1. What drives "hot-streaks"? Derek Thompson points to the findings of a new study,
Northwestern University economist Dashun Wang... found that artists and scientists tend to experiment with diverse styles or topics before their hot streak begins. This period of exploration is followed by a period of creatively productive focus. “Our data shows that people ought to explore a bunch of things at work, deliberate about the best fit for their skills, and then exploit what they’ve learned,” Wang said. This precise sequence—exploration, followed by exploitation—was the single best predictor of the onset of a hot streak... At least for artists, film directors, and scientists, neither exploration nor exploitation does much good on its own. “When exploitation occurs by itself,” Wang and his co-authors wrote, “the chance that such episodes coincide with a hot streak is significantly lower than expected, not higher, across all three domains.” Only when periods of trial and error are followed right away by periods of deliberate focus does the probability of a hot streak increase significantly.The research suggests something fundamentally hopeful: that periods of failure can be periods of growth, but only if we understand when to shift our work from exploration to exploitation. If you look around you at this very moment, you will see people in your field who seem wayward and unfocused, and you might assume they’ll always be that way. You will also see people in your field who seem extremely focused and highly successful, and you might make the same assumption. But Wang’s paper asks us to consider the possibility that many of today’s wanderers are also tomorrow’s superstars, just a few months or years away from their own personal hot streak. Periods of exploration can be like winter farming; nothing is visibly growing, but a subterranean process is at work and will in time yield a bounty... Today’s best exploiters were yesterday’s best explorers.
2. In the context of departure of Jes Staley as Chief Executive of Barclays, Brooke Masters has a list of such departures for personal misconduct in leading UK and European banks in recent times. Makes you realise that the high pay comes despite these common place misdemeanours. Or more appropriately, the high pay (and associated stakes) distorts incentives and makes chief executives cut corners to keep the show going.
It also emerges that Staley had close connections with the late serial sexual offender Jeffrey Epstein.
3. In the aftermath of CoP 26 FT has an informative story on the sources of global climate financing.
This from multilateral agencies
And this from bilateral donors
The Business Roundtable, for example, argued in September that the country had made significant progress towards reducing emissions “in part because of corporate leadership in the absence of a smart, national climate policy”.
This is a more accurate assessment of the private sector's role,
Joachim Wenning, chief executive of reinsurance giant Munich Re, feel a growing sense of unease. “Very often I’ve heard things like ‘in the absence of governments doing their job . . . we the private sector, we the economic leaders, have to take care of combating climate change’. It’s almost: ‘Then we have to replace the governments,’” Wenning said. “I think it’s an illusion. It’s not only that we don’t have the mandate. We don’t have the means, honestly.”
The measurement difficulties and lack of standards associated with net zero claims makes any suggestions of private sector leadership deeply questionable.
The history of conglomerates is a tug of war, not a straight line. Observers announced the “decline and fall of the conglomerate” in 1994 and declared “conglomerates are dead” in 2007. The 1980s wave of corporate break-ups cut the share of large US groups operating in three or more sectors from half to 30 per cent. ITT split in 1995 and Tyco broke up after a scandal in 2006. Yet each had become big enough by 2011 to split themselves up again. “It becomes the conventional wisdom that conglomerates are no good and need to be broken up. Then we end up with companies that are so specialised that somebody decides that there is merit in vertical and horizontal integration,” says Alexander Pepper, a London School of Economics professor of management. “Ten years later you end up with a conglomerate.” The conglomerate’s resurgent appeal lies in the normal ambition to improve coupled with a hubristic assumption that good managers can manage anything. Entering new business lines seems attractive when competition rules prevent dominance in a single sector. Cynics note that chief executive pay and influence expands along with company size.
5. From the Bank of America's equity derivatives team early this week, via FT, a set of facts which captures the times,
“The S&P has (i) reached new highs each of the past eight trading days, tying the longest streak since 1964; (ii) risen 17 of the last 19 trading days, a feat surpassed only once in 90-plus years, and (iii) for only the second time since 1950, taken less than a month to rebound from twin fragility shocks.”
6. The Economist questions the commercial viability of the ride-hailing and delivery sector. This is a remarkable snippet,
A pizzeria could make money by ordering its own food for a discounted price on DoorDash (which then paid back the regular amount).
The financials of the ride-sharing and delivery apps,
The nine firms that have gone public so far—Uber and its American rival Lyft;Didi, a Chinese ride-sharing app; and six delivery firms, from DoorDash and Delivery Hero, which is based in Berlin, to China’s Meituan and India’s Zomato—collectively raised more than $100bn... the nine listed flywheel firms are still growing nicely—at 103% on average in their latest reporting period compared to the same period the previous year. This explains why they are collectively worth nearly $500bn. But self-levitating they are not. Nor are they profitable. Sales for the group amounted to $75bn over the past year and the operating loss to nearly $11.5bn.
And there may be signs that the ride-hailing sector may be the drag on the sector,
What is more, the company, which has a market capitalisation of $85bn, is now more of a delivery service than a ride-hailing app: Uber Eats generates more than half of sales. DoorDash’s own punchy valuation, of $65bn, rests on revenue that has grown more than fourfold since the last quarter of 2019, albeit during a time when people dined at home more often. But it also bakes in success in new markets that it has recently entered, including groceries and pet food.
7. Livemint has a comparison of the valuations of internet companies with brick-and-mortar companies in the same sector in India.
8. T N Hari has a good article on the talent crunch facing Indian economy. The frenzy of capital flowing into startups has driven up employee attrition rates and salaries (on the aggregate both by at least 30% each, he claims) and squeezed businesses everywhere. It is a good proxy for the limited depth of good quality talent in India that $20 bn or so funds that have flown into start-ups over the last couple of years has drained talent off from an entire continental sized economy.
9. A feature of the financial market landscape in India is the belief that government entities cannot fail. This implicit guarantee has created several distortions. One such distortion is the propensity of power sector companies being able to access debt from banks despite severe indebtedness.
In an important and welcome development, it appears that the power ministry in Delhi has lifted the bankruptcy protections on government power companies. It has said that these entities do not fall under the category of government companies as defined under Section 2(45) of Companies Act 2013 which prohibit insolvency of such companies.
The Supreme Court in a case involving Hindustan Construction Company Ltd and Union of India in the context of the NHAI held that IBC cannot be used on a statutory body which functions as an "extended limb" of the government since no resolution can take over the management of a body which performs a sovereign function. The Power Ministry has rightly taken the view that the Electricity Act allows for state of private ownership of electricity utilities.
If public sector banks, and more importantly the power finance DFIs PFC and REC, can take defaulting state utilities to the NCLT that would do more than any UDAY to set right incentives and create conditions for sustainable and genuine reforms in the power sector.
10. As the curtain comes down on GE's century long existence (it split into three units - health care, energy and digital, and aviation), FT writes that Wall Street investment banking firms made more than $7 bn offering services to GE since 2000 despite its value falling about 75% during the same time.
GE spent $2.3bn on mergers and acquisition advice alone, according to figures from Refinitiv, as it built a sprawling empire through hundreds of deals... The rise and fall of the GE conglomerate has resulted in a windfall for Wall Street with the Boston-based group spending another $3.3bn on fees related to bonds, according to Refinitiv. It spent a further $800m and $792m, on loan and equity fees, respectively. Since 2000, the company has shelled out more on investment banking fees than any other US business, according to the Refinitiv figures... the outsized fees are indicative of how bankers — who have profited despite GE’s market value falling about 75 per cent since 2000 — care more about completing lucrative transactions than acting in the best interests of their clients.
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