Ten interesting things we read this week

Some of the most fascinating topics covered this week are: Economics (Law of demand-supply isn't fair), Lifestyle (End of meat is here), Finance (Suze Orman will ride you out the financial storm), Technology (Hacker who turned into a hero overnight, only to be arrested soon), and Investing (Three sides of risk).

Published: May 30, 2020 10:00:00 AM IST
Updated: May 30, 2020 10:54:54 AM IST

reading1Image: Shutterstock

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: Economics (Law of demand-supply isn’t fair), Lifestyle (End of meat is here), Finance (Suze Orman will ride you out the financial storm), Technology (Hacker who turned into a hero overnight, only to be arrested soon), and Investing (Three sides of risk).

Here are the ten most interesting pieces that we read this week, ended May 29, 2020:

1) The law of supply and demand isn’t fair [Source: NY Times]
Most of the stores’ shelves were empty when the coronavirus pandemic started. People grabbed and stocked anything and everything they could lay their hands on. So, what happened to the laws of supply and demand? Why didn’t prices rise enough to clear the market, as economic models predict? A paper written by Richard Thaler, a professor of economics and behavioral science at the Booth School of Business at the University of Chicago, Daniel Kahneman, a psychologist, and Jack Knetsch, an economist, explored this problem. They found that the answer may be summed up with a single word, one you won’t find in the standard supply-and-demand models: fairness. Basically, it just isn’t socially acceptable to raise prices in an emergency.

They asked people questions about the actions of hypothetical firms. For example: “A hardware store has been selling snow shovels for $15. The morning after a blizzard the store raises the price of snow shovels to $20.” Fully 82 percent of our respondents judged this to be unfair. The respondents were Canadians, known for their politeness, but the general findings have now been replicated and confirmed in studies around the world. We have seen similar behavior after hurricanes. As soon as a storm ends, there is typically enormous demand for goods like bottled water and plywood. Big retailers like Home Depot and Walmart anticipate this, sending trucks loaded with supplies to regions just outside the danger zone, ready to be deployed. Then, when it is safe, the stores provide water for free and sell the plywood at the list price or lower.

When anyone tries to reap big profits in an emergency like this, it can look ugly. Entrepreneurs see a disaster as an opportunity and so will fill up trucks with plywood near their homes, drive to the storm site and sell their goods for whatever price they can get. As a practical matter for businesses, big and small, that want to keep operating for the long haul, it makes good sense to obey the law of fairness. If the next shortage is meat and a store owner realizes that there is only one package of pork chops left, it would be unwise sell it at auction to the highest bidder.

2) The end of meat is here [Source: The New York Times]
You surely must have come across empty grocery store shelves in one of the recent days. Almost everyone has been doing more cooking these days, more documenting of the cooking, and more thinking about food in general. The combination of meat shortages and President Trump’s decision to order slaughterhouses open despite the protestations of endangered workers has inspired many Americans to consider just how essential meat is. Is it more essential than the lives of the working poor who labor to produce it? It seems so. An astonishing six out of 10 counties that the White House itself identified as coronavirus hot spots are home to the very slaughterhouses the president ordered open.

Animal agriculture is now recognized as a leading cause of global warming. According to The Economist, a quarter of Americans between the ages of 25 and 34 say they are vegetarians or vegans, which is perhaps one reason sales of plant-based “meats” have skyrocketed, with Impossible and Beyond Burgers available everywhere from Whole Foods to White Castle. We cannot protect our environment while continuing to eat meat regularly. This is not a refutable perspective, but a banal truism. Whether they become Whoppers or boutique grass-fed steaks, cows produce an enormous amount of greenhouse gas. If cows were a country, they would be the third-largest greenhouse gas emitter in the world.

According to the research director of Project Drawdown — a nonprofit organization dedicated to modeling solutions to address climate change — eating a plant-based diet is “the most important contribution every individual can make to reversing global warming.” We cannot claim to care about the humane treatment of animals while continuing to eat meat regularly. We cannot protect against pandemics while continuing to eat meat regularly. Much attention has been paid to wet markets, but factory farms, specifically poultry farms, are a more important breeding ground for pandemics.

3) Suze Orman is back to help you ride out the storm [Source: NY Times]
Getting your finances right is what pandemics like the current one teaches us all. It is times as such that you realise that you had to have an “emergency fund”. And Suze Orman, America’s favorite financial adviser has been pressing on this for long time now. Although Suze Orman has written more than a dozen books over the last 25 years, her favorite thing to read is people. She reads millennials taking 30-year mortgages on properties they can’t afford, and she reads people in their 50s and 60s holding on to houses merely because their adult children come home a couple of times a year for holidays. When the economy is good, Ms. Orman’s business does fine. But your bust is her boom.

