May 2, 2017
Along the way there were early signs that things had changed. First was the decline from the greatest bubble in US equity history, the 2000 tech bubble. Compared to the previous high of 21x earnings at the 1929 bubble high, this 2000 market shot up to 35x and when it finally broke, it fell only for a second to touch the old normal price trend. And then it quite quickly doubled. Compare that experience to the classic bubbles breaking in the US in 1929 and 1972 (Exhibit 2) or Japan in 1989. All three crashed through the existing trend and stayed below for an investment generation, waiting for a new crop of more hopeful investors. The market stayed below trend from 1930 to 1956 and again from 1973 to 1987. And in Japan, the market stayed below trend for… you tell me. It is 28 years and counting! Indeed, a trend is by definition a level below which half the time is spent. Almost all the time spent below trend in the US was following the breaking of the two previous bubbles of 1929 and 1972. After the bursting of the tech bubble, the failure of the market in 2002 to go below trend even for a minute should have whispered that something was different. Although I noted the point at the time, I missed the full significance. Even in 2009, with the whole commercial world wobbling, the market went below trend for only six months. So, we have actually spent all of six months cumulatively below trend in the last 25 years! The behavior of the S&P 500 in 2002 might have been whispering in my ear, but surely this is now a shout? The market has been acting as if it is oscillating normally enough but around a much higher average P/E. ... We value investors have bored momentum investors for decades by trotting out the axiom that the four most dangerous words are, “This time is different.”2 For 2017 I would like, however, to add to this warning: Conversely, it can be very dangerous indeed to assume that things are never different. ... I believe it was precisely these other factors – increased monopoly, political, and brand power – that had created this new stickiness in profits that allowed these new higher margin levels to be sustained for so long.
The Mexico–U.S. border is long, but the history of close cooperation across it is short. As recently as the 1980s, the countries barely contained their feelings of mutual contempt. Mexico didn’t care for the United States’ anticommunist policy in Central America, especially its support of Nicaraguan rebels. In 1983, President Miguel de la Madrid obliquely warned the Reagan administration against “shows of force which threaten to touch off a conflagration.” Relations further unraveled following the murder of the DEA agent Enrique “Kiki” Camarena in 1985. Former Mexican police officers aided drug traffickers who kidnapped and mercilessly tortured Camarena, drilling a hole in his skull and leaving his corpse in the Michoacán countryside. The Reagan administration reacted with fury at what it perceived as Mexican indifference to Camarena’s disappearance, all but shutting down the border for about a week. The episode seemed a return to the fraught days of the 1920s, when Calvin Coolidge’s administration derided “Soviet Mexico” and Hearst newspapers ginned up pretexts for a U.S. invasion. ... The grandiose promise of trade is that it binds countries together, breeding peace and cooperation. This is a risible overstatement when applied generally to the world. But in the case of the countries separated by the Rio Grande, it has proved wondrously true. A generation after the signing of the North American Free Trade Agreement, the United States and Mexico couldn’t be more interdependent. Anti-Americanism, once a staple of Mexican politics, has largely faded. The flow of migrants from Mexico to the U.S. has, more or less, abated. ... But the Trump administration has come dangerously close to trashing the relationship—and, in the process, unleashing a terrifying new reality.
They think Amazon is going to grow faster, longer and bigger than almost any firm in history ... only ten firms with sales of more than $50bn have managed to grow by an average of 15% or more for ten years straight since 1950; no company with sales of more than $100bn has done so. If Amazon were to pull it off, it would be the most aggressive expansion of a giant company in the history of modern business. ... That raises two questions. The first is how Amazon could possibly achieve this. The second is which industries it might upend in the process. ... Mr Bezos claims, as a corollary to thinking only of customers, never to think of rivals. However, the list of current and possible competitors that Amazon is required to include in its annual filings is long and getting longer. It ranges from retailers and search engines to film producers and, as of last year, logistics and advertising firms. ... the best defence is simple: sell something that customers want and Amazon does not have. Exceptional merchandise and service helps.
The ambition to create the version of the F-35 that I watched on the tarmac at Patuxent River—one that can make short takeoffs and vertical landings—was what got the fighter jet’s development under way in the 1980s. The Defense Advanced Research Projects Agency (Darpa), the Pentagon’s tech arm, began working at the Marine Corps’ behest on an improved version of the Harrier, a crash-prone vertical-landing jet of British design. According to a Pentagon history of the F-35, Darpa quietly sought assistance from a research and development arm of Lockheed Martin known as the Skunk Works. By the early 1990s, the Darpa-Skunk Works collaboration had produced preliminary concepts, and the Marine Corps began pressing Congress for funding. The Air Force and Navy insisted that they, too, needed stealthy, supersonic fighters to replace aging Cold War-era models. Out of this clamoring grew a consensus that the only way to afford thousands of cutting-edge fighters was to build a basic model that could be customized for each service. ... The degree of commonality among the three versions of the F-35—the shared features—turned out to be not the anticipated 70 percent but a mere 25 percent, meaning that hoped-for economies of scale never materialized. A pattern of continual reengineering resulted in billions of dollars in cost overruns and yearslong delays.
Why should we care about a Chinese chemical company buying a Swiss agricultural business, however mammoth the deal might be? For starters, it’s part of a wave of global consolidation in agriculture that will put an increasingly large portion of the world’s commercial seed market—roughly 50%—under the control of a few giant multinationals. In addition to the ChemChina/Syngenta union, Dow Chemical is buying DuPont, and Germany’s Bayer is in the process of swallowing up Monsanto, perhaps the most controversial producer of genetically modified seed species. This combined $170 billion deal binge promises to have a profound impact on the future of global agriculture. ... Beyond that, ChemChina’s purchase of Syngenta provides valuable insight about China’s broader view of its future. The deal signals important trends in the country’s policy on innovation, biotechnology, intellectual property, and globalization.
Marvel, which has ramped up production to be able to make three movies a year, is proving that, if done correctly, these character universes can resemble successful technology platforms—ecosystems that enable both creative risk taking and significant growth and profits. But too often, other companies look at the winning result without appreciating the forethought that produced it. Look no further than Marvel’s arch nemesis, DC Entertainment, which, in conjunction with Warner Bros. (its parent company), has tried to catch up to Marvel by launching its own “extended universe” of characters. ... Marvel’s approach, then, has been easy to replicate but challenging to duplicate. What is the true essence of Marvel’s success?