Ten interesting things we read this week

At Ambit, we spend a lot of time reading articles that cover a wide gamut of topics, including investment analysis, psychology, science, technology, philosophy, etc. We have been sharing our favourite reads with clients under our weekly ‘Ten Interesting Things’ product. Some of the most interesting topics covered in this week’s iteration are related to ‘Hidden fees in Financial services, ‘Conscious Unconsiousness’ and ‘changing attitudes at workplaces on body art’.

Here are the ten most interesting pieces that we read this week, ended August 17, 2018.

1) How hidden fees are making middle-class America poorer [Source: Financial Times ]
Devin Fergus’ book ‘Land of the Fee’ takes a look at the history of the financialisation of the US economy. According to the author, the book does a good job of explaining how finance became the tail that wags the dog of Main Street. It also has important lessons about the multi-decade dysfunctional dance between Wall Street and Washington – a topic that often gets lost in the conventional blame game about the rise of debt, the stagnation of income, and the increasing concentration of wealth in a handful of sectors. Politicians point the finger at careless, ruthless bankers who put profits above people. Financiers say that they are only playing by the rules Washington sets — ones that incentivise debt and leverage. But as Land of the Fee makes clear, both have come together in a Faustian bargain to prop up the US economy in a house of cards built on credit.

Fergus argues that from the late 1970s onwards, as finance went from being a dull industry with single-digit profit margins to a much larger and more profitable one, the sector began capturing rents in the form of increasing interest payments and hidden fees on the debt that Americans need to supplement their incomes. Even as new technologies made their way into the business, radically decreasing operating costs for financial companies, fees have continued to rise sharply. Finance has become less efficient and costlier as it has grown.

While much of the blame rests with Ronald Reagan, the rise of trickle-down economics during his presidency in the 1980s, and the various policy and regulatory changes that shifted power from labour to capital, financialisation is a bipartisan phenomenon. To the extent that Washington has unleashed the financial sector, it’s usually done so in service to some voting block. “For governments and corporations,” he writes, “fees were a backdoor way to generate revenue while avoiding unpopular discussions over taxes or sticker price hikes.” Indeed, the ballooning of consumer credit in the US, which helped the financial sector grow to such an extent that by the 2000s it was capturing 40% of all corporate profits while creating only 5% of all jobs, actually began as an attempt to make consumers feel a bit richer.

Fergus has much to say about perverse incentives in America’s housing market, which encourages people to over-extend and fuels financial bubbles by allowing interest payments to be written off against tax. But he focuses much of the book on three other apocalyptic villains — student debt, subprime auto loans, and payday lenders — that are today’s most pressing debt problems. The story of student debt, which has surpassed credit card debt in the US and is now a major headwind to consumption, touches wisely on the way in which government and private sector attitudes towards human capital changed. During the Eisenhower era, investing federal money to fund college education was considered a national security issue. Since then, America moved towards a society in which every individual consumer is on his own. No wonder college graduates, who now come out with roughly $30,000 in debt, are now among those in the payday lenders’ fastest-growing customer base, which makes up 20% of the financial industry, according to Fergus.

Fergus recommends a known solution to fix this problem - get rid of money in politics. Throughout the book, Fergus lays out the way in which lobbyists pour billions into Washington to create misguided policies that suit their own aims. Perhaps, the author hopes, the new generation of millennial socialists rising in the US should make this the issue they tackle first.

2) Inside Google’s shadow workforce of contract laborers [Source: Livemint ]
Contractors are on the rise at Google as the company spreads into new markets, such as devices and corporate services, which demand a larger sales force. Google’s Alphabet reported 89,058 direct employees at the end of the second quarter, while the company declined to comment on the number of contract workers. Other companies, such as Apple Inc. and Facebook Inc., some of the most cash-rich public companies, also rely on a steady influx of contractors. Investors watch employee headcount closely at these tech powerhouses, expecting that they keep posting impressive gains by maintaining skinnier workforces than older corporate titans. Hiring contractors keeps the official headcount low, and frees up millions of dollars to retain superstars in fields like artificial intelligence. Google has a name for these contractors: TVCs, or “temps, vendors and contractors.” They are employed by several outside agencies, including Adecco Group AG, Cognizant Technology Solutions Corp. and Randstad NV.

