Some quick notes I put together in the past few weeks. I try not to focus too much on the macro in my day to day but I still think it helps to have some big picture perspective in order to not miss the forest for the trees. Don’t worry, my next post is going to tackle a specific company, actually one of the most popular of them all. Comments welcome.
Valuations & the zombie economy: The Shiller P/E at 30.62 is currently at levels that ushered in the Great Depression and only surpassed by the tech bubble multiple. Rates are already low and money is loose so what happens the next time the bottom falls out of the economy. The zombie economy is an allusion to this idea: How much of the economic recovery is alive, real, and vibrant? The Feds balance sheet has quadrupled since the great recession from $1T to $4.5T. This has bled into the economy and maybe has not been matched by increases in productivity. Tough questions but questions nonetheless.
CPG Moats no more: Consumers goods companies that boasted huge moats are now facing some real threats. The advantage conferred to them by their distribution networks might persist but their moats due to their brands might be at risk. Take Dollar Shave Club: from 2012 to 2015 it raised $160M from the venture capital community, created a shaving product with blades that cost less than $10 a month and sometimes as low as $1, leveraged social media and for basically no money put out this great ad that has reached 24 million people. It exited to Unilever at $1B in July 2016. Gillette, a 115-year-old stalwart, has had its North American market share reduced from 70% in 2010 to 54% by 2016. Yikes!! Welcome to the new age of disruption. What does something like this mean to the Kraft Heinz’s and Coca-Cola’s of the world?
Demographics: The children of the baby boom are now entering retirement in droves. According to Stanley Druckenmiller 11,000 seniors are entering retirement everyday for next 20 years and unfunded liabilities promised to them by the government is closer to an astronomical $200T. Surely this is a major issue but maybe there lies an opportunity somewhere in the healthcare sector for the astute US Large Cap investor?
Software is eating the world (I know, I know, I keep repeating this): Chamath Palihapitiya of Social Capital put it much more eloquently than I ever could so I will quote him directly: “There is just this massive trade right now between the disruptors and the disrupted, technology companies are fundamentally dynamic organisms … [There are] so many assets that are fundamentally impaired due to technology.” Uncoupling this quote is important to US investors as it is important to distinguish the disruptors from the disrupted. Examples include: Old Media/Hollywood vs Netflix (not on valuation but company itself), old advertising vs Facebook and Google, Oracle/IBM vs AWS, hotels vs AirBnB. The list goes on and on.
Security (in) Securities 