Sunday Briefing: On financial repression, pushing and pulling goals, and Howard Mark’s latest memo

Sunday Briefing: On financial repression, pushing and pulling goals, and Howard Mark’s latest memo

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Welcome to the Sunday Briefing newsletter where I share some of the interesting lessons in life, business, and investing that I’ve come across during the week.

What I’ve been reading

Financial Repression Redux. When it comes to economic research, Carmen Reinhard and Kenneth Rogoff’s concept of financial repression is key to understanding the prospects for real inflation in the developed world.

Undoubtedly, a critical factor explaining the high incidence of negative real interest rates was the aggressively expansive monetary policy (and, more broadly, official central bank intervention) in many advanced and emerging economies during the crisis. This raises the broad question of the extent to which current interest rates reflect the stance of official large players in financial markets rather than market conditions. A large role for non-market forces in interest rate determination is a key feature of financial repression.

Pushing and pulling goals.

A pushing goal is when you have a plan and a structure, and you’re trying to figure out what to do with it. For example, you’re studying biology in college, your professor says you need to do a research project to graduate, and so you start looking for research to do. You already know the plan – you’re going to get books, maybe use a lab, do biology-ish things, and end up with a finished report which is twenty pages double-spaced. All you need to figure out is what you’re going to select as the nominal point of the activity. There’s something perversely backwards about this – most people would expect that the point of a research project is to research some topic in particular. But from your perspective the actual subject you’re researching is almost beside the point. The point is to have a twenty page double-spaced report on something.

Howard Mark’s latest memo. As repetitive they may be (the usual “proceed with caution” kind of advice), you always have to read his memos because there’s always a nugget hidden in there. This one contained multiple. I liked this:

The years since then have seen a massive shift in our environment. Today, unlike in the 1950s and ’60s, everything seems to change every day. It’s particularly hard to think of a company or industry that won’t either be a disrupter or be disrupted (or both) in the years ahead. Anyone who believes all the firms on today’s list of leading growth companies will still be there in five or ten years has a good chance of being proved wrong. For investors, this means there’s a new world order. Words like “stable,” “defensive” and “moat” will be less relevant in the future. Much of investing will require more technological expertise than it did in the past. And investments made on the assumptions that tomorrow will look like yesterday must be subject to vastly increased scrutiny.

Quote of the week

Warren Buffett on expectations.

“Managers that always promise to “make the numbers” will at some point be tempted to make up the numbers.”

A thought

Two companies with identical operating results and different approaches to allocating capital will derive two very different long-term outcomes for shareholders.

Have a great coming week,
Oliver Sung

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