A Choice to Believe

With few answers, RFK, Jr. may have swung the election. Or at least my vote.

Summary

• Resonance with Hope: Despite my initial disinterest in RFK Jr., my perspective has shifted after his Trump endorsement speech.

• Critique of Market Consolidation: Growing monopoly power in various U.S. markets, particularly in food production, education, and healthcare sit at the core of our societal ills.

• Political Pragmatism: Even as I make a decision, I have a conflicted stance, disliking many Republican policies but seeing potential in Trump's regulatory reform agenda.

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What I’m Reading Now:

I’m loving a “recent” paper by William Zame of UCLA. Zame recognizes that the framing of “passive as better for the average investor” is simply a time conditional statement. Like Taleb’s Turkey, the fourth Wednesday of November is as good as it gets. Slides can be found here. Or you can watch the scintillating video.

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The Main Event

“I’m choosing to believe” — Robert F. Kennedy, Jr., August 2024

This will be a relatively unusual post. I have (much to my wife’s chagrin) completely re-written it in the context of RFK, Jr.’s speech/Trump endorsement on Friday. For those who have not listened to it, the transcript can be found here. In my view, you cannot be an informed voter in this election without considering it. It is also a post that is likely to cost me many subscribers. This is fine. YIGAF is a selfish publication focused on sharing my honest interpretation of events in both markets and society. You have no obligation to read or pay for it. As a result, I am not putting a paywall on this post, hoping to scare as many away as possible.

I have been transparent in my political disaffection with American politic options even as I maintain hope that we CAN do better. RFK, Jr., a former troubled teen, heroin addict, vaccine nutcase, worm-feeding candidate never appealed to me in the slightest despite my good friend Pippa Malmgren’s insistence that I evaluate him closely. For those that know me well, it should be obvious that I am, at my core, a scientist. Not in the “Pay attention to the Science!” nonsense, but rather in the scientific method — hypothesis formation, testing with data, evaluation. I have often shared the Carl Sagan quote from The Demon Haunted World to describe my key fear for modern America:

“I have a foreboding of an America in my children's or grandchildren's time -- when the United States is a service and information economy; when nearly all the manufacturing industries have slipped away to other countries; when awesome technological powers are in the hands of a very few, and no one representing the public interest can even grasp the issues; when the people have lost the ability to set their own agendas or knowledgeably question those in authority; when, clutching our crystals and nervously consulting our horoscopes, our critical faculties in decline, unable to distinguish between what feels good and what's true, we slide, almost without noticing, back into superstition and darkness...

The dumbing down of American is most evident in the slow decay of substantive content in the enormously influential media, the 30 second sound bites (now down to 10 seconds or less), lowest common denominator programming, credulous presentations on pseudoscience and superstition, but especially a kind of celebration of ignorance”

― Carl Sagan, The Demon-Haunted World: Science as a Candle in the Dark

Further, I have been transparent that I am not a religious man. I do not believe in god. While I do not believe in a higher power (and am frankly skeptical of advanced alien civilizations as well), I deeply respect the commitment of time for those who choose to express such belief by communing with their neighbors in religious practice. As I have written and spoken of in the past, while I personally do not attend religious services, I did so when my children were young because I wanted them to understand the concept of community and the shared, largely Judeo-Christian, parables that underpin our American experience. It was a commitment of time to their education and my local community that paid dividends in (relatively) good kids, now stellar young adults.

