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 February 03, 2017.
1) The warrior monks who invented banking [Source: BBC] This piece describes how the Knights Templar - a religious order known for dedication to holy war could’ve been the inventors of banking. It started with them being the bankers to pilgrims to Jerusalem. A pilgrim could leave his cash at Temple Church in London, and withdraw it in Jerusalem. Instead of carrying money, he would carry a letter of credit. In that sense, the Knights Templar were the Western Union of the Crusades. Once the Templars were disbanded in 1312, their place was taken by bankers dealing in buying and selling debt at trade fairs. They issued a credit note, an IOU, which not denominated in the local currency but in a private currency used by an international network of bankers. Every few months, agents of this network of bankers would meet at the great fairs and settle debts. But this web of banking services has always had a darker side to it. By turning personal obligations into internationally tradable debts, these medieval bankers were creating their own private money, outside the control of Europe's kings. Rich, and powerful, they had no need for the coins minted by the sovereign. That description rings true even today. International banks are locked together in a web of mutual debts which are a very real kind of private money.
2) Why is work making us miserable? [Source: Financial Times] Lucy Kellaway delves into workplace disaffection. She says we are in the middle of an “epidemic of disengagement”. Most surveys show less than a third of workers care for their jobs, and the long-term trend is getting worse. This is surprising given the workplace situation has improved markedly since the 1960s. She says the most common reason cited is having a bad manager. But this is a puzzle as managers are surely less hopeless now than they were half a century ago. Part of our modern disaffection may be due to job hopping. Because we can leave at the drop of a hat, we are less likely to make a go of wherever we are. If everyone is constantly coming and going, no one ever feels secure or has any sense of belonging. But the biggest reason for unhappiness is that we expect too much. Office jobs may have improved, but our expectations have far outstripped them. Better education has not helped. People with university degrees tend to dislike their jobs more than people without them. And so as more people have degrees, unhappiness rises. As we march up Maslow’s hierarchy of needs, it is harder to enjoy the view from the top. 3) Japan, not China, will dominate Asia [Source: mauldineconomics.com] Geopolitical strategist George Friedman says that by 2040, it would be Japan which will rise as East Asia’s leading power, not China. He starts with a broad comparison of the structure of China and Japan’s economies and describes how in China the issue of wealth disparity is markedly high as compared to Japan. Unlike China wherein almost every coastal province has much higher per capita income versus an internal province, Tokyo is the only outlier in Japan. He describes that while Japan has a problem of dependence on imports for food and raw materials and aging population, it can get around it through investments in automation and relaxing its immigration policy. Further, what works in Japan’s favour is the fact that unlike China, Japan has no land-based enemies—it is an island nation. Unlike China, the Japanese government has no concern about its ability to impose its writ throughout the entire country. Nor does it have to contend with a huge gulf in wealth disparity between different parts of the country. Perhaps most importantly, Japan has already managed a transition from a high-growth economy to a low-growth economy without revolution. While China certainly remains an immensely powerful country relative to most in the world, it is doubtful whether it has the ability to pull off the kind of politically stable economic transition that Japan managed when its high-growth “miracle” ended in the early 1990s.
4) Wilbur Ross brings art of restructuring to Team Trump [Source: Financial Times] The nomination of Wilbur Ross as US Commerce Secretary gave the most revealing insight yet into the Trump administration’s economic plans. All this stuff about tariffs and walls and protectionism is pure gamesmanship, a way to set up the looming haggles with the rest of the world. Mr Ross called it “preconditioning other countries with whom we will be negotiating that change is coming”. In his career as an investment banker at NM Rothschild and then running his own business, WL Ross & Co, Ross has shown repeatedly how he can dive into an industrial dung heap and emerge with a fistful of dollars and not a speck on his silk tie. He came to Mr. Trump’s attention in 1990, when the latter’s new Taj Mahal casino in Atlantic City was groaning under high-interest junk bond debt. Mr Ross, acting on behalf of the creditors, struck a deal that gave them half of Mr Trump’s equity in return for less onerous borrowing terms. This kept Mr Trump afloat during a very dark time. Unsurprisingly, Mr Trump calls him one of the greatest negotiators he has ever met. As a student at Harvard Business School, Mr Ross was mentored by Georges Doriot, a pioneering advocate for venture capital, who said: “People who do well in life understand things that other people don’t understand.” During hard negotiations, if he seems quiet and purposeful and sans emotions, that is how you win in a room where everyone else is about to burst into tears. In America’s case, excess leverage is built into the mindset. America’s trade deficit seems to be a fundamental affront to Mr Ross’s sense of how business should be done. It is telling that in his Senate hearing, he spoke of China as a “vendor”, one to be managed and forced to agree to new terms by its customer — the USA.
