My Amazon Review of Walter Isaacson's "Elon Musk"

 

                                             Rocket Man

 

Every aerospace executive and board member should read Walter Isaacson’s biography of Elon Musk. Starting from scratch Musk has built America’s leading rocket and space communications company by ignoring the hidebound bureaucratic rules of the major aerospace companies delivering rockets at one tenth the cost of his bloated competitors. Musk’s rules are:

1.      Doubt every requirement.

2.     Question every cost?

3.     Act with a sense of urgency.

4.     Learn by failing.

5.     Improvise.

 

The other secret that Musk applied to Tesla as well as SpaceX is that he integrated design, engineering, and manufacturing so that each of those entities can learn from the others. Thus, engineers and designers are able to make improvements in manufacturing as issues arise. Steve Jobs at Apple integrated design and engineering, but outsourced manufacturing to China.

 

Rising from an unhappy childhood in South Africa, Musk became a Silicon Valley entrepreneur to become part of the famed “PayPal Mafia.” He used his PayPal success to fund Tesla and SpaceX and the rest is history.

 

Musk’s genius has the ability to inspire loyalty, at least for a time, of a host brilliant people who built his empire. However, empathy is not his middle name, and, in many ways, he seems to be a very cruel person. He is one of those people who professes to love humanity, but really doesn’t like people as individuals.

 

Isaacson discusses Musk’s chaotic personal life. Three marriages, 11 children two of whom by sperm donation. Isaacson doesn’t explain why so many of Musk’s children were conceived by in vitro fertilization.

 

Then, of course there is Twitter, now called X after his favorite letter. His adventure at Twitter seems to be one giant ego trip where he promised to free that social media site from it “wokeness.” To say the staff of Twitter was woke, would be an understatement. He wanted to encourage free expression, yet under his rule Twitter has become a cesspool of hate.

I had my own run in with twitter. Despite all of Musk’s talk of a new openness I was banned for using the term “circular firing squad” to characterize Hunter Biden bringing his father into his legal thicket. Something is really wrong with X and from press accounts is seems to be getting worse by the day.

 

Despite being hagiographic at times, Isaacson brings to life one of our leading entrepreneurs who is bringing us into new electric and space ages.

For the full Amazon URL see: Rocket Man (amazon.com)

Bank of America Corp: A Beached Whale

Bank of America (BAC) reported earnings today that modestly exceeded analyst consensus estimates. However, as we noted in April (Shulmaven: Winter Comes to the Bank Stocks), BAC was suffering from huge embedded mark-to-market losses on its held to maturity securities holdings which amounted to $108 billion at yearend 2022. Today BAC reported those losses, as of the end of the third quarter, increased to $132 billion on a cost basis of $603 billion, not chump change.

The bank also reported that its tangible book value per share was $23.79. The $132 billion in embedded losses amounts to $16.35/share. Thus the true tangible book value would be a meagre $7.44/share. With BAC stock trading this morning at $27.15, it is being valued at a very pricey 3.6X "true" tangible book value. To me this means, that unless interest rates fall dramatically, BAC's share price will be weighed down for years.

Hamas Aggression Must be Punished

Hamas' aggression against Israel has to be punished; quickly and severely. To use the words of the 1950's Cold War, Israel has to massively retaliate to avenge the deaths and kidnapping of its civilians. Put bluntly, Israel has to destroy Hamas root and branch. By acting this way the country will gain the respect of the region and instead of putting the proposed U.S./Saudi/Israel deal on hold, it would accelerate it. 

Remember, an Israel that looks weak will garner no respect in the broader Middle-East. Indeed to reinforce the idea that Israel means business Netanyahu ought to form a new unity government by bringing in the center-left and kicking out the rabid right ministers, who by the way have no military experience. Just to note, prior to the 6-Day War in 1967, Israel formed a unity government.

Now is not the time for recriminations, but once the objectives in Gaza are achieved a full blown inquiry will be needed to examine the gross military and intelligence failures of the government that enabled the aggression in the first instance.

My Amazon Review of Victor Haghani's and James White's "The Missing Billionaires: A Guide to Better Financial Decisions"

Utility vs. Wealth Maximization

 

Victor Haghani and James White of ElmWealth have written an important, but too academic book, about investing for retirement. Trust me, this not Burton Malkiel’s “A Random Walk Down Wall Street.” In the interest of full disclosure, I worked with Haghani at Salomon Brothers in the late 1980’s and early 1990’s, before he went on to Long Term Capital Management (LTCM). After initial success in 1995, the firm failed spectacularly in 1998. From that Haghani personally learned the importance of sizing of investments. Simply put, he was over-invested in his firm.

 

This is a book more about how much to invest rather than what to invest in. Sizing is critical and the author’s missing billionaires were way over invested in a single asset, and they maintained unsustainable lifestyles. They utilize the concept of the “Merton Share” where the size of an investment is positively related to expected return and negatively related to risk aversion and the square of expected volatility.

 

The goal is to maximize utility, not wealth. Here I will give an example of my own. An investor has an opportunity to invest $9,000 in an investment that has a 1% chance of a return of $1,000,000 and a 99% chance of a total loss. The expected return is a positive $1,000. A pure wealth maximizer might just take the bet, while a utility maximizer would abstain.

