1. Tim Harford points to the practice of people subscribing to services they don't use.
A new working paper from economists Liran Einav, Benjamin Klopack and Neale Mahoney attempts an answer. Using data from a credit and debit card provider, they examine what happens to subscriptions for 10 popular services when the card that is paying for them is replaced. At this moment, the service provider suddenly stops getting paid and must contact the customer to ask for updated payment details. You can guess what happens next: for many people, this request reminds them of a subscription they had stopped thinking about and immediately prompts them to cancel it. Relative to a typical month, cancellation rates soar in months when a payment card is replaced — from 2 per cent to at least 8 per cent. Einav and his colleagues use this data to estimate how easily many people let stale subscriptions continue. Relative to a benchmark in which infallible subscribers instantly cancel once they decide they are no longer getting enough value, the researchers predict that subscribers will take many extra months — on average 20 — to get around to cancelling.
This is a rare free lunch, one that exploits people's cognitive failures.
2. Chinese EV makes enjoy large subsidies from the government. Sample this about Nio
Nio lost $835 million from April through June, or $35,000 for each car it sold. Nio and other companies in China’s sprawling electric car sector have formidable government backing that allows them to withstand such losses and keep growing. When Nio nearly ran out of cash in 2020, a local government immediately injected $1 billion for a 24 percent stake, and a state-controlled bank led a group of other lenders to pump in another $1.6 billion.
3. The Economist has an article on the emergence of consultants like McLarty Associates, Hakluyt, and Albright Stonebridge who offer geopolitical advice to multinationals.
Lee Feinstein, a one-time ambassador who now works for McLarty, notes that many clients value advice from those who have been “in the room where it happens”. The exact services these firms offer are opaque and vary between them, but generally range from gauging the policy intentions of foreign governments to helping open doors for companies that want to sell or manufacture in a new market.
The management consultants like McKinsey too have established their geopolitical consulting arms. The opaque and secretive nature of the work of these consultants raises several concerns. In many respects, this is effectively legalisation of cross-border spying. And we already know the problems with just management consulting itself.
4. The Economist examines the erosion of authority and credibility of the Palestinian Authority and the further strengthening of Hamas as the de facto leadership of the Palestinian people. A combination of leadership weakness, corruption within the ruling Fatah party, and Isreali high-handedness have rendered the PA to be nothing more than a municipal authority, and that too one which does a bad job of even that.
This is a timeline of the region's history.
5. Bond markets have been in turmoil, driving up treasury yields and accumulating MTM losses in bond portfolios
Paper losses on the most opaque part of US banks’ bond portfolios are now close to $400bn — an all-time high, and 10 per cent above the peak at the start of the year that caused the collapse of Silicon Valley Bank — according to Matthew Anderson, an analyst at bond data firm Trepp. Most banks, and in particular the largest ones, will not have to sell and so will never realise those losses... If paper losses on bond portfolios were realised they would have caused a 200 basis point hit to the common equity tier 1 ratios — a measure of financial strength — of the largest US lenders at the end of June, according to Stuart Graham, head of banks at Autonomous Research.
6. Suyash Rai has an excellent assessment of Make in India initiative by numbers.
At 14.7 percent, the share of manufacturing in GVA in 2022–23 was the lowest since 1968–69. Even in 2019–20, the year just before the pandemic, it was only slightly better—14.72 percent... Even if we do not consider the pandemic years, when capital investments were difficult to make, there has been no progress on gross fixed capital formation in manufacturing since the Make in India initiative was announced... Between 2016–17 and 2022–23, the number of persons employed in manufacturing fell by almost 1.57 crore. Part of this seems to have happened due to the pandemic, but even before that, there was a large decline... In the eight full financial years since the launch of the initiative, the FDI has averaged 1.76 percent of the GDP, while in the preceding eight years (2007–08 to 2014–15), it had averaged 2.14 percent of the GDP... India’s merchandise exports have declined for much of the last one decade, except for a few quarters in 2021 and 2022, when opportunities temporarily created in developed economies led to a spike in exports, which have since declined.
