Boredom

A bored mind can wander and wonder.

NVIDIA is a chip company, but does CUDA and 'locking' effects make it an OS for accelerated computing?

Also, cash spewing tech companies needed to put their cash to use; the NVIDIA GPUs is a great forced bet for so many of these companies.

Funnily, that doesnt mean its a good investment by the hyperscalers or newbies ; nor does it mean that NVIDIA cant go to $10 T from the curent $3.5 T

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Google had a search/ advtg monopoly; along came FB and took away a good chunk via the website facebook.com

And then, the app culture, has taken away more of Google's business.

And now, will chatgpt-esque competition change the nature of search? But does Youtube stay intact?

Also - have you noticed how whatsapp is now the primary 'mailing' app for personal, B2C and small businesses? I know people who kind of dont see their emails anymore.

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Why did the Fed reduce the overnight rate target from 5.5% to 4.75% (4.5-4.75) in the last 60 days?

Was it an egoistic imperative to have a 'soft landing'? Because there didnt seem like any reason:

"The Federal Reserve's mandate, also known as its dual mandate, is to promote maximum employment, stable prices, and moderate long-term interest rates".

None of these seem to have been triggered.

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I have a folder going back to 2011 chronicling the building China bubble, and the logical fallacy of capex/ infra spending and genuine growth. I kept making new folders for every year. 

And after 10+ years of everyone praising the growth model, it looks like there were no clothes.

It's a good lesson in the gumption and humility in seeing the truth.

Similarly, what I see today is:

Below is the Fed Funds rate; 

And it reminds me of an Icahn anecdote: "Boom, boom boom, and I fired those people, emptied the whole building, but not a whine... its like those people had never existed."

From 2022 to 2024; nothing monumentally negative has happened; with rising rates, there were no crazy commercial defaults, gold kept going up, Bitcoin kept going up, stocks up, no spike in junk bond defaults.

It feels like China. 

And my sense is that Private funds have a lot to do with this; there is a chance that they have evergreened some assets/ loans; that the ETFization of Bitcoin has had consequences, and the underlying defaults of these private funds are hidden because of steady growth (similar to how high bank asset growth can hide default rates because of base effects)
"Private markets assets under management totaled $13.1 trillion as of June 30, 2023, and have grown nearly 20 percent per annum since 2018." 

I guess I am a skeptic at heart who believes that there is no free lunch.

And Reflexivity says that so many years of (since 2008 almost) continuous rise in asset prices has dulled rationality. 

'Stocks tend to go up', 'gold tends to go up', 'crypto is the future'. These maxims have taken a strong hold, not only in the US; but more so in Japan and India too. 

I wonder what Turkish, Sri Lankan, Chinese, South Americans, Ukrainians etc are saying to these things. 

My conclusion is: We are precariously poised. Similar to 2006-2007 where the world was oblivious to the tail of CDS and CDOs wagging the dog of the economy; and when the tail got infected, the dog could not do much... 

The music is playing and we are dancing. 

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And dont get me started on what the political effects of a recession of world leading economy could be. One spark is all that is needed. 

Addendum: History shows that pegs dont tend to last. Wondering if there will be a cataclysmic 7.19 going to 10 someday soon. 

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Boredom is a wonderful thing.  

Bad!

My 4 year old daughter says this: "Bad!" 

She says it for anything she doesnt like or appreciate. It could be me sitting on the sofa, me holding her right hand instead of her left, her chonda coming slightly loose, her 1 year old sister walking away... 

I say 'Bad!' to 2 things nowadays:

1. The frenzy in the market

ZIRP ended, Ukraine got attacked (and has now invaded Russian territory - :|), Gaza has been attacked, China's 12 year Real estate and GDP pumping bubble has burst, some crytos and SPACs have been declared frauds, there are zombie CRE loans in the US market, Bangladesh's PM has fled the country, US 30 yr mortgage at 6.7% v/s 8.6% floating in India

And yet, we have Bitcoin at highs, Gold at USD 2700, Nvidia at $3T, Mazgaon at 90000 Cr, Suzy at 1 L Cr, Tent at 2.5 L Cr, Tomato for 2.2 L Cr, Dixy for 75k Cr, RE projects in India getting sold out in hours and days;

Of 900 Indian companies of more than 100 Cr mcap within 10% of alltime highs , 
550 are above 30 PE, 400 above 40 PE, and 264 above 60 PE and 119 above 100 PE!

There is a flurry of IPOs, QIPs, OFS with a lot of dodgy entities buying in, a lot of big funds and promoters selling, and weird small investors getting QIPs and Pre-IPO allotments.

