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The Market Mogul

News Collection from The Market Mogul as of May 15, 2018

Burgess COMMENTARY

Peter Burgess

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The Boring Company Close to Completing First Large Tunnel 3 min read / May 11, 2018 By Fergus McKeown Elon Musk’s The Boring Company has nearly finished the first section of its tunnel network underneath Los Angeles. Captioning a video released on May the 10th, showing footage of the soon to be completed tunnel and some of the people working on it, through Musk’s personal Instagram account, The Boring Company founder stated: First Boring Company tunnel under LA almost done! Pending final regulatory approvals, we will be offering free rides to the public in a few months. The tunnel is an expansion to the first test of the digging equipment and techniques used, which produced a 100-metre passage starting at the SpaceX carpark in Hawthorne, LA. This has now been extended by around two miles, stretching toward Los Angeles International Airport, LAX. It is only the proof of concept of a much more extensive network of tunnels below the metropolis. Construction began in late October of 2017, but missed its intended completion date, of ‘3-4 months’ according to Musk, by almost a quarter of a year. The tunnelling startup is going full steam ahead though, and the firm wants to expand the network beneath LA. Things are being held up by planning boards, and the project needs an exemption from California’s Environmental Quality Act. The Boring Company, which famously sold flamethrowers on its website earlier this year, hopes to reduce the cost of tunnel excavation. First, by reducing the diameter of tunnels from 28 to 14 feet. This would be made possible by transporting people on electric skates, rather than in road vehicles. Tunnel boring is a very slow process too, which increases the cost. Godot, the tunnel boring machine working in LA, is named after the character from Samuel Beckett’s Waiting for Godot who never turns up. LA is not the only place where Musk, who also heads up electric car manufacturer Tesla and commercial space company SpaceX, is planning on digging. They are planning on a 35-mile route between Baltimore and Washington DC on the east coast of America. This will be part of the Loop system, express underground tracks on which passengers travel on underground skates. There are plans for much larger Hyperloop systems too, which would see passengers enter pressurised cabins as they are ferried through a vacuum tube, which would reduce air friction, allowing very high speeds to be reached. They are also putting in a proposal to build an express connection between O’Hare airport and downtown Chicago. Image by Jochen Teufel – Own work, CC BY-SA 3.0, https://commons.wikimedia.org/w/index.php?curid=7156384 CLICK TO COMMENT MORE ON THE BORING COMPANY Musk phone number COMPANIESMusk Accidentally Shares His Phone Number with 16.7m Followers
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AFRICA ... Making Africa Great Again 13 min read / May 11, 2018 By Franklin Amoo It was only a few years ago when an infectious wave of optimism poured over African shores from other frothy global markets and began to be felt in African commercial capitals from Lagos to Nairobi to Johannesburg. According to the African Private Equity and Venture Capital Association (AVCA), private equity fundraising for the region grew 24%, from $3.3bn to $4.1bn, for the years 2013 to 2014. By 2015 Africa focused fund managers had raised a record $4.3bn, bringing the cumulative 2010–2015 haul to an impressive $16.2bn. 823 private equity deals were done over the same period for a total value of $21.6bn. Putting on the Breaks However, the last two years have seen a marked slowdown in limited partner commitments to the continent’s 54 markets; existing GPs have had difficulty attracting support for follow-on fund offerings and new managers have struggled to get off the ground. AVCA reported that following 2015’s record total, only $3.4bn was raised by PE fund managers in 2016, a number that fell further still to $2.3bn in 2017. Africa, at least from a PE fundraising perspective, is no longer rising. Weakness in global commodity prices and an overall souring on emerging markets (EMs) by institutional investors hit Africa and other so-called “frontier markets” particularly hard; investments targeting developing countries haemorrhaged fund flows as the market took a more cautious stance to EM bellwethers such as Russia, China, Turkey and Brazil. This was compounded by strong, often record, relative performance in more familiar developed markets. Buffeted by weakening fundamentals and challenging macroeconomic headwinds, fundraising and PE investing in Sub-Saharan Africa were down, year-on-year, in 2016 and 2017 — decreasing 25% and 40%, respectively, according to the Emerging Markets Private Equity Association (EMPEA). With GDP growth rates slowing sharply in the continent’s biggest economies, Nigeria (which was in recession for much of 2016 and 2017), South Africa and Kenya, existing portfolio investments for many managers suffered, exacerbating an already troubling trend of modest returns for the region’s PE funds. The hard truth is that the underperformance of funds raised in better economic times set the industry up for a challenging investor marketing story in the aftermath of the downturn. A New Model Despite the recent slowdown, many still believe in Africa’s potential and hope that private equity will make major contributions towards that development. However, it has become increasingly clear that both long-term growth and the ability for Africa to attract fickle Foreign Direct Investment (FDI) and portfolio investor flows will depend on improvements to fundamental economic structure — as opposed to cyclical commodity prices — to be sustainable. African private equity is beginning to run headlong into the central issue that has bedeviled African entrepreneurs and private sector participants for decades: Africa’s fundamental business model of earning hard currency by exporting raw commodities in order to purchase imported manufactured goods that satisfy the needs of its domestic residents creates an inherently fragile economy exposed to exogenous cyclical shocks with few local factors of production that present attractive or investible assets for investors. Today, investors can at best seek to profit from agents in this trading model (banks, retailers and distributors of imported product) or in developmental commodity reserves; but it does not have to be this way. Local Markets to Replace Foreign Imports African private equity investors would benefit from more focus on domestic and regional production opportunities where inefficient import-based supply chains may offer attractive opportunities to on-shore value chains. In a recent article in The Diplomat magazine, Matthias Lomas asserted that “manufacturing goods in China is now only 4% cheaper than in the United States, in large part because yearly average manufacturing wages in China have increased by 80% since 2010,” leading low-cost manufacturers to explore countries such as Vietnam, India, Malaysia and Bangladesh. But even those economies are adjusting to a higher cost base; Forbes reported last spring that workers in Malaysia, Thailand and Myanmar successfully demonstrated for wage increases of more than 50% for this year. In Cambodia, a popular new destination for low-cost manufacturing over the last several years, Forbes reports that “Prime Minister Hun Sen announced an 11% increase in minimum wage for garment and footwear workers” in a bid for votes in an upcoming election. Just as labour costs begin to creep higher in the world’s major manufacturing centres such as China and the ASEAN region, which seek to graduate to higher value medium and high tech manufacturing, Africa is in the early stages of a major demographic bulge creating tens of millions of potential labourers. A Young Continent According to United Nations forecasts, by 2050 34% of the world’s population 15 years of age or younger will live in Sub-Saharan Africa with Africa’s under 15 population growing from 406m in 2015 to almost 700m by 2050; in China and India, this population will actually shrink from 255m to 204m, and from 364m to 317m, respectively, over the same period. Afri-Dev Info estimates that Africa will add 1.2bn people under the age of 35 to its population by 2050. In particular, as the UNFPA and African Union point out, the populations of West and Central Africa — which share time zones and natural shipping corridors to Europe — are particularly young: almost two-thirds are under the age of 24. Young people between 15 and 24 years of age make up 60% of the unemployed in Africa and the few who do manage to find work are involved in the informal sector with low incomes. According to UN estimates, the population of Africa may reach nearly 2.5 billion by 2050 (about 26% of the world’s total) and nearly 4.4 billion by 2100 (about 39% of the world’s total) creating both enormous potential markets for producers and significant challenges for policymakers and civil society. It is in everyone’s interest that Africa finds a way to domestically employ this enormous population of young people. Joe Walker Cousins, former head of the UK’s Libya mission says there may currently be 1 million African migrants en route to Europe and a leaked German government report identified up to 6.6 million more waiting to cross into Europe from waystations in North Africa and other points such as Libya along the Mediterranean. More than 590 of those attempting to migrate drowned in the Mediterranean in the 1st quarter of 2017, while 21,900 more reached Italy over the same period; up from 14,500 in the first quarter of 2016. 9,000 migrants arrived in Italy via Libya in 2014; by 2016 that number grew to 37,550. A study of migrants hailing from Nigeria concluded that up to 75% of them are economic migrants. These men and women are voting with their feet: these are often young, able-bodied and, relative to their societies of origin, reasonably prosperous individuals who are gambling their futures on a binary option where the upside is selling trinkets — or worse — on the streets of southern Europe, and the downside is a watery end at the bottom of the Mediterranean. When the most vibrant and economically potent components of a labour force get this disillusioned and nihilistic, can serious instability be far behind? According to the Global Terrorism Index, in 2015 three of the world’s four deadliest terror groups were in Africa: Boko Haram, pastoral Fulani militias and al Shabab. The other was Isis — itself, in part, a product of a failure to harness a similar, but smaller, demographic bulge in the Middle East a generation ago. Under-industrialization in Africa is no longer just Africa’s problem. Mr Cobb and Mr Douglas Fortunately, the answer can be found in an introductory economics textbook: like China (facing its labour surplus) did so successfully over the last three decades, the markets of Africa need to focus on relentlessly optimising their Cobb-Douglas production functions and embark on massive capital deepening to compliment this prodigious labour endowment. Human capital development is a naturally occurring byproduct of the industrialisation process: mechanical and engineering skill development, wage stability, and an increased savings rate all occur organically alongside profitable production. This is where private capital can play a catalytic role. Investment in the African capital stock offers the opportunity to increase African labour participation by employing the abundant youth population and in the process reducing migratory and extremist trends while also promoting healthier growth conditions and stronger consumer demand. Increased technical transfer from more developed markets, power & transport infrastructure development and production oriented capital expenditure in Africa will increase total factor productivity and create sorely needed export opportunities for developed markets experiencing declining growth. Developed markets financial firms may enjoy more fertile demand markets for credit, payment and financial management products. While expecting Africa to compete with countries like Indonesia, Thailand and India which have made far more significant investments in power, transport and social infrastructure for opportunities in export manufacturing may prove ambitious, Africa’s rapidly growing population also offers immediate opportunities in the manufacture of locally consumed staples and necessities. This is an area that should be of particular focus for private equity investors with relatively near-term horizons for harvesting investment returns. Supply chain elements for basic staples such as food and commodity processing, construction materials manufacturing, FMCG production and fertiliser manufacturing enjoy large local demand and are mostly supplied by cumbersome imports that require complex logistical supply chains from far away markets. Investments in simple production value chains could, with manager assisted upgrades to operational management and governance, reduce local unit costs of production enough to credibly challenge these imports for local market shares. Golden Opportunity Current timing for such manufacturing focused investment strategy in Africa is particularly opportune. The IMF recently raised global growth forecasts to 3.9% and signs of renewed vigour are evident in rapidly firming commodity prices such as crude oil and iron ore. These trends portend positively for African terms of trade, and improved hard currency availability is already evident in large commodity export markets from Nigeria to Zimbabwe. A more buoyant macroeconomic environment will encourage African commodity exporter government revenues, support hard currency FX reserves, stimulate local demand and promote local consumer confidence; Africans will have more money in their pockets. This should maintain and potentially expand African bank and government access to Eurodollar bond markets, providing the necessary resources for the plethora of recently announced transport and power infrastructure projects across the continent. Updated electricity generation facilities, ports, air links, roads and railways will all benefit local manufacturing production interests. Despite these positive developments, African asset valuations are at attractive lows — with manufacturers, in particular, starved of both growth and operating capital; investors would be wise to avail themselves of this fortunate constellation of circumstances. Painful Lessons Importantly, the policy winds in Africa will increasingly be supportive of local production as local policymakers, particularly those stung by recent gyrations in the prices of export commodities on which they rely, have learned painful lessons. African governments are under increasing internal and external political pressure to diversify economies and reduce pressures on hard currency foreign exchange reserves by substituting imports with local production, especially for the supply of critical staple products; policy is likely to evolve in a manner hostile to exporters to these markets and protective of local production — via tariffs, subsidies, financial support and other market protections. A more constructive part of this emphasis is focused on integrating neighbouring markets into regional unions that offer larger demand opportunities to potential producers. Just last week the African Union announced the Single African Air Transport Market (SAATM) initiative which should enhance connectivity between African nations, reduce flight prices and increase the number of direct flights between African countries, which will now be able to avoid awkward stopovers in the Middle East or Europe. Continued integration of regional markets in this way will offer opportunities to finally capture returns to scale for local producers and manufacturers. Small Nations Outside of Nigeria, Ethiopia, Kenya, the Democratic Republic of Congo and South Africa few African countries offer large enough populations to warrant significant investments in production infrastructure. However, advancing efforts by ECOWAS, UOEMA, COMESA and SADC to reduce and remove trade frictions on the cross-border transit of goods and people as well as the downward trajectory of intra-Africa tariff levels should make it easier for locally based manufacturers to access benefits accruing from returns to scale. Also, an underappreciated benefit exists in regional cultural themes related to ethnic links pre-dating colonial borders which offer consumer opportunities in food, lifestyle, apparel and other consumer-facing manufacturing and assembly that can appeal to the shared tastes of consumers across several adjacent national neighbours. These scale benefits to efficiency and unit cost of production may make such manufacturing competitive with imported materials with their embedded transport and logistics costs (especially if external tariff policy of integrated regional blocs becomes more aggressive), particularly with renewed global growth threatening to drive up shipping day rates and transport fuel costs in the medium term. As such, commercially driven institutional investors should focus on opportunities to meet the observable extant demand for defensive products in inelastic demand sectors whenever possible; importers have long extracted value from the willingness of local populations to pay premium prices for available staple products. As these trends evolve, investible opportunities that show potential for being plugged into broader supply chain networks for broadly consumed items are especially attractive — local sales and “last-mile” logistics expertise are especially valuable to the supply chains of global multi-nationals. Such potential acquisitions, alongside increasing demand from foreign portfolio investors for more publicly listed equity product from emerging markets, may create increased opportunities for exits. With China’s average wage level having tripled between 2005 and 2016 according to Forbes — now standing higher than that of Brazil, Argentina and Mexico — select opportunities for contract and export manufacturing may emerge in the near term. Ethiopia is currently embarking on a large scale experimental series of state-led investments in such capacity, primarily in footwear and apparel, which have attracted the attention of some global brands. AGOA based projects, mostly in southern African countries like Lesotho and Swaziland have had similar success with denim jeans and other simple textiles. Africa’s Future Investments in local manufacturing require operationally intensive strategies, making them both challenging and defensible. Success will be a function of both pre-investment due diligence and strategic planning, as well as the post-close execution of management enhancements, efficiency promoting production cap-ex, process improvements, product line rationalisation, channel and logistics optimisation, sales growth (via both pricing and product differentiation) and governance improvements. Enhancing investment attractiveness through enhanced reporting, prioritising transparency, investor community engagement, communication with other elements of the supply chain and focusing on environmental, societal, community and internal culture issues should create meaningful value for productive companies efficiently producing critical staple products. This should be great for Africa, but also very good for private equity investors and their LPs. Making Africa great again in this way should be highly commensurate with impressive IRRs for savvy investors in this space. MORE ON AFRICA africa solar power AFRICAThe Sun Is Shining on African Electrification Africa Financing Infrastructure AFRICAFinancing Infrastructure Deficits: An African Trade Imperative AFRICAMauritania: Where Security Trumps Democracy plastics ban britain
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EUROPE... Britain Embraces a Plastic Free Future 3 min read / May 11, 2018 By Fergus McKeown Public perception can take a while to change. Legal marijuana sales look like they will be coming soon to many jurisdictions around the world. From 1969, when only 12% of the US population supported it, to the early 2010s when over 50% were in favour, this evolution in opinion took over four decades. In the UK, social acceptance of same-sex relationships grew from just under 20% in the early 80s to nearly 70%, and full legalisation of same-sex marriages, in recent polls. This shift in social attitudes took over three decades. Brown Planet In comparison, the speed with which the British people have embraced the idea that plastics, and especially single-use plastics, are harmful and that something needs to be done was lightning fast. In 2015, in the wake of the introduction of a 5p charge on plastic bags, only a third of British consumers thought that serious action needed to be taken to curb environmentally unfavourable behaviours. Now nine out of ten shoppers want supermarkets to provide plastic-free options. Big fast moving consumer goods (FMCG) shops, including firms like Tesco and Sainsbury’s, have now pledged to eradicate single-use plastics unless they are absolutely necessary. Cotton buds and plastic straws look set to be outlawed by the government. Such a swift change in public perception and corresponding pledges of action by the government is astonishing. As with most issues, there are several moving parts which account for changes and shifts in the public’s reaction to them. However, there might be one single event which did more than anything else to make the British public re-examine their beliefs. The wildly popular nature series Blue Planet 2 was the most popular British television show of 2017. In the final episode presenter and naturalist David Attenborough, the voice and face of the BBC’s nature documentaries for decades and widely accepted as a British national treasure, gave a heartfelt plea for the reduction of the use of plastics. In scenes which touched the hearts of viewers with clips of marine life harmed by throwaway plastics, their impact was made clear. An outpouring of indignation followed on Twitter, and the issue was brought to the front and centre of public discourse. Green Shift However, there is another, altogether more prosaic reason for the government also showing progress in the battle against disposable plastics. China stopped importing plastic waste in 2018, where a lot of the UK’s recycling went. The infrastructure in Britain was found wanting, as piles of waste began to build up in the nation’s recycling centres. Britain could no longer take the easy way out when it came to environmentally sound practices surrounding packaging. Michael Gove, the minister for the environment, released a plan to reduce the amount of plastics being sold, and simplify the recycling process by cutting down on the number of different types of plastics being used. The cost to on-shore the problem would be too high otherwise. But even then Mr Gove highlighted the role of Blue Planet’s appeal in forcing a change in policy. The aim to reduce, and even ban, single use plastics is a goal that has quickly spread throughout the UK. Attitudes shift slowly, unless they are prompted by vivid scenes or looming crises. Both happened in the UK to quickly move the discourse beyond debate and to action. 1 COMMENT Jareth Smith May 11, 2018 at 3:34 PM Great piece, it’s just a shame this change wasn’t instigated decades ago. Legislation should have been in place to control plastic usage by the early 1990s. In 2005, when climate change finally was accepted as a big deal (although still considered nonsense by many pernicious right wingers), at the very least it should have been handled then. It’s too little too late, I think. It’s all about money – a handful of fat cats will have to go without being billionaires, boo hoo, but they won’t stand for that, and future generations will pay for this narcissism. MORE ON BRITAIN BREXIT ... The EU Has Lost Its Way: The Real Reasons for Brexit European Colonialism EUROPEEuropean Colonialism: Its Lasting Effects theresa may politics BREXITTheresa May Can Transform British Politics for the Better