Yana Calou, an organizer with advocacy group Coworker.org who speaks with Google employees and contractors, said that both groups are concerned about the workers who aren’t full Google employees. “They feel isolated, precarious and like second-class citizens,” Calou said. “It’s a microcosm of what’s happening in the economy as a whole.” In an emailed statement, a Google spokeswoman said the company hires TVCs for two primary purposes. One is when the company doesn’t have a particular expertise in-house, such as shuttle bus drivers, quality assurance testers and doctors. Another is for filling temporary positions to cover for paternity leave or spikes in work. Some contract workers viewed Google as a generous workplace that boosted their careers. The first thing people eye at work, one former TVC recalled, is the colour of someone’s badge. TVCs aren’t trusted with tasks outside their limited purview. Four different contractors described the sinking feeling of clocking in at 9:00am only to see full-timers trickle in an hour or two later. The same staff would leave the office around 3:00 pm, often after a midday gym break.

Like other firms, Google relies on outsourcing operations in Southeast Asia—rows of office workers in India and other countries that label mapping data and handle other relatively simple computing work. But Google also hires highly educated contractors in its backyard. Some TVCs arrive with advanced technical degrees and years of experience, working on niche efforts like renewable energy and sensor design. The line between TVCs and full-timers is clear. One 2016 TVC employment contract from Zenith Talent Corp., a recruiting agency, states that TVCs “will not be entitled to any compensation, options, stock, insurance or other rights or benefits accorded to employees of Google.” The terms hold even if a court later determines the worker was legally a Google employee. But, several former contractors noted that Google does offer benefits for contractors that other large companies don’t. TVCs can eat at cafeterias for free and use some company facilities like its bowling alleys and gyms. For many, a TVC position offers a foothold for a permanent role at Google or elsewhere.

Over the years, Google’s influx of contractors has changed with investment priorities. Google Fiber, its broadband unit, was once a major contractor hub, but has scaled back operations. However, other parts of the company that lean on contract work are ramping up. Google’s device sales and cloud-computing units both use call-centre support staff to handle customer issues. In recent years, Google has brought some contract positions in-house. Following criticism, in 2014 it announced that some security guards would become direct staff. Most contractors do not work longer than two-year stints, according to multiple contract workers, but some serve multiple terms on the hopes of becoming direct employees. And for many white-collar TVCs, the second-class status at the first-rate tech behemoth pays off. TVCs are asked to list their status as contractors on LinkedIn accounts—but they can still mention Google.
 
3) There is no such thing as unconscious thought [Source: nautil.us ]
The great French mathematician and physicist Henri Poincaré (1854–1912) took a particular interest in the origins of his own astonishing creativity. His achievements were impressive: His work profoundly reshaped mathematics and physics—including laying crucial foundations for Einstein’s theory of relativity and the modern mathematical analysis of chaos. But he also had some influential speculations about where many of his brilliant ideas came from: unconscious thought. Poincaré found that he would often struggle unsuccessfully with some mathematical problem, perhaps over days or weeks. Then, while not actually working on the problem at all, a possible solution would pop into his mind. And when he later checked carefully, the solution would almost always turn out to be correct. How? Poincaré’s own suspicion was that his unconscious mind was churning through possible approaches to the problem “in the background”—and when an approach seemed aesthetically “right,” it might burst through into consciousness. Poincaré believed that this “unconscious thought” process was carried out by what might almost be a second self, prepared and energized by periods of conscious work, yet able to work away on the problem in hand entirely below the level of conscious awareness.

The brain is a cooperative computing machine—large networks of neurons collectively piece together the solution to a single problem. Importantly, the cycle of thought proceeds one step at a time. The brain’s networks of neurons are highly interconnected, so there seems little scope for assigning different problems to different brain networks. If interconnected neurons are working on entirely different problems, then the signals they pass between them will be hopelessly at cross-purposes—and neither task will be completed successfully: Each neuron has no idea which of the signals it receives are relevant to the problem it is working on, and which are just irrelevant junk. If the brain solves problems through the cooperation computation of vast networks of individually sluggish neurons, then any specific network of neurons can work on just one solution to one problem at a time.

