Minnesota and Racial Disparity

Criticism of Minnesota's racial disparities is not new, but the murder of George Floyd and ensuing protests and riots have amplified the attention these disparities are getting from news media. According to US News, Minnesota ranks 43rd in terms of equality as measured by racial income gap. That's pretty bad, but it should be noted that California (the most populous state) ranks 48th. A popular inference seems to be that Minnesota's high racial disparity indicates a greater level of racism in Minnesota (despite Minnesota's 'liberal facade'). I live in Ward 9 of Minneapolis, which is where George Floyd was killed. With the exception of Donald Trump and Mike Pence, every elected politician representing Ward 9 is a Democrat. That includes the city council, mayor, county commissioner, members of Congress, governor, lieutenant governor, secretary of state, state auditor, and state attorney general. I will also note that of these 13 elected politicians, two are Latina, one is Native American, and four are black. I decided to compare Minnesota to the five states with lowest racial income gap. In order starting with the lowest gap, these are: New Hampshire, Kentucky, Virginia, Missouri, and Washington. I'll preface this by saying that I don't claim to have a definitive measurement of racism, but I do think the judgement that Minnesota is particularly racist may be ignoring the context of the situation. Firstly, we'll consider the percentage of the vote Donald Trump received in these states in 2016:
New Hampshire 46.61%
Kentucky      62.52%
Virginia      44.41%
Missouri      56.77%
Washington    36.83%
Minnesota     44.92%
Of course, Donald Trump and Hillary Clinton are both white. I also analyzed the propensity for non-white people to be elected to Congress by these states. The first numeric column is the percentage of the congressional delegation that is non-white. The second is the percentage of the state's population that is non-white (2019 estimate). The last column is the ratio of non-white people in the congressional delegation to non-white people in the state.
               CD          Population          Ratio (CD/Population)
New Hampshire   0           6.11%               0
Kentucky        0          12.21%               0
Virginia       15.38%      31.42%               .49
Missouri       20.00%      17.21%              1.16
Washington     16.67%      22.73%               .73
Minnesota      10.00%      14.70%               .68
The data from this measure is limited because of the small size of some of the congressional delegations. New Hampshire and Kentucky have all white congressional delegations, but these delegations only consist of four and eight people, respectively. The ratio in the last column indicates the degree to which non-white people are underrepresented in the delegation (or, curiously in the case of Missouri, overrepresented). The data suggests that non-white politicians in Minnesota have a greater propensity for being elected than three out of the five 'most equal states' (after adjusting for the demographics of the state). 
The final statistic I will consider is the change in the proportion of black residents in these states. These are the percentages of 'black or African American alone' for 2000 and 2010, and the percent change of these proportions:
                 2000    2010    Percent Change
New Hampshire    .73%     1.14%  56.16%
Kentucky        7.32%     7.78%   6.28%
Virginia       19.64%    19.39%  -1.27%
Missouri       11.25%    11.58%   2.93%
Washington      3.23%     3.57%  10.53%
Minnesota       3.49%     5.17%  48.14%
While New Hampshire experienced the most rapid increase in its black population, at 1.14% in 2010, the number remains very low. The rate at which Minnesota's black population is increasing is far faster than any of the other four states. While many have decried Minnesota as a bad place for black people to live, the fact remains that black people continue to move there. Other factors, such as birth rate or even emigration of other races, may have had an impact, but with Minnesota's black population increasing 60% over the course of 10 years, it would be reasonable to estimate that most of the black people in Minnesota spent much of their lives in other places. Before states like Kentucky are used as models for Minnesota to remake itself after, other factors impacting racial disparities ought to be considered. 

The Curious Case of Chewy

I'll start with the disclosure that I have been long one Chewy July 17 28 put since January 28. As of yet, Chewy has failed to go in the direction I need it to. As is the case with most “financial news” out there, most of the analysis of Chewy I've seen has been superficial, so I thought I'd put some of my own armchair speculations into writing. Firstly, I'll give the basic rationale against Chewy. Chewy is basically an online retailer of pet food, pet medications, and other pet products. By traditional valuation methods, Chewy is the most overpriced stock on the market, and the competition for that title isn't even close. Listed below are the six largest market cap US companies with both negative total equity, and negative earning estimates for both current year and next year earnings. 

