including Buffett: The Making of an American Capitalist(Intrinsic Value by Roger Lowenstein)

House Prices Exceed Bubble Peak on Key Valuation by William R. Emmons, May 24, 2021. The Federal Reserve Open Market Committee’s minutes from the April 27-28 meeting noted that “a number of participants commented on valuation pressures being somewhat elevated in the housing market.” This seems to be an understatement. According to this article written by an economist at the St. Louis Fed, housing prices now exceed the 2006 bubble peak as measured by the house price to rent ratio. The article does not conclude that we are in a housing bubble but cautions that this elevated metric “merits caution and further study”. (St. Louis Fed)

The problem with reinforced concrete by Dean McCartney, June 17, 2016. Ancient concrete structures have lasted for centuries but our modern steel-reinforced concrete structures could be at risk of failure within several decades. The use of steel to reinforce concrete makes structures stronger and requires less concrete. It also has enabled more modern styles of architecture requiring less visible structural support. The problem is that steel rusts and it can be difficult to detect this problem until a structure is too damaged to be repaired economically. This article was an eye opener, especially for someone who has recently been looking for real estate in older buildings. I’ve read many HOA documents and none reserve for the massive costs of addressing the kind of catastrophic failure discussed in this article. h/t @paulg (The Conversation)

The Safe, High-Return Trade Hiding in Plain Sight by Jason Zweig, May 28, 2021. This article outlines the advantages of investing in Series I U.S. Savings bonds, a topic that I also covered in an article last year. Jason Zweig points out that purchasing I Bonds currently yield 3.54%, a return far in excess of anything available in savings accounts or in the bond market for a security with no default risk. I bonds are illiquid for one year after purchase and carry a three month interest penalty if redeemed before five years. There is also a $10,000 annual limit. Zweig discloses that he’s purchased I bonds and thinks other investors should do so as well. Prior to 2007, the annual limit was $30,000 and it would be good to restore it to that level.  (WSJ)

Speculation: A Game You Can’t Win by Lawrence Yeo, May 26, 2021. Have you ever sold a security that subsequently crashed? What was your reaction? It might have been a case of schadenfreude: “To be happy that you made money on something that crashes is a form of schadenfreude: a German word for taking pleasure at another’s misfortunes. It’s arguably the lowest of all human emotions, especially if it’s directed toward people that just want better lives. Yet schadenfreude is exactly what we’re embodying when we’re elated that our 10x return was realized before things turned sour for everybody else.” (More to That)

Podcasts and Videos

Adam Mead – The Complete Financial History Of Berkshire Hathaway, May 23, 2021. “I came to really appreciate what they’ve built and even just more of the nuance in how it’s almost contradictory to say, but how simple the game plan was, but how difficult the execution was. There was a period there between 1982 and 1992, where they lost money in underwriting every single year. They were profitable because of investments, but what we see today is this incredible, appreciated, and admired business. It took a lot to really get it going and there were some times there during the 70s, they started some of these home state companies, these insurers that operate in individual states, and some of them failed. It really was this entrepreneurial venture and it took a lot to figure out.” (The Acquirer’s Podcast)

Capital Allocation, 1966-1972: Diversified Retailing, Blue Chip Stamps, and See’s Candies, May 24, 2021. Geoff Gannon and Andrew Kuhn discuss the early years of Berkshire Hathaway, a period during which Warren Buffett made a less than stellar move into retailing but also built the foundations of the modern Berkshire Hathaway by purchasing his first insurance company and then pivoting into higher quality companies with the purchase of See’s Candies. (Focused Compounding)

Challenging the status quo of treating metabolic disease, and a personal journey through a grim cancer diagnosis, May 17, 2021. I often listen to Peter Attia’s podcast because I am interested in topics related to health and longevity which he often covers. In this episode, Attia interviews Sarah Hallberg, a physician who has spent over two decades treating patients with obesity and type 2 diabetes. This was the topic of the first half of the interview. The second half was about Hallberg’s grim lung cancer diagnosis and her remarkable survival up to this point. Particularly impressive is her determination to continue working for as long as possible despite a terminal diagnosis. (Peter Attia Drive Podcast)

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The Digest #83
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