Coyote Blog

I was reading the Tesla shareholder letter and I found this funny.  Tesla began by celebrating that it produced 5,000 Model 3 cars  in the last week of Q2.  And also

Highlights from the company’s letter to shareholders included the promise to produce 6,000 Model 3 sedans a week by late August, and to produce 50,000 to 55,000 of the sedans in the third quarter.

So we began the quarter at 5,000 per week and will hit 6,000 a week about two thirds of the way in so that we will on average produce around 4,000 a week for the quarter.  Right.

It is useful to have an algorithm for spending your travel (hotel, air) loyalty points.  Years ago I generally saved them for big vacation trips, usually to Europe or Hawaii.  These were the most expensive trips I took and it felt good to bring their cost down.

Two things have killed this algorithm for me.  One is that most major airlines don't have squat for points availability on popular Trans-Atlantic and Hawaiian routes (British Airways, I am looking at you).  The second change was that I started to read some of the web sites focused on travel points, for example the Points Guy.

There is good information on these sites, but a lot of the detailed strategies are way to arcane and time-consuming to bother with (e.g. Take your American Express points and convert them into gift certificates denominated in Ecuadorian currency, and then apply these for double credit... etc).  But the one takeaway I have had is to think of your points like a currency with a constantly varying exchange rate to dollars, and find the opportunities to spend the points at the best exchange rates.  TPG  maintains a monthly estimate of the value of each type of reward point.  Expected value is between 1 and 2 cents a point for most.

My new algorithm is to use my points when I am getting at least 2 cents for them, and hopefully more.   Take hotel points for example.  From time to time I will find that there is some squeeze in hotel rooms in a city I want to visit and the price of most hotels have risen 50-100% for these days.  This is a great time to use your points, particularly if you are locked into the dates and can't go on a cheaper date.  The reason for this is while the price in $ goes up, the price in points does not.  There may be some hotel chains that limit availability, but Starwood for example does not.  Let me give an example.

In several weeks I am taking my wife for a nice weekend to see her friends in Manhattan.  We are locked into the dates.  But it turns out that there is some UN event and all the hotel rates have skyrocketed even higher than usual NYC hotel rates.  It was just going to be too expensive to stay in a really special hotel.  Until I thought of the St. Regis.  It is not my first choice, but it is in Starwood and with the Starwood Amex card I have a zillion points.  Turns out for a basic room the nightly rate had gone all the way to $1500 (welcome to NY).  But the points cost for the same room was the same as it ever was, 35,000.  I was effectively getting 4.3 cents each for my points.  One could argue that since this was not my first choice, I should compare it to that alternative, but even with a cheaper rate at that hotel this was still 2.6 cents of savings for each point.

For American Airlines, I try to do the same thing.  Most transcontinental flights have no points availability, or have availability at really bad exchange rates (The one exception I have found is Cathay Pacific, which takes American points and tends to have a lot of award seats).  I increasingly use my points domestically.  When rates shoot up for a particular flight, there still may not be availability but sometimes the opportunities are there.

The last few days I have written of my frustration at trying to get local business bank accounts, the sole purpose of which is to accept deposits of cash from my local campgrounds and then transfer that money to my main account.  This is a major hassle as opening a bank account as a corporation is not a simple task and, as I have found out, some banks won't even accept this sort of business.

Here is what I need:  I need a national network of offices, many in rural locations, that will take my cash and ACH (a cheap form of wire transfer) the money to my bank account.  So naturally, I think of Walmart.  Walmart already is used to handling a lot of cash and Walmart is already starting to offer a number of consumer banking services.  One reader told me about the Bluebird service, a joint effort between Amex and Walmart to create a sort of virtual consumer bank.  I love the idea, but it has rules limiting it to consumer accounts.

So here is my business for you Walmart

• I bring my cash to you at any store.  You zip it through a counter.  We agree on the amount.
• You wire my main account with the money.  I will give you three days so you can use the cheapest transfer and have time to get the cash into your own account.
• I will pay you 100 bp (1%) of the cash value for the service

Currently I pay merchant processors 270-300bp for those transactions and I have to wait 3-5 days for the money to hit my accounts.  So 100bp on cash would be fair for me, and I would guess fair for Walmart.

I have been working on cord-cutting around the house and have been experimenting with different devices (e.g. Roku, Google, Amazon) and different streaming services (Youtube TV, DirecTV Now, and I may test Slingbox soon since it is the only one that seems to have the Redzone channel).

