Finance & Startups

Some advice for students: If an organization of which you are a member puts out a public statement you disagree with, you have a few choices. You can: Stay silent and have the entire world conclude that you stand by the statement. Convince the other members of the group to withdraw or otherwise modify the statement so that it can reflect the views of all members. Or you can resign in protest. Claiming that you had no involvement or knowledge of the statement, but remaining a member of the organization without it withdrawing the statement is perhaps the worst of the alternatives, as it appears to simply be an attempt to avoid accountability while continuing to be a member of the organization. If you were managing a business, would you hire someone who blamed the despicable violent acts of a terrorist group on the victims? I don’t think so. Would you hire someone who was a member of a school club who issued a statement blaming lynchings by the KKK on their victims? I don’t think so. Would you want them to be an associate at your law firm? Of course not. It is not harassment to seek to understand the character of the candidates that you are considering for employment. In fact, as CEO, it is your obligation to do so on behalf of all of the other employees in your company, the clients and customers it serves, and all of your other stakeholders. I have heard that the above inquiry has made some members of the groups which put out the statement feel ‘unsafe,’ a word that is sadly overused in universities today. Ask yourself how unsafe it would feel in Israel beginning Saturday early morning and how unsafe it feels now? Ask yourself how unsafe your Jewish classmates feel when 32 clubs published a statement assigning sole responsibility for the heinous, deathly acts of terrorists to Israel and the Jews? Experience is making mistakes and learning from them. If you have made a mistake, acknowledge it, and immediately correct your mistaken actions. Public statements made by organizations of which you are a member can have a material negative impact on your reputation. I have learned from experience that the best time to fix a mistake is now.

I have learned an enormous amount from Charlie Munger. These are some great excerpts of his wisdom.

I believe that long-term rates, e.g, 30-year rates, will rise further from here. As such, we remain short bonds through the ownership of swaptions. The world is a structurally different place than it was. The peace dividend is no more. The long-term deflationary effects of outsourcing production to China are no more. Workers and unions’ bargaining power continues to rise. Strikes abound, with more likely to come as successful walkouts achieve substantial wage gains. Energy prices are rising rapidly. Not refilling the SPR was a misguided and dangerous mistake. Our strategic assets should never be used to achieve short-term political objectives. Now we must refill the SPR while OPEC and Russia cut production. The green energy transition is and will remain incalculably expensive. And higher gas prices will raise inflationary expectations. Just ask your average American. They see the prices at the pump and in the grocery store and don’t believe inflation is moderating. Our national debt is $33 trillion and rising rapidly. There is no sign of fiscal discipline by either party or by the presumptive presidential nominees. And each debt ceiling is an opportunity for our divided government and its most extreme actors to get media attention, and for our nation to threaten default. This is not a good way to recruit the many new buyers we need for our bonds. The government is selling hundreds of billions of bills, notes and bonds weekly. China and other foreign nations, historically major buyers of our debt, are now selling. And the QT unwind experiment has barely begun. Imagine trying to do a massive IPO where the underwriter, insiders and short sellers are all selling at once, competing to hit every bid on the way down while the analysts downgrade their ratings to ‘Sell.’ Our economy is outperforming expectations. Major infrastructure spending is beginning to contribute to economic growth and the supply of additional debt. Recession predictions have been pushed out beyond 2024. The long-term inflation rate is not going back to 2% no matter how many times Chairman Powell reiterates it as his target. It was arbitrarily set at 2% after the financial crisis in a world very different from the one we live in now. I bumped into the CIO of one of the world’s largest fixed income asset managers the other night and asked him how it was going. He looked like he had had a tough day. He greeted me by saying: ‘There are just too many bonds’ — a veritable tsunami of new issuance each week. I asked him what he was going to do about it. He said: ‘The only thing you can do is step away.’ I have been surprised at how low long-term rates are. I think the best explanation is that bond investors thought of 4% as a high rate of interest because rates hadn’t breached 4% for nearly 15 years. When investors saw the ‘opportunity’ to lock in 4% for 30 years, they grabbed it as a ‘once-in-their-career opportunity,’ but today’s world is very different from the one they have experienced up until now. The long-term inflation rate plus the real rate of interest plus term premium suggests that 5.5% is an appropriate yield for 30-year Treasurys. And query whether 0.5% is a sufficient real long term rate in an increasingly risky world. And the technicals could cause yields to go even higher, particularly in the short term. We saw the beginnings of that today. It wasn’t that long ago that a previous generation thought five percent was a low rate of interest for a long-term, fixed-rate obligation. But I could be wrong. AI might save us.