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ASIA.... India’s Missed Opportunity 4 min read / May 11, 2018 By Mathew M Kanjiravilayil Tesla Motors has revolutionised the automotive industry, and OEMs must face up to the challenge Elon Musk has set down in the development of electric vehicles (EVs). Before Karl Benz perfected the internal combustion engine and brought fossil fuel powered cars to market, vehicles were already running on batteries. Thus, the concept of EV is not new and has not just become a reality today. However, EVs were abandoned early on in favour of petrol powered motor vehicles. Chevrolet again introduced the concept of using electric cars in the 1980s. Now, many EV startups are popping up all around the world, challenging the established car manufacturers. This challenge has forced the automakers to venture into EVs. The major component of electric vehicles is its battery, built with lithium, the lightest metal on the periodic table. The production of lithium is the main bottleneck for the automotive industry because existing lithium production also needs to satisfy the massive consumer electronics industry as well. Thus, this light metal is considered to be one of the most important resources for the 21st century, akin to oil in the 20th. A Missed Opportunity Except for the IT industry, India was a late entrant to the new breakthrough technology sectors. But this time instead of being merely late to the party, it seems India has declined the invitation altogether. Thus, India lost a golden opportunity to develop a battery manufacturing industry which would power the future, especially in a world facing climate change. Tesla Motors scouted for possible locations for a new plant outside the US. China and India were the finalists, and China got the final nod for the proposed plant. India could not take advantage of this fantastic opportunity that could have developed its automobile industry. The government of India recently stated that the country will not have an EV policy but will have “action plans”. The whole Indian auto industry is stunned by this decision. It has created a lot of ambiguity among manufacturers. A proper policy on EVs could have formed an integral part of the government’s much talked about Make in India and Start up India initiatives. But the current government focused on existing industries rather than exploring new avenues for the manufacturing sector. India’s decision makers have shown a lack of foresight. While domestic automakers, like Tata or Mahindra, are trying to bring EVs to market, they show a lack of vision in another respect. They have demonstrated very little interest in the race for lithium. They could have manufactured batteries in India rather than sourcing them from neighboring country. Chinese Vision This lack of foresight and enthusiasm of both Indian government and automakers have created an opportunity for its arch-rival China. India does not have any lithium deposits, but China, while not exploiting its deposits, still wants to be the leader in curbing the air pollution and also keen on acquiring the state of art of electric vehicle manufacturing. To do this, Chinese firms are bringing supply chains under their control. Chinese firms are acquiring holdings in lithium mining and manufacturing firms of leading lithium producing countries. Last September, Chinese automaker Great Wall Motor acquired stakes in Pilbara Minerals, an Australian lithium miner. In early 2017, China’s Ganfeng Lithium snapped up 20% of an Argentine project. In 2016, China’s Tianqi Lithium took a 2% stake in Chile’s SQM, one of the world’s top miners of the metal. Chinese automakers are introducing EV’s in their domestic market and have also started establishing recharging stations all around China. Recently, Chinese automaker BYD has started setting up charging stations just like Tesla Motors is doing in the US. If this continues, then most of the automakers will be forced to establish EV manufacturing plants or else will have to depend on monopolistic Chinese battery manufacturers. China is developing their battery manufacturing infrastructure faster than anyone in the world, including the US. Unless the situation changes, the world will have to depend on China for the production of lithium batteries. An excellent opportunity for the Indian manufacturing sector to challenge the Chinese firms as well as to other Asian tigers was missed. In the future, China will dictate the terms and conditions in trade agreements which will shift the power from West to East. There are already signs of it happening. CLICK TO COMMENT MORE ON ELECTRIC CARS musk conference call COMPANIESMusk Crumbles as Competitors Take on Tesla aramco COMMODITIESUS Frackers Must Thank Saudi Aramco For Recent Success future humanity BLOGWhat Does Facebook Tell Us About the Future of Humanity? sustainable investing
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INSIGHTS BY FIRST STATE INVESTMENTS AND KEPLER CHEUVREUX (SPONSORED)Millennials – the Future or Fad of Sustainable Investment? 3 min read / May 11, 2018 By First State Investments Fill out our survey on sustainable investing and be entered into a prize draw to win an Apple iPad! Exactly what a “Millennial” is has been the subject of some debate. However, according to the Pew Research Centre, they are people born between 1981 and 1996, making them between the ages of 22 and 37 in 2018. Notwithstanding the naming conventions, the interest in the views and attitudes of Millennials has been subject to (as have generations before) much research and conjecture. As highlighted by Kepler Cheuveux research, Millennials’ core values, characteristics and budget will influence the way they think, spend and act. Specifically, and without making a hasty generalisation, the “connected generation” is allegedly favouring experiences and discovery, looking for authenticity, and is much more conscious of the environment – all of this against a backdrop of lower budget and disposable income compared to previous generations at the same age. There have been many papers written on this generations’ preferences as consumers of goods and services across industries; however, it is still unclear what their attitudes towards (and knowledge of) financial matters such as savings, investments and financial services in general are, and what impact this may or may not have on the demand for certain financial products. This is specifically interesting in the context of increasing wealth inheritance from their Baby Boomer parents ($30trn in financial and non-financial assets in North America over the next few decades, according to Accenture). Specifically, the views of Millennials actually working in the financial services sector are worthy of exploration as this is a highly regulated industry where its working population has an above-average knowledge of finance. The Millennial Disruption Index, which surveyed 10,000 Americans born between 1981 and 2000, ranked the banking industry at the highest risk of disruption, with 71% of young respondents stating they “would rather go to the dentist than listen to what banks are saying”. On the other side, a Bankrate survey found that 32% of US Millennials preferred to keep their money in cash rather than in investment products (with even a whopping 43% of 20-25-year-old Millennials). A key question emerges as to how can the financial services industry better cater to this new generation of potential investors, one that appears to expect investment advice on the same terms as they get from other businesses – digitally delivered, socially/environmentally conscious, cheap and networking oriented. What might this mean for sustainable investment which, it appears, Millennials favour? These are some of the questions First State and Kepler Cheuvreux would like to explore further to understand the investment interests of Millennials and Millennial investment professionals. Specifically, we are interested in how Millennials’ investment decisions and choices may be influenced by both their working environment and a range of perceptions and industry-conditioned behaviours relating to potential investment returns, including social and environmental outcomes and impacts. We hope to get a sense of whether Millennials will really prove to be an important driver of growth in sustainable and responsible investment or merely a nice-to-have fad. To provide a contribution to this industry debate, the outcomes of this research will be made public. kepler cheuvreux first state investments Fill out our survey on sustainable investing and be entered into a prize draw to win an Apple iPad! CLICK TO COMMENT MUST READS sme blockchain COMPANIES49 mins agoSmall Businesses Need to Get Serious About Blockchain armenia demonstrations ASIA2 hours agoArmenia Fights Against Dictatorship As the World Becomes Less Free india real estate market ASIA3 hours agoIndia’s Coming Real Estate Surge Elon Musk media BLOG4 hours agoAre We Treating Elon Musk Fairly?
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AMERICAThe US’s Iran Strategy After Exiting the Nuclear Deal 5 min read / May 11, 2018 By Tanner Baloh On Tuesday, May 8th, President Trump announced that the US would be withdrawing from the JCPOA and reinstating sanctions on the Iranian regime. What comes next is up for debate, though the likely outcomes don’t bode well for the US. Renuclearisation In the immediate aftermath of this announcement, nothing is likely to happen – it will be a slow bleed into a steady stream. The deal will continue to exist as intended. The Europeans will continue to comply with the deal, and it’s likely the Iranians will as well. However, the secondary sanctions will eventually become untenable for European firms, driving business and investment out of Iranian markets. This is where the situation will devolve, and likely rapidly. With foreign investment fleeing Iranian markets, Iran will have no reason to continue with the deal, and with the US having already backed out, Iran will have the political capital to do so with minimal backlash from Europe, Russia, or China. From there, Iran will likely pick up its nuclear program where it left off. It will continue to enrich and build up stockpiles beyond what was allowed under the deal. It will kick out inspectors and end the West’s best chances of monitoring the program and its progress. Trumpeting the Retreat For all of the Trump administration’s kicking and screaming, the US is leaving a deal that was, by almost all measures, working. The Iran Deal is being nixed by the US for reasons almost wholly unrelated to the deal itself. The Trump administration and their clients in Israel and Saudi Arabia are tired of what they see as an evil regime in Tehran interfering in and instigating conflicts across the region in an attempt to reshape the power dynamic of the region. To be sure, the dynamic in the region has drastically changed over the past two decades, though the reasons for that shift are less one-sided than many behind this decision will have many believe, as is discussed here. This decision will do almost nothing to curb Iran’s actions in other parts of the Middle East. It will continue to fund and supply the Houthis in Yemen because it has been a massively successful investment to this point. They will continue to maintain a presence in Iraq via Shia militias, as they’ve seen the butt end of an aggressive Sunni regime in that country before. And they will continue to build up their military capabilities in Syria as part of their forward defence strategy of avoiding conflicts on their own territory. Operation Iranian Freedom So where, then, does US strategy go from here? As of this writing, the US has increased both the number of personnel operating in Yemen and the size of the role they’re serving. More pressing is Israel’s continued escalation of its actions in Syria and how Iran will respond to such escalation, as it has promised it will. As an open conflict between Israel and Iran becomes more likely, the role the Trump administration sees itself playing in that conflict is questionable. Those close to the president have ardently supported the end goal of regime change in Iran, and a war between Israel and Iran may give them the opportunity to pursue that. To understand how horrendously disastrous that endeavour would be, just imagine the invasion of Iraq in 2003 — but with even LESS international support. It’s for this reason that withdrawing from the agreement has the potential to be such a disastrous foreign policy decision. It does almost nothing to address the things we don’t like about Iran, namely their regional pursuits, and it gives them the green light to do exactly what we don’t want them to be doing: researching, developing, and getting closer to a nuclear weapon. While the JCPOA was far from perfect, it was the best check available on an ambitious nuclear program before it could truly get its legs fully under it. To see what happens when you pursue the hardline route of isolation and sanctions on a budding nuclear program, just look to North Korea. North Korea During the Bush administration in the early 2000s, the decision was made to pursue a hardline strategy of sanctions and isolating the North Korean regime as opposed to negotiating a deal similar to the JCPOA. (Not surprisingly, John Bolton was a leading advocate of that decision). What there is now is a regime in possession of nuclear weapons and with far more negotiating power than it had just over a decade ago. Iran’s actions in the Middle East need to be addressed and curbed; this point is as close to a consensus as you can reach in the foreign policy/national security community. However, the US needs to honestly address ways in which it can do that and the lengths to which it is willing to achieve those means. Withdrawing from the Iran deal and reinstating sanctions on the Iranian regime does not do that, and it only increases the chances of the US getting drawn into another long and disastrous conflict in the Middle East. CLICK TO COMMENT MUST READS sme blockchain COMPANIES49 mins agoSmall Businesses Need to Get Serious About Blockchain armenia demonstrations ASIA2 hours agoArmenia Fights Against Dictatorship As the World Becomes Less Free india real estate market ASIA3 hours agoIndia’s Coming Real Estate Surge Elon Musk media BLOG4 hours agoAre We Treating Elon Musk Fairly? asset-backed cryptocurrencies
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COMPANIESAre Asset-Backed Cryptocurrencies a Myth ? 11 min read / May 10, 2018 By Eleftherios Jerry Floros In the search for the holy grail of cryptocurrencies, many start-ups have embarked on an elusive quest to create a stable coin, preferably backed with a real-world asset and which can be used for everyday purchases. In simple terms, asset-backed cryptos are coins with a good sales pitch but without much substance. Many noble ideas abound, the crypto world is full with asset-backed coins ranging from gold-, diamond- and commodity-backed all the way to digital-asset backed coins, backed by things like music and gaming rights. Uninnovative Innovations Cryptocurrencies are digital assets, that are founded on some form of crypto-economic model that incorporates incentives and disincentives to create consensus amongst non-related participants in a network. “There is basically no reason to build a crypto currency that is asset backed. It’s useless.” Aleksandar Svetski, Blockchain Training Institute At last count, there were 1595 cryptocurrencies traded on 10778 markets across the globe, and it appears that newcomers are not in short supply, it’s only a question of cool product design, finished off with a touch of flair. It is almost as if there is a branding team on site for when coders decide to mine a new coin with some kind of speciality of sorts. But hold on, there is a new kid on the block – XYO Network – The mother of all coins, or so it claims. And the list of the newest, most innovative coins in the world goes on and on ad infinitum…. Legal Tender or Legal Claim ? There are many definitions of the term “legal tender”, however the following illustrates it clearly: Money that is legally valid for the payment of debts and that must be accepted for that purpose when offered. Merriam-Webster So where do asset-backed cryptocurrencies fit in? Officially, nowhere. Unless a coin or token is accepted (or backed) by a government, such as the case with Japan and Australia, it is not “legal tender” but only a far-fetched “legal claim” in accordance with the terms of a smart contract on Ethereum. In other words, in case of any dispute, a claim in relation to a coin or token can only be pursued in a court of law. And that alone is a challenge on many fronts because of a decentralised coin or token being “borderless”. That is, it only exists on top of a blockchain protocol that in all likelihood will be Ethereum. The question then is, which courts or jurisdiction apply. It is perhaps for this exact reason, that Bitcoin and its 1600 clones are flooding the markets like a tsunami, there is no redress in court and no central bank control. Also, there are no banks, brokers or intermediaries, just two parties to a transaction agreeing upon the fair value of the exchange. The DAO The Digital Autonomous Organisation (or DAO as it is simply called) was an idea that swirled through the community not long after bitcoin was released in 2009. The thought is that if bitcoin can do away with financial middlemen, then maybe companies and other organizations can one day operate without hierarchical management. The plan was for participants to receive DAO tokens, then vote for which projects to fund. For selecting projects to invest in, it relied on the wisdom of crowds. It’s easy to see why “unstoppable code” could pose a security problem. DAO is an organisation that is run by rules encoded in smart contracts created by coders and digitally enshrined in the form of governance by its community. However, the legal status of this type of business or organisation is unclear. In other words, there is nobody, physical or virtual, to be held accountable when things go wrong. And that is where the problem begins and ends. Real World Problems In real life, lawmakers pass laws for the common good of their citizens. Laws, in general, serve to safeguard the rights and interests of the common person and in some cases, safeguard the rights and interests of corporates, lobbies and special interests groups such as the controversial National Rifle Association of America. The judiciary of a country makes sure that laws are respected and followed. Suitable punishment or retribution can be handed down to the violating defendant. It works in most cases, but when it fails it is due to the inherent flaw of mankind. We are simply prone to make mistakes. Which is exactly the problem a DAO wants to solve, self-governance without the possibility of error. This sounds great in theory, but it is difficult in practice. The Wild Web A prime example of this problem surfaced when the crowdfunded “The DAO” was hacked upon launch and drained of the equivalent of $50m in cryptocurrencies. In the weeks that followed, the hack was reversed and the stolen money restored through a “hard fork” on Ethereum. This hack reversal was made possible by a majority vote of the blockchain, but it drew a lot of contempt from the global crypto community. If a company or a group of companies issue coins such as the “J-coin” (backed by a consortium of major Japanese banks), then there is recourse in a court of law. That is, the damaged party can file a lawsuit or for a claim in a court and after judgement, can have that claim enforced. The same applies to a foundation, if there is a justified claim, it can be pursued through the courts and in the end, the assets of the foundation can be seized and sold to satisfy that claim. DAOs however are a different cup of tea. These do not exist anywhere except for on a blockchain protocol of which the ledgers are irreversibly updated throughout the world. This simply means that nothing can be seized and nobody can be held accountable. It even goes one step further. How can the coder of the smart contract be found and held accountable for any flaw or coding error? If there is nothing or no one that can be addressed, then no claim whatsoever can be secured or satisfied. This applies to every single cryptocurrency in the world. The Repo Man is coming Crazy, or even noble, ideas for asset-back cryptos all fail on this premise, there is no one to be held accountable and as such, there is no claim that can be secured anywhere. Even if for some strange reason someone has a claim against Bitcoin, that person could not go to Mt. Gox or any exchange to claim their rights or seize assets to satisfy their claim. Satoshi Nakamoto, even if this person or entity does exist, cannot be held accountable for Bitcoin. It is the Bitcoin protocol of incentives and disincentives that creates consensus amongst its participants, the Bitcoin miners. Even if a coin or token is backed by assets, then what is the fair value of that asset? And who will determine that value? And what happens when the value of an asset such as gold, oil or real estate fluctuates? The questions