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C&B Notes

The purpose of C&B Notes is to pass along ideas, concepts, stories, and information that are informing and influencing our worldview and thought.

Map Is Not The Terrain
November 30, 2017

Our job is to understand the terrain.  Standard accounting rules provide a map that approximates the terrain, but the map is not the terrain.  Changing accounting rules will lead us to make different adjustments for different businesses as we seek to understand the real fundamentals of a business.  We watch closely to see (i) if markets significantly change their valuations of some businesses just because of a change in accounting rules, and (ii) if managements change their decisions because of the new accounting rules. 

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Saudi Arabia Targets Extremism
November 27, 2017

Most headlines out of Saudi Arabia have focused on Crown Prince Mohammed bin Salman’s detainment of princes and wealthy businessmen at the Ritz Carlton in Riyadh in an effort to root out corruption.  Perhaps more interesting, however, is bin Salman’s pledge to eliminate Islamic terrorism.  As with much in the Middle East, it is difficult to fully understand all the dynamics – for example, something as straightforward as this pledge is laced with undercurrents of Sunni vs. Shia, proxy wars between Saudi Arabia and Iran, Qatar’s allegiances, and many other factors.  Or, is this promise simply a way to garner support and discourage Westerners from intervening in a power grab? 

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Retail Apocolypse
November 25, 2017

Bad balance sheets and diminishing access to credit are adding to the woes of the U.S.’s major retail franchises.  Will the retailers left standing at the end of all of this be able to translate diminished competition into greater profits?

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On The Udder Hand
November 20, 2017

Despite broadly rich public equity valuations, we are following India with increasing interest.  It will be the world’s most populous country within 30 years, and its global importance will continue to grow.  Narendra Modi is also one of the world’s most intriguing leaders.  But, as this story highlights, every country has its sacred cows even if they do not make sense to foreigners.

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The Art of it All
November 17, 2017

The $450 million sale of a Da Vinci painting resurrected Matt Levine’s commentary on the saga between art collector Dmitry Rybolovlev and his former dealer Yves Bouvier.  The story provoked us to think about art valuation and general difficulties in aligning incentives in advisory relationships. 

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Was Tulip Fever Just A Cold?
November 10, 2017

Extraordinary Delusions and the Madness of Crowds is on our bookshelf, and it includes a chapter on the Netherland tulip bubble in the 1600’s.  A new book challenges just how manic the infamous tulip fever was.

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Titanic on a Different Scale
November 8, 2017

Late this summer, astronomers witnessed an incident that happened millions of years ago, but whose evidence just got to Earth.  The event, a “titanic collision” of two neutron stars (the densest things in the universe besides black holes) clarified a lot of open questions.

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The Bolshevik Revolution Turns 100
October 30, 2017

Russia is closing in on the 100th anniversary of the Bolshevik Revolution. The Financial Times interviewed six Russians from different backgrounds. These modern views of the revolution betray the divisions in Russian society today.

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As China Turns
October 28, 2017

President Xi Jingping is tightening his grip on China. At this months’ Communist Party Congress, his appointment to another five-year term was a foregone conclusion, but no clear successor was appointed to the seven-member Politburo Standing Committee. This omission could mean that Xi will remain President well beyond what had become the typical ten-year term. China may be moving away from market-based reforms and towards more state intervention in the economy and a more autocratic rule.

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Progress in Six Acts
October 25, 2017

We have shared from Max Roser’s site ‘Our World in Data’ before, and we found his recent summary of worldwide progress striking. By broadening the view beyond the immediate – in terms of time, location, etc. – he demonstrates just how much everyday existence has improved for a large swath of people around the world. We excerpt below from his point on poverty, but the other factors he explores are literacy, health, education, and freedom. We are, in fact, living in unprecedented times.

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McDonald’s Mess in India
October 20, 2017

McDonald’s is engaged in a wild battle with a now-former franchisee in India, who continues to serve the trademark food and use the brand.

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Olive Garden Wisdom
October 15, 2017

Buried in a reflection that may be a tad overwrought, the author of this Olive Garden “review” hits on an enduring truth. Olive Garden’s success lies in its ability to fulfill the needs of its core consumer – not by making world class food but rather by delivering a consistent experience and a preferred list of ingredients (packaged in a myriad of ways) at a good value. This underlying point also explains JC Penney’s Ron Johnson-led pivot, which failed miserably, away from what customers expect – continual deep discounts off of “list price.”

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Forever a Country of the Future?
September 28, 2017

Brazil spends 2.5% of its GDP on infrastructure, less than 1/3 of what China deploys and 1/2 of what India outlays. And Brazil’s government has done a generally poor job prioritizing that spending and driving projects to completion. In the heart of Brazil, Highway BR-322 is a microcosm of the impact of poor infrastructure and the ripple effect it has on the country's economy.

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Democracy is Hard…
September 27, 2017

...but worth it. Kenya’s election results from late this summer were nullified by the country’s top courts – the first time ever on the African continent that the re-election of an incumbent has been overturned. While the election is far from a finished matter, this type of effective government functioning across branches, not to mention parties and candidates, is an encouraging sign. And it is a prerequisite for having stable political systems that will draw foreign capital and promote economic growth.

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Where is Tajikistan?
September 25, 2017

It’s probably not a good sign when the bond prospectus requires a map to locate the issuing country. Even then, we were perhaps most struck by the relative value rationale trotted out by some of the bond speculators. The abiding lesson is that an investor should never be required to swing the bat.

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The Power of the Printing Press
September 18, 2017

In 2009, European high yield debt offered fifteen percentage points of extra yield to entice investors to endure the additional risk of default. The relationship inverted this month. U.S. Treasuries offer a higher yield than a basket of junk bonds from corporate issuers in Europe.

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