During his recent presentation at USC Marshall, Stanley Druckenmiller explained why the fiscal recklessness of the last decade has been like watching a horror movie. Here’s are some excerpts from the presentation:
Druckenmiller: Let me give you some facts. The share of fiscal spending going to seniors has been growing dramatically since the 1960’s when Medicaid and Medicare joined social security as federal entitlements.
Today we spend 6x more per senior than per child in the US. Think social security vs education. Almost 40% of all our taxes are spent on seniors, and this trend is only starting.
We are just getting under way in terms of the fiscal consequences of the grey boom. In 25 years, spending on seniors will grow to take 70% of all taxes. Effectively, with entitlements compounding away, everything else gets squeezed.
In this context, the fiscal recklessness of the last decade has been like watching a horror movie unfold.
During the last decade, our debt grew from $15T to $31T today… a level of indebtment only comparable to that after WWII. But what is worse is that this debt does not account for what the government has promised it will pay you
in terms of social security and Medicare.
It actually assumes these payments will be ZERO.
In the 1950s this “off‐the‐book” debt was small as baby boomers were just being born so actual debt was a reasonable measure of the country’s indebtedness. Not anymore.
There are credible estimates that if you assume the government will pay the same to seniors in the future as it is paying today, the present value of that debt approaches $200T.
That’s trillion with a “T”.
You can listen to the entire discussion here:
For all the latest news and podcasts, join our free newsletter here.
The Acquirer’s Multiple® is the valuation ratio used to find attractive takeover candidates.
It examines several financial statement items that other multiples like the price-to-earnings ratio do not, including debt, preferred stock, and minority interests; and interest, tax, depreciation, amortization.
The Acquirer’s Multiple® is calculated as follows:
Enterprise Value / Operating Earnings*
It is based on the investment strategy described in the book Deep Value: Why Activist Investors and Other Contrarians Battle for Control of Losing Corporations, written by Tobias Carlisle, founder of acquirersmultiple.com.
The Acquirer’s Multiple® differs from The Magic Formula® Earnings Yield because The Acquirer’s Multiple® uses operating earnings in place of EBIT.
Operating earnings is constructed from the top of the income statement down, where EBIT is constructed from the bottom up. Calculating operating earnings from the top down standardizes the metric, making a comparison across companies, industries and sectors possible, and, by excluding special items–earnings that a company does not expect to recur in future years–ensures that these earnings are related only to operations.
Similarly, The Acquirer’s Multiple® differs from the ordinary enterprise multiple because it uses operating earnings in place of EBITDA, which is also constructed from the bottom up.
Tobias Carlisle is also the Chief Investment Officer of Carbon Beach Asset Management LLC.
He's best known as the author of the well regarded Deep Value website Greenbackd, the book Deep Value: Why Activists Investors and Other Contrarians Battle for Control of Losing Corporations (2014, Wiley Finance), and Quantitative Value: A Practitioner’s Guide to Automating Intelligent Investment and Eliminating Behavioral Errors (2012, Wiley Finance). He has extensive experience in investment management, business valuation, public company corporate governance, and corporate law.
Articles written for Seeking Alpha are provided by the team of analysts at acquirersmultiple.com, home of The Acquirer's Multiple Deep Value Stock Screener.
All metrics use trailing twelve month or most recent quarter data.
* The screener uses the CRSP/Compustat merged database “OIADP” line item defined as “Operating Income After Depreciation.”
Kenneth Griffin's Citadel Group L.L.C, on Friday, July 26, acquired over 35,000 shares in ON Semiconductor Corp. (NASDAQ:ONNN) to add to its 5.1% stake in the semiconductor components manufacturer.
The hedge fund... Read More
This Friday Consuelo Mack WealthTrack features an exclusive interview with The Fairholme Fund's President and Portfolio Manager Bruce Berkowitz, premiering nationwide beginning Friday, September 26 at 7:30 p.m. on public... Read More
Energy markets have transformed over the last 15 years to offer diversified and sophisticated asset classes in constantly evolving market structures. The three layers of energy market, including the... Read More
In his 2006 Berkshire Hathaway Annual Letter, Warren Buffett discussed how he finds the right acquisition targets. Here’s an excerpt from the letter:
Q1 2023 hedge fund letters, conferences and... Read More
With the government shutdown, U.S. economic releases have been sparse this week. However, there are a few government employees still working. They, along with some private institutions, did release... Read More
Is Yahoo defying Starboard Value? Has Yahoo Chief Executive Officer Marissa Mayer had enough with aggressive hedge funds pushing the troubled Internet company around? In announcing the appointment of... Read More