However, despite my disinterest in the man or his theories, Kennedy’s speech resonated with my one true belief — the capacity of man to improve the future for man. Kennedy’s above quote SHOULD have been the lead to his campaign. Instead it was buried three quarters of the way through the speech, halfway through an otherwise unremarkable paragraph. But this speech was the first tangible sign of honesty in an otherwise far-worse than average political season. My Twitter feed is overflowing with nonsensical ads asserting that “This is an EMERGENCY! Send $5 to support _______ candidate in their fight against _______ (insert libtardism/fascism based on your tribal affiliation).” That is not the emergency. The emergency is a lack of belief that “we” can work together for a better future:

While this is (obviously) not a new trend, it has reached levels at which our ability to self-govern is increasingly in question. Others have concluded that is no longer a question and their influence on the Trump administration, alongside my general loathing for the man himself, has been my primary hesitancy to vote for a “return of Trump.” I have a tremendous amount of respect for Peter Thiel’s intellectual capacity. But I fundamentally disagree with his conclusion that representative democracy is no longer workable in the United States.

On the flipside, I have the utmost loathing for the anti-humanism of much of the left. The nonsense that underpins much of the “Green” (ironic) agenda, primarily a belief that “the carrying capacity for human population of planet Earth is limited” is fundamentally uninformed at best, antinatalist at worst. Lest you think I’m being absurd, consider the “Voluntary Human Extinction Movement.”

Earth’s carrying capacity is limited strictly by our ability to deploy energy to exert change against inertia. As I’ve discussed repeatedly, much of the malaise that has afflicted the average American over the last fifty years can be directly tied to our unwillingness to expand baseload energy through increasingly dense and efficient technologies. The age of fossil fuels was about depleting a stored solar battery. The coming age of nuclear is about building “small suns.” As human (and technological resources) are slowly turning in this direction, I am increasingly confident that the future is so bright, we gotta wear shades. While Timbuk3 intended their one hit to be an ironic and apocalyptic cry, “I choose to believe.”

Kennedy’s assertion that he is “choosing to believe” that under a Trump administration he can make real progress in the fight to improve health outcomes in the United States is the catalyst for me making a similar realization. While I disagree with much of the Republican “platform” and candidly fear the potential for narcissists in office, the alternative is much, much worse as Kennedy’s speech makes clear.

I want to emphasize at this point, if not already clear, that I do not believe Kennedy’s assertions on vaccines. The studies that generated the link between vaccines and autism are at least as flawed as the insistent dismissals. Unfortunately, Sagan’s quote is right on the mark for this one.

But Kennedy’s lament against “big food” is on the mark in the same unintended manner that Harris’ plans for price controls against grocery chains were off the mark. Like many sectors of the US economy, the packaged goods and consumer staples sector has become increasingly uncompetitive due to consolidation. The RELATIVELY competitive grocery stores (with new entrants Walmart, Costco, Wegmans, etc largely taking organic share against incumbents) are not the source of the problem:

There’s a reason you no longer know the CEO of Proctor & Gamble since the retirement of Art Lafley… it’s better to be quiet when this is your strategy:

The idiocy of focusing on grocery stores becomes even more clear when we consider more “commoditized” products like eggs. While headlines focused on RETAIL prices for eggs in 2022 (up 75% on the back of avian flu disruptions), it was largely ignored that wholesale prices were up over 400%. Grocery stores largely absorbed these costs to reduce consumer disruptions. However, even here we have a story of anti-competitive consolidation. A relative newcomer to food “giants” is Cal-Maine Foods. I confess I have a fondness for $CALM. As a small-cap PM, their 15x run from March 2003 to Dec 2003 helped power the performance of my funds. But even as their market cap has remained small-cap, their market influence is more like P&G in their little slice of the world. While they can’t (yet) drive consumer prices, the evidence (second chart) is that their market power is clearly growing, with wholesale prices rising nearly 4% a year faster than retail as they have consolidated the industry:

Food production is uniquely suited to predatory acquisition strategies. Calamities befall small local/regional producers on a regular basis. This was the genesis of crop insurance when first introduced in 1899 through farmer cooperatives. Like many well intentioned ideas, it was ultimately federalized by the government. In 1994, crop insurance became mandatory for those participating in other government programs like price supports. Predictably, the mandatory premiums disadvantaged smaller farmers/food producers and drove further consolidation in the industry. Cal-Maine’s growth appears to have been turbo charged during this period. From ChatGPT:

Cal-Maine Foods, Inc. is the largest producer and distributor of fresh shell eggs in the United States. The company has grown significantly since its founding, evolving into a dominant player in the egg industry. Here’s an overview of how Cal-Maine Foods grew:

1. Founding and Early Growth (1969-1980s)

Founding: Cal-Maine Foods was founded in 1969 by Fred R. Adams, Jr. in Jackson, Mississippi. The name "Cal-Maine" is derived from the merger of Adams' initial company, Adams Egg Company, with Mississippi Egg Company and Dairy Fresh Products Company.

Early Expansion: In its early years, Cal-Maine grew through the acquisition of other egg farms and by expanding its own production capacity. The company focused on increasing its market share in the southeastern United States.

2. Strategic Acquisitions (1980s-1990s)

Acquisition Strategy: During the 1980s and 1990s, Cal-Maine pursued an aggressive acquisition strategy, purchasing numerous smaller egg producers across the U.S. This helped the company expand its geographic reach and increase its production capacity.

Vertical Integration: The company also invested in vertical integration, controlling more aspects of the production process, from feed production to egg processing and packaging. This allowed Cal-Maine to improve efficiency and reduce costs.

3. Public Offering and National Expansion (1996-2000s)

IPO: In 1996, Cal-Maine Foods went public, raising capital through an initial public offering (IPO). The influx of capital from the public markets enabled the company to further its acquisition strategy and modernize its operations.

National Presence: With the resources from the IPO, Cal-Maine expanded beyond the Southeast, becoming a national player in the egg industry. The company continued to acquire egg production facilities across the country, further solidifying its position as the largest U.S. egg producer.

I want to be clear, Cal-Maine eggs are just as good as anyone else’s eggs. This is not a story of poisoning America’s youth. But rising prices due to monopoly power is ultimately BAD for egg consumption. Remember HOW monopolists generate higher margins — by underserving demand relative to a competitive market:

In America today, market after-market demonstrates the existence of monopoly powers. The cozy relationship with regulators is a key component and it is here that the Democratic party has simply become absurd with dismissive counter-attacks on “corporate greed” and FTC enforcement. While I may not agree with Kennedy on many of his positions, once again, “it’s better than the alternative.” You want a shocking picture? How about healthcare where 99% of the MSAs (metropolitan statistical areas) are now anticompetitive according to FTC guidelines. While it is not statistically significant at the 99%ile level, it is CRAZY to me that the availability of payday lending has more predictive power on reining in healthcare costs than obesity:

Why? Because healthcare is increasingly about predatory (and opaque) pricing, and payday lenders (for all their very real failings) provide a mechanism to escape the healthcare collections racket. We are an increasingly unequal society and a growing fraction are increasingly resource constrained which lowers our aggregate productivity and productivity growth.

I am a capitalist and yet I do not believe further decreases in corporate taxes or tax cuts for the wealthy provide incremental returns to our society. The 1981 tax reforms were helpful. The 1986 tax reforms less so. Everything since has contributed to our fiscal deterioration. The evidence on this is painfully clear for anyone who wants to examine it.

I disagree with the proposed tax policies of a Trump administration. I also think they have low probability of succeeding in these proposed policies. But I do think they have a chance at regulatory reform and it is important that J.D. Vance has spoken out in support of Lina Khan and additional support for children which is one of the very few government programs that offers unquestionably positive payoffs:

With his speech (and the failure to air it from the likes of MSNBC and CNN) and impassioned (if slightly off-kilter beliefs), Kennedy has given me a message of (cautious) hope that clarifies my voting intentions. I remain repulsed by Trump (and Vance), while hopeful that some positive change can come from regulatory reform. I do not see a Harris administration moving in this direction.

And I fully acknowledge that I may be wrong. However, for now, “I choose to believe.”

As always, comments and questions are appreciated.