Rahul Deodhar's Blog, page 4

Jobs/Employment and Growth

Why are incomes not picking up even when the unemployment rate is at its lowest and profits are rising?
The first phase of automation focussed on improving productivity. So skill requirement of workers goes up and hence their pay goes up.
In present phase of automation, the skill requirement of worker operating the equipment is going down and hence their pay is going down.
Thus, if you replace the spade with earth moving equipment, you need to pay the worker more for the higher skill requirement. But when you replace an expert barista with a coffee-maker machine then you need to pay less to the operator of that machine. 


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Interesting Readings 11-Apr-2018

When the supervisor sleptIla Patnaik believes bank fraud at PNB and ICICI Bank (possibly) are result of lack of proper supervision. I agree that supervision is inadequate. However putting the blame on RBI alone is not proper. Rightly, Ila points at all supervisors. In addition, I think one perspective is missing - that PNB and ICICI Bank (alleged) fraud are two different animals. PNB is systemic loopholes being exposed something regulator, management should have caught and has far reaching implication wrt Business process design within banks. ICICI Bank (alleged) is pure corruption. Even if it is conclusively proved that there was no fraud, the optics on this are bad. It is more responsibility of shareholders than the other. 
Shikha Sharma At Axis Bank: A Stormy Entry And A Stormy Exit Shikha Sharma followed K V Kamath's model of growth without regard to Asset quality. Even Rana Kapoor belongs to this group. On the liability side their strategy is to get corporate deposits. Aggressive lending - generally large corporate (longer tenure) and consumer lending (higher risks) on asset side and corporate deposits (more fickle, higher costs) on liability side accentuates Asset Liability mismatch for these banks. Chanda Kochhar managed to set ICICI house in order after Kamath's high-paced up-scaling. But the problem persists in many new private banks. As corporate lending portfolio looks more risky the banks become more shaky.
International Odds of market melt-up still at 40% but lower than earlier- Jeremy GranthamGrantham is one astute market observer. Earlier this year he mentioned the likelihood of a melt-up (markets going up). The Trump histrionics have dented the probabilities but it still is at 40%. Cool!
Pitch Deck AlternativesInteresting ideas from Fred Wilson. Short video, short podcast, IPO intro-letter. 
After a String of Corporate Scandals, “Big Four” Accounting Giants Face Breakup in the UKFrauds are eating up the moral character these days.
Europe’s Great Housing Division Interesting
Will China Really Supplant US Economic Hegemony? Ken Rogoff thinks it is not easy.

On a different noteThe True Story behind Meghna Gulzar’s Upcoming Movie Raazi!  The story of the spy. Looks like a must watch movie from Meghana Gulzar. Talvar was well made movie. I liked it.
Dwayne Johnson: The Pain and the Passion That Fuel the RockI like Dwayne Johnson. Buy my books "Subverting Capitalism & Democracy" and "Understanding Firms".

Interesting Readings 09 April 2018

BANK SCAM WATCH

PNB scam: ED unearths Rs5,000 crore money trail
This will test the skill-set of ED team. Lets hope they get it done properly.

INTERNATIONAL John Hempton, the Aussie fraud-hunting short seller taunting billionaire investor Bill Ackman Also subscribe to Bronte Capital blog. The article is thanks to Barry Ritholtz.
Trade wars are good and easy to winThis post was courtsey Barry Ritholtz. The author is worried about US stock markets and believes that central banks will back the markets again. I find that difficult to believe but the past decade has been unbelievable to say the least. But the post triggered some thoughts. Refer to this comment:

This massive growth has had tremendous implications for the global financial system. As the Chinese government sold more Yuan and bought U.S. dollars, they reinvested the USD back into US Treasuries and other relatively safe fixed-income vehicles. This had the effect of pushing interest rates lower, which when combined with the falling rate of inflation from the cheap Chinese goods that were entering America, sent bond prices rocketing higher. As interest rates fell, many consumers were able to refinance their mortgages (or take out equity home lines of credit), which allowed them to buy even more Chinese goods. This, in turn, caused the Chinese government to have to sell even more Yuan and again buy USD, thus creating a self-reinforcing feed back loop. To some extent, the credit excesses that led to the 2008 Great Financial Crisis were the direct result of the Chinese economic reform. China’s transformation had the effect of creating lower inflation and lower interest rates in the rest of the developed world.

