Weekend reading links

1. Heat impacts productivity and lot else. Therefore the need for airconditioning.

Once indoor temperatures rise above the low-twenties centigrade, or around 75 Fahrenheit, humans start to suffer. Sleep duration and quality fall rapidly when temperatures rise above 23C. Cognitive performance fares similarly, with scores in US high school tests dipping on hot days, and the affected students suffering a lasting impact on their prospects of graduation. The same is true of office workers’ productivity, which peaks at around 21C and rapidly deteriorates as the mercury rises. And that’s all before we get on to mortality, where death rates climb steeply once temperatures hit 30C.

2. Lessons for life from Roger Federer.

In tennis, a small, consistent edge over your opponent can translate into big margins in the long run. Nadal, for instance, also won exactly 54 percent of his points. And when Carlos Alcaraz defeated Jannik Sinner on Sunday in the French Open final — in one of the greatest matches since the 2008 Wimbledon final — Alcaraz, the champion, actually won one fewer point than Sinner. It’s an easy concept to apply to almost any field. In 2022, Ronald van Loon, a portfolio manager at BlackRock, authored a paper on the percentage of investment decisions that need to be correct to beat market benchmarks for returns. He researched markets, crunched the numbers and came up with a number: As low as 53 percent... Federer may have only won 54 percent of his points... but he always seemed to win the points that mattered most.

The three lessons offered by Federer - effortless is a myth; it's only a point; and life is bigger than the court. 

3. The US-Vietnam trade deal depends on how the Trump administration will define "transshipment" which attracts a 40% duty.

Experts say the Trump administration’s definition of transshipment could refer to a range of practices from simply repackaging Chinese goods with a counterfeit “made in Vietnam” label or to using Chinese raw materials in goods manufactured in Vietnam. “The impact may be more limited if these 40 per cent tariffs are enforced solely for the most egregious practices of plain diversion of trade to avoid US tariffs,” said MUFG analyst Michael Wan. “In contrast, if there is a stricter determination of transshipment defined as a certain threshold of foreign value added, the impact . . . may be pronounced.” Given the Trump administration’s interest in isolating China, businesses fear a wider definition. This would be extremely damaging for Vietnam, where many businesses rely on Chinese raw materials and components, and warned that removing them would be impossible.

4. As the use of electricity, especially from renewables, to replace natural gas and other fossil fuel sources increases, countries are finding that they are falling woefully short on the associated infrastructure. Sample this from Netherlands which has even started rationing power. 

The Netherlands already has some of the highest electricity costs in western Europe because of the grid bottlenecks... To cover the necessary investment, tariffs are expected to increase each year until 2034 by an average of between 4.3 and 4.7 per cent in real terms, a presentation from national grid operator Tennet said. To free up capacity, Tennet and regional grid operators have started to offer contracts to households that discount electricity used at non-peak times, such as between 11am and 3pm, and other flexible contracts that allow users to pay for electricity in time blocks. From April 1, operators could offer contracts where large industrial users are barred from using their connections at all during certain busy hours in exchange for lower tariffs. The Hague has also put out a “more conscious use of energy” advertising campaign across TV and social media that asks consumers to charge bikes and cars outside of the 4pm-to-9pm peak, when the grid comes under greatest strain...

“Everything is going electric and electricity infrastructure needs to grow massively everywhere,” said Jeroen Dijsselbloem, mayor of Eindhoven. The Brainport region around Eindhoven, covering 750,000 people in several municipalities in the southern Netherlands, had lost investment because it had to ration power supply, he said. Brainport is also home to a cluster of advanced technology companies led by ASML, the maker of the world’s most sophisticated chipmaking machines. No significant new grid capacity would be installed in the region until 2027, Tennet figures show. “We need more than 100 medium-size substations and 4,000 small substations,” Dijsselbloem said. Grid operators are also short of 28,000 technicians to install the necessary infrastructure, according to Netbeheer Nederland. Companies such as Thermo Fisher, a US medical business with a base in the Eindhoven area, have maintained their growth plans but invested in on-site battery storage and solar to counter the grid congestion issues.

5. Does the US suffer from Dutch disease?

The US has Dutch disease. Its export is the dollar... The dollar lost roughly 8 per cent of its value over the past six months, which has renewed the old discussion of whether holding the world’s reserve currency is an exorbitant privilege or an exorbitant burden... In 1999, Aaron Tornell, now at UCLA, and Philip Lane, now European Central Bank chief economist, offered a theoretical framework to explain (Dutch Disease). The commodity export changed the budgeting process, they argued. After a windfall, powerful groups will fight to get their hands on any new spending. If the country has strong institutions and social solidarity, this grab for spending will fail. With weak institutions, it will succeed: instead of going to things that increase productivity, such as roads and schools, new spending goes to powerful groups, as unproductive gifts. Tornell and Lane called this the “voracity effect”. 

They applied it to data from Nigeria, Venezuela and Mexico, but if we accept that the US is not magic, we can easily ask these questions of it, too. How voracious are its powerful groups? How strong are its institutions? The answers in order are: quite, and not as strong as we’d thought. The voracity effect does help explain the gobsmacking audacity of Donald Trump’s so-called “Big Beautiful” Bill, with a cost of $3.4tn over 10 years and the benefits going overwhelmingly to the wealthy. In the past, Republicans have attempted to present tax cuts for the rich as a policy to release productive investment. They’ve even attempted to model this idea as a process called “dynamic scoring”.

6. The balance sheet of six months of Trump tariffs.

Chinese exports to the US fell 9.9 per cent year on year in renminbi terms between January and June... Exports to countries in the Association of Southeast Asian Nations, which the US accuses of transshipment of Chinese exports, rose 14.3 per cent, while imports increased 2.3 per cent in the first half.

7. The Israeli economic miracle

In tech-driven Israel, GDP per head has nearly tripled since 2000 to more than $55,000, rising from 50 to 70 per cent of the level in the US... Its $550bn economy is now among the largest 30 in the world... Total factor productivity, which captures how well labour is using new machines, has grown four times faster in Israel than in other developed economies over the past 25 years... Perhaps the most telling sign of its dynamism is that Israel now spends more than 6 per cent of GDP on research and development — more than any other nation and over double the global average... Since the early 2000s, as most other developed governments have increased spending and debt, Israel has cut state spending from 50 to 40 per cent of GDP, and public debt from a high of 90 per cent to under 70 per cent of GDP. The government also made some smart investments, seeding the venture capital industry that helped to launch the nation’s vaunted tech sector... Spillovers from defence have made Israel a global leader in fields from air-traffic control to, above all, cyber security. With more start-ups per head than any other country, its business culture is closer to that of California than the Middle East. It has 73 start-ups in the hot field of generative artificial intelligence, the third largest in the world. Half of its exports are tech products.

8.  Akash Prakash on corporate India

One of the clear takeaways when speaking with senior people working with Apple is their disappointment at the lack of willingness among India Inc to step up and make the investments needed to bring the Apple ecosystem into India. While China is putting up obstacles, the profit focus of Indian entrepreneurs is also a stumbling block. Whether it is putting up the component supply chain or making large capital investments for display units, there is a lack of interest on the part of large Indian groups to commit capital. They cite the low margins on offer and the intense scrutiny that Apple demands on quality and scale. In effect, it would take years of sustained effort to earn a reasonable return on capital — if at all. Is it worth it? Many believe they would be derated by their shareholders, who would not accept the initial losses and question the ultimate return on capital. With a drop in margins will come pressure on valuations and market capitalisation — this is the common belief among Indian industrialists. Indian markets are hyper-focussed on profitability and return on capital.

9. FT long read on BYD, China's battery and EV champion. 

Until recently, the main advantage Chinese EV manufacturers had over Tesla was that their products were significantly cheaper. But in February, BYD’s founder Wang Chuanfu stood on stage in Shenzhen and unveiled “God’s Eye”, an advanced driver-assistance system that is a precursor to fully autonomous vehicles. A month later, Lian, who now heads BYD’s automotive engineering research institute, was on stage with Wang to announce a new battery charging system capable of adding a driving range of about 470km in five minutes — a fraction of the time it would take a Tesla to charge to that level. The startling technological advances made by BYD and others have sparked panic among legacy carmakers, who have responded by partnering with Chinese rivals to learn how to build vehicles faster and cheaper, and with better software.

