Coyote Blog

Today after the market closed was Tesla's analyst conference call to review  fourth quarter earnings.  TL:DR It was as weird as ever, maybe weirder.  Even before the call, Elon Musk said that the numbers released today would be un-audited, and the call ended by saying -- in a sort of "oh by the way" over the shoulder parting shot -- that their CFO was leaving and being replaced by a 36-year-old with only Tesla experience and no prior CFO role (not unlike the random young dude that the Arizona Cardinals just hired as their coach, but that is another story).  Neither Musk statement was a big confidence boost given the myriad questions swirling around the legitimacy of Tesla's reported financials.  But the REALLY weird stuff was in between.

The LA Times, which really has had some of the best Tesla coverage, has the best summary I have found so far of the call.  Before I get into some things we learned that helped support my article I wrote the other day, I want to share some of the priceless other highlights of the call.  All from the LAT article:

Tesla faces questions about whether enough new Model 3 sedans can be sold to generate substantial profits.

“The demand for the Model 3 is insanely high. The inhibitor is that people don’t have the money to buy one,” Tesla Chief Executive Elon Musk told analysts on the call.

Who says that professional sports have nothing to teach businesses?  Pro sports team owners have perfected the art of promising the world to local citizens to get taxpayers to pay for their billion dollar stadiums (which in the case of NFL teams are used approximately 30 hours a year).  The Miami Marlins in particular have perfected the art of building a good team, leveraging its success to get a new stadium deal, and then immediately dismantling the team and buying cheap replacement players.

In the business world many corporations have taken the Miami Marlins strategy.  Tesla took $3/4 of a billion dollars form NY taxpayers to build a factory in Western New York, only to employ a tiny fraction of the promised employees.  In fact, one academic studied all the relocation subsidies NY has made in the recent past and found none of the gifted companies fulfilled their employment promises.  In Mesa, AZ there is a factory that I call the graveyard of cronyism where not one but two sexy high-profile companies have gotten subsidies to move in (FirstSolar and Apple) only to both bail on their promises after banking the money.

So it should come as zero surprise that the Trump-facilitated crony Foxconn deal in Wisconsin is following the same path.

Foxconn Technology Group, a major supplier to Apple Inc., is backing down on plans to build a liquid-crystal display factory in Wisconsin, a major change to a deal that the state promised billions to secure.

Louis Woo, special assistant to Foxconn Chairman Terry Gou, said high costs in the U.S. would make it difficult for Foxconn to compete with rivals if it manufactured LCD displays in Wisconsin. In the future, around three-quarters of Foxconn’s Wisconsin jobs would be in research, development and design, he said.

They added this:

The company remains committed to its plan to create 13,000 jobs in Wisconsin, the company said in a statement.

Yeah, sure.  Anyone want to establish a prop bet on this one?  I will take the under.

A perfectly reasonable way to read this chart is to note the high correlation between state taxation and regulatory intensity and states that are gaining or losing population

Unfortunately, my experience in Arizona (one of the "inbound" states above) has been that people have zero ability to correlate specific elements of public policy with particular outcomes.  In particular, people who flee California because it is too expensive and dysfunctional come to Arizona and immediately begin voting for exactly the same policies that made California expensive and dysfunctional.  Therefore, I tend to read being in an "inbound" state with dread, knowing that folks are moving in right now to make us the next Illinois or California.

Quiz: Since 1066, name an English queen consort who was not the monarch (e.g. not Mary I, Mary II, Liz 1, Liz II, Anne, Victoria) who was the biological daughter of another English Queen consort, also not the monarch.

Obviously this takes an unusual situation as in a normal succession this would require her to be married to her brother, uncle, or nephew.

Several years ago my knees started hurting a lot and eventually I was diagnosed with somewhat early but not bad osteoarthritis in both knees.  After years of running, I decided that my career was almost over, so I geared up with some cortisone injections and ran my first and last marathon.  The doctor may have said it was not severe yet but my knees hurt like hell for the months afterwards.

But I missed running.  Yes, many of you think running is stupid and boring.  Which is fine.  I think weight-lifting is a boring chore, but others love it.  Anyway, I love running not just for activity but to enjoy a nice day or explore new places.  I tried biking and an elliptical scooter and neither scratched the same itch.

But for almost a full year I never ran once.  I did a lot of hiking, and when that seemed to not be active enough I started adding my old textbooks to a day pack until I was walking and hiking with a 40+ pound pack and felt great.  So I was tempted to run again but knew I had to change something up to make it work.

