We tend to be guided by ideas and theories devised to explain an economy that no longer exists.
Good morning.
If you want to pick one statistic that indicates how much business has changed in the last half century, I’d choose this one: intangible assets as a percentage of total assets. It shows the rise of things like patents, software, data, brand, and the decline of hard assets like land, buildings, equipment, inventory. Ben Carlson cites a version of that data in his essay for our new Quarterly Investment Guide, noting that among S&P 500 companies, intangible assets have gone from 17% of total assets in 1975 to 90% last year. Stunning.
Carlson uses the data to explain craziness in the stock market. It’s a lot harder to value a company based on intangibles than one with hard assets. But the implications go much further. Consider:
—Companies can scale much faster when they aren’t dependent on hard assets. Think of how much easier it is for Facebook to add 100 million new users than for Exxon to find a million new barrels of oil.
—Successful companies have less need for investment dollars than they used to—which explains why Apple is sitting on nearly $200 billion in cash that it hasn’t found a use for . . . and why the economy at large is awash in unused savings.
—Pricing is harder, because the cost at the margin is often close to zero.
—Disruption is easier—because it only takes imagination to improve on someone else’s intellectual property.
—Talent rules, because intangibles are only as good as the people who constantly refresh them.
I could go on. The point is that we tend to be guided by ideas and theories devised to explain an economy that no longer exists. Most of what I was taught in graduate school regarding pricing, profits, antitrust policy, fiscal policy, and so much more, no longer holds. And the definitive textbook for the new economy—as well as the definitive guidebook for government and business leaders operating in that economy—has yet to be written. We need a new Samuelson.
Other stories in our Quarterly Investment Guide include Anne Sraders’ pick of eight tech stocks to buy this year, Jen Wieczner’s look at great tech stocks that get overlooked, Bernhard Warner’s piece on why the tech trade hasn’t topped out yet, Lance Lambert’s data-driven ranking of the top 10 new tech meccas in the U.S., Robert Hackett’s take on why you should add Bitcoin to your portfolio, and Jeff Roberts’ skeptical story on the SPAC craze. You can access the entire package here . . . if you are a Fortune subscriber. If you aren’t, now’s a good time to sign up!
More news below.
Alan Murray
@alansmurray
alan.murray@fortune.com
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Chinese investments
China got more foreign direct investment last year than the U.S. did, according to figures from the United Nations Conference on Trade and Development. In fact, FDI flows to China rose by 4% to $163 billion, in a year when overall FDI flows plummeted by 42% to $859 billion (flows to the U.S. nearly halved). Fortune
Israel isolates
Israel has closed its only international airport for at least a week, so as to get more of its population vaccinated before faster-moving, possibly more lethal new variants of the coronavirus take hold in the country. Prime Minister Benjamin Netanyahu: "No nation has done what we are about to do—we are hermetically sealing the country…We do this to prevent the entry of the virus mutations and to ensure that we progress quickly with our vaccination campaign." Washington Post
AstraZeneca glitch
The EU is fuming at an AstraZeneca production glitch that will lead to lower supplies of its vaccine in the first half of the year. The failure comes after Pfizer and BioNTech also had to temporarily cut their vaccine shipments, due to the need to retool a Belgian plant so it could scale up production. Australia will also suffer from the AstraZeneca failure, though local production of that vaccine will soon come online. Politico
Brexit fallout
U.K. officials have been telling some British companies that they should set up EU operations in order to avoid the massive costs and red tape that have arisen thanks to Brexit. In some cases that means cutting jobs in Britain and adding them over in the EU, which is very much not what Brexit was supposed to deliver. See also: MasterCard jacking up fees fivefold for British customers buying stuff from the EU, because such transactions no longer have capped fees. Observer
Vaccine hesitancy
New surveys show vaccine hesitancy is decreasing in Europe, but possibly increasing in the U.S. (depending on whose survey you're looking at). The problems posed by vaccine hesitancy are theoretical as long as supply rather than demand is constraining the rollout, but experts think the situation could change around Easter. Fortune
Dutch protests
More than 240 people were arrested in the Netherlands as anti-lockdown protests turned violent. Riot police had to be deployed in at least 10 cities and towns, deploying water cannons in Amsterdam. Looting took place in Eindhoven. Reuters
Google vaccines
Google is providing over $150 million to promote vaccine education and equitable distribution, and will be opening up its Google Spaces as vaccination sites, where needed. CEP Sundar Pichai: "Getting vaccines to billions of people won’t be easy, but it’s one of the most important problems we’ll solve in our lifetimes. Google will continue to support in whatever way we can." Google
Debenhams closures
Debenhams, the venerable U.K. department store chain that collapsed at the start of December, has been bought by fashion retailer Boohoo for £55 million ($75 million). However, the deal only includes the Debenhams brand and website, as well as customer data; none of the 242-year-old chain's stores will reopen, and up to 12,000 jobs will go as a result. Fortune
This edition of CEO Daily was edited by David Meyer.
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