Ten interesting things we read this week

Some of the most fascinating topics covered this week are: Finance (A new term emerging in this crisis), Business (The world's most coveted commodity right now; crash of the global flower business trade), and Coronavirus (The pandemic stress test; When fury overcomes fear; India's revival plan must focus on cities)

Published: May 23, 2020 09:52:12 AM IST

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At Ambit, we spend a lot of time reading articles that cover a wide gamut of topics, ranging from zeitgeist to futuristic, and encapsulate them in our weekly ‘Ten Interesting Things’ product. Some of the most fascinating topics covered this week are: Finance (A new term emerging in this crisis), Business (The world’s most coveted commodity right now; crash of the global flower business trade), and Coronavirus (The pandemic stress test; When fury overcomes fear; India’s revival plan must focus on cities). 

Here are the ten most interesting pieces that we read this week, ended May 22, 2020:   

1)   Pandemic spawns new reporting term ‘ebitdac’ to flatter books [Source: Financial Times

Coronavirus has changed many things around us. One such change is in the corporate world is that of reporting financial numbers. Now some companies are presenting a new customised metric, EBITDAC: earnings before interest, tax, depreciation, amortisation — and coronavirus. Schenck Process, a German manufacturing group, added back 5.4m euros of first-quarter profits that it said it would have made were it not for the hit caused by state-mandated lockdowns. Its operating profit for the period, “adjusted ebitdac” of 18.3m euros, was almost 20% higher than the same period a year earlier, rather than 16% lower.

Some investors said they are concerned; increased usage of this new brand of ebitda could allow companies to relax restrictions on how much they can borrow. Some companies that have had their revenues plunge because of nationwide lockdowns have sought waivers from their banks to ease their discomfort. “How can they quantify whether a loss in revenue is purely down to coronavirus and not revenue they’ve lost to competitors or for regulatory reasons?” asked Nick Kordowski, Edinburgh-based head of fixed income non-financial research at Aberdeen Standard Investments.

Schenck Process included “ebitdac” in its glossary of terms used in its first-quarter presentation, alongside more familiar acronyms such as A/P (accounts payable) and ESG. Sabrina Fox, executive adviser at the European Leveraged Finance Association, said the trend should be resisted. “It’s a bit ironic to say we’re adding back the effects of coronavirus to deal with the effect of coronavirus,” she said. 

2)   What Satya Nadella Thinks [Source: NY Times]

This piece throws light on what Microsoft CEO, Satya Nadella, thinks of the current pandemic and how Microsoft is coping up with the same. Unlike almost every other company, Microsoft has felt a “minimal net impact” from coronavirus, according its latest financial report. The tech giant’s stock price is up 14% this year; it is sitting on nearly $140 billion in cash; and it looks likely to emerge from the pandemic stronger than ever. 

Mr. Nadella sees the world going through three phases during the pandemic. 1) Simply responding to the immediate impact through office closures, cost cuts and the like. 2) Recovery – Already underway in many places, and will be more like a “dial” than a “switch.” He said, “There will be lots of movement of the dial, back and forth.” 3) “Reimagining” phase – Innovations born of necessity during the previous two phases will emerge, like remote control of manufacturing processes, A.I. bots helping diagnose patients and more effective distance-learning technologies. 

What Mr. Nadella misses is the meetings. He said, “what I miss is when you walk into a physical meeting, you are talking to the person that is next to you, you’re able to connect with them for the two minutes before and after.” That’s tough to replicate virtually, as are other soft skills crucial to managing and mentoring. Talking about Microsoft’s change is strategy, Microsoft spent $10 billion in its most recent quarter on share buybacks and dividends, up more than 30% from the year before. Is Mr. Nadella changing his thinking on how to spend it, through either returning it to shareholders, building up a safety buffer or spending it on acquisitions? He says, Microsoft will use “all of our levers” to grow. 

3) India’s revival plan must focus on cities [Source: Livemint

The author of this piece says that we need to discuss the kind of recovery that we want for our economies. And not think whether it will be a U, V or an L-shaped recovery. The time is particularly critical for India to rejuvenate its economy since its unique advantage from the demographic dividend will soon slip away from its grasp. To tap into it, the country needs a strong structural shift into organized manufacturing and away from its burden on the agricultural sector. The role of urban spaces across India will be key in this transition.