10. Unless I'm missing something, the Chinese have definitively outsmarted Trump and the US by being able to link the relaxation of its export controls on rare earths with a similar US relaxation of restrictions on the export of advanced semiconductor chips. The latter has been in place since the Trump 1.0 and has progressively tightened. The Chinese export controls on rare earths were introduced in response to the Trump reciprocal and higher tariffs on China. The US ceded ground by both sharply reducing its steep tariffs (which would have been a significant blow to the Chinese economy) as well as making concessions on its export controls on advanced chips. 

Now that the linkage is established, the Chinese will use the rare earths instrument to combat both tariffs and export restrictions.

This is a good article about how Nvidia's Jensen Huang charmed Trump and convinced him to lift the ban on the export of its powerful H20 chips. One more example of how corporate America's commercial interests have trumped America's national interests. It also underlines the point that President Trump has no deep interest in containing China. 

11. As Donald Trump warms up to Ukraine, even suggesting that the US could supply missiles to Ukraine if it could target sites deep inside Russia, including Moscow, Janan Ganesh makes some very important points about Donald Trump.

Trump and Maga are no longer the same thing. His movement — the intellectuals, the donors, the more online of the grassroots — have intense beliefs. Besides a life-long conviction that running a current account deficit with another nation constitutes “losing”, he doesn’t. None of this is fatal to Trump himself. He papers over the differences with force of charisma, electoral success and the dutiful enactment of key Maga priorities. This will protect him from serious internal dissent... Still, we can now see what the future of the US right looks like. Unless the Republicans find another version of Trump — someone whose star power overwhelms all philosophical reservations about him or her — the next leader will have to be more in tune with the movement. That is, more Christianist, more nationalist, more paranoid. An extreme right-winger can put up with half a loaf under Trump because he provides so much else in dazzle and tribal leadership. You aren’t getting that with JD Vance. Ideological and even personal litmus tests, which have been waived for Trump, could return. In other words, we have to entertain the notion that Trump is a moderating influence on a movement that will become much more doctrinal once he is gone. He approaches the world through personal relations, which are malleable, not ideas, which aren’t. 

Consider Ukraine policy. In all likelihood, Trump has been soft on Putin because he appreciates the Russian’s well-aimed flattery and resents the cost to the US of protecting Europe from him. This is bad, but it isn’t dogmatic. Much of Maga, in contrast, backs Putin out of a belief that Russia is nothing less than Christendom’s frontline, whether against Islam or secular Chinese communism or the woke enemy within. Because it is practical, Trump’s position can be shaken, as seems to be happening now... There are worse things than a personality cult, such as an ideas cult. For a decade, conservatism has been whatever Trump says it is. He has made it possible to regard China as the threat of the century but admire Viktor Orbán, who is China’s biggest friend in Europe; to oppose vaccines but not the president who oversaw the Covid vaccine; to view Ukraine as another region’s problem but Iran as a core US interest. This is an intellectual farrago, but it might be preferable to hard, consistent doctrine... Trump doesn’t share the movement’s interest in the fate of “western civilisation” and other grandiose abstractions. He is not much of a China hawk: his concern is the bilateral trade data, not the grand strategy, much less the contest of values. As for religion, we can’t know another person’s inner life, but come on.

12. China is staring at zero interest rates.

The release of China’s second-quarter growth data this week... real economic expansion was strong and steady at 5.2 per cent but widespread falling prices meant nominal growth was much weaker, at 3.9 per cent... The central bank’s benchmark seven-day reverse repo rate, following a series of gradual cuts, now stands at 1.4 per cent... The yield on China’s 10-year government bond has been hovering around 1.7 per cent, near historic lows, suggesting investor expectations of persistent disinflation... The average interest margin at China’s top six state lenders fell to 1.48 per cent in the first quarter, its lowest level on record, compared with more than 2 per cent in 2021... At most Chinese banks, the interest rate on demand deposits is 0.05 per cent, while one-year term deposits yield less than 2 per cent.

13. Europe's rural depopulation

In the decade to 2024, the estimated number of people living in predominantly rural EU regions fell by nearly 8mn, an 8.3 per cent drop, while the urban population rose by over 10mn, or 6 per cent. Regions making up about 40 per cent of the EU’s land area and containing almost one-third of its population, are experiencing a sustained drop in residents. Dwindling numbers mean shops and bars are forced to close, buses run less frequently, doctors are harder to find, and classrooms become emptier. This fuels further departures, in what the OECD describes as a vicious cycle... Depopulation threatens Europe’s cultural heritage, local languages, cuisines, crafts, farmland, traditions and even national security... Attempts at reversing the trend range from selling houses for €1 to encourage new arrivals to restore them, to subsidising vital services and repurposing civic buildings so they can serve several different functions. Some areas are turning to tourism, encouraging second-home ownership even as some other areas turn against it... the EU’s rural population is forecast to shrink by 18 per cent by 2100, with some areas — including in Bulgaria, Croatia, Portugal and Lithuania — expected to lose one-third of their rural inhabitants or more.

 

14. China is snapping up mines across the world at record rates.

Chinese companies had become adept at snapping up mining assets from western rivals in recent years, often being willing to take a longer-term view on valuations and invest in riskier jurisdictions... The most active Chinese mining groups in overseas deals include CMOC, MMG and Zijin Mining. Chinese financial institutions have also issued billions in loans for minerals mining and processing projects in the developing world... Chinese companies were positioning themselves to benefit from resource nationalism in nations such as Mali. Some military governments in Africa have sought to take control of western mining assets and are demanding higher royalty payments. Chinese companies are often prepared to accept a less lucrative arrangement if they can take over the running of the asset.

15. As China grapples with overproduction and deflation, President Xi has warned against excessive production in EVs, computing power (data centres), and AI. 

“When it comes to projects, there are a few things — artificial intelligence, computing power and new energy vehicles. Do all provinces in the country have to develop industries in these directions?” Xi told the Central Urban Work Conference, a rarely held high-level Communist party meeting on urban development.

Since September 2022, Chinese producer prices have been in a deflationary trajectory.

In articles across state and party media, Chinese President Xi Jinping and other leading officials have attacked what they call neijuan, or “involution”, meaning excessive price competition... Beijing is growing increasingly wary that surging industrial output, coupled with weak consumer demand at home, is fuelling a race to the bottom in prices that is entrenching deflation and fuelling tensions with the country’s biggest trading partners. Official data is expected to show on Wednesday that factory gate price growth remained negative in June for a 33rd consecutive month, one of the country’s longest such falls in decades. Overcapacity is a sensitive issue for China, which has sought to dispel complaints that its industrial policy has flooded its partners’ markets with artificially low-cost goods.

16. Important decision by the University of California's $190 bn endowment fund to completely exit its hedge fund investments. 

UC Investments in a meeting on Tuesday approved a plan to reallocate its 10 per cent absolute return portfolio — or its investments in hedge funds — to public equities, finalising a wind-down that began five years ago. Jagdeep Singh Bachher, chief investment officer of UC Investments, one of the largest institutional investors in the US, sharply criticised the industry in a recent meeting for not delivering for clients... He added that UC Investment’s hedge fund positions had undermined its overall performance by introducing risks during market upheavals in 1999, 2008 and 2020. “In each of those three scenarios, hedge funds didn’t hedge us,” he said. “They exposed us to the opposite kind of risk, which actually meant they hurt us.” The move underscores concerns among asset allocators about hedge fund investments that come with unstable returns and high fees that have ballooned in recent years.

Weekend reading links

1. Globalised nature of supply chains is captured in the form of the supply chain of the Chevrolet Silverado.

The high-margin General Motors model, which costs roughly $40,000-$70,000, relies on one of the most complex, international and interconnected automotive supply chains, making it particularly vulnerable to the US president’s threat to impose 25 per cent tariffs on Canada and Mexico. Of the 673,000 Silverados produced last year, 31 per cent were built at GM’s factory in the Mexican city of Silao and 20 per cent at its plant in Oshawa, Canada. But even for the roughly half manufactured at three US plants in Michigan and Indiana, it is likely that the power steering and door trim panels were built in Mexico; the rear lighting in Canada; the airbag module in Germany; and the centre stack display in Japan, according to S&P Global Mobility data... Data compiled by Export Genius shows that key components in Silverados are heavily dependent on parts imported from Mexico. The country’s exports of parts for the vehicle were worth almost $30bn last year, with braking systems alone accounting for $4.3bn.

