Election Night Special
The only thing less useful than watching the exit polls is reading this post.
More than 150 million Americans will vote in this election. Very close to half will select the circle next to the same name that you do. The other half will select a worse circle. If your half includes a sufficiently large number of people from states that matter, you get to be happy, but if not, you have to be either sad or angry. Democracy gives us the power to choose.
Regardless of their preference in circles, everyone agrees that there is too much money in politics. Everyone is wrong though. The $16 billion spent on this election cycle is a record high, but it’s also $7 billion less than Procter & Gamble’s FY 2024 SG&A expenses. Is Americans’ choice of leader not as important as our choice of laundry detergent?
$16 billion is not even one quarter of one percent of the annual federal budget. The point at which you’d hit negative ROI from trying to influence who America gives the power to oversee that budget (and the regulations, and the nuclear codes too) is plausibly much higher.
We can find analogs in the world of proxy fights at publicly traded companies. Sticking to laundry detergent: in 2017 activist investor Nelson Peltz spent $25 million campaigning for a board seat at Procter & Gamble. In their attempt to fend him off, P&G's management spent a reported $100 million of its own. Don't ask me how. Legal fees and, I don't know, printing costs? At the time P&G had an enterprise value of about $250 billion, so we can think of the combined proxy vote campaign costing roughly .05% of that amount.
This "Global Balance Sheet" report from McKinsey is four years old and is not US specific, but we can take its value for global assets ($1,504 trillion in 2020), throw in some conservative assumptions for growth in the intervening years (3-5%), as well as for the US share of assets (20-25%), and then consider $16 billion in election spending as a percentage of our great nation's enterprise value. Do that and we'd be left with a number two orders of magnitude less than the .05% figure from the proxy vote example above.
So next time you’re tempted to tune out what seems like a lot of election related white noise, remember that it could be worse. In fact, it probably should be worse: America is spending far less than economically optimal on political campaigns.
Do you realize there are certain sections of the country where the people are so overlooked that not every commercial aired in the week before the election is an attack ad?
Obviously, the social welfare maximizing solution would be to let Americans auction off their vote to the highest bidder, but given this country’s long history of disenfranchisement, I doubt I’ll live long enough to experience this level of freedom. For the foreseeable future, the will of the people will have to be transferred through a Rube Goldberg machine of focus groups and poll testing, bumper stickers and yard signs, celebrity endorsements and volunteer door knockers, until one circle or another pops out at the end.
The horrendous inefficiency is sort of the point. The more smoke that belches from the machine, the louder the sound of the grinding gears inside, the more likely it is that it gets noticed by the people who really matter: undecided voters. Like the ancient gods of mythology, they are powerful, mysterious, and vain. They are not human like you. They belong to a different genus altogether, that of folks, or Americans - as in regular, hardworking, or everyday. Food is of central importance to them. A candidate who would win their vote must first reassure them that he or she has a plan to put it - food - on the table. Candidates start visiting state fairs and roadside diners years in advance of the election, hoping to get photographed near calorically dense fried food in a way that proves their credibility.
On the whole this system works pretty well.
Some recent reading from a low information voter:
Hirohito and the Making of Modern Japan by Herbert P. Bix
I’d say this is an excellent book for anyone who has strong preconceived notions about the exact mix of divine authority, ceremonial symbolism, and actual political influence invested in the Japanese emperor throughout the 20th century. For everyone else (including me), the approach will come off as needlessly polemical and arcane. Doesn’t provide much sense of the world outside the palace walls. Disappointingly few incidents of seppuku.
The Way of the Runner: A Journey Into the Fabled World of Japanese Running by Adharanand Finn
Last year, 7 American men ran a marathon in less than 2 hours 10 minutes. Despite a population less than half the size, Japan had 45. A big reason Japan has the deepest elite running pool of any country outside of East Africa is that it has a unique and genuinely huge culture of fandom around long distance relay races, called ekiden. The most popular races are contested by university teams and draw crowds of rabid fans that wouldn’t be out of place in Tuscaloosa or Columbus. There are also more Japanese professional runners than in the US, both in relative and absolute terms, because many corporations sponsor ekiden teams and provide lifetime employment to their members.
Invest Like the Best episode with Matt Perelman and Alex Sloane of Garnett Station Partners.
I’ve written about the decision to invest on the franchisor or franchisee level. This is an interview with private equity investors who chose the latter path. One of many takeaways: Taco Bells have superior margins to many QSRs in part because uneaten burritos can be reheated the next day.
How “Concrete Cancer” Ruined Summer in Texas Monthly
It turns out that some concrete mixes need to have coal ash mixed in to prevent cracking when exposed to moisture. As coal fired power plants have shuttered, the ash they used to produce as a byproduct has become more expensive, leading some concrete companies to adjust their mix. That’s led to a rash of unusable pools, along with this excellent article that you can use to explain economic incentives to your disappointed child.
Hindenburg short report on PACS Group
Speaking of incentives, here’s an investigation into how one of the nation’s largest networks of skilled nursing facilities (allegedly!) abused COVID era waivers to fraudulently convert Medicaid patients to higher reimbursement Medicare patients. Just a brutal read.
“Despite operating in a highly competitive and highly regulated industry, PACS claims to have discovered a winning “turnaround” formula for transforming poorly performing SNFs into cash spigots … When the COVID waiver was implemented, even 26 of PACS’ longest-owned “mature” facilities, which had previously seen stagnating Medicare revenue from 2017 – 2019, inexplicably grew their skilled care revenue from Medicare by 190%, from $52.2 million in 2019 to $151.5 million in 2022, according to the facilities’ financial reports.
That seems suspicious, but let’s not jump to conclusions.
“PACS’ primary competitor, the Ensign Group, grew Medicare revenue by just 23% during the same period, indicating this was not an industry-wide trend. In 2022 alone, PACS booked 188% more Medicare skilled care revenue than Ensign on a per bed basis, according to facility financial reports.
Another competitor, Plum Healthcare, grew its skilled care revenue from Medicare by just 8% during the first 2 years of the pandemic, despite having full access to the COVID waiver. In November 2021, PACS acquired Plum Healthcare, and promptly increased Medicare skilled care revenue by 173%, from $112 million in 2021 to $306 million in 2022, according to the facilities’ financial reports.”
Seems bad but that was years ago, right?
Following the waiver scheme, PACS’ Medicare skilled care revenue declined sharply in 2H 2023. But it rebounded in 1H 2024, according to PACS’ financial statements. Former employees described a “new trick” to get back to “COVID level profitability” involving billing thousands of unnecessary respiratory and sensory integration therapies to Medicare Part B regardless of clinical need or outcomes.
In retrospect the second jet might have been a mistake:
PACS’ two co-founders, Jason Murray and Mark Hancock, paid themselves $194.5 million in dividends prior to the April 2024 IPO and have sold $656.5 million in stock since. They have also pledged a total of 19 million shares for margin loans, collectively cashing out an estimated $1 billion since the beginning of COVID.
Murray claimed in a March interview that money isn’t a “big factor” in his life, saying: “… the best way I feel like I can spend my money is to give it away, honestly.” Since COVID, Murray and Hancock have embarked on a spending spree that has included purchasing 2 private jets, luxury and commercial real estate, and sponsorships of Utah’s most popular sports teams, despite PACS not operating facilities in the state.