We really enjoyed yesterday’s discussion with Carl Kaufman, Craig Manchuck, and Bradley Kane. Our hour-long conversation touched on their careers, investment opportunities in March, the unintended consequences of Fed stimulus, inflation, and more. See a recording of the conversation below.
Here are a few highlights:
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A major difference between the market now and at the start of their careers is the democratization of knowledge. Formerly, large institutions were gatekeepers on research. Today, anyone can uncover insights and broadcast analysis on companies via the internet.
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The Fed’s suppression of interest income is like Aesop’s fable where the wind and the sun try to see who can make a man remove his coat. The sun wins because the harder the wind blows the tighter the man holds onto his coat. Similarly, the more the Fed pushes rates lower, the more people save and the less they spend.
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By allowing companies to borrow at low rates, the Fed may end up propping up “zombie companies” that may survive for longer than they otherwise would. Bigger picture, the Fed’s actions may impair an important market function – the connection between prices and economic reality.
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In March, they “dipped their toes” in companies that were most strongly and directly affected by Covid. Their thinking was that – so long as the companies make it to the other side – they may come out stronger and own more market share. One example is Carnival Cruise Line.
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Because they approach their investments with a long-term mindset, portfolio companies’ management see them as partners rather than traders looking to make a quick buck. As a result, management may offer them preferential access to debt offerings. Or management may ask them to advise on deals they are considering.
