Sunday, September 25, 2016

Weekend reading links

1. Elizabeth Warren's tour de force examination of Wells Fargo Chairman John Stumpf's accountability in the cross-selling scandal, which created more than two million bank and credit accounts without customers consent, is a must watch! It is a great example of well-reasoned and well-researched polemic.
Unfortunately, Ms Warren's scathing attack and having to squirm through it may be the only punishment that Stumpf may have to endure. 

2. Zero Hedge points to this incisive presentation by Stanley Druckenmiller, where he charts the excesses that have been building up the US economy. This representation of the skewed nature of the corporate resource allocation during the ongoing business cycle says it all - $2 trillions spent on buybacks and acquisitions in US in 2015 against $1.8 trillion on R&D and office equipment!
The irony is the equity market boom despite all the adverse headwinds,
The corporate sector today is stuck in a vicious cycle of earnings management, questionable allocation of capital, low productivity, declining margins, and growing indebtedness. And we are paying 18X for the asset class.
3. Mohamed El Erian points to this graphic about IMF projections since the global financial crisis which captures the growing pall of gloom surrounding the world economy.
4. George Perkovich has a summary of the options available for India following Pakistan's latest foray,
India could... consider limited air and special forces strikes on known terrorist facilities and Pakistani military installations in the part of Kashmir that Pakistan controls. The campaign would surely produce television images of destruction that could satisfy (temporarily) the Indian desire for revenge. But a restrained use of force could signal lack of Indian resolve, thereby emboldening the Pakistani military and providing it with little incentive to crack down on anti-Indian groups. More daringly, Modi could send planes through Pakistani air defenses to bomb militant groups’ facilities in the heartland of Punjab—assuming that India had credible evidence to link Sunday’s attack to those groups. But such an action would likely prompt Pakistan to mount counterattacks on India, again risking escalation whose potential destructiveness would be out of proportion to the injury India has suffered. 
India could, and probably will, increase the intensity of covert operations to foment disorder in Pakistan, particularly in the restive province of Balochistan. Such activities would certainly harm the interests of the Pakistani military. But they would also bolster Pakistan’s effort to portray India as morally and politically equivalent to Pakistan in the use of terrorism, a label India has long sought to avoid. India will also justifiably seek to mobilize the world against Pakistan as a state-sponsor of terrorism, which is increasingly difficult to deny. But the long history of Kashmiri resistance to Indian rule and the fact that the target of this weekend’s attack was a military installation—not civilians—complicates the Indian narrative.
The last one is clearly the most prudent option, though it would require escalating the rhetoric against Pakistan at international forums to higher level. The flip side to this would be that India would be spending its scarce diplomatic capital combating Pakistan, at the cost of other more strategic issues. Exactly what China would want - leave India's diplomatic energies expended fighting Pakistan. 

One way to manage the challenge is to respond asymmetrically - leave the junior-most Indian diplomat stationed with the UN Mission respond aggressively to the Pakistani Prime Minister, no less. This was brilliant. Unfortunately, there are limits to such opportunities. 

Staying on the same issue, the mainstream western narrative of "Kashimiri resistance" to "repression by Indian security forces" that the likes of Perkovich peddle is as much a trivialisation of the debate as the populist incendiary rhetoric in mainstream Indian media. After all, Kashmir since independence has always been ruled by Kashmiris. 

5. Andy Mukherjee points to the maladies of corporate governance in India and how the equity markets have become the quiet platform for its most egregious excesses. The case in point is the merger of Max Life Insurance and HDFC Standard Life to create India's second largest insurer, albeit at just 6.75% of market share. The fine print of the merger involved a $127 million payout from the merged entity as non-compete fee to Mr Analjit Singh, the promoter of Max Life Insurance. This is despite Mr Singh continuing to own a 6.5% stake in the merged entity. 
Who cares if Singh started India's 25th life insurance company? As many as 14 of the existing two dozen players control less than 1 percent of the market each, while Life Insurance Corp. of India -- the former state-owned monopoly -- still collects 70 percent of all premiums. With a 6.75 percent share, the bulked-up HDFC Standard Life would have nothing to worry about if Singh did decide to start a rival. He would be crazy to want to. Besides, it isn't just Singh and his family who are being compensated. Even his private investment vehicles, such as Mohair Investment & Trading, will collect a part of the $127 million, leaving little doubt about the true nature of this side payment. Had this been a regular takeover of the business by HDFC Standard Life, the stock-market regulator would have said no to the sham noncompete. But since the deal has been designed as a merger, it's up to the other shareholders to try to block the payout.
6. Fantastic graphical presentation of the spectacular improvements in global health indicators over the past two centuries. This one on the improvements in life expectancy is truly impressive.
7. Finally, one more from outstanding Twitter handle of Ian Bremmer, this time an illustration which captures the staggering complexity of power dynamics in the Middle East. Maybe Israel should relax!

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