are endless, the solutions seem non-existent. The Petro is an example of a very poor attempt by a shaky government to issue a coin back by the country’s most precious resource: oil. Even though the Petro is backed by a sovereign government, Venezuela, it flopped on every front and has become the laughing stock throughout the world and the subject of many discussions by crypto fanatics and academics alike. Other Challenges Coins that are backed by real estate face even bigger challenges. In case of default, who is going to go to court to claim and which courts or jurisdiction is applicable, who will value the property and how will a claim be enforceable and who will be the beneficiaries in the eventual case of a successful sale of the assets ? For commodity-backed cryptocurrencies it gets even trickier. Some coins claim that every single one of its coins is backed by real physical gold and that just sounds great. But from a practical point of view, who will pay out that real gold? Where can it be collected or where will it be delivered? And how to prove the rightful ownership is the next problem, after all the coins, which are part of the exchange, are virtual, whereas the gold is physical. At this point, there must be someone or some authority to intermediate and that goes against everything that the decentralised cryptocurrency world stands for. On top of that, there is the possibility that a sudden spike in demand outstrips the supply of a particular commodity (gold, silver, diamonds, etc.) that is part of the asset-backed cryptocurrency. Imagine an asset-backed cryptocurrency that is backed by gold and that that particular cryptocurrency enjoys the same meteoric rise such as Bitcoin, there probably would not be enough physical gold available, at least not in the short term, to satisfy a sudden spike in demand for gold should there be a sudden flight from Bitcoin (or any other cryptocurrency for that matter) to the “safe haven” of gold. This actually happened on August 15th, 1971 when President Richard Nixon unilaterally suspended the convertibility of US dollars into gold and by doing so, effectively ended the Bretton-Woods agreement. The world was in shock and in particular the French did not take this lightly, the then French President Charles de Gaulle actually sent a French warship to New York harbour and demanded that the US Federal Reserve hand over it’s gold reserve in exchange for the US dollar foreign reserves of France. This cannot happen to cryptocurrencies but the problem is real, should there ever be a sudden “run” on a particular commodity of an asset-backed cryptocurrency, then supply could be severely constricted. In Blockchain We Trust So, is there any hope for asset-backed cryptos? By all means yes. Anything that is backed by something is the first step towards integrity and transparency. It helps when a government, consortium or a group of major banks and financial institutions (such as with J-coin) back their commitments with assets and their established reputation as opposed to empty words and vague promises. However, then there is always the issue of valuation and recovery. If these two factors are not or cannot be determined upfront or immediately after the facts, then the problems grow exponentially. It is therefore important that the exact parameters of the term “asset-backed” are stated and how it can be enforced. Also, stating who will be in charge of the coin governance and execution of it’s code protocol is a must. In the real world, these functions are carried out by central banks and enforced through the courts of law. In the crypto world, it’s governance by code protocol and consensus. At present, one of the most successful asset-backed cryptocurrency is DGX which is under the DigiDAO governance model. It features almost all the attributes of real money. It is one of the most stable cryptocurrencies currently available so it can be used as a store of value as well as a medium of exchange. In due time, it will be able to function as a unit of measure at which time it could achieve wide-spread distribution and adoption. Bitcoin is another prime example of how a community-driven consensus, safeguarded by immutable code on distributed ledgers creates a coin that is globally accepted and has turned the financial world on its head. Asset-backed cryptocurrencies can do the same, as long as the underlying value that is created is safeguarded through transparency, consensus and good governance. CLICK TO COMMENT MORE ON CRYPTOCURRENCY CRYPTOCURRENCIESThe Rise of Non-Fungible Token Assets: The Case of CryptoKitties CRYPTOCURRENCIESLaw and Order: Regulating Cryptocurrencies satoshi nakamoto CRYPTOCURRENCIESHappy Birthday Satoshi Nakamoto uber air
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UNCATEGORISED Uber Looking to Expand Flying Taxi Service to Third City 2 min read / May 10, 2018 By Fergus McKeown Uber, the ridesharing app developer, is expanding its new air-taxi service called UberAIR. Los Angeles and Dallas have already been announced as two of the three launch cities, but now the San Francisco-based company is looking to add a third international city to that list. Dubai had been expected to be one of the launch cities, but delays have made Uber reconsider where it tests the new service. The service will transport passengers in Uber’s own flying vehicles, an electrically powered vertical take-off and landing part-plane part-helicopter, from Skyports. In one of the promotional videos for the futuristic service, passengers were seen boarding these flying cars from the top of an office block. The overall aim is to alleviate road traffic and overcrowded trains. The targeted launch cities are all sprawling metropolises, with low-density residential areas surrounding high-density downtowns and office blocks. On-demand aviation would by-pass the standstill traffic jams on the highways below. UberAIR, initially known as Uber Elevate, released a paper stating: We expect that daily long-distance commutes in heavily congested urban and suburban areas and routes under-served by existing infrastructure will be the first use cases for urban VTOLs. A major part of UberAIR’s success or failure will be its pricing. While initially a trip from San Franciso to San Jose could cost up to $129, the long-term plan is to reduce this to $20. A UberAIR vehicle would be able to complete this 45-mile trip in 15 minutes, compared to 1 hour and 40 minutes using a traditional UberX, which would cost $111. UberAIR is one of only a few attempts by the company to branch out from its ride-sharing core business. UberEats, a food delivery service, and UberRush, a courier service, have also been launched by the business. UberEats is wildly successful. Indeed it is the only profitable part of Uber, which is still losing billions of dollars a year. UberRush is due to be shut down soon. The courier delivery service was only available in New York, Chicago, and San Francisco, but will stop on the 30th of June 2018. CLICK TO COMMENT CONTINUE READING MORE ON UBER Uber JUMP Bikes AMERICAUber Acquires Cycle-Sharing Startup JUMP Bikes Payment Systems Technology FINTECHThe Payment Systems Industry: A True Revolution or Just a Matter of Marketing? driverless cars AMERICAUber: Driverless Cars Should Only Be for ‘Professionals’ Like Them
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AMERICA ... America’s Gamble in Saudi Arabia 5 min read / May 10, 2018 By Tanner Baloh In June 2017, Mohammed bin Salman was named Crown Prince of Saudi Arabia, next in line for the throne, currently occupied by his 83-year-old father, and more or less the acting executive of the kingdom. The past year has been a busy one for MBS, as he is commonly known, announcing plans to diversify the Saudi economy away from oil, lead a campaign to moderate Islamic teaching and thought within the region and to increase women’s rights within the kingdom. While there is truth to the label of reformer, there are two distinct interpretations of MBS’s plan, both domestically and regionally — the less rosy of which should give the West pause when considering his ascent. Domestically speaking, bin Salman has sought to undertake a complete makeover of Saudi society, both economically and socially. In April 2016, then head of the Council for Economic Affairs, bin Salman announced “Vision 2030”: his plan to diversify Saudi Arabia’s economy away from a dependence on oil, using massive investments into infrastructure, technology, and human capacity. From a social standpoint, MBS has worked to remove various restrictions on women’s rights, like the ability to drive without a male guardian, though many of his initiatives on this front have found little success. (Announced in September, the initial goal date of June 2018 is considered to be in jeopardy.) His domestic moves also include a sweeping crackdown last November on a number of princes and high-profile entrepreneurs under the justification of curtailing corruption, though a number of political rivals were also included in the round-up. To his credit, bin Salman will need to trim some of the fat from the bloated royal family and their expenditures in order to achieve the economic reforms he has in mind, though it is hard to not interpret some of his moves as consolidating his power within the kingdom. Other opposition figures were silenced in November last year, as arrests of over 20 journalists and activists led a crackdown on the freedom of expression within the kingdom. Regionally, MBS’s plan has ranged from clumsy bullying to humanitarian crisis. It includes the ham-fisted resignation by Lebanon’s Prime Minister Saad Hariri while Hariri was still in Saudi Arabia, a move that led many internationally and in Lebanon to suspect that the resignation was announced at the behest of the Saudis in the hopes of igniting a groundswell against Hezbollah’s influence in the country. No such groundswell came. It also includes the less innocuous blockade of Qatar by Saudi Arabia and other Gulf nations. Under the claim that Qatar has promoted terrorism in the region and has acted too friendly toward Iran, many countries (Saudi Arabia, the UAE, Bahrain, and Egypt) have severed diplomatic ties with Qatar and implemented an air, sea, and land blockade of the country. For its part, Qatar has increased relations with Iran as a result of the sanctions and appears poised to weather them. Bin Salman’s regional policy plan also includes the ongoing catastrophe in Yemen. In March 2015, just two months after being named Defense Minister, MBS and the Saudis launched Operation Decisive Storm. In the two years since, the Saudis have conducted over 16,000 air raids, and are estimated to be responsible for over 60 percent of the civilian casualties, as Yemen falls further into being one of the worst humanitarian disasters this side of World War II. It is this last point that makes the US deferring to Mohammed bin Salman’s regional designs so problematic. The US is directly aiding and abetting the Saudi air campaigns in Yemen, both through supplying weapons and providing logistical support, including midflight refueling for Saudi fighter jets. The timing of the severing of diplomatic ties with Qatar seems more than coincidental, coming just a few weeks after Trump’s visit to Riyadh. By emboldening the Crown Prince, who is in possession of newly consolidated power within the Kingdom, the US is only increasing its chances of being responsible for the bill when bin Salman’s policies come crashing down. Further adding to the problem, MBS is only 32 years old, and, barring health issues, will likely rule Saudi Arabia for the next 40–50 years. There is a possibility that things work out OK for bin Salman, both within the kingdom and in the Middle East. His economic reforms could do well, he could lead a renaissance in Islamic teaching within the kingdom, and he could oversee an era of unprecedented economic diversification and social opening and women’s rights. What is also possible, and arguably more likely, is that bin Salman has removed just enough bureaucratic barriers to ensure his unchallenged rule. His religious reforms may meet stronger opposition than expected, and the monarchy will continue the tightrope act of balancing the religious establishment and groups pushing for an opening of society, never tipping far enough in one direction to fully satisfy any one group. Political expression will continue to be repressed, and bin Salman’s regional policies will set the kingdom on a collision course to open conflict with Iran. The likelihood of this second scenario should be enough to scare the US away from its unabashed support for the Crown Prince. CLICK TO COMMENT CONTINUE READING MUST READS sme blockchain COMPANIES50 mins agoSmall Businesses Need to Get Serious About Blockchain armenia demonstrations ASIA2 hours agoArmenia Fights Against Dictatorship As the World Becomes Less Free india real estate market ASIA3 hours agoIndia’s Coming Real Estate Surge Elon Musk media BLOG4 hours agoAre We Treating Elon Musk Fairly? takeda shire
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COMPANIESJapan Inc. Looking Overseas for Fresh Investments 4 min read / May 10, 2018 By Praseed Jagannathan Takeda Pharmaceutical Co. on Tuesday reached an agreement to buy the Irish drugmaker, Shire PLC, capping a 6-week long courtship for control of the European drugmaker and marking the biggest-ever overseas acquisition by a Japanese company. Shire’s board agreed Takeda could buy it at $66.21 per share, with $30.33 coming in cash and the rest made up by 0.839 of a Takeda share for each Shire share, in a deal that valued Shire Plc at $62bn, according to Dealogic. Activity Overseas This deal features in a series of outbound M&A deals being entered into by Japan Inc this year. Nine of Japan’s biggest companies, including Hitachi, Ricoh, Sumitomo Chemicals and Fujifilm, have, between them, stated an intention to strike $30bn of outbound deals over the next three years. Even before the Takeda bid, Japan, which has been involved in 238 outbound deals valued at $29bn over the past four months according to Thomson Reuters, ranks 1st in Outbound M&A deals in 2018 outside the USA, far outpacing China. Takeda would be taking on debt equal to nearly five times EBITDA to finance the deal with Shire. This is in addition to the $5bn it borrowed last year in its acquisition of U.S based cancer-drug company Ariad Pharmaceuticals. The bigger risk still remains as to whether or not Takeda can successfully integrate these companies with its 237-year-old business. This M&A activity goes against the common perception that Japanese companies are conservative when it comes to foreign acquisitions. Changing Perceptions There are several reasons why firms in Japan are distancing themselves from this judgement. 1) Japan’s indigenous population, according to recent government data, is shrinking at the rate of 1,000 people per day. This combined with its ageing population and the public’s hostility to higher immigration means that Japan will grow much more slowly than G7 rivals. Japanese companies seem to acknowledge the inevitable decline of the domestic market and are looking to seize opportunities overseas for long-term growth. 2) Cheap financing, encouragement from the government for outbound deals and aggressive support from the banks, who are compelled by the attractive margins to be earned on financing outbound acquisition by corporate Japan, are important drivers of the outbound acquisitions. 3) The 2015 Corporate Governance Code requires greater transparency and an enhanced voice to minority investors, has empowered activists investors demanding greater returns on risk. Alongside the code, an 8% return on equity, far better than what most Japanese companies achieve, has been informally accepted as a business standard. CEO’s pursue these deals with greater potential returns in order to appear shareholder friendly. 4) A new generation of chief executives, with international experience, willing to commit to relatively greater risks and who are less conservative, is emerging to champion these outbound deals. Takeda, for example, is unique, for its CEO, CFO and global quality officer are all non-Japanese. It has a board where English is the working language. The analysts’ consensus is that it would have been unlikely for a Japanese management team to pull something off on this scale. However, more traditional companies, particularly in the pharmaceutical industry, may attempt such outbound deals in light of the industry consolidation, pricing pressure in Japan, threat from bio-similars and the stuttering returns from R&D in recent times. Future Growth The Takeda deal with Shire is special and must be followed closely because, first, it could be an inflection point in Japan’s presence as a global dealmaker in the next decade and, second, Takeda’s unrelenting pursuit of Shire shows the rigour with which Japan’s legacy companies are chasing growth overseas and that could be indicative of deeper cultural, systemic and demographic changes in Japan Inc. 1 COMMENT CONTINUE READING MORE ON JAPAN China Middle Income Trap ASIABeware of the Chinese Dragon: Overcoming the Middle Income Trap japanese economy ASIAJapan Doubles Down on Abenomics G3 Currencies Performance CURRENCIESZero-Sum: How Have the G3 Currencies Been Performing? trump iran oil
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AMERICA... Trump Pulling out of Iran Deal and Its Impact on Oil Prices 5 min read / May 10, 2018 By Joseph Hammond President Trump made clear this week his plan to pull the United States out of the 2015 Iranian nuclear agreement, formally known as the Joint Comprehensive Plan of Action (JCPOA). This past weekend Rudy Giuliani symbolically spit upon a copy of the JCPOA when speaking to a conference of the Iranian opposition in Washington D.C. The former New York mayor is now part of President Trump’s legal team, and his views are shared by many in the White House, including National Security Adviser John Bolton and other Iran hawks like Secretary of State Mike Pompeo and Secretary of Defense James Mattis. Done with the Deal Tearing up the deal will mean the resumption of the sanctions first imposed in 2012, and severely limit oil production from the third largest oil-producing country in OPEC. The impact on the oil industry could be huge. Were sanctions to resume it could mean somewhere between 300,000-500,000 fewer barrels of crude oil per day by the fourth quarter of this year. However, since Germany and France are likely to stay in the agreement, Iran will continue to have markets for its oil. China is another important customer. One reason is that France’s Total is working with Iran to develop the massive South Pars natural gas field. When taken in its totality with its portion on the Qatari side of the border (the North Field) it is the world’s largest gas field. With tensions high in the region there are other scenarios in which Iranian oil could disappear from the market. A study published in Energy Economics in 2016 offers the rosiest picture of what could happen if large amounts of oil were to disappear. It noted that generally when Iranian oil production is withheld from the global market, it does not result in a long-term price increase. Saudi Arabia usually rebalances the market by increasing its production to cover the lost Iranian supply. Saudi Arabia announced that it would work to offset any lost Iranian production to the world oil market. Iran provides 3% of global production. How long Saudi Arabia would be able to maintain such a policy is unclear. One study found that Saudi Arabia needs an oil price of roughly $88 a barrel to avoid running a deficit. All About Oil Other OPEC countries, along with other oil exporters, namely Russia, have also committed to reducing production till the end of 2018 to draw down reserves and re-balance the oil market. How the Emirati and Saudi pledges play out in the face of those commitments is unclear. Many OPEC producers hope that the production limit will be continued through 2019 and the topic will certainly be a key point of debate at June’s OPEC meeting. Meanwhile, Venezuela, Iraq and Libya remain wild-cards as all three countries want to increase exports but have to contend with a high-risk security situation. Given these factors we could see oil prices continue to climb past $70 a barrel. The rising oil price has enraged President Trump, who took to Twitter last month to lash out at “artificially high prices”. But low-income countries reliant on commodity exports may be quietly applauding. With oil prices climbing other commodities will likely climb as well. To some extent metals, oils and other commodities are benefiting from strong synchronised global growth across emerging and developed markets. There isn’t much spare capacity for increasing production as the collapse of commodity prices following the last cycle led to a drop-off in long-term investment. This is affecting commodity supply chains, in an environment of strong global growth and increasing demand. OPEC production cuts and a decline in Iranian oil exports would only worsen this problem. Coming Home to Roost There could also be knock-on effects on agriculture as a hike in the oil price results in increased demand for biofuels. As biofuels become more profitable farmers might opt to produce maize or other plants, in turn reducing the supply of fruit and vegetable crops and potentially pushing up food prices. Since the early 2000s commodity markets have experienced a higher degree of financialisation, resulting in increased co-movement in prices, usually led by movements in the oil price due to its high weight in the commodity financial market. So we could expect to see increased commodity prices across the board this time as well. This is good news for many commodity-exporting countries who will be able to enjoy higher windfalls. It’s especially good news for poor countries who have taken a severe hit from the drop in commodity prices in 2014 and the current period of cheap oil. Many of these countries have run up dangerously high deficits as a result of lower commodity prices in recent years, with some at risk of default. Masood Ahmed, who heads the Center for Global Development, has warned of a looming debt crisis in low-income countries. For those countries the prospect of a Trump-inspired increase in global commodity prices could be the saving grace that allows them to avoid default and maintain their current spending levels. This article is a joint effort, written with Suhaib Kebhaj. CLICK TO COMMENT CONTINUE READING MORE ON OIL us fracking AMERICAUS Oil Production up in Face of OPEC Supply Freeze opec oil price ASIAOil Prices Could Rise to $100 saudi-russia deal ASIAWill the Saudi-Russia Deal Actually Happen?
