394 (6 November 2019)

Welcome!  The articles below caught my attention this week.  What are intended to be relatively objective “briefs” are preceded by dashes (——–), whereas additional material or relatively subjective comments are preceded by asterisks (********).  Article titles preceded by [SR] require a subscription.

(30 October 2019) [SR]Recipe Behind Coca-Cola’s Milk Success: Less Sugar, More ProteinThe Wall Street Journal

——–“For decades, conventional dairies tried to attract customers by making milk faster and cheaper.  But an unexpected competitor changed the market by favoring trends over tradition. . . . In 2014, Coca-Cola Col. partnered with Select Milk Producers Inc., a dairy wholesaler, to launch Fairlife ultrafiltered milk with 50% more protein and 50% less sugar than regular milk.  The product now represents 3% of the dairy-milk market . . . In comparison, after nearly 30 years in the business, Horizon, the largest organic-milk brand, represents 3.7% of the market . . . In part, Fairlife has succeeded by capitalizing on the latest food trends: Fat is back.  Sugar is out.  Protein is in.”  According to John Crawford, what analyzes the dairy industry for Information Resources, “Fairlife’s rapid growth is unheard of in the mike category . . . and what it’s been able to do, others would like to replicate.”  Ultrafiltered Fairlife and Organic Valley Ultra “sell for $7.88 to $10 a gallon . . . more than double the price of traditional milk.”   

********In the last four years milk sales “fell by 330 million gallons” and 60 million gallons of that decline were due to an increase in “plant-based milk sales.”  The other 270 million gallons seem to have been competed away by water.  Paul Zieminsky of Dairy Management Inc. notes: “We’re losing over 50% to bottled water . . . No. 2 is ready-to-drink coffee.”  These changes are coming at a time when, according to Eric Rimm of Harvard’s T.H. Chang School of Public Health, “There’s not a lot of people who are protein-deficient.”  Columnist Jo Craven McGinty ends her article, noting, “the products may be popular.  But the makers are simply milking the latest fad.”

(31 October 2019)In Napa Valley, Winemaker Fight Climate Change on All FrontsThe New York Times

********This is the fourth and final installment of wine columnist Eric Asimov on wine and climate change.  Links to the other articles can be found here.  The article provides a glimpse of some of the things that individual winemakers—“notorious individualists”—are doing to “combat climate change” in “the absence of government greenhouse-gas regulations or other mandatory environmental rules.”  John Williams of Frog’s Leap Winery notes that in order to “compel Napa [California] winemakers to change methods that have brought . . . great success” it is necessary “to show people that it’s in their self-interest . . . [their] enlightened self-interest.”

(2 November 2019)The East India Company Invented Corporate LobbyingJSTOR Daily

——–“It’s become a commonplace for corporate lobbyists to write bills passed in state legislatures.  The influence of corporate lobbyists in the U.S. Congress may be more subtle, but the combined power of lobbyists, many of them former politicians, is a major driver of the influence of corporate power in American government today.  There is a historical precedent to contemporary American corporate lobbying in the British East India Company.”  The joint-stock company, “chartered in 1600, went on to conquer India in the eighteenth century.”  William Dalrymple, in his book The Anarchy: The East India Company, Corporate Violence, and the Pillage of an Empire, argues that “the Company’s looting of India” was “the supreme act of corporate violence in world history.”  The Company “couldn’t have done it without the help of the British state—or without the invention of corporate lobbying.”

********You can learn more about The Anarchy here; a laudatory review of the book appears in The New York Times.  It should come as no surprise that organizations have, throughout time, sought to affect the nature of the environment in which they operate.  The corporate form of governance has provided for increased resources to bring about change and decreased risk while bringing it about.  If would seem, though, that the British East India Company operated at a level that was unprecedented.

(2 November 2019) [SR]The Making of the World’s Greatest InvestorThe Wall Street Journal

——–In early summer 1978, Jim Simons “ditched a distinguished mathematics career to try his hand trading currencies.  Forty years old, with a slight paunch and long, graying hair, the former professor hungered for serious wealth.  But this wry, chain-smoking teacher had never take a finance class, didn’t know much about trading, and no clue how to estimate earnings or predict the economy.”  But his believe that the ups and downs of financial market had “structure” ultimately led him to adopt an algorithmic approach to trading that made him the most successful investor of his era, earning for his clients from 1988 to 2018 an average annual return after fees of 39%; from 1969 to 2000 George Soros earned an average return of 32% and from 1965 to 2018 Warren Buffet earned 21%.  As a result, “Simons amassed a $23 billion fortune” leading the way to the quantitative approach of investing.