 

In order to make their math work Haghani and White assume that individuals operate under “constant relative risk aversion.” For the lay reader this is a nonstarter, and the book is loaded with references to the finance literature. Further, at least in my case, I don’t think it is valid. When I retired, I was determined to have a fortress balance sheet, which saved me more than a little bit of anxiety during the 2008 financial crisis. Once passed, as my wealth increased, I began increasing my risk levels, but retaining a core fortress balance sheet.

 

The authors take the Jane Austin view that a critical measure of wealth is the income derived from it. Hence, they conceptually like annuities, if only they could be structured in a transparent and low fee way. In today’s financial marketplace that is a tall order. My problem with annuities is that they cause confusion between the return on capital with the return of capital.

 

If you follow Haghani’s and White’s advice you would today be cautious about the prospect for long-term returns from today’s stock market. At this writing the earnings yield of the Case-Shiller price-earnings ratio is 3.39% while the five-year TIPS yield is 2.35%. A real equity risk premium of a meagre 1.04% has historically led to very poor future returns.

 

There is much more in this book, but my guess is that the lay reader would find it a difficult go. On the other hand, a reader with financial training will gain much insight.

For the full amazon URL see: Utility vs. Wealth Maximization (amazon.com)

House Crushes MAGA Wrecker Caucus

The House of Representatives by an overwhelming 335-91 margin voted to keep our government open for another 45 days, thereby signaling a major defeat for the wrecker caucus within the House. Among the wreckers are Matt Gaetz, Andy Biggs, Paul Gosar, Lauren Boebert and Margorie Taylor Greene. All of whom were being cheered on from the peanut gallery by Liddle Donnie Trump. It was good to see Democrats and Republicans working together for the common good and it remains to be seen whether Kevin McCarthy will remain speaker. The main drawback in the deal is the absence of funding for Ukraine. Hopefully that will be remedied next week.

I previously wrote about the wreckers in three prior blog posts. (See: https://shulmaven.blogspot.com/2013/09/on-strike-shut-it-down.html, https://shulmaven.blogspot.com/2013/10/after-action-report-on-government-shut.html, and https://shulmaven.blogspot.com/2015/10/the-republican-wrecker-caucus-strikes.html)

Although the characters are different from 10 years ago, the goal remain the same and that is to stop the normal functioning of government to serve their own petty ends. Unfortunately the House Republicans continue to circle the drain, meaning this will not be the last time we have to put with the MAGA wreckers.

My Review* of Neil Howe's "The Fourth Turning is Here: What the Seasons of History......"

 America in an Era of Crisis

I received this book as a gift. 

America is in crisis. Nothing seems to be working with dysfunction everywhere from Congress to the post office, to the airlines, to the housing market, to medical care, to the lack of civility and to extreme weather events. All of this is a symptom of what author Neil Howe calls the onset of the fourth turning. Howe builds on his earlier book written with William Strauss entitled “The Fourth Turning” which appeared in 1997. In that book the authors coined the term “millennial generation.”

 

According to Howe Anglo-American history going back to the War of the Roses follows a predicable 80–100-year Saeculum which is broken up into 20–30-year blocks. For example, the 80-year blocks of 1780-1860-1940-2020 would constitute three turnings. Each crisis era was forewarned by a war. The Revolutionary War crisis was preceded by the French and Indian War, the Civil War crisis by the Mexican War, the Great Depression/World War II crisis by World War I and the current crisis by 9/11 and its aftermath.

 

Thus, according to Howe, we will soon be entering the fourth turning which he estimates to start around 2033. Unfortunately, the fourth turning is usually accompanied by a major war or a civil war. As a result, the recent ugliness is only a precursor of worse things to come. However, once the crisis has passed a new dawn awaits us, as in the end of World War II.

 

Within each 80-year block there are four eras defined by the change in generations. The recent history looks like this in Howe’s terms:

Boom 1943-1960, High.

Gen X 1961-1981, Awakening.

Millennial 1982-06, Unraveling.

Homeland 2007-2033? Crisis

 

Each generation gives rise to a protype character. By Howe’s reckoning there are heroes, artists, nomads, and prophets. It is the heroes that resolve the crisis era that become the leaders of the next high cycle. Think Eisenhower, for example.

 

In Howe’s view the next Saeculum will be characterized by the rise of community over the Individual. The unmet tasks of the prior era will be handled by a far more egalitarian society. Taxes will be higher on the wealthy, but entitlement spending will be under control and government finally figures out to deliver services more efficiently with high investment in climate mitigation and drastic reforms in zoning that would once again make housing affordable. In other words, a very efficient social democracy.

 

I noticed a few errors in the book. The Four Freedoms were a product of World War II not World War I and the Treaty of Detroit was made in 1950, not 1946. Nevertheless, Howe gives us a new interpretation of our history and his insights are extraordinary.

*-Yet again Amazon is late in posting my review. Amazon just posted it at America in an Era of Crisis (amazon.com) Sep 28

My Conversation with Ori Nir on the Situation in Israel: Part 2

 On September 10th I had a wide ranging conversation with Ori Nir, Vice President for Public Affairs of Americans for Peace Now on the proposed judicial reforms in Israel, relationship with the Palestinians and the proposed Israel-U.S.-Saudi Arabia- Palestine mega deal. The YouTube link is below. This is a follow up of on our March 19th conversation. (Shulmaven: My Conversation with Ori Nir on the Situation in Israel)

An Update on What’s Happening in Israel: The View from Americans for Peace Now - YouTube