7. Rai also points to a paper by Chang-Tai Hsieh and two others who argue that China's extraordinary economic growth comes from "special deals" cut by local governments with favoured private firms. They claim that local leaders derive personal benefits, either political or monetary, from these, and competition among local governments limits the predatory effects.
Its simplicity is striking.
Given the effectiveness of this system depends on the discretion of local officials, on incentives being appropriately aligned among local officials to ensure that they not only maximise investments and job creation but also limit rent-seeking at sustainable levels, and on minimising the damage borne by firms not getting special deals, the authors call this strategy a "high wire act".
8. Ruchir Sharma points to the difficulty of smart money investors
Since 2000, there have only been three years in which a majority of large cap funds outperformed. In the 2010s, on average, 8 out of 10 mutual funds and 9 out of 10 institutional funds underperformed in the US markets, after fees. The share of pros who beat the market was only slightly better before fees and was equally low in the stock markets of Europe, Asia and the rest of the world... Within the community of retail punters, the most active 20 per cent of traders earn returns far lower than the least active 20 per cent. The losses are not just for day traders in individual stocks. Through bad timing, active amateurs lower their returns by 20 per cent when they are pulling in and out of mutual funds.
He also points to the value of insider information
One of the more interesting insights on information superiority comes from studies of (legal) trading by company insiders. Senior executives tend to sell ahead of abnormal declines and buy ahead of abnormal surges in a company’s shares. Chief executives and chief investment officers tend to do better than less senior executives, probably because they have more complete information. In this well-informed circle, following the herd can work. Local information can provide a similar edge. In emerging markets, big global funds have often assumed they can teach the locals a thing or two about investing, only to learn humility the hard way. In the run-up to currency crises, my research has found that locals often pull out well ahead of foreign investors and then are the first to return, sniffing an economic turnaround. Superior on-the-ground knowledge gives them an edge.
9. The Azerbaijani ethnic cleansing of Armenians in Nagorno Karabakh with the support of Turkey has hardly received any global attention.
After a 10-month blockade, Azerbaijan launched an attack on Sept. 19, claiming the enclave in a day and causing nearly the entire ethnic Armenian population to flee... For Armenians, a classic relic ethnic minority whose Christianity and peculiar alphabet date to the epic struggles between the Romans and the Parthians, it was another genocide. For the Azerbaijanis, Turkic in language and historically Shia Muslim, a great triumph... in its emboldening of traditional regional powers like Turkey, scrambling for geopolitical spoils after the retreat of superpowers, it’s a harbinger of the coming world disorder.Nagorno-Karabakh, a mountainous region in the South Caucasus, is perennially contested. Ceded by Persia to Russia in the 19th century, it fell into dispute with the emergence of the Soviet Union, Armenia and Azerbaijan both claiming it. In 1921, Stalin attached the enclave to Azerbaijan, home to oil resources and a thriving intellectual culture... By 1994 the Armenians, mobilizing around the traumatic memories of genocide, succeeded in expelling scores of Azeris from the enclave.
The region is also at the centre of a major geopolitical tussle
President Recep Tayyip Erdogan, a master of vertiginous visions, has already tried Islamic liberalism, joining Europe, leading the Arab revolts, challenging Israel and negotiating peace in Ukraine. He now has another dream: opening a geopolitical corridor from Europe through Central Asia, all the way to China. This is the “Zangezur corridor,” a 25-mile-long strip of land to be carved through Armenia as part of a peace deal imposed at gunpoint.Iran is not happy with Azerbaijan’s victory. As openly as the Iranians ever do, they’ve threatened to use force against any changes to the borders of Armenia. Iran, a millenniums-old civilization central to a whole continent, cannot tolerate being walled off behind a chain of Turkish dependencies. India, similarly, is on Armenia’s side and has been sending a regular supply of weapons. One spur for such support, no doubt, is Pakistan’s joining the Azeri-Turkish alliance. In the jargon of American lawyers, this opens a whole new can of worms. Then there’s Russia, whose absence from the denouement in Nagorno-Karabakh was striking. Even after the 1990s, Moscow still remained by far the biggest supplier of weapons to both Armenia and Azerbaijan. Their economies and societies, above all the elites and their corruption networks, were until very recently molded together. What we are seeing now, as both nations slip out of Russia’s orbit, might be the second round of Soviet collapse.