At first I tried that old man marathon runners gate, which looks like a fast walk.  It worked OK but it was not that fun.  Then I read something about barefoot running, which I still think is dumb.  But the article talked about different sorts of strides and how they land differently -- some heel first, some toe first.  Apparently a benefit of barefoot running is it supports toe first landing, which some think is more beneficial.  Mostly I wrote all this off, as runners forums are jammed with people who have these pet theories that don't really stand up to study.

Anyway, the learning for me was that toe first landing even existed.  I started thinking about it and experimenting, and found that I had a strong heel first landing that was so forceful it was pile-driving my knees and spine.  What if I got off my heels?  I had already noticed that my knees seldom hurt running up a steep slope, and I realized I was on my toes doing so.  Couldn't hurt to try.

Well, changing your running gate after decades of running the same way is just as hard as you might expect.  The first few outings must have looked stupid.  Basically I was trying to run on my tip toes, as if I was doing the high-stepping tire exercise you see football players doing.

The breakthrough came with some practice and when I read somewhere that 1) toe first landing is about toe first, not toe only and 2) you have to sort of lean out a bit over your skis to run toe first.

Over time, it has gotten more natural and my knees feel great.  My progress was delayed a bit as I really was exhausting something in the back of my calves, but more practice and a more natural gate and some strengthening and I am back where I can run 3-4 miles at my old pace.  Actually a bit faster, as I think I was never leaning forward enough and wasting a lot of energy.

So we shall see.  This may all be temporary.  Heck, it may all be a placebo (readers who spend too much time in the comments trying to undo the placebo effect by convincing me it's a placebo will be blocked -- just kidding, in 15 years I have never blocked anyone).

By the way, I am not a doctor and PLEASE do not take any medical advice from me.

Yes, I am like an addict on Tesla but I find the company absolutely fascinating.  Books and HBS case studies will be written on this saga some day (a couple are being written right now but seem to be headed for Musk hagiography rather than a real accounting ala business classics like Barbarians at the Gate or Bad Blood).

I still stand by my past thoughts here, where I predicted in advance of results that 3Q2018 was probably going to be Tesla's high water mark, and explained the reasons why.  I won't go into them all.  There are more than one.  But I do want to give an update on one of them, which is the growth and investment story.

First, I want to explain that I have nothing against electric vehicles.  I actually have solar panels on my roof and a deposit down on an EV, though it is months away from being available.  What Tesla bulls don't really understand about the short position on Tesla is that most of us don't hate on the concept -- I respect them for really bootstrapping the mass EV market into existence.  If they were valued in the market at five or even ten billion dollars, you would not hear a peep out of me.  But they are valued (depending on the day, it is a volatile stock) between $55 to $65 billion.

The difference in valuation is entirely due to the charisma and relentless promotion by the 21st century's PT Barnum -- Elon Musk.  I used to get super excited by Musk as well, until two things happened.  One, he committed what I consider outright fraud in bailing out friends and family by getting Tesla to buy out SolarCity when SolarCity was days or weeks from falling apart.  And two, he started talking about things I know about and I realized he was totally full of sh*t.  That is a common reaction from people I read about Musk -- "I found him totally spellbinding until he was discussing something I am an expert in, and I then realized he was a fraud."

Elon Musk spins great technology visions.  Like Popular Mechanics magazine covers from the sixties and seventies (e.g. a flying RV! a mile long blimp will change logging!) he spins exciting visions that geeky males in particular resonate with.  Long time readers will know I identify as one of this tribe -- my most lamented two lost products in the marketplace are Omni Magazine and the Firefly TV series.  So I see his appeal, but I have also seen his BS -- something I think a lot more people have caught on to after his embarrassing Boring Company tunnel reveal.

Anyway, after a couple thousand words of introduction, here is the update:  In my last post linked above, I argued that Tesla is a growth company that is not investing in growth.  Sure, it is seeing growth in current quarters due to investments made over the last decade, but there is little evidence it is actually spending money to do anything new.  It stopped managing itself like a growth company trying to maintain its first-mover advantage.

Tesla has explicitly chosen to pursue a strategy that needs a TON of capital.  Everyone understands, I think, that building a new major automobile franchise takes a ton of investment -- that's why they are not popping up all the time.  But Tesla actually has made choices that increase the capital needed even beyond these huge numbers.  Specifically, they chose not just to manufacture cars, but to also own the sales and service network and to own the fueling network.  Kia was the last major new brand in the US that I can remember, but when it started it relied on 3rd parties to build and operate the dealer/service network and relied on Exxon and Shell to build out and operate the fueling network.  So Tesla has pursued a strategy that they need all the capital of Kia and of the Penske auto group and of Exxon.  Eek.

