1. Janan Ganesh makes the point brilliantly about today's television news,
The Federal Communications Commission scrapped the “fairness doctrine”, freeing US broadcasters to editorialise. Throw in some cable upstarts and you have the bagginess, the histrionics, of today’s TV, where all news is BREAKING, and each anchor a monologue merchant. It is hard to convince the young how terse and inscrutable these desk-bound enigmas once were. The debasement of TV has done far more than social media to pollute civic life... What I have in mind is a subtler loss of rigour, a widening of what counts as “news”, even among those with no agenda. Reporting can still be heroically brave. But what used to be a bone-dry recitation of the facts is too often padded out with interpretation, contention and the quest for a story’s “meaning” (leave that nonsense to columnists). Were the phrase not taken by another medium, we might call it Impressionism.
2. FT on the rise of the private debt market, which rose from $575 bn at end of 206 to $887 bn by June 2020.
India's preferred partner on security issues is the United States. The two cooperate to preserve maritime security and counter Chinese influence in South and Southeast Asia and other regions of mutual concern. India maintains the capacity to counter border provocations by China. India remains preeminent in South Asia and takes the leading role in maintaining Indian Ocean security, increases engagement with Southeast Asia, and expands its economic, defence and diplomatic cooperation with other US allies and partners in the region.
4. Bloomberg asks three Wall Street executives about the biggest risks they foresee to the world economy and society. Martin Chavez talks about the increasing digitisation and interconnectedness of the global financial flows and its risks. Eileen Murray talks about the risk of mass unemployment due to automation and its consequences on the society and polity. David Siegel talks about how modern technologies could end up devaluing human beings.
5. Very informative summary on India's banking sector over the last two decades by Tamal Bandopadhyay. Interesting that the banking sector average deposit and credit CAGR declined in the two decades from 17.8% to 11.7% and from 22% to 11.2% respectively.
6. The lenders to DHFL will take away only 33% of the total debt worth Rs 90000 Cr from the proposal by the Piramal Group which has been approved by the Committee of Creditors. The shareholders will be wiped out.
7. The Financial Express reports that 18 GW of solar projects with aggregate investments of nearly Rs 1 trillion may be facing problems as discoms are reluctant to sign PPAs. The Solar Energy Corporation of India (SECI) is the aggregator who signs PPAs and then markets power supply agreements (PSAs) with discoms. The problem is the rapidly declining tariffs in succeeding auctions, which forces discoms into waiting out for better prices or even reneging on their existing PPAs.
It may be time for SECI to abandon its current build it and they'll come approach and adopt a market-building approach by firming up a pipeline of PSAs and then signing PPAs. It is also very important that supply from all PPAs during some period, say, a year, are bundled together and marketed on a flat rate to the discoms.
8. After buying sporting teams/clubs, private equity is now eying stakes in governing bodies that run competitions. FT reports that Silver Lake is taking a 15% stake in a new entity that would hold NZ Rugby's (the governing body which runs the rugby union team and manages competitions) $2 bn broadcasting, sponsorship, and ticketing rights. FT writes,
Silver Lake acquired a $500m stake in the parent company of English Premier League football club Manchester City in 2019 and is an investor in Ultimate Fighting Championship, the mixed martial arts competition. But the pioneer in private equity investing in sporting tournaments has been CVC Capital Partners, a Luxembourg-based buyout group that previously owned Formula One and MotoGP and is in talks alongside fellow buyout group Advent International over a €1.6bn investment in Serie A, Italy’s top football league. CVC has triggered the recent scrum for rugby deals. It has spent the past two years hoovering up stakes in club contests such as the English Premiership and Pro14, and is in the final stages of acquiring a £300m share in the Six Nations, Europe’s leading national team tournament.
9. Business Standard has an article on the deal making and global transportation of the Covid 19 vaccine.
10. Jonathan Ford has a good article on the consequences of the debt binge by local governments in UK. As rates stayed low and government transfers declined, local governments sought to augment their incomes by taking loans to invest in real estate and other commercial ventures.
Local authorities spent £6.6bn on real estate between 2016-19, according to the UK’s National Audit Office — 14 times more than in the previous three-year period. But they also bet on other commercial enterprises, from renewable energy producers to start-up banks. The idea was to bolster authorities’ incomes with earnings from real investments, helping to sustain austerity-hit public services such as libraries and schools. A sort of pro-social carry trade. The risks councils are running are eye-watering. Take Spelthorne, a small authority near London, with a core annual budget of around £11m. It borrowed more than £1bn to build a property portfolio mainly outside its own locality. Or Thurrock in Essex, which has similarly borrowed £1bn (almost five times its £220m budget), much of it then invested in unnamed renewable energy schemes.