The boxes vary mostly in interface.  We have been a Roku family for a long time so we are comfortable with it, and it is pretty straight forward.  The one flaw is that there is no sharing across devices of passwords and such and so you tediously have to enter all your streaming service passwords in every device.  What is worse, the Roku tends to have these fits of forgetfulness making you re-enter many or all your passwords a second or third time.  I may have not understood the Google device but it seemed to require me to do everything with my cell phone nearby and actually streamed stuff from my phone.  This may be fine for millenials but was stupid for my home theater where I already have a Logitech remote that is programmed to handle everything.  I have not played much with the Amazon device -- if you are an Amazon family and like Alexa it may be the best solution.  I did not even consider the Apple device -- I am sure it is great if you all you use is Apple walled garden service and devices but I use many other services and in general find its interface a kluge.  Roku is really the one device with neutrality going for it.

I have tried several of the streaming services.  I like Youtube TV and its interface a lot.  DirecTV has a few more channels that I like but I like the interface less (by the way, there are several good channel coverage comparisons of the various streaming services you can google).  Both services have cloud recording functions, ability to watch content both live and in replay mode, and have good coverage of all the local networks.  I was hoping that Red Zone channel would come to DirecTV live as they have the satellite rights to it but apparently slingbox is the only service that is currently offering Red Zone, so I may have to try that.  I need to hurry as all my free trials are running out.

The one interesting exception to all this is that there is no way to get PBS live streamed on any device from any service right now.  Some local stations livestream to your browser and I think there is now a browser-based livestream of the News hour.  But you can't currently watch your local PBS station live -- you can only watch selected shows in replay mode after they have aired via a separate PBS app for devices like the Roku.  It is amazing to me that the progressive socialist haters of capitalism at PBS are the only network still committed to supporting the cable monopolies.  The PBS website helpfully tells you that you can buy an over-the-air antenna if you want to cut the cord and watch PBS.

A while back I wrote on my concerns about privacy and being treated like a criminal in opening new business banking accounts in small town California.  My main bank closed so I had to go with the available local bank El Dorado.  Now El Dorado Bank refuses to take my business and open new accounts.  It could be because I criticized them online, but they say it is because they no longer take accounts that are just deposit accounts, ie accounts where we drop our local cash collections and then ACH it from time to time to our other accounts.

I guess I understand why this is not awesome business for them, but on the other hand all they have to do is make 4 deposits a month and they get to carry my $20,000 average balance and charge me a fee as well.  And they still don't want the business.

Here is what I need.  I need some easy way around the country, often in rural locations, I can turn cash into bits.  I can now scan checks anywhere in the country at my desk and have the check deposited to my account.  But not so with cash.   You still have to find someone local who will accept the cash into an account, effectively turning the cash into bits and bytes that I can then transfer to my main bank.  I don't think there is a solution to this but you are welcome to email me if you know of one.  My guess that anyone who tried to start such a service would be immediately hamstrung by the government who believes in its heart that every one of us is a drug dealer, money laundering, or tax evader, or all of the above.

If you plotted my "certainty" curve over time, it probably hit a low point in high school, climbed to peaks during college and just afterwards, slid over time as my face got pressed up against the glass of the real world, and dropped even lower when I discovered RSS readers and put a wide variety of feeds into it.  That is not to say I am not confident -- at least as long as we are talking about intellectual and not social skills -- but I am more open to being wrong than I have been since I was about 18.  I am fairly sure I still greatly overestimate my own correctness.

I was thinking a while back about why I perceived myself to have had this period in high school when I was less certain of my infallibility.  One reason had to be my finally coming to terms with nagging questions about the religion I grew up with.  Another was probably due to high school debate, where after vociferously defending a policy position for an hour one immediately had to walk into another room and defend the opposite side.  Even then high school debate was becoming broken, but being forced to argue both sides of every issue was a great experience.

All this is an introduction to a nice work by Charles Chu called "The Ideological Turing Test: How to Be Less Wrong."  It is hard to excerpt, because it covers a lot of ground, but I wish in retrospect my high school had printed something like this on my locker door.  If I had a billion dollars and wanted to found a new university**, I would make the ideological Turing test the core of the educational philosophy.  Think of what goes on in colleges nowadays and being a professor and saying "OK, class half over.  Nice discussion.  Now everyone switch sides."***

** Name a major private university with a national reputation or that your friends' kids have considered attending that was founded after 1900.  I can come up with only a couple: Rice University in Houston and several of the Claremont Colleges (e.g. Claremont-McKenna) in California.  Only one school in the Ivy League is less than 250 years old. Most folks can perhaps name one in their local city (ie Grand Canyon University here in Phoenix) that is newer but does not have a national reputation.  I guess that it could take a while to develop a national reputation, but 100 years?  Really?  In the art school world (which aren't generally considered universities) I can name at least 4 schools with a national reputation (at least in the art world) that were founded much more recently, several in my lifetime (SCAD, Ringling, Art Center, Cal Arts).

