Macquaire writes on an important issue which is not only leading to creation of oligopolies but listed companies also going private
[activistinvesting]
Q2 hedge fund letters, conference, scoops etc
He writes…
Corporates are confronting a rising tide of regulatory and political activism It is driven by durable factors. Public sector, technology & social media rule. Corporates are adjusting. Replacing CEOs, getting-out of the limelight, faster technology deployment and going private to be the main strategies.Most small and medium corporates do not have sufficient bandwidth in their executive ranks to understand and adapt to these changes. Hence pricing power and revenues are consolidating at the top of the pyramid than flowing down as should happen in normal economic recovery.
While for economists, ‘a job is a job’, people correctly feel that they are losing marginal utility and pricing power. The same is occurring on the corporate side, with the erosion of corporate pricing power forcing an ever-vigilant focus on cost control, while pushing hard for technology based solutions. And we must continue to financialize by creating more capital than needed, which aggravates wealth inequalities, keeps excesses and further accelerates the deployment of disruptive technologies. In equities, investors argue that EPSg rates are still good as are ROEs, as if the market ever discounted EPS recessions. Perhaps more importantly, investors do not inhabit a fundamental world driven by private market signals, rather it is the world determined by social media and public sector responses. We also have by now integrated technology so deeply that in most developed markets, 75-85% of trading is done via AI, computer trading & ETFs, which amply explains rapid asset re-pricings that quickly turn into avalanches.
Victor sees four key trends and explains that corporates should deploy following strategies
(a) ‘localization’ (‘global’ is to have a target on your back)– (globalization is over guys)
(b) more rapid technological deployment to offset inefficiencies- (large corporates are on stronger footing)
(c) rotation of CEOs from business to political managers; and
(d) corporates going private (as public markets become less efficient and more regulated). (sadly this will happen to reduce constant public scrutiny and will also bring down the investible universe)
The question is whether this is a recipe for higher productivity? The answer is no, but it is a process not an abrupt shift. While we maintain that nothing is safe and there is no longer any predictable sector rotation, as disorientation grows, staying with secular themes should remain the best strategy.
Invest; do not trade volatility.
Article by Ritesh Jain, World Out Of Whack