And for years, they were valiantly trying to pull it off.  They created showrooms in malls and created a new online selling process.  They built some service locations but as has been proven of late, not enough.  They built a supercharger network.  It was a gutsy call that seemed to be paying off.

And then something weird happened.  Somewhere in late 2017 or early 2018 they stopped raising capital and greatly slowed down both R&D and capital investment.

• They slowed expanding the service network at the very time that their installed base of cars was going up exponentially and they were getting bad press for slow service.  Elon Musk promised that Tesla would create its own body shops but nothing has been done on this promise.
• They slowed the Supercharger network expansion at the same time their installed base has dramatically increased and at the same time new competitive networks were begun by major players like Volkswagen.
• They stopped expanding the Model 3 production line at the same time it was clear the current factory could produce only about 5,000 cars per day (with some quality tradeoffs at that) and Musk continued to promise 10,000 a day
• They promised production in China by the end of this year but so far the only investment has been a groundbreaking ceremony in a still muddy field
• They promised huge European sales but only just now got European regulatory approval for sales, dragging their feet for some reason on this approval despite lots of new EV competition starting to hit the European market.
• They pumped up excitement with new product concepts like the semi and the coupe and the pickup truck but there is no evidence they have a place to build them or even have started to tool up.
• Everyone thinks of Tesla as having leadership in battery technology but that is the one area they have actually outsourced, to Panasonic.
• Through all of this, through all these huge needs for capital and despite Tesla's souring stock price and fanboy shareholders begging to throw money at the company, they have not raised any capital for a year.

Since my initial post, we have seen a few new pieces of news

1. Tesla still has not raised capital and in fact faces a $1 billion bond repayment in just over 30 days
2. Tesla admitted that it has not even started working on a refreshed design for the aging Model S and X, despite increasing EV competition coming at this high end from Audi, Porche, and others.  These refreshes should have been started years ago.
3. In fact, Tesla announced it was cutting back on production of the S and X.  Ostensibly this was to focus on the Model 3.  Most skeptics think this is BS, and the real reason is falling demand.  But it doesn't matter -- growth companies with great access to the capital markets don't make these kinds of tradeoffs.  This is further proof that Tesla is no longer managing itself like a growth company.  These cuts are particularly troubling because the S and X are where Tesla gets most of its gross margins -- the Model 3 margins are much worse.
4. Tesla laid off 7% of its work force.  Again, this is not the act of a company that is behind in implementing its growth initiatives, growth initiatives that perhaps 80% of its stock market valuation depends on.

Tesla has always had an execution problem, or more rightly an over-promising problem.  But it was still actually investing and doing stuff, even if it was disorganized and behind in doing so.  Now, however, it is a company valued as an exponential growth company that is no longer managing itself like a growth company.  It has billions of investments that are overdue -- in new products, in product refreshes, in the service network, in a second generation supercharger -- that should have been started 2-3 years ago and for which there isn't any major activity even today.

As a disclosure, Tesla stock is one of the most dangerous in the world to trade, either way.  You really need to understand it before you trade it and no one really understands it.  I have a couple of long-dated put options on Tesla that I consider more of a bar bet than anything else.  I also have a couple of cheap short-dated calls as I usually do in the runup to the quarterly Tesla earnings call.  Musk is great at the last minute stock pump during earnings call week, and the stock often pops only to fall soon afterwards as people dig into the numbers.  But again, these are "investments" that are less than 0.1% of my portfolio.

Postrcript:  When I wrote "Tesla is a growth company that is not investing in growth" I was picturing the Jim Cramer cameo in Ironman -- "That's a weapons company that doesn't make any weapons!"  Of course it took a work of fiction to see Jim Cramer advocate for the short side.  Doubly ironic given Musk sometimes styles himself as the real life Tony Stark.

I know I have not been blogging serious topics much of late.  In part this is due to just being busy -- holidays, end of year accounting closeouts for the business, and some geeky projects (a few raspberry pi things I will share soon).  In part this is due to the fact that whenever I engage with social media too long I become a worse person and back away again.   In part this is because my daughter said I needed to lighten up on my blog for a while.  And in part this is to my not wanting my obsessive fascination with the trainwreck that is Tesla to dominate my blogging (though there are a couple of updates coming).

As I close in on my 15th(!) year on this blog, this sort of ebb and flow happens from time to time.  I will be back in force soon.

Yes, I know that blogging women's hair care products is not really in my wheelhouse but my wife reports that the Dyson Airwrap she gave herself for Christmas is the greatest hair dryer-like product ever.  Expensive though.

