Tuesday, March 14, 2017

Hard to Keep Both Populist Voters and the Equity Markets Happy

This well-written, short leader, from the current issue of The Economist, gives an un-bubbly view of the stock market in the U.S.

Thursday, January 5, 2017

Shiller Interview

This is a good interview, from last week, with the economist Robert Shiller. Topics include the current state of markets, the economy, and animal spirits, post-election. It is in the English version of Finanz und Wirtschaft.

While I'm at it, there was second good piece at the same site last week. This interview, on the hole central banks may be in, is with William White, former chief economist of the BIS.

Tuesday, November 22, 2016

Arthur Demarest, on Collapse

I am big fan of Odd Lots, a podcast hosted by Tracy Alloway and Joe Wiesenthal. They are editors at Bloomberg.

Their latest episode is an interview with Arthur Demarest, an anthropologist at Vanderbilt who spends most of his time living in a tent at an archaeological site in central America.

Because he does what he does, Demarest has deep insights into what civilizations look like before they collapse.

One of his ideas is that florescence, which we see in the pyramids of the Maya, and in the art and architecture of the Renaissance, is often a sign of trouble, not health. Grand projects of this kind historically have preceded, and often contributed to, collapse. A related point of his is that even as highly specialized, hyper-connected economies create wealth, they are much more vulnerable to catastrophic disruption than simpler ones.

Demarest made similar points in an interview two years ago. So, no, this is not about politics.

Recommended listening.

Friday, November 11, 2016

Warren Buffett's Post-Election Views

New interview of Warren Buffett by Poppy Harlow, from CNN.

The topic is the economy, and the world, after the election of Donald Trump as president.

Buffett has his concerns; he supported Hillary Clinton, and it is clear that he would have preferred that we had her finger on the nuclear button rather than Trump's.

On balance, however, Buffett is reasonably optimistic. He compares Trump to Harry Truman. Truman was not a great businessman, yet he still made a very good president.

Worth watching.

POSTSCRIPT of March 12, 2017: I was holding back my own views when I wrote this. Buffett's optimism after the election, which I do not share, surprised me.

Thursday, August 11, 2016

A Face in the Crowd

I recently re-watched A Face in the Crowd, the classic 1957 film. Elia Kazan directed. It is about how American society might react to the rise of a populist.

Wow! So much of it speaks to what is happening in the current presidential election. A great example of how good art gives us true insights.

Highly recommended. You can find it streaming at Amazon.

Thursday, July 7, 2016

Everyone Else is Doing It

A thought that is semi-deep, and a bit dark:

Normally, in finance, when “everybody is doing it,” it’s a bad idea.  For example, if everyone is piling into internet stocks, it’s a bad idea to buy them (because they will be overpriced).  If everyone is selling, it’s a bad idea to sell (the shares will likely be underpriced).

But there’s a big exception to the wisdom of contrarianism, in the case of credit risk. If everyone is taking a certain credit risk, you might want to go ahead and take it. Why? Because if it goes bad, the government will bail you out in order to prevent societal collapse.

If only a few people will be hurt by the collapse of money market funds, they are not safe. If everyone will be hurt, then they are safe not in the first instance, but in a second order way: because of the implied federal guarantee that their widespread use has brought into being. So because something is unsound enough (and big enough) to be a threat to the system, it is safe!

This is the sort of insight that almost physically repulses me. I do not recommend factoring it into an investment approach. Yet the world does work this way, sadly. At least in some areas, at some times.

Tuesday, May 3, 2016

VCs and "Dirty Term Sheets"

A recent blog post by Bill Gurley, "On the Road to Recap," has been getting shared lately. It is well worth reading. The topic is the current excesses in venture capital, which appear to be in the process of deflating.

In particular, Gurley explains "dirty term sheets," which keep up the appearance of high valuation for a so-called unicorn.

There can be clauses in the terms of later-round capital raises that beggar earlier rounds, if certain contingencies come to pass. For example, the ownership percentage of those investing in the last round can go up (costing earlier investors) if the company does not make a public offering by a certain date. Such terms make valuation look higher on paper than it really is, because it is hard to make appropriate (downward) adjustments to a company's value for the presence of such contingencies. Human nature is to overlook them, as the post explains.

Gurley is saying that terms of this kind are a form of structured finance -- but for venture capital, rather than for mortgages. That is a really interesting way to think of this.

This is a likely area in which more problems will surface. Also, the post makes a persuasive case that there is pent-up demand for going public in Silicon Valley.