What I Read Last Week
Volume 05: Brief Rundown of Eye-Catching Articles from the Past Week (as of 10/22/22)
I spend a significant amount of time reading, both for work and for pleasure. When I was younger, I read books and magazines religiously; I now read on my iPad for the most part.
From time-to-time I may share a few eye-catching articles that I have recently enjoyed. I will preemptively apologize for linking to items that are found behind a paywall; quality journalism is valuable. My own writing is delivered free of charge, so derive what you will from that admission! I often find this resource helpful for scaling a paywall: https://12ft.io/
Find below a few highlights from the week ending on 10/22/22:
Scott Mitchell-Malm, who is among the ex-Autosport reporters now writing for The Race, recently conducted an in-depth, candid interview with Daniel Ricciardo, the embattled McLaren Formula 1 driver whose services the Woking-based team opted not to retain for 2023. Ricciardo sums up his poor 2021 and 2022 seasons, in which his young teammate Lando Norris thoroughly dominated him, succinctly:
“If I’m going to give you a short answer, I’ll put it down to two things,” he says.
“One, I’ll never take credit away from him – the kid’s good. There’s no denying that. And if I say he’s not, then I’m just being a bitter, sore loser.
“The kid’s good. That’s obviously one element, he can steer.
“The second is, ignorance is bliss. And I’m not saying he’s got no knowledge of racecars, not at all. I think he’s quite actually in tune with what he does, from a technical point of view.
“But it’s the only F1 car he’s driven. Obviously, there’s been variations of the McLaren. But he hasn’t driven for another team. So in a way he has got, I’m sure, used to some of the elements of this car.
“There’s probably a bit of that, where I’ve obviously got some – I hate this word, but I’ve just got to use it for a lack of better words right now – expectation of maybe what a Formula 1 car can do or should do or where some potential lies.
“He does now, because he watches onboards, and he sees what other drivers can do – ‘Yeah, I wish we could do that, the rear doesn’t do what I want’.
“But ultimately, he hasn’t been behind the wheel of another car. So obviously, he’s good. And there’s an element of ‘ignorance is bliss’.”
Jesus wept. Ricciardo does not anticipate racing next year.
Additional McLaren content, this time from the McLaren Automotive side of the house. Andrew Frankel revisits the decade old P1 hypercar with the benefit of hindsight and context provided by the more recent 765LT model.
First, an amusing remembrance of the P1’s gestation; recall that McLaren was a very small, startup manufacturer when it launched the P1, only Automotive’s second product (after the MP4-12C) (emphasis mine):
The man who directed the programme that created the McLaren P1 is called Paul Mackenzie. And when it was safely built and sold out he told me the truth about it. It was a long conversation but I still have the notes and one particular comment stands out.
He said: ‘The risks we took with P1 were absolutely immense. It makes me shudder to think of them. Just one example: we committed to building a hybrid without a single clue how to do a hybrid and knowing that the only kind of hybrid that would work for us – one which actually improved power-to-weight ratio – had never been done before. There had only been one person in the building who knew anything about hybrids, and he’d left…’
On the 765LT’s steering (emphasis mine):
What I love, no, adore about this car is the sense of connection it provides. The steering is so good that at times it feels like a spacer between you and the road. The flawless supply of the most detailed intelligence flowing through its rim is, to me, the single most important ingredient in being able to enjoy a car like this and, crucially, drive it with confidence. And you can. So while it’s wide, you can place it to the millimetre and you don’t have to wait for a tyre to lose grip to know you’ve reached the limit, because the steering loadings have already told you, long in advance. Stunningly, startlingly fast though it is, it is a car in which I feel entirely at home.
I was of similar mind when I drove McLaren’s “baby” Artura in August:
I was excited to experience McLaren’s latest effort in this regard, as steering feel is the single most important enthusiast car characteristic in my book.
Frankel’s verdict:
Because the truth is, and I’d have never believed it before that day, the 765LT is the better driving machine. I was as awed by its chassis every bit as much as I was by the P1’s mighty powertrain. It was no slower but even more fun
The 765LT is the better car.
