Massiff Capital: Q4 2020 Investor Letter

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We are beginning to see significant capital flow into real asset businesses (where the primary investment and value creation is derived from tangible rather than intangible resources). In the last 24 months, roughly 51 SPACs have either gone public or been announced that are capital-intensive businesses focusing on the energy transition. These companies have IPOed for a combined ~$15 billion. Today, the combined market capitalization stands at ~$84 billion. The share-price of those firms has grown an average of over 200%. 

The Rocky Mountain Institute, an energy-focused think tank, expects $40 trillion to flow into new low carbon assets before 2050.4 The critical link between all these investments, though, is that the companies involved are all either growing fast (some of them are young and growing fast), turning over their balance sheets quickly, investing heavily in next-generation processes and technology, or adjusting business models that in some cases (for example steel, bulk chemicals, cement, etc.) have not changed in more than fifty years. The world of capital-intensive tangible asset businesses, long considered boring compared to the exciting tech world, is fast becoming a driver of economic change. 

Given the impetus and interest in financing solutions to combat climate change, paired with technologies in the energy, transportation, materials, and utility industries that appear on the cusp of large-scale commercial adoption, we feel comfortable stating that: 

We have not seen this level of future growth in capital intensive industries for decades. 

Investors searching for high growth opportunities have not had capital intensive businesses in their hopper of growth opportunities over roughly the same time horizon. 

This has profound implications and raises important questions. Namely, how do you value high growth capital intensive tangible asset businesses? 

Macrovoices: #254 Luke Gromen: The FED Faces No Easy Choices

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• Is this the beginning of the end for the U.S. dollar as the global reserve currency?

• Relative decline to other fiat currencies or loss of purchasing power?
• Democratic control of the Senate – how does this affect yields?
• When will deficits start to matter?
• How do you translate the current state of the dollar into investment strategies?
• Bitcoin vs. Gold

• Are we finally at a point of runaway wage & price inflation?

John Polomny: Joe Biden's Banana Republic. Weekly Market Update 1-16-21

 

“Typically, a banana republic has a society of extremely stratified social classes, usually a large impoverished working class and a ruling class plutocracy, composed of the business, political, and military elites of that society.” Like all Banana Republics, the US economy and social structure is now on the way to perdition with virtually no chance for Biden & Co to reverse the inevitable course of events. Joe Biden's Banana Republic: https://www.goldbroker.com/news/joe-b... Macrovoices Luke Gromen on the dollar and inflation: https://www.macrovoices.com/935-macro...

Howard Marks: Something of Value

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What is Value Investing?

Value investing is one of the key disciplines in the world of investing. It consists of quantifying what something is worth intrinsically, based primarily on its fundamental, cash flow-generating capabilities, and buying it if its price represents a meaningful discount from that value. Cash flows are estimated as far into the future as possible and discounted back to their present value using a discount rate made up of the prevailing risk-free rate (usually the yield on U.S. Treasurys) plus a premium to compensate for their uncertain nature. There are a lot of common valuation metrics, like the ratio of price to sales, or to earnings, but they’re largely subsumed by the discounted cash flow, or DCF, method.

Importantly, value investors recognize that the securities they buy are not just pieces of paper, but rather ownership stakes in (or, in the case of credit, claims on) actual businesses. These financial instruments have a fundamental worth, and it can be quite different from the price quoted in the market, which is based on the manic-depressive ups and downs of a character Benjamin Graham called “Mr. Market.” On any given day, Mr. Market can be exuberant or despondent, and he quotes prices for securities based on how he feels. The value investor understands that – rather than informing us as to what a given asset’s value is – Mr. Market is there to serve us by offering up securities at prices, which can be meaningfully disconnected from the actual value of a stake or claim in the underlying business. In doing so, he sometimes gives us the opportunity to snatch up shares or bonds at a meaningful discount from their intrinsic value. This activity requires independent thought and a temperament that resists the emotional pull of the market cycle, making for decisions based solely on value.

Smead Capital Management: Throwing Caution

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As we begin 2021, the investing public is tied up in a “frenzy,” to quote Charlie Munger from a recent interview. This “frenzy” can be captured a couple ways. Whether by the investment banking activities that usually coincide with poor market returns going forward (stock market failure), or by the sell-side research analysts playing hopscotch to raise their price targets over their competition in the most exciting stocks. Rather than look at Wall Street, who can often exact nefarious schemes and ideas on investors, we think it would be best to look at market participants to understand where we sit.

Call buying relative to put buying is at a 20-year high as noted by the chart below. Investors have never been this enthused to speculate in options at any point since 2000. This is Munger’s “frenzy.” They aren’t avoiding caution. As the song says, they’re “throwing caution.” They believe “the winds of change are blowing wild and free.” Individual and institutional investors are telling us stories of what the future will hold and what the market has capitalized. As Marty Whitman would remind us, they’re way too interested in the “going concern” and not interested enough in the balance sheet of these situations. Predicting earnings in the future is tough. Looking at the capital structure of a business is more predictable.

John Polomny: President Joe Biden And The $3 Trillion Dollar "Stimulus". AIA Weekly Update 1-9-21

 

President Joe Biden is proposing a $3 Trillion so called stimulus package. He said, “economic research confirms that with conditions like the crisis today, especially with such low interest rates, taking immediate action - even with deficit financing - is going to help the economy.”

Not sure what experts he is talking about but the great reflation trade has begun.

Peter Sainsbury: Agflation is here to stay. How to play the agricultural commodity bull market

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Agricultural commodities look like they are beginning to see the start of a sustained bull market. First, precious metals, then base metals and now agriculture. Since the middle of 20202 soybeans and corn have increased by 55% with wheat registering a 35% gain.

Governments in Asia (China in particular) and in North Africa have been buying imported grains and pulses in an effort to build up their strategic reserves. Authorities in many countries made use of those reserves to dampen down domestic food prices during the pandemic, but now those reserves are running low.