As per the latest estimates available from 2011-12, urban areas in India contribute somewhere between 52.6% to 64.9% of the national output despite having much lower share of the population than rural areas. This explains why they tend to be the focus of any discussion on economic activity. However, they should not be the sole focus. There are several policy changes that are needed to maximize the economic potential of cities. 1) There is a need to deepen the economic data generation and analysis in the country. 2) The policy environment needs to be harmonized to create an unequivocal focus on economic growth at all levels. 3) It is important to understand the cause-effect relationship between economic growth and urbanization. 

The regional development authorities in India have been traditionally construed as predatory bodies that usurp the power of elected urban local bodies. So, they hardly coordinate their activities with each other to enable strong regional development. While a coordinating mechanism between them is crucial, they also need to work in conjunction with city governments. Economic growth is an urgent need, and India’s economic story is intricately interwoven with its urban story. Some say the window of opportunity is five years, some ten and others 15. What one needs to remember is that even 15 years is a very small period in the life of a nation, especially as diverse as India. But the time to act is now. 

4) How the face mask became the world’s most coveted commodity [Source: The Guardian

In this war with Covid-19, governments, scientists, and doctors are recommending one thing besides staying indoors. And that’s wearing a face mask if you are stepping outside. Face mask has become essential now. In many places, if anyone is found without a mask, they can be punished legally. No object better symbolises the pandemic than the mask, and no object better explains the world into which the pandemic arrived. 

Social distancing, at first, felt like a strange notion: the inaction of it, the vagueness of it. But the mask sang out to our deepest consumeristic impulses. In the absence of a drug or a vaccine, the mask is the only material protection we can buy; it’s a product, and we’ve been trained like seals to respond to products. In this pandemic, the mask reveals far more than it hides. It exposes the world’s political and economic relations for what they are: vectors of self-interest that ordinarily lie obscured under glib talk of globalisation and openness.

There are many businesses that have changed their business from manufacturing one product to now manufacturing face masks. And one such person is Ovidiu Olea. First, he wanted to buy face masks for his employees, but soon he discovered that there’s shortage of face masks and the demand is high. Now, not only he is a supplier of face masks, but also has bought a face mask manufacturing machine. He thinks that coronavirus is here to stay saying, “I think it’ll end up being some sort of seasonal disease – like the flu, but with harsher consequences. And this disease has changed attitudes towards mask-wearing. Earlier, people in Italy would giggle at the sight of Chinese tourists walking around wearing masks. Now there aren’t many giggles left.”

5) Viral Alarm: When fury overcomes fear [Source: Journal of Democracy

After the publication of this essay, Xu Zhangrun, professor of law at Tsinghua University in Beijing, was placed under close surveillance and he has been kept incommunicado. Geremie R. Barmé, a historian, cultural critic, filmmaker, translator, and web-journal editor, translated this essay from Chinese. In this essay, Xu warned of the dangers of one-man rule, the threats posed by an increasingly sycophantic bureaucracy and putting politics ahead of professionalism, and the myriad other problems that the system would encounter if it rejected further reforms and continued along its present path.

Xu’s writing style integrates elements of classical Chinese in which references to or quotations from philosophy, history, and literature are seamlessly interwoven in an elegant but highly personalized literary form that was commonly employed by members of China’s elite from the late-nineteenth to the mid-twentieth centuries. It is a prose free of Party jargon, although the author frequently makes mocking reference to officialese and to the kind of Europeanized Chinese popularized in the 1910s when the vernacular was promoted by political and cultural progressives. 

Xu Zhangrun argues that Chinese governance and political culture under the Chinese Communist Party have become morally bankrupt. The Party deceived the Chinese people as the viral outbreak in Wuhan spread across China before developing into a global pandemic. Chinese officials were more concerned with censoring the internet and news of the disease to preserve Xi’s one-man rule than with protecting the people from a public-health disaster. Xu calls on his fellow citizens to reject the strongman politics of the People’s Republic in favor of greater reform and the creation of a constitutional democracy. 

