Lessons from Theranos / A Foreign Capital Invasion Could Lift Japan's Stocks / China trade / Rising mortgage rates / Safari in Lewa Wilderness
1) Following up on my May 18 e-mail, Liz Holmes Wants You to Forget About Elizabeth, the disgraced founder of Theranos finally reported to prison yesterday to begin a well-deserved 11-year prison sentence.
A few thoughts to close this sordid chapter:
a) I think her (few) defenders make a fair point that lots of entrepreneurs and businesspeople have done similar or worse things, yet are still free, often with millions (or billions) of dollars of ill-gotten gains – think Adam Neumann, co-founder of WeWork (WE), which, with the stock at $0.19, is about to go under a second time.
So why is Holmes in prison? Some combination of being so high-profile, having the misfortune of drawing the attention of an exceptional investigative journalist (John Carreyrou of the Wall Street Journal, author of the outstanding Bad Blood: Secrets and Lies in a Silicon Valley Startup), and probably sexism.
b) It's unbelievable the number of high-profile people she conned – least surprisingly Jim Cramer, who called her "the next Steve Jobs" in this fawning interview.
c) More surprisingly, even in 2017, a year after Carreyrou's story exposed the obvious fraud, two Harvard Business School professors raved about her and urged a graduating student, John Wu, to join her, as he recounts in this story about when he interviewed with Holmes to be Theranos' director of finance. Excerpt:
In 2017, I interviewed with Elizabeth Holmes to be Head of Finance at Theranos.
I'm convinced I learned more in those 45 minutes than I did in 10 years of school and work...
This obviously seems like running into a burning building.
On the other hand, multiple highly credible men are now telling me to give it a shot.
I have to do it for the story if nothing else, right?? So I get on a plane and stay at the DoubleTree Palo Alto...
Then Elizabeth walks in. She's calm, collected, self-assured.
She wore her signature look: black turtle neck, hair pulled in a bun, unblinking, laser-blue eyes.
And that deafening baritone of a voice:
"Hi Jon, I've heard so much about you."
As the interview drones on, I become increasingly aware of one fact:
Nothing about her indicates she was born on Earth. She deftly wound her way through my concerns with utter confidence:
"I know I've made some mistakes as CEO.
In fact, I haven't been a good one, and it's gotten us in trouble.
We shipped the product too early, and despite having hundreds of patents, we didn't execute correctly.
"Theranos is my life. I've been living this company since I was 19 years old. I don't have friends, I hardly see my family--I don't have 'a life.'
I was put on this planet to do one thing, and that's to make blood testing as easy to get as buying a Coca Cola.
"Right now, I don't know who to trust.
I need someone to trust.
Someone who can help me become the CEO I know I can be.
And I think that person...
...is you."
I was stunned.
1st reaction: "Me?? A newly minted business school graduate? To functionally be CFO?"
2nd reaction: "But...why not me? I can save this company."
3rd reaction: "Holy fuck this person is a sociopath."
4th reaction: "...I want her powers."
If you think of personality falling on a spectrum:
- One side being fully authentic
- The other being fully manufactured
The spectrum curves around like a horseshoe, such that the ends look remarkably similar.
For the life of me I could not tell which end she fell on.
2) Following up on the article I linked to in Friday's e-mail, How Japan Got Its Swagger Back, here's a related article in today's Wall Street Journal: A Foreign Capital Invasion Could Lift Japan's Stocks. Excerpt:
Foreign investors are coming back to Japan's stock markets. But how long will that last?
There have been many false starts before. But surprisingly, the answer this time might be quite different, especially if some big alternatives like Chinese shares continue to tread water.
Partly spurred by the recent endorsement from Warren Buffett and by solid buybacks and dividends announced this earnings season, Japanese stocks have been on a roll. The Topix index is up 14% this year, putting it at its highest level since 1990.
Foreign investors have jumped back into the market too: They were net buyers of Japanese equities and futures to the tune of 5.6 trillion yen, equivalent to around $40 billion, in the seven-week period from April 3 to May 19 according to Goldman Sachs.
There are fundamental reasons why the rally this time could be more sustainable. Shareholder activism is rising – part of the impetus behind record dividend and buyback levels at many firms. Companies are under pressure to address the chronic undervaluation of their stocks: including from the Tokyo stock exchange itself, which has told firms with a price to book value ratio below one to come up with plans to address the issue.
But the inflow of foreign capital could become an important, persistent tailwind too – and help ensure the rally has legs. Despite recent inflows, global funds are still underweight Japanese stocks by 6.8 percentage points, according to Goldman Sachs.
That compares with less than 5 percentage points of underweighting in 2014 in the early days of "Abenomics," when investors were focused on the ambitious corporate governance and pro-growth agenda of then-Prime Minister Shinzo Abe. Foreign investors sold almost a quarter of a trillion dollars of Japanese stocks from mid-2015 until recently, according to CLSA – a reflection, in part, of disappointment that corporate governance improvements didn't materialize quicker. But overseas investors should be more willing to return now that those corporate reforms are finally showing signs bearing substantial fruit.
The disappointing performance of the Chinese market this year may also help, as global funds readjust their allocations in the region.
3) Speaking of China, this chart captures how much it's risen in the last 20 years to become a bigger trading partner than the U.S. among most of the countries in the world:
4) This tweet explains why the housing market has slowed down.
But ironically, housing prices haven't fallen much because the drop in demand is matched by the drop in supply, as homeowners, most of whom have locked in mortgage rates half of today's levels, don't want to sell...
5) My flight home from Kenya wasn't until almost midnight on Sunday, so my parents and I flew an hour north of Nairobi to have lunch. While we were there, we went on safari at the magnificent Lewa Wilderness, an ultra-luxurious, exclusive private game reserve owned and run by our old friend Will Craig. The 45,000-acre property used to be owned privately and run as a cattle ranch by Will's family starting in 1922, but they sold it to a charity, the Lewa Wildlife Conservancy, in 1995.
Kenya's biggest parks, like the Masai Mara and Amboseli (which we visited a week ago – see my Facebook post here), can get fairly crowded. You're staying a lodge with 100 or more people, are seeing lots of vehicles while out on a safari, and if you find something special like a lion kill, there might be a dozen or more vehicles crowding around.
Lewa offers a much higher-end experience (at a cost of course). Lewa Wilderness only has capacity for 24 guests and, along with the other four lodges on the reserve, the total number of guests is capped at 120 – so you pretty much have the place to yourself.
On our two-hour safari drive, we passed only two other vehicles and when we stopped to see the animals, there was no-one else around. We saw monkeys, waterbucks, zebras, impalas, giraffe, but the highlights were seeing three families of 16 rhino and a family of four elephants in a watering hole. They were right next to the road only 20 feet from us, so I didn't need a fancy camera, just my phone, to take amazing pictures. Here's a selfie with the elephants:
In addition, I took the following short video clips:
Here are more pictures, and I've posted even more on Facebook here.
