The Wednesday Briefs 116 – 18 May 2022

THIS WEEK: Art as an Investment; Elon vs. Twitter; “Die in a Fire”; Energy Inflation; Lebanon Elections; Old Russia vs. Young Ukraine.


The largest auction of a private art collection pulled in $922 million this week in New York. Among the great works were paintings by Andy Warhol, Mark Rothko and Gerhard Richter. A single Rothko painting, “Untitled” from 1960, drew $48 million. Echoing the tough 2022 financial environment, Sotheby’s Chief Executive Charles Stewart mused after the auction: “What else are you going to invest in right now?”

There have been numerous articles claiming that art has been a better investment than the S&P 500 not only this year but on a long term basis. This can be nominally true for brief windows of time right after art prices have a surge and when liquidity is high. By nominally, we mean 1) before commissions, 2) before taxes, and 3) as long as market liquidity remains high. Taking each in turn, commissions paid to the auction house or to an art dealer or to a gallery can be very high when disposing of a work of art. They can run from 20% to as much as 50% of the nominal sale price. In the United States, gains on art are taxed as collectibles at rates – 28% at the federal level + state and local taxes – that exceed those imposed on other assets. Finally, if market liquidity disappears, say during a recession, it may take months to dispose of art at a desirable price.

These factors make art an unsuitable investment for the great majority of people. As a form of diversification, it must be viewed as part of a “vertical” configuration of assets, rather than horizontal. By vertical vs. horizontal, we mean that it cannot be considered with the same level of priority (horizontal) as other accumulated assets. But it does offer good diversification for wealthy people who already have a large portfolio of conventional assets and who add art as a last component (vertical). In this case, art has to be viewed as being “last in last out” in a portfolio, the asset added last and sold last. Indeed most significant art auctions take place at times of personal distress, after a death or at divorce or bankruptcy.

Of course, there are non tangible reasons to buy art, such as the pleasure and inspiration that it brings. Art dealers like to say that art at home enhances and enriches your life. We all invest every day in lifestyle and well-being in ways that deliver non-financial returns.


The cult of Elon means that not a day can go by without hearing about Elon Musk. Musk’s latest tantrum about Twitter fake accounts looks like buyer’s remorse and betrays his wish to exit the deal as soon as possible (as we had envisioned in the WB 113). When Twitter’s CEO claimed that the number of fake accounts does not exceed 5%, Musk tweet-responded with a poo emoji and later stated that fake accounts could in fact add up to 20%. The difference between 5% and 20% is immaterial if you believe Musk’s projections that he can grow the company 5x to 10x. From a baseline of 100, adjusting the starting line to 95 or 80 (5% or 20% fake accounts) is unimportant when the end point is 5x greater at 400-475, or 10x greater at 800-950.

Twitter management is intent on enforcing the terms of the deal which set a buyout price of $54.20 on the stock, and is unlikely to allow changes now that it has fallen back to $38. The company has retained JP Morgan as an advisor in what is shaping up to be an expensive legal battle. The choice of JP Morgan is interesting because there is no love lost between CEO Jamie Dimon and Elon Musk and because the bank is in the middle of an unrelated lawsuit with Tesla. Further, JP Morgan’s analyst has one of the lowest targets on Tesla’s stock, $335 or less than half its current level.

We are indebted to Elon Musk for accelerating breakthrough technologies at PayPal, Tesla and Space X. But his bid for Twitter is for him difficult and uncharted territory. Unfortunately, the legal ramifications will be a distraction for a long while.


UC Berkeley computer scientist Nicholas Weaver says that all cryptocurrency should “die in a fire”. With the pandemic tide of surplus liquidity receding from the financial markets, he may well get his wish. The last few weeks have shown that, contrary to what had been advertised, cryptocurrencies very much toe the line of Federal Reserve actions. When money is easy, they race ahead; when there is talk of tightening, they give back their gains. They are not therefore a hedge against central banks’ allegedly flippant debasing of national currencies.

Not everyone is negative and crypto fans are of a diehard sort. Yves Lamoureux, an analyst who saw a “crypto winter” coming when Bitcoin traded near $70,000 (it is now below $30,000), remains devoted and is now calling for a bottom and a “consequential bull market”. It is indeed possible that cryptos and stablecoins are merely experiencing the same violent boom-busts that other nascent asset classes also experienced in their day, for example oil companies in the late 1800s, auto producers in the mid 1900s or dotcoms around 2000. In each case, hundreds of companies disappeared and the industry crystallized around a much smaller number of players. These previous busts erased 70 to 90% of gains. Since we are not there yet, there will likely be better entry points for crypto believers in the next year or two.