After 2 years of being cautious, I guess I will say it again: Somebody's gonna get a hurt real bad.

And this time, it looks like a lot of retail investors have already gotten clobbered in the F&O mania, but many are still holding onto 120 PE good companies, and 30 PE rubbish companies... I see a lot of companies falling 80-100 %.

Of course, my portfolio is pristine!

 

2. We are forever elsewhere.

An episode in Seinfeld, where Elaine goes to a store to rent a video cassette of a movie recommended by ' Vincent '. She plans a trip to the store, browses through the wares, speaks to a friend, rents a cassette and puts it in her bag. At the end of the day, she plans to curl up in bed, and watch the movie - not knowing if it is bad or good - and surprise, its a good movie! The only disturbance through the movie was a phone call on a landline - she picks up the call and it is always a surprise as to who the mystery caller might be.

The paradox of choice and leisure means that we are often at rest - so, browsing in a store is no more leisurely than munching on chips at our bigger homes with big TVs and a choice of 500 movies and 200 TV shows to choose from. We know what we want to watch, because we already know the good reviews from the bad. 

We are not disappointed anymore... We know the best dish from the best restaurant comes to us within 30 minutes. If you want a coca cola, it is at your doorstep in 9 minutes flat. 

We can send a toothy guffaw smiley to a friend on whatsapp to convey that we are smiling even though we might not want to really meet this person.

When was the last time that someone was surprised to see you? Or you were surprised to hear from a friend? Or you pick up a book and oh! it turns out to be amazing! 

And all of the above is without mentioning the horror that is social media. 

Why am I looking at a 25 second video of 2 random people dancing? Am I not supposed to hold my baby by her arms? Microplastics in my salt? They/ Them - who is this person who is offended in a small town in the US... wait, do I care? Oh, so this is how my glutes are supposed to look...

Bad!

We were looking for leisure, comfort and entertainment.

We got it - and with that we got poor mental health, attention deficit, restlessness and dissatisfaction (because this was rated 97% on Rotten Tomatoes but it wasnt that good), alone-ness, distance from real connections and real conversations.

So, did we win?

Bad!!

There seems to be too much stimuli.

No longer do we wait to get back home to figure out who wanted or needed us today, 

Our phones are now hyper-connected computers that throw too much information at us,

No longer do we walk for walking or read for reading?

Music is heard becuase there is a run, gym or commute involved,

We define ourselves by our work [ what do you do? I run a business in exports with my brother…]

If money can be made in the waiting, the operators of these businesses need to have some focus; may be they need to focus on Roce, or on employee happiness or on building a culture and doing lesser with their decision making abilities,

Is it poor to make 15% compounded over 30 years? Who is watching?

Post Mortem

Based on my last post, I thought I'd do a post mortem of sorts... what happened?

 1. My inexperience in seeing the forest - I kept seeing the trees. Funnily, I thought I could see the forest and that these trees will figure out how to thrive through the storm.

The storm was more ferocious than thought; and the trees were weaker than thought.

 

2.Heavy capex implies heavier luck - A Deepak Nitrite executed wonderfully and lucked out.

My company executed well and got poor luck.

My other company executed wonderfully and navigated the bad luck very well

 

3. Conservative sounding confident management fooled me

I believed they knew how to steer - they didnt.

I believed they were monitoring risks - yes; but it exceeded their expectations

My big winners never promised much; guided for less and grew profits manifold. 

 

4. My low PE strategy with respectable ROEs tends to work

This is something that I am comfortable with; and the last 10 years hasnt seen a serious de-rating of heavily valued companies; hoping for schadenfreude

 

 

All in all - it looks like I need to be a lot more conservative.

When I started, promoters fooling me was a bigger issue - turns out; promoters fooling themselves is also a big issue.

A lot more conservative... ?

Goals

My best old investment seems to have done 16% compounding for 10 years and it remains terribly undervalued. It was a sizeable investment and hence, the metric matters. 

Smaller investments have done better and worse than this.

 And yet, where I stand now is on the shoulders of all those losers and winners and not just this one investment.

 My current learnings are taking me to an appreciation for businesses that dont need incremental capital as they grow; and I know now that there are all kinds of creatures that win at the game...

One of my more recent investments (and the result is shocking as I have just calculated it in this last minute) has done north of 40% compounding in the last 5 years; and this too seems undervalued to me. But more scarily, it looks peak-ily poised because that might be the nature of the business.