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CRYPTOCURRENCIES ... Transforming the Space Industry with Blockchain Technology 4 min read / May 10, 2018 By Ondrej Sarnecky The world is on the brink of a new space race, not fuelled by the Cold War between superpowers, but by the efforts of several competing private companies. The question is whether there is a place in this race for small, independent companies and startups without multi-million-dollar budgets and, if so, what options they might have. The advent of the internet as a medium for instant sharing and spreading of information in real-time, as well as a way of collaborating on specific tasks without geographical or political restrictions, gives all of humanity the unique opportunity to participate in future discoveries. Combining the potential of the blockchain with current scientific resources could inspire more people to participate in the joint effort of conquering space. By implementing the principles of decentralisation, society can exploit the dynamics of crypto-economics and private funding within emerging scientific and commercial projects looking to accelerate the exploration of space. Three Main Challenges The international community, of nations as well as companies, needs to target three objectives relating to space and space exploration: Exploiting space to create new business opportunities and markets; Improving global access to the space industry and helping smaller companies to be more competitive; Accelerating the process of exploration and use of cosmos. Be it national or private companies, they all struggle with issues that dampen their potential. While manifestations of this can be either limited funding or a clash of interests, the underlying problems are the lack of qualified staff and the enormous operating costs involved. Nowadays, the space industry has to confront two main issues, which prevent the development of this industry as a whole: Security issues, mostly present among countries Competing interests between private companies and national agencies The first problem is to be solved through diplomatic relations and cooperation among national leaders. The second one is being addressed by the development of open-source technologies in the commercial sector and in scientific communities. The whole industry revolves around the biggest players, and it is very hard for anybody else to break through, mostly because of the enormous costs of any projects. It is almost impossible to create a software for space applications in the low-cost, or “start-up” way. Today, most space projects are managed and/or financed by governments. These projects are more often than not influenced by national interests and new research or technological innovations are limited by low budgets. New Ways of Financing Emerging Space Projects Emerging companies worked (and still work) using the traditional venture capital model. A company’s founders are its majority shareholders, while the rest of the team is motivated by being given some shares too. Thanks to the VC model, creativity and innovative projects could emerge, but that alone does not guarantee success. On the other hand, long-term projects which require larger funding for R&D, like space exploration, are not best-suited for the VC model. Many enterprises looked at by VC firms would be considered as not viable, as they require far more time and capital to be successful and to meet market expectations. Raising funds through issuing tokens is an innovative way of financing new or ongoing projects. With enough funding, a project can gather the best talent, improve the overall efficiency, and flexibility leading to a laser focus on long-term R&D. This is necessary for the development of space technologies, where initial setbacks are expected and a large portion of funds must be allocated to R&D. Traditional VCs are not willing to accept such risks. That is why new models of crypto-economic funding have to be considered. The big advantage of the crypto-economic funding model is the possibility of utilising smart contracts as a way of releasing and distributing funds. Implementing smart contracts will allow improvement in the management of funds and will also increase investor trust, as utilising this technology also allows one to precisely set vesting and release of funds based on the set roadmap and planning. 1 COMMENT CONTINUE READING MORE ON BLOCKCHAIN sme blockchain COMPANIESSmall Businesses Need to Get Serious About Blockchain CRYPTOCURRENCIESIs EOS Really the Ethereum-Killer? CRYPTOCURRENCIESThe Rise of Non-Fungible Token Assets: The Case of CryptoKitties iran nuclear deal
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AMERICA ... Iran and the Cost of US Isolationism 5 min read / May 9, 2018 By Olexandr Skoryk By walking away from the Joint Cooperative Plan of Action (JCPOA) the US becomes the first signatory to violate the multilateral agreement. President Trump cites “defectiveness at its core” as justification for going back on the deal. According to the Trump Administration, Iran has failed to comply with the deal and continued to pursue military nuclear capabilities, as well as persisting with “malign behaviour” in Syria. The International Atomic Energy Agency (IAEA), responsible for monitoring Iran’s program, would disagree with the first assessment, and it remains unclear how the latter clause is relevant to the JCPOA. Iranian Oil Regardless, the decision has been made to re-impose US sanctions on Iran. Hardest-hit will likely be Iran’s oil exports which, following the 2015 deal, jumped to 2.6 million barrels a day. Crude has begun to rally at the news of a restriction to market supply. Others noteworthy parties that stand to lose include the aircraft manufacturers Boeing and Airbus, the move has disrupted deals worth $40bn and $19bn respectively. Whilst the focus is currently on the economic repercussions of Trump’s decision, the detrimental effect of this move is considerably more nuanced than suggested. Two repercussions, in particular, merit further discussion. First the self-inflicted reputational damage reflects a concerning trend in US policy, and secondly, the effect on Iranian politics as the rug is pulled out from under Rouhani. Splendid Isolation This latest move is part of a disconcerting trend being set by the Trump Administration with regards to multilateral agreements. Multilateral agreements are an integral part of the international system. They provide guarantees of cooperation and set the ‘rules of the game’ for actors to abide by. Without these agreements, the international system would be bordering on anarchy. The same can be said for when these agreements exist, but certain actors choose not to uphold their end of the deal. This undermines the foundations of a liberal international system. This most recent development demonstrates how multilateral agreements become hollow guarantees if signatories cannot be certain that they are dealing with a reliable partner. Serving further credence to this trend is the Administration’s withdrawal from the Paris Climate Accord last fall and concerns among their Canadian counterparts that the US is set to leave NAFTA. This has a detrimental effect on confidence in the political system if agreements, a guarantee of reliability and stability, are being dismissed at such an unprecedented rate. This isolationist action will yield only a damaged reputation for the US as an unpredictable international partner. What value is a bilateral agreement with the US if it has a history of walking away from them as soon as the administration changes? Retreat from Leadership Further to this point, where the US steps aside, China and Russia are likely to step in. Given their position relative to the US, in Syria as well as economically, Russia and Iran may find themselves drawing even closer together than they already are. It goes without saying that this is something the Trump administration is aware of; therefore, one can assume that the strategic importance of having a proxy in the region is worth the opportunity cost for the US and its allies. Arguably the most significant effect of this move is the fallout it will have for President Rouhani in Iran. A moderate, relative to his domestic opposition, he has staked his presidential legacy on improving a decades-long fissure with the West. The landmark nuclear deal was the centrepiece of his diplomatic efforts. Trump’s threats to tear up the accord long before he assumed the presidency have somewhat ensured the international community remained wary of doing business with Iran since the deal was signed, and this latest move is the nail in the coffin, for Western business interest in Iran at the least. Unreliable Partners It remains to be seen how well the European allies will deal with this move and how long they will uphold the agreement for, however, without its most significant partner, its effectiveness is seriously jeopardised. Whilst the supreme leader Khamenei, following the January protests, professes to be set on national prosperity and unity, this unravelling of the deal could see a reactionary effect in Iran’s domestic politics, which inevitably has a great effect on the international community. Amongst domestic pressure from the hard-line clergy and the Iranian Revolutionary Guard, it cannot be ruled out that Iran may witness a conservative resurgence similar to that witnessed in Russia with the return of Putin in 2012. Increased isolationism and conservatism are detrimental to the wider international community on a number of levels and should be avoided at all costs. Therefore, there is also the opportunity for Iran to come out on top in this crisis: by continuing to fulfil their obligations of the deal, Iran can benefit from US isolationism and prove itself as a reliable international partner. This is the optimal policy decision if the Ayatollah is as set on national prosperity as he claims. 1 COMMENT CONTINUE READING MORE ON IRAN AMERICAThe US’s Iran Strategy After Exiting the Nuclear Deal trump iran oil AMERICATrump Pulling out of Iran Deal and Its Impact on Oil Prices Israel Syrian Civil War ASIASyrian Civil War: Israel’s Emerging Role BMW recall UK
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COMPANIES ... BMW Issues Recall Affecting Large Amount of Cars 2 min read / May 9, 2018 By Fergus McKeown BMW has initiated a massive recall of over 300,000 vehicles in the UK. The BBC’s Watchdog revealed that cars made by the German manufacturer were at risk of cutting out completely, even while being driven at speed. The recall affects around 312,000 cars, from the BMW 1 Series, 3 Series, Z4 and X1 models. Both diesel and petrol fueled vehicles are being recalled. However, it only covers vehicles built between 2007 and 2011. BMW sold 182,000 cars in 2016, so this recall represents a significant amount of BMW vehicles on the UK’s roads. This follows a previous recall of BMW autos last year, though that only covered 36,000 cars. The fault, according to some BMW owners, is with a cable which supplies current to a fuse box which burns out. A driver of a Ford Fiesta died while trying to avoid a stalled BMW in 2016. It also appears that BMW failed to inform the UK’s Driver and Vehicle Standards Agency (DVSA) in the wake of the accident when it emerged that there was an electrical fault with some models. There are approximately 2.4m unrepaired cars being driven on Britain’s roads which have been recalled for critical safety reasons. This means that nearly one in thirteen of the automobiles being used in the UK have dangerous issues with them, according to the DVSA. These numbers do not include the latest issue. Car dealers have to comply with recall notices before selling second-hand cars on, but this is not the case for private sales. Drivers caught operating these vehicles face a £2,500 fine and risk having penalty points being placed on their licence. While a significant recall, it is nowhere near the largest. 21m cars were recalled by Ford in 1980 due to a fault with the cruise control system. In 2010 Toyota had to bring in over 9m vehicles for repairs as a fault caused some of them to accelerate suddenly, without any input from the driver suddenly. The most recent large recall of cars happened in 2016 after Volkswagen spoofed regulators about pollution emissions their vehicles produced. CLICK TO COMMENT CONTINUE READING MORE ON CARS New-Energy Vehicle CHINAChina’s BAIC Targeting Electric Taxis: Meet the New-Energy Vehicle 3D Vehicle Printing COMPANIESThe Two Very Different Futures Facing Carmakers great wall motors COMPANIESHere’s Why China’s Great Wall Motors Is Interested in the Jeep Brand malthusian
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AFRICA ... Thanos and the Malthusian Problem 5 min read / May 9, 2018 By Jonah Ho In the movie Avengers: Infinity War, Thanos’s sole objective is to eliminate half the universe. His reason is simple: the population of the universe exceeds the resources of the universe. Malthusian Prophecy The central economic problem of the scarcity of resources and humanities near limitless wants is often the first economic lesson taught. Compounded by the issue of exponential population growth, it seems as if Thanos’s actions are justified in an attempt to save humanity. How does that relate to today’s world and would such a solution ever be needed in the future? The origins of the tension between population growth and finite resources can be traced back to 1798 when Reverend Thomas Malthus argued that population, if left unchecked, increases in a geometrical ratio, while food production increases only arithmetically. This implies that if the population was unhindered, there would eventually be famine on a massive scale. Later economic theories such, as David Ricardo’s theory of rent, were based on the assumption that the Malthusian prophecy would come true and that the increase in population would further increase the amount of land given over to farming. David Ricardo perceived the limitation of land and fertile soil as a bottleneck to progress, proposing that more mouths would demand more grain, which would demand more fields, which would increase inequality as landlords who were well situated with fertile soil would benefit relative to others. Agricultural and Societal Revolution Fortunately, the Malthusian prophecy never came to pass. What Malthus and Ricardo did not foresee were the huge advances in agriculture which broke the links between population, labour and food supply. The industrial revolution brought tractors and mechanisation, which vastly increased productivity. The green revolution saw improved fertilisers, pesticides, herbicides and genetically modified organisms(GMO) come about. Humanity’s ability to raise food from a limited amount of land increased and agricultural yields increased tremendously. Furthermore, with the increased awareness of the need for planned parenthood and birth control, fertility has declined in nearly all regions of the world. Even in Africa, where fertility levels are the highest of any region, total fertility has fallen from 5.1 births per woman in 2000-2005 to 4.7 in 2010-2015. Also, the enormous urbanisation of the West eased birth pressures. On the farm, children are potential assets as they would be able to help out with labour. In the city, too many is a potential liability. With the world population forecasted to grow to over 9 billion by 2050 from over 7 billion today, and with already 815 million people undernourished in 2016, food scarcity continues to be a pressing issue. However, it is important to note that majority of the malnourished populations are concentrated in African countries, where much of agriculture is still done manually, and planned parenthood is still lacking relative to the west. Furthermore, ”conflict is a key driver of situations of severe food crisis and recently re-emerged famines, while hunger and under nutrition are significantly worse where conflicts are prolonged and institutional capacities weak.” The State of Food Security and Nutrition in the World, UNICEF A typical example would be South Sudan. The confluence of poor infrastructure, weather conditions, political corruption and conflicts contribute to areas of famine, rather than a simple equation of just population size exceeding available food resources. Wait, what about the modern day issue of a degrading environment and the running out of natural resources? The Ultimate Resource The business school professor and economist, Julian Simon, argues in The Ultimate Resource that humanity always has enough of the resources it needs to progress. These resources change over time to reflect new demands and technology. The key argument posited is that the ultimate resource is the human mind, and our ability to adapt and innovate overcomes issues such as resource depletion. An apparent decline of one resource prompts us to look for an opportunity to find other resources, or use the existing ones much more efficiently. Besides increasing the productivity of cultivation as mentioned above, another modern example would be the shale revolution in oil and increase harnessing other forms of energy such as solar, tidal, and wind power. New technological innovations and ventures allow the development of new sources of supply or increase the efficiency of old ones. The key point he makes is that a material never ‘runs out’ because human ingenuity always finds ways of creating more of it. Sustainability The big X-factor here is that of technological advancement; whether human ingenuity can come up with solutions to scarcity. These answers are never nearly as optimistic as professor Julian Simon or as pessimistic as the Reverend Thomas Malthus. As in most cases, the possibility that the answer is somewhere in between is a strong one. Cautious optimism is probably the most realistic outlook to take. It is not solely the issue of number of people on the planet, but rather to put it simply, it is the confluence of the number of people, the amount of resources they use, how they manage these resources and whether or not innovation can catch up or even pre-empt our needs, that would give us the answer whether our current path is sustainable. It is important to note that predicting future population growth is akin to predicting the weather; it is not set in stone and is dynamic. The human race has managed to sustain itself ever since doomsday prophecies about our resource consumption took root in economic discussion some 200 years ago, and it is with cautious optimism that we can look forward to adaptions and overcome any obstacle accordingly, but only if we acknowledge there are current hurdles and seek to supersede them. CLICK TO COMMENT CONTINUE READING MORE ON FOOD SECURITY China's food sector ASIAWhat’s Behind China’s Food M&A Trend?
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GLOBAL AFFAIRSIs Elon Musk’s Boring Co a 180 on Self-Driving? 4 min read / May 9, 2018 By Bhuvan Thaker Fullу аutоmаtеd саrѕ/trucks dо not drink аnd drive, fall asleep аt thе whееl, text, tаlk on thе рhоnе оr рut оn makeup whіlе drіvіng. Wіth thеіr sensors and processors, thеу nаvіgаtе rоаdѕ wіthоut any оf thеѕе humаn fаіlіngѕ that can rеѕult іn ассіdеntѕ. But thеre is something ѕеlf-drіvіng саrѕ/trucks do nоt уеt dеаl wіth vеrу wеll: thе unеxресtеd. The human brаіn іѕ ѕtіll better thаn аnу соmрutеr аt mаkіng decisions in the fасе оf ѕuddеn, unfоrеѕееn еvеntѕ on thе rоаd – a сhіld runnіng into thе ѕtrееt, a ѕwеrvіng сусlіѕt оr a fаllеn tree limb. Below аrе fіvе major problems which are inherent to the idea of self-driving саrѕ/trucks. Reckless Drivers Cоmрutеr аlgоrіthmѕ саn ensure that ѕеlf-drіvіng саrѕ obey thе rulеѕ оf the rоаd mаkіng them turn, stop, ѕlоw down whеn a lіght turns yellow аnd rеѕumе whеn a light turnѕ to grееn frоm red. But this tесhnоlоgу саnnot соntrоl the behaviour оf оthеr drіvеrѕ. Autоnоmоuѕ vehicles will hаvе tо deal wіth drіvеrѕ who speed, раѕѕ еvеn whеn it is not allowed аnd drіvе thе wrоng way on a one-way ѕtrееt. Onе ѕоlutіоn іѕ tо еquір саrѕ wіth trаnѕроndеrѕ that communicate their position, speed аnd dіrесtіоn tо оthеr vеhісlеѕ. This is knоwn аѕ vehicle-to-vehicle оr V2V соmmunісаtіоn, аnd іt іѕ ѕіmіlаr tо hоw аіrрlаnеѕ avoid еасh оthеr іn thе аіr. Whіlе рrоmіѕіng, V2V іѕ ѕtіll early іn dеvеlорmеnt, аnd іt wіll bе еffесtіvе оnlу when lаrgе numbеrѕ оf vehicles wіth thіѕ capability аrе оn thе rоаd. Hаvіng tо Mаkе Tоugh Dесіѕіоnѕ In the midst of busy trаffіс, a ball bоunсеѕ іntо thе road, рurѕuеd bу two runnіng сhіldrеn. If a self-driving саr’ѕ only орtіоnѕ are to hіt the children or vееr rіght and ѕtrіkе a telephone pole, роtеntіаllу іnjurіng or kіllіng thе car’s occupants, whаt dоеѕ іt do? Shоuld іtѕ соmрutеr give priority to thе pedestrians оr thе раѕѕеngеrѕ? Engіnееrѕ аrе соnfrоntіng quеѕtіоnѕ lіkе these as thеу buіld ѕеlf-drіvіng tесhnоlоgу. Whеn a сrаѕh is іnеvіtаblе аnd a human is аt thе whееl, the rеѕult іѕ a spontaneous reaction — a dесіѕіоn the driver hаѕ to make іn a ѕрlіt ѕесоnd. But іn a саr соntrоllеd by algorithms, іt іѕ a сhоісе рrеdеtеrmіnеd bу a рrоgrаmmеr. Bad Weather Snow, rаіn, fog and other types of wеаthеr make drіvіng dіffісult for humans, аnd it is nо dіffеrеnt fоr drіvеrlеѕѕ саrѕ and trucks, which ѕtау іn thеіr lanes bу uѕіng cameras that track lines оn thе pavement. But they саnnot do that if the road has a coating of ѕnоw. Falling ѕnоw оr rаіn can аlѕо mаkе іt dіffісult fоr lаѕеr ѕеnѕоrѕ to identify оbѕtасlеѕ. A large рuddlе caused by hеаvу rаіn mау look like blacktop to аn аutоnоmоuѕ car’s ѕеnѕоrѕ. Autоmаkеrѕ аrе confident thаt technology саn improve. Mеrсеdеѕ-Bеnz already оffеrѕ a саr wіth 23 ѕеnѕоrѕ thаt dеtесt guardrails, bаrrіеrѕ, oncoming trаffіс аnd roadside trееѕ tо kеер thе vеhісlе in іtѕ lаnе еvеn оn rоаdѕ with no whіtе lines. Digital Mapping Dеtоurѕ and Rеrоutеd Rоаdѕ – Gооglе’ѕ bubblе-ѕhареd self-driving саrѕ rеlу hеаvіlу on hіghlу dеtаіlеd thrее-dіmеnѕіоnаl mарѕ — fаr more dеtаіlеd thаn those іn Google Mарѕ — thаt communicate the location оf intersections, ѕtор ѕіgnѕ, оn-rаmрѕ and buіldіngѕ wіth the саrѕ’ computer systems. Sеlf-drіvіng cars combine thеѕе mарѕ with rеаdіngѕ frоm thеіr ѕеnѕоrѕ tо find their wау around. Vеrу fеw roads have bееn mарреd to thіѕ dеgrее. Mоrеоvеr, maps can bесоmе оut of dаtе as rоаd соndіtіоnѕ сhаngе. There may bе соnѕtruсtіоn or dеtоurѕ. An intersection with a fоur-wау ѕtор mіght get a trаffіс light оr become a roundabout. For nоw, thе mаіn tаѕk оf рrороnеntѕ of аutоmаtеd vеhісlеѕ іѕ to map rоаdѕ. Companies lіkе Hеrе — a mарmаkеr оwnеd bу the Gеrmаn аutоmаkеrѕ BMW, Dаіmlеr аnd thе Audі unіt оf Vоlkѕwаgеn— аrе trying to dо thаt. Potholes Sеlf-drіvіng cars/trucks use radar, lasers аnd hіgh-dеfіnіtіоn саmеrаѕ to ѕсаn roads for оbѕtасlеѕ, аnd thе іmаgеѕ thеу gеnеrаtе are аѕѕеѕѕеd bу hіgh-роwеrеd рrосеѕѕоrѕ tо іdеntіfу pedestrians, аnd оthеr vеhісlеѕ. But роthоlеѕ are tough. Thеу lie below thе road ѕurfасе, nоt аbоvе іt. A dark раtсh іn the road аhеаd could be a роthоlе. Or аn oil ѕроt. Or a puddle. Or еvеn a fіllеd-іn роthоlе. Gооglе аnd other соmраnіеѕ hope mоrе precise lаѕеr-bаѕеd ѕеnѕоrѕ, knоwn аѕ lіdаr, аnd other tесhnоlоgу will mаkе іt еаѕіеr for drіvеrlеѕѕ саrѕ tо ѕроt роthоlеѕ – as opposed to shadows – аnd аvоіd them. Another possible ѕоlutіоn: ѕmаrt roadways thаt соmmunісаtе with automated vеhісlеѕ and warn thеm of hаzаrdѕ аhеаd like trаffіс, ассіdеntѕ аnd maybe еvеn роthоlеѕ. Thіѕ is оnе оf the bіggеѕt іѕѕuеѕ fасіng the соmраnіеѕ wоrkіng tо dеvеlор fullу аutоnоmоuѕ саrѕ, and for nоw, thеrе oѕ only one concrete solution іn ѕіght – Elon Musk’s CarTube aka Boring Co. Like his interconnected strategy for energy, this could be his interconnected strategy for transportation. CLICK TO COMMENT CONTINUE READING MUST READS sme blockchain COMPANIES50 mins agoSmall Businesses Need to Get Serious About Blockchain armenia demonstrations ASIA2 hours agoArmenia Fights Against Dictatorship As the World Becomes Less Free india real estate market ASIA3 hours agoIndia’s Coming Real Estate Surge Elon Musk media BLOG4 hours agoAre We Treating Elon Musk Fairly?