I can't get enough of pre-CGI special effects back stories, particularly those involving models and matte paintings.  I have yet to find a really good book on building models for movies (the best documentaries I have seen have been extras on original trilogy Star Wars movie disks).  But there are several good collections of great matte painting work, including at this blog called the Matte Shot.  He writes few but very long posts usually dedicated to a particular artist.  This one is part two of a series on Albert Whitlock.  This guy was simply amazingly prolific and a great artist whose work you have seen but did not know it (e.g. Earthquake).  One example below:

I thought this study was very interesting, as highlighted by Alex Tabarrok.  I usually try not to publish highlights from research papers without actually reading them (the divergence between press releases on papers and the papers themselves is shocking and constitutes what may be one of the worst current academic practices).  But in this case I have learned to trust Mr. Tabarrok's judgement:

The best paper I have read in a long time is Hopenhayn, Neira and Singhania’s From Population Growth to Firm Demographics: Implications for Concentration, Entrepreneurship and the Labor Share. HNS do a great job at combining empirics and theory to explain an important fact about the world in an innovative and surprising way. The question the paper addresses is, Why is dynamism declining? As you may recall, my paper with Nathan Goldschlag, Is regulation to blame for the decline in American entrepreneurship?, somewhat surprisingly answered that the decline in dynamism was too widespread across too many industries to be explained by regulation. HNS point to a factor which is widespread across the entire economy, declining labor force growth.

Figure Two of the paper (at right) looks complicated but it tells a consistent and significant story. The top row of the figure shows three measures of declining dynamism: the rise in concentration which is measured as the share of employment accounted for by large (250+) firms, the increase in average firm size, and the declining exit rate. The bottom row of the figure shows the same measures but this time conditional on firm age. What we see in the bottom figure is two things. First, most of the lines jump around a bit but are generally flat or not increasing. In other words, once we control for firm age we do not see, for example, increasing concentration. Peering closer at the bottom row the second thing it shows is that older firms account for a larger share of employment, are bigger and have lower exit rates. Putting these two facts together suggests that we might be able to explain all the trends in the top row by one fact, aging firms.

So what explains aging firms? Changes in labor force growth have a big influence on the age distribution of firms. Assume, for example, that labor force growth increases. An increase in labor force growth means we need more firms. Current firms cannot absorb all new workers because of diminishing returns to scale. Thus, new workers lead to new firms. New firms are small and young. In contrast, declining labor force growth means fewer new firms. Thus, the average firm is bigger and older.

Another of the issues I have moved a lot on in life has been trade sanctions.  Back in the day, I was all for sanctioning the cr*p out of any country run by bad people, which is a pretty long list.  Now, I am convinced this approach is totally counter-productive.  First, the story via WSJ:

The U.S. is evaluating whether to impose tougher sanctions against Venezuela’s military and vital oil industry, a senior Trump administration official said Monday, as it seeks to ratchet up pressure on authoritarian leader Nicolás Maduro to hold free and fair elections.

The Trump administration is considering a range of measures including curtailing the flow of Venezuelan oil to the U.S., the official said, in what could be the harshest blow to the country's money supply. No final decision has been made.

The U.S. has already penalized a host of Venezuelan government heads, its gold sector and has blocked investors from renegotiating Caracas’s defaulted debt. The U.S. administration has held off on more draconian efforts like an oil embargo, weighing the humanitarian cost for economically devastated Venezuela, which depends almost entirely on crude exports. The U.S. also has been analyzing any potential harm to American businesses that buy Venezuelan crude.

Now, however, the Trump administration aims to up the ante after Mr. Maduro last week defied international calls to resign and was sworn in for a new six-year term following a May re-election that some 60 countries deemed fraudulent.

“Until now, we have been going around the edges,“ the official told The Wall Street Journal. “Now it’s a new dynamic. We are no longer going to be tinkering along the edges. Nowadays, everything will be put on the table.”

Kevin Drum has a good roundup of immigration statistics that really help to demonstrate that there is no new crisis at the border, and in fact with the exception in a rise of asylum requests, the border has been getting quieter for 10 years.

I think there are clearly elements of immigration that are broken.  I will highlight three that will likely alienate both sides of the political aisle. By the way, none of the three has to do with a wall.