6) Kiril Sokoloff: ‘There will have to be massive debt relief’ [Source: Financial Times]  

In this piece, Kiril Sokoloff, an investment strategist talks about debt, lessons from losing his hearing, and his latest predictions for the world. Recently, he has been trying to make the financial elite see the dangers of seeking to solve the problems of debt with more debt. And his clients include Mukesh Ambani, Sam Zell and Raymond Kwok. “The more debt you add [via monetary and even some fiscal policy], the more unproductive the debt becomes,” says Mr. Sokoloff. He believes the stimulus programmes being launched in the US, Europe and many other parts of the world will very likely end in tears.  

Mr. Sokoloff, who has worked for himself as an investor and adviser since the 1970s following brief stints as a financial editor and investment banker, wrote a book on inflation with economist Gary Shilling, and started an Asian hedge fund and a mobile technology fund before shifting his full attention to writing his weekly newsletters. Currently, he is reading The Fourth Turning, written in 1997 by two American historians, William Strauss and Neil Howe.  

In this book, they predicted that around the year 2005 a financial crisis would set off a major change in social mood and the political and economic order, raising questions of class, race, nation and empire. “This is turning out to be a very prophetic book,” says Mr. Sokoloff. 

7) White-collar jobs and that sinking feeling [Source: Livemint

Many companies are laying off their employees or are asking them to take leave without pay. This is happening not only with the migrant workers and the unorganized sector, but also with employees working on contractual basis in private companies. As factories in India and much of the world stopped humming, offices shut down and people stayed indoors, many businesses faced a slide they haven’t seen in decades. This has led to tremendous job insecurity among India’s white-collar employees—the ranks of office and professional workers. 

There is a near complete hiring freeze for white-collar roles in aviation, tourism, hospitality, e-commerce, media, logistics, real estate and construction. Indian white-collar workers have seen through two previous crises—the dotcom bubble burst in 2001-02 and the financial crisis that followed the collapse of Lehman Brothers in 2008-09. Entrepreneurs and employees lost their shirts in both. The current pandemic, however, outweighs everything, simply because of the number of industries hurt and the countries it has swamped. 

The Centre for Monitoring Indian Economy has stated that the count of salaried employees has dropped from 86 million in 2019-20 to 68 million in April 2020. K.R. Shyam Sundar, labour economist and professor of human resources management at XLRI, Jamshedpur, explains, “The services sector, which employs most white-collar employees, has been the worst impacted because of covid-19. The sector employs 144 million. If you exclude government and other core private sector jobs in services, the workforce totals around 100 million. About 30% of these jobs would be at risk," he said. He pegged the white-collar employment in peril at a staggering 20 million. This crises has not left anyone; as many people have been laid off, even gig workers are feeling the pinch with no projects in hand. 

8) Anthony Fauci’s long crusade against some of humanity’s most virulent threats [Source: The New Yorker

This article gives a deep-dive into the life of Anthony S. Fauci, America’s leading expert on infectious disease. He had warned Americans to “hunker down significantly more than we as a country are doing.” Donald Trump disagreed. “we cannot let the cure be worse than the problem itself,” he tweeted. “I would love to have the country opened up, and just rarin’ to go by Easter,” Mr. Trump said, on Fox News. “You’ll have packed churches all over our country. I think it’ll be a beautiful time.” Despite a catastrophic lack of testing capacity, it was clear that the virus had reached every corner of the nation. With the Easter holiday just a few weeks away, there was not a single public-health official in the United States who appeared to share the President’s rosy surmises.  

When the President insisted for many weeks on denying the government’s inability to deliver test kits for the virus, Dr. Fauci, testifying before Congress, put the matter bluntly. “That’s a failing,” he said. “Let’s admit it.” In the handling of the current crisis, one thing was sure; Mr. Trump blamed others but not self. He blamed the governors, the Chinese, the Europeans, and, as always, Barack Obama. In one of the conversations with the author of this piece, Dr. Fauci said that he has developed a method for dealing with political leaders in times of crisis: “I go to my favorite book of philosophy, ‘The Godfather,’ and say, ‘It’s nothing personal, it’s strictly business.’ ” He continued, “You just have a job to do. Even when somebody’s acting ridiculous, you can’t chide them for it. You’ve got to deal with them. Because if you don’t deal with them, then you’re out of the picture.” 

