Can You Prepare Your Family For The Coming Financial Apocalypse?

[ScottHall]

What if the Technological Singularity is leading to a Financial Singularity as well? It has long been assumed that companies cannot grow in excess of their cost of capital forever, and this makes sense or else that company would soon own the entire world.

 

But there's also never been a time in history when we've seen $100 billion businesses grow sales at 20% per year like clockwork, and we've certainly seen that happen now. New shit happens all the time; just because our mental models of the world don't permit something to happen does not mean it's impossible.

 

Economies are made up. The screen you're reading this on exists because we've all agreed to work together to make it exist; it took coordination of effort on a massive scale to make just about everything you see in your home on a day-to-day basis exist. And all because we believe in the intrinsic value of green cotton as a means of exchange. There's no natural law that says this has to happen; the concept of currency at all is entirely intangible.

 

In a sense the world only works because we all collectively agree not to look under the hood and freak out about how fucking insane this all is.

 

Since economics is essentially an applied form of psychology, and because people are predictable, but not too predictable... the concept that there are iron laws of finance seems incredibly stupid to me.

 

So if Amazon can grow at 27% a year to hit $136 BILLION of revenue, I don't really think it's impossible for g > WACC until it totally collapses belief in the economy. How much of Amazon's valuation is the market giving it credit for dominating the retail market and how much of it is Wall Street realizing that Jeff Bezos is a fucking ruthless serial monopolist who will grow in excess of his cost of capital for close to forever?

 

Or like Liberty was saying the other day that Facebook could become, effectively, a global dictator.

 

Or Google's seemingly-unbreakable grip on search force businesses to spend a bigger and bigger share of the economic pie on their advertising each year?

 

There are no capital constraints for these businesses. There are fewer and fewer capacity constraints with each passing year. That's what's allowed Amazon to get to where it is in the first place. Why can't we take that to the logical extreme?

 

That these monopolist businesses, and the other handful like them, in a world without many of the boundaries it used to have, could quite literally consume the world and end up breaking the economy.

 

I hate to say it, but I think it's more likely than not. And you can bet that I'm positioning my portfolio accordingly.

 

It is important to always remember...

 

All becomes One, when g > WACC.

[premfan]

Without diving deep into your post. Which is interesting. We have always been in a system of transfer.  Not loss or gain. Just pure transferring of consumption to alternatives that have insanely better business models at scale. The key is at scale. Clear example which is obvious yet slow moving( compared to other webbie stuff)  is ecommerce.  Last checked about 9 percent of retail sales. I would say its still not at scale if i use pareto. In a singularity the presumption is 80 percent or more scale. So yes economic models are changing and will continue. VR, AR, Blockchain anyone?

 

 

I think in principles not in laws. Pareto scale at 20 percent plus.  Occam is helpful. And Maslow to a lesser degree is helpful.  Longer post then i intended. Last observation if we use say Wayfair as an alternative to say TJX.  Just a side by side comp insert any retailer if chosen.  Wayfair's Sales to In/Ar ratio is 1 percent! Compared to TJX last i checked was 14-15 percent.  Lowest in the sales to In/Ar ratio last i checked was walmart at 10 percent!. 

[ScottHall]

Without diving deep into your post. Which is interesting. We have always been in a system of transfer.  Not loss or gain. Just pure transferring of consumption to alternatives that have insanely better business models at scale. The key is at scale. Clear example which is obvious yet slow moving( compared to other webbie stuff)  is ecommerce.  Last checked about 9 percent of retail sales. I would say its still not at scale if i use pareto. In a singularity the presumption is 80 percent or more scale. So yes economic models are changing and will continue. VR, AR, Blockchain anyone?

 

 

I think in principles not in laws. Pareto scale at 20 percent plus.  Occam is helpful. And Maslow to a lesser degree is helpful.  Longer post then i intended. Last observation if we use say Wayfair as an alternative to say TJX.  Just a side by side comp insert any retailer if chosen.  Wayfair's Sales to In/Ar ratio is 1 percent! Compared to TJX last i checked was 14-15 percent.  Lowest in the sales to In/Ar ratio last i checked was walmart at 10 percent!.

 

I agree with you Premfan. I am of the view that ecommerce growth could possibly be tiered, where we see slower growth ahead... before accelerating to a much faster pace than before. Or, it could just accelerate from here without the slowdown in between.

 

The reason being that as ecommerce grows, more and more sales are removed from physical retailers. We're already seeing that happen. But despite the headwinds, many retailers are still profitable. They haven't yet been hammered hard enough by operating leverage to turn enough of a loss to go out of business, despite business getting consistently worse. Sears is still around, for fuck's sake.

 

Right now Amazon is taking share from these guys, but they still have share to give. What happens when these guys lose enough sales that the operating leverage kills them? They don't have share to steal anymore; it goes to zero and is going to be reallocated really quickly because the underlying demand hasn't gone away.

 

So if Amazon is doing this well when it's still having to compete against a lot of retailers... imagine what could happen when there are fewer and fewer in-store alternatives for people because they couldn't maintain the volume to stay profitable?

 

Effectively, it will have to go online at some point. And Amazon will probably capture most of it.

 

I guess what I'm saying is that I think there's a case to be made that there could be a step change here that I haven't seen mentioned much, if at all.