2. Russia was the biggest beneficiary of the increased natural gas price from its invasion of Ukraine. The other beneficiary was Norway!

In 2022 and 2023 (until European gas-importing countries were able to build LNG import terminals) Norway received excess natural gas export revenues of €109bn, according to estimates by the Norwegian Ministry of Finance. Norway’s 78 per cent marginal tax on profits in the oil and gas sector, along with returns on the government’s direct investments in oil and gasfields, and dividends from its ownership share in its parastatal oil company Equinor, ensured that the lion’s share of this windfall went into the country’s coffers while a much smaller share was retained by the companies that produced the gas. Oil and gas companies operating in Norway responded to the rise in prices by increasing production. Markets did their job of allocating scarce gas supplies to their most efficient use, in many cases mitigated by energy subsidies... But Norway’s government has not recognised its windfall as profits from the war. This year it allocated a measly €3bn to support Ukraine’s desperate war effort... The value of Norway’s war windfall is almost equivalent to all US military and civilian support for Ukraine to date... Any increase in Norway’s support for Ukraine, they argue, should be subject to the national spending rule that stipulates no more than 3 per cent of the value of its sovereign wealth fund can be spent each year.

3. Steve Bannon and Donald Trump are not being whimsical when seeking closer ties with Russia, but are merely following the attitudes of their electoral base. 

Similarly, a large share of Republican voters support ending aid to Ukraine.

4.  Excellent tribute by Tim Harford to the late Donald Shoup, the father of "parking" economics. Some insights

Shoup reckoned that in a small Los Angeles neighbourhood — just 15 blocks — drivers collectively drove an extra million miles a year in their hunt for a good spot. “Shoup concluded that nearly one-third of all the cars in parking-scarce neighbourhoods were looking for a place to park,” writes Grabar... An apartment parking lot would be vacant during the day, while the office and retail would be empty at night. Regulatory parking minimums did not allow for sensible ideas such as the idea that an apartment building might share parking with a neighbouring mall... given that each new parking space cost thousands of dollars to provide, and given that there were at least three spaces per vehicle, the value of all the parking spaces in the US exceeded the value of all the cars... Shoup suggested solutions: abolish regulatory parking minimums, introduce parking meters and set the prices sufficiently high that people don’t have to waste time looking for a space — although they may instead walk, cycle, switch to public transport or drive at a less busy time. But the game-changing idea was to propose that parking revenue from kerbside meters should be invested in local improvements to the streetscape such as litter collection, tree-planting or pleasantly paved sidewalks. This, says M Nolan Gray, one of Shoup’s many acolytes, was his “greatest contribution”. Locals stopped opposing parking meters, and started demanding them.

5. Stanley Druckenmiller, founder of Duquesne Capital Management hedge fund and formerly George Soros's right hand man, may be the most influential Wall Street personality in the Trump administration through his two proteges - Scott Bessant, Treasury Secretary, and Kevin Warsh, the most likely successor to Jay Powell.

7. Amidst the extreme polarisation in US politics, the one area where the Republicans and Democrats may be converging is in anti-trust. This is borne out by the bipartisan consensus on the nomination of Oxford-educated and business concentration wary Gail Slater to succeed Jonathan Kanter and head the Justice Department's anti-trust division. 

Slater embodies the unlikely alignment of progressives who support tough antitrust enforcement and a new generation of populist conservatives helmed by vice-president JD Vance, who has called for the break-up of Google. While the motivation of the two groups differ — progressives look to curb anti-competitive behaviour and corporate power while Maga populists also aim to clamp down on platforms and companies they accuse of censoring conservative voices — the unlikely bipartisanship has spooked Wall Street.

6. As tariffs rise, here's a summary of the trade-weighted tariffs of major countries.

The trade-weighted US tariff of 2.2 per cent is lower than that of any of its trading partners, except Japan at 1.7 per cent. The European Union’s stands at 2.7 per cent, China at 3 per cent, Canada at 3.4 per cent, Mexico at 3.9 per cent, Vietnam at 5 per cent, Brazil at 6.7 per cent, South Korea at 8.4 per cent, and India—labelled by Trump as the “tariff king”—at 12 per cent.

7. Maurice Obstfeld makes some important points.

The trade balance equals what an economy produces minus total spending on consumption and investment. It is therefore linked to manufacturing output and employment. This is not because importing more lowers GDP. Rather, when demand rises beyond output in an economy close to full employment, as in the US today, part of that higher demand is for non-tradeable goods. As supply expands to meet demand, production inputs including labour are drawn away from tradeable sectors like manufacturing. Demand for tradeable goods is thus satisfied by imports — the trade deficit grows and manufacturing shrinks. Tariffs do not necessarily push the balance between income and spending in one direction or the other, which is why they don’t improve the trade balance or manufacturing employment. Tariffs will cause the currency to strengthen... This both raises imports and harms exports. Tariffs also hurt exports by raising the prices of critical intermediate goods... Tariff talk distracts us from the appropriate economic policies to help America. Better targeted policies could include a more redistributive tax system, limits to corporate market power, further healthcare reform, and workforce development. The Trump administration is offering none of these.

8. American corruption fact of the day  

Mr. Trump’s post-election fund-raising... inaugural committee, which is a separate entity, brought in more than $170 million in private donations as of early January, a record... Among them are the technology companies Amazon, Meta, Google and Microsoft, each of which donated $1 million. Kraken, a cryptocurrency exchange that was sued by the Securities and Exchange Commission in 2023, put in $1 million as well. On Monday, the S.E.C. said it was dropping the case voluntarily. Last week, it dismissed a suit against another cryptocurrency exchange, Coinbase, which also donated $1 million to Mr. Trump’s inauguration.

9. DOGE takes the chainsaw to consulting firms working with US federal government agencies. 

10. Indonesia's middle class is shrinking, even as the new President, Probowo Subianto, seeks to turn Indonesia to a developed country by 2045 with an annual growth rate of 8%.

The number of Indonesians in the middle class had fallen to 47.9mn by March 2024, down from a peak of about 60mn in 2018, according to the most recent government data. Indonesia defines its middle class as those who spend Rp2mn-Rp9.9mn ($122-$605) a month. In the four years to 2018, the middle class grew by 21mn. The middle class accounted for 17 per cent of the population last year, down from as much as 23 per cent in 2018. Indonesia has also seen an increase in the number of people in the “aspiring middle class” and “vulnerable” categories, indicating a reversal in economic progress, said analysts. At the same time, employment in the informal sector — typically poorly paid and insecure — has risen to 59 per cent in 2023 from 57 per cent in 2018, according to government data...

“The culprit for this is the inability to produce jobs in the formal sector,” said Chatib Basri, a former finance minister who is now advising the government on the economy. “From 2019, most of the jobs created were basically in the informal sector.” Such growth results in weaker consumer spending and lowers tax collection, said Eko Listiyanto, vice-director of the Institute for Development of Economics and Finance. Manufacturing, a mainstay of middle-class jobs, as a contributor to GDP has dropped steadily over the past two decades. Instead, resource-rich Indonesia has focused on developing its commodities sector.

11. FT reports that Chinese competition and high electricity prices annihilated the US aluminium industry. President Trump has raised tariffs on aluminium imports from 10% to 25%.

The downturn in the US industry is being driven above all by high energy costs. And they show no sign of abating... “For aluminium, everything comes down to electricity,” said Annie Sartor of Industrious Labs, a non-profit focused on the decarbonisation of heavy industry. “There’s a phrase that aluminium is electricity in solid form.” New Madrid is no exception. “This smelter uses more electricity in 24 hours than the whole city of Springfield, Missouri,” said Lester. That is why the recent rise in power prices has been so painful for producers. The average cost of electricity for US smelters is expected to rise to $36 per megawatt hour in 2025, up from $33/MWh in 2024, according to CRU Group, a commodity data company. An industry veteran, Lester has had a ringside seat at the decline of American aluminium. When he started out, the US had 34 smelters — now it has four. It produced 30 per cent of the world’s aluminium in 1980 — now it accounts for just 1 per cent.

