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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.

Wage Inflation in China
February 27, 2017

While a rise in wages has been good for the Chinese economy and the companies offering goods and services in the country, the increase in labor costs is eroding China’s economic advantages for manufacturing.  Productivity gains have enhanced the value of man-hours, but total cost considerations (including shipping costs) will continue to lead manufacturers to look elsewhere for production. 

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A Bad “Recep”-e for Turkey
February 27, 2017

At the direction of President Recep Tayyip Erdogan, Turkey's government continues seizing and nationalizing private assets, particularly from political foes.  Erdogan's growing ambitions are troubling both for the populace's civil rights and the country's once-promising economy.

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Lies, Damn Lies, and Statistics
February 15, 2017

It is hard to trust any macroeconomic numbers coming out of China.  As Charlie Munger likes to remind everyone, always follow the incentives.

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Shoot the Messenger
February 7, 2017

Political leaders in Greece are perpetuating a classic case of shooting the messenger.  Greece is doomed to its current dismal financial state until it addresses fundamental structural problems.

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Lender of First Resort
February 2, 2017

Last April we noted just how large a percentage of student loans are now, for all intents and purposes, nonperforming.  This Fed chart caught our eye, as it shows just how much consumer credit the federal government now owns directly and how quickly this “portfolio” has expanded in recent years – the vast majority of which is tied to student loan origination.  Large losses are looming in this now more than $1 trillion pocket and will only be forestalled by extend-and-pretend programs supported by politicians.

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Modern American Diet
February 1, 2017

When it comes to obesity, are we fighting the right enemy? 

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Desktop Testing
January 30, 2017

With ever more precise measurements, physicists are probing accepted truths at the limits of physics.

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Bank of Japan: Equity Investor
January 28, 2017

The Bank of Japan’s asset purchase program, especially its foray beyond sovereign debt into equities, is without modern precedent. This experiment has made the BOJ the owner of nearly 70% of Japan’s ETF assets, and it is on its way to being the largest shareholder in a quarter of the Nikkei 225 constituent companies by the end of 2017.

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Hope for Brazil?
January 26, 2017

The Petrobas scandal, along with a number of other investigations, continues to deepen and ensnare more and more of Brazil’s most prominent companies and executives. Based on some recent discussions, we are hopeful that the country can address its long history of endemic corruption at the highest levels of government and industry. Entrenched interests will ensure that it will be neither an easy nor straight path.

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Higher Ed Rethinking
January 23, 2017

David Gelernter, a professor of computer science at Yale University, recently shared his vision of a radically different future for higher education. We have explored this subject in some detail in a past quarterly letter, and the harsh realities of value received vs. tuition paid by students is evidenced by low and slowing student loan repayment rates.

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Inside Selling?
January 10, 2017

As investment capital flows into China from foreign sources, residents and domestic businesses are trying to get money out of the country. Chinese regulators are taking note and getting more focused on ways, beyond foreign direct investment, that Chinese companies are moving cash offshore. Some attempts are bolder, and more disruptive, than others.

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Bargain Hunting
January 2, 2017

While a portion of a recent article by Jason Zweig is excerpted here, the entire article is well worth the 10 minutes it takes to read the whole story. Zweig draws on a few memories from his (unique) childhood to illustrate a number of concepts core to concentrated investing, including variant perception, patience, and preparation.

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Where To For Puerto Rico?
November 30, 2016

New York Fed President William Dudley recently spoke in San Juan about Puerto Rico’s overwhelming fiscal challenges and how the territory should respond to them. Hard decisions on spending and borrowing that are insulated from political pressures are the clear first step, but other structural reforms will determine the island’s long-term fate.

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Car Collateral
November 30, 2016

The auto asset-backed securities market has been a popular place for investors to attempt to find yield in a zero interest rate policy world. The increase in lending has compromised underwriting, partly as evidenced by a big expansion in the subprime market. Repossessions have risen to their highest levels since the ’08-’09 financial crisis.

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Italy Decides
November 28, 2016

Italy remains a potentially fatal threat to the eurozone’s survival thanks to the sheer size and scope of the country and its problems – poor GDP growth, soft labor markets, too much sovereign debt, zombie-ish banks, etc. Italians will be going to the polls on Sunday to decide a historical referendum on constitutional reforms that could materially change the country’s post-WWII form of government, removing a series of checks-and-balances in the process. The stakes are even higher because the sponsor of the proposed changes, Prime Minister Matteo Renzi, has promised to resign if they are defeated.

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Zimbabwe: Back to the Future?
November 25, 2016

After officially retiring its previous local currency only a little more than a year ago as part of its dollarization policy, Zimbabwe is issuing bond notes to solve its shortage of U.S. dollars.

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