Episode 10. The Eccentric Genius Professor (2)
“I will absolutely not venture into the construction business. The company I will run in the future, Hankuk Jeonseon, has no need for construction.”
At my declaration, Professor Kim Minjae’s face was filled with interest.
“Oh-ho? Based on the trajectory shown so far by your father and the current professional management, Hankuk Jeonseon’s intention to move into construction seems firm, yet the young twenty-three-year-old successor thinks differently? Even though all the leading chaebol conglomerates have construction companies?”
“The past is the past. We who live in the present must not follow the past, but prepare for the future. Just as Hankuk Jeonseon’s growth engine stalled when Korea’s rapid growth ended, we must now advance toward industries befitting the twenty-first century—not industries whose growth engines have stopped, no matter how plausible they may look on the outside. Let those who originally did construction work hard at it! However, our Hankuk Jeonseon, which never even did construction in the first place, has not the slightest intention of buying a construction company at a high price and entering the field anew. The Third Industrial Revolution is in full swing now, and the era of the Fourth Industrial Revolution will arrive within the next twenty years. With the money to acquire a decent construction firm, we could do far more promising business.”
“Construction is not a bad business.”
“I’m not saying construction is bad. Yes, it makes money. How much do they rake in through construction, development, and contracting? So those who originally did construction should just work hard at it—just as our Hankuk Jeonseon should work hard at the wire business it originally did. However, if we must do something new, I intend to pursue a business with high utility relative to input. I won’t do a business that might normally bring in tens or hundreds of billions of won, but is saddled with enormous loans for projects and could collapse in a single blow of liquidity crisis when a financial crisis hits.”
“Construction isn’t particularly that dangerous... You don’t seem like the timid type who can’t start a business for fear of maggots... Seeing such strong rejection, I suppose you are predicting a serious crisis on the level of the IMF within the next ten years?”
No, why is this professor so sharp? That nuance from my answer? Is that even possible?
“Yes, that’s right. At this very moment, America dominates the world. Everything begins in America and ends in America; watch America, and you know everything. Praise be, God America.”
“Oh, very good. And so?”
“I’ve heard that something called a CDO has become popular in America lately. It started being issued in 2001, so this is already the third year. I’ve heard they’ve sold quite a lot.”
“Oh~ You know about CDOs? It should still be unfamiliar in Korea... It’s a derivative product, so it’s complicated... Seho, you have a remarkable breadth of knowledge.”
A CDO is a collateralized debt obligation, a security created by bundling mortgage loans from various people who borrowed money from a bank. The bank collects the right to receive money from the debtors who borrowed from them, makes it into a CDO, and sells it. Then, when the debtors repay their money, that money goes to the CDO investors. As for the bank? It uses the money received from selling CDOs to make more loans. Then it makes CDOs from those loans and sells them again. Repeating this process like a spinning wheel, they make money.
“American housing prices keep rising, so if you lend money to creditworthy people and they repay properly, what problem could there be? The banks are happy, the homebuyers are happy, the CDO investors are happy—everyone’s happy. However, I’ve heard that recently strange signs have begun appearing in these CDOs.”
“Strange signs... Subprime?”
As expected, the professor is very interested in America’s current situation. He already knows for certain that loans have descended to the subprime level.
“Yes, from what I’ve heard, now they don’t even need to submit documents proving their assets; they simply write on the paperwork that they have sufficient income to repay their debts, and loans are executed without much investigation. A beggar passing by a bank can enter and write a lie on the documents—‘I own a one-million-dollar apartment and work at a job with a hundred-thousand-dollar salary’—and request a one-million-dollar loan to move to a bigger house, and they grant the loan immediately without verification. This is what is happening in that great America right now.”
It’s true. Soon it won’t even be at that level; NINA—that is, No Income, No Asset loans—will appear. Literally, you just go to the bank and apply, and they grant a loan without verifying anything. They even say that in Ohio, loans were already issued in the names of twenty-three dead people. There is only one condition! Anyone can get a loan as long as the house purchased with the loan is held as collateral.