12. Aid facts of the day.

Rich countries spent $256bn (or 0.4% of GDP) on foreign aid last year—enough to provide sub-Saharan African governments with a sum as large as their total tax revenues. Only a sliver of the spending will have gone to cultural causes, funding the sort of pro-democracy charities and independent newspapers that maga types despise. Around a quarter will have been humanitarian aid (covering disaster relief and refugees) and health funding (such as hiv treatment, vaccines and so on)... Development spending accounts for almost three-quarters of all aid. It most often subsidises favoured industries, frequently funds infrastructure construction and sometimes pays the salaries of teachers. The average Malawian has had more money spent on them by international agencies than by their own government every year since the country gained independence from Britain in 1964... 

In 2004 William Easterly of New York University and co-authors found that, from 1970 to 1997, aid was just as likely to shrink the world’s poorest economies as to help them grow. A year later the World Bank produced a post mortem on two decades of development aid, poring over the history of its recipients. The researchers concluded that its grants and loans did not move the needle on growth. In 2019 the IMF reached a similar conclusion. As Charles Kenny of the Centre for Global Development, a think-tank, notes: “There is no country that has really grown from aid.”... In 2005 David Dollar and Jakob Svensson, both then of the World Bank, and Dani Rodrik of Harvard University, looked at disbursals tied to political reforms—and could not find a country where they had produced better policy... In 2015 Axel Dreher of Heidelberg University and Steffen Lohmann, then at the University of Göttingen, looked at local economic activity after the building of schools, social housing and other projects in a range of locations, and found no increase in the amount of electric light, their proxy for economic growth... And instead of strengthening recipient countries’ ability to provide public services, aid often weakens it. The IMF has found that more development spending tends to result in lower taxes. Last year Avi Ahuja of New York University concluded that it produces less competitive political systems, as incumbents wield the cash to win votes.

And more here

In 2023, the latest year for which there are comparable data, rich Western countries spent $60bn on aid in Africa, which is 27% of global aid spending by these countries. For the median African country aid accounts for about 4% of gross national income (gni), though it ranges from less than 0.5% in fairly rich countries like South Africa to 27% in very poor ones such as Central African Republic (see map).

A study published in 2023 by academics at Lund University in Sweden found that aid led to weaker fiscal capacity in African democracies, suggesting it got in the way of social contracts between the taxed and the taxer. “In effect, aid-dependent democracies become more autocratic,” say the authors.

Also Martin Wolf on aid.  

13. Livemint points to the differences between tariffs imposed by India and US. At the aggregate level, weighted average tariff gap has declined sharply from 22.9 percentage points in 2000 to just 2.5 percentage points in 2022.

At the broad sectoral level.

And at the product level.

14. Fascinating long read about the complex financial structure of the Canadian PE firm Brookfield Corporation, especially on its related party transactions where it's both the buyer and seller. The article describes the sale of One Liberty Plaza in Manhattan. 

A rare transaction in a moribund market for office towers, it received little publicity because the building’s ultimate owner, Canada’s Brookfield Corporation, was both the buyer and the seller. One of the world’s largest and most complex financial conglomerates, Brookfield sold property to itself like this dozens of times in 2024, using $1.4bn from its insurance arm to finance transactions that supported its “distributable earnings” — a non-standard measure of profit that underpins the corporation’s $90bn stock market valuation. These earnings were then recycled back into the portfolio in a circular flow of cash that is attracting scrutiny of both the relative opacity of Brookfield’s accounting practices and how it juggles its vast global portfolio of real estate...

Such trades support an expansive but lossmaking portfolio of more than 200 malls and offices dotting skylines around the world, including London’s Canary Wharf, One Manhattan West and the Las Vegas Fashion Show mall. The transactions pose questions about the quality of Brookfield Corporation’s earnings, and the valuation of assets held to pay annuity policies at the Brookfield-owned insurance businesses that trade with other parts of the conglomerate. They also raise the question of whether Brookfield and chief executive Bruce Flatt are presenting a sufficiently transparent picture of the organisation — a labyrinth containing thousands of entities, the interconnected funds, partnerships, trusts and companies that control $1tn of assets. Flatt, an accountant by training, owns a third of the Bermuda trust that appoints half the board of Brookfield Corporation in Toronto, the topmost of six listed companies operating in real estate, private equity, infrastructure, green energy, insurance and asset management. Brookfield also exercises control over a wide range of businesses and investment funds even though it often owns only a small part of them... Brookfield is a fiduciary that manages assets and money for public sector and union pension funds, annuity holders and investment funds. It runs critical infrastructure, is responsible for huge sums in long-term liabilities, and operates regulated businesses in many jurisdictions.

15. The size of the US Treasury market has doubled in the last decade!

16. High multiplier of government R&D spending.

In a comprehensive study, Andrew Fieldhouse and Karel Mertens classify major changes in non-defence R&D funding by the DoE, Nasa, NIH and NSF over the postwar period. They estimate implied returns of as much as 200 per cent — raising US economic output by $2 per dollar of funding. This is substantially higher than recent estimates of returns to private R&D. According to the Congressional Budget Office, the high returns to public funding are more than 10 times that on public investment in infrastructure. With the higher tax revenue generated from additional GDP, an increase in R&D funding more than pays for itself. In aggregate, productivity gains from federal R&D funding are substantial. Indeed, Fieldhouse and Mertens estimate that government-funded R&D amounts to about one-fifth of productivity growth (measured as output growth less all input growth) in the US since the second world war.

17. Business Standard points to a new study by ICAR-National Institute of Agricultural Economics and Policy Research which finds limited outreach of MSP operations. 

The findings indicate that only 15 per cent of paddy and 9.6 per cent of wheat farmers engage with the procurement system. Moreover, it remains confined to mostly large farmers. Small and marginal farmers, despite producing 53.6 per cent of paddy and 45 per cent of wheat, have low participation in public procurement. The direct relationship between participation in the MSP-backed procurement system and farm size arises because small and marginal farmers are likely to have low awareness about the procurement system, and are often constrained by their limited scale of production.

Weekend reading links

1. For a country which imported 72% of its crude oil in 2022, has China reaches peak oil?

Its crude oil imports declined 2% in 2024, the first such decline. The implications are enormous.

If Chinese demand is reaching a plateau that would fulfil projections by the IEA of global oil demand peaking before 2030. The forecast sustains hope for the world to reach net zero carbon emissions by 2050. The milestone would also shake the global economy. Over the past three decades, China has accounted for half of all growth in the world’s oil demand — some 600,000 b/d. If that rate continues to level off, the $500bn that oil companies are spending every year on finding new sources of oil and gas may be far too high.

2. Europe's stunning reversal of economic fortunes between its core (northern) and peripheral (southern) economies, the so-called PIIGS. 

In a stark reversal of fortune, the once-ailing “periphery” countries have stolen the lustre of its previously dominant “core”, including Belgium, the Netherlands, Austria and, at the centre, Germany. In the 15 years to the pandemic, German GDP on average grew by 1.5 per cent a year while the four southern states eked out just 0.3 per cent on average. Since 2020, Spain, Italy, Portugal and Greece have on average expanded by 1.3 per cent a year... on average, the four economies are nearly 6 per cent larger than they were at the start of the pandemic. Meanwhile, Europe’s largest economy Germany had no increase in economic activity at all over the past four years, and the Bundesbank has warned that this stagnation may drag on well into 2025. By contrast, the EU commission expects that Spain and Greece will grow by 2.3 per cent this year, Portugal by 1.9 per cent and Italy by 1 per cent.

Impressively, the much derided bureaucracy in Brussels may have contributed to this reversal for the PIIGS!