Occasions like these are when she emerges as a saviour. Recently, she delivered a virtual master class. She said, “You’ve heard me say for years, you need to have an eight-month emergency fund,” she said. “If you had an eight-month emergency fund, you wouldn’t be freaked out about paying your mortgage, or your rent or your bills or anything. But so many of you didn’t. You had $150,000 coming in a year, $200,000, whatever it is, and your bills were exorbitant because you know and I know that you were spending more money than you had coming in, and now, maybe for the first time in your life, you still have all these bills that have to be paid, you don’t have any money to pay them with, and you’re totally freaked out.”
 
“She’s a naysayer,” said David Zaslav, a friend and the president and chief executive of Discovery Communications. “The majority of the financial market is driven by commission and convincing you how you can do more by spending more, and Suze is a great voice as an equalizer. And when the 2008 financial crisis hit, the people who listened to Suze were OK. They weren’t buying houses they couldn’t afford, they weren’t overleveraged.” One of Ms. Orman’s biggest mantras is that no one should really retire until they’re 70. With the current pandemic, she’s wound up being as in demand as Lysol wipes and rescue dogs. Hoda Kotb wanted her on the “Today” show. She started doing hits with CNN and MSNBC. PBS booked her to shoot yet another special.

4) Morgan Housel: Naked Brands Interview Series [Source: perell.com]
In this interview, Morgan Housel discusses how the internet shapes consumer values, the power of shows like Chef's Table, the sudden rise of Vanguard, under-reported insights from Warren Buffett and Howard Marks, and the ideas that drive Morgan's writing. When asked what he thinks of finance in particular that has made the Financial Twitter and blogging community thrive, he says that money is just inherently very emotional.

He goes on to say, “More so than many other topics. Like there could never be an active Twitter community around changing your oil, even though that's like a multi-billion dollar industry. Or like orthodontics, it just wouldn't happen because those are not emotional topics. Those are topics that are very important and those are both multibillion-dollar industries but there's no emotion attached to them. Whereas with Financial Twitter, I mean, the center of all investing is uncertainty. That's like the center of gravity that keeps all of this together is that we don't know what's going to happen next and that's one element. And then the second element is huge stakes. People's retirements and people's children's educations and their life savings are on the line here. So you combine uncertainty with huge stakes and people are just going to get really emotional about what's going on.”

Talking about content creation strategy, he says that it is different for everyone, depending on who their target audience is. But for him, “I think that most readers just want to think differently and of course, they want to be entertained, but what they really want is just intellectual buzz. At least that's kind of what I'm going for and it seems kind of like that's what you're going for as well. You're not trying to make someone laugh and you're not trying to put a funny video out there. You want their brain to start buzzing a little bit. That's what you're going after” he says.

5) ‘Modi’s latest moves not enough to make India Self-Reliant In Defence’: Security Strategist Bharat Karnad [Source: swarajyamag.com]
In this interview, Bharat Karnad, an Emeritus Professor at the Delhi-based Centre for Policy Research and a national security expert talks about the effects of some of the measures taken by the Indian Government to boost defence manufacturing in the country as part of its economic stimulus and reform package. FM Nirmala Sitharam announced specific measures related to Defence in terms of India becoming self-reliant (Aatmanirbhar). But Mr. Karnad feels that these are no enough to become self-reliant. No, because only a total ban on arms imports, as he has advocated in his books and other writings, will rid India of the incubus of arms dependency. He feels, what the FM announced was a partial ban on imports and that too a leaky one, and won't gain for the country the end state of ‘atmanirbharta’.

He says if Mr. Modi is serious about this aim of becoming self-reliant, then it will require him, his government and the Indian military to trust in Indian talent and invest in Indian programmes to deliver the most sophisticated military goods on accountable basis. So, if Tata or Mahindra or L&T foul up in any way they'd have to pay up very serious penalties, a standard the defence public sector units are never held to.

Compared with other sectors, such as telecom, electronic and aerospace, Mr. Karnad feels that defence is also stuck with the same mess. And talking about bidding for control of the Embraer Company of Brazil, he says the government should take it with both hands. Embraer, the Brazilian firm specialises, among other things, in producing various bestselling passenger aircraft (such as 30-110 passenger carrying E2 and ERJ-145 series of single engine, single aisle, transporters) which can also be converted for maritime reconnaissance, aerial early warning, cargo, and VVIP flight missions. In fact, there are already a number of these aircraft flying in India. Just to provide perspective: India has failed to manufacture any such plane despite a number of underway projects over the past 30 years to design and produce them. Acquiring Embraer will thus vault India into the front ranks of aircraft producers.