1. I don't think we let in nearly enough legal immigrants each year -- all the Conservative talk that they just want people to follow the legal immigration process is all so much BS.  The legal immigration numbers are such that it is simply impossible for many to qualify.  But all this is unnecessary for many as they are not actually after permanent residence or a life of leisure on welfare.  A lot of the people who cross the border illegally just want to work temporarily and go back home.  We need a far larger guest worker program where workers can go back and forth as much as they like.  Ironically, a lot of permanent settlement here by illegal immigrants is due to tougher border controls, not lax ones.  They would rather go back and forth and just come over to work, but given the risks in crossing the border they have incentives to stay on this side.
2. A lot of the bad things Trump is trying to do at the border can trace back to the sanctuary city movement.  I initially was sympathetic to the sanctuary movement, as I support more immigration and know illegal immigrants who are good people just trying to make a life for their family.  I have turned against it as I have seen the reaction it has created.  I think a lot of the impetus behind the stupid wall proposals is that Republicans feel like the traditional immigration defense-in-depth enforcement approaches have all been undermined fatally by the sanctuary movement and that the only way to stop illegal immigration is right at the border.  The detainment and family separation issues last year seemed to be directly tied to the sanctuary movement, as Republicans most feared (probably rightly in many cases) that any border-crossers released waiting hearings would just run for a sanctuary city and be impossible to process at that point.
3. For years I believe we had a national consensus that admitting refugees is a good thing, and that consensus seems to be broken.  Stories from Europe of violence and other issues stemming from the wave of mostly Muslim immigrants the last few years (the media is so polarized on this I still cannot figure out if these issues are real or imagined) have turned Conservatives against admitting refugees.  I will say the Left has not helped at all by expanding the definition of what constitutes a refugee and by weaponizing Central American refugees in their resistance to Trump.  We waste all kinds of money on foreign aid and other programs that, at best, don't work.  But we have an incredible power to help the world.  First and foremost by trade and dropping our trade barriers.  But second by admitting a good number of the world's stomped-upon and destitute to this country.  Our historic numbers of such folks admitted I would argue have always been miserly, but as a minimum we need to at least stick to those levels.

As with many of my posts, I am still thinking through this.  I grew up an immigration restrictionist but today simply cannot think of a reason why (welfare state and public services aside) we have a right to restrict people's movement across borders.  I don't have a problem limiting public services for some time period and voting rights, but if someone from Mexico and I contract to rent a room in my house or work for my company, I don't think the government can restrict that.  I understand that there are perhaps limits to how many immigrants can be accomodated in a year for a variety of practical reasons, but we are way below those limits (as proven by our experience in the 19th century).

Disclosure: Like pretty much 100% of the Americans reading this, I am from a family of immigrants.  And like pretty much every other immigrant group, at one time or another my group has had the exact same language used against it that Conservatives use against Hispanic immigrants today.  My family happens to be German, and escaped the Kaiser in the late 19th century.  We have had it pretty good as far as immigrant groups go, but we had our time in the barrell in WWI.  I was at a party a while back and a woman who was a 2nd generation immigrant was railing at Mexicans for not being like other hard working immigrants who integrated into America.  I asked her where her family was from, and she said Hungaria.  I told her that early in the 20th Century Eastern Europeans like her family were treated to EXACTLY the same critiques and the strong immigration restrictions early in the century were mainly to stop eastern and southern (read: Italian) Europeans who were considered "bad" immigrants.  Replacing the Chinese who were the previous "bad" immigrants.  Replacing the Irish who were the "bad" immigrants before them.

Postscript:  I did not mention it above because I was talking more about the Mexican border and I don't think there are a lot of PHD's swimming the Rio Grande, but we for sure should be raising or perhaps waiving entirely any restrictions on talented, highly educated people from coming to this country.

Postscript #2:  I know folks have criticized me for my calling it a Berlin Wall on our border.   Sorry, but I have seen the Berlin wall from both sides and the wall prototypes look like the Berlin Wall to me.   I honestly am not sure why a border wall is immoral when set up by one side but moral when set up by the other.  Its the same wall restricting the same movement.  People respond that "its OK to wall people out of your house but not to be walled in."  But the house analogy for immigration is totally flawed and drives me crazy.  The country is not one property unless you have a Marxist definition of property.  If you want a better analogy, the county is not a house but is an apartment building with 100 million apartments.   I want to welcome people from outside up to my apartment to visit me or maybe live with me or work with me. You want to change the door code and keep my visitors out.

I discussed the shutdown and its effects on the parks my company operates here (spoiler:  all are still open).  Shawn Regan of PERC has a good article in the National Review on the same subject:

....under new shutdown guidelines established by the Trump administration, our parks have been rightfully spared from serving as pawns in Washington’s partisan budget battles as they did in the past.

Under a contingency plan created by the administration, park officials are allowed to keep sites accessible to visitors during the shutdown with skeletal staffs, rather than being forced to close them as was the case during the 2013 government shutdown presided over by President Obama. That means many important visitor activities and park operations — from snow-coach rides in Yellowstone run by private concessionaires to guided battlefield tours of Gettysburg — can continue yielding economic benefits for the surrounding communities. This week, the National Park Service also announced it will begin tapping unspent visitor-fee revenues to bolster operations at some parks.