The newfound economic fortunes of Europe’s debt crisis countries can in part be traced right back to Brussels itself: A €800bn debt-funded investment programme that the EU launched during the pandemic. Through the so-called NextGenerationEU, member states are being provided with funds to invest in transportation and digital infrastructure, green energy generation, research and development among other areas, in exchange for undertaking productivity-enhancing structural reforms. Portugal, Italy, Spain and Greece are the main recipients. Though the four countries account for just 28 per cent of the Euro area’s GDP, they are expected to receive 78 per cent of all funds through the programme, according to ECB data. The scheme is currently set to run until mid-2026. In Italy, around €25bn of NextGenEU funds is being used for a major upgrade of the railway network, including new high-speed train lines into the country’s south, where travel is far slower than in the prosperous north. Billions of euros in infrastructure investment are generating much-needed employment in a region that has historically been short of jobs.

The money has come attached with reform conditionalities.

To unlock the funds, Italy has had to undertake major reforms of its public administration and judicial systems, with the aim of streamlining, simplifying and accelerating procedures and decision-making to boost efficiency and the country’s long-term competitiveness. The structural reforms demanded by Brussels are more important than the money itself, argues Yannis Stournaras, the governor of the Bank of Greece... Stournaras points to research by the Greek central bank suggesting that those measures alone could lift GDP up to 10 per cent by 2040.

3. German economy graphic of the day. Industrial output is falling and a quarter of manufacturing capacity is going unused. 

There are several other graphics in the article that point to the decline in the country's economic fortunes under Olaf Scholz. 

This graphic is both glass half full and half empty.

On the one hand, it's an impressive achievement that Germany was able to completely phase out a nearly 50% dependency on Russian gas in just over a year. On the other hand, Russian gas has not been substituted or offset by gas from LNG terminals. 

This means that Germany has either managed to improve its energy efficiency or figure out alternative energy sources or foregone output. More likely a combination of all, and subsequent economic contraction appears to indicate that it has been more of the last. 

Public investment is an area that Germany should focus.

Germany’s transport, energy and communications infrastructure suffers from years of under-investment, in part because of the country’s strict public deficit rules. The debt brake, a constitutional provision introduced under former chancellor Angela Merkel in 2009, prevents regional governments from taking on any new debt and the federal state from borrowing no more than 0.35 per cent of GDP in any given year. The result is an ageing railway network, crumbling highways and collapsing bridges. Deutsche Bahn, whose trains increasingly run late — if at all — has estimated it needs €45bn to modernise. The country’s adoption of new technologies has been slow. In a 2023 survey, 82 per cent of companies in Germany said they were still using fax machines. Germany also has one of the lowest penetration rates of fibre broadband in the OECD.

4. A peek at Donald Trump's commercial interests. 

5. China routinely overstates its GDP growth rates by 2-4 percentage points, says Rhodium Group. 

6. Good article that explains why it's not easy for ICE manufacturers to shift to EVs. This snippet illustrates the challenge,

In comparing their parts, the most important metric is weight reduction. For the electric business to keep growing, the cars need to better compete with gas-guzzlers on range. Therefore most every design decision must take into account whether it makes the car lighter. As a basic example, consider one component: Toyota part #55330-42410, a 20-pound steel bar, known by engineers as a cross-car beam. The beam holds the steering wheel and dashboard instruments in place and helps protect the cabin during a collision. This part is inside the bZ4X, the Toyota brand’s only global, mass-market fully electric car, because it’s of a tried-and-true design used in countless other models. Today’s standard cross-car beam is the product of incremental improvements made across decades, and most versions of it have wound up under the hoods of internal combustion cars. This is a testament to the Toyota Production System (TPS), which continuously refines even the tiniest details of individual auto parts.

Over untold iterations, the beam has been designed to keep the vibrations of an internal combustion engine from making their way to the passengers. But electric motors don’t vibrate, and steel is heavy. These are among the reasons why Tesla Inc. and BYD Co., the top makers of battery-electric vehicles, manufacture similar beams out of plastic. Theirs weigh only about 14 pounds, according to Caresoft, and they’re cheaper and easier to install, too... researcher Yole Group, which notes that BYD makes 40% of its parts. “It’s like, holy cow, these guys make everything,” says Woychowski, the Caresoft president. “They make their own batteries. They make their motors. They make their own body. They make their front and rear fascia, their headlights, their door trim panels, their console. It’s a quantum jump. That’s not conducive to kaizen.”

This is an important snippet

A typical electric car has about 11,000 parts, Goldman Sachs Group Inc. has estimated, about two-thirds fewer than its gas equivalent.

Many components are completely new.  

7. Andy Mukherjee compares the real cost of doing business in India and Thailand.

All told, 19% of a $2.3 million factory in India is an extra burden of governance — or lack of it — that doesn’t exist in Thailand. This may not be an showstopper for a high-margin business that relies on skilled, productive labor and cutting-edge technology. But for a labor-intensive startup operating with slim profits in an industry like readymade garments, going into production from a weak financial position means fewer resources left to scale up. And therein, the entrepreneur tells me, lies the basic difference between India and its East Asian neighbors. No ordinary Thai businessmen fears bankruptcy because of something his government may do; in India, such a prospect is very real.

8. Good description of the fissures building up in the Trump coalition between the Tech Right and the Nationalist Right. 

The core of the aspiring Trumpian aristocracy are still reactionaries and nationalists aching to restore an American way of life thought to be lost after decades of “globalist” technocracy. They are often deeply skeptical of the idea that the innovations promised by tech companies represent progress, and they describe America as “not just a country, not just an economy, but a people with a common history,” as Jeremy Carl, a deputy assistant secretary of the interior in the first Trump administration and a senior fellow at the Claremont Institute, told me. The tech figures who came to the movement in 2024 were often sympathetic to Trumpian nationalism. But they tended to be more interested in making money and launching a new era of “American dynamism.”... The coalition is achingly close to achieving a long-held conservative dream — of fashioning a high-low alliance powerful enough to supplant the liberal establishment and remake America. It is a project that might well collapse if one side or the other gets too much of what it wants, and ends up driving the other away... Mr. Bannon accused the tech barons of promoting “technofeudalism” and “transhumanism”— bending human life into technologized and unnatural new forms.

Another description of all the Republican factions that animate the Trump coalition.  

9. A study by LCH Investments, an investor in hedge funds, shows that hedge funds have pocketed nearly half their returns since their inception in 1969!

Managers generated $3.7tn of total gains before fees, but fees charged to investors were $1.8tn, or about 49 per cent of gross gains... The figures... date back to 1969... “Up to the year 2000, the hedge fund fee take had been running at around a third of overall gains, but since then it has increased to a half,” said Rick Sopher, chief executive of Edmond de Rothschild Capital Holdings and chair of LCH Investments. “As returns came down, fees went up.” New research comes after the world’s 20 most successful hedge funds made their biggest profits on record in 2024... The top 20 managers in the $4.5tn hedge fund industry made total profits for investors of $93.9bn in 2024... up from the previous record of $67bn in 2023. Together the top 20 generated asset-weighted returns of 13.1 per cent, significantly outperforming the average hedge fund, which made 8.3 per cent...

Hedge funds have historically been known for a “two and 20” fee model, where investors pay 2 per cent in management fees every year and a 20 per cent performance fee on investment gains... The increase in the overall fee take from 30 per cent to about 50 per cent of gross gains is largely due to higher management fees... Whereas management fees used to eat up less than 10 per cent of gross gains in the late 1960s and 1970s, they have represented almost 30 per cent in the past two decades... firms have a “pass-through” expenses model, where the manager passes on all costs to their end investors instead of taking an annual management fee. That can cover office rents, technology and data, salaries, bonuses and even client entertainment. It typically varies from 3 to 10 per cent of assets annually. A performance fee of 20-30 per cent of profits is usually charged on top.

This is the list of the biggest hedge funds and their life-term gains. 

10. Important point to be considered in the context of US government restrictions on the sales of high-end semiconductor chips by its chip designers.  

Indian firms that want more than 1,700 chips a year will require “National Verified End User” (“NVEU”) authorisation. The American side has been alarmed by events in India, eg reports of a company in India which imported 1,100 Nvidia chips from Malaysia and re-exported them to Russia for $300 million. Action by the Indian state blocking leakages of high technology to Russia, China, and Iran will help more Indian firms get to this NVEU status.

