Entertaining/animated interview with Bruce Greenwald

[nafregnum]

 

This was a fun interview to watch for me so I wanted to share it:

An impassioned defense for Value Investing philosophy in the first few minutes.  Preach it brother Bruce!  Bruce gets up to the lectern and yells "Hear!  Oh hear!  The word of Value!"  I also enjoyed the brief history of value investing from Graham & Dodd up to today.  

He said he thought USD inflation would be brutal.

Had a few interesting big picture predictions, one was that China will have a very hard time transitioning quickly from a manufacturing economy to a service economy.  Sometimes predictions so huge make me wonder if it's really possible to foresee such things ( if Bruce is right, and the leadership in China became convinced of this economic brick wall, couldn't they now take preventative measures or make other maneuvers to soften the blow? )

He also said that there's no chance Tesla will be the dominant car manufacturer in 20 years.  But he did say he wouldn't dare short them and he'd be too afraid to own the stock.  "If I were to put the family fortune into TSLA, I would not be a comfortable dude."

[ about China, not sure if he's right ]

He says at one point that many of China's brightest come to study in the US and then stay in the US, but I think that might be outdated information going forward.  I think I recently read an Economist article about more and more foreign students in the US deciding to go back to their home country.

https://www.economist.com/special-report/2018/05/17/what-happens-when-chinese-students-abroad-return-home

He might have outdated info about the amount of foreign university students in the US who are deciding now to go back to their home countries instead of staying.  

Fred Liu writes about "Gen-1 Entrepreneurs" in developing nations in his most recent quarter letter:

http://www.haydencapital.com/wp-content/uploads/Hayden-Capital-Quarterly-Letter-2021-Q1.pdf

[LearningMachine]

Thanks @nafregnum for sharing.  I really liked that he talked about some nuggets that folks forget at times:

• How to identify how big is the barrier-to-entry: Figure out what is the minimum market share you need in order to be viable now 
  • Electric car market: 
    • Now, if a market is small like the electric car market is today, you probably need to get to 20% market share to be viable
    • In the mature global auto-market, you can be viable at 2% market share.
    • At 20% requirement, Tesla maybe able to keep rivals out, but at 2%, nobody is going to keep anybody down, and guess where the electric car market is going.  Not a chance Tesla will dominate 20 years from now because barrier-to-entry will be lower with bigger market.
  • Cloud computing: 
    • The market is going to get really big and it is going to be harder to dominate [because percentage market share needed to enter market will go down]
• Checklist to keep in mind that DCF doesn't address
  • #1. DCF doesn't make distinction between estimates of near-term cashflows and estimates of distant cashflows
    • Near-term cashflows might be closer to being correct, but distant cash flows are more likely to be incorrect.
    • DCF adds bad information from distant cashflows with good information from near-term cashflows
    • Growth stocks have even more extra-ordinary emphasis on future cashflows [that are likely to be incorrect]
  • #2. DCF has no easy way to integrate strategic insights
  • #3. DCF is all forward looking as it is based on estimates of the future and completely ignores balance sheet
• Why inflation is a likely possibility:
  • Because our economy is 70% oligopolies and local [meaning niche] monopolies 

Edited June 5, 2021 by LearningMachine

[SharperDingaan]

Keep in mind there are 'many' China's, there are lots of unhappy folks, and the birth rate is now falling. The economic talent of both HK and Taiwan also vote with their feet every day, and freedom is just a 'plane ride away. Do the seizure thing and you get crumbs - everybody ELSE gets your talent.

SD

 

 

[Jurgis]

On 6/5/2021 at 1:33 PM, LearningMachine said:

• Why inflation is a likely possibility:
  • Because our economy is 70% oligopolies and local [meaning niche] monopolies 

And this has been different for the last 10+ years of almost zero inflation how?

[LearningMachine]

17 minutes ago, Jurgis said:

And this has been different for the last 10+ years of almost zero inflation how?

 

Because money supply didn't get as much to people who will be competing to get the same bottlenecked goods & services, unlike now with the stimulus, unemployment funds and now wage increases. 

 

Similar to how before the 1973-1974 oil "bottlenecks", money supply had already started going up in terms of wage increases in the hands of people who were going to compete for that bottlenecked oil.  

 

This time we might end up calling some other oligopolies/cartels/monopolies or something that is truly limited in supply that starts the fire as the "bottlenecks".