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chinese economic integration AMERICA ... The Hidden Dangers of Chinese Economic Global Integration 3 min read / May 9, 2018 By Bogdan Polovinko The trade war between the US and China has sparked a lot of debates and initiated further research into the potential dangers China presents to the global trade. While the US trade deficit with China has very little to do with “China’s unfair trade practices”, instead it has more to do with the savings-investment ratio imbalance, Donald Trump nonetheless raised an important issue. The dominance of Chinese companies over global trade, including with many developed economies, cannot be overlooked. It is not even dominance per se, but the double standards of the Chinese government, which encourages local companies to acquire businesses abroad while, at the same time, keeping its economy closed to western firms trying to establish themselves in China. Chinese Investment in the EU Perhaps one of the most intriguing cases is in Germany, a country which relies heavily on exports and therefore is one of the loudest free-trade activists. Berlin currently faces a dilemma. Exports have played a crucial role in the country’s success over the past decades. However, it has now found itself in a situation where many Chinese companies, having large amounts of liquid assets earned through trade, acquire German tech and manufacturing companies. The expertise of these firms, their technology and manufacturing processes, is then used back in China to cement the dominance of Chinese companies further. (Chart 1,2) Although such trends have significantly boosted investment levels in Germany and around the EU, in the long term such loss of tech patents and tools is likely to make China’s position in global trade even more dominant, reducing competition and harming local economies. Sectors other than industry and manufacturing are also affected. In the UK large inflows of Chinese capital have disrupted the native real estate market. Property prices are being kept artificially high, with some investors nervous of a bubble bursting. Many of the Chinese buyers are willing to hide money outside of the control and oversight of the communist government and pay the above-market rate. Chinese Financial Integration The Chinese government has loosened its restrictions over western companies investing in Chinese ventures. It one of the key trends of 2017, for global banking, Chinese financial markets were opened up more to foreign investors. Most banks have assessed this as a positive move, though some economists are slightly sceptical of Chinese financial system integration into the world economy. Gideon Rachman, FT Chief Foreign Affairs commentator, argues the integration of China with its vast levels of savings, investments and other assets into the global economy might potentially lead to a worldwide crisis, similarly to US integration in the 20s, which had a disastrous outcome. Is it too early for the Chinese government to open up their financial industry’s borders to the rest of the world? Are the developed countries fully considering the long-term implications of China’s dominance in some of the key sectors, which helped them grow in the first place? China’s dominance in Asia and the high level of dependence many Asian countries have on China are obvious. With its current growth levels and the important One Belt One Road initiative, it is clear that China will inevitably grow its influence in the West. Going forward, Western countries will have to come up with a balanced approach, which will protect local industries and at the same time will not limit the levels of competition. CLICK TO COMMENT CONTINUE READING MORE ON CHINA Belt and Road Support ASIAChina Misses India’s Support for Belt and Road Initiative US China Tariff War AMERICAUS-China Tariffs: Jaw-Jaw or War-War? India Cryptocurrency Regulation ASIACryptocurrency in India: Beginning of the End?
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us fracking AMERICAUS Oil Production up in Face of OPEC Supply Freeze 5 min read / May 8, 2018 By Tatiana Salmon Oil prices fell on Thursday 3rd May due to a rise in US crude inventories and production, as was reported by Reuters. Brent crude oil futures, the main benchmark, were at $73.04 per barrel, down 0.4%, from their last close. Although the prices then recovered and reached $76 a barrel on Monday 7th May over possible Iran sanctions, this is not their first fall this year. The US is producing more and more oil while OPEC and Russia are extending the curb in production until the end of this year. Bloomberg reported in March that oil prices could fall back under $60 a barrel because of rising U.S. exports. Could this be the beginning of a bear market for oil? US Shale Dominance The International Energy Agency (IEA) warned in February 2018 that “the rise in global oil production, led by the United States, is likely to outpace growth in demand this year.’’ In other words, the world could be once again producing more oil than it needs. Oil prices fell about 1% in March this year, when US crude inventories rose to 1.6m barrels. With lower drilling costs and high prices, US companies are motivated to produce more. The country’s oil production hit 10 million barrels per day in late 2017, for the first time since the 70s, and has risen by nearly 25% in the last two years, according to U.S. Energy Information Administration. “In just three months to November, (U.S.) crude output increased by a colossal 846,000 bpd and will soon overtake that of Saudi Arabia. By the end of this year, it might also overtake Russia to become the global leader’’ International Energy Agency, February 2018 The danger is that excess supply of a good eventually leads to a price drop because the market becomes flooded. Oil prices reached more than $100 a barrel in 2014, before crashing to a 13-year low of $27.10 in 2016, when there was an oil glut in the market due to the US shale revolution. By economic laws, a high price attracts new producers because it becomes more profitable for them to produce more. When the supply exceeds the demand, the price drops, because the glut needs to be cleared. Will the history repeat itself and will the US oil production lead to a new oversupply? What Keeps Oil Prices High So far, the rising US supply has not dragged the prices down. This is because all the additional output has been absorbed by strong global demand. But also, because there are many other factors affecting the price of oil. Geopolitical risks (for example, current political instability in Venezuela and the danger of sanctions against Iran) mean that the supply could be suddenly cut short and this supports the price. Source: Reuters The amount of oil in the market is being restricted by the extension of the OPEC/Russia oil output cuts until the end of 2018. Since the agreement, initiated by the Organization of the Petroleum Exporting Countries (OPEC), started in November 2016 to get rid of excess supply, Brent crude prices have risen in seven out of the last nine months and so far have increased by more than 4% this year. However, the surge in the US exports to Asia might start offsetting these cuts. Finally, demand is expected to be strong – the world economy will continue to grow for the next two years at least. The International Monetary Fund (IMF) revised up its projections for the global economic growth in 2018 and 2019 by 0.2% to 3.9%. What Could Make Prices Fall What could lead to an oil price drop in 2018 is the sudden decrease in demand (if another global economic downturn starts) or a further rise in supply. For example, an early finish of OPEC and Russia production cut deal to stop the US from taking their market share, could flood the market again and start a price war, making oil production unprofitable. The risk of the US oversupplying the energy market is high. The total active US rig count, one of the main indicators of the state of the US energy market, rose by almost 18% from last year’s count to 1,032, according to Baker Hughes (155 new rigs compared to last year). This shows constant growth. Amid tensions with OPEC members, it is very unlikely that the US will agree to any production cuts on its side. As the country will cover most of the global demand over the next three years, the US output is one of the leading factors that will determine the price of oil and could well reduce it. CLICK TO COMMENT CONTINUE READING MORE ON OIL PRICE trump iran oil AMERICATrump Pulling out of Iran Deal and Its Impact on Oil Prices aramco COMMODITIES ... US Frackers Must Thank Saudi Aramco For Recent Success opec oil price ASIAOil Prices Could Rise to $100
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Bitcoin Pyramid COMPANIES ... Is Bitcoin Just a 21st Century Pyramid Scheme? 5 min read / May 8, 2018 By Alex Sysou Pyramid schemes are investment mechanisms which funnel the money put in by new entrants to earlier investors as payments, or ‘returns’ on their investments. The Securities and Exchange Commission of the United States (SEC) defines both Pyramid and Ponzi schemes as forms of financial fraud. “New investors are inclined to participate in the business, by taking part in profitable projects with minimal or even absent risks. Scammers are trying to attract new members in order to make payments to the previous participants, creating the false impression that they make a profit from the legitimate business.” SEC Website Bitcoin has been labelled a scam and a Ponzi scheme by many in the financial industry, including JPMorgan boss Jamie Dimon. But is there any truth to these accusations? Management Pyramid schemes operate with a central figure in control sitting at the top. These individuals are the instigators of the scheme and dictate the particulars of how their own one will work. If this authority figure ever disappears, investors will be left with nothing. Bitcoin is a distributed digital currency, as well as a payment system, built on a peer-to-peer computer network. The system does not have one single authority in control and is not centrally managed. Rather a ledger detailing transactions is distributed to all participants. This means that every computer that produces bitcoins is a member of the system. Every single transaction that has ever taken place is recorded on the blockchain, the distributed ledge, and it acts as an incorruptible authority. Profitability Pyramid schemes promise high returns. Profitability in these pyramids is provided exclusively by the money of new depositors. In order to receive payments, pyramid schemes are required to attract new investors and their money. Funds that have been put into the scheme are not used as investments in other business projects but instead, they are distributed among the older participants. The people running the scam always take a large cut of the new money as well. Bitcoin’s price is governed solely by its supply and demand. More and more people are looking to invest in cryptocurrencies, A growing demand along with a limited supply ensures that bitcoin’s market value is increasing. This natural growth can be compared to a stock. Bitcoin grows in price as a digital asset, similar to the share price growth of the successful companies. Investors A scheme is stable only due to the constant influx of new participants and money, from which payments are made to older participants, creating the false impression that they are making a return. A pyramid scheme must attract new investors and cash injections to survive. It can not exist if it is not able to do this. These kinds of scams provide no real value to investors. Bitcoin does not have any concepts similar to “investors” or “dividends” at all. Platform concepts are based exclusively on an open source code, which is available to users who are making money transfers between their accounts, as well as to the miners who ensure the system’s efficiency, for a fee from the very same system, without the participation of any third party. For bitcoin, being an innovative monetary system, it is important to attract new participants, but not for their fiat money. New members, whether they maintain a current version of blockchain on their computer, or engaged in mining, increase the value of the bitcoin network as a whole. Product Whereas pyramid schemes do not produce any real product of value, bitcoin is its own product and is unearthed by the system itself during mining. Bitcoin discovery is limited by the system since new coins are found at a rate which decays by half every four years. All new bitcoins that were obtained by the miners are used as a financial incentive for the system members. Subsequently, miners can transfer part of their bitcoins to the other users of the network as payment for services and goods, or convert them to fiat money. As a result, bitcoin is distributed to the network’s many participants. Cryptocurrency has entered the global financial market, staking its claim due to the high demand it enjoys, alongside more traditional currencies. At the time of publication, cryptocurrency world market capitalisation exceeded $400 billion. System Reliability Pyramid schemes will eventually collapse when the investor base stops growing. They are created with the goal of generating income for those who sent it up by defrauding investors. All profits are divided between the initial organisers and the first group of early investors. The collapse usually occurs quickly and is rarely predicted. At some point, a large group of investors will end up with nothing. The Blockchain concept, which is the underlying infrastructure for almost any cryptocurrency, will survive even in the most difficult situations. This technology will continue its development and can be applied in any field of business around the world. This is a publicly available ledger that can be used for verifiable instant transfers at virtually zero cost. Conclusion There are fundamental differences between bitcoin and pyramid schemes. Bitcoin is often mistakenly compared to the pyramids, due to its drastic value increases. But this value is determined by the supply and the demand of the market, with all the information of what bitcoin is available. If the cryptocurrency stops replenishing itself with new participants, it will not collapse. Its value will simply stop growing. Holders of digital coins will lose exactly the same amount of money as ordinary fiat holders would lose on devaluation. 1 COMMENT CONTINUE READING MUST READS sme blockchain COMPANIES52 mins agoSmall Businesses Need to Get Serious About Blockchain armenia demonstrations ASIA2 hours agoArmenia Fights Against Dictatorship As the World Becomes Less Free india real estate market ASIA3 hours agoIndia’s Coming Real Estate Surge Elon Musk media BLOG4 hours agoAre We Treating Elon Musk Fairly?
