Weekend reading links

1. Taylor Swift economic multiplier,

For every $100 spent on live performances, an estimated $300 in ancillary local spending is usually created. In contrast, Swifties — fans of Taylor Swift —are shelling out $1,300-$1,500 for the Eras Tour. Over the same period last year, hotel rates in the cities where the Eras Tour is being held increased by an average of 7.2 per cent. Over 300 employment are supported by the approximately $36 million in direct and indirect spending that each Eras show brings to the local economy.

FT has a profile of Swift

Next week, she is set to tie Elvis Presley for the second-highest number of weeks holding the top-selling US album. From there, she trails only The Beatles. For Taylor Swift, 2023 was one of the biggest years for any artist in music history. Earning some $2bn, her utter domination has been compared by industry magazine Billboard to the “fab four” in 1965, or Michael Jackson in 1983. At a time when record executives agonise over how difficult it is to hold listeners’ attention, Swift has come to exist on her own planet. The Federal Reserve noted her tour had bolstered the economy through hotel bookings, with cities such as Chicago and Minneapolis breaking records for hotels rooms occupied during her visits. One sentence towards the end of a song — about making friendship bracelets — boosted sales at craft stores across the US. Several universities, including Harvard, have created classes about her. In Argentina, fans queued on rotation for five months to get as close to the stage as possible for Swift’s concert. For nearly two decades, Swift’s life has been dissected extensively. She narrates every phase, each one packaged into an album with its own sound and aesthetic... 

Early on, she displayed the defiance and ambition that have defined her career. After the success of her 2008 album Fearless, some critics questioned whether she wrote her own lyrics. She wrote her next album, Speak Now, alone, without co-writers. This defiance reared its head again a decade later, when her music catalogue was sold to one of her enemies, Scooter Braun, in a deal financed by private equity groups. Swift slammed the deal as: “very powerful men, using $300mn of other people’s money to purchase, like, the most feminine body of work”. She has spent the past few years painstakingly recording duplicate copies of her first six albums... Before the pandemic, music executives had begun to whisper that Swift was past her peak. Instead, isolation provided a massive boost for her career: she couldn’t stop writing songs, releasing two surprise albums in 2020... Since then, she has entered a supercharged pop-star mode, releasing seven albums in the past three years. In an industry whose executive ranks are dominated by men, Swift’s power has surpassed them all.

2. Scott Galloway makes some powerful points in his weekly posts. Sample this one reposted from 2020

This country was built by titans of industry even wealthier than billionaires today — Vanderbilt, Rockefeller, Carnegie, and J.P. Morgan. But 1 in 11 steel workers didn’t need to die for bridges and skyscrapers to happen. We are a country that rewards genius. Yet no one person needs to hold enough cash to end homelessness ($20 billion), eradicate malaria worldwide ($90 billion), and have enough left over for 700,000 teachers’ salaries. Bezos makes the average Amazon employee’s salary in 10 seconds. This paints us as a feudal state and not a democracy... Steve Jobs, Donald Trump, and Jeff Bezos have 13 kids by 6 women. One denied his blood under oath to avoid child-support payments, another mocks the disabled, and the third steals from school districts (demand tax/budget cuts) to cling to power and wealth. We need a generation of men who emerge from this crisis with a commitment to being better fathers, husbands, and citizens.

3. FMCG majors are seeing decline in rural retail demand and signatures of rural stress on the back of erratic monsoon and other factors. More here. 

4. Katie Martin has a very good article explaining the various factors contributing to heightened financial market risks and uncertainty about Federal Reserve's monetary policy decisions. The surge in equity markets and steep fall in bond yields following Jay Powell's press meet on December 13 have increased market risks and made the timing of the Fed's rate cut critical. The Fed risks being led by the markets and jumping the gun, thereby running the risk of both further inflating the bubbles and also reversing the inflation trend.

