1. Even as other developed countries grapple with return of inflation, Japan continues to struggle,
Japan’s inability to lift inflation is “one of the biggest unsolved challenges in the profession,” said Mark Gertler, a professor of economics at New York University who has studied the issue. One popular explanation for the country’s trouble is that consumers’ expectations of low prices have become so entrenched that it’s basically impossible for companies to raise prices. Economists also point to weakening demand caused by Japan’s aging population, as well as globalization, with cheap, plentiful labor effectively keeping costs low for consumers in developed countries.The picture once looked very different. In the mid-1970s, Japan had some of the highest inflation rates in the world, approaching 25 percent... But by the early 1990s, Japan began experiencing a different issue. An economic bubble, fueled by a soaring stock market and rampant property speculation, burst. Prices began to fall. Japan attacked the problem with innovative policies, including using negative interest rates to encourage spending and injecting money into the economy through large-scale asset purchases, a policy known as quantitative easing...
Japan found itself in a vicious circle, said Takatoshi Ito, a professor of international and public affairs at Columbia University, who served on Japan’s Council on Economic and Fiscal Policy. Consumers came to expect “stable prices and zero inflation,” he said, adding that as a result, “companies are afraid of raising prices, because that would attract attention, and consumers may revolt.” The sluggish economy made companies reluctant to raise wages, he said, “and because real wages didn’t go up, probably consumption didn’t go up, so there was no increase for demand for products and services.”
Kenneth Rogoff thinks inflation in the US is transient.
2. Fascinating story about Riad Salameh, the Governor of Lebanon's central bank since 1993, who has been accused of enriching himself and friends across Lebanese political spectrum by amassing an outsized fortune stashed away in Europe. This comes even as the economy is reeling with insolvent bank, hyperinflation, and a contraction of historic proportions, one which the World Bank has described as within the top three worst contractions in the last 150 years.
3. Green jobs, while being good for the planet, may not be so for workers.
Building an electricity plant powered by fossil fuels usually requires hundreds of electricians, pipe fitters, millwrights and boilermakers who typically earn more than $100,000 a year in wages and benefits when they are unionized. But on solar farms, workers are often nonunion construction laborers who earn an hourly wage in the upper teens with modest benefits — even as the projects are backed by some of the largest investment firms in the world... The effect of Mr. Biden’s plan, which would go further in displacing well-paid workers in fossil-fuel-related industries, could be similarly disappointing. In the energy industry, it takes far more people to operate a coal-powered electricity plant than it takes to operate a wind farm. Many solar farms often make do without a single worker on site...While some of the new green construction jobs, such as building new power lines, may pay well, many will pay less than traditional energy industry construction jobs. The construction of a new fossil fuel plant in Michigan employs hundreds of skilled tradespeople who typically make at least $60 an hour in wages and benefits, said Mike Barnwell, the head of the carpenters union in the state. By contrast, about two-thirds of the roughly 250 workers employed on a typical utility-scale solar project are lower-skilled, according to Anthony Prisco, the head of the renewable energy practice for the staffing firm Aerotek.
4. One distortion caused by the persistent low interest rates is the strength of private equity firms which currently sit on a $1.7 trillion dry powder. The pandemic induced corporate stress has also provided an attractive feedstock of buyout targets for PE. This FT report points to the rapid growth of private equity led businesses in UK, who are taking many businesses off public markets. Compared to 2008, the number of listed UK companies has fallen by 40%.
5. Meanwhile PE firms in the US have been leveraging up their companies and paying out dividends,
Private equity groups including Ares and Golden Gate Capital have raised more than $20bn in the US leveraged loan market through the companies they own to award themselves a bumper payday. Dividend deals in the loan market have reached a total of $21.7bn, according to data from LevFin Insights, a unit of rating agency Fitch Ratings. It marks a new quarterly high for data going back to 2016... Private equity groups have jumped on the demand, pulling money out of companies they own and loading them up with fresh debt before the brightening economic outlook fades.
See also this study by Josh Lerner et al on the adverse impact of PE buyouts on employment and prospects of public firms.
6. John Mauldin has a good summary of the mirage of foreigners owning shares of Chinese companies,
The Didi IPO was not a normal IPO, at least as we think of them in the West. US investors who bought these “shares” don’t actually own equity. They own pieces of a Caymans “variable interest entity,” (VIE) which has a contract with the parent company. This structure is necessary because under Chinese law foreigners can’t own Chinese shares directly... US-listed Chinese companies since at least Alibaba in 2014 have used the VIE structure. It’s one of those things that works great until it doesn’t... This arrangement... let Chinese enterprises rake in foreign capital while giving up no ownership and reserving the right to leave their own “investors” high and dry. This method may now be approaching its expiration date but it worked well for a long time. That’s how Xi and the Chinese Communist Party operate. They do things that lookcapitalist but really aren’t, lacing them with unnoticed poison pills for later use. It’s similar to their appropriation of US technology, trademarks, and other intellectual property. We are literally selling them the rope.