In 2008 and 2009, tremendous news analyzing the subprime mortgage crisis poured forth, so it was impossible not to know. There was even a movie.
“Even though such absurd loans are occurring, for both CDO investors and borrowers to remain happy, housing prices must rise forever. Professor, but is that possible? I would bet my entire fortune on it being impossible. After lowering the base rate to one percent last June, America has kept it frozen until now; America has neither the intention nor the leeway to lower the base rate further. The moment they begin raising the base rate out of concern for a bubble! From then on, disaster will begin along with the countdown to destruction.”
There’s not much time left. Starting this July at 1.25%, by July 2006, in just two years, they raised it all the way to 5.25%. It was impressive that they endured for one more year until 2007 with the base rate at 5.25%. Afterward, they kept lowering the rate, but the real estate bomb that had already passed the critical point went bang and exploded.
Throughout my speech, Professor Kim Minjae watched me with a smile at the corner of his lips, and when I finished, he suddenly clapped.
“Wow! Bravo! Good! Nice, nice. Beyond expectations. Everyone now expects a real estate boom ahead, yet you speak of disaster beyond recession? Truly astonishing. Seho is right. Housing prices cannot rise forever. Economically speaking, the rate of increase in housing prices, which are asset prices, grows in proportion to the total amount of funds released into the market. That means the amount of funds needed to maintain the same rate of housing price growth increases exponentially as housing prices rise. For example, if the funds released into the market are ten billion dollars, a house originally worth one hundred thousand dollars becomes two hundred thousand dollars when another ten billion is released, making the price rise one hundred percent. But if another ten billion is released to make thirty billion dollars total, it becomes three hundred thousand dollars, rising only fifty percent. Since the currency that can be supplied has its limits, maintaining this forever is impossible. It’s only a matter of time. It’s just that no one knows when that time will be.”
Ah... My head is starting to hurt. Professor... I merely watched current affairs news and the movie The Big Short from the future.......
“I also think a tremendous financial crisis will come within a few years. The trigger, just as you said, would be America’s interest rate hike? With the US rate at one percent now, considering the housing prices that will have risen during that time, the currency released in America, and the average earning capacity of Americans, when this rate rises about five percent, CDOs will begin collapsing like sandcastles starting from the subprime grade. And within a year after that, everything will go bang! and burst. Ah... My condolences to everything that will disappear like a mirage... God Bless you!”
What? Could it be that the professor is the one who regressed? I only came from seeing the future, but how can he prophesy a financial crisis with such conviction at this point in time?
To think that with such ability, he has no thought of making money and is simply satisfied as a university professor—he is truly an amazing person.
“Hankuk Jeonseon absolutely must not enter the construction business now. The moment the bomb explodes in America, a nuclear bomb will go off in Korea. Whether through project financing or ordinary bank loans, all construction companies doing work with other people’s money rather than their own will fall into crisis. Very well, Seho, you don’t have to attend the remaining classes or exams from now on. I’ll give you an A+. Though grades mean nothing to you, let’s just call it a token of my sincerity.”
For now, the purpose of today’s visit has been accomplished. But seeing Professor Kim Minjae’s true worth, he was truly remarkable. So truly outstanding people possess such insight. Can I become like that too?
Professor Kim Minjae, who had been organizing documents, looked at my face briefly and asked.
“You said earlier that Hankuk Jeonseon, which you will manage, doesn’t need construction? Then what does it need? This is just my personal curiosity.”
That’s right, I’m curious too. How would a genius like you evaluate my vision!
“The first is IT services. Portals like Laver and Laum, various game companies, and in the future, I intend to develop various services that run on mobile phones.”
“Portals, games, mobile phones... Hold on... Ultimately, you’re thinking of dominating an IT-related platform, aren’t you? Wireless internet at its current annoyingly slow level isn’t something a large corporation would bother with... For the pie to become large enough that a major corporation considers it future food, do you also think that in the future, mobile phones will develop to the same level as today’s computers? So all IT services currently running on PCs will move to phones? Considering the speed of technological advancement, ten years should be more than enough?”
