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.
1) Why the cost of living is poised to plummet in the next 20 years [Source: SingularityHub] Bestselling author Peter Diamandis pulls together a counter-consensus piece. He says “People are concerned about how AI and robotics are taking jobs, destroying livelihoods, reducing our earning capacity, and subsequently destroying the economy…But what people aren't talking about, and what's getting my attention, is a forthcoming rapid demonetization of the cost of living.” As per Diamandis, this drop in the cost of living will come from seven categories which are central to our lives: Transportation (cars will become a ‘service’), Food (cost of food has dropped thirteenfold over the past century); Healthcare (reduced cost of diagnosing and surgery); Housing (people will move out of cities and either use technology to work from home or use autonomous cars for commuting); Energy; Education (most education is already available online); Entertainment.
2) Ram Guha’s proposal to improve governance in India [Source: The Hindustan Times] This piece in argues that “from the level of joint secretary upwards, all government jobs should be subject to open competition. At that level one can bring in professionals with expertise, and yet allow them to grow in the State system, before assuming larger responsibilities.” In the United Nations’ Human Development Report India is a low 130th. Guha says that if we want to reverse this decline we have to bring in professional expertise into the upper echelons of the civil service. This will bring in talent, energy, expertise and the courage to stand up for their views since “to the deference to netas that comes so naturally to the typical IAS officer.”
3) Robots likely to worsen shortage of good jobs [Source: The Times of India] Swami Aiyar points out that all of its vaunted GDP growth, India simply fails to generate jobs. As a result, “When Amroha municipality advertised job vacancies for 114 posts of “safai karmachari” or sweeper, applications came from 19,000 people including MBAs and engineers.” Whilst the fantasists on the Government’s payroll talk about India creating jobs China-style in labour-intensive sectors like garments and shoes, Aiyar points out that is this unlikely to happen due to two reasons: (1) Economies like Bangladesh and Cambodia are beating India hollow thanks to lower wages and duty-free access into many foreign market (which successive Indian governments have failed to negotiate). (2) Robotisation is coming even to labour intensive sectors.
4) The five keys to a successful Google team [Source: Google] Google’s HR team wanted to understand what make a team great. Over two years they conducted 200+ interviews with their employees and looked at more than 250 attributes of 180+ active Google teams. They found that the qualifications and the individual attributes of team members were NOT the key drivers of a team’s effectiveness. “Who is on a team matters less than how the team members interact, structure their work, and view their contributions.” Google HR’s discovered that there are five key dynamics that set successful teams apart from other teams at Google: Psychological safety: Can we take risks on this team without feeling insecure or embarrassed? Dependability: Can we count on each other to do high quality work on time? Structure & clarity: Are goals, roles, and execution plans on our team clear? Meaning of work: Are we working on something that is personally important for each of us? Impact of work: Do we fundamentally believe that the work we're doing matters?
5) The three breakthroughs that finally unleashed AI on the world [Source: Wired] Kevin Kelly explains why AI is about to take off and he seems to have the causal factors nailed down perfectly. Cheap parallel computation: A new kind of chip called a Graphics Processing Unit (GPU) has been developed to deal with the parallel processing requirements of graphics rich videogames. By 2009 a team of engineers at Stanford were using GPU chips to run neural networks in parallel thus laying the foundation of AI. Big data: “Massive databases, self-tracking, web cookies, online footprints, terabytes of storage, decades of search results, Wikipedia, and the entire digital universe became the teachers making AI smart.” Better algorithms: In the 1950s, scientists realised they needed to “stack” neural networks into various hierarchical layers - to recognise a human face, to recognise the eyes, to go deeper into a specific part of the eye, etc. In 2006 came the second breakthrough. “Geoff Hinton, then at the University of Toronto, made a key tweak to this method, which he dubbed ‘deep learning.’ He was able to mathematically optimize results from each layer so that the learning accumulated faster as it proceeded up the stack of layers. Deep-learning algorithms accelerated enormously a few years later when they were ported to GPUs.”
