Circle of Competence Issue #82
QUOTE OF THE WEEK
"It is not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood; who strives valiantly; who errs, and comes short again and again, because there is no effort without error and shortcoming; but who does actually strive to do the deeds; who knows the great enthusiasms, the great devotions; who spends himself in a worthy cause; who at the best knows in the end the triumph of high achievement, and who at the worst, if he fails, at least fails while daring greatly, so that his place shall never be with those cold and timid souls who know neither victory nor defeat." - Theodore Roosevelt, Citizenship in a Republic
FOOD FOR THOUGHT
The Lambeth lecture on higher education (Mitchell Daniels Jr.)
I've written about the problems with the current state of affairs in higher education here and here, but this lecture given at UNC by the former governor of Indiana and Purdue University's current president goes deeper into the problems with our institutions. This lecture, for those interested in higher education reform and innovation, is worth your time for two reasons: 1) Daniels reveals the hard truths about undergraduate institutions that must be addressed and 2) he gives poignant examples of how Purdue is adapting as a higher education institution in the 21st century.
Healthcare, cost of housing, and higher education are three of the fastest growing costs in the US - the only reason that significant innovation hasn't changed these industries is because of the significant industrial inertia (how we've always done things) and structural barriers (healthcare regulation, zoning regulations, and accreditation organizations) rampant within them. But I think the tide is shifting as the cost of these three industries to our nation receive more and more attention.
What happens if building more housing supply doesn't work? (Alex Danco)
This piece by Alex Danco highlights an interesting phenomenon that seems to rub against the traditional supply/demand mental model one learns in school: if supply increases with little demand change, price should fall and if supply decreases with no demand change, prices should increase. Similarly, if demand increases and supply remains the same, prices rise, and if demand decreases and supply remains the same, prices fall.
But Danco points out that in real estate development, this 'law' of economics has not held true due to the reinforcing credit cycles that banks are reluctant to stop - everyone from investors to developers to contractors to banks to the prior owners makes money when prices and rents are rising (equity is increasing increasing allowable leverage), except those who are on the margin and can't afford rising prices or rising rents. Thus, the persistent problem of affordable housing in city limits continues nationwide because of the credit cycle that drives prices and rents higher.
If someone has any resources on solutions to the affordable housing problems in the US, please send them my way. Thus far, I'm not satisfied with government regulated affordable housing solutions and think there are more innovative approaches out there that haven't received a lot of attention.
Mysterious - Howard Marks' latest memo on negative interest rates (Howard Marks)
This memo by Howard Marks illustrates the bizarre implications of negative interest rates including:
- Insurance companies will lose money on their premiums as they hold it as float, which completely negates their entire business model of collect now, pay later, make the interest in the interim
- Companies paying accounts payable quicker and asking for payment slower because of the risk of holding cash in a bank at negative rates
- Pensions are now forced to invest in riskier investments so that they can hit their cash flow projections since there is no reason to invest in sovereign fixed income securities that are yielding negative total return
When you really think about it, negative rates penalize those who save (which will be worth less tomorrow than it is today) and reward those who borrow (which will be worth less when you pay it back so you effectively get paid to borrow!). So we've essentially got a setup where in nations where rates are negative, there are groups who are getting penalized by playing the game the right way, while there are groups who are leveraging up and getting paid to do so. Sounds like a fantastic idea - what could go wrong?
Is the US-China Trade War a Cold War? (Real Vision Finance)
I wrote an in-depth piece on China's social engineering and use of technology to enforce the CCP's viewpoints back in February and this interview only deepened my skepticism of the CCP's agenda. This is one of the best interviews I've heard yet about what China is really like on the ground from an eye-witness who spent multiple years living in the country. Kyle Bass interviews General Robert Spalding on all things China Communist Party and the biggest lessons I gathered were the following:
- China's CCP is not fighting a real war, but an economic one. The powers-that-be are using their economic leverage (a 1.4B person market = massive economic opportunities, just ask Google!) to enforce, expand, and export the CCP's agenda both domestically and abroad.
- There are potentially massive scale human rights abuses going on inside of China that are being covered up with techno-censorship.
America and the Western World is at a crossroads: will we choose to stand for democratic ideals of self-governance and liberty at economic expense or will we look the other way for the sake of economic gain? The NBA is not the first organization that has been forced to choose, and it certainly won't be the last.
Graham and Doddsville interview with Mohnish Pabrai, pg. 22 (Columbia Business School)
Investors get path to buy into MLB teams (Bloomberg)
The new consumer - a KKR macro report on consumer trends (KKR)
Jeff Bezos' master plan (The Atlantic)
Why new technology is a hard sell (Morgan Housel)
An experiment in universal basic income in America (Intelligencer)