Solving difficult problems, whether mathematical, musical, or of any other kind, is the very antithesis of a routine, specialized problem with a dedicated brain network: On the contrary, thinking about such problems will need to engage most of the brain. So the idea that profound unconscious thought can be “running in the background” as we go about our everyday lives is fanciful indeed. Routine and highly practiced activities aside, the cycle of thought can attend to, and make sense of, only one set of information at a time. Let’s consider why one gets stuck with a difficult problem in the first place. What is special about such problems is that you can’t solve them through a routine set of steps—you have to look at the problem in the “right way” before you can make progress (e.g., with an anagram, you might need to focus on a few key letters; in deep mathematics or musical composition, the space of options might be large and varied). So ideally, the right approach would be to fluidly explore the range of possible angles on the problem, until hitting on the right one. Yet this is not so easy: Once we have been looking at the same problem for a while, we feel ourselves stuck or going round in circles.

We might wonder how it is that the right perceptual interpretation happens to come to mind. Could it be that, while we may be unable actively to pay attention to more than one thing at a time, our brains can unconsciously search our mental archives, pulling out, as it were, useful files for later use? If so, then Poincaré’s unconscious mind could perhaps have been running through potentially relevant bits of higher mathematics, stored over a lifetime of study. Then, on returning to a problem, some vital clues to the solution might have been ready to hand—and a flash of insight would result. Perhaps the brain can’t solve a problem unconsciously, but unconscious activation of relevant memories might prepare the ground for finding the solution. An active unconscious, able to amplify the power of our limited conscious minds, would be a wonderful boon, working away on countless difficult problems, while we go about daily lives; and overcoming the slow step-by-step flow of conscious thought. But unconscious thought is, for all that, nothing more than a myth, however charming.

4) Why women volunteer for tasks that don’t lead to promotions [Source: HBR ]
Research suggests that women more likely volunteer for non-promotable tasks that benefit the organization but won’t likely contribute to someone’s performance evaluation and career advancement. These tasks include traditional office “housework,” such as organizing a holiday party, as well as a much wider set of tasks, such as filling in for a colleague, serving on a low-ranking committee, or taking on routine work that doesn’t require much skill or produce much impact. Studies of industry and academia have shown systematic gender differences in how work is allocated, with women spending relatively more time than men on non-promotable tasks and less time on promotable ones. These differences matter because they help explain why, despite women’s significant educational and general workplace advances, we continue to find vastly different promotion trajectories for men and women. Women will continue to progress more slowly than men if they hold a portfolio of tasks that are less promotable.

Although what makes something non-promotable varies across occupations, there is typically agreement within an occupation about what tasks are non-promotable versus promotable. For example, in a survey of 48 Carnegie Mellon faculty, 90% agreed that an assistant professor has a higher chance of promotion if they allocate spare time to research rather than to committee work (like being on the faculty senate). Separately, when all 3,271 faculty, from a large public U.S. university, were asked to volunteer for a faculty senate committee, only 3.7% chose to do so — but 7% of women volunteered, compared with 2.6% of men. There are of course many reasons why women volunteer more than men. It may be that women are better at these tasks or enjoy them more than their male colleagues.

A series of lab experiments were tested at the Pittsburgh Experimental Economics Laboratory (PEEL). A total of 696 University of Pittsburgh undergraduates participated in the studies. A simple decision exercise to examine who agrees to do non-promotable tasks was designed. Overall, the participants were reluctant to volunteer. While 84% of groups succeeded in finding a volunteer, it typically did not happen until the final seconds of the 2-minute round. Importantly, the rate of volunteering was not the same for men and women. Averaging across the 10 rounds, women were 48% more likely to volunteer than men, and this difference was in every one of the 10 rounds. Because the volunteer task in this experiment was to click a button on a computer screen, the possibility that women volunteered more because they were better at the task or enjoyed it more than men could be ruled out. But gender differences in preferences may nonetheless contribute to the difference in volunteering. In particular, women may volunteer more because they may be more risk-averse or altruistic than men.