********This article was written by Gregory Zuckerman, the author of The Man Who Solved the Market: How Jim Simons Launched the Quant Revolution.  The article points to the importance of identifying patterns in daily trading and focusing on the short run, so that the Medallion Fund that he ran could operate much like a casino, “handling so many daily bets they’d only need to profit from a bit more than half of their wagers.”

(5 November 2019)Muni Bonds Contain New Fine Print: Beware of Climate ChangeBloomberg.com

——–“Investment banks have begun quietly sounding alarm bells about climate change.  Their worries are showing up in the documents that accompany municipal bonds they underwrite.”  Risk disclosures for state and local government debt are increasingly including “language about climate change, hurricane risks, and risking seas.”  Bloomberg News “analyzed more than a dozen due diligence questionnaires prepared by banks or legal counsels and sent to governments in coastal Florida, and over 40 official statements for prospective bond investors.  About half of the  questionnaires and the majority of the statements included language on storm-related risks or climate change.”

********One wonders what the case in North Carolina would be (or any other coastal state).  It was surprising to read that “Climate risk isn’t necessarily showing up in muni bond pricing yet—communities that are more susceptible to these hazards do not seem to have to pay a penalty in the form of higher yields.”

(5 November 2019)Farm Country Feeds America.  But Just Try Buying Groceries There.The New York Times

——–Small farm  towns like Winchester, Illinois “that produce beef, corn and greens to feed the world are becoming America’s unlikeliest food deserts as traditional grocery stores are force out of business by fewer shoppers and competition from dollar-store chains.  Their exodus has left rural town worried about how they can hold on to families, businesses and their future if there is nowhere to buy even a banana.”  According to the USDA, about “5 million people in rural areas have to travel 10 miles or more to buy groceries.”  Although dollar-store chains “selling cheap food are entering hundreds of small towns, . . . their shelves are mostly stocked with frozen, refrigerated and packaged foods.”

********Food deserts, this article makes clear, is a broad phenomenon.  The irony is great, though, that many of these rural areas are large food producers themselves.  A somewhat related article appeared this week in Fast Company: “The first map of America’s food supply chain is mind boggling.”  The piece is very general but serves as a basis for wondering what the second map might contain.

(5 November 2019)Stocks Are Soaring Because Supplies Are LimitedBloomberg.com

********This article touches upon a variety of factors that may be contributing to the record high closures of some of the most-watched stock indices.  What struck me as especially noteworthy was this statement that “The number of publicly traded companies has dropped by about half in 20 years, from about 7,000 to about 3,500.  This means there is more money chasing fewer shares.  The boom in stock buybacks has likely reduced outstanding shares even more.” Although mergers certainly have contributed to this shrinkage in publicly traded firms, there are also very many firms that have been “taken private” via private equity investors.  It would be interesting to see what happened to those 3,500 firms that are no longer publicly traded.

            To learn more about the causes and meaning of the decrease in the number of publicly traded firm, a good source appears to be “Why We Shouldn’t Worry About the Declining Number of Public CompaniesHarvard Business Review.  It notes that there are three developments that can lead to the delisting of a firm: “1) bankruptcy, failure, or closure of listed firms, 2) delisting of firms going private or acquired, and 3) decrease in number of initial public offerings (IPOs).”

            Another article that follows on the “supplies are limited” theme also appears in Bloomberg.com: “How California Became America’s Housing Market Nightmare.”  As the article points out, housing supply been limited by “outdated zoning laws” and “a 40-year-old tax provision that benefits long-time homeowners at the expense of everyone else.”  According to David Garcia of the University of California, Berkeley, “there is no solution to the California housing crisis without the construction of millions of new houses.”

(5 November 2019)How Is a Wealth Tax Like a Cigarette Tax?The New York Times

********An interesting comparison of wealth taxes, now much in the news due to Democratic presidential candidates Bernie Sanders and Elizabeth Warren, and cigarette taxes.  With cigarette taxes, as columnist Neil Irwin notes, “discouraging the thing being taxed is at least partly the point.  Tobacco taxes are intended not just to raise money, but also to increase the prices of cigarettes so that fewer people smoke.”  The wealth taxes proposed by Sanders and Warren, he holds, “would, if enacted, deplete current fortunes and result in fewer such fortunes in the future.”  (Ceteris paribus, one might add.)  What struck me as especially interesting the likely consequence of the revenues raised from a wealth tax when considered as the funding source of expanded health care.  Irwin notes, when taxes like those on cigarettes “work as intended, the revenue they generate will tend to decline over time. . . . [So,] a president seeking to pay for a policy agenda with taxes on extreme wealth might want to think ahead to what should be done if those taxes result in a lot less extreme wealth to tax.”

May you have a good week!  

Bruce

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