Sunday, January 6, 2019

Weekend reading links

1. It appears that I was premature about Jerome Powell's resolve to decouple Wall Street from  monetary policy decision making and stay the course with the current Fed trajectory. In a significant U-turn, most likely motivated by the market's downbeat response to the Fed's failure to indicate a pause in its December meeting and his own statement that the Fed's balance sheet shrinking was on autopilot, he said the Fed would take a "patient" approach to monetary tightening. He also said that he "wouldn't hesitate" to change balance sheet policy if needed. This reversal also vindicates President Trump who has railed against the Fed's perceived hawkishness.

The problem with monetary policy has been that it has been following Wall Street instead of responding to Main Street signals. Accordingly, despite the robust jobs report and tightening labour market conditions, and the near unanimity about the unsustainability of the equity market boom (second longest post-war boom), the Fed has again preferred to follow the stock markets and keep conditions loose to allow the bubble to remain inflated.

Powell has chickened off, like Janet Yellen in 2016 when faced with Wall Street's tumbles, from pursuing a monetary policy which balances financial market stability with economic growth.

2. Staying on with central banking, this blog has held the view that central bank communications was becoming more distortionary with increasing transparency. Now former Fed Vice Chairman, Donald Kohn has sought greater clarity with Fed communications,
Mr. Kohn believes that some of the ways the Fed now communicates to markets—by way of its “dot plot” of interest-rate projections, as well as its other forecasts—have come to be viewed as more certain than they are. He believes the Fed, both in the presentation of these views and in the remarks of officials, has reinforced the certainty of its outlook, even when officials already know much about the future is unknowable. The Fed’s quarterly forecasts should be aligned with “the rhetoric of uncertainty and data dependency and the true state of economic knowledge,” Mr. Kohn said. The Fed should stop summarizing key projections with medians, and portray the amount of uncertainty the Fed has around its various forecasts, he said. Mr. Kohn also believes the public profiles of the regional Fed officials could change. He noted the Washington-based governors are less-frequent speakers compared with the leaders of the 12 regional banks. And while the governors tend to speak about policy issues in terms of the Fed’s consensus outlook, regional bank presidents spend more time touting their own views and engaging in specifics about interest-rate changes they favor.
Some form of asymmetric ignorance is useful to keep markets honest.

3. More skeletons from the McKinsey cupboard. This time from its role in advising Boeing in 2006 to procure titanium from Andhra Pradesh in India through a partnership with an Ukrainian oligarch, Dmitry V Firtash, by paying $18.5 m in bribes to politicians and officials.
Boeing asked McKinsey to evaluate a proposal, potentially worth $500 million annually, to mine titanium in India through a foreign partnership financed by an influential Ukrainian oligarch. McKinsey says it advised Boeing of the risks of working with the oligarch and recommended “character due diligence.” Attached to its evaluation was a single PowerPoint slide in which McKinsey described what it said was the potential partner’s strategy for winning mining permits. It included bribing Indian officials.
And this characterisation of bribery is delightful,
The slide stated that Mr. Firtash’s group, Bothli Trade, “has identified key Indian officials and has crafted a strategy to gain their influences.”... The partner’s plan, McKinsey noted, was to “respect traditional bureaucratic process including use of bribes.” McKinsey also wrote that the partner had identified eight “key Indian officials” — named in the PowerPoint slide — whose influence was needed for the deal to go through. Nowhere in the slide did McKinsey advise that such a scheme would be illegal or unwise
Firtash and an Indian member of parliament from Andhra Pradesh were subsequently convicted in the US by a federal grand jury for bribery.