Although neither men nor women really want to volunteer for thankless tasks, women volunteer more, are asked to volunteer more, and accept requests to volunteer more than men. These differences do not appear to result from gender differences in preferences, but rather from a shared understanding that women will volunteer more than men. While the results are disconcerting, they also provide a silver lining in suggesting how employees and managers can reduce the inequity in work tasks. The solution is not for women to decline more work requests — which would present problems for organisations and hold repercussions for women but instead for management to find ways to distribute tasks more equitably. Rather than asking for volunteers or asking women to volunteer because they are likely to say yes, managers could consider rotating assignments across employees, for example.

5) Ben Horowitz on Connie Chan’s promotion [Source: a16z.com ]
Ben Horowitz of Andreessen Horowitz, in this piece, talks why Connie Chan was promoted to General Partner. Ben clearly remembers interviewing Connie Chan for the post of an analyst. After the interview, Ben immediately told his assistant Minerva to find the hiring manager Frank Chen as he wanted to speak with him right away about his candidate. He told Frank how ambitious she is. Ben had seen something in Connie that in the course of his career, he had almost never seen. From the way she answered every question to the way she had analyzed the firm to the poise she exhibited in the very way she sat in the chair, Connie was determined to be the best at everything she did. There was no question that she was destined for greatness.

Ben felt an immediate conflict with where she was going and the way they had constructed the firm. When they founded the firm, they made a brand promise that if you raised money from the firm, they would put a Founder or CEO of a significant technology company on your board. That was their General Partner requirement, because they were determined to be the best place for technical founders to learn how to be CEO. To make good on the promise, they built the most powerful platform for giving founders a big time CEO-like network from capital markets to talent to big company customers to the press. On top of that, they committed to putting someone on the board who could help develop the CEO skill set. Finally, they wanted everyone in the firm to culturally understand the struggle of building a company. These were great ideas, but it meant that the firm did not promote General Partners from within. And Ben knew that one day, they would have to promote Connie or miss out. The thought made him a little insane.

Fortunately, Frank hired her as an analyst and she did not disappoint. He paired her closely with their most accomplished General Partner Jeff Jordan who helped develop Connie’s venture capital skills. Connie contributed massively. She found and championed blockbuster deals, which generated amazing returns. After looking at the broader ecosystem, she decided that the firm needed to understand the innovations in China much better if their companies were going to compete, so she took that on personally. Yes, she took on China. And, as with everything Connie did, she quickly became the best at that. She developed into the industry’s leading authority in explaining Chinese technology products to people in the United States. She even won David Brooks’ Sidney Award for her post, “When One App Rules Them All: The Case of WeChat and Mobile in China”. People in venture capital firms don’t usually win these kinds of awards, but Connie was never “usual”.

Through the course of her work, everyone whom the firm ever connected with Connie — from Ben Keighran, founder/CEO of Caffeine, to Chance the Rapper — came back with the same feedback: “Connie is the best.” Beyond that Connie approached investments in a very different way than the other partners. While the rest described deals beginning with the entrepreneur and the size of the opportunity, Connie always saw things from the target customer point of view first then worked her way back to the entrepreneur and the market size. Her different perspective landed the firm Pinterest and Lime early on when conventional thinking would have failed. As importantly, she fiercely championed both deals so aggressively that they had to understand her point of view. Fortunately, as things evolved, the firm’s culture became stronger than the General Partner no-promotion rule. Everyone in the firm became all about the entrepreneurial struggle and helping founders grow into CEOs. Founders didn’t just get a person; they got a platform. The old rule started to seem dated and out of place. So, four months ago the firm dropped the criteria and the promotion rule. And that’s why Connie Chan was promoted.