Prices of gasoline and other refined products have surged before and after the onset of the Ukraine war. In the United States, a gallon of gas now goes for over $6 in some parts of the country. Naturally, people are not pleased. But this chart from the St Louis Fed shows that energy consumption expenditure as a percent of total consumption expenditure is rising but is nowhere near previous highs. This means that the consumer can in theory sustain further increases but that such increases would divert dollars spent on other items. Yet before feeling too cavalier about rising prices, we should be cognizant that the same chart would look different for the wealthy vs. the middle class vs. the poor.


Turnout in the Lebanese legislative elections was relatively low but the outcome will have encouraged a long-suffering segment of the population that is yearning for meaningful change. Hezbollah and its allies lost their majority in parliament. The main opposition gained some ground. And several independent candidates, the ultimate agents of change, won their seats. If change is forthcoming, this election will have been the beginning of the beginning. There is a long road back for Lebanon to regain its rightful place.


Analyst Maxim Trudolyubov has a demographic angle on the Ukraine invasion. In a Twitter thread, Trudolyubov notes that “in Ukraine, people in charge of defense and key government functions are in their 40s and 30s. The average age of Russia’s key officials is 64. For Ukraine, the average is 44. It’s a war between generations.” Read the thread here.

The Wednesday Briefs are not investment advice. Please do your own work and discuss with professional advisors before committing capital.

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2022 French Elections with Axel Gyldén, 16 April 2022

Between the two rounds of the French Presidential election (last Sunday and next Sunday), Sami J. Karam speaks to Axel Gyldén, veteran reporter at France’s leading weekly L’Express. Topics include analysis of the first round results, President Emmanuel Macron’s popularity, Marine Le Pen’s probability of winning and what such a victory would mean for France and for Europe.


Twitter Punished

The following opinion first appeared in The Wednesday Briefs 110 – 6 April 2022. Access to The Wednesday Briefs is free but requires a password. Subscribe to populyst for access.

Tesla does not advertise in the media. That is true if you ignore the free advertising that Elon Musk gets by tweeting daily on Twitter. Musk in addition to everything else is a cult leader not only of the Tesla cult but also of the cult of Musk. In fact, the cult of Musk is the primary reason why Tesla is valued more highly than all other automakers combined. Musk sells electric vehicles and space rockets, but he sells first and foremost the public persona of Elon Musk. His purchase of 9.2% of Twitter therefore can be seen as an integral extension of his efforts.

Twitter has become vital to Musk, as vital as it had become to President Trump. Both Musk and Trump have (or had, in Trump’s case) tens of millions of followers and were able to reach them every day at a cost of exactly zero. We noted in the past the absurdity of this “free lunch” anomaly and have long argued that Twitter should invoice certain categories of users, not only in order to generate revenues but also in order to enforce a code of conduct.

We included this graph in The Wednesday Briefs 073 and 046. The x-axis refers to a user’s frequency of tweeting. And the-y axis to whether Twitter is indispensable to him. In our view, Twitter should charge users who fall in the green box, as well as some of the more prominent bloggers (the chart is from 2017 when there were few prominent bloggers; that bubble should extend to the right).

However, Twitter has remained free to all users, bypassing normal market forces and their necessary disciplining effects. Now as tends to occur with all free services, it has been ambushed by reality on two fronts: rogue users and low revenues.

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With Eduardo Mufarej, Founder of Renova, 17 March 2022

What makes an effective politician? Politicians come from all walks of life but the vast majority of them do not have any formal training in political science or in government or in the tasks and tools of being a politician. Renova, an innovative non-partisan non-profit organization in Brazil, seeks to change that and to also improve governance, by training aspiring political candidates. In this podcast, Sami J. Karam speaks to founder and chairman Eduardo Mufarej about Renova’s mission, its training curriculum and its prospects.


Demographics of Russia, Belarus and Ukraine

In his article of last summer “On the Historical Unity of Russians and Ukrainians”, Vladimir Putin wrote the following:

“But the fact is that the situation in Ukraine today is completely different because it involves a forced change of identity. And the most despicable thing is that the Russians in Ukraine are being forced not only to deny their roots, generations of their ancestors but also to believe that Russia is their enemy. It would not be an exaggeration to say that the path of forced assimilation, the formation of an ethnically pure Ukrainian state, aggressive towards Russia, is comparable in its consequences to the use of weapons of mass destruction against us. As a result of such a harsh and artificial division of Russians and Ukrainians, the Russian people in all may decrease by hundreds of thousands or even millions.”

The last sentence addressed the demographics of Russia, in particular the size of its population. For a long while, Putin has been mindful of Russia’s weak demographics. In the past, he has sought to stimulate Russia’s birth rate and has rewarded couples who have more children. According to UN estimates, the Russian population is not growing and its median age is rising. Because Putin views Ukrainians as the same people as Russians, a shift of the Ukrainian identity away from Russia and towards the West would mathematically reduce the total number of Russians. In other words, if you are Russian one day, you can be counted within the total Russian population. But if you no longer identify as Russian because of “forced assimilation”, it is possible that you may no longer be counted within that total.

