Ten interesting things that we read this week

Indian government's modus operandi, the world's largest hedge fund, the pursuit of a 10,000% return - and many such interesting stories...

Published: Dec 30, 2016

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At Ambit we spend a lot of time reading articles that are not directly relevant to Indian stocks. However, since the Indian economy is now umbilically linked to its global counterparts, the articles that we come across have relevance for Indian stocks and the Indian economy. In that context, this report contains the ten most interesting pieces that we read this week.

Here are the ten most interesting pieces that we read this week, ended December 30, 2016.

1) Selected for success – ‘The other one percent’ [Source: Financial Times]
The myth that if America’s Indians backed Modi, it wasn’t a surprise that they also warmed to Trump at his campaign rally in New Jersey, was punctured by The Other One Percent, in which three US-based academics offer by far the most comprehensive analysis yet of one of the world’s most successful migrant groups. Indians are also America’s wealthiest and most highly educated migrants. Hinduism runs neck-and-neck with Judaism as the country’s richest religion per capita. Rather than putting this down to culture or the ability to speak good English, the authors explain these feats through filtering – a ‘triple selection’ process to be precise. First, those arriving were drawn from the upper strata of Indian society, and especially its upper castes. Second, they were products of exacting Indian academic institutions, often with skills in engineering and computer science. Thirdly, they were thinned out by US immigration rules, which favoured clever students and skilled workers.

2) In pursuit of a 10,000% return [Source: Bloomberg ]
Post the emissions test cheating scandal of Volkswagen, the shareholders of the company found a way of not shouldering the huge legal fees in a legal claim that might fail. The trick was to find a case against VW that was being funded by someone else. Bentham Europe, a London-based investment firm that specializes in funding lawsuits offered to cover all the costs of the action against VW in return for a share of the winnings. Its cut would likely be in the region of 18% to 24%, depending on the size of the plaintiff’s shareholding. If the VW shareholders lose, Bentham will have spent a few million euros to pay for German lawyers. If they win—and secure the €2 billion they’re seeking in damages—they could get back as much as €400 million, a potential return of 10,000%.  Since the financial crisis, lower interest rates have sent investors scurrying in search of decent returns, and litigation funding has become an increasingly attractive asset class. While the sums look small next to the $100 trillion global bond market, the profile of litigation funding’s new supporters suggests an investment strategy on the rise. This is an asset class with unique characteristics. It is impervious to recessions and other economic shocks. Managed well, litigation funds can offer returns that are hard to find anywhere else.

3) The man who tried to redeem the world with logic [Source: nautil.us]
Michael Lewis’ The Undoing Project describes how complementary collaboration between great minds can produce masterpieces. This is the story of another such collaboration between great minds and a genius – Walter Pitts. Pitts’ collaboration with Warren McCulloch – a philosopher-poet led to the creation of the first mechanistic theory of the mind, the first computational approach to neuroscience, the logical design of modern computers, and the pillars of artificial intelligence. The core of their work relied on modeling the brain with a Leibnizian logical calculus. Their building block was the proposition—the simplest possible statement, either true or false. While their model was vastly oversimplified for a biological brain, it succeeded at showing a proof of principle. Thought, they said, need not be shrouded in Freudian mysticism or engaged in struggles between ego and id. For the first time in the history of science, “we know how we know.” Pitts went on to work with renowned mathematician, philosopher, and founder of cybernetics, Norbert Wiener and physicist John von Neumann to lay the foundations for cybernetics and artificial intelligence. They had steered psychiatry away from Freudian analysis and toward a mechanistic understanding of thought. While their model of the brain was more or less forgotten by scientists working on the brain, it formed the foundation of the age of digital computing and the neural network approach to machine learning.

4) This government’s modus operandi is constant distraction [Source: Indian Express]
Pratap Bhanu Mehta produces a searing essay here as he lets rip. Unlike the second half of UPA 2, when the press created a frenzy of anxiety over India’s future, especially its economic future, the dramatic headlines that focus on issues of substance under the present government have disappeared today. The author of this piece puts together hypothetical headlines to describe today’s environment: (1) Spectre of Stagnation to highlight the fact that despite the headline GDP growth number, private investment has barely moved and that we are becoming an economy that is not growing despite the state; it is becoming even more reliant on the state. (2) Botched Execution to highlight that even excluding the gross mismanagement of the demonetisation exercise, the government’s execution capabilities are coming under serious question and (3) Hyper Arbitrary State to highlight that this government’s law enforcement imagination is not about the rule of law; it is a very 1970s style view that societies can be disciplined by arbitrary injections of fear every now and then. He also highlights three reasons why media is much less inclined to cry foul in the current scenario. First, 2004-2009 really spoilt us; we had gotten used to a high and so, when the slowdown came, we were angrier. Now we have settled into an adjustment with the usual muddling. Second, in the UPA, the government did not speak, so we dug up our own assessments of different ministries. Now the government constantly speaks, and we take their briefs. Third, this government’s modus operandi is constant distraction: It will continually provide you with headlines, or a circus that will make sure your attention is diverted from the fundamental questions of institutional health or economic governance.