5) How to avert catastrophe? [Source: Financial Times] Today’s elites are often mocked for failing to foresee the financial crisis of 2008 but, in fact, such blindness is standard. In 1914, few people expected the first world war: the historian Niall Ferguson has shown that bond prices held up that summer, meaning that investors didn’t foresee higher government borrowing. Forecasters also missed the Holocaust, China’s Cultural Revolution and September 11. The West is particularly ill-equipped to foresee catastrophes, because Western countries have hardly experienced any since 1945. Nassim Nicholas Taleb has some tips on how not to be that turkey: 1) You can’t know which catastrophe will happen, but expect that any day some catastrophe could. 2) Don’t presume that future catastrophes will repeat the forms of past catastrophes. 3) Don’t follow the noise as some catastrophes unfold silently 4) Ignore banalities and stretch and bore yourselves with important stuff; 5) Strengthen democratic institutions. The only western state designed specifically to ward off catastrophe is the Federal Republic of Germany; 6) Strengthen the boring, neglected bits of the state that can either prevent or cause catastrophe. 7) Listen to older people who have experienced catastrophes; 8) Be conservative. Often it’s smarter to maintain a flawed status quo.
6) Germany in the age of Trump [Source: Project Syndicate] America’s two former enemies, Germany and Japan, will be among the biggest losers if the US abdicates its global role under Trump. Both countries experienced total defeat in 1945, and ever since they have rejected all forms of the Machtstaat, or “power state.” With their security guaranteed by the USA, they transformed themselves into trading countries, and have remained active participants in the US-led international system. If Trump takes away the US security umbrella, these two major economic powers will have a serious security problem on their hands. While Japan’s peripheral geopolitical position might, theoretically, allow it to re-nationalise its defence capacities, pursuing that option could significantly increase the likelihood of a military confrontation in East Asia. This is an alarming prospect, given that multiple countries in the region have nuclear weapons. Germany, meanwhile, lies in the heart of Europe, and is surrounded by its previous wartime enemies. Its location alone makes nationalism a bad idea; and besides, its most fundamental political and economic interests depend on a strong, successful EU – especially in the age of Trump. It’s in the same boat as all other Europeans with respect to security. Just as there can be no French security without Germany, there can be no German security without Poland. That is why Germany and all other European countries must now do all they can to boost their contributions to collective security within the EU and NATO. Apart from security, Germany’s second fundamental interest is global free trade. It will not bode well for Germany if China and the USA – its two most important non-EU export markets – enter into a trade war. Protectionism anywhere can have global repercussions.
7) Mumbai’s airport plan flies into trouble [Source: Financial Times] Mumbai desperately needs a new airport. The current one – which is only three years old - is already operating at full capacity and it is impossible to expand it any further. The Maharashtra government forecasts air traffic will increase to a staggering 100 million passengers in 2035 from 35 million passengers last year. The latest estimate of the project’s cost, from the civil aviation ministry, is Rs167bn ($2.5bn). However, when that day will come is far from clear. The site of Mumbai’s future airport is a mess of crocodile-filled swampland, jungle and the odd river. From a simple engineering point of view, building an airstrip on reclaimed land, mudflats and mangroves will make it very unstable. There are other challenges too. The biggest problem for the most ambitious projects in India has been land acquisition. There are also difficulties in structuring clear agreements between public and private sector interests to avoid disputes and litigation. Then making sure that the road and rail links are built so people can actually reach the new airport is challenging. Finally, the cost of obtaining finance in India is high, making affordability is an issue. After all that, securing environmental clearance can hold up projects for months. Delays have already set in at Navi Mumbai – the “ultimate phase”, when the airport will be capable of handling 450,000 passengers a day, is now scheduled for 2030-31.
8) How to be lucky? [Source: nautil.us] What is luck? That’s the question Norwegian psychologist Karl Halvor Teigen, at the University of Oslo tries to understand in this article. According to him, while people often think of luck as random chance or a supernatural force, it is better described as subjective interpretation. It turns out that believing you are lucky is a kind of magical thinking that can lead to a virtuous cycle of thought and action. Belief in good luck goes hand in hand with feelings of control, optimism, and low anxiety. If you believe you’re lucky and show up for a date feeling confident, relaxed, and positive, you’ll be more attractive to your date. It can lead you to work harder and plan better. It can make you more attentive to the unexpected, allowing you to capitalise on opportunities that arise around you. On the other hand, feeling unlucky could lead to a vicious cycle likely to generate unlucky outcomes.
9) Of the Australian Open and why the old codgers still dominate tennis [Source: Livemint] Something remarkable played out in the Australian Open this year. Of the eight singles semi-finalists—the women, the men—only two were below 30 years (Coco Vandeweghe and Grigor Dimitrov). In tennis, we seem to be in an era not just of several all-time great players, but one in which older players are dominating the game. That’s what’s remarkable. There’s a reason for this phenomenon. In years gone by, a younger player might have simply been able to blow an older one off the court with power and fitness. That’s what marked the emergence of Jimmy Connors, Becker and Pete Sampras, as well as Maria Sharapova and Serena Williams. But today, fitness levels have progressed so much that they are no longer much of a factor in a top-level tennis match. Everyone, including the old fogeys, hits the ball with ferocious power. In such a climate, perhaps there’s a premium on experience and thinking: the very qualities that players who have been around for years are able to call on. They can work out a plan for how best to beat the newest hotshot, and then put it into effective action. The older you get, the more you’re willing and able to bring to your game the intangibles.
10) Top 10 tech trends transforming humanity [Source:diamandis.com] Dr. Peter Diamandis, an international pioneer in the fields of innovation, incentive competitions and commercial space and amongst the “world’s 50 greatest leaders” as per Fortune magazine’s 2014 list, highlights top 10 tech trends of the year gone by (2016) in this piece