So let’s take a quick look at the demographics of Russia, Ukraine and also Belarus since it too is viewed by Putin as part of the greater Russian people. As shown in the two tables below compiled from UN Population data, the population of Russia rose from 102.8 million in 1950 to 147.5 million in 1990, or a respectable average of 0.9% per year. But then it went flat after the breakup of the Soviet Union due to the deep economic problems that then affected Russia and other former Soviet Republics. According to the UN’s medium variant projection, Russia’s population will decline to 135 million in 2050. Meanwhile, the median age has nearly doubled since 1950 because couples are having fewer children, a phenomenon seen in many countries/regions including the United States and Europe.

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How to Tax a Billionaire (or Not)

Our institutions created centibillionaires and are now trying to contain them.

In Ayn Rand’s novel Atlas Shrugged, a group of high-achieving industrialists have had enough with being exploited (in their view) by “parasitic” collectivists and “second-handers”. They withdraw to a perfect community Galt’s Gulch aka Atlantis where they can live in peace and prosperity with each other, far away from the do-nothing (in their view) populace and according to their own laws and beliefs.

Because Rand mercifully never wrote a sequel (the original has more words than either War and Peace or Les Misérables), it is not clear whether these supermen and women lived happily ever after or whether, after enjoying the initial high of sticking it to humanity, their infinite egos led them to devour each other to oblivion and Galt’s Gulch disappeared Roanoke-like with no explanation left for posterity. That is, no explanation other than the obvious which is that a healthy society requires a fuller range of social strata and cultures, not only a super-stratum and a monoculture, in order to survive and to prosper.

No escape to Galt’s Gulch is currently offered to today’s billionaires who have so far opted to remain in the real world though they contend daily with insults and attacks from many quarters. It is necessary to say “so far” because some have been toying with otherworldly escapes, be they monetary via cryptocurrencies or interplanetary via emigration to planet Mars. Cryptos would free them from the gravity of central banks. And space from the gravity of Earth. After all, in our culture, “to leave it all behind” is nearly synonymous with high quality living. And to disrupt, to reject the dominant paradigm, are seen as ways to create new wealth.

Bernie vs. Billionaires

While still among us on earth however, even the ultra rich deserve… empathy. Or at least some recognition for their achievements. Their defining characteristic, shorn of all social and economic artifice, remains their humanity, not their wealth. Yet it is assumed by the angry-egalitarian political complex that it is fine to insult and harass a billionaire, as if their humanity was inversely proportional to their wealth. Starting with Bernie Sanders for example, some members of Congress have stated plainly that “billionaires should not exist”.

Because there are among the people mob inciters who amplify their message through social media, this slogan could be interpreted as incendiary, or as unsafely ambiguous. Does ‘billionaires should not exist’ mean that we should tax them until they are no longer billionaires? That would entail taking away 99% of some billionaires’ wealth. Or does it mean that we should limit their growth plans when their wealth hits the $999 million mark? Or force them to give away their wealth to charity? Or something else?

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Update: Working Age Population Around the World 1960-2050

This is an update of a similar post from 2015. The UN projections have changed but only by small numbers. The main observations are the same as six years ago (click table to enlarge in a new tab).

The working age population (WAP, those aged 15 to 64) of sub-Saharan Africa continues to grow rapidly. It has more than doubled since 1990 from 252 million to 609 million, and is expected to more than double again by 2050 to 1.3 billion. If the reality turns out to be anywhere near these projections, it will be a significant challenge for African economies to absorb and to employ productively this enormous amount of new human energy.

India faces a similar challenge with its WAP growing from 928 million now to 1.1 billion in 2050. Though daunting, this represents a slowdown in the rate of growth from the previous thirty-year span 1990-2020.

The WAP of Europe, China and Japan have already peaked and will be declining for the rest of the century, per UN projections. Europe’s decline from near 500 million in 2005 to a projected 407 million by 2050 is mainly due to eastern and southern Europe. The WAP of France and the United Kingdom will flatline to 2050 while those of Germany and Russia decline.

In the United States, the steady growth in the WAP between 1960 and 2005 combined with a falling dependency ratio to fuel strong economic conditions. Growth in the WAP is expected to be more muted in the decades ahead.

Compared to the late 20th century and the first decades of this century, the future growth in the WAP will taper off or even turn negative in several regions and countries. Sub-Saharan Africa stands out as the exception that will maintain strong WAP momentum through at least 2050.

