Weekend reading links

1. If banks had long-term assets and short-term liabilities, then it would be classified an asset-liability mismatch and be a matter of big concern. But WeWork, "which combines long-term leases on office buildings with shorter-term contracts with clients" is the next superstar start-up waiting for its IPO.

The $47 billion valuation company, with 485 locations, is the largest tenant in New York and one of the largest in London. But its valuation rests on the massive backstop from Masayoshi Son's Softbank. Sample these questionable foundations, 

Since 2016 it has racked up a deficit of more than $3bn; last year it accumulated losses to the tune of $220,000 every hour of every day. Those narrowed slightly in the first quarter of 2019, to just under $219,000 an hour in the 12 months to March.

Like some of the other totemic unicorn start-ups, WeWork too suffers from the unpredictable founder syndrome and there are deep questions about its management capacity.

2. Big tech's 2018 profits,

3. The investment cycle recovery in India is still some time away. Livemint reports from latest CMIE data showing investment in new projects having touched a 15-year low in the Q2 2019. The new project announcement in the second quarter was 81% lower than what was announced in the first quarter, and 87% lower than the same period a year ago.

Further, the amount of stalled projects reached its highest ever peak of Rs 13 trillion.

4. A reappraisal of the dominant view that Chinese companies are rapacious, hire mostly Chinese workers, and so on. FT writes,

After four years of intensive fieldwork... led by the School of Oriental and African Studies, researchers compared Chinese and non-Chinese manufacturing and construction companies in Angola and Ethiopia, two of the top African destinations for Chinese direct investment. Fieldworkers studied 76 companies, 31 of them Chinese. Crucially, they also interviewed a total of 1,500 Angolan and Ethiopian workers. To state the conclusion first, the study finds that negative stories about Chinese companies are mostly untrue. Broadly, it shows they employ just as many local workers as non-Chinese companies, pay them more or less the same and train them to similar standards, though usually less formally.

5. The fifteen year sovereign bond yields of Switzerland and Germany continue at negative territory.

Since the beginning of the year, sovereign bond yields across have been declining, pointing to weak economic expectations.

Reflecting the depressed yields, Austria is about to issue 100 year debt at 1.2%, down from its 2017 100 year debt which was issued at 2.1%. Apart from weakening economic prospects and structural factors keeping inflation down, the search for yields may also have its basis in the scarcity for safe assets,

The yield on the 10-year bund last week hit minus-0.32%, its lowest ever. A year ago, it was 0.5%... There’s definitely a supply-demand crunch... You don’t have many opportunities of what to buy if you want to buy something safe... There are about €1.5 trillion ($1.7 trillion) of German government debt securities, compared with about $16 trillion from the U.S. federal government. Germany’s frugal government, which runs a budget surplus, has shrunk its debt to 59% of the size of the gross domestic product from 80% at the start of the decade. Over the past few years, the European Central Bank has gobbled up a huge chunk of bunds as part of its quantitative-easing program, reducing the supply available to investors... 

Portugal, which came close to going broke in the euro crisis of 2011, is a sudden beneficiary: Ten-year bond yields, which surpassed 18% at the height of the sovereign crisis, hit 0.51% last week, their lowest ever, down by nearly half since mid-May. “In a world where core markets provide no return, Portugal is the safest, riskiest bet,” said Jan Von Gerich, chief analyst at Finland-based Nordea Bank.

6. One interesting feature from the Indian Budget is the announcement that the country will break new ground and explore foreign currency denominated sovereign debt, something which India alone among major economies has refused to do. And there are good reasons for caution. Ajit Ranade captures some of them.

I am inclined to believe that the inherently risk-averse FinMin (including the RBI) establishment will hesitate on its implementation. The real push in that case will have to come from the political side.

7. Finally, a good summary of India's drought situation.