ratiman

This seems like the difference between chess and poker extended to politics. Is he saying that conservatives are Villagers?

It's a good point that a capital lite business can grow to the sky but a capital heavy business is constrained by real resources. If a cap heavy business compounded indefinitely it would eventually consume all of the real resources but that constraint does not apply to software. If the high capex business did succeed in producing real resources at near zero it would put itself out of business, like nat gas producers.

Here is a list of highest return stocks over the last 100 years roughly. As you can see there are plenty of capital heavy stocks. The low capital stocks on this list are Altria, S&P, Coke, Pepsi, Hershey, J&J, UST, Tootsie Roll. I didn't include tech or pharma companies because R&D really should be considered capex. So historically capital lite has mainly meant popular brands. There is a reason why CPG companies still trade at 20x multiples. I think what connects all of these companies is that there is no substitute for a tootsie roll when you want a tootsie roll.

I agree with your analysis but that's why it's FCF and not earnings. The capital heavy business will have higher cash flow and more capex requirements.

Everyone knows that capital light lite outperform but why? Let's say there are two business. Same exact growth rate and same FCF. One is capital lite and the other is not. Why does the capital lite typically outperform? The capital lite will have much higher return on capital but it doesn't matter because growth in FCF is the same. My guess is that high capex businesses develop hidden liabilities over time that aren't immediately apparent ie real depreciation is understated.

I thought banks lend money? In none of these cases do the companies lend money. Instead they are lent money by customers. Borrowing money is very different from lending it. Negative working capital is great but it has nothing to do with being a bank.

It's not the case that the recession crowd has stopped predicting a recession. The consensus has not shifted to "inflation is here to stay". A few people predicting higher inflation does not change the consensus. The consensus is vastly and overwhelmingly on the side of disinflation, a slowing economy (variable lags), and lower rates and lower inflation over the long term. If that is your position, you are with the crowd. The crowd is usually right but you are not bravely fighting the consensus. For instance consider the consensus (from Nick Timiraios of WSJ):

So Powell comes out and says what everybody is realizing, that current rates aren't very restrictive, and now Fedwatch has Fed staying flat through December at . . . ZERO. Not .1% but actually 0%. I'm clearly missing something. Isn't the first rate cut the hardest, because it commits the Fed in one direction? If the Fed stays flat it leaves open the option of hikes without flip flopping. There must be something else going on because cutting with everything at highs and oil perking up and so on strikes me as insane.

I bought a really crappy and tiny tech distributor that mostly distributed hard drives to system integrators near Atlanta that was run by the son in law of the dead founder. A real prize. I owned too many shares to get out very smoothly until one day half the world's hard drive capacity was knocked out of service by a typhoon and I realized that at least 20% of the inventory was hard drives. I called in to the next conference call (I might have been the only caller) and asked if hard drive prices had doubled. He said they had more than doubled. The next earnings report, earnings were about half the stock price. I sold the morning of the the earnings report when the PE was about 5x and I might have just gotten back to even. It went bust not much later. It was called SED International.

I like the new BG2 podcast, with VCs Bill Gurley and Brad Gerstner. What's fascinating is that Gurley is genuinely interesting and has a distinctive perspective and Gerstner just spits out some words that make noise as if he were jerome Powell testifying in front of congress. I'm not going to be investing in startups but it is interesting to hear what Gurley thinks about self driving cars, LLMs, etc. Just fast forward through all the Gerstner parts.

The housing market has been consistently undersupplied since GFC. Only borrowers with pristine credit scores could buy homes and NIMBYs in coastal cities have also impeded housing supply. There is a huge bulge of millenials buying homes and not an adequate supply so I don't see rent or housing prices slowing down. Once people start stripping components out of inflation it starts to sound like a rationalization. Inflation is like heating up a pan of pop corn, the pan is getting uniformly hot even if not every kernel is simultaneously popping.

I think there is a widespread expectation that we are going back to disinflation. Disinflation was underestimated in the 80s and 90s and today inflation is being underestimated. 4.2% seems like not nearly enough to compensate 10 year bondholders for the risk of inflation. If Donald Trump becomes president does anybody think he is going to put the gov't on a diet? Does he look like that kind of guy? The handful of deficit hawks are vastly outnumbered not just in congress but even among Republicans. The Fed signaling they are about to cut will paradoxically make it much harder for them to cut.

According to the CME Fed tracker, there is a minuscule chance (.3%) that the Fed rate stays flat through December. https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html This doesn't make any sense to me. Right now nominal GDP is higher than the Fed rate (5.25%). If inflation is ~3%, economic growth is ~2-3%, then Fed rate is below NGDP. Trailing NGDP growth is at 6%. How can it be virtually GUARANTEED that the Fed will cut when Fed has not brought inflation to 2% and the rate is not restrictive? Plus we see oil and copper and trucking and gold are taking off. I don't get why the rates market and Fed are so dovish. The chance the Fed stays flat should be at least 5-10%.

Was EInhorn ever long GM and short TSLA at the same time? This is perfect midwit meme content because both the dumbest and smartest investors know that you don't want to be long the past and short the future.

Does anyone believe that GM is trading at 5x earnings? It came public at $25 in 2010 and is currently at $38.