*** I did very well at Harvard Business School, better than I have done at anything else in my life (they did not have class ranks but I was pretty damn close to #1 out of 900, after being literally the last person they let in off the waiting list).  It helped that I love the format and loved the subject matter.  Also, to be honest it helped that I could do math (which held back half the class but led to my marrying someone I was tutoring) and that English was my first language (I had great respect for foreign students who even attempted to survive the case method in a second language).  But the real trick to success was to shine in the discussions, which were 70% or so of the grade.  And I did so with a simple trick.  I watched the discussion, and jumped in on whatever side was losing or had the fewest supporters, irregardless of what I might believe.  Not only was this a ton of fun, but it was appreciated by the professors -- they did not want to intervene in a discussion but felt like they had to if the argument got too unbalanced.  I took all kinds of positions against my true beliefs.  I argued that the only mistake "neutron" Jack Welch made at GE was not firing more people.  I slammed Steinway for ignoring new technology and fetishizing hand craftsmanship.  And I convinced everyone I must hate Canada when I opened a rant on the nation with "Canada is like a whole other state," riffing off the then-current Texas travel ad that said "Texas: It's Like A Whole Other Country."  I am not sure how one would do such a thing today when comments in class are seen more as virtue-signalling to your crowd than they are thought-out policy positions, and when taking the "wrong" side, even as an intellectual exercise, can lead to nationwide social media shaming.  By the way, my keys to succeeding at HBS are embedded in my novel BMOC, currently free on Kindle.

I asked this question to an accountant friend you runs a web site on accounting technical issues:

Tesla gets Zero Emission Vehicle (ZEV) credits from about 10 states for selling EV's.  These have a LOT of value and can be sold to other car makers who need them to compete in these states.  In the past Tesla has sold batches of them for upwards of a billion dollars, so they are material.  Tesla tends to horde them for several quarters and then sell them in a big batch to juice a particular quarter.  However, they do not appear on the balance sheet.  Anywhere.  It is a public company but no one in the outside world knows how many of the ZEV credits Tesla has until they show up on the income statement as having been sold and having generated a huge profit.

How is it possible that Tesla is gaining these valuable assets with each sale of a car in certain states but they are not getting put on the balance sheet in any way?

My novel BMOC is here

My short story String Theory is here

Both are offered for free until July 31.  Grab a copy and tell you friends and family.

UPDATE:  I had the wrong link.  The call is Wednesday but at 2:30 Pacific after the market closes, which makes more sense.  Like many companies, Tesla likes to dump the quarterly financials, dozens of pages in 8 point font, just seconds before the conference call.

If you are sitting in your office this week and need to be entertained in a way that looks like you are working, consider the Tesla investor conference call Wednesday at 2:30 PDT.  I can't guarantee anything but past conference calls have been a circus.  Normally I would expect the Tesla Board or the corporate counsel (who is Musk's divorce lawyer, lol) to bring adult supervision to the party, but so far that has not happened in any Tesla communications to date.  Expect potential discussion around:

• Tesla's immediate external capital needs, given that they are burning cash faster than you could actually physically burn it (Musk claims zero is needed but everyone else in the free world thinks its >$2 billion, with a huge part of Tesla's existing debt also expiring and needing to be rolled over soon)
• Model 3 order blacklog (this was the question in the last call that caused Musk to tell the experienced Wall Street analyst to shut up and then he switched to taking questions from a Youtube fanboy
• Model 3 production rates and quality issues
• Gross margins.  They HAVE to get higher for survival.  Particularly since Telsa has chosen to eschew traditional dealer networks so corporate bears all the cost of service and support.  This demands Tesla not only get its gross margins as high as other auto makers, they need to be higher.
• Expiration of tax subsidies -- the $6500 government tax credit for Tesla customers slowly disappears once their 200,000th EV has been sold in the US, which has happened.
• The disappearance of the $35,000 Model 3 from the web site (this is the promised car that generated a lot of the Telsa hype in the first place)
• Disappearance of all those other teased products (coupe, semi) that were released to great fanfare and have not ever been mentioned again
• ZEV credits (these are credits it gets from states like CA that other car makers have to buy to do business in those states with gasoline vehicles).  These are odd ducks as they have a lot of value but for some reasons do not show up anywhere on the balance sheet, so one doesn't know they even exist until Tesla chooses to sell them for a LOT of money.   They can flip a single quarter positive by saving these and exercising them at the same time.  Most folks see this happening in a bid to make Q3 profitable.  (By the way, anyone out there that understands by what accounting rules these valuable assets don't get put on the balance sheet are encouraged to email me the answer).
• Introduction of competitive products (Jaguar, Volvo, and pretty much everyone else soon)
• Pending lawsuits from both shareholders and whistle-blowing employees
• Implosion of SolarCity (now part of Telsa) such that new installations are on a trend line towards zero
• (unlikely but someone should really ask) Musk's silencing of critics
• (unlikely but someone should really ask) Musk's social media demeanor, including calling the Thai rescue hero a pedophile because he did not use Musk's goofy submarine

Tesla is a train wreck I cannot take my eyes off.  Unlike Theranos, which combined a product that didn't work with a screwed up management, and which operated in the dark, Tesla combines what has been a really good product with a screwed-up management, and operates in an absolute blaze of publicity.  I have never seen any stock where sentiment was so polarized between bears and fan-boy bulls (Herbalife, maybe?)

