The Far East Investor – Professional investor writes about investing and other topics

Joker: an analysis of key themes

I went to see Joker with my wife the other day, and I’ve got to say — this is one of those rare films that blends great entertainment with important societal themes, supported by an outstanding performance by Joachim Phoenix as Joker. I’m not sure why the “the” is omitted — Joker rather than The Joker — but I’ll refer to the character as just Joker to align myself with the film.

One key theme throughout is the way that mental illness is treated in society. Arthur Fleck (who later morphs into Joker) has a mental condition that makes him laugh hysterically, even to the point of it being physically painful, when he is under duress. As a result, Arthur is ostracized by those around him, whether it be his boss and co-workers at the clown dispatching service where he works, the social worker who asks the same old questions each time they meet, the three Wayne Enterprises jerks he ends up killing, the late night talk show host played by Robert De Niro. The film makes no judgments over right or wrong, but leaves us feeling a certain amount of sympathy for Arthur despite the evil incarnate he will later become. An underlying message is that an unfortunate upbringing (nurture rather than nature) can produce an unhappy, unproductive, and “failed” adult, but the addition of a few unfortunate turn of events can transform that relatively innocuous adult into a complete monster.

Insider trading by investment bankers: a conundrum given poor risk/reward

In the financial news today was an article about three investment bankers getting charged for running an insider trading scheme. The bankers worked at Goldman, Moelis and Centerview, and the scheme ran from 2012 to 2018 targeting M&A deals mainly in the pharma space. Along the years there’s been many other similar cases, ranging from a Lazard managing director who passed on tips to fund his affair with a mistress, to SAC Capital’s gigantic insider trading operation.

In a general sense I can understand the urge to engage in insider trading. It’s simple. Greed is a basic instinct. But it’s difficult to understand why certain people can’t suppress that urge given that the risk/reward seems unfavorable. I use the word “seems” here because there is a chance that my assumptions are wrong; perhaps only a fraction of people get caught and that the smartest ones end up making a crazy amount of money consequence free.

SoftBank’s bailout of WeWork: founder wins, most others lose

I’m writing this post on a transcontinental flight to London. My habit prior to boarding these flights is to download a bunch of content ranging from Amazon Prime movies to various periodicals including the Financial Times and The New York Times. I also carry a book with me — a real one, not a Kindle version. I try to avoid doing work unless it’s urgent as I find my productivity to be too low relative to working out of my office, and try to stay off the in-flight Wifi which is irritatingly slow anyway.

Scanning through the FT app on my iPad, I’ve noticed that the WeWork saga has taken another turn for the worse. WeWork’s board has agreed to a $6.5 billion bailout package from SoftBank, coming in the form of equity and loans. I predicted in an earlier post that WeWork will end up pursuing a deal with SoftBank rather than with JPMorgan, and that is exactly how it’s playing out.

Inequality in Japan is very low despite what the Japanese media and politicians say

The Japanese media and politicians talk up rising income inequality in Japan and make it seem as if it’s a huge problem. While income inequality in Japan has indeed been rising in recent years — as it has in most other developed countries — this kind of rhetoric needs to be put in context. Doing so makes it obvious that income inequality is exceedingly low in Japan and the wealthy are taxed up the wazoo to keep it that way.

First, income inequality in Japan is actually very low compared to most other countries. The picture below (courtesy of Wikipedia) compares the Gini Index (a measure of income inequality) across many parts of the world. Japan has a very low Gini Index in this context, alongside countries in the Nordic region. On the other hand, inequality is highest in emerging markets, in particular Africa and South America. It’s interesting that even the U.S. — where the democratic presidential candidates are making inequality a key issue — has only moderate inequality in the global context.

Softbank’s reported $5 billion rescue package to WeWork: throwing good money after bad?

The Japanese media just announced that Softbank Group has provided the We Company (which runs WeWork) with a $5 billion rescue package proposal. The package would be provided by Softbank Group, not the Softbank Vision Fund, and would not involve Softbank taking majority voting rights in We or consolidating We as a subsidiary. I would imagine this might mean the some of the funding would be via loans or preferred share issuances rather than just common equity. It’s also reported that We is in talks with JPMorgan Chase as well, involving an issuance of bonds by We.

