Media Worth Consuming – September 2018

Jonathan Rochford

Narrow Road Capital

Seth Klarman’s 20 lessons from the financial crisis. Jim Grant’s 10 lessons on markets. 15 bullish investment assumptions you should be questioning. It’s time to switch from sexy to boring investments. Howard Marks warns on private debt and the aggressive lending environment. Goldman Sachs’s bull and bear indicator is at its most bearish in 50 years. 30 stocks in the S&P 500 and 332 in the Russell 3000 are trading at more than 10 times revenue. US corporate insiders are selling stock at a rapid pace whilst buybacks are at record levels. Inventory is piling up at tech companies.


Earnings add-backs can represent up to 50% of earnings in covenant calculations in private equity deals but actual earnings are falling well below forecasts. Dividend recapitalisation loans are at close to pre-crisis levels. All signs point to high yield bonds and leveraged loans being late cycle. The Thompson Reuters debt issue was heavily oversubscribed despite terrible covenants and very high leverage.


This biotech hedge fund has delivered 30% net returns over 19 years. Hedge fund managers that drive sports cars take more risk but achieve the same returns. Some hedge funds still haven’t cleared their side pockets from the financial crisis. Bill Gross’s levered bets on interest rates has led his fund to have an awful year. Asset consultants also lie about their outperformance. The outperformance of growth versus value is at close to tech bubble highs. American and European power traders defaulted on their leveraged bets leaving losses to be socialised amongst other traders. The investment company making payments to minor league baseballers in return for a share of their future earnings.


There’s anecdotal reports of Tesla overcharging customers and delaying refunds as well as charging customers and delaying delivery. Saudi Arabia’s wealth fund has invested in Tesla’s key competitor. Tesla’s biggest problem is its debt not its CEO. Elon Musk smoked pot after Tesla’s heads of accounting, HR and communications left. Jim Chanos is having a tough year but is convinced Tesla is going down.


Low interest rates have brought bubbles and zombie companies. Where is the proof that rising prices are good?  The argument that recent inflation levels are much higher than historical levels. Steve Eisman: “QE is monetary policy for rich people”.  An economic recovery based on more debt isn’t a real recovery. If you want to prevent financial bubbles start with reflecting on 2006 not 2008. Quantitative easing has increased debt and asset prices, thus reducing prospective returns. The price can be very different if you are a forced seller. The increasing use of illiquid assets by pension funds could lead them to be forced sellers in the next downturn.


Why are central banks so scared of removing ultra-low rates after ten years? The Taylor rule points to a Fed Funds rate of 7.5%. The US Federal Reserve is scared of a low risk bank. The arguments that bailing out banks was the wrong answer and has greatly increased inequality. Iceland let its banks fail and its recovery has been far stronger than the US, Europe and Japan. A journalist admits he acted to protect himself but chickened out on warning others about bank runs in 2008.


Mexico’s President calls the country’s position “a situation of bankruptcy”. Goldman Sachs is buying debt from Turkey and Argentina, hoping it turns out better than their infamous Venezuelan debt trade. Currency crises are due to incompetence and can be quickly turned around with competent action. IL&FS Group, a large Indian shadow bank has defaulted on its debts. After losing money on equities, peer to peer lending and bonds, Chinese investors are turning to bank deposits. Standard and Poor’s looks set to choose money over truth in Chinese ratings, not learning the lesson from having to payout as part of a $215 million CDO settlement. US home rental corporates are being sued for fee gouging and wrongful evictions.

Politics & Culture

First Harvard and now Yale are being investigated for discrimination against Asian-Americans in admissions. It’s disgraceful how the US Open treated Naomi Osaka. A French court orders Marine La Pen undergo psychiatric testing after she tweeted criticism of Islamic terrorism. A college professor shot himself as a protest against President Trump. The shady ways China gets intellectual property from international companies. There’s a global coalition building that is pushing back at China’s excesses.


You have to a pay a premium if you want to be racist. The rise of the inequality industry. Feminists refuse to acknowledge the ways women have it easier than men. America’s far right is becoming less white. That video that shows Google’s executives were all in for Hillary Clinton. How Google News can be biased but not rigged. Google has been caught out so often it can’t deny that it is biased.


Economics & Work

US strikes are at the highest level in a decade as employees are confident enough to demand higher wages. There’s a lot of money but little measurement going into job creation programs. In a world of 24/7 demands from work, bringing back a Sabbath could be a great help. Work life balance is a myth for executives without a supportive spouse. Equal opportunity statements in job ads discourage minority applications, likely due to not wanting to be seen as a “token” hire. If benefits are included, US federal employees are paid much more than their private sector counterparts. Eradicating poverty is a problem for government and taxpayers to solve, not businesses.


Hong Kong and Singapore have very efficient healthcare systems but the US is awful. New Jersey serves as a reminder that when you tax something you get less of it. Knowledge only gets you so far, then skill is more important. Absolute success is luck, relative success is hard work.


Joseph Stiglitz’s economic views are often wrong but highly regarded. Socialism has a long track record of enriching the rulers and impoverishing workers. The duplicity of socialism – Venezuela’s President eats at one of world’s swankiest restaurants while his citizens starve. Venezuela’s minimum wage hike has led to business closures and employees being laid off.



A Florida teacher was fired for refusing to give students a pass mark when they didn’t submit their required work. Golf Digest helped an innocent man have a murder conviction overturned. Voluntourism is doing more harm than good. How the military teaches soldiers to sleep on the battlefield. A Chinese billionaire is funding an alternative to the Nobel prize with double the prize money. Ticketmaster was busted for assisting and encouraging scalpers.


A man was banned from an all you can eat restaurant after consuming 100 plates of sushi. An American fast food restaurant refused to take an order in English. Dominos offered a lifetime of free pizza for getting a tattoo of its logo and 350 Russians took them up on it. A man is facing jail time after inviting women out to expensive restaurants then fleeing without paying the bill. Ripe bananas donated to a Texas prison came with $18 million of cocaine. Lab grown diamonds are expected to sell for 10% of the price of natural diamonds in the near future. The song about who killed Lehman Brothers. The video of a football mascot shooting himself with a t-shirt cannon.

Jonathan Rochford
Portfolio Manager
Narrow Road Capital

Narrow Road Capital is a credit manager with a track record of higher returns and lower fees on Australian credit investments. Clients include institutions, not for profits and family offices.

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