I have a personal metric of sentiment and volatility I invented but I am pretty sure has been used since before I was born.  Anyway, I look at the sum of the price of an at-the-market put and at-the-market call for the stock about 6 months out.  I then divide this combined price by the share price.  For Tesla January options, this comes to 31%.    This is really a huge number.  Take ExxonMobil, which has a lot of split sentiment right now (a historically fabulous company that keeps screwing up its quarters recently) this metric sits at 9%.

Disclosure:  I am in and out of short positions on TSLA, typically selling around 350+ (usually after Musk has honeytrapped the fan boys) and covering in the 290-300 range (usually after real news or a Musk meltdown).  This strategy has been profitable for 2 years but I think that is coming to an end.  TSLA is either going to fall more or stay high based on what it does in the 3rd quarter.

My novel BMOC is here

My short story String Theory is here

Both are offered for free until July 31.  Grab a copy and tell you friends and family.

In San Francisco, you have to pay your employees $14 an hour, you have to schedule their shifts at least 7 days in advance, you have to provide them with a meal break, but God forbid that you give them a free meal:

Two San Francisco supervisors want to do away with employer-provided free lunches, a perk enjoyed by thousands of people who work in the City. That’s because restaurant owners say they can’t compete.

It’s lunchtime at Perennial in SOMA but you wouldn’t know it. The seats are empty. Anthony Myint is the restaurant’s owner and says it’s extremely challenging owning a restaurant so close to big companies that have their own onsite free employee cafeterias.

“I think it’s never been harder to run a restaurant in the city then right now,” he said.

Other restaurant owners in the area agree.

“We see it in our business,” says Ryan Corridor, owner of Corridor. “We see thousands of employees in a block radius that don’t go out to lunch and don’t go out in support of restaurants every day — it’s because they don’t have to”

I really do not understand the business mindset that companies are somehow owed a minimum amount of revenue, but the same "logic" driving this law is also driving the Trump tariffs.  You asked for bipartisanship, and here it is -- Trump and San Francisco progressives are united in their belief that the job of government is to force consumers to shift their business, even at high personal cost**, to crony favored suppliers.

Thanks to several readers who sent me this story.

** Note that the cost is not just in dollars but also in extra time travelling from the office to an offsite restaurant.

Trump supporters are saying "I told you so" as Trump and European officials reached an agreement to dial back tariffs and pursue some efforts at free-er trade.  Trump supporters have argued, and I was skeptical, that Trump really wanted free trade but was engaging in brinkmanship as part of the opening phases of negotiation.  First, let's see exactly what this agreement included:

– They will work towards “zero tariffs, zero non-tariff barriers, and zero subsidies” on non-auto industrial products. That’s not a huge category of goods, as it excludes agriculture and raw materials, among other things, and zero non-tariff barriers and subsidies seems really unlikely. But still, it would be great if we made progress here.

– The EU will buy more U.S. soybeans and liquid natural gas. This was probably going to happen anyway because of market shifts and other factors.

– They will have a dialogue about conflicting regulatory standards in the U.S. and EU. This is a long-time goal of U.S. and EU trade policy-makers. It sounds easier than it really is.

– They will work together on reform of the WTO, and to address problems to the trading system caused by China.

In addition, the agreement effectively included:

• Current Trump tariffs on steel and metals, and the European retaliation, will remain in place
• Trump will not currently put in place his threatened $200 billion in auto tariffs on European vehicles

So the basic agreement is 1) leave all new tariffs in place; 2) sell more soybeans and natural gas to Europe; and 3) talk about tariff and non-tariff barriers that typically consume years and years of discussion.

This is basically a big zero.  Even beyond the fact that the agreement avoids most of the major trade categories, the act of negotiating towards lower tariffs, lower non-tariff barriers, and reconciling conflicting regulator standards has been done before -- its called NAFTA and the TPP, both of which Trump has sh*t on.  Sure, they can have flaws (especially the TPP), but these compromises are the only way these trade deals get made, as country leaders each are in thrall to their own influential crony industry.  The US's own high tariffs on SUV imports is a great example.  This is all not to mention the time -- TPP negotiations took 8 years -- through which we consumers apparently will still suffer under Trump's tariffs.

