The Digest #121

Published on June 13, 2022

“People who haven’t spent much time watching markets may believe that asset prices are all about fundamentals, but that’s certainly not so.  The price of an asset is based on fundamentals and how people view those fundamentals.  So the change in an asset price is based on a change in fundamentals and/or a change in how people view those fundamentals. Company fundamentals are theoretically subject to something called “analysis” and possibly even prediction.  On the other hand, attitudes regarding fundamentals are psychological/emotional, not subject to analysis or prediction, and capable of changing much faster and more dramatically.” 

— Howard Marks, Bull Market Rhymes, May 26, 2022

Social Security Reform

For as long as I can remember, dire warnings about the impending collapse of Social Security have been common among pundit class while the topic has been treated as the third rail of politics. Few politicians dare to propose benefit cuts or tax increases.

I first paid into the Social Security system in the mid-1980s as a paperboy who incredulously owed something called the “self-employment tax”. Although it seems highly unlikely that Social Security will completely collapse, the trustees of the system now forecast that the program will be unable to pay currently scheduled benefits by the mid-2030s, just around the time I will qualify for payments:

“The Old-Age and Survivors Insurance (OASI) Trust Fund, which pays retirement and survivors benefits, will be able to pay scheduled benefits on a timely basis until 2034, one year later than reported last year. At that time, the fund’s reserves will become depleted and continuing tax income will be sufficient to pay 77 percent of scheduled benefits.”

As a longtime observer of American politics, I can say with some confidence that an across the board benefit cut of 23 percent in 2034 seems quite unlikely. The political repercussions would be too severe.1

Politicians are more likely to engage in subterfuge rather than open acknowledge the need for explicit benefit cuts or tax increases. For example, most of the reform ideas found in Social Security Needs Saving Againa recent Wall Street Journal op-ed by former Senator Rudy Boschwitz, seem designed to disguise benefit cuts using a panoply of technical changes including modifications to inflation indexing. 

Specifically, the former senator suggests that annual cost of living increases should be given only every fourteen or fifteen months “using the twelve months of lowest inflation”. Additionally, Social Security recipients who have income over $60,000 from sources other than Social Security would be denied cost of living adjustments entirely every other year for six years. He also proposes changing the indexing from CPI-W to the Chained CPI which, conveniently, is a lower measure of inflation, and there is a technical proposal for changing the indexing of “bend points”.2

The former Senator does suggest some relatively transparent changes such as increasing the age for full benefits from 67 to 68 1/2, increasing the minimum age for reduced benefits from 62 to 65 1/2, taxing more of the Social Security income for higher income beneficiaries, and increasing the payroll tax. While distasteful, at least these sorts of changes are clear enough for people to actually understand.

Changes to the Social Security program should be transparent and obvious. Reducing benefits by altering inflation adjustments and through other highly technical means might be more palatable for politicians afraid of the reaction of voters. However, such changes would erode public trust particularly during a period of high inflation.


The holes in holistic ESG indices by Roger Lowenstein, June 10, 2022. “The S&P 500 ESG Index aims to carve out a portion of the familiar S&P 500 that represents best of breed in the same underlying industries. ExxonMobil scored higher than Big Oil competitors. Tesla was bounced partly because of claims of racial discrimination and poor working conditions, as well as its response to autopilot-linked fatalities. Yet the process is hardly free of human judgment…” (Intrinsic Value by Roger Lowenstein)

A healthy corporate culture counts more than ever by Lawrence Cunningham, June 9, 2022. “LVMH and Richemont not only contrast how corporate culture percolates throughout a company, they suggest its importance. Founded at about the same time, and led and controlled by one person for more than three decades, the financial performance of these two companies has diverged greatly. LVMH is four times the size of Richemont in terms of total assets and annual revenues and has delivered vastly stronger shareholder returns while sporting substantially higher market multiples.  It’s clear: culture counts.” (Market Watch)

BYD says it is about to start supplying Tesla with battery cells by Fred Lambert, June 8, 2022. “While undergoing nail penetration tests, [BYD’s] Blade Battery emitted neither smoke nor fire after being penetrated, and its surface temperature only reached 30 to 60°C. Under the same conditions, a ternary lithium battery exceeded 500°C and violently burned, and while a conventional lithium iron phosphate block battery did not openly emit flames or smoke, its surface temperature reached dangerous temperatures of 200 to 400°C. This implies that EVs equipped with the Blade Battery would be far less susceptible to catching fire – even when they are severely damaged.” (Electrek)

Once in a Lifetime by Morgan Housel, June 7, 2022. “When eight billion people interact, the odds of a fraudster, a genius, a terrorist, an idiot, a savant, an asshole, and a visionary moving the needle in a significant way on any given day is nearly guaranteed. Social media then amplifies it, giving the impression that it’s more common than it really is. The world breaks about once every ten years, on average. For your country, state, town, or business, once every one to three years is probably more common.” (Collaborative Fund)

