Does history repeat?
The NZD in 1999
A note — thanks for all the kind feedback for the audio version of this — it’s now going to be standard, and you can listen above. There’s also an RSS feed so you can play in your favourite podcast player.
NZ
IFT — revaluation of data centres (number go up) … +113mn. Infratil is great and we all love it but I wonder if people are really factoring in the cost of replacement, depreciation and so on — data centres aren’t an asset you can just whack up and reap money off. They need maintenance!
NZX — Not a bad set of figures from the exchange for the “Smart” funds mgmt segment and the oft-dissed Wealth Tech (will it be break-even this year?). 13.4bn FUM under management now. Of course, the actual exchange is moribund.
SPK — Spark is cheap, yes, but the management is feckless. How many times do you walk into a Spark store and not get served?
Misc
The Rolex index continues to tumble...
If you don’t believe me when I say we are in a recession, think about the discretionary income that leads to Rolexes being purchased and the supply/demand dynamic…
Bridgewater cut headcount by 7%. Whenever I am glum I like to think about how nutso Ray Dalio is (I once asked a very highly regarded allocator who is now responsible for hundreds of billions why he allocated to Bridgewater, and he was like — well, uh, hmm). My favourite story is when someone urinated on the floor at Bridgewater’s urinals, and Dalio spent an inordinate amount of energy finding the culprit:
That puddle of urine on the bathroom would be the subject of one of these cases. Dalio summoned the hedge fund’s head of facilities for questioning. Staff were assigned to a rotating guard, standing outside the restroom to take notes on all who entered — and whether they left clean floors. After each visitor, a member of the cleaning crew would rush in to mop. New urinals were brought in for testing. Stickers were applied to the porcelain to give men a more effective target. Then the exact placement of the stickers was probed.
I didn’t watch, but did see a lot of the Golden Globes this year — disseminated throughout various forms of social media. One takeaway I have from it all is that the classical ideal of celebrity seems to be in ascendance, while influencer culture feels on the wane. I’m still interested in stocks like Lionsgate, WarnerBrothersDiscovery and Paramount — they all feel a little underpriced with value to be had.
Does history repeat?
I’ve been interested in why the NZD fell so sharply around 1999 (it fell as sharply as 39c for one US dollar). I don’t agree with Don Brash’s political opinions but I do respect his thinking as an economist and banker. In a speech he gave on the decline of the NZD1, he writes:
In part at least, the “fall of the New Zealand dollar” is really a story about the rise of the US dollar. The US economy has been growing strongly, and the US equity market has risen very strongly over the past decade. This has attracted into the US savings from all over the world. Not surprisingly, the US dollar has risen as a result, not just against the New Zealand dollar but against a great many other currencies also…Clearly, the fall in our currency is not just the result of the New Zealand dollar being the currency of a small economy: the currencies of much larger economies have also fallen significantly against the US dollar in recent times.
Does this sound familiar to you? I.e NZ was already in a recession, the US was firing on all cylinders, and other large economies had also seen their currency depreciate against the US dollar.
More parallels — This one reminds me what the BOJ is currently trying to do:
Why doesn’t “somebody” do something about the low exchange rate?
Well, rather than waiting for that return of confidence, or for a reduction in the extent to which the US is dominating investors’ radar screens, is there anything which might be done to reverse the decline in the exchange rate more quickly, if that were thought desirable? In principle, there are three things that might be done to try to achieve this objective.
First, the Government or the Reserve Bank could try “jaw- boning” the dollar up. In other words, we could make impassioned statements about how much we believe the New Zealand dollar to be under-valued and how strongly we expect the exchange rate to rise. Alas, experience here and abroad with statements of this kind, at least when taken in isolation, suggests that they typically work for about 15 minutes.
In other words:
The NZD depreciated due to the all-mighty US dollar and the massive bull market the US was experiencing (otherwise known as the dot com bubble)
Talking up your currency like the BOJ is currently doing doesn’t do much.
As we all know, in March 2000 the dot com bubble went bust
After the bubble burst, the USD strengthened then had a protracted decline for about 6 years
Are we seeing history repeat again?
As the kids say, “it really makes you think”.
Meta meta meta
Meta just appointed Dana White to its board. Dana White is, famously, the founder of UFC. He was also on stage at Trump’s victory. Also, Linda McMahon, wife of the other wrestling founder — WWE dude Vince McMahon — was appointed as Trump’s education pick. In other words — wrestling clearly has applicability to both a social media giant and the department of education. Or to put it more succinctly, we are living in an idiocracy.
Rarely, if ever, do you see such a transparently political move — usually there’s lobbyists or some kind of intermediary. This one is just saying — hey, Trump, we kowtow to you (the parallels with China and the implicit expectation for Chinese tech companies like Tencent to kowtow to the Chinese govt are not lost on me).
Also overnight Microstrategy, a leveraged bitcoin play, bought 1,070 bitcoin. Microstrategy currently trades at around a 2x premium to the value of bitcoin in holds. Dylan and I were discussing yesterday how much more stupid things can get — we reckon Microstrategy might render a 1 trillion market cap before collapsing in on itself.
I am quite aware I sound pretty stupid when everybody is out making money on things like Rocket Lab and Microstrategy and, I don’t know, IonQ, a stock that does “quantum computing” and is almost certainly a fraud2. I am also cognisant that back in the 90s Enron was an oft-repeated Harvard Business School case3. I don’t really care about sounding stupid — it’s not just that crypto bros have no taste (they don’t) — it’s also that there is every sign of a bubble here and the psychology of humanity means that we rather ignore the signs and be greedy.
https://www.rbnz.govt.nz/-/media/0a17c50d54f049cc93d5558f0f4bf207.ashx?sc_lang=en
https://scorpioncapital.s3.us-east-2.amazonaws.com/reports/IONQ.pdf
https://www.hbs.edu/faculty/Pages/item.aspx?num=7434