So for most US consumers, the end result of all of this is that we still are paying higher prices for any product that contains metal, from soda cans to automobiles.  This is great for soybean farmers, I suppose, but sucks for the rest of us.   This is all about politicians balancing one crony against another and in this calculus, consumers always lose.

Trump says he is for free trade, but he still spouts all this fairness BS.  Things that he considers "unfair" are actually just "unfair" to a few people in a few industries, but are eminently "fair" for 300 million consumers in the US.  Here is the true test of a free trader:

Consider two trade regimes.  In Regime #1, the US charges 0% tariffs on German steel and Germany charges 0% tariffs on US steel.  In Regime #2, the US is able to charge 10% tariffs on German steel while Germany still charges 0% tariffs on US steel.   I would bet quite a bit of money that Trump would say that Regime #2 is a better deal for the US, while free traders like myself and most economists would say that Regime #1 is not only better for the world as a whole, it is better for the US.  Zero tariffs allows the division of labor and comparative advantage to all work their magic to make sure capital and productive effort in this country are employed for the highest return.

It is always entertaining reading blogs from both sides of the political aisle.  Here are articles from the last day or so after the Saturday FBI document dump of the redacted FISA application

Scott Johnson at Powerline:  "DEVIN NUNES VINDICATED"

Kevin Drum at Mother Jones: "Now We Know For Sure: Devin Nunes Lied About Everything"

The hilarious part is that the vast majority of articles from both sides have a tone of, "well, this should put the question to rest."  LOL.

I really don't have an opinion about the Nunes memo, nor do I really care.  A few random thoughts

• I have not read the FISA application, nor will I ever, but the Saturday evening drop time is not usually a marker of something an agency is proud of
• I don't think the Carter Page surveillance likely did much harm, but it strikes me that the bar for starting a secret national security spying effort against members of an active Presidential campaign should be  a little higher. In fact, I have always felt the FISA bar should be higher for everyone.
• Almost no matter the details, the handling by the Obama Administration of Russian spying allegations seems weirdly passive-aggressive -- both overly aggressive against minor figures like Carter Page and strangely silent and passive on the broader details.  It is strange to me that so many Obama administration officials can be so vocally worried about Russian spying after November 2016 and so silent and ineffective on it before that date, when they actually had power to do something about it.  I know Republican partisans will explain this with "because bias," and this may be the case, but without any direct knowledge I always prefer to default to incompetence.  Certainly screaming about it now on every cable talk show seems to have diverted attention from the question of what the f*ck they were dong when it was actually their job to tackle this kind of thing.

Frequent readers will know that I have expressed both admiration and skepticism for Elon Musk's various business ventures.   SpaceX is cool.  I am extremely skeptical of the hyperloop, which looks like the technological equivalent of the emperor's new clothes.  I thought Tesla's acquisition of nearly-bankrupt SolarCity was corrupt insider self-dealing.  I think the initial Tesla cars were terrific products but that Musk's management is likely to kill the company.

Lately, I have tried to avoid discussing Tesla and Musk much because I don't want to turn this into a dedicated blog on those two subjects.  Also, with all the press (positive and negative) that it gets, another article on Tesla is about as necessary as another article on Stormy Daniels.  I even resisted the urge to comment on Musk's childish need to insert himself into the Thai cave rescue story and his subsequent rant on Twitter petulantly calling one member of the rescue team a pedophile because he did not use Musk's submarine.  Lol, a submarine for a rescue where one passage was so narrow a diver wearing tanks could not even squeeze through.

My will to avoid Musk and Tesla on this blog collapsed the other day when Musk personally called the employer of one of Tesla's harshest (and I would add most intelligent) critics pseudonymed Montana Skeptic, and threatened to sue the critic and get him fired unless he shut down his criticism.  He succeeded, as Montana Skeptic was forced to shut down and issue this statement:

Yesterday, July 23, I decided to cease writing about Tesla (TSLA) here at Seeking Alpha web site. I also deactivated my Twitter account, where I was @MontanaSkeptic1. Here is what prompted those decisions.

Yesterday afternoon, the principal of the family office in which I am employed received a communication from someone purporting to be Elon Musk. Doubtful that Elon Musk could actually be attempting to contact him, my employer asked one of my colleagues to investigate and respond.

My colleague then spoke by phone with Elon Musk (it was indeed him). Mr. Musk complained to my colleague about my writing at Seeking Alpha and on Twitter. Mr. Musk said if I continued to write, he would engage counsel and sue me.

My colleague then spoke with me about the phone call. We both agreed that Mr. Musk’s phone call and threatened lawsuit were actions that would tend to involve our employer in matters in which he has had no part. To avoid such a consequence, I offered to immediately cease writing at Seeking Alpha and to deactivate my Twitter account.

