My lost luggage and the global paradigm shift from efficiency to efficacy.

Or the what happens when you outsource your brand. For the past several years, I’ve been forecasting a paradigm shift in business practices from extreme efficiency (globalized supply chains, asset light business models, just-in-time everything, financialization of the capital markets) to much greater efficacy (more vertical integration, more control over supply and distribution chains, resulting in greater resiliency, all at the cost of some operating margin). So far, the argument has fallen on deaf ears. In fact, the opposite is true. Most companies continue to outsource core and non-core competencies and focus on maximizing their financials, not their value chain. …

Continue Reading

Avoiding Investment “Maginot Lines”

Russia’s invasion of Ukraine highlights how reality often moves far faster than the elaborate narratives and structures common in complex societies.  For instance, the intense debate about the pros and cons of Ukraine joining NATO has been going on for decades and peaked at the time of the invasion in early 2022. (See the attached Google Trends chart.) It is now utterly moot. Think about it: NATO was created to orchestrate a defense of Western Europe against a Soviet land attack, most likely through the Fulda Gap from the then East Germany. When the Soviet Union collapsed in the 1990s, …

Continue Reading

M&M Redux

As a dividend investor in a stock market, I usually find myself having to make my case as a distinctly minority approach to the stock market. Dividend-focused investing has been out of favor for decades, with an academic tradition leaning against a cash-based relationship to stock ownership dating back to 1961. Sometimes, however, the anti-dividend narrative comes in a form that is so crisp, clear, and well-argued that it serves equally well as a platform for pointing out why investors might consider the opposite approach… Managers of a quantitative investment strategy recently published a compelling piece showing that the dividend …

Continue Reading

Quarter-end reporting……

What’s the end of the second quarter mean for the dividend investor in a stock market? Not much. It is an opportunity to count the checks, compare the total with last year’s, and measure the growth rate. Is the cashflow less, more, or the same as expected? Does the multi-year income forecast need to be revised? Beyond that, there is the usual opportunity to maximize a portfolio’s cash NPV by taking advantage of the daily repricing, sometimes wildly, of income streams that don’t change much year-to-year. (Dividend growth tends to be steady; share prices are all over the place.) In …

Continue Reading

NBN interview of Mikhail Shishkin.

One of the most intense New Books Network interviews that I’ve done: emigre writer Mikhail Shishkin discusses his just published My Russia: War or Peace (Quercus Books). It is a penetrating analysis of Russian political culture, interwoven with his family’s poignant Soviet and post-Soviet history. https://newbooksnetwork.com/my-russia-war-or-peace

Continue Reading

Thank you, AI

Dividend investors in a stock market normally see an increase in their yield on cost when their portfolio holdings periodically increase their distributions. This year, however, the dividend investor’s cash returns have gotten an extra boost from the AI stock frisson. By pushing down the prices of old-economy, major dividend payers without impairing their income trajectories, AI hysteria has increased the yield of these holdings for dividend reinvestment or new money. That is: income is going up, prices are going down, voila—rising cash returns! Sadly, such income “sales” cannot go on indefinitely. As dividends increase, the yield will eventually become …

Continue Reading

Crossing the Russian Rubicon

Until now, I have held the title of last person on social media to not comment on the most recent events in Russia. I am giving up the crown. First, Prigozhin’s ploy isn’t fully understood or even over yet. The move on Moscow only made sense if he expected units of the Russian military, national guard, interior ministry or state security services to join him. Few if any did, or did not have time to do so, before the march was called off. Social media is full of explanations, many involving conspiracies, as to what was supposed to happen, and …

Continue Reading

Who lost Russia?

If a Russian leader asked “Who lost Eastern Europe & the Baltics?” in the aftermath of the Warsaw Pact & the Soviet Union collapsing, would there be a single Western observer (other than John Mearsheimer) who wouldn’t shout out the “obvious” answer that it was the East Europeans themselves? After too many decades–in some cases, centuries–of Russian oversight, the locals wanted out. At the first chance, they fled westward, into the arms of the EU and NATO. That is, the westbound populations are given agency to play a role in their own history. But the very question “Who lost Russia?,” …

Continue Reading

Capital, Labor and Stock-based Compensation.