Dr. Fauci and Mr. Trump are about as odd a duo as American political life has ever produced. Both men are in their seventies. Both come from the outer boroughs of New York City. Both are direct, even blunt. But that’s where the resemblance ends. Fauci has always been a person of unusual discipline. Nearing eighty, he works about eighteen hours a day. This piece also gives a brief history of Dr. Fauci and how came to choose being a physician and his work on tackling AIDS/HIV. To plan a coherent biological future, rather than simply scramble to contain each new pandemic, will require an entirely new kind of political commitment. But, for now, there’s Dr. Fauci, a seventy-nine-year-old infectious-disease expert pinned between Donald Trump and the American people.    

9) The pandemic stress test [Source: Project Syndicate]  

Raghuram Rajan, former Governor of the Reserve Bank of India, feels now that the coronavirus has created havoc world over, it will now expose underlying economic weaknesses wherever they lie. Apart from the direct impact on public health, a crisis of this magnitude can trigger at least two direct kinds of economic shock. 1) Shock to production: Suspending the production of basic pharmaceutical chemicals in China disrupts the production of generic drugs in India, which in turn reduces drug shipments to the United States. 2) Shock to demand: As people and governments take steps to slow the spread of the coronavirus, spending in restaurants, shopping malls, and tourist destinations collapses. 

These would force small and medium enterprises to shut their shops, leading to layoffs, lost consumer confidence, and further reductions in consumption and aggregate demand. Looking ahead, unless the coronavirus is eradicated globally, it could always return, or even become a seasonal disruption. If an effective treatment is not discovered soon (Gilead’s antiviral drug remdesivir currently shows some promise), all countries will face a choice between walling themselves off entirely and pushing for a global effort to eradicate the virus. 

Within countries, the immediate task – after implementing measures to contain the virus – is to support those in the informal or gig economy whose livelihoods will be disrupted by quarantines and social distancing. In the political arena, a more credible professional establishment will have an opportunity to advance sensible policies that address the problems facing the precariat without ushering in class warfare. But these openings won’t last forever. If the professionals fail to capitalize on them, the pandemic will offer no silver linings – only more dread, division, chaos, and misery.       

10) The crash of the $8.5 billion global flower trade [Source: Bloomberg

The current pandemic has made everyone cancel their plans. And one such case is Meredith Dean. She had pictured her May wedding, she imagined her guests walking through a meadow of wildflowers. The bridesmaids would carry bouquets, the groomsmen would wear boutonnieres, and a circle of flowers would surround Dean and her beau as they exchanged vows. But that’s all evaporated, courtesy Covid. She even had to call up her floral designers and cancel it, saying the wedding has been postponed. The crash of the $8.5 billion global trade in cut flowers shows how quickly and distinctively the new coronavirus is disrupting supply chains, even in places where it isn’t yet pervasive. 

Crops are withering in Europe as closed borders prevent migrant farmworkers from harvesting them. Spring is usually a busy season, with weddings, Mother’s Day, and Easter. And in the early days of March, even as the Netherlands was reporting its first coronavirus infections, the auctions went off as usual. But after Italy imposed a national lockdown, France ordered nonessential stores to close, and Germany called for the cancellation of most events, the market collapsed. Dave van der Meer, who runs his own flower export business, says that auction has gone quiet. “You can fire a cannonball in the flower hall without hitting anybody,” he says of Naaldwijk floral auction. 

For now, Dean rescheduled her wedding for August 15, picking that date over one in June (too soon) and Halloween (too close to the U.S. presidential election). Her venue, photographer, and floral designer were all amenable to the switch, but DJ Ben had another gig. She’s only cautiously optimistic she’ll be able to get married in August. Dean’s vision for her wedding flowers is all but gone. “They’ll still be beautiful,” she says. “But I know what they were going to be like.”

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