How did Mr. Musk learn my identity, and that of my employer? It appears to me his information came thanks to the doxing efforts of some of his followers on Twitter.

Neither Mr. Musk nor Tesla has ever attempted, at any time, to contact me. Instead, Mr. Musk determined to go directly to my employer.

I do not know what Mr. Musk’s precise complaints are about me. I do not believe he has any valid legal claim, and I would have no trepidation in defending myself vigorously were he to bring such a claim. My response to his threats were simply to protect my employer and preserve my employment.

And so, you might say, Elon Musk has won this round. He has silenced a critic. But he has many, many critics, and he cannot silence them all, and the truth will out.

Folks who have read the book "Bad Blood" about Theranos will recognize this behavior immediately.  Musk took advantage of the work of some of his fanboys who bravely doxxed Montana Skeptic and allowed Musk to determine his true identity.   Musk is certainly a child (emphasis on "child") of his age, preferring to force critics to shut up rather than respond to them in a reasoned manner.  And by the way, where the hell is his board of directors?  Just like at Uber, it is time for the grown-ups to come in and take over the visionary but flawed company started by their founder.

If you have a chance, you really should look at at least some of Montana Skeptic's work.  He was fact-based and analytical -- this is not some wild crazy social media guy going off on biased rants.  I would take Musk's action as a ringing endorsement of Montana Skeptic's analysis, most of which you can find here but require a Seeking Alpha membership.  However, if you have time to listen, the Quoth the Raven podcast has two good episodes with Montana Skeptic on Telsa (#23 and #28).

By the way, Elon.  If you wish, you may contact my employer here.

...Congress simply has to pare back the tariff authority it has delegated the President.  It is simply insane that Trump can just unilaterally impose 20% tariffs on foreign automobiles, a $200 billion new tax on US consumers.

It is appalling to see Trump following the usual blue model of economic regulation, imposing one intervention after another, each meant to fix the unintended consequences of the last intervention.  Steel tariffs increased costs to domestic auto makers, so Trump proposes tariffs on foreign autos.  When tariffs result (inevitably) in counter-tariffs on US agricultural exports, Trump proposes more agricultural subsidies.   People (not me) lament gridlock in government and want more fluid lawmaking -- well here it is.  And it sucks.  It is mindless and reactive and emotional and totally ignorant of economics.

These tariffs, when combined with earlier actions, will result in tax increases on consumers that swamp the tax cuts Trump and the Republicans were so proud of last year.

I tend to be a pessimist so I have probably accurately called 5 or the last 2 recessions, but i have started to shift my investments around to get ready for a slowing economy and a market correction.

Update (source)

While both careful not to specifically cite the politically unwise 'tariffs', Boeing, GM, and Fiat Chrysler stocks are plunging in the pre-market after trade war-related impacts caused missed earnings or lowered outlooks.

General Motors Co. cut its forecast for profit this year as surging prices for steel and aluminum combine with swings in South American currencies to burden the largest U.S. automaker. Specifically, Bloomberg reports that raw material costs probably will be a $1 billion headwind to GM’s profit this year - roughly double its previous expectation - while the Argentine peso and Brazilian real are likely to drag on results through the remainder of 2018.

Yes, most plastic waste in the ocean comes from monsoon flooding of Asian rivers / cities that washes trash out into the ocean.  Yes, plastic drinking straws are a trivial percentage of the waste stream.  So yes, plastic drinking straw bans will have little effect on cleanliness of the environment.

BUT, this effort does seem to be occupying environmentalists and satisfying millennial needs for social media virtue signalling, all people who have many MUCH worse ideas for "improving" the world.  In other words, every day spent by these folks pushing for and preening over this lame plastic straw effort is one less day they can spend pushing for things that would be much more destructive.  It's like getting the termites around your yard to focus on easting the dead log in the back rather than eating the rafters in your house.

I write on this blog a lot on those days in my job that get me down.  That only makes sense because I write about government regulatory policy vis a vis business and it is government interventions that often cause me the most heartache.

But there are good days too.  I have been putting together a new division and really need someone with b2b sales and marketing experience to run it and get it going.  I was just trying to figure out how I wanted to do a search when a resume came to me unsolicited from a current employee who has done a great job for us.  Basically they were applying for our manager training program (all our campground managers start in front-line service jobs).   Well, it turns out this guy who is currently cleaning bathrooms and doing landscaping for us in a campground is recently retired from over 10 years running a sales force for a $80 million industrial company and more recently running the whole division for that company for 2 years.  Talk about just finding a $100 bill lying on the sidewalk!