The Inflation Issue by Jason Zweig, June 7, 2022. What is the etymology of inflation? “According to the excellent Online Etymology Dictionary, inflation entered English in the mid-14th century to describe a “swelling caused by gathering of ‘wind’ in the body; flatulence. A pamphlet published in 1676, titled A New and Needful Treatise of Wind Offending Mans Body, helpfully offered that if you drink “old Ale that is clear, well boiled and well malted…then you need not so much fear inflation by wind.” (The Intelligent Investor)

Solve Life Backwards by Nick Maggiulli, June 7, 2022. It’s useful to consider your end goal and to then determine each prior step until you arrive at your current situation. Retirement is one example: “If you want to solve your finances in retirement backwards, then you need to imagine how much money you will spend in retirement. This figure is important because it is the foundation of all retirement projections. More importantly, it will help tremendously if you know how to use a financial calculator. Why? Because a financial calculator is the simplest way to imagine how to move money through time. It’s not a perfect solution, but its a great shortcut to solve backwards.” (Of Dollars and Data)

Knowledge Is Not Understanding by Lawrence Yeo, June 8, 2022. “I was talking to someone the other day and she mentioned the idea of a “dumb smart person,” and I laughed upon hearing it. Essentially, it’s a funny way of articulating the difference between knowledge and understanding. We all know the person that aced their way through school, got a prestigious job, but can’t hold a substantive conversation to save their lives. Or someone that makes a lot of money but has left behind a trail of broken relationships.” (More to That)

The Logical Fallacy Guide by Sahil Bloom, June 8, 2022. “The Logical Fallacy Guide covers 20 common logical fallacies: Ad Hominem, Texas Sharpshooter, Sunk Cost Fallacy, Bandwagon Fallacy, Straw Man, Appeal to Authority, Post Hoc Ergo Propter Hoc, Personal Incredulity, False Dilemma, Burden of Proof, Red Herring, No True Scotsman, Hasty Generalization, Non-Sequitur, Tu Quoque, Slippery Slope, Begging the Question, Loaded Question, Equivocation, and Fallacy Fallacy.” (The Curiosity Chronicle)


Google’s Sundar Pichai, June 9, 2022. 38 minutes. “Drive. Docs. Chrome. Maps. Gmail. Android. What do these products have in common? Of course, they’re all Google, but what you may not know is that they all came to fruition under the management of the same person: Sundar Pichai. This track record in product development ultimately landed Sundar the CEO role at one of the biggest, most innovative companies in the world.” (How I Built This)

Phil Knight on Founding Nike, June 6, 2022. 49 minutes. “A shoe dog is a person who devotes himself or herself wholly to the making, selling, buying, or designing of shoes. But the book is so much more than shoes. It’s the story of a company that was close to bankruptcy, the story of how Phil Knight signs a young Michael Jordan and created the Air Jordan brand, how the Nike Swoosh logo was purchased for only $35 from a student at Portland State University, and much much more.” (We Study Billionaires)

Medical Mistakes and Patient Safety, June 6, 2022. 1 hour, 46 minutes. This podcast is an incredibly scary wake-up call for anyone unfamiliar with the concept of iatrogenesis, the introduction of a disease or complication due to medical treatment. Dr. Peter Attia interviews a surgeon, Marty Makary, who “describes the risk of medical errors that patients face when they walk into the hospital and how those errors take place, and he highlights what amounts to an epidemic of medical mistakes. He explains how the culture of patient safety has advanced in recent decades, the specific improvements driven by a patient safety movement, and what’s holding back further progress.” (Peter Attia M.D.)

Bored Elon Musk – A Parody that Became a Company, June 10, 2022. 48 minutes. This is an interview with the creator of @BoredElonMusk, a parody Twitter account with 1.7 million followers: “I have probably created 10 other parody accounts before this. None of them really stuck. Bored Elon was the one that finally made it. I wasn’t exactly an overnight success. I had some attempts in the past. I always think about the game Angry Birds. That game was like a worldwide sensation maybe five years ago and Rovio, the company that made it, they had produced 46 or 47 games before they had a hit. So a lot of at bats and then finally Bored Elon was the one that stuck for me.” (Web3 Breakdowns)

Druckenmiller on Monetary Policy

This is a wide ranging interview of Stanley Druckenmiller. I found his comments regarding inflation quite interesting. The following quote was taken starting around 6 minutes, 30 seconds into the interview.

“Once inflation gets above five percent, its never come down unless fed funds have gotten above the CPI. Well, since the CPI is eight, that would call for a fed funds rate of above eight, and frankly I don’t think we’ll get there because of the extent of the asset bubble and the damage that would be done.”

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The Digest #121
  1. recent study indicates that over 40 percent of Americans receiving Social Security do not have retirement income from either a defined benefit or defined contribution plan. Social Security might never have been intended as the sole source of support in retirement, but it has acted as such for many Americans. []
  2. Despite following politics closely for decades, I had never heard of “bend points” before. The Social Security Administration has an example of how bend points work. The former Senator’s proposal would index bend points every other year for six to ten years which would have the effect of reducing the social security check based on a worker’s earnings history. []
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