The end of the neo-liberal global order will entail changes in the current alignment of Capital and Labor. I use those terms in capitalized form to evoke an earlier time and place where political economy was all about the relationship between the two. That is no longer even remotely the case. Three full decades of globalization and deregulation have meant that any presumed approximate balance between the two in the US has been long discarded in favor of a largely unfettered Wall Street. The upcoming refresh between businesses and their workforces will be the topic of many other books, but …

Continue Reading

Political Economy and the US Stock Market

Investors massively underestimate the importance of political economy. Our financial institutions rely on our political structures, and our political framework only really works because of certain underlying economic relationships. Separating the two realms is impossible. Think about how critical the rule of law, the inviolability of contracts, individual liberty, and an independent judiciary are for the functioning of capital markets. And in the other direction, private property, commerce, and entrepreneurship create the foundations for the liberal political order, meaning the representative democracies of the past two centuries. Adam Smith might be considered the first modern “political economist.” Karl Marx wrote …

Continue Reading

Russia’s borders after Ukraine

State boundaries move all the time. Even nation-state boundaries, those that are supposed to be ethnically contiguous and therefore more stable, move frequently. It is simply a presentist illusion to assume that today’s borders are going to be permanent.  Even for observers based in the US, where the northern and southern borders have been fixed for some time, it is inaccurate. During our expansion in the 19th century (beyond the breakaway from England in the 18th century and the expansion through native American lands), we took by force, negotiation, or payment territory from Spain (Florida), France (Louisiana Purchase), Mexico (Texas), …

Continue Reading

Biology might or might not be destiny, but demography is.

Russia is a multi-ethnic empire. The “traditional” Western empires such as Britain have well-known histories involving their often-distant possessions (though their home territories also featured a variety of ethnic groups such as the Scots, Welsh, Irish, etc.) In contrast, Russia is a solely contiguous, but very large amalgamation of numerous ethnicities. In some cases, the ethnicities have distinct geographies, but often the populations are just jumbled amidst the overall polity. Some of those ethnicities within Russia have been distinct for centuries, some were a product of 19th century nationalism, and some (ironically) were created nearly from scratch in the early …

Continue Reading

Your 2023 Market Outlook

Looking for a good guide to the markets in 2023? May I suggest Isaiah Berlin’s The Hedgehog & the Fox. Written in 1953 as a meditation on Lev Tolstoy’s approach to history, especially in War & Peace (1869), it’s as good a guide to investing as you’ll find anywhere. That’s because its about you; it is about self-knowledge. Interest rates, currencies, P/E multiples, etc will always come second to awareness of who you are, what you want, what really matters to you as an investor. Berlin draws on a fragment from an ancient Greek poet Archilochus that “the fox knows many …

Continue Reading

Decision making under conditions of uncertainty….

Decision-making under conditions of uncertainty is hard, even when you have “good” information. And we necessarily assume that high-level policy-makers have at least a marketplace-range of information as an input into the process. But what if we’re wrong? What if the information available to, for instance, the leader of a country, is so poor, that the decision-making necessarily following from it is exceptionally bad? Garbage in; garbage out. That scenario would explain (but not excuse) what heretofore seems inexplicable: R’s invasion of Ukr and its subsequent decisions to double-down, triple-down, etc. In the most recent issue of Foreign Affairs Magazine, Boris …

Continue Reading

Book review: Paul Werth’s 1837.

Just finished Paul Werth’s 1837 (https://lnkd.in/eU6gD-gj?) He is to be congratulated. It is a gem of a work. Rather than A-then-B-then-C history, Paul provides a snapshot in time, a few-year period in the late 1830s when a lot was going on in Russia. Paul’s “horizontal” approach is something only a well-tenured professor or a non-academic historian could get away with. That is, it’s readable, enjoyable, jargon-free and not trying to score points in some obscure debate among academics. Non-specialist readers will come away with a sense of time and place that narrower works of history struggle to deliver. My favorite …

Continue Reading

On crypto….

As the frisson of fury over SBF/FTX subsides, a few comments from a traditional dividend investor, cash-on-the-barrel, bricks & mortar business owner: 1. Distributed ledgers are not new. 2. A World Wide Web of servers is well-suited to implement distributed ledger technology that is faster and more expansive than could ever have been imagined prior to the internet. 3. Encryption of transactions in a distributed ledger system makes sense. 4. The full flourishing of this system will likely require an internal system of measurement, store of value, & medium of exchange. 5. Existing ones such as blocks of salt, strings …

Continue Reading

A nice write up….