From an article about how China's decision to restrict imports of recyclable materials is throwing the recycling industry for a loop:

The trash crunch is compounded by the fact that many cities across the country are already pursuing ambitious recycling goals. Washington D.C., for example, wants to see 80% of household waste recycled, up from 23%.

D.C. already pays $75 a ton for recycling vs. $46 for waste burned to generate electricity.

"There was a time a few years ago when it was cheaper to recycle. It's just not the case anymore," said Christopher Shorter, director of public works for the city of Washington.

"It will be more and more expensive for us to recycle," he said.

Which raises the obvious question:  If it is more expensive, why do you do it?  The one word answer would be "sustainability" -- but does that really make sense?

Sustainability is about using resources in a way that can be reasonably maintained into the future.  This is pretty much impossible to really model, but that is not necessary for a decision at the margin such as recycling in Washington DC.  When people say "sustainable" at the margin, they generally mean that fewer scarce resources are used, whether those resources be petroleum or landfill space.

Gosh, if only we had some sort of simple metric that summarized the value of the time and resources that go into a service like recycling or garbage disposal.  Wait, we do!  This metric is called "price".  Now, we could have a nice long conversation about pricing theory and whether or not prices always mirror costs.  But in a free competitive market, most prices will be a good proxy for the relative scarcity (or projected scarcity) of resources.  Now, I am going to assume the numbers for DC are correct and are worked out intelligently (ie the cost of recycling should be net of the value of materials recovered, and the cost of burning the trash should be net of the value of the electricity generated).   Given this, recycling at $75 a ton HAS to be less "sustainable" than burning trash at $46 since it either consumes more resources or it consumes resources with a higher relative scarcity or both.

Postscript:  I have had students object to this by saying, well, those costs include a lot of labor and that doesn't count, sustainability is just about materials.  If this is really how sustainability is defined, then it is an insane definition.  NOTHING is more scarce or valuable than human time.  We have no idea, really, how much recoverable iron or oil there is in the world (and in fact history shows we systematically always tend to underestimate the amount).  But we do know for an absolute fact that there are 182.4 billion human hours lived in a given day. Period.  Labor is if anything more important than material in any sustainability question (after all, would you be willing to die a year earlier in exchange for there being more iron in the world?  I thought not.)

In fact, it is probably the changing scarcity and value of labor in China that is driving the issues in this article in the first place.  China can't afford the labor any more to re-sort badly sorted American recyclables, likely because the economic boom in China has created much more useful and valuable things for Chinese workers to do than separate cardboard boxes from foam peanuts.  Another way to think of the market wage rate is as the opportunity cost for labor, ie if you use an hour of labor for to do X, what is the value of production you are giving up somewhere else by their no longer having access to this hour of labor.

For 15 years I have been a customer of El Dorado bank in a small town in California, just depositing our weekly revenues in the account and sweeping it out from time to time.  When Bank of America closed a few locations we use in other California small towns, it seemed easier to just add additional El Dorado accounts.  WRONG.  I was told today that because we might possibly maybe make three simultaneous deposits at the three banks that total to more than $10,000 in cash in one day, we suddenly are subject to all sorts of disclosure requirements.  I am used to having my privacy raped as a business owner to set up even a simple banking relationship, but now apparently any employee of mine who might make the weekly deposit is going to have to submit all sorts of personal information, including social security number, to the bank just for the ability to deposit money.  We have been doing the same business with El Dorado for nearly 20 years, and suddenly in the little town of Lone Pine, CA, population 2035, we are now treated as presumptive drug dealers and tax evaders.  It aggravates me that I have to put my employees in this position.

It used to be that it was easier to have fewer banking relationships to manage, but now I am thinking the costs may be running the other way, encouraging more smaller banking relationships that don't trigger whatever limits are set for treating customers as presumptive criminals.

This is definitely from the schadenfreude files, via the WSJ:

After the Trump administration announced new tariffs on imported washing machines in January, Marc Bitzer, the chief executive of Whirlpool Corp., celebrated his win over South Korean competitors LG Electronics Inc. and Samsung Electronics Co.

“This is, without any doubt, a positive catalyst for Whirlpool,” he said on an investor conference call.

Nearly six months later, the company’s share price is down 15%. One factor is a separate set of tariffs on steel and aluminum, imposed by the U.S. in March and later expanded, that helped drive up Whirlpool’s raw-materials costs. Net income, even with the added benefit of a lower tax bill, was down $64 million in the first quarter compared with a year earlier.