As I quietly watched the professor radiating an aura of ‘This is what a genius is,’ I couldn’t help but think that if the professor had remained at Saseong and directed the Saseong Group’s strategy, Saseong’s Space Phone era might have come even faster than Apple’s iPhone era. To reach the same conclusion with merely personal insight that a regressor learned from seeing the future.......
“Yes, that’s right. It may still be a distant story, but it’s a vision for now. If my predictions hold true, I will be able to dominate people’s entire lives with just a few servers.”
Precisely, it would require not a few, but tens of thousands, hundreds of thousands of servers.
Professor Kim Minjae still watched me with an interested expression, arms crossed, urging me for the rest of my answer.
“The second is Mainix.”
“Oh! Mainix! With its sheer size, it won’t be easy? The direction is good. If you have enough ammunition, acquiring it would be nice. The enormous deficits up until now have been borne entirely by the creditor groups, haven’t they? Tsk! With the creditor groups’ money, you’ve done all the hard restructuring, and now you just need to dress it up and carry it off in a palanquin. They say the bear does the trick, but the shopkeeper pockets the money... Of course, this is after the financial crisis you mentioned earlier. However, with a company of Mainix’s size, you can’t acquire it simply by having money. You are still young so you may not know, but there are complicated and messy adult circumstances. What power do the creditor groups have? Everyone is just watching the higher-ups’ moods. That’s politics for you. Hmm... When the time comes, perhaps I might be of help.”
Wow! Did he just say he’ll help when I acquire it later? Mainix’s creditor groups ultimately have to watch the government and political circle’s moods. I had planned to slowly build connections in political circles, but a helping hand came from an unexpected place. I don’t know the extent of the professor’s connections, but he must have said that because he has something to back it up. I’ve received an unexpectedly huge gift.
“The third is secondary batteries.”
“Secondary batteries? You probably don’t mean a simple rechargeable battery business... Is this a very long-term business?”
“Yes, I’m looking at it long-term. More than ten years.”
“So you’re expecting the electric vehicle market to grow? This is something even I cannot predict. Ultimately, this is an issue where you must consider not only oil price trends but also each country’s regulations on environmental pollution. It’s different from simply looking at technology trends and people’s behavioral tendencies. If oil prices surge, rapid charging technology reaches a mature stage, and countries’ determination to crack down on environmental pollution aligns, then the electric vehicle market might bloom. There’s no need to rush.”
“Yes, I’ll keep that in mind. I’m just thinking of it as one of our future sources of food; I have no intention of doing anything immediately. The last is bio.”
At that, Professor Kim Minjae tilted his head for the first time.
“Bio? Are you going to acquire a pharmaceutical company? Or new drug development? One is low risk but low return, so it wouldn’t be very interesting; new drugs are too high risk, high return, aren’t they? There’s no history of successful new drug development in Korea yet. Ah, there must be something new? I can’t think of it, so I’m getting a bit worked up, hahaha. Don’t tell me for a moment.”
With those words, Professor Kim Minjae fell deep into thought.
His competitive spirit seems quite strong too.......
Suddenly, Professor Kim Minjae clapped and shouted.
“Biosimilars! This is it, right? Moderate risk, moderate return!”
“Yes, I’m thinking of biosimilars. If we later build a comprehensive bio CMO as well, I think it will become an enormous cash cow.”
Now, what evaluation will Professor Kim Minjae give my vision? Though these are all businesses that succeeded in the future.......
Professor Kim Minjae rose from his seat, searched for something on his desk, then smiled and handed it to me.
“Hankuk Jeonseon’s future seems bright indeed. Should I buy stock in advance? This is my evaluation.”
Seeing what Professor Kim Minjae had handed me, I couldn’t help but be surprised.