The perils of whimsical regulatory changes by the Chinese authorities are now increasing,
About $16bn was wiped from the value of three major Chinese education companies listed in New York trading on Friday after a leaked memo suggested that Beijing might ban academic tutors from making a profit. The document, dated July 19 and seen by the Financial Times, requires home-schooling or off-campus education companies to register for non-profit status and bars local authorities from approving any new agencies. If the measures are enacted, it would be a heavy blow for one of China’s fastest-growing industries: tutoring children outside of school and preparing teenagers for university entrance exams. Share prices in some of China’s largest education companies plunged on the news. TAL Education, Gaotu Techedu and New Oriental Education, which are listed in New York and previously had a combined market value of more than $26bn, all fell close to 60 per cent in the first hour of trading.
This follows the now infamous crackdown on the ride-hailing firm Didi Global,
On July 2, just two days after Goldman Sachs, J.P. Morgan and Morgan Stanley launched an initial public offering for the Chinese ride-hailing app Didi on the New York Stock Exchange, Chinese regulators cracked down on the company hard. Citing data privacy concerns, the Chinese government ordered the removal of Didi’s app from app stores, pending an opaque national security review process. As a result, the stock has lost 30 percent of its value since shortly after its IPO, when investors, most of them from the United States, put $4.4 billion into the company.
US investors love for Chinese stocks may well have ended.
7. Long read on the complex operational management of the National Load Dispatch Centre for the national electricity grid, the largest synchronous grid in the world.
8. Fascinating FT article about Inditex's supply and distribution chain automation.
Because of its fast supply chains — just three weeks between design approval and going on sale — Inditex can alter and add to its range in midseason, responding to consumer demand. It churns out 65,000 new designs a year, delivering the latest garments to its network of stores at least twice a week... “The essence of our strategy at Inditex is the same as ever: flexibility in our business model, the integration of logistics, manufacture and design; production close to hand; and a capacity to react from moment to moment,” says Pablo Isla, executive chair of Inditex.
This captures the essence of Inditex's success
Because of its fast supply chains — just three weeks between design approval and going on sale — Inditex can alter and add to its range in midseason, responding to consumer demand. It churns out 65,000 new designs a year, delivering the latest garments to its network of stores at least twice a week. The group says its approach is based on “pull” rather than “push”. Inditex does not spend significantly on advertising, but 20m people view its products every day online on its apps or social media. It prefers to buy prime locations for its outlets. Prime real estate — Ortega’s big bet in investing his personal fortune — remains at the heart of what Inditex does. “The essence of our strategy at Inditex is the same as ever: flexibility in our business model, the integration of logistics, manufacture and design; production close to hand; and a capacity to react from moment to moment,” says Isla.
9. Reliance Jio has 426 million users and over 100 million smart JioPhones. And the ultimate objective of the Jio system is to become something like the WeChat of India, the master aggregator platform of choice for any service. However, despite this dominance, its performance has been remarkably deficient,
Only four Jio apps are in the top 100 of Google’s Play Store, according to App Annie, including the music streaming app JioSaavn and MyJio, which bundles together several services like phone top-ups or quizzes. Jio’s chat and shopping apps trail behind rivals... it remains behind on metrics such as app downloads, revenue and basket size, according to brokerage Motilal Oswal. A partnership with Facebook to offer the service through WhatsApp is still in trials more than a year after it was announced.
10. Scott Galloway has a searing takedown of the vanity space flights of Jeff Bezos and Richard Branson,
But if Mr. Bezos was genuine about doing something more than crashing a canary yellow T-top Corvette into a Bosley for Men franchise, he could raise the minimum wage at his firm to $20/hour... After his flight, Bezos said, “I want to thank every Amazon employee, and every Amazon customer, because you guys paid for all this.” He’s right. We did pay for it. Eighty-two percent of American households are Prime members, and the company has 1,298,000 employees. We also paid for the Apollo program, of course, only there’s a difference. To put Neil Armstrong on the moon, we paid taxes, and elected representatives to decide how to spend them.
11. In the context of social loafing while working from home, Sandeep Goyal points to Ringelmann experiment,
One of the first experiments in social loafing was conducted by French agricultural engineer, Max Ringelmann, in 1913 when he studied the pulling power of horses. He concluded that the power of two animals pulling a coach did not equal twice the power of a single horse. It was, in fact, considerably less. Surprised by the result, Ringelmann extended his research to humans. He had several men pull a rope and measured the force applied by each individual. On an average, if two people were pulling together, each invested just 93 per cent of his individual strength; when three pulled together, it was 85 per cent; and with eight people pulling, just 49 per cent of individual strength was exerted by each team member. Ringelmann’s findings more than a century ago created ripples in the emerging study of human resource (HR) management, effectively puncturing the concept of teamwork. Ringelmann called this the “social loafing” effect and posited that when individual performance is not directly visible, it blends into a group effort where every team member actually “cheats” a little, though not always consciously.
12. An FT investigation shows that vaccines have made Covid 19 far less fatal.
And the impact of vaccines in terms of avoided hospitalisation.
13. Business Standard points to a new study by PHFI on who gets the healthcare subsidies in India. It found that the richest quintile corners 26.7% of all in-patient care subsidies.
Even with Ayushman Bharat, just 16% of all hospitalisations were covered under that.
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