You Are What You Risk, With Michele Wucker, 19 April 2021

“For some people, risk is scary and dangerous, and means peril and loss. For others, it means risk assets and they have to pile on because they just see the upside. But risk is actually value-neutral. It is important to be aware of the bias that you bring to things. Do you see both sides and do you weigh them? Or are you likely to overweigh the downside or overweigh the upside?” ________ Michele Wucker

We all have an ambivalent attitude towards risk. In 1850, a young Emily Dickinson wrote to her friend Abiah Root “the shore is safer, Abiah, but I love to buffet the sea. I can count the bitter wrecks here in these pleasant waters, and hear the murmuring winds, but oh, I love the danger!”

In her new book You Are What You Risk, author and strategist Michele Wucker codifies this ambivalence to risk. In this podcast with Sami, Michele explains the concepts of “risk fingerprint” and “personal risk portfolio”, among others.

Topics include:

  • 0:00 Introduction of Michele Wucker
  • 2:13 Thesis of ‘You Are What You Risk’
  • 5:20 Attitude towards risk: innate vs. acquired through experience
  • 10:40 Taking a risk vs. following a path; Risk and entrepreneurship
  • 14:10 About each person’s risk fingerprint
  • 19:45 Taking risk as the only woman in the room
  • 24:40 “Risk is value-neutral”
  • 33:00 Matching risk fingerprints in interactions; Measuring risk
  • 38:20 The personal risk portfolio
  • 42:25 Remembering the onset of the pandemic as a gray rhino


(photo of Michele Wucker by Hal Shipman)

Lebanon in Crisis, with Joe Issa El Khoury

“Historically, Lebanon prospered as a result of inflows of people and funds – people who came to take refuge in Lebanon and also funds. If we look at the post World War 2 period when modern Lebanon became independent and also at previous periods that Lebanon went through – and I mean over the past 100 or 200 years – one thing that was common to all these eras is its liberal economic system that was adopted by all who lived on this land. The constant was the liberal economic system.”____ Joe Issa El Khoury

Sami J. Karam speaks with Joe Issa El Khoury, a Beirut-based financier, about the tragic events that have unfolded in Lebanon since 2019. A sharp fall in the currency, a banking freeze, a political crisis, hyperinflation, and widespread street protests made 2019 a difficult year. But these events were then compounded by the Covid-19 pandemic and the explosion in the port of Beirut in 2020.

Issa El Khoury explains the sequence of events that led to the present, and offers a possible way forward.

Topics include:

  • 0:00 Introduction of Joe Issa El Khoury
  • 2:25 What is it like right now on the ground in Beirut?
  • 8:33 Why did Lebanon have a golden period in 1945-75; why was it later so prone to crisis?
  • 17:40 The Rafik Hariri era and the return of growth 1990-2005
  • 20:00 What explains the weakness of the Lebanese state: geography and demographics
  • 26:30 Lebanon’s diversity as a source of wealth; Example of Lebanese cuisine
  • 30:40 Crossing the line from a laissez-faire economy to a crony economy
  • 35:05 The real estate boom of 2007-11
  • 36:55 The impact of the Syrian civil war
  • 39:10 Crowding out the private sector
  • 44:10 The proximate factors that led to the meltdown
  • 46:15 The current condition of the banking sector; Role of the Central Bank
  • 51:00 Will depositors suffer a haircut? The Lazard and other plans
  • 54:45 Talk of privatization of state assets
  • 59:45 Political patronage in the public sector
  • 1:01:50 “All roads lead to Washington DC and the acronym IMF”
  • 1:05:20 Political reform and the role of the diaspora


The Boom in Certainty

Sinclair Lewis called it “the sedate pomposity of the commercialist”. Now it has spread to many parts of society, not always in its sedate form.

Back in our final days as architecture students in Austin, our class had a farewell gathering with a professor who had been a valued mentor to several of us. As was habitual on such occasions, the professor was discussing with us the work of various architects when the subject of a newly-constructed building came up.

“I hate that building”, one classmate said flatly.

After an awkward silence, the professor mocked: “you mean, strongly dislike?” Off guard, the offending party protested that his use of the word was innocuous then and there. The professor conceded as much but explained that it was a visceral word, the kind of word that forestalls further discussion and that hardens the speaker’s and listener’s opinions. It is difficult to walk back or to change your mind from “hate”, and easier to do so from “dislike” or even from “strongly dislike”, he argued. His advice was to leave in one’s words an open path for retreat, in essence to never burn one’s rhetorical bridges.

This led to another discussion about certainty and about people who speak with certainty. The professor said that he had a reflexive dislike for certainty and that he felt a profound distrust towards people who speak with certainty. There is very little that is certain in life, he said, even among things of which we are convinced at a given point in time. Opinions change, science changes, research advances. New discoveries change our beliefs. Knowledge doesn’t just flow or evolve gradually like a river; it shifts laterally and sometimes suddenly like an earthquake.

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