Weekend reading links

1. Livemint has a story that questions the conventional wisdom on IIT admissions being a pathway to large starting salaries.

While the crore-plus salaries paid by investment banks, high frequency trading (HFT) firms and quant firms are highlighted in the achievement letters of the institutes—Mint reported last month that proprietary trading company Jane Street Capital offered a salary package of ₹4 crore plus to an IIT Kanpur student—there are many who end up in jobs that pay less than ₹10 lakh annually. Even those from the established IITs... students from the computer science batch are wooed by many suitors, followed by those from electronics, electrical and the like. Civil engineering isn’t too hot. According to a placement officer in one of the newer IITs, chemical engineering isn’t either... Experts and IIT alumni say the wide variance in salaries is simply a reflection of the market and the demand for certain skills.

2. Some facts about unicorns in the US

Of the 639 US startup firms that achieved $1 billion or more in valuations between 2000 and the third quarter of 2021, 427 remain active unicorns and 212 have exited. Among the exits, 137 went public, 110 through IPOs, 18 through special purpose acquisition companies, and 9 via direct listings. An additional 44 unicorns exited through mergers and acquisitions. Only 21 of the firms that reached unicorn status during the study period failed, either filing for bankruptcy or agreeing to a merger at a value below 25 percent of their unicorn round valuation.

3. City of London factoids,

In 1631 the population of the City of London was estimated at 130,163. In 1901 it was 26,923. Today it is about 8,600. It is hardly a thriving 24-hour metropolis.

And concerns from recent trends,

Reimagined from the 19th century as a core of finance, it was rebuilt as a place of pure business. Ten proposed new office towers (peaking with the 63-storey 55 Bishopsgate) will continue to reshape its spiky skyline. Yet the City was never entirely a monoculture. It had markets and hospitals, housing estates, churches, restaurants, a proliferation of pubs and a huge newspaper industry (those latter two largely inseparable). This complex ecosystem emerged from centuries of an intense concentration of trade. New housing (with a few exceptions, notably the Barbican) was excluded. The last thing the postwar City wanted was residents complaining about a new office tower blocking their light or, heaven forbid, more voters. 

But east London’s skyline has since shifted from offices and council blocks to kitschy new residential towers aimed at foreign investors. Housing’s allure has sharpened, particularly after the pandemic shock looked likely to undermine the workplace. With residential developments now the mainstay of construction at London’s other financial centre, Canary Wharf, apartments are sneaking in along the City’s riverside and north and east fringes. Housing (so much easier to finance due to presales) is encroaching on the Square Mile in very visible towers like One Bishopsgate Plaza and serviced apartments at The Moorgate. The problem, according to former City planner Peter Rees, is not the properties themselves but their emptiness. Already 26 per cent of City residencies are classified as second homes (the national average is 1 per cent). Others are investments for children who might study here, or are occupied only a couple of nights a week. This poor use of scarce land adds little to street life. The cautionary tale is the City’s transatlantic twin, Wall Street. Trading floors have gone, business has moved midtown and bank towers are now luxury residences. The once-buzzing street and myriad small businesses are clearly dying, while empty apartments atrophy.

4. Pandemic and indebtedness in developing countries,

The public debt of developing countries, excluding China, reached $11.5tn in 2021. By some accounts, serious debt problems are largely confined to a small share of this figure, owed by highly vulnerable low-income countries such as Chad, Zambia or Ethiopia... During the pandemic, government debt ballooned by almost $2tn in more than 100 developing countries (excluding China), as social spending went up while incomes froze due to lockdowns. Now, central banks are raising interest rates, which exacerbates the problem. Rising rates have meant capital flight and currency depreciation in developing economies, as well as increasing borrowing costs. These factors have pushed countries such as Ghana or Sri Lanka into debt distress. In 2021, developing countries paid $400bn in debt service, more than twice the amount they received in official development aid. Meanwhile, their international reserves declined by over $600bn last year, almost three times what they received in emergency support through the IMF Special Drawing Rights allocation. Foreign debts are therefore eating an ever-larger piece of an ever-shrinking national resources pie.

5. Richard Bernstein writes about the Maytag Repairman effect and the US Federal Reserve,

The Maytag Repairman was a fictional washing machine mechanic who was lonely because no one ever needed to repair a reliable Maytag appliance. Instead of tools, he carried a book of crossword puzzles and cards to play solitaire to combat his boredom. For many years, the US Federal Reserve played the role of the Maytag Repairman with respect to inflation. With the expansion of globalisation and the resulting secular disinflation, there wasn’t much for it to do to fight inflation. Rather, it could generously ease monetary policy during periods of financial market volatility without much concern that its efforts to save investors might spur inflation. The repeated efforts to curtail financial market volatility led to the term the Fed “put”. Investors viewed the Fed’s behaviour as though the central bank were consistently writing a protective put option to limit investors’ downside risk. With perceived guaranteed downside protection, investors rationally took excessive risks because the Fed repeatedly quelled financial market volatility with significantly lower interest rates. Risk-taking often got extreme. There were three significant financial bubbles in the past 25 years — the dotcom boom, the housing market, and the surge in tech companies/growth stocks/cryptocurrencies before recent sharp corrections.