Most commentators praise China for "allowing" US to consume more. I think that is wrong way to think about it. It is because of this cheap credit that we had the bubbles and problems of the past decade. Had China been gradual in its development, it would have given about 400 million developed world workers to make the adjustment. The world went along with China in that game to its own detriment. Further, it would have been worthwhile if Chinese workers would be irrevocably moved out of poverty. But that is not so. The upcoming trade wars and squeezing of Chinese supply will put many out of work and push them into poverty. China will have to make a decision to chose who to let go into poverty. To prevent this, China wants to invest in the world through BRI which they will use Chinese capacity and Chinese employment to create assets overseas. It is all fantastic.

Edward Harrison explains this in his post titled China cannot use its Treasury holdings as leverage. Here’s why.  Edward links to work by Micheal Pettis and explains some of the nuances of the present Chinese predicament. Similarly Marshall Auerback highlights some risks to China here.

But here is a cartoon from Tom Toles



OTHERS
Seinfeld has movie coming up!



Puffin beaks are fluorescent and we had no idea
Thanks to Tyler Cowen. Puffins are birds with colorful beaks. The beak apparently lights up under UV light. What I learnt is that birds perceive colors differently. Humans see colors that are a mix of red, blue and green light, while birds have a fourth color in the mix — a property called tetrachromatic vision. Tetrachromacy is quite common among birds reptiles etc. It provides larger visual spectrum (different types of light) though spectral resolution (clarity) is similar to humans.

Not Enough Women at Wikipedia?
There are not enough women editing the stuff on wikipedia. I don't know how to think about this. Wikipedia is a free resource, created by free contribution by everyone. I hope Wikipedia is not stopping women from contributing. That would be stupid. Is it that men contribute overwhelmingly more than women? Why so? Does it say something about pay-gap and gender equality? I wonder. Buy my books "Subverting Capitalism & Democracy" and "Understanding Firms".

Interesting Readings 06-Apr-2018

IndiaSupreme Court paves the way for sale of RCom assets to Reliance JioI would like to watch how NCLT decisions filter through Supreme Court.
New ITR forms seek salary structure details, income from propertyThis is another area where drastic simplification is required. If Form16 has the data why can't Income Tax pick it up directly from employers. This makes filing taxes difficult for the citizens. Then government complains why tax compliance is very low.
Amid tomato glut, Maharashtra farmers worry about recovering costsThis is the problem when there is no coordination between producers. That is why I have proposed Smart Agriculture Management System.
How Educomp may have subverted the spirit of India's IBC process Educomp was once a darling of the market. As one of the early investors (not in personal capacity), I visited their Bangalore school. When they went Asset heavy for a business model that was asset light (software platform for education), Educomp missed the game. It could have become one of the Indian unicorns. But self-interest triumphed over smarts. And now the company is playing another questionable game. Sad!
The wonder that is India and Indian Railways - The strange case of Katni-Damoh rail heistA 1.6 km rail track was stolen alongside a busy railway line in Madhya Pradesh. 60% of the rails were recovered and masterminds fled to Pakistan apparently. 

InternationalFormer South Korean President Park Sentenced to 24 Years in Jail I wait for the day when Indian politicians go to jail for these offences. Would love it. Actually most of them will have to go. Chagan, Sharad, Ajit, Rane, Mulayam, Lalu, Sonia, Rahul, Kanimozhi, Raja, Karuna, Chidu, etc. etc. list goes on and on.
Trump Escalates Trade Tensions With Call for New China TariffsTrump is targeting $100bn over the $60 billion. China had slapped $66 billion tariffs as a response. I think US talks up its opponents and China talks up itself. Once we get over that, we realise this is not going to go well for China.
Leverage Will Determine if China or the U.S. Come Out on Top in Trade ConflictGreg Ip summarizes how this game will play out. Two important points:

By contrast, the U.S.’s political pain threshold is low, which other countries regularly exploit: in 2002, the European Union retaliated against U.S. steel tariffs by targeting motorcycles from Wisconsin and orange juice from Florida, both swing states in elections. The U.S. repealed the tariffs.