10. Good list of 40 companies in developing markets that are beating western multinationals in their markets.
11. The shocks of 2020-22 have been greater on the low-income countries, as reflected in their GDP shortfall.
Real domestic demand as reflected in private consumption and capital formation too has taken a big hit in the low-income countries. The biggest hit on private consumption has been in China.
12. This is a telling snippet about how financial markets lost all their discipline
In 2017 Argentina’s new president Mauricio Macri was keen to show that the country had changed, and celebrated its return to the fixed income market by selling a $2.75bn bond maturing in 2117, with a yield of 7.9 per cent. The then-finance minister crowed that “such an issuance is possible thanks to our recovery of the world’s credibility and confidence in Argentina and in the future of our economy”. It went about as well as you might expect. Macri was out by 2019 and Argentina defaulted on and restructured the century bond in 2020... Argentina’s creditors received on average 54.5 cents on the dollar. But the 2117 bond was actually sold at 90 cents on the dollar to entice investors, and paid at least a few chunky coupons before it was restructured and exchanged for a lower-value new bond, which would have ameliorated the pain somewhat... It turns out that if you bought at issuance and reinvested the coupons back into the 2117 bond you would have lost about 30 per cent going into the restructuring, and roughly 53 per cent on the other side of it. (NB, the gap is unusually large, which means the Bloomberg data might be a bit shonky.) If you held on to the restructured exchange bonds that mature in 2046 and reinvested the new coupon payments into that, you’d today be staring at a ca 63.7 per cent loss.
But the Alphaville report also points to the fate of the 100 year bonds issued by Austria at the same time.
That’s an almost 40 per cent loss in price since inception. The miserly semi-annual 2.1 per cent coupon payments helps only a little, crimping the total loss is 31.27 per cent, according to Bloomberg data. If you were unlucky/foolish enough to buy the Austrian century bond at its peak price/record low yield in 2020 then you’re looking at close to a 75 per cent loss. There are few better examples of the explosive power of duration when the interest rate cycle turns.13. Voting share in WB/IMF and respective national outputs for the major economies
14. Katharina Pistor makes two important observations about Finance
Finance is no longer just an intermediary that channels money from savers to borrowers... finance is now in the driver’s seat, setting the agenda for others, including governments. There are two big problems with this: finance is both dumb and dangerous. It is dumb because it can only read numbers, unable to understand, much less assess, difficult social problems or complex business or engineering strategies. And it is dangerous because the people at the helm of financial institutions think they are smarter than they are, which leads them to assume that they should steer the ship.
If you are looking only at price tags, ruling the world seems easy. Everything becomes comparable, and you need only buy low and sell high to make a profit. Unless you are one of the few moral investors who wants to feel good about where you direct your money, the nature of what you are buying or selling matters little. The price mechanism dispenses with the need to understand an asset’s real-world qualities, negative attributes, or possible side effects. In fact, the less investors know or care about such matters, the more liquid the market.
15. Finally, there's more emerging troubling trends on climate change. Latest data show that September was 0.5 degree celsius hotter than the prior record, and July and August were around 0.3 degree hotter since reliable global records began in the mid-1800s and probably for the past 2000 years.
The rate of warming we’ve measured over the world’s land and oceans over the past 15 years has been 40 percent higher than the rate since the 1970s, with the past nine years being the nine warmest years on record.
No comments:
Post a Comment