These new plans are attracting criticism in the familiar anything-Trump-does-must-be-bad vein. Theresa Pierno of the National Parks Conservation Association slammed the administration’s decision to keep parks open, calling it “unrealistic and dangerous,” even though the NPCA repeatedly called for parks to be reopened during the 2013 shutdown. Representative Raúl Grijalva, the new Democratic chairman of the House Natural Resources Committee, pledged to hold hearingson the administration’s decision to support park operations with fee revenues....

The Trump administration’s approach is sensible. Why unnecessarily ruin visitors’ plans or jeopardize the millions of dollars in revenue that local communities receive from park visitation? If visitation begins to pose significant health or safety concerns, the contingency plan gives park superintendents the option to close areas or shut down parks entirely, as some parks have already done.

He goes on to make the very logical point that the vast majority of BLM lands and US Forest Service lands -- whose acreage dwarfs that under management by the National Park Service -- mostly all remain open in every shutdown.  The large amounts of government staffing on NPS lands are needed to handle large visitor concentrations in small areas, something that really is not an issue in most parks in January.

Folks who have been hunting for pictures of overflowing trash cans to paint the current opening of parks as a bad idea could find just as many in the summertime on government lands when the government is not shut down.  Remember, for all the love folks want to throw at the National Park Service at these times, it is an agency that has allowed many of its parks to fall apart, with perhaps $20 billion in deferred maintenance and very little new investment in the modern infrastructure visitors are demanding.  And it has a labor model that is well suited to counting wolves but poorly suited to efficiently cleaning bathrooms and emptying trash cans even when the government is open.  This shutdown is the least of the problems faced by public recreation lands.

I think people get confused about the purpose of the government shutdown.  It is not a punishment, or a timeout, meted out by the law when Congress can't agree on a budget.  It is a mechanical (and logical) requirement that spending on certain activities stop when that spending is no longer legally authorized.  The media acts like it is supposed to be painful, and that Trump is somehow breaking the rules by making it less so.  I often criticize this President, but this is one area Trump should be applauded.  I think the wall funding issue is a dumb reason to go into budget gridlock, particularly when he had 2 years of Republican Congresses to get this done, but given the fact of the shutdown he should be applauded for attempting to reduce its impact on ordinary Americans.  President Obama, for all his reputation of caring and hope, was to my mind overly callous in explicitly trying to make the shutdown more painful for average people.

Dear Republicans:

The last thing we need now is even more expansion of executive power.  I remember when, gosh it was like only two or three years ago, you Republicans were (rightly) bemoaning Obama's executive actions as unconstitutional expansions of Presidential power.  You argued, again rightly, that just because Congress did not pass the President's cherished agenda items, that did not give the President some sort of right to do an end-around Congress.

But now, I hear many Republicans making exactly the same arguments on the wall that Obama made during his Presidency, with the added distasteful element of a proposed declaration of emergency to allow the army to go build the wall.

I personally think the wall is stupid, will solve nothing, and will be a moral blight on this country -- its ugly to think of use having our very own Berlin Wall.  But forget all that, for now I am not arguing against the wall, but against the proposed process.

I can pretty much guarantee you that if Trump uses this emergency declaration dodge (and maybe even if he doesn't now that Republicans have helped to normalize the idea), the next Democratic President is going to use the same dodge.  I can just see President Warren declaring a state of emergency to have the army build windmills or worse.  In fact, if Trump declares a state of emergency on a hot-button Republican issue, Democratics partisans are going to DEMAND that their President do the same, if for no reason other than tribal tit for tat.

Postscript:  Now that I am handing out political advice to Republicans, what is the deal with your Ocasio-Cortez fixation?  I hear many folks on both sides of the aisle who attribute some of Trump's electoral success to the media fixation on him that kept him in the news constantly.  I am reminded of the old Pepsi challenge, where Pepsi showed people choosing their product over Coke.  But the thing was, while Pepsi's sales increased, so did Coke's because the commercials kept Coke's name prominent in people's minds and established it as the product to which everyone else compares themselves.  Do you really want to do the same thing with Ocasio-Cortez?

There are a lot of reasons a tax can be dumb.  It can be too damn high.  It can create incentives for counter-productive behavior.  But I want to propose another category of stupid taxes -- taxes that cost WAY more to do the paperwork than the tax actually collects.  For this category I propose the dumbest tax award to the property tax many counties charge on business small equipment and moveable property.  Here is one page from a sample county return we have to fill out.

This is just one page of many -- assets have to be reported in multiple classes -- but you get the idea.  Every single business asset down to trivial things like office and cleaning supplies, screwdrivers, etc all have to be individually listed with year acquired and purchase price.  We have nearly 150 locations across the county and waste a staggering amount of time staying on top of this.