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akzonobel COMMODITIESAkzoNobel Struggling Against Headwinds 5 min read / May 8, 2018 By Rutger Bloemenkamp After merger plans came off the table at the end of last year, AkzoNobel (Akzo) has not been in the news much. It seems the company is quite happy to maintain the status quo, after massive upheaval during 2017. Most developments last year were of a negative nature. Shifts in the company’s management, the pressure from Akzo’s shareholders, a takeover threat from PPG, and the failure to takeover Axalta itself saw Akzo not improve its position, a view shared both by the media and investors. Questions would have been raised in the minds of investors. AkzoNobel Circling the Drain Based on recent news, it would seem that Akzo is in a downward spiral. Last year, Elliott Capital, a major investor in the chemicals giant, reacted negatively when Akzo refused to seriously talk about a potential takeover bid from PPG. Elliott Capital even forced Akzo to appear at the Dutch Enterprise Chamber. The hedge fund raised even its stake to about 9% to have more influence on Akzo. Nevertheless, this increase in Elliot’s investment position did not help, as the hedge fund lost the court case against Akzo, and the takeover attempt was dismissed out of hand. Elliott has since reversed direction by decreasing its investment position in Akzo by 4%, now holding only a 5% share of the company. Other major and loyal investment firms like Tweedy Brown, Columbia Threadneedle and Causeway also decreased their portfolio position. Was this as a consequence of Akzo’s decisions over the past year or was it just a coincidence? It has not been all bad news for Akzo’s shareholders, though, as the company has also taken decisions that have benefited its investors. The firm has distributed a so-called super dividend, worth around €1bn. Furthermore, the company also sold its specialist chemical subsidiary to the Carlyle Group, a US private equity firm, and GIC, a Singapore-based investment firm. The potential gain from selling the chemical division is expected to be around €7.5bn. The majority of this will flow to shareholders by the end of the year as a combination of increased dividends and share buybacks. Regulatory approval is expected by the end of 2018. Akzo has outlined some ambitious targets for 2018. The company wants to reach a profit margin of 15% by the year 2020, with a target of 10%-12% in 2018. Targeting small and middle-sized companies in takeovers will have a positive effect on reaching its profit margin targets. Still, a lot of investors ask the question of how the company is going to realise this growth? Thierry Vanlancke, CEO of Akzo, in March 2018 said: “We want one integrated chain of suppliers, one business planning and one integrated manufacturing process.” He believes that M&A practices, leading to an integrated company, will allow Akzo to reach their lofty targets. Akzo has approached Oliver Wight, a British advisory company, to support the company with its integration plans. Though this is a positive step, Mr Vanlancker, appointed at the end of 2017, still has a lot to do to win the trust of institutional investors. Many still question the feasibility of growing profit margin to of 10% for 2018 and 15% for 2020. Whether or not Akzo reaches its profit margins goals depends on the success of its M&A practices. In 2017, Akzo acquired Disa Technology, Flexcrete and Powdertech to further diversify its business portfolio. However, the company has so far failed to realise the necessary returns on these acquisitions. At the moment, it seems that investors are not confident in Akzo’s ability to fulfil its promises. 2018 Q1 Results The first quarter of 2018 further confirms that Akzo is in a bad position. Revenues decreased by approximately 8% and the bottom-line results showed a decrease of 28%. This drop was partly due to falling sales in the marine and oil industries, as well as rising raw materials cost. In response to these high costs, the CEO stated: “We are ramping up our pricing initiatives and have implemented various cost discipline measures to deal with higher raw-material prices.” The company also experienced negative foreign currency effects, as foreign currencies decreased against the euro. This all added up to a decreased profit margin, from 8.8% to 6.8%. This is quite some from distance from the 2018 targets. Impact on Share Price One would expect to see the bad results reflected in Akzo’s share price. The graph below shows Akzo’s share price development over the past months: Source: MarketWatch Before the Q1 results were announced on the 23rd of April, the price per share was €77.23. It decreased slightly in the immediate aftermath of the announcement to €74.25. However, Akzo’s share price experienced somewhat of a recovery and, at time of publication, has a value of €75.60. This is already an increase of over 1.50% from its post Q1 2018 announcement low. In short, it seems the doubts some have is already taken into account when valuing the company. Akzo’s share price has fluctuated between €70-€80 over the past year. Conclusion Akzo has been in a tough situation over the past years, with some investors raising concerns about its direction. After the underwhelming Q1 2018 results, the main question is whether or not Akzo is able to deliver on its targets? Although Mr Vanlancker mentioned that he expected headwinds during the first period of 2018, it will be interesting to see if these disappear as 2018 continues. These headwinds will have to reverse direction quickly, and support a rise of at least 3.2% in the profit margin in the company is to reach its goal. It has not been plain sailing for the chemicals company so far, but it may look to benefit from a change in the prevailing winds. CLICK TO COMMENT CONTINUE READING MORE ON AKZONOBEL Axalta COMMODITIESAkzoNobel and Axalta: Current Developments Axalta Deal COMMODITIESThe Axalta Deal: Is AkzoNobel Taking the Lead? GLOBAL AFFAIRSHere Are Some Predictions for Automation and Income Inequality 12 min read / May 8, 2018 By Alberto Martínez de Arenaza The effect that technological change will have on income inequality globally can be better understood and predicted by using economic complexity. Inequality Inequality is present in today’s development discussions for two reasons. First, it has been argued that inequality has both increased and decreased since the Industrial Revolution, with conflicting datasets and term definitions. Using World in Data’s (2017) measure of inequality, inequality between country since then, following a surge in the last century, while intra-country inequality has increased in the last decades of the 20th century. Decrease in intercountry inequality, increase in intracountry inequality. World in Data (2017) This trend has continued over the last decade: while it is argued that inter-country inequality has decreased in recent years, as argue those who see a decrease in the Global Gini index (The Economist, 2012), the reality is that this index only measures the average for all countries, independent of size or absolute variations. The reality is that inequality has become one of today’s most sensitive “social, economic and political challenges of our time.” (The Economist, 2012). The second cause for concern is the potential for massive inequality arising from technological change, in what’s commonly referred to as the “Fourth Industrial Revolution”. While technology has great potential to shape employment opportunities and education for good, it can also create a “winner-takes-all” global economic scenario that pushes low-skilled workers and low-income nations out of competitive positions, thus pushing up inequality levels further. This would mean developed nations bringing back manufacturing and industrial jobs from overseas due to their technological advances, reducing the need for low-skill labor. Thus, as Driemeier and Nayyar (2017) argue, these changes will challenge traditional economic growth models, concluding that the risk of rising inequality in the coming decades is high. This poses a big risk to societies across developed and developing nations. According to the World Economic Forum (2017) there is existing data indicating that unequal societies tend to be more violent, have higher recidivism, suffer from worse mental health and obesity and have lower life expectancies than those with more equal societies. The Fourth Industrial Revolution will fundamentally challenge the idea of work as a way to find meaning in life, and could bring about more social exclusion (World Economic Forum, 2017). The Future of Work Economists and policymakers are hard at work to find out what countries might do to be better positioned to face the challenges that will come with technological change. One of the most interesting lines of research is that of “economic complexity”, which measures to what extent knowledge is embedded in the economy of a country (Observatory of Economic Complexity, 2017). Extensive research has been done into economic complexity as a way of measuring the resilience of a country’s economy: complexity has been proved to be a better predictor for future growth than traditional indicators of GDP, labor and capital (World Policy, 2011), but also for income inequality (Hartmann, Guevara, Figueroa, Aristarán, Hidalgo, 2016). Economic Complexity Ricardo Hausmann, one of the leading thinkers in the economic complexity field, recently pondered this question: “What does the future of work hold in store, and how should we prepare for it?” (Hausmann, 2017). The piece seemed to point to the use of complexity to understand how a country might be better prepared for these future challenges: “We do know that most countries should focus on ensuring that they can master every new technology and exploit every new opportunity that comes their way” Hausmann, 2017 One will now break down some of the ways in which complexity might help us understand these questions, some short fallings and some new lines of inquiry. On one hand, economic complexity can be a useful tool to understand the exposure of different countries to technological changes, and especially to automation, which could the most important factor leading to higher inequality. While there are no studies directly linking both, there are three concepts that could be a starting point for research into this relationship. First, the framework Driemeier and Nayyar (2017) create to analyze the impact of new technologies on employment and income outline three pillars for future growth: Competitiveness, Capabilities and Connectedness. These are related to the definition of economic complexity, as, from a network perspective, these three levers determine a country’s ability to produce and trade goods and services with one another. This framework is useful to understand the present interactions between nations and to attempt to infer new trends and behaviours. Secondly, complexity gives an insight into how well a country might be able to adapt to the “servification” of industries. According to Driemeier and Nayyar (2017), there is a trend towards a heavier involvement of services into the manufacturing processes, through activities like marketing, engineering or research. Developed countries with manufacturing activities are taking the lead – states like Australia, where agricultural exports are nearly one third embodied services (Driemeier & Nayyar, 2017), which can provide new opportunities for employment in the country. Lastly, growing economies usually require an investment in education to increase the professional opportunities for the citizens of a given country. As observed in the case of South Korea’s development, the shift towards more complex and higher value-add manufactures and services was sustained through investment in education that prepared students for the new economic conditions. The nature of the employment that will be available will require the performance of non-routine and cognitive tasks, according to Driemeier and Nayyar (2017). Thus, complexity could predict the educational opportunities that might provide higher income for young professionals. On the other hand, the relationship between economic complexity and the inequality caused by technological advancement may not be directly linked. The first question is whether economic complexity indicators represent a lever in themselves, or whether they solely reflect other levers that affect a country’s economic performance, such as the strength of its institutions, the political stability or geopolitical factors. The first challenge to this relationship is that, so far, complexity has been quite successful at predicting growth according to traditional industrial growth models, such as those of South Korea, Taiwan, China and other Asian Tigers. This growth took place over a time period of rising demand for manufactures, low-interest rates and low barriers to entry to industry for nations with low-wage employees. However, Driemeier and Nayyar (2017) argue that this manufacture-led growth model is obsolete and cannot be used as an example for increased growth and economic complexity. Thus, complexity might not adapt well to these new models. Secondly, by design, the Economic Complexity Index only takes into account manufactured products that are traded between nations, which leaves some important holes in the methodology (such as services and domestic products): there is some new research to include services in the mix, break down the complexity of each individual product, and extend the definition of complexity, which will improve the predictive power of complexity over time (Stojkoski, Utkovski, Kocarev, 2016). Lastly, many argue that the main effect technological change will have on international trade will be shortening the global value chains for products and services, thus limiting a country’s ability to specialise and add complexity to existing items. An example of how this would happen is with new technologies such as 3D printing, which could reduce the number of raw materials needed for a final product, and could eliminate the need for globally sourced products, as it would be centralised in developed countries with access to that technology (which would, in turn, affect the transportation and logistics industry). Analyzing both sides contributes to an understanding of what new lines of inquiry one might want to explore. In order to better understand the relationship that there could be between complexity and inequality, one proposes two ideas. Firstly, one should look more in depth into the “Complexity — Automation Country Paradox” in Driemeier and Nayyar’s (2017) data. When looking at the percentage of jobs that are at high risk of automation per country, the countries above the 6% mark are some of the most complex economies in the world (such as Germany or Japan, per Observatory of Economic Complexity, 2017), while many at the lower end of the ranks are not complex economies at all (Lao, Vietnam or Kenya). The Complexity-Automation Country Paradox through the % of current jobs at risk of automation. Driemeier and Nayyar (2017) This could be caused by the more complex countries having better access to the technologies that would lead to automation, such as 3D Printers, smart factory machinery and artificial intelligence applications, thus making substitution more likely in developing countries. However, this trend would put the less complex countries in a non-competitive position, thus decreasing their incentives to produce those products. This is an insightful paradox because the plausible answers will be informed by assumptions about how countries will interact in the future to create employment and competitiveness opportunities. Manufacturing sectors by feasibility of automation. Driemeier and Nayyar (2017) The second proposed line of research would be linking specific products to their probability of automation. This would allow researchers to run simulations based on product-price competitiveness, which would allow analysts to understand how technological innovations might affect specific products over time and the countries that are able to produce them at a competitive price point today. This could be explored along with the paradox in order to test how product complexity might affect national complexity, and make predictions about the effect on inequality. Predictions When it comes to predicting the relationship between technological change and inequality, there are five points that will shape the future: 1. Manufacture-led development will be increasingly difficult as a path for development 2. New niches for developing countries: new services and internal/regional markets 3. Different levels of automation will depend on industry and country 4. Striving for greater economic complexity will likely allow countries to better adapt to technological changes 5. Meaning and fulfilment, more than economic indicators, are the end goal for citizens and must be included in future analyses 1. Manufacture-led development will be increasingly difficult as a path for development The macroeconomic growth models used by the Asian Tigers in the 20th century will no longer be available for developing countries that are looking for greater economic growth per Driemeier and Nayyar (2017), given the new trends in manufacturing and services development. Because the developed countries will be able to attract industrial investment due to their higher access to technology, developing countries will not be able to gain a competitive advantage in the production of these goods. As the diagrams show, developed countries will gain an advantage over the manufactures previously done by developing nations, but the competitiveness of developing service providers will be explored thanks to greater access to technology. 2. New niches for developing countries: new services and internal/regional markets Developing nations will still have a few markets that will remain accessible for competition: regional and internal manufacture markets will be a source of growth for developing nations, as evidenced by the increase in exports among African countries in the last decade, and new services that will be provided thanks to new access to technology. Exports among African nations have increased in the last decade. Driemeier and Nayyar (2017) 3. Different levels of automation will depend on industry and country Some industries are revising their predictions for automation and substitution of human labour, given that, while economically feasible, it will be long until automated labour is competitive to substitute very low skilled labour in some industries, such as textiles or mineral resources. However, and as aforementioned, this will not be a channel for substantial growth, as once salaries increase with greater training and complexity, the products will cease to be competitive Impact of Automation per industry. Driemeier and Nayyar (2017) 4. Striving for greater economic complexity will likely allow countries to better adapt to technological changes Using the 3 Cs framework (Competitiveness, Capabilities, Competitiveness), countries will likely position themselves better for the arrival of automation. However, the important question is whether developing countries should pursue higher economic complexity as a lever for greater resilience: developing countries can push for greater importance of the service sector in their economy given greater technological reach and higher incomes (“servification” will play a larger role in manufacturing, as seen in the diagram below), but it remains unclear how their productivity will evolve. More research is needed to find a conclusion for this question, as mentioned in the previous section. Capabilities and Connectedness in trade with completion satisfaction levels . Driemeier and Nayyar (2017) 5. Meaning and fulfilment, more than economic indicators, are the end goal for citizens and must be included in future analyses Demographic changes will change the traditional social structures and values of developed nations. This, added to economic changes and the high probability of higher inequality, will pose challenges to the life meaning and fulfilment of individuals, which was often realised through work. Governments will play a larger role in this aspect of citizens’ lives, and it must, therefore, be included in the economic analyses conducted in the future. In conclusion, technological advancements will likely bring about benefits for society, but there is a high probability it will also bring about negative effects through higher income inequality. Economic complexity has proved to be a valuable method to analyse the effect technological change will have in the economy and society, though there is a need for more research to pinpoint more accurate actions governments can take to become more resilient to technological change. 2 COMMENTS CONTINUE READING MORE ON INEQUALITY AMERICASIncome Inequality and ‘The Great Gatsby’ liberalism dead DAVOSLiberalism Is Dead, Long Live Liberalism Blockchain Inequality CRYPTOCURRENCIESHow Can Inequality Be Reduced with the Blockchain? millennial trends COMPANIESPerfumes Are Changing to Attract New Chinese and Millennial Consumers 5 min read / May 8, 2018 By Jeffrey Chu This month, LVMH‘s flagship brand, Louis Vuitton, launched a new line of travel-sized men’s fragrances. Grasse-based head perfumer Jacques Cavallier-Belletrud’s five new creations go by the names of L’immensite, Nouveau Monde, Orage, Sur la Route, and Au Hasard. Together, they give us an indication of how Louis Vuitton, and the wider fragrance industry, is adapting to changing consumer preferences. Unisex Fragrances Such a move marks the first time Louis Vuitton has entered the male perfume market. Though one notable feature of the products is their departure from stereotypically male elements, musk for example. Instead, the line is made up of much lighter tones, something Cavallier-Belletrud explains is to give them a unisex slant. This, he hopes, will capture a zeitgeist of a “new masculinity” where boundaries between the traditional male and female spaces and scents are broken down. It would not be the first brand to launch a fragrance that blurs traditional gender lines. The trend that initially peaked in the 1990s, led by Calvin Klein and Commes des Garcons, is making a comeback. Just last month, The Independent released an article recommending five gender neutral fragrances to their readers. Jo Malone London, a brand that pushes fragrances to both genders, has performed well in recent times, helping its parent company, Estée Lauder, increase sales by 18% in its third quarter ended 31st March 2018. The Decline of Mainstream In addition to increasing the unisex elements, other aspects of the fragrance industry seem to be changing as well. The five new scents for Cavallier-Belletrud reflect new marketing trends, in the form of celebrity endorsements, or rather, a lack of them. LVMH is no stranger to the world of high-profile sponsorships, its flagship brand, Louis Vuitton, has used the likes of Pharrell Williams (2006), Scarlett Johansson (2007), and Kanye West (2008). Just last year, Oscar-winning actress Emma Stone signed a deal worth up to $12.8m to become the face of Louis Vuitton. Yet, so far, there has been no promotional material to feature such celebrities. Star power seems to be waning in appeal. Mainstream is no longer fashionable. Where once consumers desired products that had these endorsements, giving them an aspirational or lifestyle element, now they look to more niche brands. According to Mintel, around a third of consumers have described the celebrity approach as “tacky”, and while certain personal brands remain successful, such as the Kardashians, LVMH might be wise to continue down the line of limited celebrity exposure. In terms of the actual product, this decline of the appeal for traditional forms is also clear. Consumers no longer want that instantly recognisable smell. According to Nick Steward, London-based founder of a new fragrance brand Gallivant: “everything smells the same – people are getting bored of the big brands and want something different.” Indeed, in the US market, Coty, the third-largest maker of cosmetics, reported a 3% decrease in its luxury division at the end of summer last year. Consequently, Mr Cavallier-Belletrud has sought to add a unique narrative to each fragrance, speaking about a trip he took to the Guatemalan jungle: “I was drinking the famous chocolate the Maya have used for over 3,000 years. I realised I was drinking a part of the Maya culture and promised myself that I would find the right cocoa note for a perfumer – and this is Nouveau Monde.” Chinese Purchasing Power The lighter tones brought to market by LVMH can also be said to come from the growing importance of Chinese consumers. According to one McKinsey report, from the time Beijing hosted the 2008 Olympics until 2016, more than 75% of global growth in the luxury market (over $65bn) could be attributed to purchases made by Chinese customers, either domestically or abroad. Whereas Chinese consumer power has, in recent years, propped up sales for luxury items such as handbags, it has traditionally avoided the fragrance industry. Much of this is for cultural reasons. According to the fragrance historian and perfumer Roja Dove, unlike the West or the Middle East, Asia has never been very receptive to scents, focusing instead on skincare and make-up. Yet there are signs this may be about to change, and in the world of consumer goods, low penetration rates can allow for huge growth potential. Indeed, one Euromonitor report suggested that perfume sales in China would grow by 4% a year from 2017 to 2021. To take advantage of this growth, brands have to adapt to the demands of Chinese consumers. Despite growing demand to express oneself via smell, the new