But the P1 is the greater of the two, and by far. In essence, the 765LT is just an exceptionally fluently executed and optimised iteration of the 720S, but when I think of what McLaren Automotive must have done to create the P1 while still in its infancy, the technology involved and the credibility at stake, well I just goggle. I think it seems more of an achievement now, even than it did then.
Both, then, are not just among the finest McLarens ever made, but the finest of all performance cars of all kinds, from all eras. But only one is an icon, and it’s called the P1.
Now for a third McLaren article this week! Autocar has completed a road test of the aforementioned McLaren Artura on UK roads (emphasis mine):
Those used to the softened mid-range pick-up of the McLaren 570S will be stunned at how crisply this car surges forward the instant you flex your toe. You needn’t hold onto a lower gear and higher revs during faster cross-country driving to keep the engine in that permanent state of readiness. Even in higher gears, the torque just floods in the split second you ask for it. The electric motor blends with the combustion engine so seamlessly, before the latter takes over the ravenous heavy lifting beyond 5000rpm, and pulls freely and forcefully to well beyond 8000rpm.
Our timing gear recorded a two-way-average 0-60mph standing start of 3.2sec, 0-100mph in 6.3sec and a standing quarter-mile in 10.9sec. The previous generation of Porsche 911 GT2 RS, tested in 2018, was a tenth or two faster across the same benchmarks, but in terms of real-world, any-gear, accessible roll-on performance, the Artura slays the GT2 RS by even greater margins (30-70mph in fourth gear: 4.1sec versus 5.1sec), which makes it feel energetic and ready to accelerate at any moment.
I suspect that Car & Driver, the reliable benchmark for performance testing, will significantly better these acceleration figures when they test the car.
The fourth - and final - piece of McLaren-related content this week is an interview with Zak Brown that sheds light on the heavily rumored sale of McLaren - both Automotive and Racing divisions - to Audi (emphasis mine):
Last November, McLaren Group denied reports claiming it had been sold to Audi. Discussions did take place, but a deal could not be struck.
As the shop window for McLaren’s road-going products, retaining the Racing business (and its overall control) is therefore critical to the Group.
While it can afford to sell off a stake as it can, raising cash for the business, it can ill afford to lose overall control.
“McLaren Group and its majority shareholder, Mumtalakat, and the second largest shareholder, TAG Group – Mansour Ojjeh’s family office, if you like – are very passionate about the racing team and had no interest in giving up majority control.
“And ultimately, that’s what Audi was interested in. It was a level of ownership that McLaren Group, and for that matter MSP Sports, had no interest in. That’s ultimately why those conversations were brought to an end.”
Audi has confirmed it will enter Formula 1 in 2026 as a power unit supplier and is widely known to be in the process of purchasing Sauber, which competes under the Alfa Romeo banner currently.
Car Magazine, once the definitive automotive publication, is celebrating its 60th anniversary this year. Naturally, this occasions some rose-tinted reflection on its greatest hits, in particular the seminal, iconic covers for which Car was once renowned. For my money, the greatest cover of all was September 1987, the infamous “There will never be another month like this” issue, in which the magazine corralled stories about Lambo’s “Super Countach”, the Ferrari F40, the Porsche 959, and a Ferrari 288 GTO vs. Aston Martin Zagato face-off.
Special mention to the “SETRIGHT DECIDES” cover, which teased perhaps the benchmark comparison road test. You can read it here - and you should! A few photographic excerpts from the Setright article:
No one since has ever come remotely close to L.J.K. - that’s Leonard John Kensell, by the way - Setright’s powers of automotive discernment, to say nothing of his inimitable and deeply enviable writing style.
Hot on the heels of my claim that Porsche is not considering placing a hydrogen engine into the enthusiast-oriented subset of the 911 range, Autocar reports on a “virtual” hydrogen V-8 engine:
Porsche was in the news in August with a hydrogen engine project aimed at producing the high performance needed for its cars. Most of today’s research is focused on commercial vehicles, where less than 70bhp per litre is enough, but Porsche’s interest lies at the upper end of the scale and its subject is a virtual 4.4-litre V8 petrol, which at 590bhp is making 134bhp per litre.
