Weekend reading links

1. Interesting graphic which shows that India's current account deficit is now the third highest since 1990!

But while it's far better than 1991, in 2013 the country's external debt situation was about as good as it's now. 

2. New project announcements in India continue their downward trend, both in the government and especially private sectors. 

3. Vietnam is racing ahead of India in attracting manufacturers diversifying under the China-plus-one strategy.  

4. Fascinating infographic that highlights the economics of Costco's rotisserie chicken. Its price has not been raised from $4.99 for 3-lb piece since 2000 and is a loss leader for Costco. However, the company places rotisserie chicken at the back of the store, so that customers have to travel 60% of the store to be able to buy it (thereby increasing the likelihood of other purchases by them). 

5. Notwithstanding the Kwarteng-Truss dissonance, Rana Faroohar says industrial policy is back,

According to a senior administration official I interviewed recently, business leaders are coming to Washington and asking for a signal in the noise of deglobalisation — should they be in Vietnam, Mexico, South Carolina? Should they put investment into clean technology or biotech, or both? They are also looking for increased public support for more domestic production in the wake of the semiconductor industry’s multibillion-dollar boost.

6. AK Bhattacharya makes a point on the rising GST revenues,

Even as total GST in April-September 2022 grew by 31 per cent, the component of integrated GST or IGST levied on imports increased by 44 per cent. In other words, the share of IGST on imports in total GST rose to 27 per cent. This share was 25 per cent in the whole of 2021-22 and even lower at 22 per cent in 2019-20. It is now becoming increasingly clear that rising imports have played a significant role in sustaining the buoyancy in revenues from the GST.

7. Vivek Kaul reinforces the K-shaped recovery argument on Indian economy. 

8. Ruchir Sharma questions the conventional wisdom in the US that a strong dollar is disinflationary,

Imports amount to 12 per cent of gross domestic product in the US, about a third the average for developed countries, and have a minor effect on US prices. More importantly, the dominant dollar is used to price most global goods including 95 per cent of US imports. Thus a change in the value of the dollar does little to change the price Americans pay for these imports. This immunity is rare. Other countries pay more bills in foreign currencies and are more vulnerable to currency swings. When the dollar falls by one per cent, inflation rises in the US by just 0.03 per cent. When other currencies fall that far, inflation rises three times faster in other developed economies, and up to six times faster in emerging economies.

Instead he points to the economic risks of a strong dollar,

The key point is that the Biden administration could help to weaken the dollar without undermining the Fed’s effort to contain US inflation. In fact, America faces less risk from the dollar’s imaginary impact on US inflation than from its proven impact on the global economy. Before last week the dollar had spiked more than 20 per cent in 12 months, matching or exceeding surges that accompanied the last seven major global financial meltdowns going back to the Latin American debt crisis of the early 1990s, and including the dotcom bust of 2001 and the global financial crisis of 2008. These crises engulfed multiple countries including the US, disproving another piece of received American wisdom — that a strong dollar is a “problem” only for the rest of the world... the dollar remains at irrational highs — by one measure nearly 40 per cent more expensive than at any point since 1980 — and a further rise could trigger a global recession.

He therefore proposes a US-led effort to weaken the dollar,

Since central banks including the Fed cannot — should not — stop raising interest rates until inflation is clearly under control, co-ordinated selling is the only tool left to ease the dollar-induced stresses still visible worldwide, from low-income countries to Europe. US-led efforts to weaken the dollar have generally proved successful in the post-Bretton Woods era, particularly when these conditions are met: the dollar is seriously overvalued; speculators are heavily long the dollar; co-ordinated government intervention hits markets as a surprise; and central banks’ monetary policy is pushing currencies in the same direction. Today chances of success are good.

Not sure whether this will have receptive years in the US Treasury and Fed.

9. The Guardian has a long read on Blackstone and its residential housing investments, and how it met its match in Denmark. The PE firm has a $320 bn real estate portfolio in its total of $881 bn assets under management. It's the largest landlord in several countries, including the US. Its housing investments have been controversial,

After the financial crisis, the industry started eyeing up the places where people lived. In the US, as more and more people found themselves unable to pay their mortgages, thousands of houses became available at discounted prices. In spring 2012, Blackstone dispatched employees to hoover up such properties. It founded a subsidiary, Invitation Homes, to manage its new kingdom of houses, which spanned from Seattle to Atlanta... The firm looked for two- or three-bedroom houses in sunnier climes where an economic recovery seemed more likely. It avoided struggling cities such as Detroit or Cleveland. Invitation Homes hired local agents who knew every detail about the neighbourhood, right down to whether a street had a “weird church” or a rundown shopping parade on it... Some people who lived in Invitation Homes’ properties told journalists that it had hiked rents, seemed to scrimp on maintenance costs and imposed punitive fees on tenants. The company’s business model appeared to depend on maximising rent and fees while reducing the cost of maintenance. In this dispassionate equation, tenants seemed to be the ones who lost out... Blackstone would start to buy housing in “tier-one” cities that were home to the “industries of the future”: science, tech and creative fields.