consumers do not favour heavy scents. Consequently, for now, Jo Malone’s position is relatively strong in the space, teaming up with hotels to host afternoon teas, exploiting their British heritage. Kamila Elliot, vice-president and general manager of the brand has explained how their scents strike this balance for Chinese consumers with the most popular products being the light and flora Bluebell, English Pear and Freesia, as well as Wood & Sea Salt. Whether Louis Vuitton will be able to leverage their reputation in China to succeed at a similar level will be interesting to watch. CLICK TO COMMENT CONTINUE READING MORE ON MILLENNIALS sustainable investing INSIGHTS BY FIRST STATE INVESTMENTS AND KEPLER CHEUVREUX (SPONSORED)Millennials – the Future or Fad of Sustainable Investment? Generation Z GLOBAL AFFAIRSWill Generation Z Save the Stock Markets? Oil Price Future GLOBAL AFFAIRSThe Future of the Oil Industry in a World of Green Transportation COMPANIESInsurtech –  Demystifying the Hype 6 min read / May 8, 2018 By Chris Garrod What is insurtech? It is just what the name suggests: the combination of insurance and technology. Or, perhaps more accurately, the rise and use of a wide range of technologies within the insurance industry, from underwriting and claims to administrative functions. What has always been an extremely paper-intensive industry is now gradually dragging itself into the digital age. The disruption of an age-old industry by the onset of a digital revolution. Digital transformation. It is what it is. The world currently finds itself in a new industrial revolution — the fourth industrial revolution or “4iR” — though it sounds silly to call it that. As it is anything but industrial. The transformation involves many things: the rise of automation and artificial intelligence within the everyday work process, either replacing employment or enhancing employment, depending on one’s viewpoint. The use of blockchain technology and smart contracts, simplifying claims management and underwriting processes. A Quick Example: Lemonade Inc. A quick example and one of the poster children of the insurtech movement: Lemonade Insurance Company. Its CEO and co-founder Daniel Schreiber once stated: “The insurance brands we know today came of an age in the era of the horse-drawn carriage, but insurance is best when powered by AI and behavioural economics, which is why we believe that companies built from scratch, on a digital and with a social mission, will enjoy a structural advantage for decades to come.” What does Lemonade do? Using a mix of artificial intelligence, behavioural economics and chatbots, it is able to allow its customers to be able to download and use apps, so rather than liaise with human beings when having to deal with an insurance claim — or employing the use of any insurance broker — their policies are handed automatically. Its most famous claim to fame was its ability to file and pay and claim a claim in three seconds. Plus, a portion of its underwriting profits goes to charity. At its core, it is digital peer-to-peer insurance, similar to a mutual insurance company, except replacing brokers with AI. Its primary (current) limitation is that it only really can handle small claims. Embracing Technology Despite Lemonade’s limitations, as an example of the potential of how technology can disrupt a traditional industry, it is a good one. So… insurance. Paperwork. Tradition. Regulation. Protection. Innovation? It is slow to move, but even Lloyds is progressing into the world of technology. There are many, many new technologies which are becoming relevant to the insurance world – Blockchain, artificial intelligence and machine learning, big data, robotics, healthtech, the internet of things and particularly the use of wearables. Insurtech can really comprise of a number of things, including insurance vehicles looking to re-invent themselves by embracing new technologies, potential new insurers establishing themselves to write insurance in a new innovative way, or simply new ventures that are offering specialised tech products to insurers and other market participants. A Jurisdiction to Review: Bermuda Bermuda, once called the “insurance laboratory of the world”, and its regulator, the Bermuda Monetary Authority (BMA) is now working on an insurtech innovation: it not only provides for an insurtech “Innovation Hub”, which promotes insurtech companies to exchange ideas and information with the BMA, but also an insurtech “regulatory sandbox”. The insurtech sandbox approach is an interesting one, given Bermuda’s size within the global reinsurance world (being the second largest reinsurance centre worldwide). At its core, the sandbox allows for the formation of new insurance (or intermediary) entities, either as brand new start-ups or affiliates of existing insurers. These new companies will, for a period of up to one year (which may possibly be extended), operate using and experimenting with their proposed new technologies and provide their insurance products and services to clients in a controlled environment, under the close scrutiny of the BMA, with the BMA determining what legal and regulatory aspects of the existing legislation should apply to them in order to ensure policyholder protection. The notion is that within or following the one year of progress, an entity within the sandbox could “graduate” from it and become a fully licensed insurer. These insurers can range from either small claims insurers (a la Lemonade) to full-blown commercial reinsurers. The benefits to this approach include various aspects to the proposed entity wanting to enter the sandbox: (1) an opportunity to test its technology before heading into the formal insurance market, (2) allowing it time to work with the BMA as its main regulator to ensure everything being proposed “works”, and (3) helping reduce the cost of regulatory uncertainty a start-up would otherwise face. These insurtech sandbox regulations are still very formative, so there is still some time to see how they will be implemented and when they are, how successful they will be, but bearing in mind Bermuda’s stellar reputation in the insurance, reinsurance and alternative capital markets, it is hard to see them not being an attractive proposition for both existing players and new start-ups. The Future So, innovation hubs, sandboxes, blockchain, behavioural economics and AI. Is the reinsurance industry now finally at a tipping point? There are the naysayers. Innovation hubs are really just means for companies which carry out tech-related activities to liaise with regulators within their jurisdictions. Blockchain-based, self-executing insurance contracts or ones which are done on a peer-to-peer basis using AI are actually pretty dumb and fairly limited to small claims for the time being. And sandboxes will still need a good degree of time to see if they succeed. And the use of a chatbot, robot or any form or AI can never replace the logic and analytical skills which an actual underwriter or claims analyst will be able to provide. In short, the argument is that the technology driving insurtech is going to take time, not to mention loads of regulatory requirements which underpin the industry. But relating to that last point: wherever one is on the existing insurtech revolutionary curve, for now, the need is there for regulators to both innovate and adjust, and for companies to expand and adjust to take into account the needs of their customers who seek quicker and more efficient service. Whether one is an insurance vehicle which is competing with others, or an insurance jurisdiction competing against similar ones, the industry is, like it or not, transforming into a new digital era. Soon, it will no longer be paper based. And those insurers who fail to realise that will have to do so soon, like it or not. 2 COMMENTS CONTINUE READING MORE ON FINTECH blockchain regulation COMPANIESSelf-Regulation Needs to Stabilise the Cryptocurrency Market Gulf Fintech Revolution ASIAWill 2018 Mark a Gulf FinTech Revolution? Kenya Interest Rate Caps AFRICAThe Other Side of Kenya’s Interest Rate Caps: Lost Opportunities ai development COMPANIESA Revolution in Artificial Intelligence Is Around the Corner 5 min read / May 8, 2018 By Subodh Saxena “Artificial Intelligence (AI) is the solution. What is the problem?” This conversation is representative of the pervasiveness of AI. Unnoticed, an AI revolution is upon us. Something has changed in last half decade to make this happen. Student Becomes Master Cat, the lion’s mentor in Indian folklore, had hardly finished teaching her student how to hunt when the lion pounced on her. She escaped by climbing a nearby tree, a trick she had not taught the lion. Like the popularity of this creation-creator story, events of AI matching or exceeding human performance are making big news. Last year AI beat top humans in poker, a strategic thinking game, where both the cards and bluffing matter. A similar feat was achieved in 2016 when a computer dethroned Lee Sedol, the world champion of go, a complex Chinese board game. Besides these shocking successes over humans in strategy and board games, there has been a significant improvement in the technical performance metrics of the machines. This is leading to breakthroughs in autonomous vehicles, visual recognition, natural language processing, lip reading, and many other fields, signalling the development of algorithms with skills superior to humans. In the annual ImageNet Large Scale Visual Recognition Challenge (ILSVRC), machines showcased dramatic progress, improving from an image recognition error rate of 28% in 2010 to less than 3% in 2016. The best human performance is about 5%. Deploying a new computational technique (Deep Convolutional Neural Net) in 2012 brought this marked improvement in image processing and set off an industry-wide boom. Similarly, both Microsoft and IBM increased the accuracy of ‘Speech Recognition on Switchboard’ from 85% in 2011 to 95% in 2017, equalling human performance. Advances in machine learning, pattern recognition, and a host of other technologies will enable autonomous cars without human drivers to drive on roads this year. Alphabet’s Waymo leads the pack of several self-driving car makers in the race. Classical Versus Deep Learning AIs The biological brain consists of two different but complementary cognitive systems, the rational (model based, programmed) and the intuitive (model-free, learning through experience). The understanding of how the mind selects between these modes and the interface between intuition and rational thought is beyond the current technology. In the classical approach, AI, and its subsets Machine Learning and Neural Networks, followed the rule-based (if-then) systems imitating the decision-making process of experts ignoring the intuitive part. For complex problems, it was difficult to encode rules and make available the requisite knowledge base. For almost sixty years classical AI had been languishing as human cognition is not based only on logic. A new approach, based on continuous mathematics, was developed. In deep learning, the new name given to artificial neural networks, the classical logic-based method has been passed over in favour of experimental computation using continuous mathematics. This change has been possible due to the growing infrastructure of ubiquitous connectivity, exponentially increasing computing power, powerful algorithms, and big data sets. Artificial neural networks, which mimic the biological brain, are used for mathematical modelling. The human brain is imitated using electronically simulated interconnected neurons stacked on the top of each other in layers. The hidden layers perform mathematical computations on inputs. Iterating through the data sets, the output gets generated via ‘back propagation’, using a technique called ‘gradient descent’, which changes the parameters to improve the model. Maybe stumbling on nature’s design, the process works very well perhaps because of imitating intuition as in the human brain. Astonishing Results and Possible Futures The results are so astounding that these cannot be explained even by creators of AI programmes. AI systems are like black boxes taking in questions on one side (“Should this autonomous vehicle accelerate or apply breaks on this yellow light? “What is the next move in this board or strategy game? “What are the objects in this image”) and giving out answers on the other side. It will be difficult to explain how the black box works, but it does work. In some situations, it will be difficult to use such an unpredictable, inscrutable, and unexplainable system. This method, using neural networks inspired by the human brain, requires tons of quality data to be useful compared to the very little data needed by humans. Another flaw in deep learning is its inflexibility in using experience learned in one case to help solve another. Humans can learn abstract concepts and apply them in different applications. The algorithmic, or specialised, intelligence, known as narrow artificial intelligence (NAI), has existed for years and has now got some teeth. It is benefiting humankind in many ways but is also capable of causing large-scale damage to an increasingly digital and interconnected infrastructure. General artificial intelligence (GAI) is a general purpose human-level intelligence and is perhaps a decade away. While GAI can meet challenges such as climate change, disease, and other problems which humans are not able to solve, it will cause economic and cultural upheaval. GAI, undergoing recursive self-improvement, will give rise to a superintelligence, the third flavour of AI. Superintelligent AIs will radically outperform humans in every field and may pose an existential threat to humans. They could appear in the next few decades, or not at all. Human intelligence is to be understood first before it can be created. With 20,000 AI research papers being published annually, enrolment in AI programmes and investment metrics rising northwards, humanity may be close to accidentally creating a general artificial intelligence. 5 COMMENTS CONTINUE READING MORE ON ARTIFICIAL INTELLIGENCE CRYPTOCURRENCIESGolem Lands on the Ethereum Mainnet Pentagon Drone Research AMERICAArtificial Intelligence and Drone Surveillance: Why the Pentagon and Google Have Teamed Up future humanity BLOGWhat Does Facebook Tell Us About the Future of Humanity? islamic finance sharia law GLOBAL AFFAIRSWhat Benefits Can Sharia Finance Unlock for Development? 4 min read / May 8, 2018 By Dev Mahtani Sharia law is Islam’s legal system with strong roots in the Quran and rulings from Islamic scholars known as fatwas. It affects every aspect of an adhering Muslim’s life from the framework of financial markets to personal life. These moral and legal codes can be applied on a spectrum, from the strict application of Sharia law in Saudi Arabia to its partial application in parts of Indonesia. The application of Sharia law is surrounded by extreme controversy in western media, but are some of its merits being overlooked? The Elephant in the Room It goes without saying that Sharia Law is not perfect; in fact, it is far from it. Ranging from institutional gender inequality, violence and human rights offences such as censorship and prosecution methods, Islamic law has become a sensitive topic. The International Human Rights Rank Indicator, a composite index which measures the prevalence of human rights violations, showed that Muslim majority countries, most of which adopt Sharia law, had scores below 62%, with countries like Chad and Afghanistan within the 20% range. This article aims to acknowledge the issues associated with the political and social realms of Islamic law and to examine the benefits through an economic and financial lens. What is Islamic Economics? Financial markets are not independent or secular in nature and hence have to follow the principles of Sharia: Gambling is prohibited, and in turn so is speculation, uncertainty and significant risk. Money is defined as a measurement unit of value, not as an asset from which to make more money. The concept of interests (riba) is prohibited on loaned money. Unlawful and detrimental commerce is prohibited (alcohol, pollution.) Sharia law emphasises social promise with an emphasis on ethics and good business conduct. And several other values which emphasise the need for collective socio-economic development rather than exploitation and personal gain, risk and profit sharing. The Silver Lining of Sharia Law There is a reason behind the rise of Islamic Banking within developed markets and it lies in the long-term potential of its values. One of the core principles is the concept of shared responsibility and collectivity, based on the murabaha structure, risk-sharing is valued over risk-transfer which is more prominent in Western systems. This means that both parties of a transaction can benefit while still protecting themselves, allowing risk to be spread. The community-oriented approach to finance creates a more inclusive system which has potential to benefit the greater good of society since Sharia prohibits any transactions or products which may be harmful to the environment. This is largely neglected in other systems which fail to realise the potential benefits in long-term sustainability. “Zakat”, or obligatory charity is the third pillar of Islam aimed at providing relief and purifying income to benefit unprivileged parts of society, furthermore, banks also contribute to this through donations of forfeited income and late fees. As Ruslena Ramli, head of Islamic Finance at Malaysian Credit Rating Agency stated:“Heightened appeal for sustainable and responsible investing could also be driving the growth for Islamic finance due to the commonalities in values and shared principles,” The benefits of this are evident in reducing socio-economic disparity and encouraging harmony within society. What’s Next? In essence, the community and value-driven approach to banking has potential benefits for the long term development of states. The prohibition of speculation and exploitation can reduce risks in term of crisis while practices like Zakat and probation of harmful transactions can contribute to a reduction in economic inequality and hope for a sustainable future. However, Islamic finance still faces obstacles when it comes to standardisation given that there exist different interpretations of Islamic law which affects the structuring of financial products, creating uncertainty for investors in the market. 1 COMMENT CONTINUE READING MUST READS sme blockchain COMPANIES55 mins agoSmall Businesses Need to Get Serious About Blockchain armenia demonstrations ASIA2 hours agoArmenia Fights Against Dictatorship As the World Becomes Less Free india real estate market ASIA3 hours agoIndia’s Coming Real Estate Surge Elon Musk media BLOG4 hours agoAre We Treating Elon Musk Fairly? GLOBAL AFFAIRSWhy the Allied Strikes on Syria Signal a Return of Western Credibility 7 min read / May 7, 2018 By Tyler Swafford After World War I, the international community came together to outlaw some of the gravest weapons known to man through the Geneva Protocol. Amid the genocides of the 1990s, a similar multilateral treaty came into force: the Chemical Weapons Convention, which has 192 signatory states. After the chemical weapons attack on Ghouta in 2013, Syrian President Bashar al-Assad vowed to eliminate his chemical stockpile. Russia promised to facilitate its elimination, and the US Secretary of State John Kerry assured the world that the US-Russia deal got “100%” of chemical weapons out. One other fateful announcement occurred around that time, too: President Obama asserted an unequivocal “red line” regarding the use of chemical weapons that, if crossed, he was clear, would provoke a US military response. To nobody’s surprise, Syria and Russia neglected the pact. In the next four years, after the US failed to enforce its own line in the sand, thousands of innocent Syrian civilians suffered and perished — and infants foamed at the mouth — as Assad deployed chemical weapons with impunity. That is, until now. Crossing the Line On a Friday night, April 13, the armed forces of the US, UK, and France launched targeted missile strikes on a chemical weapons R&D facility in Damascus as well as multiple military compounds and command and control centers used to deploy such weapons around Homs — this in response to last week’s devastating chemical attack in Douma that left as many as 70 dead and at least 1,000 affected. These forceful strikes, which will cripple the Syrian regime’s core chemical infrastructure, send, as PM Theresa May put it, a “clear signal” to Assad and other monstrous despots who massacre innocents that these war crimes are never acceptable and shall never go unpunished. The world is imbued with disinformation and daring dictators always pressing the envelope to determine all they can get away with in order to consolidate rule and deprive citizens of basic liberties. Consequently, the importance of Western credibility in upholding international law, treaties, and humanitarian norms like the Chemical Weapons ban cannot be understated. When President Obama retracted his red line, Assad became emboldened, and Syrians were left unprotected from VX nerve agents, sarin gas, and chlorine attacks — weapons of mass destruction. It was clear that his “win at any costs with any weapons” strategy, aided and abetted by Russia, was permissible. Western equivocation proved utterly disastrous and deadly. Action Has Its Price Too Secretary Kerry, National Security Advisor Susan Rice, and UN Ambassador Samantha Power – hardly foreign policy hawks – stressed the erosion of credibility to the President back then, and they were right. The world witnessed the pitfalls of over-aggression in the Middle East over the past 15 years and the naïveté of suddenly installing democracy in sharply sectarian societies. But one has also seen the perils of sitting on the sidelines when it comes to enforcing basic laws and norms. Iraq and Libya showed the costs of overreach. Syria shows the costs of inaction. Yet, there is one glaring difference between each of these cases: in Iraq and Libya, the objective was regime change. The world is keenly aware of the “day after” problems that arose after Hussein and Gaddafi were overthrown — problems that still haunt the West and those countries to this day. In Syria, the West is not pursuing a regime change. Prime Minister Theresa May was abundantly clear about this in her press conference on the topic. In fact, America, the UK, and France are not even seeking to push Assad back to the negotiating table or weaken his stance vis-à-vis the Syrian Free Army. The US still very well may withdraw all troops from Syria as President Trump desires. As grotesque as it is that this brutal menace will likely stay in power with the complicit support of Russia and Iran, the reality is that the West would still rather Assad stay than unilaterally depose him and risk entering another costly quagmire. The Trump Approach With these precise missile strikes, the West is simply showing its resolve to punish those who use chemical weapons and weapons of the like; that this barbarity is intolerable — every single time. Critics will decry the strikes directed by President Trump as “trigger-happy,” a diversion from domestic scandals and controversies, and lacking in any overarching strategy. But it is important to give credit where credit is due. Since Trump has been commander-in-chief, Assad has used chemical weapons exactly twice against civilians — and twice Trump has acted forcibly. Additionally, the President has been much tougher on Russia than the media indicates. In the April 9 edition of Time, frequent Trump critic Ian Bremmer penned an interesting column on how, despite Trump’s suspicious rhetorical affinity towards Russia and “bromance” with Vladimir Putin, the Trump administration has actually been tougher on Russia when it comes to policy than its predecessor (see recent sanctions on businesses, oligarchs, and diplomats in response to 2016 election meddling and strengthened arms agreements with Ukraine to combat Moscow-backed separatists). To be sure, there is a myriad of unresolved questions yet to be unearthed by the Mueller investigation and one should not rush to judgment. Nevertheless, although the President’s unconventional style and puerile rhetoric have damaged both his ability to govern and image abroad, it is still necessary to recognise the sometimes distant discord between his words and his policy. Others will lament an absence of a “grand political strategy” to end Syria’s civil war and that Trump is just doing a bit of showmanship, that his only strategy is to tweet and bomb. To the contrary, there is indeed a long-term strategic purpose in striking regime targets: one that will hopefully reap rewards for years to come. The international ban on chemical weapons will be enforced. For Assad and future despots who contemplate deploying such weaponry, this message should finally come through loud and clear. And, if for some reason it does not, with continued Western commitment to a policy of strategic deterrence through hard power and military force, it inevitably will. That is no insignificant strategy. Protecting innocents from the gravest weapons of war is a worthy purpose in and of itself. No, this does not make the West “righteous,” and one should avoid thinking of these actions through the lens of sanctimony. Indeed, a more comprehensive humanitarian policy would involve creating safe zones in Syria and accepting more Syrian refugees — which remain unlikely. But for those who believe in the rule of law and the protection of society’s most vulnerable from lethal weapons of mass murder, one should commend this revitalisation of Western credibility. Payback Time From 10 Downing Street, Prime Minister May showed clear-eyed conviction that force was justified in Syria. This was her first time to commit troops into conflict, and she did so in a principled and decisive way. One should salute the servicemen and women of America, Britain, and France for their bravery in executing this mission. Their unrivalled abilities, along with the cooperation of May, President Macron, and Trump, are promising signs for continued transatlantic collaboration amid future threats. May’s firmness, though on a lesser scale, bears resemblance to President George HW Bush’s words in 1990, when — with memorable brevity — he declared that Saddam Hussein’s invasion of Kuwait “will not stand.” Operation Desert Storm ensured that nobody dared question his resolve. Talking the talk is well and good. Backing up the talk is far better. Tyrants of today and tomorrow should never again question the resolve of the international community when it comes to the use of chemical weapons. 