China has singled out products made in states represented by influential Republicans, such as whiskey, distilled in Kentucky, home of Senate Majority Leader Mitch McConnell.

India must wait and watch for this opportunity. If there is a possibility to supply US with a manufacturing base in India, it will give India some advantage. However, India must not make the mistake of overbuilding uneconomical capacities. Nelson Cunningham says just that - How Donald Trump’s trade policy will affect India.
Here is a super cartoon expressing the situation:
OthersIn A First, Maharashtra To Have Coloured Non-Edible Ice. Here’s Why It Matters! I always suspected people do not use food grade ice.
The bots beat: How not to get punked by automationThere are a lot of bots spewing out content on social media. It is important to know if you are listening to a bot. Article provides some interesting links for bot-watchers. Some intelligent perspective too. 
Do you trust this computer? Chris Paine AI Movie free till SundayElon Musk recommends this one. So must watch.

World War Watch Indian Govt firms up plans for made-in-India Kalashnikov rifles
Interesting development. I would love to see F35 along similar lines.


 Buy my books "Subverting Capitalism & Democracy" and "Understanding Firms".

Interesting Readings 05-April-2018

Jeffrey Goldberg interviews Mohammad bin Salman, Crown prince of Saudi ArabiaThis Atlantic interview is thanks to Tyler Cowen. MbS is one of the most critical actors on a volatile stage. He has, as of now, shown inclination to reform and upgrade the region. However, he has made some weird moves against Iran.

The friend of my enemy
Christophe Jaffrelot talks about India-Iran relations. With Saudi Arabia's MbS positioning (see above), India may find Saudi a better partner. This may reinforce China-Iran-Pakistan alliance. Russia is still a fence-sitter though it supports Bashar-Al-Assad just like Iran.

Others RTE imposes a bureaucratic, grotesquely inefficient regime starving our children of good education
RTE is the most flawed act. Government regulations and Court interventions have made it even worse for students. But no one has the courage to scrap it.

Controlling Airpods volume for Android phones
Fred Wilson got this answer from the internet.

The copy is the original
An insight into the Chinese cultural mindset. Chinese do not mind copied works. Interesting.

 Buy my books "Subverting Capitalism & Democracy" and "Understanding Firms".

Interesting Readings 06-April-2018

Jeffrey Goldberg interviews Mohammad bin Salman, Crown prince of Saudi ArabiaThis Atlantic interview is thanks to Tyler Cowen. MbS is one of the most critical actors on a volatile stage. He has, as of now, shown inclination to reform and upgrade the region. However, he has made some weird moves against Iran.

The friend of my enemy
Christophe Jaffrelot talks about India-Iran relations. With Saudi Arabia's MbS positioning (see above), India may find Saudi a better partner. This may reinforce China-Iran-Pakistan alliance. Russia is still a fence-sitter though it supports Bashar-Al-Assad just like Iran.

Others RTE imposes a bureaucratic, grotesquely inefficient regime starving our children of good education
RTE is the most flawed act. Government regulations and Court interventions have made it even worse for students. But no one has the courage to scrap it.

Controlling Airpods volume for Android phones
Fred Wilson got this answer from the internet.

The copy is the original
An insight into the Chinese cultural mindset. Chinese do not mind copied works. Interesting.

 Buy my books "Subverting Capitalism & Democracy" and "Understanding Firms".

Interesting Readings 02-April-2018

Velocity of MoneyJohn Mauldin picks Lacy Hunt's chart on velocity of money. Here it is. This is what has been the problem all along. I explained this 2013 article on this blog titled About Money Supply and Inflation. This is the reason why unprecedented stimulus did not result in inflation. But velocity is weird variable. If it turns up then we will quickly go into high inflation.
Trading V/s Investing Zone Jared Dillian has a great newsletter. He believes we are entering a trading zone. Volatility is good for trading not for investing. Investors need to keep cash on hand for opportunities that may arise. They may have to move quickly. Interesting times. 
Here is a bit of advice from Jared Dillian's boss. Worth keeping in mind. 