Company         Market Cap  P/Sales  Quick Ratio

Chewy           17.6B       3.63     .28

Wayfair         8.5B        .93      .82

Nutanix         3.3B        2.63     1.64

Tubman

Centers         2.5B        3.8      .81

Biohaven

Pharmaceutical  2.2B        N/A      4.96

Cincinnati Bell 746M        .49      .69

With equity and earnings both negative, we can turn to the price to sales ratio for valuation purposes. Biohaven Pharmaceutical has no revenue, but it's a biotech company, and therefore can't be meaningfully compared to other companies through these valuation methods. Only Taubman Centers, a real estate investment trust that invests in commercial property, has a worse P/sales (and not by a huge amount). I also listed the quick ratio (a liquidity measure). By this measure, Chewy is substantially worse than any of the other five companies.

So why are so many people buying Chewy stock? For some, sales growth is the driver. Quarterly sales growth for the past three quarters has been 4.1%, 6.6%, and 10.2%. For others, the narrative of Chewy as the next Amazon is compelling. Recently, Chewy stock has performed very well because it is identified as a 'stay at home stock' that is gaining customers as a result of the pandemic. Some analysts, however, see this as an area of concern. The increased business during the pandemic will increase costs (hiring more employees, etc.), but the customers may return to their favorite brick and mortar stores when the pandemic ends. It should also be noted that pet stores have generally stayed open during the pandemic.

While you are probably familiar with Chewy as an online pet store, what you might not know is that Chewy is a subsidiary of PetSmart. More on that later.

Adendum:

Chewy's 2019 annual report states:

"As of March 26, 2020, PetSmart beneficially owned more than 50% of our outstanding shares of common stock and, together with its affiliates, exercised control over more than 95% of the voting power of our outstanding common stock. So long as PetSmart and/or its affiliates remain our controlling stockholder they will be able to control, directly or indirectly, and subject to applicable law, all matters affecting us"

PetSmart was acquired by BC Partners, a private equity firm, in 2015 for $8.68B. The details of how the subsidiaries within subsidiaries are organized is a little complicated, but essentially BC Partners acquired Chewy in 2017. Chewy then went public in June of 2019 (with BC Partners/PetSmart retaining majority ownership). This brings me to the crux of my question. Why would PetSmart spend two years developing a competitor to it's own business, then sell this competitor through an IPO? The question is sharpened by the fact that PetSmart has its own website selling the same types of products that Chewy sells, with features like free delivery and autoship, just like Chewy offers. In fact, their websites have somewhat similar color schemes and fonts in some areas. Let's take a look at another excerpt from Chewy's annual report:

"PetSmart is not restricted from competing with us in the pet supplies business, including as a result of acquiring a company that operates as an e-tailer for pet supplies. Due to the significant resources of PetSmart, including financial resources, name recognition and know-how resulting from the previous management of our business, PetSmart could have a significant competitive advantage over us should it decide to engage in the type of business we conduct, which may materially and adversely affect our business, financial condition, and results of operations."

So, now we arrive at my conspiracy theory. Chewy is building a brand and customer base that is quite valuable, but the project is being carried out in a way that is likely to be financially unsustainable. Once Chewy nears bankruptcy, PetSmart will acquire the rest of the company at a small fraction of the current share price. This will complete PetSmart's long term plot to get investors to pay for its e-commerce division. 

Covid-19 Deaths and Population Density by State

It is doubtless that the extreme population density of New York City has played a role in New York's status as the state most heavily hit by Covid-19. I compared Covid-19 deaths/1,000,000 population to population density for each state (as well as District of Columbia and Puerto Rico). The data was obtained from https://www.worldometers.info/coronavirus/country/us/ on April 14, 2020. 

