In the 20VC podcast episode hosted by Harry Stebbings, investment veterans Howard Marks, Co-Chairman and Co-Founder of Oaktree Capital Management, and Bill Gurley, General Partner at Benchmark, reflect on the economic tumult of 2020, the unprecedented federal response, and the resulting impact on markets and investing. They discuss the difficulty of making macroeconomic predictions and base their investment strategies on value rather than forecasts. Marks highlights the role of central banks in averting a global depression and the mystery of inflation, while Gurley emphasizes the significance of interest rates and the challenges of regulatory capture in the US. Both express concerns about the social and political divide in America, advocating for bipartisan cooperation and the benefits of globalization. They also touch on the transformative potential of technology in matching individual skills with global opportunities, and the importance of embracing innovation to improve standards of living. The episode concludes with personal book recommendations and an optimistic outlook on the future's possibilities.
Welcome to the first 20 Vc of 2021 with me, Harry Stebings, and my word, what a start to the year we have for you with this episode, two of my all time investing idols on the show today to discuss what happened in 2020 and what does that mean? Looking forward to 2021.
This quote sets the stage for the episode, introducing the purpose and the high-profile guests who will share their insights on the past year's events and future expectations.
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The quote explains the services offered by Remote and Ramp, emphasizing the importance of global business management and financial efficiency.
First of all, nine months ago, a global depression was absolutely a possibility... But thank God the Fed and the treasury did what they did in this country, central banks elsewhere. And clearly, we've had a very painful and precipitous but brief recession.
Marks reflects on the potential economic crisis averted in 2020, attributing the milder outcome to the intervention of financial institutions.
Macro predictions are very hard to make, and I don't think either of us bases our investment decisions on macro forecasts.
This quote demonstrates the speakers' skepticism towards making investment decisions based on macroeconomic predictions due to their inherent uncertainty.
We have interest rates at unprecedented lows... It encourages massive speculation as people search for asset categories, for yield.
Gurley points out that the current low interest rates are leading to increased speculation in the market, as investors seek higher returns.
If you act conservatively and your two competitors act aggressively, you will be left behind... But certainly when the world is rewarding aggressive growth, don't care about profitability, you're going to have a mix of end results.
Gurley provides strategic advice to founders, emphasizing the need to be aggressive in growth to keep up with competitors and market demands.
The Fed says it's going to keep rates low until we get progress on its growth and inflation targets... So until we get growth above two and a half or three, and certainly until we get...
Marks explains the Federal Reserve's reasoning behind low interest rates and the conditions that might lead to a change in this policy.
"If you get inflation at 3% a year, nobody wants to lend money out at 1% a year, because what they're doing is locking in at 2% a year loss of purchasing power, and the market would demand positive real rates."
The quote explains that if inflation exceeds the interest rates, lenders experience a loss of purchasing power, which leads to a demand for higher interest rates to maintain positive real returns.
"But our government's been running deficits since the global financial crisis, and this was the slowest recovery in postwar history, and it didn't kindle any inflation."
The quote emphasizes the disconnect between traditional economic expectations of inflation due to government deficits and the actual low inflation experienced after the global financial crisis.
"I personally believe that when we get to herd immunity and when the number of cases falls radically... I think that we'll have a very good recovery in the economy and in employment."
The quote suggests optimism for economic and employment recovery contingent upon achieving herd immunity against COVID-19.
"Learn to program. Because you can make 50 to 100 grand coming out of undergrad and there's unlimited employment for those job types."
The quote highlights the opportunity and demand for programming skills in the job market, suggesting a need for a shift in educational priorities.
"We made money because we were able to buy things cheaper than we should have been able."
The quote explains the fundamental strategy of distressed debt investing: buying assets at prices below their intrinsic value.
"The lower the interest rates, the higher the asset price is justified."
The quote connects the concept of asset pricing to the level of interest rates, indicating that low rates can justify higher prices for stocks and other assets.
But today's stock prices for technology companies, for example, I think are not inconsistent with today's level of interest rates.
This quote highlights the perceived alignment between current tech stock prices and interest rates, suggesting a rationale behind the high valuations.
And because the Fed hit so quick this time, money never got pulled in.
This quote emphasizes the speed of the Federal Reserve's response in providing liquidity to the market, preventing a repeat of past financial contractions.
The best thing you could have possibly done in a portfolio 20 years ago is just to buy the leading tech players and never think about selling them, just put them away.
This quote reflects on the successful strategy of long-term investment in leading tech companies, highlighting the impact of compounding growth.
Your stock will eventually trade at or below 30 times earnings.
This quote conveys the expectation that stock prices will ultimately be anchored to traditional valuation metrics like price-to-earnings ratios.
A bubble is a point in time when psychology takes off and gets free of its moorings.
This quote defines a bubble and warns against the dangers of overconfidence in the invincibility of certain assets or companies.
Globalization has been incredible for the world, and I hate to see it decline.
This quote expresses support for globalization and concern over its retreat, stressing its benefits to the world economy.
There is probably no chance we can make a $30 microwave in the US.
This quote illustrates the concept of comparative advantage, where it is more beneficial for countries to produce what they are most efficient at and trade for the rest.
They've already started being a lender of capital across the globe, heavy in South America.
This quote acknowledges China's expanding influence in global economics, particularly as a capital lender.
In the middle of the pandemic, we had the George Floyd incident, and I think many of us have become more sensitive to considerations.
This quote connects the recommendation of reading to the current social context, suggesting that literature can be a way to engage with pressing societal issues.
"I spent some time reading the autobiography of John Lewis. John Lewis was a congressman who was very active, great leader in the civil rights movement and passed away this year. So his passing, plus the George Floyd, made it a great time to read that book, and I found it very instructive, inspirational."
"A book that I think touches on a number of the topics we hit on today is Matt Ridley's new book, how innovation works. And if you're going to read that one, you might read the rational optimist, which he wrote before it."
"It just makes things more risk seeking. It's just more capital, more ways to get public."
"You can't predict. You can prepare."
"I really worry about regulatory capture, Harry, on both sides of the, you know..."
The quote reflects Bill's anxiety over the influence of special interest groups on government policy and the need for reform to address this issue.
Howard Marks discusses social and political concerns, including the deepening divide between political parties and the inability to enact bipartisan cooperation.
"I worry about the schism in the country, that the two sides, not only do they disagree, but they hate each other, and each side uses a totally different way of looking at life and talking about it."
"Well, I think that eventually we find the solution in America, maybe after we've exhausted all the other possibilities, but we've always so called muddled through."
"I think in the future, we're going to have this massive ability to match whatever your comparative advantage is as an individual with way more financial opportunities and way more ways of means of making money than you had in the past."
"I can't thank you enough for doing this. As I said, I've wanted to do this one for a very, very long time, since I both had you on the show independently."
"Remote handles payroll benefits, taxes, and compliance to help companies of all sizes to pay and manage full-time and contract workers all over the world." "Ramp is the only spend management platform and corporate card that can automate your accounting and lower your bills in under 15 minutes."