5. Pakistan has one of the lowest tax to GDP ratios.

6. Paul Krugman points to how economists got their prediction so wrong about inflation and the economy. We should not be surprised by this, but instead should be surprised as to why we still expect economists to get predictions right. They have rarely got predictions right. He writes

As recently as March, the Federal Reserve committee that sets monetary policy projected that we’d end this year with 4.5 percent unemployment and with core inflation, the Fed’s preferred measure, running at 3.6 percent. Last week, the same group projected year-end unemployment of only 3.8 percent and core inflation at only 3.2 percent. But actually the news is even better, because that last number is inflation for the year as a whole; over the six months ending in October, core inflation was running at 2.5 percent, and most analysts I follow believe that when November data comes in this week, it will show inflation down to around 2 percent, which is the Fed’s long-run target.

Krugman had consistently been in the team transitory camp. 

Economists who argued that the inflation surge of 2021-22 was transitory, driven by disruptions caused by the Covid pandemic and Russia’s invasion of Ukraine, appear to have been right — but those disruptions were bigger and longer lasting than almost anyone realized, so “transitory” ended up meaning years rather than months. What happened in 2023 was that the economy finally worked out its postpandemic kinks, with, for example, supply chain issues and the mismatch between job openings and unemployed workers getting resolved.

See also Tyler Cowen here. 

7. Executive compensation fact of the day

From 1978 to 2022, US CEO pay based on realised remuneration grew by 1,209 per cent, adjusting for inflation. This was well above the 932 per cent growth in the S&P 500 in the same period, and the 465 per cent rise in incomes in the top 0.1 per cent of earners. The median US worker’s annual remuneration rose by a puny 15.3 per cent.

8. Excellent set of graphics to explain the challenges associated with the conversion of office buildings to residential units in the aftermath of the pandemic-induced relocation of people away from large and associated lowering of demand for office spaces. 

The deep interior of the modern office building, which is perfectly useful for windowless meetings and supply closets, is now largely useless for apartment living... The exterior window system on a building like this would need to be replaced at major expense, because these windows don’t actually open. These buildings have far more elevators than an apartment of the same size would want (adding either more expense in conversion or more wasted space). And in many downtown markets, a modern building like this is worth more per square foot in office rents than in apartment rents... As offices, these buildings can also rent 100 percent (or even more) of their total square footage, according to the quirky math of commercial real estate. That’s because some companies rent entire floors, but also because office tenants — unlike apartment renters — typically pay additional rent for shared building spaces beyond their suites. To convert any of these properties to apartments, you’d have to add common corridors, bike storage, lounges, a gym — features that take up space but don’t collect rent (at least, not explicitly). In a typical residential building, only 80 to 85 percent of all square footage is considered rentable. That makes conversions particularly unappealing to many office owners.

9. The English Premier League dominates broadcast revenue takeaways.

When Norwich City finished in last place in the 2021-22 Premier League, they earned more broadcast revenue for their league appearances than Bayern Munich, AC Milan or Paris St Germain, the German, Italian and French champions. The Premier League’s pulling power is so great that across the whole of Europe only Barcelona and Real Madrid made more money from televised league games than England’s bottom-ranked team, with the result that the biggest clubs on the continent now increasingly find themselves outbid on transfers not only by fellow giants but also by Premier League minnows.

10. The Tesla-Swedish unions face-off is a litmus test for Europe. Without getting lost in its nitty gritties, this is essentially about whether the Europeans will allow a central aspect of one of the most important features of their economic system, the collective bargaining between owners and labour, to give way when faced with onslaught from buccaneering US capitalism.

It's one thing to reject unreasonable demands of unions, but altogether different thing to openly oppose the right of their workers to unionise. It's a sad state of affairs that companies like Tesla and Big Tech can get away by taking a view that they'll not allow their workers to unionise not only in the US but globally too. Where are the liberals in this debate?

11. Fascinating story about Secunda mines-to-refining complex of South African chemical company Sasol, which alone emits more carbon dioxide than Portugal, and is now under pressure to decarbonise faster than originally planned. Sasol is the country's largest taxpayer and also claims to account for 5% of South Africa's GDP. 

Sasol, which is listed in New York as well as Johannesburg with a market value of about $7.6bn, produces one-third of South Africa’s fuel, exports speciality chemicals worldwide, and employs more than 30,000 people. Secunda drives about 40 per cent of its earnings. Now two South African institutional investors, Old Mutual and Ninety One, which together own about 5 per cent of Sasol, have openly revolted over its emissions-reduction timetable — breaking with a tradition of quiet shareholder engagement in the country. Environmental protesters stormed Sasol’s annual general meeting last month, forcing it to abandon proceedings. Shareholders have questioned Sasol’s ability to meet its goal of cutting emissions by 30 per cent by 2030 and, beyond that, of reaching net zero by 2050. The acid test will be whether Secunda can decarbonise, or if it will ultimately have to shut down.

