31 Jan Everything Happens for a Reason
Last night, we received two separate emails, each with a story attached. The first came from Barron’s with the email message “The Story You Should Read This Week.” Being the sort who always try to do what we “should,” we clicked the link and read the story, “China’s Big Comeback Is Just Getting Started. How to Play It”:
Talk about a comeback. As China abandons policies that stifled economic growth for three years, its stocks have staged an extraordinary rally—up more than 50% since October. This could be just the beginning. Money managers say a broad range of stocks could keep climbing throughout this year.
The catalyst is clear: Policy makers in the world’s second-largest economy are pulling out the stops to revive the economy and get its 1.4 billion people spending more, after three hard years of stringent Covid restrictions and harsh crackdowns on technology and other industries. Beijing has completely reversed its zero-Covid policy and has begun loosening regulations on business. Up next: more stimulus to stabilize the residential property market.
“Domestically, all the switches that can be switched on have been moved toward growth, and there’s a lot of momentum behind it,” says David Semple, manager of the VanEck Emerging Markets fund (ticker: GBFAX).
Not long afterward, we received the second email, this one from a friend who is like-minded on the subject of “stakeholder” capitalism and who knows well our deep and abiding affection for Marc Benioff and Salesforce. This message contained the text of the latest newsletter from Alan Murray, the CEO of Fortune Media:
[T]he bigger point is that shareholders and stakeholders can’t be held at odds. Benioff’s approach to his business—which has some similarities to P.T. Barnum’s—has been wildly successful for shareholders during most of the company’s existence. But in the past year, it has stalled, throwing a new light on large marketing budgets, high-profile celebrity events with the likes of will.i.am, and other unique ingredients in the Benioff cookbook. It should be no surprise shareholders are demanding a reset. Don’t assume that means a rejection of the focus on social goals. As Benioff said in a text message last night: “I value all of my stakeholders, especially shareholders. This is the most important thing about stakeholder capitalism.”
It took us a little while to figure out why these two emails and two stories, in conjunction, struck us so. We stared at them side by side for a few minutes before we realized what was going on. As it turns out, they’re the same picture!
We know that the old aphorism that “everything happens for a reason” is meant to offer comfort to those who have received bad news or who have suffered, but it applies in this case as well – even if the nice folks at Barron’s and Alan Murray don’t seem to get that.
China’s “reopening” is not a long-awaited reprieve from a series of unfortunate events or the dawning of a new age of freedom and happiness. It is, rather, a reversion to the mean in a country that three years ago created novel coronavirus, lied about it to the global community for weeks, enabled its spread throughout the globe, and then used its UNLIMITED powers to incarcerate whomever it wanted to incarcerate, to impose brutal and arbitrary lockdowns on its entire population, to confiscate property it felt was undeserved by its rightful owners, and to expand its surveillance state immeasurably. In short, China is “reopening” after its government spent the last three years demonstrating to the world what people like us have been saying for decades, namely that it has no respect for the rule of law and is subject to no limitations on its use of power. It can do what it wants when it wants. And no one can stop it. Not even Tim Cook or Bob Iger or Larry Fink.
Likewise, Salesforce isn’t being targeted by activist investors because circumstances conspired against it over the last couple of years or because Marc Benioff accidentally wrote an extra zero on the check to pay a washed-up celebrity (whose biggest claim to fame is that he wrote a song called “Let’s Get Retarded”) to appear at his “socially conscious” event. Salesforce is being targeted because it is, at present, a poorly managed company that focuses more on image and other superficialities than on delivering real value to its customers and shareholders. It is being targeted because its share price over the last two decades was driven not by organic expansion in its customer base or by outworking the competition but by creative and persistent financialization. Salesforce is being targeted, in short, because it presents a potentially large payoff for the activists, who see a solid idea being suffocated by a heavy blanket of mismanagement and dream-world behavior.
The PRC was in trouble for a reason. Salesforce is in trouble for a reason. And none of those reasons have, as of yet, been resolved.
Here’s the thing: capitalism cannot be hyphenated. Only capitalism is capitalism. If you have to hyphenate what you’re doing, then you’re doing something other than capitalism. Stakeholder-capitalism, for example, is a nice idea and is (or at least was) a sensible component of business planning. But it is NOT capitalism. State-capitalism or Guanxi-capitalism or whatever the current term for what goes on in China is also NOT capitalism. BOTH are bastardizations of capitalism. NEITHER possesses the requisite conditions for a commercial or market economy, most notably, a common set of virtues.
The investors diving back into China and Alan Murray, Marc Benioff’s white knight, are all hopelessly confused about any number of things. Mostly, they’re confused about what makes capitalism work in the long term and what it is about the PRC and Salesforce that makes them incompatible with what it is that makes capitalism work.
The good news is that Salesforce can change. If the activists get a new board and/or push for new management, it can become a successful and productive company.
The bad news is that China can’t change – at least not while it remains under the thumb of the CCP.
The worst news is that most of the guys diving back into China right now know this. They just don’t care.