Making Sense of Charlie’s $BABA Bet

In their recent episode of the VALUE: After Hours Podcast, Jake Taylor, Bill Brewster, and Tobias Carlisle discussed Making Sense of Charlie’s $BABA Bet. Here’s an excerpt from the episode:

Tobias: All right, let’s do China. The thing I saw on Sunday night on Bloomberg, Deng Xiaoping, who was a Premier of China, whatever the leader of China is called, he had this philosophy sort of to embrace capitalism with the idea that would allow some people to get rich at a faster rate or some people to get rich first, and that was going to be okay. But Mao Zedong had this philosophy called common prosperity, and it seems now that Xi Jinping is trying to bring back this idea of common prosperity. This is a term that keeps on turning up in quotations from people in authority.

The implication is that’s what we’re seeing, the tech crackdown, there are other things going on in an attempt to– It is an explicit move towards more socialism. I don’t know if that’s the Western media’s interpretation of what is actually happening or whether that’s what is actually happening. But would that change your view on say– Does it make investing in tech in Chine or Baba or any of those stocks, does that make them less attractive?

Bill: Not even one bit.

Tobias: Doesn’t change anything?

Bill: September 10th, I tweeted out– somebody asked when I was talking to Rui Ma which should come out here in the near future, “Would love to hear you ask her about capital controls and the inability of companies to return capital to shareholders abroad.” I said, “I’m taking that one even further and asking whether there’s a massive off balance sheet encumbrance, because the government will end up requiring donations back to society rather than shareholder profits.” I think if you haven’t been considering this, you’re not paying any attention to how China works.

Tobias: They do seem to be requiring very large, philanthropic– Well, there have been some leaders who’ve come out and said, “I’m going to make [crosstalk]

Bill: Yeah, it’s a fucking socialist country or a communist country. I’ll tell you, the hard thing for me to understand is if we’re worried about Chinese tech, how have the questions around Starbucks profitability and Nike’s profitability in that country not come into question? Because it’s hard for me to understand how you can be worried about Chinese tech companies making too much money and not giving it back to the people, but somehow Nike making humongous margins off the people of China and extracting it, and sending it all over the world. We don’t think the Chinese government has some level of insight in the Nike’s margins in China? We don’t think that– [crosstalk]

Tobias: [crosstalk] I guess.

Bill: Yeah. We don’t think the Chinese government has some level of control to say Nike, “You’re either going to make massive donations back to this country or you’re not going to sell stuff here anymore”?If we’re going to ask these questions on Chinese tech, I think you have to ask questions of everything in China.

Tobias: Well, what does that do then?

Bill: I don’t know.

Tobias: China growth is lower going forward China. Profitability is lower going forward for US companies participating there.

Bill: Or, this is Western media and Western interpretation run amok. But I think that’s part of the bet that’s being offered in the market. That’s where you get to have your variant view and either make your money or lose it.

Tobias: Which way do you lean?

Bill: I lean towards, if I was forced to bet one way or the other, I’d be long Chinese tech.

Jake: Maybe we can zoom out a little bit and think about this.

Bill: I’m not forced to bet. That’s what’s nice.

Jake: [laughs] Yeah, you are not. If we look at it on a longer timeline, a lot of the purpose, I think, of this rhetoric, or legislation, or however it gets expressed is to actually create more stability. One thing that leads to instability is often very large discrepancies in incomes and net worth historically. That’s typically what has led to revolutions. So, I think that the CCP probably wants to get out in front of that before there’s enough tension built up in haves and have-nots to even that out a little bit more so that there’s maybe more stability for a longer period of time.

Now, that’s a working theory. I don’t know if that’s necessarily true. I’m not sure you can actually make stability disappear that easily, but we’re trying in a different way here where we’re just letting a lot of inequality build up, and is that working out particularly well here? I don’t know. I’m not sure over what timeline, but these are all really hard problems to solve. They’re choosing a different way of trying to solve it. I don’t know. I’m a little bit less judgmental about it, I guess.

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