6) Networking on a new level [Source: medium.com ]
The network is the foundation for everything a digital enterprise builds to drive its business forward. And as the business demands more agility, flexibility, reliability, and security than ever before, it has become clear that networking has been left behind in today’s world of automation, machine learning (ML), and artificial intelligence (AI). But, this is now changing, as the networking industry is undergoing a sea change driven by the shift from hardware to software, the promise of programmable networks, and a new, potentially game-changing technology called intent-based networking. Although programmable networking technologies such as software-defined networking (SDN) and the software-defined wide-area network (SD-WAN) have gained traction in recent years, intent-based networking is a relatively new concept. So, what is intent-based networking, and how does it relate to SDN? One way to look at it is to say that SDN operates at the control plane, while intent-based networking operates at a higher level. Enterprises can deploy either or both, but they don’t need SDN in place to use intent-based networking.

“Intent-based networking is the true automation of networking,” says David Cheriton, founder of and chief scientist for Apstra, whose company provides an operating system for intent-based networking. With this strategy, users tell the network what they want, and the network figures out how to achieve that goal. Ratul Mahajan, CEO of Intentionet, a networking start-up, points out, there’s a huge gap today between the network manager’s policy intent and actual runtime behavior. Manual processes inevitably introduce bugs that result in outages, security breaches, and reduced agility. One promise of intent-based networking is that it will create a closed loop; a network manager expresses intent, and the network performs formal validation to verify the intent was achieved and is being maintained. The benefits of this approach include increased network reliability and agility, reduced costs, and faster time to market for the business.

Netflix clearly demonstrates what a company can accomplish when IT focuses on the business rather than on infrastructure. For example, Netflix runs entirely on Amazon Web Services, so instead of worrying about the network, its IT resources are freed up to develop the thousands of micro-services that run in the background, including the ones that decide which movies to recommend to Netflix’s 100 million customers. Netflix has zero employees configuring routers, because Netflix owns zero routers, says Manish Mehta, senior security software engineer at Netflix. “People don’t think about networks anymore,” he says. When it’s Christmas Eve and demand for movies spikes, for example, the Netflix network automatically scales up with no human intervention and no late-night alerts for Mehta. Truman Boyes, Bloomberg’s head of network architecture, says his goals are to reduce complexity and to reuse and recycle where it makes sense to do so, instead of trying to manage everything in-house. “If we can get it off GitHub or partner, that’s better than the artisanal crafted configurations that we’ve grown up with.”

Innovation in networking historically has been driven by hardware. It was all about speeds and feeds, says Rajiv Ramaswami, VMware’s chief operating officer for products and cloud services. Now, it’s all about applications that can run anywhere from an on-premises data center to multiple public clouds. “The future is all about software,” he says. The advent of cloud computing put pressure on IT organizations to become more flexible and scalable. All eyes turned to application developers to help build the next generation of software to automate processes, move networking functionality into the cloud, and transition from a centralized to a distributed infrastructure. Also, cloud security remains a core issue. This is true both for enterprises determining which workloads they will move to the cloud and for cloud service providers whose reputations depend on ensuring the safety of customer data. The multi-tenancy and shared control inherent in the cloud creates potential security problems, says Pradeep Vincent, an architect for Oracle’s Infrastructure as a Service (IaaS) cloud. What if a packet gets sent to the wrong company? What if an attacker gains access to someone else’s virtual machine within the same physical server?

Naturally, the typical enterprise isn’t going to go that far. However, Rob Sherwood, network engineer at Facebook, suggests that companies need to start thinking about what they might be able to build on their own, beginning with orchestration software and moving to network management. The benefits include increased business agility, faster time to deployment, and better security. Amazon’s DeSantis recalled his early years at the company, prior to AWS, when the network was considered “an unreliable entity.” Whenever there was an outage, everyone’s first inclination was to blame the network. But that perception is changing. “The cloud has transformed the way users and practitioners interact with the network in cool and exciting ways,” he says.

7) Ikea finally opens in India, minus the meatballs [Source: Financial Times ]
In 1996, the opening of McDonald’s – the US hamburger chain in New Delhi was a metaphor for a country opening to the outside world. In deference to the Hindu taboo on eating beef, McDonald’s replaced its core product — the hamburger — with alternatives like mutton patties and veggie burgers. Yet Indian consumers were expected to embrace a global brand they had been long denied. Amy Kazmin, the author says that she attended that milestone launch and soon after got food poisoning. As it turned out, India hasn’t treated McDonald’s too kindly either. The brand has struggled to appeal to Indian tastes. The company also ended up in a bitter legal battle with one of its erstwhile Indian partners, triggering the collapse of its north Indian business, and severe brand damage.

