Following up on Past European Straights Topics

European Straights, 2020-07-17

  • The Great Decoupling. The 2nd Cold War started with the erection of the Great Chinese Firewall. It most likely violated WTO rules, but it was ignored as there was $ to be made in non-tech sectors (Inv Banking, manufacturing).

  • Silicon Valley. Much of the current stock market’s performance is explained by the US tech giants growing outside the US.

  • For EU it doesn’t make sense to sever all ties with China. There’s a lot to be learned (how to have large local tech firms). Geopolitics and global supply chains are to be used, not ignored.

  • Tesla is not the next Amazon: its cash flow per share (the key Amazon metric) looks anything but.

  • R&D in large corporations repeatedly gets underfunded (investors don’t value it): employees may just walk away, or it’s simply faster (and almost risk-free) to buy firms with the needed technologies.

o   This is not exactly correct, because the number of new startups is low. The % of staff walking away to start their firm is ~1%.

o   Treat them well and pay some more – and they’ll stay and deliver.

  • The source of innovation is big firms, not small ones (true, some new firms are based on innovation, but it’s not a rule).

o   Small firms are more visible, though, even though the odds are massively against them.

o   Small firms are not necessarily young. Young companies have an advantage of still having their founders with stronger strategies and better understanding of how the pieces evolved.

  • Technical risk. Nice example: Zoom, spending heavily on sales/marketing, but much less - on R&D. Sometimes it’s not possible to assess the risk of “can it be built” without prior reference example.

  • Remote work and taxes. Hedge funds are looking to obtain tax advantage for having their staff work remotely. (what do the employees think?)