There is a relationship between volatility and liquidity. When the Fed adds liquidity to the system, it suppresses volatility. When it withdraws liquidity, volatility rises.

Amazon/Apple: sub zero FT ponders which company will beat 1 Trillion Dollar valuation. It points to how Scott Galoway jinxed Amazon, Morgan Stanley jinxed Microsoft. In the article FT jinxed Apple. Interesting read.
World War WatchKim Jong Un Mingles With K-Pop Stars in Overture to SeoulVarious South Korean artists are in North Korea on a diplomatic mission. The tour, titled “Spring is Coming,” is billed as a gesture of goodwill and includes k-Pop artists. Red Velvet a famous K-Pop band also sang their song called "bad Boy". It went well with Kim but the Economist was worried about exactly that and its implication for diplomacy:

Red Velvet’s “Bad Boy” could be an unorthodox injunction to nuclear diplomacy: “Oh your edgy style is a bonus/ I love the boring way you talk/ let’s push and pull.”

Raja Mandala: Kim goes to ChinaInteresting analysis. Raja Mohan believes Kim went to China to “inform” Xi of his decision, “promise” to keep China in the loop and “seek” the Chinese leader’s blessings. This is a position of strength for Kim. Raja Mohan states that the two polar opposite outcomes of Kim-Trump accord are bad for China. If it succeeds there will be more US presence in North Korea - closer to Chinese border. If it fails drastically again there will be a war near China border. But any outcome that increases US cooperation with North Korea seems problematic for China. That means only acceptable option for China is North Korea determined to be anti-US but pro-peace and pro-denuclearisation. Hmm.....
How Islamic State changed global warfareIS with small resources is thinking up newer tricks to battle with trained armies. These new strategies are being watched carefully. Armies need to be prepared to counter-act such tactics or develop them for self-defense. Imagine what can China do. India needs to keep an eye on Arunachal and Kashmir. The future looks dangerous.
China Hasn't Won the Pacific (Unless You Think It Has)Very important read. US needs to do more to be assertive in the region. There is another aspect. US has always appeared to be lot closer to being beaten that it really is. Japan came close but fell back. The US resilience is rooted in democracy-capitalism complex. That is at its weakest. But it can be strengthened. Once done, it will unleash another wave of creativity and growth leaving many behind.
OthersWhy the Pencil is perfect?Caroline Weaver explains the history of Pencil in a short 4min TED video. Buy my books "Subverting Capitalism & Democracy" and "Understanding Firms".

Interesting Readings 26 March 2018

InternationalBernanke, Geithner & Paulson on the 2008 financial crisis The problem of the crisis is the story of blind men and the elephant.
A Not So Pretty PictureMicheal Batnik links to GMO 7 year forecast and it does not make a pretty picture.
Top export from every countryLook at this -from visual capitalist courtsey Barry Ritholtz.
World Water shortage map Another thanks to Barry Ritholtz.
Another interesting quote about differential treatment of Martin Shkreli and Elizabeth HolmesThanks to Gulzar Natranjan. The quote goes thus:

John C. Coffee Jr., a professor at Columbia Law School who teaches classes on white-collar crime, said, “Typically you get more sympathy from the criminal justice system if you’re an attractive young woman than a brash, arrogant young male”... In comparison to Mr. Shkreli’s fraud, the Holmes allegations “are really a different order of magnitude,” Ms. Apps said.

Some reads from V Ananthanageswaran on ChinaSpecially the Kevin Rudd speech
India Bank FraudThree articles from Anjan Basu on the fraud. Thanks to Gulzar Natrajan again.Are India’s Public Sector Banks at Their Nadir?Three Reforms That Also Set India's Public Banks on a Bad Loans Path As the Industry Changed, India’s Public Banks Lost the Most and Won the Least
Any deterioration in a sector is result of many small mis-steps. These three articles give the details of how small interventions possibly led to present predicament.






 Buy my books "Subverting Capitalism & Democracy" and "Understanding Firms".