She recalled McDonald’s misadventures as Ikea finally opened its long-awaited first store in India, in the southern city of Hyderabad, a dozen years after it first applied for permission to enter a market that still tantalises foreign companies with its promise. As Ikea executives and their 950-strong Indian team cheered and enthusiastic customers thronged the store, one wonders whether India would end up as a success story for the company founded in Sweden, or if it will be a cause of perpetual heartburn.

Ikea has done one thing right. It refused to compromise on its determination to have 100% ownership of its Indian retail business. In 2009, as the government dawdled on a promise to relax its curbs on foreign ownership in retail, Ikea abandoned plans to enter the market rather than be railroaded into a joint venture. It only re-applied to set up shop in India in late 2012, after the government agreed to permit full foreign ownership — and relaxed a requirement that foreign retailers source 30% of what they sell in India from local small and medium-sized enterprises. Like McDonald’s, Ikea has also tweaked its offerings to appeal to local sensibilities. Instead of Swedish meatballs, diners at the new store’s 1,000-seat restaurant can partake of chicken or veggie balls, dal and rice, or biryani. Textiles on sale have brighter colours and busier patterns than in Ikeas elsewhere. But the company’s core proposition — value-for-money furniture and home accessories — seems likely to resonate with cost-conscious Indian consumers.

Around 1,000 items in the Hyderabad store are priced below Rs200 ($2.86) each, which Ikea hopes will mean something for everyone. Their cheapest item is a set of four, brightly-coloured reusable plastic spoons for just Rs15. And, for those intimidated by self-assembly of the famous flat-pack designs, Ikea in India has tied up with local carpenters and delivery services. Customers on the first day seemed pleased. “This is a game changer,” said Narendranath Reddy, a 62-year-old renovating his home. “We have been on the lookout for good quality furniture at reasonable prices, which is hard to come by.” Others spoke of how long they had waited for the store’s arrival.

But, as companies like Cairn, Vodafone and others can attest, creating a successful business is still no guarantee of a happy ending for foreign companies in India, where unpredictable policy changes have caused major headaches. Ikea has an additional potential vulnerability in India: its heavy dependence on imported goods. In the last year, the government has reversed two decades of steady tariff-cutting and raised import duties on a wide range of items.

8) Why millennials are uncovering tattoos at work [Source: Financial Times ]
The author, Andrew Hill’s amateur tip to would-be entrepreneurs used to be this: invest in tattoo-removal parlours. In 2015, nearly half of US millennials owned up to a tattoo, as did 30% of Britons of similar age. Those figures have almost certainly risen since, judging by the number of tattoos brought out into the open during the UK’s recent heatwave. However, he says people change as they age and hence he struggles to believe that when they reach 50, millennials will want to be judged by the Minnie Mouse they had inscribed on their bicep when they were a student. Hence his backing for tattoo removal, a sector that one forecast suggests will be worth a spuriously precise $2.85bn by 2021. But evidence also seems to be growing that body art is not as much of a hurdle to employment as it was once thought to be — and this is good news for the inked and uninked.

According to Hill, people were gradually uncovering tattoos and even piercings at work, if they had hidden them in the first place. One female said she had concealed tattoos for nearly a decade with plasters, trousers or thick tights until she realised it made no sense — particularly as her job included advising people to bring their “real selves” to work. Another said, “if it matters that much to someone to see ink on my wrist that it would overshadow their opinion of my personal or professional self, then they are probably not someone I would respect, or seek the respect of anyway”.

Body art is more than just a fashion choice. People choose tattoos to mark turning points, remind them of their core values, or shore up their identity: Adam Peaty, the UK swimming star, has a lion tattooed on his left bicep, visible whenever his body rises from the pool en route to another medal. Jill Abramson, former editor of The New York Times, had a T tattooed on her back in the NYT’s font. UK scientist Matt Taylor chose to ink the Philae robot on to his right thigh to show his dedication to the Rosetta space project. Most tattoos do not line up so precisely with an employer’s mission or brand. But research just published in the journal Human Relations suggests that despite perceptions, people with tattoos no longer face any actual wage or employment discrimination in the US. Tattooed men may even be slightly more likely to find a job.

