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Season 2, Episode 18: The Methods of a Short Activist Hedge Fund

Published June 9, 2020

With Gabriel Grego, Quintessential Capital Management

Gabriel Grego of Quintessential Capital joins the podcast to discuss his short activist strategy.

Grego finds three or four “high conviction” ideas to trade a year. His process is exhaustive but straightforward, though few managers have the stomach to replicate it. The reasons for this are discussed in the second half of the podcast.

Content:

  • How it all starts. Finding the right target is crucial. Grego’s focus on “extreme corporate catastrophic situations” (1:39);
  • Some of the typical “red flags” to look for (3:43);
  • Trendy industries are often clusters for fraudulent behavior. COVID-19 is the most recent example (6:01);
  • Narrowing the target list and creating a thesis (10:37);
  • The final step: “boots on the ground” research (16:46);
  • Background on the guest (21:57);
  • Activist shorting is “scary stuff” (25:38);
  • More terrifying than being a paratrooper? (27:29);
  • Background on QCM’s fund and current exposure (30:28);
  • How QCM has dealt with the events of 2020, including a rare (and successful) attempt to time markets in March (34:05);
  • Chinese companies traded in the U.S. look “very very interesting,” though Chinese fraud is “a different beast” (42:14).

More Information on the Guest:

Not intended as investment advice.

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Season 2, Episode 16: Chinese Economic Reforms Are Already a Thing of the Past, With Dexter Roberts

Published May 20, 2020

The author of “The Myth of Chinese Capitalism” discusses the ramifications of his thesis

Dexter Roberts joins the podcast to discuss his book “The Myth of Chinese Capitalism.”

In Roberts’ view, economic reforms have already been curtailed under current political leadership. China’s middle class, which has grown almost exponentially in recent decades, remains limited mostly to large coastal cities. The rural countryside, which still represents half the country’s population, remains well below the middle class — and is stuck there, in part due to outdated demographic policies.

The options for Chinese policymakers are limited. They have so far not managed to spread the wealth effects of their “pivot” to a services-based economy, and may have even exacerbated the problem. This all has wide-ranging consequences: for China, for western companies, and for the world.

Content Segments:

  • The first myth: capitalism as short hand for economic reforms (5:39)
  • The second key myth: the middle class will inexorably continue to grow larger (6:35)
  • The global supply-chain diversification, started several years ago and exacerbated by COVID-19, is effectively ending China’s “factory to the world” model (9:21)
  • Authorities’ options are very limited (10:45)
  • Where does this leave Chinese consumers? The days of western companies expanding sales through the growth of China’s middle class are gone (13:10)
  • Background on the gust (20:15)
  • What might the future of China hold? (25:09) The possibility of social unrest (27:14)
  • Brief discussion of Hong Kong: “Don’t think that the protests are over.” (30:22)

Highlights From Our YouTube Channel

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Season 2, Episode 10, Transcribed: Coronavirus Crisis Continues, Expect ‘Rolling Recessions’

Published April 2, 2020

Moderator 0:02
Welcome to the Contrarian Investor Podcast. We give voice to those who challenge the prevailing sentiment in global financial markets. This podcast is for informational purposes only. Nothing on this podcast should be taken as investment advice. guests were not compensated for the appearance, nor do they supply payment in order to appear. Individuals on this podcast may hold positions in the securities that are discussed, listeners are urged to educate themselves and make their own decisions. Now, here’s your host, Mr. Nathaniel E Baker.

Nathaniel E. Baker 0:36
The situation around the corona virus continues to escalate. Markets are apparently at the whim now of policymakers in the US who are debating a congressional bailout of sorts to help the public in the US as well as corporations. And to that extent, I have a guest today, Rachel Ziemba. She is the founder of Ziemba Insights here in New York and a professor at NYU. Among other things that she’ll tell us about later.

Rachel Ziemba You are the founder of Ziva insights, a professor at NYU, and a geo economic and country risk expert. We are here of course to talk about the corona virus, which is wreaking havoc in financial markets and to the global economy. Of course, the health issues are paramount and we hope everybody stays healthy or gets health He, as the case may be, but for our purposes and now having you on the podcast, I wanted to get your views a little bit on your assessment of the economic impact of this coronavirus.

Rachel Ziemba 3:15
Thanks for having me on the podcast. It’s time you know, given the unfolding interlinked crises that we’re now experiencing, it’s an ideal time to sort of recognize what we know and what we still don’t know. What we know is that the economic impacts of not only the virus but the mitigation policies are incredibly dire. From day one when it was or not day, one, maybe day 30 as it was evolving in China. What became clear to me as an economist was that this was very different than past health crises and pandemics as soon as China put 50 million people on lockdown and shut down economic activity in Wuhan province that of course has manifested to rolling, lockdowns, quarantines and shut down quite a lot of economic activity around the rest of the world, even as the Chinese economy is reviving. So this has been, you know, economists like myself, until recently engaged in a debate over was this more a demand shock or a supply shock? I think it’s very clear now it is a very deep demand shock for oil and commodities for a wide range of goods, and also a shift in demand. And so I think this is going to mean some form of of rolling, rolling recessions. every data point we look at right now almost looks historic and are not reflecting the situation on the ground today. Even this from a week ago. You had several hundred thousand people filing for unemployment. When we think ahead to next week, it will probably be even greater. These will be people who still have cost to pay bills to pay, they might be sequestered. But their bills are not sequestered. And so that’s why the measures we’ve seen in the global from global policymakers are so important to keep element individuals and elements of the economy on a lifeline, so that we can try to evolve so that we can try to kill the virus, right? We’re shutting down parts of the economy to try to kill the virus, that obviously has collateral damage, but having millions and millions of people dead would be not only a massive human cost, but a major economic one.

MoreSeason 2, Episode 10, Transcribed: Coronavirus Crisis Continues, Expect ‘Rolling Recessions’
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