6) Why the hottest investment trend in the world could have worse economic outcomes than Marxism [Source: Business Insider] Passive investing is by far the defining investment trend of our time. A group of analysts at Bernstein led by Inigo Fraser-Jenkins argue that this trend towards passive reduces the efficiency of capital allocation in the real world. Fraser-Jenkins says that a centrally planned economy will produce better outcomes than an economy with lots of passive investing because there is at least an attempt is being made to optimally allocate capital whereas in the passive investing world there is no such attempt. Jesse Livermore, the pseudonymous finance blogger writing at Philosophical Economics. Livermore says that “it takes merely one active participant to facilitate an efficient market. Passive investing gets rid of the active (and also expensive) investors that stink.” Hence, as per Livermore, rather than make markets less efficient, “passive investing actually makes them more efficient because the only active participants left are competent.”
7) Building a Lifestyle: How the Dubai-based Group became a retail Landmark in India [Source: Outlook Business] The Dubai headquartered Landmark Group has built a successful retailing business in India – a sector in which it is notoriously difficult to make a profit – by spotting fashion trends abroad and then adapting them to India using the help of locally employed designers. Three factors seem to have played a key role: Private labels: Lifestyle has steadily developed private labels as the margins are attractive. The strategy has not been to compete with brands but to complete the offering. Velocity and asset turns: Lifestyle’s rivals says that amongst the leading retailers in India, Lifestyle places orders last i.e. it waits until the latest possible moment before ordering next season’s supplies for its stores. In its value conscious fashion offering, Max, Lifestyle moves goods through the supply chain and through the store at rapid speed. Lean operations: Lifestyle seems to have a leaner organisational structure than any other retailer in India. For a typical store, the firm uses a team of barely 6-7 people.
8) Star Trek at 50: Still an idealistic Enterprise? [Source: Financial Times] Star Trek turns 50 next month and whilst the recent Star Trek movie is nothing to write home about, there is much to celebrate about the original TV series which dominated US airtime in the 1960s. For example, right at the height of the 1960s Civil Rights movement, Star Trek aired an episode showing the lead actor, William Shatner, kissing his African-American lieutenant Uhura, played by Nichelle Nichols. Even more impressive was creator Gene Roddenberry’s scripting. Roddenberry, a former air force pilot and LAPD policeman, injected his stories and characters with liberal values, championing toleration, religious scepticism and peace among diverse peoples. Imagine the possibilities if we had TV producers of this calibre in contemporary India.
9) Humans are the main obstacle to the driverless revolution [Source: Financial Times] John Thornhill highlights that “Conventional cars are inefficient, dangerous and dirty..” So what is the way forward? Autonomous cars of course. “The widespread adoption of fully autonomous and, still better, electric cars could therefore be a massive boon to mankind. McKinsey forecasts that 15 per cent of new cars could be fully autonomous by 2030.” The problems that will get in the way. (1) Such cars find it difficult to replicate humans’ sensory abilities; e.g. How does a car distinguish between a plastic bag blowing across the road and a runaway dog? (2) Even if manufacturers of such cars come to fully trust them, it could take decades for consumers and governments to fully trust them not least because of the host of tricky issues posed by such cars; e.g. Autonomous cars will have to programmed to make a calculation that could kill bystanders or passengers to minimise overall loss of life.
10) Poolside working is no longer a sign of importance [Source: Financial Times] In this typically biting piece, Lucy Kellaway says that this year whilst on her summer holiday she disconnected herself from work altogether and thus came back to her desk feeling refreshed and sharp. She then noticed – thanks to the several “out of office” messages she received – that several other people had begun doing this. In fact, even after multiple emails prompting these holidaymakers to respond, she could not get them to respond. She concludes therefore that “Bragging about not working on holiday seems to be part of a wider trend…in which fashionable execs flaunt not their long hours, but their short ones. To be emailing from the pool does not prove you are powerful, it is starting to be seen for what it is — a sign of weakness, poor time management and an inability to delegate.”
- Saurabh Mukherjea is CEO (Institutional Equities) and Prashant Mittal is Analyst (Strategy and Derivatives) at Ambit Capital Pvt Ltd. Views expressed are personal.