This is positive not just for closet tattoo-wearers but for anyone wishing to express themselves at work. It suggests as younger generations advance into management, they will have the power to change behaviour by shrugging at things that made their predecessors frown. This goes for other forms of difference. The use of “blind” recruitment, which concentrates first on qualifications for the role rather than physical appearance, should accelerate the shift to a more diverse workplace. Hill says that corporate culture is frustratingly inert though. Tattoos’ negative associations may linger. At the Academy of Management annual meeting, academics presented the results of a smaller-scale experiment that found female candidates with tattoos or extreme piercings were offered lower starting pay than those without body art. Those with extreme tattoos were seen as less competent. It is also possible, he says, that one form of discrimination will simply be replaced by another. The same study suggests managers with no or few tattoos are less likely to hire applicants displaying extreme body art, such as neck tattoos or nose-rings. Those sporting more piercings were more likely to shun candidates without body art.

9) Tesla fight shows rise of short-sellers on Wall Street [Source: Financial Times ]
Tesla is the most shorted US stock of the past decade, in dollar terms. According to data provider IHS Markit, $13bn worth of its shares have been loaned to investors for bets that their value will plummet. Indeed, Elon Musk’s detail-light scheme announced on twitter to take his electric car company private at a valuation of more than $80bn, including debt, appeared in part a response to those bets. “Being public means that there are large numbers of people who have the incentive to attack the company,” he said in a letter to employees. The claim Tesla is the “most shorted stock in the history of the stock market” is more hyperbolic. Globally, that title goes to Alibaba, the Chinese e-commerce group with American Depositary receipts traded on the New York Stock Exchange. Yet, with billions of dollars at stake, the Tesla spectacle highlights the scale of short selling in modern stock markets.

“Short-sellers are not ever going to be loved by Wall Street in the US, but we’re pretty lucrative for banks, because of the borrow fees we pay. We’re largely tolerated,” said Carson Block of Muddy Waters Capital. To sell short a stock an investor must first borrow it, generating income for the owner of the shares — often index or mutual funds which can use the money to reduce their fees — as well as the investment banks and brokers that facilitate the arrangement. The stock is then sold “short” in the market. If it drops in price it can be repurchased at a profit. Shares must eventually be returned to the rightful owner, however, so if the price goes up losses are potentially limitless. Mr. Musk warned in May that a “short burn of the century” was imminent, in a statement which may present legal jeopardy for allegations of market manipulation, if his scheme proves not to have the promised “funding secured”.

Some US investors have little sympathy. “short-sellers are an easy scapegoat,” said Cliff Hodge, director of investments for Cornerstone Wealth. “When I hear a chief executive railing against short-sellers I don’t put much stock in it and if anything it suggests the CEO is not giving enough attention to addressing the underlying problem as they should be.” Short sellers though do serve some purpose. Their presence helps to moderate market extremes. Sales of borrowed stock provide shares to buyers without forcing prices even higher. When a share price crashes, or a company under pressure is forced to raise equity, short-sellers become natural buyers in order to reap the profits of their bets. Short-sellers are also a growing part of the US investment scene. Conferences dedicated to the sharing of short ideas have sprung up. At one conference, Mark Spiegel, investor for Stanphyl Capital and frequent antagonist of Mr. Musk on Twitter, laid out his case against the electric carmaker. Among three reasons for the stock price to go to zero was the claim that Mr. Musk “has a long track record of making hugely misleading statements”.

