Sunday Finds + 3 Thoughts From Last Week
Episodes on Salesforce and Wise this week
Welcome to Chit Chat Money’s Sunday Finds + 3 Thoughts From Last Week. In this newsletter you will find three topics I thought about last week, links to shows we’ve recently released, and links to some interesting articles, podcasts, and tweets. Check out the archive here.
Chit Chat Money Podcasts From Last Week:
Interview: How Wise is Disrupting Cross Border Payments With Luke Hallard (Ticker: WISE)
Investing Power Hour #44: FANMAG vs. Berkshire, Rebubble Stocks, Munger on Crypto
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1. Was the great resignation and labor shortage caused by the asset bubble?
My thinking is…probably.
Here’s an interesting paper claiming that the great resignation can be explained by the COVID-19 home price boom. From the abstract:
We show that the Great Resignation among older workers can be fully explained by increases in housing wealth. MSAs with stronger house price growth tend to have lower participation rates, but only for home owners around retirement age -- a 65 year old home owner's unconditional participation rate of 44.8% falls to 43.9% if he experiences a 10% excess house price growth
They don’t define what an MSA so I’m just going to assume it is a geographical area. For reference, home prices are up ~40% - 50% in the United States since the start of the COVID bubble.
Here’s another interesting quote from the abstract:
A counterfactual shows that if housing returns in 2021 would have been equal to 2019 returns, there would have been no decline in the labor force participation of older Americans.
If you follow the financial news closely, you likely have seen a barrage of stories covering retail investors who became “millionaires” during the pandemic but have now lost it all:
The stock “gurus” who have lost it all will have to come back into the labor force. But my big question is: if housing prices fall, do more older people start unretiring? Or will they stick in retirement for good?
2. What is an “instant sell” red flag?
Here’s a fun tweet from our friends at Commonstock:
A lot of good/funny replies:
The “going after short sellers” one is great. That should send an immediate signal that management is trying to hide something (and that the short sellers are probably correct).
My general answer to the “instant sell” question is if something happens where I realize I cannot trust the management team. This is either a realization that I cannot trust them to tell the truth or that I cannot trust them to allocate capital with a rational mindset. No matter how strong the unit economics of a business look, both of these red flags will likely come back to bite you as a shareholder.
3. So it looks like Adani was a house of cards…
Hindenburg Research really did expose the largest corporate fraud in history:
It looks like this goes much further than just an industrial conglomerate too:
I’m not going to pretend to know the intricacies of the Indian economy, its politics, or even the Adani Group. But if I was presented with a snapshot of the company’s recent history without knowing its name, it would be an easy pass.
Six CFOs in a short time span? Red flag.
Stock up thousands of percent in a few years? Red flag.
An overly complicated corporate structure that no one except forensic accountants can figure out? Red flag.
History of fraud investigations by a government you are in bed with? Red flag.
And I’m sure I’m forgetting some. Always be careful when investing outside your home market.
The Hindenburg report: https://hindenburgresearch.com/adani/
See you next week,
Brett
***Our fund, Arch Capital, may own securities discussed in this newsletter. Check our holdings page and read our full disclosure to learn more.***
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3 Good Reads
The US Labor Market Was Stronger Than We Thought - Apricitas Economics
Can inflation come down without a recessionary increase in the unemployment rate? That’s the critical question facing today’s US economy.
On balance, the large batch of updated labor market data published in the last week makes that “soft landing” outcome—where inflation dissipates without a recession—more likely.
Jobs data remained extremely strong, with significant upward revisions to both employment and payrolls. Those revisions also erased perceived job losses in select key sectors that serve as leading indicators for economic activity. The unemployment rate also sank to its lowest level since 1969 and prime-age employment rates remain just 0.4% below pre-pandemic peaks.
Everything You Can’t Have - Collaborative Fund
This all makes sense when you understand what your brain wants.
It doesn’t want nice cars or big homes.
It wants dopamine.
That’s it.
Your brain just wants dopamine.
A Hike Across History - Investment Talk
Instead of droning on about what might happen during this hiking cycle (i.e, the unknowable), I thought it might be fun to take a look back at prior rate cycles. Note, I will be brushing past a lot of details here, this isn’t meant to be an encyclopedia of market history. Despite being one the most aggressive hike cycles in recent history, the upper range of the fed funds rate sits at 4.75% today; which is dwarfed by the tough medicine that Paul Volcker forced consumers to swallow in the early 1980s. At the peak in 1981, Volcker raised rates to as high as 20% to combat inflation.
1 Good Podcast
Expectations for Blinken in China - Sharp China
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