AND, the real punch line is it raises about zero dollars in tax.  Take something we have a lot of, a hand push mower.  Let's say we bought a good one at $500 about 3 years ago.  The property tax process generally discounts this -- the taxable value might be $200 or less today.  Then they might charge a half percent annual tax, which would bring in a whopping $1.  So tracking this mower and entering it on this form every year probably costs me more in labor and software we have to license than the tax itself.  I would be willing to pay a higher amount of tax if when they sent the forms they said, "Fill out these forms by March 1 or you can alternatively pay $500 and be done with it."

I understand they want to be able to tax the crap out of the Exxon refinery, but there really needs to be some minimum cutoff.  Florida did this years ago and it is great -- there is a card that you sign to certify your total personal property is under some number and you avoid the process altogether.

PS, we are tired of the old asset management software we have -- if someone out there knows a package that works well for this kind of thing, email me at the link above.

I have written in the context of both the new marijuana stocks (e.g. Tilray or Canopy) and Tesla in EV's that the market is putting a whole lot of value -- in some cases 90+% of their current market value -- on these companies being first movers in potentially large and lucrative new industries.

It is hard to predict early on where in an industry's value chain the profits will be, or if the industry will be profitable at all.  Who will make money in marijuana -- the growers?  the retailers?  the folks that package the raw material into consumer products?  The early marijuana entrants are focusing on cultivation, but in tobacco do the cultivators or the cigarette makers who buy from them make the most money?  And as anyone at Myspace could tell you, being first is not always a guarantee of success, and in some ways can be a disadvantage.  Second movers can avoid all the first-movers costly mistakes.

I though of all this seeing the infographic below on changing leaders in the Internet world.  Almost all the top 20 companies in the first year are largely irrelevant today -- AOL and Yahoo are technically still in business but only because they have been bought up by Verizon in a group of other dogs they seem intent on collecting.

Readers of this blog know that I have always been skeptical of the value of net neutrality rules.   I see the Internet just like any other vertical value chain with multiple players, which we might oversimplify as content providers who hand off to bandwidth providers to get in front of the customer.  Nearly every industry has these vertical value chains with multiple players -- think Coke and Pepsi fighting for floor space and margins through Wal-Mart.  What is amazing to me is how the large content streamers, particularly Google, Netflix and Facebook, have somehow convinced the public that the whole future of the Internet depends on the government hamstringing the bandwidth providers in their relationship with the content producers.

When Youtube wants to stream at 4K rather than 1080p, the majority of the instractructure hit is on the bandwidth provides, and Google/Youtube wants that bandwidth to be there but does not want to have to pay for any of it.  That is why these companies are the main supporters of net neutrality, but they are smart enough not to say this, but to instead flog some mythology that bandwidth providers might block or discriminate against certain providers.  Even supporters of this meme are forced to agree that it is wholly hypothetical, that no one can really point to any good examples of it happening (I have always suspected that general public hatred for Comcast in particular has created more support for net neutrality than anything else).

This argument for net neutrality is even odder as clear discrimination and deplatforming is happening on the Internet apparently everywhere BUT with the bandwidth providers.  Or as I wrote on Twitter:

I might be unable to get a domain registered. I might not get hosted. I might not get anyone to handle my payments. I might not be able to syndicate on any social media. Google might not show me in searches. But by God Comcast is going to give equal treatment to my traffic!

— Coyoteblog (@Coyoteblog) November 29, 2018

This is my usual long-winded lead in for a very good article I read a while back and forgot to link.  It's from Drew Clark at Cato and is titled "Seeking Intervention Backfired on Silicon Valley".  I recommend the whole thing but here is a small piece:

The companies that drove the engine of America’s information technology machine essentially argued as follows: We provide the good stuff that you — the American consumer — want. You go to Google to get your searches answered. You want Facebook to keep up on posts from friends, families, and trusted content providers. Access to the content in the Apple iTunes store or to Amazon Prime streaming video subscriptions doesn’t need to be regulated because we tech giants compete vigorously among ourselves. But Washington does need to step in and regulate the telecom market because of a lack of competition among ISPs. And the FCC agreed in 2015 with what was officially dubbed the Open Internet Order. ...

Major content companies like Google, Facebook, and Netflix feared that ISPs would seek to throttle their services as a way of extracting payment for prioritization. Particularly for data-intensive video- streaming services like Netflix and Google’s YouTube, this concern had a certain economic logic, even as it remained hypothetical. Having long courted Silicon Valley as a key constituency and facing a highly visible public demand with enthusiastic grassroots support on the left, Obama complied....