12. Novo Nordisk Foundation as an alternative to shareholder corporations.

The Novo Nordisk Foundation is the controlling shareholder of Danish drugmaker Novo Nordisk, currently Europe’s most valuable company thanks to soaring sales of weight loss and diabetes drugs Wegovy and Ozempic. The foundation holds 77 per cent of Novo’s voting rights and 28.1 per cent of its shares... Thanks largely to Wegovy and Ozempic, the foundation’s assets under management have risen 300 per cent in the past 10 years... Foundation ownership is common in Denmark: brewer Carlsberg and shipping company Maersk are also partly owned by foundations. In Novo Nordisk’s case, thanks to the success of GLP-1s, its owner is now bigger than the Bill & Melinda Gates Foundation or the Wellcome Trust, the two other powerhouses of medical research funding and philanthropy. In the past 10 years in particular, the money Novo Nordisk pays to it in dividends and through share buybacks has soared, rising about 180 per cent over the period to DKr14.2bn ($2.1bn) last year. As of the end of last year, the foundation had DKr805bn or $116bn of assets... 

One of its aims is to try to tackle the root causes of obesity and diabetes. It also funds research on stem cell science and climate change and gives to humanitarian causes, such as providing shelters and essential medicines to Ukraine... The foundation is funding a Center for Basic Metabolic Research, a collaboration with the genomics-focused Broad Institute in Boston, and has set up a Centre for Childhood Health that aims to promote healthy weight for children. In parts of India and east Africa, it is teaching healthcare professionals to improve the prevention and treatment of noncommunicable diseases like diabetes. It recently opened its first office in Delhi... Many of the foundation’s aims have long time horizons. Last year, it launched reNEW, the Novo Nordisk Foundation Center for Stem Cell Medicine, supporting research in Denmark, Australia and the Netherlands.

13. Toby Nangle points to new research that raises more questions about the equity risk premium, the higher returns demanded by equity holders compared to bondholders. While instances of bonds outperforming equities over long periods are not uncommon elsewhere in developed world, the equity risk premium has generally been accepted to hold in the US. 

Edward McQuarrie, an emeritus marketing professor, has spent the past seven years taking a closer look at US exceptionalism. His conclusion, published in the Financial Analyst Journal this month, is that the data is dud. Building on bond figures assembled by financial historian Richard Sylla, McQuarrie conducted city-by-city searches of digitised archives for details of dividends and share counts to expand the American historical financial record. The result is a new resource containing more than three times as many stocks and five times as many bonds. His account captures many more failures, reducing survivorship bias, and a stunningly different long-term story. The impact of survivorship is no small detail... the new historical record still favours equities, but less so. 

This downward re-evaluation of old American financial returns has form. In 2002, Research Affiliates founder Rob Arnott co-authored a paper with Peter Bernstein concluding that the historical average equity risk premium was about half of what most investors believed and stood at only 2.4 percentage points a year. The quantum of stocks’ median outperformance over long-term holding periods is roughly halved again in the new data. And the incidence of equity underperformance over fifteen-year holding periods more than triple.

14. Finally, an FT article points to research by Allianz Research which finds that a 

Allianz Research has disaggregated the 9 percentage point drop in America’s quarterly annualised inflation since the second quarter of 2022 using regression analysis. It finds 5.5pp of the drop was indeed driven by supply-chain snags simply unwinding. But it also attributes 2.7pp to the Federal Reserve’s signalling, which helped to re-anchor inflation expectations. Another 2.2pp comes from the impact of higher rates squeezing demand, which was needed to counteract the inflationary impact of supportive fiscal policy and labour shortages. Maxime Darmet, Allianz’s senior US economist, said without the Fed’s actions and its tough words, quarterly annualised inflation would be 6.1 per cent in the fourth quarter of this year compared with the previous three months, instead of 0.7 per cent.