I didn't include District of Columbia in the chart because it's population density makes it too much of an outlier. Other outliers (New York in particular) still make the chart mostly unreadable, so I included the data below. I sorted states by deaths per 1,000,000 population divided by population density, and ranked the states. By some logic this orders the states from best to worst performance after accounting for differences in population density. Of course, many other factors have had an impact. The most immediate thing people might suggest is that Puerto Rico and Hawaii performed well because they are islands, and therefore naturally isolated. This might not explain it completely; Hawaii also has the longest life expectancy of all states, and Puerto Rico is not far behind it. Perhaps the general health of the population is an important factor. It should also be noted, that while Alaska performed worst by a huge margin in this measure, about half of Alaska's population lives in the Anchorage metropolitan area, making its overall population density number more skewed than other states.

Rank	State	Population/Square Mile	Deaths/1,000,000 Population	(Deaths/1,000,000 Population)/(Population/Square Mi)
	District of Columbia	11011	76	0.0069021887
	Puerto Rico	1046	13	0.0124282983
1	Hawaii	222	6	0.027027027
2	North Carolina	206	11	0.0533980583
3	Florida	378	24	0.0634920635
4	West Virginia	76	5	0.0657894737
5	Rhode Island	1021	69	0.0675808031
6	Maryland	618	44	0.071197411
7	California	251	19	0.0756972112
8	Ohio	284	24	0.0845070423
9	Virginia	212	18	0.0849056604
10	Delaware	485	43	0.0886597938
11	Tennessee	160	16	0.1
12	Texas	105	11	0.1047619048
13	South Carolina	162	18	0.1111111111
14	New Hampshire	148	17	0.1148648649
15	Georgia	177	24	0.1355932203
16	Massachusetts	871	124	0.1423650976
17	Pennsylvania	286	46	0.1608391608
18	Utah	36	6	0.1666666667
19	Arkansas	57	10	0.1754385965
20	Minnesota	68	13	0.1911764706
21	Kentucky	112	23	0.2053571429
22	Alabama	95	21	0.2210526316
23	New Jersey	1218	275	0.2257799672
24	Connecticut	741	168	0.2267206478
25	Missouri	88	20	0.2272727273
26	Iowa	55	14	0.2545454545
27	Wisconsin	106	27	0.2547169811
28	Illinois	231	62	0.2683982684
29	Indiana	184	53	0.2880434783
30	Arizona	60	18	0.3
31	Oregon	41	13	0.3170731707
32	Maine	43	14	0.3255813953
33	Wyoming	6	2	0.3333333333
34	Nebraska	24	9	0.375
35	Oklahoma	57	25	0.4385964912
36	Mississippi	63	33	0.5238095238
37	Kansas	36	21	0.5833333333
38	South Dakota	11	7	0.6363636364
39	Vermont	67	45	0.671641791
40	Washington	107	72	0.6728971963
41	New Mexico	17	15	0.8823529412
42	Michigan	175	161	0.92
43	Montana	7	7	1
44	Idaho	20	20	1
45	Colorado	52	55	1.0576923077
46	North Dakota	10	11	1.1
47	New York	420	513	1.2214285714
48	Nevada	26	41	1.5769230769
49	Louisiana	108	190	1.7592592593
50	Alaska	1	11	11

The Economy, Inflation, and Where to Put Your Money

This is a general guide for where to put your money considering outlook for inflation and the economy. Anyone attempting to use this guide should keep in mind that the economy and inflation parameters are forward looking, e.g. by the time an economic downturn has begun, it is likely too late to move to gold and treasuries.

Equities Versus Corporate Bonds

This is a comparison between the earnings yield of the S&P 500 and the yield of BBB rated US corporate bonds (ICE BofAML). This deserves a more full analysis, but I think the key observation would be that bond prices have already moved up in anticipation of a downturn. Unfortunately there doesn't appear to be much opportunities other than cash, if like most analysts you are expecting equities to fall.