In their recent episode of the VALUE: After Hours Podcast, Taylor, Mitchell, and Carlisle discussed David Einhorn’s Q2 2021 Letter. Here’s an excerpt from the episode:
Tobias: It’s interesting just to consider it in the context of Einhorn’s note which came out very recently, because he has his– Lumber maybe a special case, but his argument, and he is not talking necessarily about lumber here. But he was talking about capital-starved industries, and he’s put on a number of these positions. I just wanted to read the line. I’ve got the paraphrased line from before, but I thought this was a pretty good one. Everybody knows that Einhorn’s got a little bit of a bias to an Austrian economics view of the world, and maybe a capital cycle theory, which I did too, but I just wanted to– [crosstalk]
Jake: [crosstalk] we’re going wrong, I get it. [laughs]
Tobias: That’s right. The enormous emphasis on investing in often money-losing businesses in disruptive areas like technology has left traditional industries starved for growth capital. The result is they haven’t grown capacity, and now they cannot meet demand. The more these value stocks are starved of capital, the higher the prices are likely to go and the longer the inflation is likely to last. JT, what do you think about that? That’s a little bit more in your wheelhouse.
Jake: Well, I think it’s hard to deny.
Jake: Yeah. This is the beauty of capitalism is that when industries that are starved for capital are able to raise prices, they create profits that allow them to build more of whatever we need, and we find our way to having the right amount of supply typically when prices are allowed to find– I don’t want to say equilibrium, because I don’t think you’re ever in equilibrium. I think you’re just moving around and through equilibrium.
Likewise, things that get overinvested in, we get over capacity, and those that have a way of also eventually getting less capital into them, and brings that part of the system back in line with the demand. It’s a beautiful thing to imagine that all of the little wants and needs inside of my head, inside of your head, get expressed into the real world with actual code and atoms arranged in a certain way to create all these things that we want. So, all of our consumer preferences get expressed as assets around the world to give us what we want. So, it’s an amazing thing to imagine that’s actually how it works.
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