1. Rajeev Mantri points to this essay by Sam Long about financialisation of the American elites, or a business elite dominated by financiers.
This is interesting about HBS graduates,
In the 1960s, just 6 percent of the school’s graduates pursued careers in finance; the sector itself generated only 3 percent of the country’s GDP... From 2014 to 2018, over 30 percent of graduates opted for jobs in finance... Another 24 percent chose management consulting, whose rise parallels corporate America’s subservience to shareholder primacy and its emphasis on financial initiatives like cost cutting and merger diligence. This trend is not unique to Harvard, as data from Stanford and Wharton show identical trends... over the last five years, 61 percent of U.S.-bound HBS graduates have landed in three cities — Boston,New York, and San Francisco. These metropolitan areas certainly have dynamic economies, but they contain only 6 percent of America’s population. This clustering in a handful of cities has created “SuperZips” and a new American segregation based on economic class.
The essay highlights the story of billionaire philanthropist Seth Klarman and his hedge fund Baupost and its vulture-like investments in distressed debt. The dissonance is nicely summarised,
Loudly criticize political dysfunction, but make no effort to explore its structural causes or remedies. Decry political inertia on climate change, but keep your powder dry because it will present excellent investment opportunities. Say the easy things about prioritizing your employees, but never forget that your shareholders come first. Speak of investing as an activity that requires a long-term view, but never miss an opportunity for short-term arbitrage. Stand up for democratic norms, unless, of course, electoral outcomes threaten your returns. When that happens, patiently explain how the market works, and if there is still conflict, use your network, education, and checkbook to cut to the front of the line.
2. Nice old FT primer on factor investing among hedge funds. Factors - value, momentum, quality, volatility, size, and carry - are ingredients which drive asset prices at any point in time.
But rather than scour markets and oceans of data for fleeting signals, factors are the big, persistent market drivers that in theory exploit timeless human foibles, such as our tendency to favour glamorous stocks over solid ones. Financial academics argue that a lot of what asset managers do is take advantage of these well-known patterns, anomalies and inefficiencies.
3. Fascinating analysis of President Trump's 11000 plus tweets since taking office. Twitter has become the go-to place for Presidential announcements.
Over time, Mr. Trump has turned Twitter into a means of presidential communication as vital as a statement from the White House press secretary or an Oval Office address. The press secretary has not held a daily on-camera press briefing — a decades-long ritual of presidential messaging — since March. Instead, Mr. Trump’s Twitter activity drives the day.
4. An FT article on the struggles of hedge fund Blue Mountain Capital writes,
Three former senior BlueMountain employees said the intense pressure on portfolio managers to deploy capital as quickly as possible contributed to the decision to make a bet on PG&E. “It was symptomatic of having to take big shots to make things work, as opposed to running on the merits of an idea,” said one of three portfolio managers... said one former portfolio manager who worked there after the London whale trades, “The firm became very large and they were trying to chase whatever the hot hedge fund thing was.”
5. Mobis Philipose hits the nail on its head in analysing the troubles facing the Indian telecoms market,
What’s really needed is a holistic policy approach that is not only pro-consumer, but also encourages sustainable growth for the industry. “Telecom consumers have had it really great, with progressively declining tariffs over the past many years. But this also means that producers have had it really bad," says a former official of Telecom Regulatory Authority of India (Trai) who asked not to be identified. Clearly, the elephant in the room is the cut-throat pricing in the industry... "The heart of the matter is that current tariffs are way below optimal levels, and the government should consider regulations on pricing if it is really interested in a three-player market," says an analyst at a domestic institutional brokerage.
Indian telecoms industry represents the curious case of shrinking output even as the market itself expands,
In the past three years, since Reliance Jio launched services, consumers have had it so good that the size of the industry has shrunk by a third. Three years ago, consumer-level spends on mobile services stood at about ₹1.8 trillion, which has now fallen to around ₹1.2 trillion, numbers collated by Kotak Institutional Equities show.
The three-way market in India is under threat on the back of a Supreme Court ruling in favour of the government on payment of license fees at the rate of 8% of the Adjusted Gross Revenue (AGR) as well as penalties and interest on past dues. In case of Vodafone, the total dues would be double its cash balance, thereby putting the company at risk of being taken to the bankruptcy court.
6. Martin Wolf reviews Thomas Philippon's new book, which upends the conventional wisdom on US market being competitive. This summary,
“First, US markets have become less competitive: concentration is high in many industries, leaders are entrenched, and their profit rates are excessive. Second, this lack of competition has hurt US consumers and workers: it has led to higher prices, lower investment and lower productivity growth. Third, and contrary to common wisdom, the main explanation is political, not technological: I have traced the decrease in competition to increasing barriers to entry and weak antitrust enforcement, sustained by heavy lobbying and campaign contributions.”
Reflecting lack of competition, the post-tax profit share of US companies has doubled.
This about the lack of competitive pressures in the financial markets is striking,
On finance, the startling finding is that the cost of intermediation — how much bankers and brokers charge for taking in savings and transferring them to end users — has remained around two percentage points for a century. All those computers have made no difference. This then is a rent-extraction machine.
7. Fascinating article about Athletic Bilbao, the Spanish La Liga football club, which is unique because of this,
For more than a century, only those born or raised in the Basque Country, made up of four provinces in north-east Spain and three in south-west France, are eligible to play for Athletic. It is the only side in top-level European football to restrict itself to local players.
And it has not done badly at all.
8. Gillian Tett points to a new paper from BIS which appears to indicate that fears of an imminent recession are overdone,
The authors start from the belief that the nature of business cycles has subtly shifted recently. In decades past, downturns were often sparked by rising inflation. But today, consumer price inflation seems increasingly benign, if not downright boring. They write that “there has been a shift from inflation-induced to financial cycle-induced recessions”. For this argument, the BIS staff define financial cycle as “the self-reinforcing interactions between perceptions of value and risk, risk-taking, and financing constraints”. The 2008 financial crisis is a case in point: a boom-to-bust financial cycle sparked a recession... financial cycle metrics (such as the debt service ratio, property prices, credit spreads and so on) are better for predicting recessions than the yield curve. Why? One probable reason is that quantitative easing has distorted rates. BIS economists think that in non-American markets, credit quality issues are muddying the issue too. But another — more basic — issue is inflation: in a world of benign consumer price trends, long-term inflation and rate expectations no longer act as the key guide to market recession expectations.
The takeaways,
There are three reasons why this argument matters now. First, if the BIS paper is correct to argue that business cycles are now being driven by financial flows, not inflation, we need to question why central bank mandates are so focused on consumer price inflation targets. Second, this analysis also suggests that it is crucial for central banks and finance ministries to integrate their analysis of the real economy with studies of financial flows. This still seems surprisingly hard for many institutions to do, since the people paid to look in the financial weeds are different from those tracking the macroeconomy or setting monetary policy... Third, the BIS argument might also imply that Wall Street’s current anxiety about recession might be overdone... they do not think that the US financial cycle signals a looming recession of the type we saw a decade ago (excluding the impact of a sudden external shock).
9. Finally, it appears that Arcelor Mittal will be able to take control over Essar Steel after the Supreme Court set aside the order of the appellate tribunal that had ordered equal rights for secured and unsecured creditors over the sale proceeds.
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