My guess here is that Softbank is going to end up “winning” this deal, if being selected to invest in a flawed and perhaps unsustainable business could even be considered “winning”. A deal with JPMorgan is probably going to come with cripplingly high interest rates (I’m guessing 10% or higher given the elevated risk of bankruptcy and the lack of viable options for We). Also, Softbank has a greater vested interest in seeing that We survives, given the many billions ($11 billion cumulatively for a 29% stake) that it has already invested in the company at the common equity level, not to mention that it has partially staked its reputation on We succeeding.

Warren vs. Trump: both are hard pills to swallow

The latest polls on the 2020 democratic presidential primaries show that Elizabeth Warren is the top candidate right now, followed closely by Joe Biden. I’ve been following the developments loosely, and here are some thoughts.

That Bernie Sanders lags Warren is not a surprise given that they cater to the same type of people, namely people on the hard left. It’s pretty simple, really. Sanders and Warren are basically interchangeable in terms of policy. Yes, there might be differences here and there, but both of them are running on a more or less socialist agenda. Given this, if given a choice between a male and a female, the progressive base would for sure prefer a female. Also, Bernie is more a “has been” since he’s already run in the previous election, so one might look at Warren as a fresher face although even she has been in politics forever. And Sanders is old at 78 years of age and he’s had some health problems, having recently gone through heart surgery. Warren was born in 1949 so she’s younger and looks more fit than Sanders.

Asian American affirmative action lawsuit against Harvard: the dirty truth

I’ve been loosely following the Harvard affirmative action case with interest. The lawsuit, filed by a group of Asians, charges that Harvard discriminates against Asian American applicants in its admissions process for Harvard College. A judge recently ruled that Harvard doesn’t discriminate against Asian American applicants.

That Harvard and other colleges discriminate against Asian Americans is patently obvious given that the bar for their admittance is higher than any other race. On quantitative measures such as GPA and SATs, Asian Americans need to score significantly higher than African American and Latino applicants in order to stand a decent chance of getting in. Moreover, Harvard’s own admissions process leads them to score Asian Americans lowest in terms of “personal” scores, even though there is no evidence that Asian Americans have less courage, likability and kindness (elements that are claimed to be part of the personal score) than any other ethnic group.

Thoughts on real estate investing across geographies

Generally I believe it is possible to make money investing in real estate in any country, but some offer better returns than others. A lot of this has to do with demographics and per capita income trends. Ideally you want your property to be in a country where the population is growing, the birth rate is high, there are many young people relative to old people, wages are rising, average wealth stably increases over time, and urbanization is rising. You also want to be buying in countries where there’s rule of law — you don’t want to be buying property in a totalitarian state where the state can confiscate your property at will.

For this reason, I would consider the U.S. to be a better place to buy property in than, let’s say Japan. Indeed, property prices in the U.S. have increased steadily over the long term, and only occasionally go down temporarily. According to the U.S. Census Bureau, average home prices in the U.S. increased by 280% between 1985 and today. And even during the 2008-09 GFC, whose proximate cause was the creation of a housing bubble, home prices only dropped 20% and recovered to pre GFC levels within a few years. Prices increase over the long term because of a growing population combined with rising GDP per capita. Having purchased a number of detached homes in the U.S., I am reasonably confident that they will be worth considerably more in 10 or 20 years.

Is wealth inequality really a bad thing?

We often hear that inequality in wealth is rising across the globe. This is undoubtedly true. For example, income inequality in the U.S. last year reached its highest level in more than half a century due to the post-GFC economic expansion disproportionately benefiting the wealthiest Americans. The so-called Gini index, a key measure of wealth distribution, rose to 0.485 in 2018, from 0.482 a year earlier, with states such as California and Texas experiencing the biggest jumps.

But is inequality actually a bad thing? Academics, politicians, the poor and some of the rich have argued that it is deeply unfair for there to be high levels of inequality. Thomas Piketty has argued that governments should step in by adopting a global tax on wealth, and Senator Elizabeth Warren has made a wealth tax a centerpiece of her presidential bid for 2020.

The CFA is a nice to have credential, but not a must have

While I do have an MBA from a top tier institution, I am not sure if I should or shouldn’t be embarrassed for not having a CFA charter. Years ago, I passed Level 1 but have not been able to find the time (read: I’ve been too lazy) to bone up for Levels 2 and 3.

As an investor, I’d say that a CFA is useful, but by no means required, to be successful in this industry. The same goes with an MBA, though it’s undoubtedly true that many business schools act as feeder institutions into various entry-level positions on the buyside.

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