4. Times has another exposure, this time of the corruption and conflicts of interest within Memorial Sloan Kettering Cancel Centre. Its Chief Medical Officer, one of the most reputed breast cancer specialists, was accused of having received millions by drug and health care companies and having failed to disclose those ties more than 100 times in prestigious medical journals like Lancet and NEJM, and others had made lucrative side deals with companies to earn handsome profits.
The decision to license images of the patients’ tissue slides to a for-profit company also highlights the broader debate over the use of personal medical data, ranging from genetic information to, in this case, images of a person’s cells, for research and commercial purposes... Hospital pathologists have strongly objected to the Paige.AI deal, saying it is unfair that the founders received equity stakes in a company that relies on the pathologists’ expertise and work amassed over 60 years. They also questioned the use of patients’ data — even if it is anonymous — without their knowledge in a profit-driven venture. In addition, experts in nonprofit law and corporate governance have questioned whether Memorial Sloan Kettering, one of the nation’s leading cancer centers, complied with federal and state law governing nonprofits when it set up the deal. The experts pointed out that charitable institutions like Memorial Sloan Kettering must show that they didn’t provide assets to insiders for less than the fair market value.
Times reports of similar concerns of conflicts of interest at some of the most famous non-profit cancer research institutes in the US.
Ethicists and health experts say having leaders and researchers at nonprofit hospitals sit on corporate boards is especially problematic. When they serve on the board of a publicly traded company, they have a legal duty to the corporation and its shareholders, which can clash with their duty to their patients and primary employers. Those who sit on boards are often paid hundreds of thousands of dollars a year... A report in November in BioPharma Dive found that 12 of the 19 largest pharmaceutical and biotech companies had at least one board member who also worked at a nonprofit health care institution. A 2014 study in JAMA found that about 40 percent of the largest publicly traded drug companies had a leader of an academic medical center on their boards. 
Robert Benezra, who heads a lab at Memorial Sloan Kettering that focuses on how tumors grow, is the president, chief executive officer and a board member of AngioGenex, a tiny, publicly traded biotech that is developing drugs to treat cancer based on the discoveries made in his lab. Though he takes no salary from AngioGenex, Dr. Benezra owns nearly nine percent of the company he helped found through stock or options, setting him up for a lucrative payday if the company is acquired or its drugs come to market.
5. Closer home in India, Uday Kotak, one of the self-cultivated champions of corporate India throws aside all corporate governance norms to delay, obfuscate, and litigate on compliance with RBI's regulatory requirements so as to retain shareholding control over his holding companies even at the risk of exposing the Kotak Mahindra Bank depositors to the entire group's risks.
It is very apparent that Uday Kotak as chairman of a committee on corporate governance argues for greater than the minimum transparency but Uday Kotak as promoter-CEO of KMB practices the bare minimum.
And this is telling testament to India's financial media,
Strangely, for a bank with a market cap of Rs 2,36,386 crore which adopts the reckless action of filing a strongly worded writ petition against the banking regulator, the media appears uninterested to disclose the contents of the writ... The writ contained correspondence which is rarely seen by the public, and the business media should have actively competed to disclose and analyse its contents. But in doing so, the media would have had to criticise the conduct of one their much-sought-after CEOs. CNBCTV18 conducted a panel discussion on the issue, but such is Uday Kotak’s stature that not a single panelist was willing to publicly reprimand him and the bank; instead they gave excuses justifying the bank’s conduct. Hence, apart from merely reporting that the bank had filed a writ and that the Bombay High Court had rejected the stay, the business media have been content to sit it out as mere spectators.
6. Link with numerous interesting factoids from Times. Sample this
White Americans earn about 77 percent of total income in the United States.
And this,
The sweet potato is one of the most valuable crops in the world, providing more nutrients per farmed acre than any other staple.
7. Prevailing telephone and other data anonymisation techniques are reversible and allow for re-identification.

8. Amazon improvises with its business model and logistics chain to penetrate rural Indian market.
The Seattle giant has modified its app to work with inexpensive smartphones and patchy cellular networks. It has added hundreds of thousands of Indian language descriptions of products and videos for those who can’t read, and it has opened physical Amazon stores to walk people through the process of ordering online. It brought on tens of thousands of local distributors to deliver packages, often by bicycle down dirt roads, where it will accept cash or digital payment on delivery...
Amazon is enlisting the small stores as package depots along its distribution network. Other small retailers have become Amazon learning centers for new shoppers. Arjun, 29, runs a tiny Amazon store in Maddur, in the southern state of Karnataka, where people can get help learning how to search and order. Customers walk in with screenshots of something their favorite Bollywood stars wore, and Mr. Arjun, who uses one name, gets the search started. Seated at linked computer screens, the customers, most of whom aren’t comfortable with English or typing, can follow along as he pulls up options. He helps them pick the right size using a chart on the wall and a foot measuring device. Later, customers come back to pick up their orders and pay cash at the store. There is even a changing room so they can try on clothes before paying...
Amazon used data showing the location of people searching its site to figure out which parts of India need more delivery capability. Then it reached out to small businesses for help. Nogenchandra Das, 31... signed up for the “I Have Space” program, along with more than 20,000 mom-and-pop stores, offering to take packages and deliver in neighborhoods for a commission. Amazon gave him a uniform, a bag and a week of training. A motorcycle deliveryman brings about 25 packages a day from a small distribution center nearby. Customers can come pick them up at his shop, or he will deliver them on his own motorcycle. 
9. For the December quarter, new investments in India have plunged to their lowest since mid 2004, and with stalled projects at record levels. Indian companies announced new projects worth Rs 1 trillion, 53% lower than previous quarter and 55% lower than a year-ago. For new private sector projects, it fell 62% and 64% respectively, and 37% and 41% for public sector.
As regards stalled projects, the CMIE data shows its value increased marginally, with private sector stalling rate hovering at near record high of 24% and overall stalling rate is slightly lower at 11%.
Power sector formed 35.4% of stalled projects. As to the reasons for stalling, the biggest were lack of funds, problems with fuel and raw materials, and unfavourable market conditions. 

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