A nice write up from James Faris of Business Insider. Behind a paywall, but makes the point that being a dividend investor/business owner in a stock market has its benefits. https://www.businessinsider.com/how-to-invest-2023-dividend-stocks-strategy-top-fund-manager-2022-12  

Continue Reading

US corporate margin reset

I’ve been highlighting the need for US corps to “reset” margins to make up for the excessively asset-light business models that have come to the fore the past three decades. Has the Great Reset begun? Perhaps. Empirical Research Partners, LLC has a report out today highlighting that Capital Expenditures are up 20% ytd for the S&P 500 vs. earnings that will barely be positive. Is this the beginning of that new spending? We shall see. If so, companies that can afford to invest during the downturn should do so. Those that can’t will continue cost-cutting/hewing to the prior model. On the capital …

Continue Reading

Decision making in Russia.

Decision-making under conditions of uncertainty is hard, even when you have “good” information. And we necessarily assume that high-level policy-makers have at least a marketplace-range of information as an input into the process. But what if we’re wrong? What if the information available to, for instance, the leader of a country, is so poor, that the decision-making necessarily following from it is exceptionally bad? Garbage in; garbage out. That scenario would explain (but not excuse) what heretofore seems inexplicable: R’s invasion of Ukr and its subsequent decisions to double-down, triple-down, etc. In the most recent issue of Foreign Affairs Magazine, Boris …

Continue Reading

The US midterm elections.

This is my statement on the midterms. It will not sway anyone, but given the high stakes, I wish to be on the record.  Across the nation, the ballot offers voters two very poor options. The first is the radicalized party in power offering a dizzying array of bad policies, in energy, in social matters, in economics, in education. The challenger radical party would toss out the nearly unique, pathbreaking system built up over the past 250 years. They would do so in the service of an organized crime family led by a grifter-in-chief who finds sedition and supporting hostile …

Continue Reading

“Company loyalty will make you poor.” Really?

This recent job advice on social media caught my eye, as it was posted almost to the day of my 20th work anniversary at my current employer.  That coincidence set me thinking about the nature of employment in the modern age.  And from that perspective, hitting two decades stands out. I’m posting this on LinkedIn, which is a website designed mostly around getting a new job, not keeping your old one. And I work in financial services, where the poster’s advice of jumping from lilly-pad to lilly-pad is assumed by many to be the way to fame and fortune. And …

Continue Reading

Down markets and higher returns.

The market has declined by 25% in nine months. No one is particularly happy about that, but the rapid reset of prices does provide an opportunity to remind investors about basic investing math. In this case, the issue is expected future returns after a sharp move in the market, either up or down. And that math is somewhat paradoxical.  Consider, for instance, investment in the income stream—the dividends—of a diversified portfolio of stable publicly traded companies. The cash yield at time of purchase in 2021 is 4%. Fast forward to September 30, 2022, and the price of the portfolio has …

Continue Reading

For want of a nail, a shoe was lost…

The United States has now had more than three decades of neo-liberal globalism which has favored outsourcing, off-shoring, margin improvement and earnings growth above all else. Encouraged by the capital markets, corporate America has privileged short-term efficiency over long-term efficacy.  Capital spending on hard assets is down as a percentage of sales; intangibles are up. A benign post-Cold War geopolitics and an addressable labor cost differential allowed us to import deflation. We’re not quite at the “virtual” enterprise level, but we’ve moved beyond the polite and acceptable “service” economy that replaced our prior “manufacturing” engine.  At the same time, declining …

Continue Reading

“Once more unto the breach, dear friends, once more.”

The universally respected and admired Michael Mauboussin has chimed in on the now political issue of share repurchase programs. His opinion piece in the FT this week in defense of them tries to clear up what he considers “confusion and sloppy thinking” critical of buybacks. Cliff Asness, his equally formidable ally in support of buybacks, has made similar points in print recently. Wrestling with either of these finance heavyweights is done at one’s peril. But I can’t help but add some additional color around their assertions from the perspective of a dividend investor. I’ve spent the past two decades competing …

Continue Reading