11. Important point about the trends in central government's assets.

The Central government’s assets as a proportion of its liabilities... rose from 67 per cent in 1950-51 to 100 per cent by the early 1960s and stayed at that level till the early 1980s because of the emphasis on investment in public sector industrial and infrastructure corporations. Since then, it has declined steadily to 75 per cent in 1990-91 and 42 per cent in 2023-24, with the shift towards subsidies and handouts. The growing role of freebies in electoral contests may well reduce the ratio of government assets to liabilities even further.

12. This captures the nature of the Indian market more than anything else

“India is a L1 (in the world of business contracts, L1 stands for the lowest bid in a tender)country. It is price that matters, not quality or source of imports," said N. Krishnamoorthy, deputy managing director, commercial, Chemplast Sanmar, a large PVC producer.

This is Uber CEO Dara Khosrowshahi

“Indian customers are so demanding and don’t want to pay for anything. I am so proud of the team. India is the gateway to the world for us. It has been the toughest market to succeed in. But if we succeed here, it sets the standards for us to succeed in other markets in the world.”

13. India state capacity fact of the day, Directorate General of Foreign Trade (DGTR) edition,

The time taken by DGTR to levy anti-dumping tariff measures is much longer than its peers. “It takes anywhere between 18 to 30 months from the start of dumping to imposition of duties," said A.K. Gupta, founder and director, TPM Consultants, a consultancy into trade remedies. Other countries do it in 9 to 12 months... That apart, the case should ideally be initiated within 15 days of the filing of the application. “In other countries, cases are initiated once there is prima facie evidence and then the investigation begins. But DGTR generally takes a couple of months or more to initiate a case as its officers first start a preliminary investigation, which takes weeks before they even accept the case. This is a typical Indian bureaucratic mindset," said Arora... DGTR has about 25 officers while its equivalent organization, in the US, has over 250. Each officer, at any given time, handles 10 to 20 cases. “In the US and EU, it is not more than two or three cases," said Arora.

14. Parking minimums come full circle.

When cars became the dominant mode of transportation after World War II, cities began adding parking requirements to ease road congestion. By 1969, nearly all municipalities with populations of at least 25,000 had minimum parking requirements for many buildings, including beauty salons and bowling alleys... Hundreds of cities and municipalities have rolled back or completely thrown out requirements on real estate projects since the nonprofit organization Strong Towns began keeping track a decade ago. In 2022 alone, 15 of them, including San Jose, Calif., Raleigh, N.C., and Lexington, Ky., repealed their parking rules. In late 2023, Austin became the largest U.S. city to eliminate parking minimums. And in December, New York City lawmakers put policies in place that reduced or eliminated parking requirements for new housing in some parts of the city... In November 2023, Austin, Texas, became the largest U.S. city to end parking mandates.

Its impact,

A 2022 study by the Regional Plan Association, a nonprofit group focused on the New York City area, found that more low-income housing was built in city neighborhoods where parking requirements were reduced... Seattle, considered a pioneer in parking policy, took an incremental approach. In 2012, the city relaxed minimums in central neighborhoods and areas served by public transit. Then in 2018, it expanded the approach to more locations and types of development. Roughly 60 percent of the housing developed in Seattle since the changes were put in place would not have been possible under the old rules, according to a 2023 study by Sightline Institute.

Weekend reading links

1. John Burn-Murdoch points to two studies about the likely impact of AI on occupational groups. Here's about the first one (paper here)

In an ingenious study published this summer, US researchers showed that within a few months of the launch of ChatGPT, copywriters and graphic designers on major online freelancing platforms saw a significant drop in the number of jobs they got, and even steeper declines in earnings. This suggested not only that generative AI was taking their work, but also that it devalues the work they do still carry out. Most strikingly, the study found that freelancers who previously had the highest earnings and completed the most jobs were no less likely to see their employment and earnings decline than other workers. If anything, they had worse outcomes. In other words, being more skilled was no shield against loss of work or earnings.

And this about the second study (paper here) where the consultancy BCG randomly gave GPT-4 to its employees and monitored its impact,

BCG staff randomly assigned to use GPT-4 when carrying out a set of consulting tasks were far more productive than their colleagues who could not access the tool. Not only did AI-assisted consultants carry out tasks 25 per cent faster and complete 12 per cent more tasks overall, their work was assessed to be 40 per cent higher in quality than their unassisted peers. Employees right across the skills distribution benefited, but in a pattern now common in generative AI studies, the biggest performance gains came among the less highly skilled in their workforce. This makes intuitive sense: large language models are best understood as excellent regurgitators and summarisers of existing, public-domain human knowledge. The closer one’s own knowledge already is to that limit, the smaller the benefit from using them.

There was one catch: on a more nuanced task, which involved analysing quantitative evidence only after a careful reading of qualitative materials, AI-assisted consultants fared worse: GPT missed the subtleties. But two groups of participants bucked that trend. The first — termed “cyborgs” by the authors — intertwined with the AI, constantly moulding, checking and refining its responses, while the second — “centaurs” — divided labour, handing off more AI-suited subtasks while focusing on their own areas of expertise.

His conclusions

First, regulation will be key. Online freelancing is about as unregulated a labour market as you will find. Without protections, even knowledge workers are in trouble. Second, the more multi-faceted the role, the less risk of complete automation. The gig-worker model of performing one task for multiple clients — copywriting or logo design, for example — is especially exposed. And third, getting the most out of these tools, while avoiding their pitfalls, requires treating them as an extension of ourselves, checking their outputs as we would our own. They are not separate, infallible assistants to whom we can defer or hand over responsibility.

He has a tweet thread here.  

2. Interest rates on 10 year Treasury bonds touched 5% in the US for the first time since 2007. Investment grade corporate bonds now yield 6%, and junk bonds demand nearly 10%. Small businesses are paying almost 10% for short-term loans, up from 4.1% in mid-2020.

The rising rates has also stressed developing countries,

That has left the proportion of emerging and developing countries whose borrowing costs are more than 10 percentage points above those of the US at 23 per cent. That compares with less than 5 per cent in 2019, the World Bank calculates, in an indication of the stress those economies are now under. As a result, debt interest payments as a share of government revenues were at their highest level since at least 2010, according to the bank... Emerging market and middle-income countries’ average gross government debt burden is heading above 78 per cent of GDP by 2028, according to IMF forecasts, compared with just over 53 per cent a decade earlier...

The volume of foreign currency debt issued in emerging markets has slumped dramatically over the past two years as the cost of borrowing has soared. Emerging markets have issued about $360bn of foreign currency debt this year, according to Dealogic, following total issuance of $380bn in 2022. That follows issuance of between $700bn-$800bn in each of the previous three years. Issuance has been hit by a lack of demand, as investors favoured issuers with high credit ratings, and waning supply as many sovereigns with low credit ratings lost market access during the rapid increase in US rates of the past 18 months.

3. Extremely detailed map of NYC neighborhoods here. 

4. The Belt and Road Initiative (BRI) has transitioned from being the largest sovereign debt provider to being the largest sovereign debt collector. 

After lending $1.3 trillion to developing countries, mainly for big-ticket infrastructure projects, China has shifted its focus to bailing out many of those same countries from piles of debt... now the two main Chinese state banks that provided most of the infrastructure loans have reduced their new lending. Rescue loans climbed to 58 percent of China’s lending to low- and middle-income countries in 2021 from 5 percent in 2013, according to a new report from AidData, a research institute at William and Mary, a university in Williamsburg, Va., that compiles comprehensive information about Chinese development financing. “Beijing is navigating an unfamiliar and uncomfortable role — as the world’s largest official debt collector,” the institute wrote...

Much of the work for the Belt and Road Initiative has been done by Chinese construction and engineering companies, which sent thousands of engineers, heavy equipment operators and other specialists across Asia, Africa, Latin America, Eastern Europe and the Pacific... China provided the money almost entirely as loans, not grants, and the loans tended to be at adjustable interest rates. As global interest rates have soared for the past two years, poor countries have found themselves owing far higher payments to Beijing than they expected. Chinese lenders and contractors were able to build projects rapidly because the Chinese government seldom required extensive environmental studies, financial viability reviews or checks on the displacement of local populations forced to give up land. National governments of developing countries were required to guarantee repayment of loans made to their local and provincial governments. In the early years, 65 percent of the loans were made by China’s state-owned policy banks, notably the China Development Bank and the Export-Import Bank of China, AidData found.

