Wrap

Jobs numbers from ADP indicated a strengthening recovery, which (perversely) drove stocks and bonds down, as it suggested inflation, and Fed tapering (I guess). The dollar was up, and commodities down (almost as a reflex reaction). Tesla had some very bad sales numbers coming out of China, but ‘only’ sank 5.25%. Maybe there is further to fall.

Limits to accounting

Baruch Lev wrote a thoughtful piece in the FT today. He pointed out that when a company is mainly investing in software, R&D and intangibles, it expenses the whole amount immediately, even though it creates an asset that drives future profits and cashflow. The classic example is Amazon and Google and NFLX, which are spending tons of money creating an infrastructure which is practically unmatched. For me, the whole distinction between an expense and an asset is wholly artificial. Using free cash flow allows a somewhat better comparison between businesses which invest in real assets and those which invest in intangible ones. I doubt if the comparison is that good however. Really, it’s up to the analyst to understand whether a software business really is creating an enduring competitive advantage, and therefore has created some valuable intangibles. I think that deciding on that will always be above the accountant’s pay grade.

Who will build the roads?

i’m no longer a libertarian someone asked me “who will build the roads?” and i had never even considered that before my entire worldview is shattered

This is a problem, maybe not as easily solved as @lockoutdays appreciates, but certainly solvable. I just don’t understand why there are not more Coasians around.