Interesting Readings 23 March 2018

IndiaHow farmers in an Indian village used broadband to save onions, and their livelihood Take this as a case study - all elements that reduce farmer's risks help. That is why I developed the Smart Agriculture Management System. It not only reduces risks but makes the process transparent allowing private parties to invest in agriculture support services that lower risks further. It should create a positive spiral. 
Indian political risks underpriced: Nomura reportKey quote: 

We would assign a 25% probability to an early general election, clubbed together with state elections scheduled in Q42018 and H12019 (first half), including the key BJP states of Chhattisgarh, Rajasthan and Madhya Pradesh.

This is to ride on better economic data that may turn by March 2019 unless structural reforms are undertaken. It should help campaigning for BJP.
InternationalHumanity’s Meat and Dairy Intake Must Be Cut in Half by 2050 to Avoid Climate Change effectsThe science is right. The carbon conversion from plant to human is more efficient than from plant-to-animal-to-human. However, the solution is not to cut the meat consumption in half. The solution is to capture the carbon. After all if one extends that logic, ultimately you will reach a point when humans are better off not living. [That is what Terminator and other movies suggest].
Chinese group’s Rosneft stake bid muddies Kremlin-Beijing tiesRoseneft is close to Putin and CEFC the company that was taking the stake has fallen out of favour of Chinese elite. They have backtracked on projects in other countries including Czech Republic. 
World War WatchChina provides tracking system for Pakistan’s missile programmeTwo sets of parties are nicely moving together setting the stage for a big war. China-Pakistan-Iran-Russia and North Korea are tagged on one side (note - only by the media). On the other side are Quad+ 2 (Britain & France).  Some player equations are yet to evolve.  Saudi has an alliance with Russia. Russia with Iran. Russia is strategic partner of India too. Europe will abstain if Russia abstains otherwise they will side with US.
BrahMos supersonic missile with indigenous seeker successfully test firedBrahmos is Russia India collaboration. Buy my books "Subverting Capitalism & Democracy" and "Understanding Firms".

Interesting Readings 21 March 2019

IndiaIndian farmers call for free marketsThe article highlights the same old problems. The solution however is better - open markets. Farmers bear too much risk in Agriculture and are not compensated adequately. For example see this. But de-risking agriculture is not easy.  Here is my paper explaining the problem and the solution.

Do We Need Banks? Menaka Doshi pointed to this post yesterday by JR Varma. The article is important for the links in them. Amol Agarwal points to some other post by JR Varma first being Are banks too opaque? and next being Can radical blockchain technology decrease banking frauds? I am not sure I agree but both are worth reading. May need a longer post.

InternationalEconomics failed us before the global crisisMartin Wolf examines the problems with Macroeconomics. Unfortunately, theoretical economists often ignore the empirical findings that contradict their views and thus delay the progress of economics.
The /Other/ Marshall PlanDAvid Warsh talks about Benn Steil book Marshall Plan. From the article it seems it is worth a read. The Marshall Plan (economic assistance to Europe) was part of the Marshall Plan. The other part of the plan was to keep Soviets at bay. In fact, it seems the Marshall Plan was a tool to accomplish Soviet containment. India and its neighbors need this kind of Marshall Plan against China.
Bill Of The Month: For Toenail Fungus, A $1,500 PrescriptionThere is something really wrong with US healthcare costs.


World War Watch
China's stealth wars in the HimalayasBramha Chellaney highlights the extent of China's designs. That does not bode well for India. Even Arunachal Pradesh is at risk. India better act fast. Also, with Belt-Road through Pakistan-Occupied-Kashmir, India could face two front war - both fronts with China!

China tests driverless tanks that could be powered by artificial intelligence
That is something to watch out for on Arunachal borders.

US Pacific Command supported selling F-35 fighter jets to India.
Lockheed is pitching for production line for F16. I would take it if it comes with production line for F35 too. That would be super. F35 is quite a capable aircraft. As one pilot described it, US aircraft are like racing cars - you have to take real good care of them. Russian aircraft are more like monster trucks - they stand up to abuse fairly well. In that context India's Russian aircraft dependence suits us. But eventually we have to move to these US-style fighters. Saab's Gripen will also be similar. Also Saab is going to assist with Tejas. India will be one country with both Russian and Amercian weapons in its armory.  Buy my books "Subverting Capitalism & Democracy" and "Understanding Firms".