5. Interesting trends on post-pandemic work commutes. Post-pandemic commutes have become shorter across cities

But public transport usage has shrunk faster than personal vehicle use, and the decline has been very steep.

And these trends carry further manifestations of widening inequality. Their nature of work means more educated workers can at least partially work from home, which in turn lowers their commute times. And this is reflected in the sharp reduction in commute times of the more educated workers. 

6. The much welcome trend of broadening of India's equity base which is attenuating the impact of foreign capital exits,

October witnessed the highest ever monthly SIP inflow of Rs 16,928 crore. While that takes the seven-month aggregate in the current fiscal to Rs 107,240 crore, it follows an inflow of Rs 155,972 crore in FY’23 and Rs 124,566 crore in FY’22... In October, for example, the FPIs pulled out a net of Rs 28,891 crore from Indian equities between October 1 and November 9. But its impact on the benchmark Sensex has been just 1.5 per cent. Contrastingly, an FPI outflow of Rs 10,836 crore in August 2011 led to the Sensex fall of over 8 per cent. Even in October 2018, an FPI outflow of Rs 28,921 crore led to a Sensex fall of nearly 5 per cent. Why this difference? While the domestic institutional flow led by mutual funds exceeded the FPI outflow by 21 per cent between October 1 and November 9 this year, the DII flow in August 2011 was lower than the FPI outflow by 23 per cent. In October 2018 too, the DII inflow was nearly 10 per cent lower than the FPI outflow. The DII strength has come on account of the SIP inflows. If the SIP inflow in October 2018 amounted to Rs 7,985 crore, it more than doubled to Rs 16,928 crore in October 2023. The big change has come not in large cities but in those that are ranked below 110. Their share in industry AUM (assets under management) in September 2023 — is 18.33 per cent. Ten years ago, the share of these cities in the MF industry AUM on a much smaller base was just 2.57 per cent and five years back, it was 9 per cent.

7. GMR has lined up a Rs 4000 Cr loan with a 14 year tenor at an interest cost of around 10% with a consortium of banks led by IIFCL for the construction of its 2200 Acre Bhogapuram greenfield airport at Visakhapatnam. The consortium also includes REC and PFC.

This fund raising highlights the importance of bank loans in infrastructure financing. Contrary to the conventional wisdom that bond markets should form the major share of infrastructure financing, experience from across the world show that except for US and China, bank loans are the biggest source of infrastructure financing. 

8. Top Four banking sector dominance in the US,

The four biggest US lenders grabbed almost half of all banking profits in the third quarter, highlighting their growing advantage in the new era of higher-for-longer interest rates. Earnings at JPMorgan Chase, Bank of America, Wells Fargo and Citigroup were up 23 per cent according to BankRegData, which collates quarterly reports from lenders to the Federal Deposit Insurance Corporation. Of the nation’s almost 4,400 banks, the big four made 45 per cent of the industry’s overall profits in the third quarter. That was up from 35 per cent a year ago, and well above the 10-year average of 39 per cent. By contrast profits at all other institutions dropped by an average 19 per cent in the quarter, their largest fall since the early months of the coronavirus pandemic.

And there's an implicit too big to fail subsidy enjoyed merely by being big.

But the biggest reason for the divide is the fact that the big banks, perhaps because of technological advantages or perceived safety due to their size, have not had to pay up as much to keep depositors. The big four were paying less than 2 per cent a year on accounts that paid interest in the third quarter. That compares to nearly 3 per cent average for regional banks. What is more, more than 40 per cent of the deposit accounts at the nation’s four largest banks pay no interest at all. That compares to 30 per cent for the industry overall.

9. A stunning expose of Ray Dalio and Bridgewater Associates, the world's largest hedge fund, by Rob Copeland in the NYT. Far from being a meritocracy where investment decisions were made by a team after rigorous research and vigorous debate, Bridgewater appears to be like an institution where the founder, Dalio here, took all the decisions. 

Mr. Dalio was Bridgewater and Mr. Dalio decided Bridgewater’s investments. True, there was the so-called Circle of Trust. But though more than one person may have weighed in, functionally only one investment opinion mattered at the firm’s flagship fund, employees said. There was no grand system, no artificial intelligence of any substance, no holy grail. There was just Mr. Dalio, in person, over the phone, from his yacht, or for a few weeks many summers from his villa in Spain, calling the shots...

Mr. Dalio largely oversaw Pure Alpha, the main fund, with a series of if-then rules. If one thing happened, then another would follow. For Pure Alpha, one such if-then rule was that if interest rates declined in a country, then the currency of that country would depreciate, so Pure Alpha would bet against the currencies of countries with falling interest rates. Many of the rules dealt simply with trends. They suggested that short-term moves were likely to be indicative of long-term ones and dictated following the momentum in various markets. Bridgewater’s rules gave it an unquestionable edge in the wildly successful early days, in the late 1980s and 1990s, when most people on Wall Street, from junior traders to billionaires, still believed in the value of their intuition. 

As the years passed, however, Mr. Dalio’s advantage softened, then seemingly ceased by the 2010s and into this decade. The rise of powerful computers made it easy for any trader to program rules and to trade by them. Rivals quickly matched Mr. Dalio’s discoveries, then blew past them into areas such as high-frequency trading. Mr. Dalio stuck to his historic rules... And if Bridgewater’s main hedge fund had for years fallen behind the pace of global markets, it still mostly avoided negative results, and so could fairly say it was making clients money on an absolute basis. Its growth was a testament to the firm’s marketing prowess, which had cultivated a mystique around Pure Alpha’s hands-off, rules-based approach... A newcomer to the investment team as recently as 2018 was gobsmacked to learn that the world’s biggest hedge fund’s trading was still reliant on Microsoft Excel, a decades-old software... Mr. Dalio’s grand automated system — his investment engine — wasn’t nearly as automated or mechanized as was promoted. If he wanted Bridgewater to short the U.S. dollar (as he did, unsuccessfully, for roughly a decade after the 2008 financial crisis), the trade went in. There was not a rule more important than what Mr. Dalio wanted, Mr. Dalio got...

With the hope of turning around the firm’s investment performance, members of the Circle of Trust put together a study of Mr. Dalio’s trades. They trawled deep into the Bridgewater archives for a history of Mr. Dalio’s individual investment ideas. The team ran the numbers once, then again, and again. The data had to be perfect. Then they sat down with Mr. Dalio, according to current and former employees who were present... One young employee, hands shaking, handed over the results: The study showed that Mr. Dalio had been wrong as much as he had been right. Trading on his ideas lately was often akin to a coin flip.

The group sat quietly, nervously waiting for the Bridgewater founder’s response.

Mr. Dalio picked up the piece of paper, crumpled it into a ball and tossed it.

This about how Dalio courted the Kazakh government is typical of the way Wall Street snares gullible sovereigns

In 2013, Kazakhstan began developing what was then the most expensive oil project — a giant field in the Caspian Sea — helping it grow a $77 billion sovereign wealth fund. That money would have to be invested somewhere, and Bridgewater’s client services squad put a meeting on Mr. Dalio’s calendar with Berik Otemurat, the fund’s chief, a bureaucrat who had begun his career barely 10 years earlier.

Mr. Dalio showed interest in the delegation. “What are they doing beforehand?” he asked Bridgewater’s marketing team.

His underlings answered that Mr. Otemurat would be in New York a few hours before he was due in Westport. 

“How are they getting here?” Mr. Dalio then asked.

Bridgewater had arranged for a chauffeur in a Mercedes.

“Get ’em a helicopter.”

The dramatic entrance preceded an unconventional presentation, at least compared with what Mr. Otemurat had experienced in New York. There, titans of industry, such as KKR’s co-founder Henry Kravis and Blackstone’s Stephen Schwarzman, wooed him over sea bass, caviar and an orange hazelnut Napoleon dessert loosely based on the Kazakh flag.

Mr. Dalio drew an indecipherable chart on a dry-erase board and rambled on about the nature of markets. He barely mentioned the specifics of Bridgewater’s approach, according to a person present. There was an undeniable charm — and confidence — to it all. Bridgewater’s marketing team had seen this move before. The end goal would be something other than money. So when Mr. Otemurat raised the prospect of investing $15 million in Bridgewater’s main hedge fund, the fund’s representatives shooed away the suggestion. “We don’t want a relationship with you right now,” one marketing executive said. “We’re in it for the long game.”