Twitter has also provided a forum for activist short-sellers, both identified and pseudonymous, to present their views, although history suggest it’s always been a part of American culture. In the 1980s the Feshbach Brothers were known for their success as short-sellers, for instance, briefing journalists and talking up their positions in the press. Dan Loeb, the billionaire behind the hedge fund Third Point, has admitted to spending much of the 1990s posting on investment message boards as Mr. Pink. In doing that, Short-sellers also fill a void, as investment banks and mutual fund managers often have little incentive to antagonise company executives or to puncture market enthusiasms. There have been calls in the US, however, to adopt the European system which requires disclosure of any short position of more than 0.5 per cent of a company’s stock. In 2017, for instance, the president of the New York Stock Exchange said betting against a company’s prospects felt “icky and unAmerican”. Short-sellers tend to hate such rules, which require giving up their valuable intellectual capital. Significant ownership disclosure is required due to the influence that gives an investor over a company, but aggregate short interest information is sufficient to inform the market, they said.

10) Walmart discovers why the ‘last mile’ is the hardest [Source: Livemint ]
Walmart’s own store employees would bring online orders directly to shoppers’ homes after completing their usual shifts of up to nine hours on the sales floors. Aiming to lower the retailer’s shipping costs by tapping its massive workforce, the programme was part of a multi-pronged strategy to boost its $11.5 billion US e-commerce business and tackle one of the biggest challenges in retail: the so-called “last mile” of delivering goods to online customers. But, this wasn’t a success. Despite having 4,700 US stores within 10 miles (16km) of 90% of the US population, Walmart is still trying to figure out how to efficiently make deliveries and has poured billions of dollars into e-commerce in recent years. Walmart caters to US online shoppers by having them drive up to their local store themselves to collect merchandise they ordered online. It also partners with shippers such as FedEx Corp, the United States Postal Service (USPS) for routine deliveries.

Still, Walmart aims to be able to deliver groceries to more than 40% of households in the country by the end of this year. Globally, Walmart is experimenting with deliveries by motorbike in Mexico and with new small supermarkets in China to make deliveries in 30 minutes or less. In Japan, Walmart is opening a new warehouse to support orders, and expanding its online offerings to include meal kits. Earlier this year, Reuters reported the retailer’s delivery partnerships with Uber and Lyft ended after the ride-hailing services struggled to deliver people and packages together. It continues to rely on third-party companies such as Postmates, Deliv and Doordash to help deliver groceries, and last week partnered with Alphabet Inc’s Waymo. Walmart’s associate delivery pilot programme in the leafy, middle-class suburb of East Brunswick, New Jersey, started with store managers pitching employees an unusual new way to boost pay. Those who passed background checks could moonlight as drivers for the Walmart.com delivery service, they said. Some staffers, who did not wish to be named fearing retribution for speaking to the media, told Reuters they balked at having to use their own cars and personal insurance policies for a program that would benefit Walmart.

To entice them to sign up, Walmart offered free TVs and iPads as gifts, they said. Eventually, about 50 of the store’s more than 150 associates initially signed up, they added, though many had no prior experience as couriers with a delivery service. Fourteen of the sixteen Walmart employees told Reuters they were put off by the programme’s poor compensation. And all of them expressed concern over who would be responsible if they got into an accident or if merchandise was lost. But every employee Reuters spoke to who signed up said they typically lost at least 30 minutes of time, waiting at the store after their shifts ended to collect the items and were never compensated for it. Walmart didn’t offer more than one hour of overtime even if it took more than an hour to deliver orders after finishing their 40-hour work week, former participants said. Walmart disputed this saying it paid workers overtime when they exceeded 40 hours. Rival Amazon pays independent drivers $18 to $25 an hour for deliveries, and the fuel costs belong to the driver, according to the Amazon Flex website. Amazon declined to comment on the story.

Now, an initiative known internally as ‘Associate Delivery 2.0’ is being run with four employees hired specifically as delivery drivers in Woodstock, Georgia, according to company documents and interviews. To build demand, Walmart will waive the fee for the first delivery order if it is for $50 or more, according to a Walmart promotional pamphlet at the store. For subsequent orders, the retailer’s mobile app offered delivery on a minimum $30 order for a fee of $7.99 to $9.95. Walmart informed employees in Georgia they would have to use their own car insurance policies when they were hired, Molly Blakeman, Walmart’s spokeswoman, said. But the retailer will cover any expenses that their personal insurance policies won’t cover, she added.

-Prashant Mittal is Strategist, at Ambit Capital. Views expressed are personal