6) The Confessions of Marcus Hutchins, the hacker who saved the internet [Source: Wired]
Marcus Hutchins single-handedly put a stop to the worst cyberattack the world had ever seen. Later, he was arrested by the FBI, and this is his untold story. In August 2017, he had partied for the almost a week and a half in a mansion in Las Vegas. He felt that someone was keeping a watch on him. Only later to realise that that someone was the FBI. Less than three months earlier, Hutchins had saved the internet from what was, at the time, the worst cyberattack in history: a piece of malware called WannaCry. Just as that self-propagating software had begun exploding across the planet, destroying data on hundreds of thousands of computers, it was Hutchins who had found and triggered the secret kill switch contained in its code, neutering WannaCry's global threat immediately.

He was picked up by the FBI at the airport. In a state of shock, feeling as if he were watching himself from a distance, Hutchins asked what was going on. Hutchins remembers mentally racing through every possible illegal thing he'd done that might have interested Customs. About 11 minutes into the interview, his interrogators asked him about a program called Kronos. And he knew what was going on. It began to dawn on him, with a sort of numbness, that he was not going home after all. Finally the agent who handcuffed him made their purpose clear. “If I'm being honest with you, Marcus, this has absolutely nothing to do with WannaCry.” The agents pulled out a warrant for his arrest on conspiracy to commit computer fraud and abuse.

In the spring of 2018, nearly nine months after his arrest, prosecutors offered Hutchins a deal. If he agreed to reveal everything he knew about the identities of other criminal hackers and malware authors from his time in the underworld, they would recommend a sentence of no prison time. After losing a series of motions—including one to dismiss his Las Vegas airport confession as evidence—Hutchins finally accepted a plea bargain in April 2019. This new deal was arguably riskier than the one he'd been offered earlier. Later, the judge delivered his conclusion: “There are just too many positives on the other side of the ledger,” he said. “The final call in the case of Marcus Hutchins today is a sentence of time served, with a one-year period of supervised release.” Hutchins could hardly believe what he'd just heard: The judge had weighed his good deeds against his bad ones and decided that his moral debt was canceled.

7) Elon Musk is the hero America deserves [Source: Bloomberg]
In this piece, Elon Musk talks to Ashlee Vance on his Twitter usage, selling off his possessions, and the historic upcoming launch. Even the most fervent Musk hater, of whom there are plenty in the U.S., has to feel some twinge of pride. At a moment when the American Empire can seem to be in decline, here’s a clear sign that great things remain possible and that humans have much left to achieve. “America is still the land of opportunity more than any other place, for sure,” Musk says, waxing patriotic. “There is definitely no other country where I could have done this—immigrant or not.” That it’s a multibillionaire, Covid-19-truthing, entrepreneurial huckster/hero delivering this message is pretty much perfect for America in 2020.

Like President Trump, Musk uses Twitter as a mainline into the id. But even by Musk’s flamboyant standards, the last couple of months have been exceptional. He’s vowed to sell almost all his possessions, announced the birth of his son, named X Æ A-12 (pronounced ex-ash-A-twelve), described Tesla as being overvalued, recited the lyrics to The Star-Spangled Banner, and made sure that everyone knows “Facebook sucks.” The real juice, though, has come on the topic of the coronavirus, where Musk has emerged as one of the most prominent advocates of reopening society and one of the most vocal downplayers of the virus’s effects. Suggesting that Covid-19 cases are faked sounds especially abhorrent coming from someone who tends to celebrate science.

Musk, true to form, says he won’t wait for people to figure out how to turn the economy back on. “SpaceX has been working this entire time, because we have a national security exemption,” he tells me. “We’ve had 8,000 people working full time through the whole pandemic. We’ve had zero serious illnesses or deaths despite working in L.A., Washington, Texas, and Florida. It’s more of the same in China [for Tesla], with 7,000 people. I think when the dust settles it will be obvious this was much less of an issue than people thought.”

8) The three sides of risk [Source: Collaborative Fund]
This article is an example of how life can teach you anything and everything. The author of this piece talks about how a life-changing incident made him think about risk. That’s an important factor to consider in investing! At a conference a few months ago he was asked what skiing taught him about investing. This was on stage, where you can’t ponder your answer – you have to blurt out whatever you can think of. So he talked about a tragic incident that made him lose his friends for life.