5) The hunt for alien life [Source: Financial Times]
Named after Italian physicist Enrico Fermi, the Fermi’s Paradox states that in a universe billions of years old and presumed to contain billions of planets, at least one super-advanced civilisation would surely have evolved to colonise our galaxy — and we would have detected their presence by now. Yet there was no sign of alien life on Earth or, as far as astronomers could tell, out in space either. In the recent times, the paradox has become ever more glaring. Even after a vast increase in observations, we still have no evidence for creatures big or small, intelligent or otherwise, beyond Earth. Yet astrobiology, the study of extraterrestrial life, is flourishing as never before in universities and space agencies around the world. This article reviews fours books that reflect the growing optimism with respect to finding extraterrestrial life.

6) What DeepMind brings to Alphabet [Source: The Economist]
Google acquired DeepMind for £400m ($660m) in January 2014. But why did it want to own a British artificial-intelligence (AI) company in the first place? Google was already on the cutting edge of machine learning and AI, its newly trendy cousin. What value could DeepMind provide? As per this article, DeepMind’s most immediate benefit to Google and Alphabet is the advantage it gives in the strategic battle that technology companies are waging over AI. It hoovers up talent, keeping researchers away from competitors like Facebook, Microsoft and Amazon. Another boost to the mother ship comes in the form of prestige. DeepMind has reached the cover of Nature, a highly regarded academic journal, twice since it was acquired. From DeepMind’s point of view as well, Alphabet offered the best deal. One was access to the technology firm’s computing power. Another was Google’s profitability; while a weaker buyer would have been more likely to require DeepMind to make money, at Google, DeepMind can focus on research rather than focus on making money. Alphabet would ultimately benefit from a success in creating a general-purpose AI. It would in effect give the firm a digital employee that could be copied over and over again in the service of multiple problems.

7) Macedonia’s fake news industry sets sights on Europe [Source: Financial Times]
More than a hundred US politics sites are run from Veles, a small riverside Macedonian town where a handful of entrepreneurial Macedonian teenagers — apparently unconnected to American right-wing elements or alleged Russian operatives — produce hoax articles attracting millions of clicks and shares. The emergence of a fake news industry in this unlikely spot in the Balkan hinterland may even have tipped the electoral balance in Donald Trump’s favour. The hoax news creators, who decided to set up online after the success of local health websites, still make most of their money from Trump-related content. But elections next year in France and Germany offer a fresh opportunity. That said, Germans are less prone to joining political groups in large numbers and take their politics seriously, say the creators, limiting the multiplier effect that allowed the Veles posts to notch up six-figure viewing numbers within hours during US elections. “It’s not about entertainment for them” adds one creator.

8) The world’s largest hedge fund is building an algorithmic model from its employees’ brain [Source: WSJ]
Deep inside Bridgewater Associates LP, the world’s largest hedge-fund firm, software engineers are at work on a secret project that founder Ray Dalio has sometimes called “The Book of the Future.” The goal is technology that would automate most of the firm’s management. It would represent a culmination of Mr. Dalio’s life work to build Bridgewater into an altar to radical openness—and a place that can endure without him. This technology would enshrine his unorthodox management approach in a software system. It could dole out GPS-style directions for how staff members should spend every aspect of their days, down to whether an employee should make a particular phone call.

9) Donald Trump’s collision course with China [Source: Financial Times]
The biggest surprise since Donald Trump’s election victory is his decision to pick a fight with China. Without realising it, the US electorate appears to have opened the gates to a new cold war in which America’s hand will be far less strong than it was first time round. One of the reasons the US won the original one was its skill at breaking China away from the Soviet block. Detente between Richard Nixon’s US and Mao Zedong’s China in 1972 cemented the Sino-Soviet split and weakened Moscow’s global appeal. Mr Trump plans to do the reverse. His strong rhetoric against China is mirrored only by his warm overtures to Vladimir Putin’s Russia. It remains to be seen what strategic gain Mr Trump will derive from doing deals with Russia — a country that is stoking illiberal democracy in Europe and that played a role in helping Mr Trump defeat Hillary Clinton. But Mr Trump’s antagonism towards China is a gamble without an upside.

10) How the great depression still shapes the way Americans eat [Source: The Atlantic]
Trendy excess notwithstanding, the legacy of the 1929 financial crisis lives on in modern day America. From the way that ingredients and produce wend their paths to American kitchens year-round, to the tone taken by public intellectuals and elected officials about food consumption and diet. The nation’s hunger and habits during the Great Depression are of particular interest to Jane Ziegelman and Andrew Coe, whose book A Square Meal offers a culinary history of an era not known for culinary glamour. According to Ziegelman, the Great Depression set the division between 19th-century food culture and the beginning of modern food culture. “The government takes this very active role in deciding what Americans are going to eat and it’s the beginning of a sort of nutrition consciousness.” she says. “It’s when we begin to think about food groups in terms of food groups and vitamins and minerals and evaluating food on that basis. It’s the beginning of when we look at the sides of our cereal boxes and see how many grams of sugar and how much fiber and make our decisions based on those calculations.” In that sense, it’s not hard to draw a parallel between government’s exhortations then and, First Lady Michelle Obama’s current initiatives to dot the national culinary landscape with a few more wholesome vistas.

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