Inside Bridgewater, a relationship meant access. The country’s new oil field had taken more than a decade to develop, with near-constant delays. Anyone who knew how the project was proceeding could adjust bets on oil accordingly. Bridgewater’s representatives told the delegation that their firm would be happy to offer free investing advice, and Bridgewater’s team would likewise appreciate the opportunity to ask questions about industries of local expertise. Mr. Otemurat and others in his delegation seemed eager to chat. Soon enough, Bridgewater got it both ways. A few months after Mr. Otemurat’s Westport visit, the Kazakh fund asked again if it could invest in Bridgewater’s funds. This time, it dangled a sum far larger than $15 million, and Bridgewater assented, former employees said.  

Dalio comes across as a super-sized version of the local broker/fixer who has his ears on the ground and an excellent network which he uses to drive his business. 

10. Noah Smith has a simple explainer of Singapore's fabled housing policy,

The government of Singapore owns most of the land, and has a government agency called the Housing Development Board (HDB) that builds a ton of housing. It then sells this housing, mostly to first-time homebuyers (i.e. young people), at a cheap price. who are then free to resell it. The combination of the discount for first-time buyers and the government’s ability to make prices appreciate slowly and steadily over time means that HDB apartments function not just as a cheap place to live, but also as a sort of wealth-building pension system. In other words, in Singapore there’s no contradiction between using your home as a place to live in, and using it to build wealth... The government doesn’t actually sell HDB apartments to people; it sells them 99-year leases.

11. In a big boost to the bankruptcy resolution process, the Supreme Court has ruled in favour of the constitutionality of the IBC provisions on personal guarantees issued by promoters of companies. 

As of September, 2,289 insolvency applications have been filed against personal guarantors involving corporate debt of more than ₹1.64 trillion. Some of these cases involve high-profile names. Guarantors had been seeking legal protection against the automatic application of insolvency proceedings against them, claiming that it amounted to a violation of natural justice, and that resolution professionals could not play an adjudicatory role... So far, as many as 150 of the applications filed against personal guarantors have reportedly been rejected, while 282 were admitted. After the top court’s order, this ratio will likely see a far sharper skew in favour of case admissions.

Meanwhile the performance of IBC has so far fallen short of expectations, though its incentive shaping impacts may be much bigger than these numbers convey

In the first five years of its operation, the value of capital realized from all cases admitted under IBC was only 20%, implying a rather dismal haircut rate of 80% for creditors. And nearly 30% of all cases were landing up in liquidation, which was not the main aim of the law... In its latest quarterly report, the Insolvency and Bankruptcy Board of India (IBBI) reports that more than 65% of the cases under resolution have exceeded 270 days... The IBBI also noted that till June 2023, creditors have realized ₹2.92 trillion of value under various resolution plans of the initial total claims of ₹9.23 trillion. Thus, the realization ratio had improved marginally since 2021, from 20% to 32%.

12. Long read in Mint on the K-shaped economic growth.

13. iPhones are programmed to disallow an increasing share of parts being replaced or repaired.

For a decade, it was easy to get help repairing an iPhone. Cracked screens could be replaced in minutes, and broken cameras could be exchanged without a hitch. But since 2017, iPhone repairs have been a minefield. New batteries can trigger warning messages, replacement screens can disable a phone’s brightness settings, and substitute selfie cameras can malfunction. The breakdowns are an outgrowth of Apple’s practice of writing software that gives it control over iPhones even after someone has bought one. Unlike cars, which can be repaired with generic parts by auto shops and do-it-yourself mechanics, new iPhones are coded to recognize the serial numbers for original components and may malfunction if the parts are changed.

This year, seven iPhone parts can trigger issues during repairs, up from three in 2017, when the company introduced a facial recognition system to unlock the device, according to iFixit, a company that analyzes iPhone components and sells parts for do-it-yourself repairs. The rate at which parts can cause breakdowns has been rising about 20 percent a year since 2016, when only one repair caused a problem.

iFixit has analysed iPhone parts and have this excellent graphic on iPhone parts repairing issues,

This trend is part of the Apple business model, which not only leaves nothing on the table for others but also maximises its own revenues from post-sale possibilities.

The software phenomenon, which is known as parts pairing, has encouraged Apple customers to turn to its stores or authorized repair centers, which charge higher prices for parts and labor. In recent years, only approved parts and sanctioned repairs have avoided the problems. Replacing a shattered screen typically costs nearly $300, about $100 more than work done by an independent shop using a third-party screen.

To put it another way: The cost of replacing a cracked screen on a year-old iPhone 14 is nearly equivalent to the phone’s value, which Apple appraises at $430 in trade-in credit. Apple’s grip on the repairs creates an incentive for customers to spend up to $200 on device insurance, known as AppleCare, which provides free battery replacements and screen repairs. Apple collects an estimated $9 billion annually for the service.

And this practice of controlling parts repair has now become a feature in the industry, with Apple showing the way.

Using software to control repairs has become commonplace across electronics, appliances and heavy machinery as faster chips and cheaper memory turn everyday products into miniature computers. HP has used a similar practice to encourage people to buy its ink cartridges over lower-priced alternatives. Tesla has incorporated it into many cars. And John Deere has put it in farm equipment, disabling machines that aren’t fixed by company repair workers.

14. Times reports about the problem of fake reviews in the internet commerce sites. The problem is likely to get acute in the times ahead as the advances in the likes of generative AI make fake reviews easier to write and more difficult to detect. 

Fake reviews are a good example of the negative externalities created by e-commerce, which is not even anywhere near sufficiently internalised by the private e-commerce firm. There's a market failure. 

For the individuals shopping on an e-commerce site, reviews are often the most important (even the only) signal of credibility and genuineness. Purchase decisions that compare across multiple choices on the same good/service are usually made purely on the ratings score. But the platform operator's incentive is limited to deploy just enough resources to ensure that fake reviews don't swamp the platform. And this incentive too is inversely related to the size of the platform. 

This is a very good example of one more regulatory arbitrage enjoyed by internet companies - they are allowed to socialise costs while appropriating all profits.  

15. Even after all that has happened on the US-China relationship front, interest among corporate bigwigs in the US in courting China does not appear to have dimmed. FT reports that Xi Jinping was given a standing ovation at a meeting at San Francisco. 

Xi himself appeared in a conciliatory tone, reminiscent of the better days of the US-China relationship, as he courted US investments in China. He spoke of an enduring friendship between the two countries that could not be impacted by the recent turmoil. This change of tone is perhaps an indicator of the desperation in China as the economy gets squeezed by the restrictions imposed by the US. 

16. Finally, as the World Cup Final beckons, a striking feature of the Australian and English media coverage of the event has been its gracelessness, hypocrisy, dishonesty, and small-mindedness. This article in Daily Telegraph stoops as low as it can get. There are several other pieces in Daily Mail, Sydney Morning Herald etc, which reek of yellow journalism. Mark Ramprakash puts the issue in perspective, describing such attitudes as arising from jealousy and unconscious bias. 

For the large part, this is a combination of racism, colonial hangover, and inability to stomach the sudden and complete reversal of history (both in terms of controlling global cricket administration and dominating in the field). For a few years now, both off the field, and on the field and across formats, India have become dominant. In this World Cup they have raced so far ahead that there's daylight between them and the rest. 

On India's dominance in this World Cup, I think it can be traced almost completely to the rare and fortuitous confluence of all players getting into their peak form at the same time. Every one of its batsmen and bowlers have hit their respective peak form. I cannot recollect any instance in test or ODI or T20 when an Indian team have had its entire team being in form at the same time. Even having the majority of players in the peak form is rare. As an example, even as India has been a dominant test nation over the last 4-5 years, it has struggled with the form of all its batsmen and have had to rely on Rishabh Pant with the support of an ever  changing cast of one or two among the rest and lower order batsmen. 

And when a team consisting of as talented individuals as India have all their members in peak form, there's little that even the strongest opponents can do to beat them. They can only hope that they play at their best and some among the Indians have an off-day.