Of course, I leave out the 100% and 97% drops I have had in the past, and the 8 year 2x I have had... which have brought me to a respectable rate of wealth growth.

But these musings get me back to why I am playing this game...

Independence has been achieved. The safety cushion has been established. But the way here is the way forward; to feel the stones and keep walking along.

I need to remind myself that I'm here not to win.

I am here to play, and I will play this game on my terms. 

That, oddly, even a 10% CAGR is enough :|

That I better learn from the muddy puddles and broken stones from the past.

That my ego wants me to win, while my system 2 wants me to have fun.

And the risks I am cognisant of are those of health, family, politics, luck, society, war and natural disasters.

It's my fortune that I have to worry about little else.

Are things changing?

Things dont tend to change. People like sweet things, people like carbohydrates, people need materials like cement, steel, plastics, people like brands, people struggle for power and prestige and incentives tend to be strong influencers.

What are the changes I am seeing?

• Modes of transport
• Need to save the 'climate' vs the economic hardships of doing so
• Global engines of manufacturing
• Budget/ Economic deficits in the large economies

Modes of Transport

People dont need to commute as much - their entertainment can be at home and their work can be done from home.
When traveling, electricity seems to be powering more vehicles. Whether it will be hydrogen, LFP, aluminum; I dont know. But it seems fairly clear that oil based vehicles are going to decline substantially.

-   What these things do for oil, refining, mining, manufacturing, plastics, downstream industries, OPEC, Australia, Congo, etc - are quite uncertain. 

- What the advent of oil did for a lot of OPEC countries was unprecedented; but 100 years ago, nobody would have bet on UAE or Saudi' prosperity; and similarly, one would have thought Venezuela to be unimaginably rich

Climate

Life seems to be struggling against climate change - some life will thrive and others wont. The culprit seems to be too many humans caring single mindedly about convenience and economics.

Now, does that make the US a safe haven against climate change vs a Europe that's getting colder or coastal megapolises that might drown or get damaged? Could a mega-cyclone change the way Indians behave? Will there be a tipping point that leads to a mass movement of people away from certain countries?
Could there be a famine in a developing nation? 

And how should a family protect itself against something like that? 

Manufacturing

Apparently, its mad difficult to set up a new manufacturing facility in parts of Europe. Either its the people, or the local laws or the green police that makes things difficult. 

China seems to have been uneconomic in its manufacturing decisions over the last 10-15 years; will there be a resurgence? Doubt it. But will the South and South East Asia be the new manufacturers for the world? Seems quite likely - with the abundance of people, along with people with brains and people with capital to power it. 

Could this be the next 20 years of a non-China manufacturing powerhouse?

 

Budget/ Economic deficits in the large economies

I have often looked with disdain at poor European countries with people living cushy lives - I just cant figure out how they can afford it. As is said; there is no free lunch.

The US too seems to have a big crisis that has been in the making for the last 30 years or so - the Medicare, Medicaid, Pension, old people problem.

How do these things influence policymakers or central bankers? 

Canada, NZ, Australia seem to have realized that they need immigrants to power their economies - physically and economically. Will the US and Europe really awaken to that? 

Could we be facing a 20 year period of austerity?

All these are just musings. They are fun to ponder over but they dont seem to influence my big investment decisions.

But yes, they are influencing my backup/ insurance policies. 

I am trying to get ready for the 'what if?' scenarios.

 

ZIRP

 So, as predicted... people have forgotten covid.

And it almost feels like people are forgetting the Ukraine crisis; sure - Putin is now a villain.

To Recap:

• Covid's 5th wave and 18th variant are upon us!
• Russia attacks Ukraine! - oil will go to $200
• Fossil fuels are not relevant in tomorrow's world...
• Gas shortage in Europe! (and already Germany has enough stockpiles to ride out the winter...?)
• Interest rates will stay low

And today's headlines are:

• ZIRP is over - what happens next? 
• China and Russia are teaming up / what is China upto with Taiwan? 
• India is an unstoppable growth engine for the world

The more things change, the more they remain the same.

And yet, I wonder what the effects of higher rates will be...

• Will fracking's easy money stop?
• Will the rush to ETFs and private credit reverse, because investors will get an adequate return in safer bonds? 
• Will there be a US housing bust - The rates are going back to where they were in the 2004-2007 period where there was, incidentally, a housing boom...
  
•  
• And is the fed rate and the dollar's strength an attack on the Chinese and Russian economies in disguise?
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 What is up with the world?

I believe my 2 year old has the answer: 

Something.