[ISSUE 38] - Interesting Things...

Mod Note (Andy) - "Interesting Things" by user Adventure_Capitalist (a PE professional) is a new addition to the site that we hope to have each week. This is a newsletter that he has been sharing between friends for awhile now and we thought it would be a good addition to the site, similar to what Bonus Bananas had to offer.

@GSElevator – #1: If you see me opening a car door for a girl, its either a new girlfriend or a new car.

1. Quote Of The Week / 2. TPP Crystallises Boon For Vietnam / 3. Capital Misallocation / 4. Interesting Links / 5. Joke Of The Week

1. QUOTE OF THE WEEK

A fascinating

from John Burbank at UC Berkeley - Invest in things that have never happened before.

Market’s aren’t efficient. Not all information’s in the price:

“Price is just the equilibrium of liquidity.”

“[we’re in a time of] high change but low GDP growth…because of how we measure it. The transfer of information is significant to the economy. Moving it around once cost a lot and contributed to GDP. Now it’s free.”

Deflation is not necessarily a bad thing. It means we’re becoming more efficient.”

“People naturally anticipate things to revert to the mean but the most important things don’t. They diverge.”

2. TPP CRYSTALLISES BOON FOR VIETNAM

Generally speaking, growth in emerging markets has enriched the few at the cost of the many. For example, Indonesia's richest 40 individuals control 10% of GDP. It's no secret that this is from cronyism rather than rewarding entrepreneurs who create value. This may all be about to change with the signing of the TPP earlier this week which will open these markets to greater international trade and labour standards, greater benefiting the people doing the work.

The biggest beneficiaries from the Trans Pacific Partnership struck on the 5th of October are expected to be Vietnam and Malaysia, while the impact on non-TPP Asian countries is likely to be slightly negative. If the trade agreement is ratified through the various countries' parliaments and implemented, it will cover 40% of global output and aim to eliminate over 18,000 tariffs.

Vietnam is the top winner in Asia from the TPP: Though details on the agreement are currently lacking, analysts anticipate that the biggest gains for textiles, garments and footwear exports to the U.S. could lead to shifts in production from China and Thailand. Based on estimates from the Peterson Institute, the analysts point out that the TPP could boost Vietnam's GDP by 10% by 2025 - twice as much as is estimated for any other Asian market. Frederic Neumann, an economist at HSBC, is confident TPP will deliver measurable gains to manufacturers in Vietnam and the other low-cost countries in the grouping, Mexico and Peru: “Sectors like car parts are still highly protected in the US,” he said. “Thailand has made a good run of its car industry, but not being in the TPP will allow Vietnam to make inroads.”

The improvements could come at the expense of manufacturing sectors across non-TPP Asian countries, with the simulation suggesting that Thailand's manufacturing sector will be the most negatively impacted, perhaps due to a shift in manufacturing FDI towards Vietnam.

The benefits of the TPP for Vietnam are not without challenges. Among the biggest is fulfilling the strict terms of the TPP’s labour chapter, which for the first time would make any country’s violations of International Labour Organisation standards subject to trade penalties. Vietnam will have to amend its Communist party-controlled labour union system to allow workers to form independent unions — a tough ask, according to US officials.

3. CAPITAL MISALLOCATION

Corporate share buybacks above intrinsic value not only represented an inefficient use of capital, but they increasingly appear to be cannibalizing corporate sales growth. The September 21st issue of the FactSet Buyback Quarterly showed that, for the first time in about six years, the amount of money that S&P 500 companies spent on stock buybacks over the last twelve months exceeded their free cash flow (FCF).

The lowered the interest rate available to corporate borrowers aggressive generated by the Fed’s quantitative easing has been channelled into into their own shares rather than new investments, potentially limiting their opportunities to grow their companies rather than earnings per share.

The aggregate Buybacks to Free Cash Flow ratio for the S&P 500 hit 108% at the end of Q2, well above the 10-year median ratio was 72.2%, concentrated in the Consumer Discretionary, Consumer Staples, Industrials, and Materials sectors.

Source: FactSet Fundamentals, Sept 15

4. INTERESTING LINKS

Putting a price tag on the Volkswagen scandal [Aswath Damodaran]; Ackman talking Fannie and Freddie [Charlie Rose]; Chanos talking China [Full Disclosure]; Risk parity wasn’t to blame for the sell-off [Bridgewater]; China’s butler boom [The New Yorker]; Amazon prime is changing college mail rooms [Business Insider]; Half Chinese commodity companies can't pay the interest on their debt [Zero Hedge].

5. JOKE OF THE WEEK

Career Advancement Opportunities

March 2024 Hedge Fund

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Overall Employee Satisfaction

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Professional Growth Opportunities

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Total Avg Compensation

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  • Engineer/Quant (71) $274
  • 2nd Year Associate (30) $251
  • 1st Year Associate (73) $190
  • Analysts (225) $179
  • Intern/Summer Associate (22) $131
  • Junior Trader (5) $102
  • Intern/Summer Analyst (249) $85
notes
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