Silicon Valley’s regulations-for-thee-but-not-for-me attitude has come back to bite them. They want the strictest form of regulation for telecommunications providers but no scrutiny of themselves, and now the tables have been turned.

Pai has not hesitated to point out the hypocrisy as he has moved to undo the net neutrality rules. In a November 29 speech in the lead-up to his net neutrality rollback, he said that the tech giants are “part of the problem” of viewpoint discrimination. “Indeed, despite all the talk about the fear that broadband providers could decide what internet content consumers can see, recent experience shows that so-called edge providers are in fact deciding what content they see. These providers routinely block or discriminate against content they don’t like.”

Several readers have been nice enough to write me and ask how my business is doing during the government shutdown.  As background, my company privately operates public recreation areas, mostly campgrounds, under concession contract.  We manage public lands for many different government agencies, but many of the campgrounds we run are in the Forest Service.  Typically the Forest Service (and National Park Service) must close in this and most other shutdowns.  In fact, public parks are often a significant pawn in budget battles, so much so the term "closing the Washington Monument" has become shorthand for using popular public facilities as a leverage point in spending fights (the fact that politicians always threaten to close the MOST popular public services when money is tight rather than the most useless is exhibit A in why we shouldn't trust our money to Congress).

But all the Federal facilities we operate are still open right now through the government shutdown.  The reason for this is that our company does not receive a dime from the government -- all the money goes the other way.  We operate the facilities essentially under a (very restrictive) lease.  We collect visitor use fees and then pay a bid percentage of those fees back to the Feds as our rent -- this is a huge advantage to the government as before our management they typically lost money even after collected visitor fees and now they are gaining money**.  Since the government does not have to fund these locations, and since their daily operation requires no federal employees, the parks we operate are typically not closed during government shutdowns.

Long-time readers will be familiar with one exception -- in 2013 during the Obama Administration we were forced to close during a Federal shutdown.  Originally, the agencies we work with (particularly the US Forest Service which is part of the Department of Agriculture) gave us the usual guidance, that we were to remain open.  Then, suddenly, our company and those like it were told to shut down.  When I and my trade group attempted to protest the decision with whatever official in the agency made the decision, we were told it came from "above the Department of Agriculture," which narrows the field of possible decision-makers pretty substantially.  My hypothesis, though I can never prove it, was that the Obama Administration wanted to put as much pressure on Congress as possible, and closing the Washington Monument doesn't work as leverage if some damn private company is keeping it open.  My competitors and I banded together and took the US Forest Service to court (past articles here) and were in the process of winning our case when the shutdown ended, but ever since then the US Forest Service has allowed us to stay open in shutdowns.  If you have WSJ access, they actually covered our effort here; I made an early morning appearance on Fox & Friends; Reason TV did a nice piece; and Hans Bader of the CEI was all over the story and a big help in getting the issue some visibility.

Christmas and New Years are popular times for folks to visit in places like Sedona and Florida where we run Forest Service recreation areas, and we are happy we have been able to stay open and serve them this time around.

**Postscript: This private concession management model also has a benefit in state and local budget battles, though it is slightly different.  I can tell you from loooooong personal experience that the public really does not like recreation use fees on public lands.  My taxes should pay for that!  But now, and certainly in the future, our taxes go mostly to fund programmed expenses like healthcare and welfare plus our bloated military.  Anything else is going to be starved -- which leads to the estimated $114 billion in deferred maintenance in federal / state / local public recreation areas and parks ($20+ billion in the National Park Service alone).  Seeing this happening, most of the public has become reconciled to user fees for recreation as long as the recreation fee is used to support the local park they are visiting.

To this end, one reason folks are sometimes leery about private management of these lands is they wonder if their fees are being sucked away to some corporate equivalent of Scrooge McDuck's gold vault rather than supporting operations at the park.  It's the reason I keep this chart up on our web site:

In fact, it is the government agencies themselves that often sweep user fees out of the parks and into general revenue funds.  The Arizona legislature did this for years to the state parks agency.  The result in this situation is that the infrastructure crumbles while the user fees that should be fixing these issues actually has just become another general revenue tax.  I think of deferred maintenance in government facilities -- parks, subways, roads, etc -- as a kind of shadow borrowing where government officials borrow against the infrastructure.  This borrowing is almost invisible, at least on an incremental basis, and often the debt is eventually defaulted on as the infrastructure is never repaired and has to be closed or torn down.  By putting parks under concession management, user fees can no longer be swept away from the management and maintenance of the park, and private companies can often be held accountable for poor maintenance more readily than agencies are able to hold themselves accountable.