Where are the high-priced strategy consultants when you really need them?

So sorry to read about the travails of the McKinsey crowd. Our thoughts are with them and their families this holiday season, of course. The irony is that we are entering a period of decision-making in business when strategy consultants will be badly needed, and could make valuable contributions. That’s in contrast to the prior 40 years. It shouldn’t come as a surprise that decades of global neo-liberalism (~1980-~2020) was a golden age for pricey MBAs handing out cookie-cutter advice. Why wouldn’t it have been? The answers were often simple and the same: outsource to China, downsize in the US, …

Continue Reading

Coals to Newcastle?

Bringing coals to Newcastle. That’s what suggesting to UK readers that large, successful businesses would naturally distribute profits above their investment needs–that is, pay dividends–amounts to. It’s not really necessary to state it. Still, I’m grateful to Alex Newman /Investors’ Chronicle for the warm reception of the Ownership Dividend argument that the practice will be making a comeback in the US. Pierogies to Pittsburgh, anyone?

Continue Reading

Risk-free rates and chart crimes

The academics need to go back to the drawing board. In just over three years, the security used to determine the so-called “risk-free rate” part of the formulas used to value stocks and the market in general has fallen 25% to 75 cents on the dollar. (It is the 10-year Treasury dating from mid 2020.) Holders of that security take little consolation that over the next seven years, it will “pull to par” and recover its full nominal value. Risk-free my foot! Using the 10-year Treasury rate (along with the mystical & backward-looking ERP) as the basis for determining the …

Continue Reading

Do you own what you use?

The credit card advert shouts “2% back on purchases.” The dividend investor in a stock market pauses to think about the cash return on his or her everyday expenditures.  Let’s consider your monthly phone bill. It’s an easy case because all of your payment (minus taxes) goes to the company. (Lots of your regular spending goes through intermediaries; the end company only gets a portion of what the consumer spends.)  Let’s say you pay $100 per month to doomscroll. That’s $1,200 per year. What’s the cash return for that spending? The large phone company based in the northeast had revenue …

Continue Reading

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