This is from the questions and comments I am getting on my Summer 2018 Regulation cover story, "How Labor Regulation Harms Unskilled Workers."   Here is my typical answer:

I don't and I am not.  But this sort of reaction, which you can find in the comments of this and other similar articles, is typical of how public policy discussion is broken nowadays.  When I grew up, public policy discussion meant projecting the benefits of a policy and balancing them against the costs and unintended consequences.  In this context, I am merely attempting to air some of the costs of these regulations for unskilled workers that are not often discussed.  Nowadays, however, public policy is judged solely on its intentions.  If a law is intended to help workers, then it is good (whether or not it will every reasonably achieve its objectives), and anyone who opposed this law has bad intentions.  This is what you see in public policy debates all the time -- not arguments about the logic of a law itself but arguments that the opposition are bad people with bad intentions.  For example, just look in the comments of this and other posts I have linked -- because Coyote points out underappreciated costs to laws that are intended to help workers, his intentions must be to harm workers.  It is grossly illogical but characteristic of our post-modernistic age.

I will retell a story about Obamacare or the PPACA.  Most of my employees are over 60 and qualify for Medicare.  As such, no private insurer will write a policy for them -- why should they?  Well, along comes Obamacare, and it says that my business has to pay a $2000-$3000 penalty for every employee who is not offered health insurance, and Medicare does not count!  I was in a position of paying nearly a million dollars in fines (many times my annual profits) for not providing insurance coverage to my over-60 employees that was impossible to obtain -- we were facing bankruptcy and the loss of everything I own.  The only way out we had was that this penalty only applied to full-time workers, so we were forced to reduce everyone's hours to make them all part-time.  It is a real flaw in the PPACA that caused real harm to our workers.  Do I hate workers and hope they all get sick and die just because I point out this flaw with the PPACA and its unintended consequence?

As a reminder, I have the cover story in Regulation magazine's Summer 2018 issue.  You can find links to the article and the issue, as well as a growing FAQ, here.

This is yet another in a series of posts on the value of branding (previous iterations include here and here).  Socialists and anti-capitalists often deride branding as, at best, a complete waste of resources and at worst a huge value destruction in that the marketing associated with branding tricks consumers into buying products they don't want or need.  This argument that consumers effectively lack agency in the face of corporate marketing is characteristic of a broader class of capitalist critiques that assume the powerlessness of individuals to make good choices.

I don't buy into these critiques because I think individuals are hugely powerful in a capitalist system, far more powerful in fact than they are in any more authoritarian system  (just ask Toys R Us and Pontiac).  Brands are obviously useful to producers as they help create barriers to entry and a potential basis for obtaining a price premium.  But they also have benefits to consumers.  I ran into one this morning.

My 21-year-old daughter is in another city and called to say that she thought she had a bad tire on her car and was not sure what to do.  Every dad worries about his daughter when she is on her own (I know, patriarchy, but I am not apologizing) and this is particularly true in car repair because women have historically been taken advantage of in many car repair situations.  But I sent her without hesitation to the local Discount Tire store.  That's because I knew from past experience with several of the stores in this chain that the stores were clean and safe and the people who worked there were fair -- they have never tried to charge us for something we don't need.  My wife goes there all the time because she is kind of panicky about her tires and most of the time they tell her the tires are fine and fill them with a bit of air and send her on her way with no charge.  They easily could have sold her a crapload of tires she didn't need but have never done so.  So it was with relief that I saw Discount Tire had a store near her.  Sure enough, she just needed air (is this sort of tire-related behavior genetic?) and they were very nice to her and filled up the tire and told her she was fine.

This is the power of branding.  From a distance, without any chance to inspect or check out the establishment, I knew exactly what the store would look like and was pretty confident how their employees would treat my daughter.  That has real value.

When my company screws up, one of the steps we take to try to make customers happy is to give them a refund or some free future services.  For example, last weekend we had a customer who reserved a boat and apparently our staff in the rush of the holiday weekend lost the reservation, so that when the customer showed up there was no boat ready for him.  He was understandably angry and we offered him a free boat rental any time in the future and he felt that we had done our best to make things right.

Unfortunately, we have one campground were word has gotten around that if you make up complaints and threaten bad reviews, you can get free camping.  It started a few years ago when I offered a customer there a couple days free camping to ameliorate a complaint that frankly I don't even remember.  Apparently, this person told all their friends that complaining was a path to free goodies.  This morning, I had a call that one customer from this friend group was not even pretending any more.  They were fine with their stay but were essentially holding us hostage by saying that she wanted free days of camping or she and her friends would cover Trip Advisor with bad reviews.  Obviously we had to bring a halt to this whole thing so we told her to bring it on.  Now we have a policy that no one in that campground gets free camping for any reason, and thus in this one location, at least for a while, I have lost one of my best tools for resolving customer satisfaction problems.

This is obviously frustrating, since the folks involved clearly have no personal honor in the matter, and they are taking advantage of my sense of honor in wanting customers to leave satisfied when they have paid me money.