Edited June 8, 2021 by LearningMachine

[wabuffo]

Similar to how before the 1973-1974 oil "bottlenecks", money supply had already started going up in terms of wage increases in the hands of people

 

The inflation of the 1970s was entirely due to the "surprise" devaluation of the US dollar on August 15, 1971.

 

wabuffo

[LearningMachine]

6 minutes ago, wabuffo said:

Similar to how before the 1973-1974 oil "bottlenecks", money supply had already started going up in terms of wage increases in the hands of people

 

The inflation of the 1970s was entirely due to the "surprise" devaluation of the US dollar on August 15, 1971.

 

wabuffo

And, why did that happen itself?

 

Could it have been because it might have been harder to provide in increased quantities something that was "bottlenecked" or "limited in supply" to people with increased money supply, which had been happening already with increased wages? 

Edited June 8, 2021 by LearningMachine

[wabuffo]

Could it have been because it might have been harder to provide in increased quantities something that was "bottlenecked" or "limited in supply" to people with increased money supply, which had been happening already with increased wages?

 

The world had negotiated terms of trade between debtors/creditors and purchasers/suppliers based on a certain peg of gold to the USD with all other world currencies pegging to the dollar.   The peg snapped and turmoil followed.   Over the following decade, the whole world had to renegotiate its terms of trade between debtors vs creditors and purchasers vs suppliers.   This "renegotiation" re-set prices in the typical business income statement based on how long the contracts were - first commodities, then purchased items with lead times, then labor contracts, then long-term debt, etc..  Of course, government made things worse by wading into the mess it had made with monetary policy trying to "fix" things.

 

If you were in the Middle East - you were used to 1 oz of gold buying 12 barrels of petroleum without fail for the last thirty years.  Now your old price quoted in dollars was requiring you to supply you 24 barrels of petroleum for that same 1 oz of gold.  So the Middle East re-set the price for petroleum back to 1oz = 12 barrels.  But that doubled the price of oil in USD.   Of course, governments reacted to rising prices with price controls.   Price controls always lead to shortages because the market can't clear and thus you could only buy gas on alternate days in the 1970s depending on the license plate number on your car (odd/even days).  

 

It had nothing to do with supply or demand.   It had to do with pegging, sudden devaluation and the follow-on price controls.

 

My point is that currency debasement goes on all the time.  But with a peg its a bit like pressure building from colliding tectonic plates that stops the currency debasement temporarily.  Then a devaluation happens and its like an earthquake as the pressure is released suddenly and explosively.  That's what the 1970s were after the 1971 devaluation.  Today there is no peg and so we debase little by little everyday and no one feels the shifting ground underneath them anymore.  But we look at the Pacific Ocean one day, and there's Vancouver Island sitting on the horizon as one looks out from the Port of Los Angeles (stretching my tectonic plate metaphor too far).  

 

This gets me to my favorite home-made chart.  This is a long-run run chart of the gold price in USD.   It just continues to amaze me that folks don't appreciate Alan Greenspan more when you put his tenure in the middle of that chart.

 

 

wabuffo

Edited June 8, 2021 by wabuffo

[LearningMachine]

@wabuffo, I really like your analogies. 

 

When we look back at the 2020s decade in the future, I wonder if we might say some events caused folks to realize the currency debasement going on so quickly this time as well, e.g. 

• Home builders realized quickly they had to pay double (?) the price for lumber because of bottlenecks caused by covid
• Small business owners realized quickly they had to pay almost double the wages they used to pay pre-covid
• Soon, restaurant customers realized quickly they were paying almost double the prices they used to pay pre-covid
• Soon, consumers started realizing they were were paying almost double for their favorite foods at supermarkets
• Soon, consumers started realizing they were paying almost double to their wireless company for their bundle of streaming packages + wireless service for their phone, watch, AR glasses, 5G laptop for work-from-anywhere lifestyle, etc. 
• Soon, the health insurance companies started realizing they were paying almost double to drug companies and had to double the cost to their customers

 

And then, near the end of the decade, the Chinese economy became bigger than the U.S. economy, and RMB started overtaking USD for trading, just like the American economy and USD had overtaken British economy and GBP a century ago. 

...

 

It will be interesting to see what history will say about 2020s.  Lets hope U.S. stays united throughout all this.

 

Edited June 9, 2021 by LearningMachine

[cknucks]

Thank you.  Great drop!