11. The Economist writes about the rising importance of microchips and the geopolitical struggles around controlling its production and supply chain.
In the 20th century the world’s biggest economic choke-point involved oil being shipped through the Strait of Hormuz. Soon it will be silicon etched in a few technology parks in South Korea and Taiwan... A surge in demand and those novel kinds of computation have led to a golden age in chip design. Nvidia, which creates chips for gaming and artificial intelligence, is now America’s most valuable chip firm, worth over $320bn. The quest to create bespoke chips in order to eke out more performance—think less heat, or more speed or battery life... In the future a new open-source approach to designing chips, called risc-v, could lead to more innovation... Moore’s law, which holds that the cost of computer power will fall by half every 18 months to two years, is beginning to fail. Each generation of chips is technically harder to make than the last and, owing to the surging cost of building factories, the stakes have got bigger. The number of manufacturers at the industry’s cutting-edge has fallen from over 25 in 2000 to three. The most famous of that trio, Intel, is in trouble... It may retreat from making the most advanced chips, known as the three-nanometre generation, and outsource more production, like almost everyone else. That would leave two firms with the stomach for it: Samsung in South Korea and TSMC in Taiwan... An array of corporate A-listers from Apple and Amazon to Toyota and Tesla rely on this duo of chipmakers.The other big industry rupture is taking place in China... The American tech embargo... is starting to bite. In the last quarter of 2020 TSMC's sales to Chinese clients dropped by 72%. In response, China is shifting its state-capitalist machine into its highest gear in order to become self-sufficient in chips faster... A $100bn-plus subsidy kitty is being spent freely: last year over 50,000 firms registered that their business was related to chips—and thus eligible... The manufacturing duopoly could start to use their pricing power. Already a fifth of all chip manufacturing, and perhaps half of cutting-edge capacity, is in Taiwan, which China claims as its own territory and threatens to invade. The chip industry is poised for mutually assured disruption, in which America and China each have the ability to short-circuit the other’s economy... chip-users such as Apple should press TSMC and Samsung to diversify where factories are. America must urge Taiwan and South Korea to cut their soft subsidies for chip plants, so their firms have more incentive to build factories around the world.
12. Finally, a very good article on James Simmons who just stepped down as Chairman of Rennaissance Technologies, described as the world most successful hedge fund.
From 1988 through 2018, Renaissance’s flagship Medallion Fund had an average annual return of about 40% after fees, with almost no money-losing years; before fees, its returns were even more eye-popping. Although Medallion’s trading strategies do eventually get discovered by the market, forcing the company to find and exploit new inefficiencies, their profitability tends to last for decades rather than mere months. That steady outperformance has earned Simons an estimated fortune of $22.9 billion, according to the Bloomberg Billionaires Index.
The article points to the limitations of the Renaissance model,
The Medallion Fund’s returns don’t compound very much. Typically, we think of financial returns as compounding exponentially over time. If you invest $1,000 in the S&P 500 Index and it grows at a 10% annualized rate over 40 years, you’ll end up with about $45,000. But Medallion’s 40% returns can’t work like that. The fund currently manages about $10 billion. At a 40% annual rate of return over 20 years, $10 billion would turn into $8.4 trillion — more than twice the amount currently managed by all the hedge funds on the planet.Obviously this doesn’t happen. The Medallion Fund makes regular profit distributions so that the total amount of money in the fund stays at just a few billion dollars. Investors aren’t allowed to keep all their money in Medallion year after year until it goes to the moon; instead, they can only keep a portion there, earning money steadily but not exponentially. Undoubtedly, the reason Medallion stays relatively small is that its strategies don’t scale up. The market inefficiencies that allow brilliant mathematicians to make steady money aren’t infinite; bet enough money on these strategies, and they stop making huge profits, as prices move into a more efficient alignment. This is why Renaissance doesn’t let investors keep all their money in Medallion, and no longer solicits money from new outside investors — more money would drive down returns. Renaissance does operate a number of other funds, which use different strategies that scale up better, and are available to outside investors. But these more capacious funds necessarily lack Medallion’s special sauce. During the topsy-turvy year of 2020, as Covid-19 upended financial markets, Medallion reportedly racked up a 76% return. But three of Renaissance’s largest funds lost big money in 2020.
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