Skiing for him and his friends were routine. But, one day, the same routine turned into a disaster. His friends succumbed to an avalanche while skiing in an uncharted/prohibited territory. So how come he got saved? Because he took the decision of not going with them the second time. Yes, the second time. His risk tolerance plunged after his two friends (Brendan and Bryan) died as adolescents. He broke his back skiing (no nerve damage) a few months later, which crushed it even more. He says that skiing scares him now.  

He has been risk-averse in other areas of life ever since, too. He drives the speed limit. He obeys the seatbelt sign on airplanes. He invests in index funds. That incident opened his eyes to the idea that there are three distinct sides of risk: 1) The odds you will get hit. 2) The average consequences of getting hit. 3) The tail-end consequences of getting hit. The first two are easy to grasp. It’s the third that’s hardest to learn, and can often only be learned through experience. In investing, the average consequences of risk make up most of the daily news headlines. But the tail-end consequences of risk – like pandemics, and depressions – are what make the pages of history books. They’re all that matter. They’re all you should focus on.  
  
9) A podcast about a great company: Intel [Source: acquired.fm]
This podcast is about the evolution of Intel and their incredible bet the company moved on their newly emerging microprocessor business in 1985. They weren't the microprocessor company when they started. They start from the start when William Shockley, in 1956, started a company called Shockley Semiconductor. In that same year, in 1956, he won the Nobel Prize for inventing the transistor. When he started the company he demanded absolute adherence to all of his whims. He started instituting lie detector tests at the office because he didn't trust any of his employees and generally he was kind of like the world's worst boss.

Eight people from Mr. Shockley’s company were fed up with his antics. And they all decided to resign the same day. Two of them Bob Noyce and Gordon Moore went on to build a company that would later become Intel. Yes, Gordon Moore observed and coined Moore's law that we still talk about and still holds even to this day, which was the observation that roughly the density of integrated circuits on the chip, computing power would double every one to two years and that has happened for the past 50 plus years. Soon the company became big. But as a company grows so does the number of competitors.

One famous day in early 1985 where Moore and Grove are talking about this situation. Grove says to Andy and Gordon, "You know? Things are bad. If the board kicked us out and brought in a new CEO, what would you think the new CEO would do in response to this situation?" Moore looks at them and he says point-blank, "They'll just get us out in the memory business." This is like Uber saying, "We're going to get out of the ride-sharing business." Grove writes in the book, as soon as Moore said that, he says, "I stared at him, numb." Grove responds, "Well, what if you and I fire ourselves? Walk out of the door to this office, rehire ourselves, turn around, come back in, and do just that." That's what they do. They actually, physically, walk out in the office. They ceremonially fire themselves, rehire themselves, and walk back in. That psychologically gives them the clarity of like, "No, this is what we need to do. We need to get out of this business."     

10) Can New York avoid a coronavirus exodus [Source: Financial Times]
New York has become a deserted place now. Hudson Yards has become a ghost town. Its 1m-square-foot shopping mall was shuttered and its anchor tenant, Neiman Marcus, would soon declare bankruptcy. The Vessel public art sculpture — likened by one reviewer to a giant doner kebab, and usually teeming with tourists — was empty but for a security guard patrolling its base. More than other large cities, New York exemplifies the urban characteristics that the virus has turned into vulnerabilities — population density, sky-high cost of living, a reliance on retail, culture and tourism and a dependence on crowded public transport.

The modern history of New York City is one of periodic disasters shadowed by the fear of exodus — to other cities that are cheaper, safer, more convenient. There was the 1970s fiscal crisis and the decay that followed; the 1987 stock market crash; the September 11 2001 terrorist attacks; and the 2008 financial crisis — not to mention various hurricanes, floods and power outages. Yet in each case the doomsayers were proved wrong. The city bounced back stronger than before, and in some ways, reinvented itself. And many feel this time too, the city would emerge victorious.

Even before coronavirus, the wealthy were beginning to flee the city’s rising taxes for places such as Florida and Texas. “People are leaving New York and they’re leaving New York in droves,” says Norman Radow, a one-time New York developer who is now based in Atlanta. The coronavirus, he adds, “is just the icing on the cake”. Still, Mr. Radow’s own experience made him wonder if there might be investment opportunities ahead. He first moved to Manhattan in 1978, the depths of the fiscal crisis, and bought a two-bedroom apartment for $63,000. “Everyone thought it was the end of New York,” he recalls. “And look what happened.”

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