BMW AG Chairman Oliver Zipse provides a trend forecast (emphasis mine):
“After the electric car, which has been going on for about 10 years and scaling up rapidly, the next trend will be hydrogen,” he says. “When it's more scalable, hydrogen will be the hippest thing to drive.”
Very hip!
I typically restrict my content recommendations and writing to automotive(-adjacent) topics, but I have vast interests, as evidenced by my coverage of corporate intrigue at Audemars Piguet, my preferred watchmaker (Part 1, Part 2). I enjoy superbly rendered writing on a variety of topics, apparently particularly so when said writing is protected by a vertiginous paywall!
I have long enjoyed ex-investment banker’s William Cohan’s financial writing, which can be found online in numerous venues, including Airmail and Puck (both highly recommended).
Cohan has two recent articles that I wanted to highlight:
In the first article, the prodigiously coiffured author assesses the risks that Morgan Stanley has undertaken as the lead underwriter on the debt financing portion of Elon Musk’s pending acquisition of Twitter (emphasis mine):
The I.P.O. market is pretty much closed, except for the very best companies, such as Porsche, whose listing this month was the biggest in Germany since 1996. The high-yield market is basically closed until the Fed curtails its interest-rate increases. The leveraged loan market is deeply troubled, as witnessed by the likes of the Citrix, Twitter, Nielsen and Tenneco deals. The M&A market is very quiet, with the exception of the aforementioned Kroger/Albertsons deal, which might get blocked anyway. It’ll be ugly on Wall Street for a while now, and certainly until the financial markets find a way to stabilize at some point (but not soon).
What I wonder about is where and how the banks are hiding their losses on these soured deals. Take, for instance, Morgan Stanley and its position as the lead underwriter on the Twitter senior secured debt financing, which I wrote about recently. Morgan Stanley’s loss on the Twitter underwriting will be somewhere in the hundreds of millions of dollars, assuming Elon Musk’s acquisition of Twitter closes, which is still a big if, even though he will have little choice but to buy the company, as he promised to do legally on April 25, when he signed the merger agreement. Unless, that is, Morgan Stanley somehow hedged its committed position on the Twitter underwriting, even before the deal closes, by laying off the risk on someone else.
The question came up on the Morgan Stanley earnings call this week. Christian Bolu, an analyst at Autonomous Research, asked Morgan Stanley executives about its leveraged lending and bridge-loan book. “Can you speak to your balance sheet risk appetite?” he asked, citing Morgan Stanley’s underwriting role in the Citrix and Twitter deals. “How big is your bridge book or leverage loan book?” he asked, “…And then second, are you increasing your risk appetite here to capture opportunities? And then how are you thinking about managing that risk?”
In response, Sharon Yeshaya, Morgan Stanley’s chief financial officer, essentially confirmed that Morgan Stanley had hedged its risk on these deals. “Broadly speaking,” she replied, “I’d say we’ve been extremely prudent in terms of risk management.” She continued, “We’ve been looking at different risk-based metrics really over time and bringing them down over the course of the year. So that’s for the entire institution, just knowing that we’ve entered into what feels like a more volatile period. And as you think about those different relationships and events, net of hedges, over the course of this quarter, they actually were quite modest marks, given the environment.”
Considering that Morgan Stanley’s provision for credit losses in the third-quarter was a paltry $35 million, it seems that Yeshaya was telling the market that Morgan Stanley was smart enough to see trouble brewing bigtime in the credit markets and then laid off the risk it faced by underwriting these leveraged loans on to someone else. Someone somewhere owns that risk now, if in fact Morgan Stanley sold it to someone else. We just have to wait now and watch to see whether whoever bought that risk from Morgan Stanley blows up and what they say when it happens.
Cohan wrote this before it emerged that the Biden administration might put the kibosh on Musk’s pricey pending acquisition of Twitter!
In the second article, Cohan interviews Bob Sloan, a “somewhat neutral third party and the founder and largest shareholder of S3 Partners, a private data analytics and workflow technology company” about the Reddit-fueled short squeeze of ill-fated hedge fund Melvin Capital, which held a short position in GameStop shares.
Sloan is an authoritative voice on short-selling, and he wrote a book on the topic that I read during college - Don’t Blame The Shorts. Coincidentally, Sherman McCoy and Sloan share an alma mater.