10. Chris Miller in FT on the reshaping of technology supply chains due to the US sanctions on exports of chip making components to China. 

Previously, almost all of TSMC’s recent investment was in Taiwan or China. Now it is diversifying its fabrication footprint, building a new chip fab in Japan and exploring one in Singapore, too. TSMC’s change in tack is driven by subsidies from these governments as well as political pressure to reduce the concentration of chipmaking along the Taiwan Strait. In corporate boardrooms as well as defence ministries, concern is growing that mutually assured economic destruction may not keep the peace in the Taiwan Strait. Multinational businesses have invested many billions of dollars in both Taiwan and China on the assumption that war is simply too costly... Some foreign chip companies with facilities in China are paying the price for failing to anticipate these new restrictions. SK Hynix, one of South Korea’s two major memory chip producers, is now restricted from upgrading critical lithography equipment in its plant in Wuxi, China, which will prevent it from producing next generation chips there... As the location of semiconductor fabrication shifts, the production of chipmaking materials and supplies will, too... Apple, whose finely tuned supply chains shape how the entire industry sources components, is increasing device assembly in Vietnam and India. The biggest signal is that Apple may use different components for phones intended for Chinese customers than those sold abroad. Apple has told US legislators that it will only use YMTC’s memory chips in phones it sells within China. Operating separate “China” and “non-China” supply chains is the definition of decoupling.

11. Bill Harris, the founding CEO of PayPal, has an oped in FT on the so called fintech revolution,

Moderate and middle-income families — those making $25,000 to $75,000 a year — account for 46mn US households. Two-thirds of these families live pay cheque to pay cheque, and two-thirds report feeling “uneasy” about their financial situation... The explosion of financial products has saddled millions of ordinary Americans with traditional accounts, payment accounts and new or alternative offerings — too many complicated products with hidden fees that can cost hundreds of dollars a year. Many customers in this segment of the market have accounts at both a traditional bank and an online neobank, with multiple debit cards. About 80 per cent have at least one credit card. And too many fall into the trap of expensive overdrafts — 18 per cent of all bank account holders pay 91 per cent of the fees. American households spent close to $11bn on overdraft fees last year. There are a baffling number of ways to make payments — via an automated clearing house, prepaid cards, debit and credit cards and online payment accounts. New ways to pay at ecommerce sites add to the confusion. Half of Americans now use Buy Now Pay Later (BNPL) services like Affirm, Klarna and PayPal Credit. Many use alternative financial products such as payday loans which, in addition to carrying effective interest rates of 400-600 per cent, typically consist of a series of two-week loans over multiple months. Fintechs have brought this “short-term small-dollar” lending online. And some are peddling crypto to those who can least afford it.

His conclusion is sobering, 

The fintech explosion, which was heralded as a solution to the money problems of ordinary Americans, has too often made their difficulties worse. The proliferation of products creates confusion rather than clarity, and people have too many accounts and apps and bits of money strewn across the digital domain. We need fewer, simpler products — single apps that address multiple needs and deliver a straightforward user experience. In other words, to return to the days of offering a central place to manage — and understand — how much you have and how much you owe. 

12. Kanika Datta calls out the European hypocrisy in their condemnation of Qatar's human rights record and calls for various forms of protest during the World Cup football tournament there next month. 

The Lille mayor’s wholesale condemnation of the Qatar World Cup is a little thick considering France’s biggest club, PSG is owned by a prominent Qatari family. Manchester City wins the English Premier League with almost clockwork regularity thanks to the humungous investments by UAE’s Sheikh Mansour. Underwhelming Newcastle United recently became Europe’s richest club after it was acquired by a Saudi Arabia-led consortium, including that country’s sovereign wealth fund... Chelsea became an EPL topper thanks to the colossal amounts of money one of Vladimir Putin’s chief cronies, Roman Abramovich, poured into it for almost a decade. He was ejected only when Mr Putin invaded Ukraine.

13. Sandeep Goyal writes about how Gen Z has come to view full stops as a sign of passive aggression.

Strange as it may seem, millennials and Gen Zhave of late started to have an issue with people finishing text messages with a full stop. Calls are in fact being made for full stops to be made “illegal” at the end of text messages as they are seen to be an act of muted aggression! A recent study by Binghamton University in New York found texts ending with a full stop as being seen as “less sincere” than messages that do not end with a dot... What is wrong with putting a full stop at the end of a sentence? For Gen Z, the full stop seems to mean “mad” or “serious”, or so research shows. The full stop is an “act of aggression”, almost like slamming the door in one’s face. With young people today, sending a message to someone invariably means breaking up one’s thoughts in such a way that each thought is sent out as a new message. The message is all that is relevant; anything additional included in the message can take on an additional interpretation. Gen Z today would have you believe that the problem arises when you have a positive message ending with a full stop. That makes the message serious despite the positivity of the content. It is the juxtaposition of the positivity and the full stop that creates a sense of “passive aggression”.

Another example of woke gone rogue?