I have blogged on multiple occasions about the Fed's (and in general central banks') undeserved appropriation of credit for monetary stability in the last quarter century.

6. Martin Sandbu points to the downward revising global economic growth rates from the blog of IMF Chief Economist Pierre Olivier Gourinchas. 

7. John Mueller has an excellent analysis of Manchester City's Norwegian forward Erling Haaland. This about Haaland's less than impressive impact on the Club despite he himself scoring 25 goals in just 20 matches,

Even as their superstar striker collects hat-tricks (four so far) for fun, City as a team are scoring at almost exactly the same rate as last season, back when they didn’t have Haaland or often any striker at all. At the other end of the pitch, they’re conceding 40 per cent more goals than before. You do the maths on how this is going. City’s rate of points per game is down from 2.45 last season to 2.25 so far in this campaign. Their expected goal difference has plunged from +1.86 to +1.29 per game. Their team strength rating in FiveThirtyEight’s SPI model has dipped from 93.5 to 90.8, the lowest it’s been since Guardiola’s second season in charge. For the first time at any point since 2019-20, City aren’t favourites to win the Premier League.

This is a stunning graphic that shows the change in where City's centre-forwards received passes last season compared to where Haaland has received the ball this season. 

Last season’s rotating cast of striker-poets functioned as a free-floating spare attacker, popping up in midfield or out wide as often as they did in the box. This season that fluidity is gone. Erling Haaland doesn’t care about your build-up. Erling Haaland cares about goals. Instead of drifting away from the centre-backs, Haaland stays in the width of the six-yard box, receiving most of his passes around a dense, red-hot core just to the left of the penalty spot — which, not coincidentally, is also his favourite place to put his laces through a left-footed shot. Think of it as the Haaland Zone... Since Haaland doesn’t pull out wide to overload the edges of the opponent’s back line, his team-mates have to find other ways to create the three-v-two advantages that help them break through the channels and create high-value shots.

Besides, as Mueller explains nicely, the focus on Haaland leaves City's defence vulnerable to counter-attacks. 

The cost of Haaland’s goals is one fewer passer and a less flexible formation, forcing City to push the attacking tempo and take fewer touches almost everywhere in the opposing half except the centre of the box. Instead of shoving the ball down their opponents’ throats, they’re getting pressured into passing the ball around their own third. They’re less compact and less controlled — in a word, less Guardiola-ish.

A case of the world's leading striker leaving the team less well off?

8. Finally, Noah Smith writes that the biggest push for reconciliation with China will come from the finance industry,

My instinct is that the strongest calls for a conciliatory U.S. approach toward China will come from the finance industry — especially banks and asset managers... Foreign direct investment in manufacturing defined the Chimerica era, but it’s becoming less important now... U.S. banks and asset managers, hungry to find high returns wherever they can, will be eager to pour capital into China, especially now that Zero Covid is over and the real estate crackdown is being partially reversed. Some of this will go into Chinese stocks, but much of it will probably be handed off to Chinese asset managers, from where it will eventually, inevitably, flow into real estate-related investments —developers, local government financing vehicles, contractors, shadow banks, etc.

9. A less discussed big risk posed by the Adani implosion is on the infrastructure sector, where it could have the same or bigger effect as the collapse of Carillion in UK in early 2020

The Adani Group’s dominance in India’s infrastructure sector is undeniable. It may have earned its stripes as a mine developer and port operator, but the group has expanded its reach to control a significant portion of India’s airports, roads, city-gas distribution, and power generation and distribution. In 2019, it won the bid to operate six airports, and two years later, it bought a majority stake in the Mumbai airport. With this, Adani ended up controlling one-fourth of India’s air-passenger traffic and one-third of its air-cargo traffic.The group has also emerged as one of India’s biggest road developers in recent years, with 18 highway stretches in its portfolio... Once you factor in the group’s presence in city-gas distribution and power generation and distribution, it’s not easy to dismiss concerns over the level of dependency on the conglomerate for infrastructure development.

To this add the several giga watts of solar power plants, Navi Mumbai airport development, the Dharavi slum redevelopment, the several electricity transmission projects, Totex model smart meters etc. The dependence is excessive and it's certain to willy-nilly get re-evaluated.