2 COMMENTS CONTINUE READING MUST READS sme blockchain COMPANIES55 mins agoSmall Businesses Need to Get Serious About Blockchain armenia demonstrations ASIA2 hours agoArmenia Fights Against Dictatorship As the World Becomes Less Free india real estate market ASIA3 hours agoIndia’s Coming Real Estate Surge Elon Musk media BLOG4 hours agoAre We Treating Elon Musk Fairly? AMERICASIncome Inequality and ‘The Great Gatsby’ 5 min read / May 7, 2018 By Nikita Kishore ‘The Great Gatsby’, set in the America of the 1920s, is considered a classic work of fiction. It correctly captures the hopes and aspirations people had about the stock market. Many tried their hand at it, expecting to strike gold. However, another major thread it highlights is the struggle people would face trying to break from their low-income group into the high-income group amidst great inequality in terms of earnings. The decade preceding the Great Depression was one of great income inequality. The top 1% of the population had about 24% of the total US income at its peak. The inequality intensified even more as one advanced further up along the social rungs of society. The top 0.01% controlled around 5% of the US income. The years following the depression saw the inequality decline to a low of 8.9% of the total income being diverted towards the top 1%. The share of the even more elite 0.01% fell to an even lower 0.8%. However, these numbers seem to be on the rise. The share of the top 1% had risen to about 22% by 2013, almost catching up to its peak value in the pre-depression era. The even more shocking revelation comes from the figure of the top 0.01% population’s share which is 5.1% as of 2013. This inequality only seems to be increasing. From 2010 to 2013 the incomes of people other than the ones belonging to the top stagnated or fell but from 2013 to 2016 the income of every group rose. Despite this, according to the Federal Reserve report in 2016, the top 1% controlled about 38.6% of the country’s wealth which was twice the amount controlled by the bottom 90%. Even the income share has gone back to the pre-depression levels. The Great Gatsby Curve What does this inequality mean? Just as ‘The Great Gatsby’ brought to light the struggle of breaking into the high-income bracket at the time of great income inequality, so does The Great Gatsby Curve. This curve was introduced by Alan Krueger, who was the then chairman of the Council of Economic Advisors, in 2011. This curve shows the relationship between the income inequality a country faces and the intergenerational social mobility. Even though the second parameter reads as something disconnected from an average individual it actually is very important as it acts as a proxy for the opportunities the individual would enjoy within the economy. It measures how likely it is for your income to be dependent on the income of your parents. A high rating on this scale means that your income is pretty much the determined by the income of your parents, which implies that it would require a lot of fight along with a touch of luck to make it big if your parents were poor. Source: Miles Corak, ‘Income Inequality, Equality of Opportunities and Intergenerational Mobility”, Journal of Economic Perspectives, 2013 Clearly, the more income inequality that persists, mobility falls. What this means is that with greater inequality comes fewer opportunities. The United States ranks high in terms of income inequality but low in terms of social mobility. This is in contrast to the idealised American Dream, which propagates the idea that anyone can make it big in America. The purpose of this curve is to urge policymakers to look into the matter and come up with better policies. This curve does not ask to be interpreted as a causal relationship. Different countries will have different reasons for the inequalities and lack of opportunities based on their different societal structure along with institutions. One proposed reason is education. People belonging to the higher income group understand the value of education and make it a point to ensure that their child gets the very best of it. This will eventually lead to a divide between the quantity and quality of education received by the different income groups. As is the conventional wisdom, more are the educational qualifications, higher is the incomes. There are two more reasons that may help explain this particular relationship in the context of US. The first one has to do with the shift in employment opportunities. The labour unions have lost their power to bargain for higher wages. There is also a huge amount of outsourcing that strips away from the working class the jobs that they had relied on for so long. This causes structural unemployment, the one that results from a misalignment between the skills possessed by the workers and the skills the firms are looking for. Keeping the American Dream Alive The ones losing their jobs are members of the lower part of the income division. Another reason behind this disparity may be the financial market. In 2013, the richest 20% owned about 93% of all stocks. The poor don’t have the extra money to invest in the markets while the rich enjoy riding one of the longest bullish markets in history. This propagates the divide between the haves and the have-nots. Furthermore, it becomes hard to break out of this cycle. The Great Gatsby Curve does not mean to lock in the position of the country. It should be studied to counter the inequality. Some may argue that inequality is a non-negotiable for the country to grow. However, for a country like the US which leads the world in terms of GDP and already has a per capita income of around $57,500, it needs to reevaluate the prevalent income inequality. Otherwise, people would have to go elsewhere to realise the American Dream. 4 COMMENTS CONTINUE READING MUST READS sme blockchain COMPANIES55 mins agoSmall Businesses Need to Get Serious About Blockchain armenia demonstrations ASIA2 hours agoArmenia Fights Against Dictatorship As the World Becomes Less Free india real estate market ASIA3 hours agoIndia’s Coming Real Estate Surge Elon Musk media BLOG4 hours agoAre We Treating Elon Musk Fairly? COMPANIESA New Trend in Private Equity? 6 min read / May 7, 2018 By Neil Winward KKR recently announced it would be changing its partnership form to that of a corporation. Why would it do that? Tax reform at the end of 2017 reduced the corporate tax rate substantially from 35% to 21% making the economics of paying two levels of tax – the first at the level of the corporation and the second at the shareholder level – more attractive than the existing structure. Detailed comparisons of the final tax take on passthrough fee income versus dividends are complex and there is no ‘one-answer-fits-all’ answer. However, the ability to have a stock that is qualified for ownership by a wider investor base is clearly relatively more valuable post-tax reform. KKR has decided it is a smart move. Ares Management is the most recent example of a company that has made a similar transition, effective March 31, 2018. KKR has been able to gauge market reaction and has been impressed. Apollo and Blackstone are watching too. The overall structure is worth a quick review; but one aspect is worth a closer look. Up-C This is the name of the structure developed to permit tax-optimal IPOs of partnerships. It mimics the terminology of umbrella partnerships – so-called UPREITS – used to permit the tax efficient contribution of real estate to REITs (Real Estate Investment Trust). If owners of real estate contribute their property directly to a REIT – a typical structure for giving investors access to a publicly-traded entity that only suffers one level of taxation provided it satisfies certain criteria – they must pay tax on any gain inherent in the real estate because the transaction is taxable. If, on the other hand, they contribute their property to another REIT jointly owned by the REIT and the investor, the UPREIT, the transaction is tax free and the investor will receive rights to exchange its ownership into the publicly traded REIT shares, thus allowing it to defer taxation of its gain until the time it chooses to make the exchange. The so-called Up-C structure is the corporate version of the UPREIT structure. It was pioneered in 2006 by Evercore Partners. It is fully described in an excellent article co-authored by Gregg Polsky at University of Georgia School of Law and Adam Rosenzweig at WashU School of Law. In summary “In an Up-C structure, a C corporation is placed atop an LLC [partnership], which is owned partially by the C corporation and partially by other investors, usually individuals and private investment partnerships, such as venture capital or private equity funds. These other investors also receive exchange rights that allow them to periodically exchange their LLC interests for stock in the parent C corporation. When these exchanges occur, they are taxable…” Like the UPREIT structure, the gain inherent in the partnership assets is only triggered when the exchange is made. The partners in the investment partnerships gain the flexibility of exchanging their units for more liquid, publicly-traded shares and can time the recognition of their gain to when they want to access that liquidity. The structure has become a very popular technique to do an initial public offering of a business that comprises partnership assets. Additional Benefits for the Sellers In addition to the flexibility of timing when they recognise taxable gain on underlying partnership assets, there is an extra benefit for sellers. This benefit needs some context. In corporate M&A, there are two kinds: sale of the shares; or sale of the assets. If the assets are sold, this is usually tax-inefficient for the seller because the corporation will pay tax at the corporate level on any gain in the assets in addition to the shareholders being liable to tax on the gain. The benefit for the buyer of this seller-tax suboptimal structure is that the buyer will be able to ‘step-up’ the basis of the corporate assets and write that cost off against its future tax liability. Because of the tax inefficiency for the seller, this usually does not happen. The alternative of selling shares also has two variants: sale of the shares for cash; and exchange of the shares of the acquired corporation for shares of the acquiring corporation. In the former, the selling shareholders pay tax on the gain at the time of sale; in the latter, their gain is rolled into the shares of the acquiring corporation and taxable only when they sell those shares. The inefficiency of this for the buyer is that it is not permitted to step up its basis in the shares of the acquired corporation to fair market value and depreciate that basis against future taxable income. Where the acquired corporation is a partnership, there is another option – the Up-C. This structure permits the top-level corporation, at the point in time when the underlying selling partners exchange their partnership units for shares in the corporation and pay tax on their gain, to step up its basis in the underlying partnership assets to fair market value and depreciate the assets to offset its future taxable income. This tax benefit is not typically fully valued in acquisitions for a few reasons and so the benefit is allocated mostly – 85% – to the selling partners through something called a tax receivable agreement. This agreement sets up an elaborate mechanism to calculate the benefit derived from the step-up and allocates the tax savings to the parties to the agreement in a series of cash payments over time. If the benefits do not materialise – perhaps the corporation does not make sufficient taxable income to be able to use the write-off – then there is no benefit to be shared. If the magnitude of the savings decreases – the reduction of the corporate tax rate from 35% to 21% is a notable example of this – then the benefits to be shared are reduced. Ares and KKR The Ares transaction does not involve an acquisition or an IPO. It was already publicly traded. Instead, it simply chose to make the kind of election (commonly referred to in tax circles as ‘check-the-box’) available to all partners in a passthrough LLC: the election to be treated as a corporation for tax purposes. In doing so, and by incorporating some of the features of the Up-C structure such as the ability for the partners to exchange their units of the top partnership that has changed its election from partnership to corporation, it gives its partners access to publicly traded shares and the flexibility to determine when they wish to recognise gain on the sale of their underlying interest. They will also benefit from the kind of tax receivable agreement common to traditional Up-C structures. It seems the KKR structure will follow the same path. This may be a trend. CLICK TO COMMENT CONTINUE READING MUST READS sme blockchain COMPANIES56 mins agoSmall Businesses Need to Get Serious About Blockchain armenia demonstrations ASIA2 hours agoArmenia Fights Against Dictatorship As the World Becomes Less Free india real estate market ASIA3 hours agoIndia’s Coming Real Estate Surge Elon Musk media BLOG4 hours agoAre We Treating Elon Musk Fairly? facebook decline COMPANIESReports of Facebook’s Death May Have Been Greatly Exaggerated 4 min read / May 6, 2018 By Fergus McKeown Following the scrutiny Facebook came under recently, which drove Mark Zuckerberg to answer questions from the US Congress, there was a groundswell of support for #deletefacebook. Prominent personalities, like Elon Musk or Brian Acton, who co-founded WhatsApp, followed through on this and did delete their profiles or company pages. For the first time, this raised the possibility that the dominant social media platform of the present day, with over one billion daily active users, could eventually fade away and disappear. Twitter Travails The hashtag trended because people were upset about how Facebook had handled their data. Private and personal information was seemingly easy to gather and exploit. Permission for third parties to use this data was never asked for or needed. Cambridge Analytica gathered the information they used through the survey app thisisyourdigitallife, which also trawled the data of the friends of users who consented to have their info scraped. Distrust and dissatisfaction with the Palo Alto-headquartered company reached an all-time high in the aftermath. Facebook is an anomaly among social media sites. Before Zuckerberg cemented his firm’s position as the top dog, the shelf life of platforms like his were around five or six years. Livejournal, Myspace, Friendster, Hi5 and Bebo have experienced highs before disappearing. Google+, despite being back by the search engine giant, never even took off. But Facebook managed to beat the trend and has survived, thrived really, far longer than what history would dictate in terms of expectations. It has managed this because it reached a critical mass. Myspace never really had more than 100 million users. Facebook surpassed 500 million in 2010 and has continued to grow at a rapid rate (it now boasts over two billion users). It was the dominant player when smartphones took off, and one would find it hard to remember a time without smartphones for social media, given how enmeshed the sites are in that particular piece of technology now. The ability to monetise successfully was the final thing needed for Facebook to reign as long as it has. New Challengers Appear But it is being challenged. New apps, developed solely for the new iPhone and other such devices, began to draw users, especially younger users, away. 2018 is expected to see three million users aged under 25 in the US and the UK alone leave the site. Most are moving to places like Snapchat, away from the prying eyes of their parents’ generation, which is making up more and more of Facebook’s user base. 44% of Snapchat’s users are in the key 18- to 24-year-old demographic, while it only makes up 20% of Facebook’s. Zuckerberg is trying to stem this flow. New services are popping up on the site. Dating services have recently been announced to be coming to Facebook. Money can be sent over Facebook now as well. News and gossip are provided on it, and it has started hosting videos as well in the past few years. This all adds up to Facebook increasing its platformisation, not dissimilar to what WeChat is doing in China. It is no longer just a place to share photos and organise parties. It has extended its reach to include so much of what a user does online. This makes it hard to imagine that it will fade away soon. No doubt it will continue losing younger users to newer services, but it will not mind. It still keeps a hold over its older users. Mark Zuckerberg was keen to express that Facebook Dating is not intended to be a hook-up site, like Tinder. It wants to allow users to form long-term relationships. Maybe Facebook’s youthful flings are over, and it is ready to settle down. CLICK TO COMMENT CONTINUE READING MORE ON FACEBOOK TECHIs Managing Identity on the Blockchain the Next Revolution? Screen Addiction COMPANIESFacebook, Social Media and Screen Addiction. Do You Have It? Facebook Regulation COMPANIESSenator, We Sell Ads… GLOBAL AFFAIRSKarl Marx at 200: Death, Disaster & the Labour Party 6 min read / May 5, 2018 By Satya Doraisamy The UK rejected the Labour Party’s plan to win over key Tory strongholds such as Wandsworth and Westminster in this week’s local elections. In many instances, Tory councillors were able to point to their Labour counterparts imposing higher rates of council tax for essentially the same services. Accordingly, the British public set aside their discontent over the Brexit customs partnership and the Windrush scandal to cast their ballot in favour of lower taxes. Turkeys, after all, do not vote for Christmas. Corbyn’s latest setback comes at a particularly apt time: today is Karl Marx’s 200th birthday. And, after all this time, Marx’s popularity amongst British youth seems to be at a multi-decade high. Corbyn, who has described Marx as a “great economist”, might carry himself with an honest, gentle demeanour but the manifestations of the theories he professes to admire have been anything but. The Death Toll Indeed, as Conservative MEP Daniel Hannan observed last year, Marx may well “have caused more suffering than any other human being”. To date, communism’s death toll stands at nearly 100 million – a figure that is rising, thanks to Nicolas Maduro’s woeful mismanagement of the once-wealthy nation of Venezuela. Some 65 million were killed in Mao Tse Tung’s China – millions of whom were starved as part of state policy, while countless others were sent to death camps for speaking out against the regime. Bizarrely, Labour’s shadow home secretary Diane Abbott once entertained the notion that Mao “on balance did more good than harm”. Further, it is often said that the Second World War was won through British intelligence, American might and Russian blood. Yet it has long been thought that Joseph Stalin killed more of his own people, through mass executions, deliberate starvation and gulags than the Nazis did. For perspective, six million died in the Holocaust, while the Japanese killed a similar amount of Chinese people during the war. All in all, through all their atrocities, the Nazis are estimated to have slaughtered 17 million – a shocking figure that nevertheless pales in comparison to those killed at the hands of communist dictators. Marx, of course, was an economist, not a dictator. He did not personally condemn anyone to a labour camp or order the summary execution of his detractors. Instead, he was an alcoholic who relied on a stipend from his friend Friedrich Engels in order to get by – a stipend that came from the money Engels’ father made from a factory he owned. He argued that people were not independent, free-thinking beings but engines of growth – cogs in the great wheel of society. It was precisely this thinking that underpinned the draconian policies that played out in various communist dictatorships. Take, for instance, Romanian dictator Nicolae Ceaușescu’s idea of only allowing women access to contraception after they had given birth to five children. Or how the Khmer Rouge executed educated individuals who posed a threat to the regime and justified their actions by accusing the intelligentsia of not performing enough manual work. An Abysmal Economic Legacy Separating Marx’s theories from their real-world effects is a blatant injustice to the millions who died at the hands of those seeking to enact them. But even if we indulge in doing so and judge him on purely economic grounds, history shows that Marx was far from prescient. Contrary to Marx’s belief, free markets have not led to a tiny minority controlling the world’s wealth; instead, every country that has embraced capitalism has seen its middle classes swell. Since Deng Xiaoping’s decision to open up China’s markets, some 700 million Chinese people have been lifted out of poverty. India, which cast off the shackles of socialism a little later under finance minister Manmohan Singh in the 1990s, has seen roughly 300 million more Indians enjoy a life above the UN’s poverty line. Despite talk of the rich only getting richer, the poor are better off nearly everywhere. In the UK, for instance, nearly everybody owns a smartphone and more British citizens are holidaying abroad than ever before. The world’s richest man, Jeff Bezos, might be worth of $100bn but even that is just 25% of the $400bn that John D. Rockefeller’s fortune would have been worth in 2017. In fact, Rockefeller’s net worth in 1937 was equivalent to 1.5% of US GDP, whereas Bezos’ fortune is less than 0.05% of America’s GDP today. Better still, the former Soviet bloc nations are now some of the fastest growing countries in the world. Romania recently posted annual GDP growth of nearly 9%; Estonia is an emerging tech hub with some of the lowest tax rates in the EU; Poland is home to a growing number of tech firms, particularly those operating at the bleeding edge of blockchain development. Similarly, Vietnam, which like China is communist in name only, is experiencing a reverse brain drain – the phenomenon of Vietnamese people who have studied and worked abroad returning home to start their own private ventures and economically lift up their compatriots. Vietnam, too, is a growing tech hub – so much so that it was recently home to the world’s largest ICO scam. Meanwhile, Venezuela, once admired by Corbyn and his supporters for showing the world that “the poor matter”, has seen its GDP per capita decline by more than 40% since 2013 – a sharper fall than during the US’ Great Depression. Of course, these are outside estimates, since Maduro made sure to abolish the publication of GDP figures when it became clear that his country was an economic disaster. Just recently, the world watched as Kim Jong-un, a communist despot who murdered his own brother and uncle alongside countless others and runs a country that prioritises the pretence of being a nuclear power over building basic infrastructure, met South Korea’s democratically-elected Moon Jae-in, who presides over Asia’s fourth largest economy, where GDP per capita is in excess of $25,000. A Communist PM? Although the weight of history is stacked against Marx and his teachings, Corbynism and hard-left politics are paradoxically on the rise in the UK. Young people look to Corbyn as a vision of the future, seemingly unaware that his brand of politics has failed and led only to death and economic ruin countless times in the past; his shadow chancellor is an avowed Marxist; his shadow home secretary once insinuated that Mao was, on balance, a force for good. On his 200th birthday, surely it is finally time that the hard-left addressed Karl Marx’s true legacy, rather than continue to make excuses for him? And surely the UK should finally stop entertaining the thought of a communist occupying Number 10. 1 COMMENT CONTINUE READING MUST READS sme blockchain COMPANIES56 mins agoSmall Businesses Need to Get Serious About Blockchain armenia demonstrations ASIA2 hours agoArmenia Fights Against Dictatorship As the World Becomes Less Free india real estate market ASIA3 hours agoIndia’s Coming Real Estate Surge Elon Musk media BLOG4 hours agoAre We Treating Elon Musk Fairly? cambridge analytica AMERICACambridge Analytica: A Danger to Democracy? 4 min read / May 5, 2018 By Fergus McKeown Social media has become a significant part of election campaigns. Candidates and parties can interact more directly with those they wish to woo on these platforms. With this rising importance though come bad faith actors. Russian troll farms are accused of stoking passions and division among US and British voters. Fake news is being spread at a rate far too fast for the truth to combat. And Cambridge Analytica (CA) took users’ data and used psychographic profiles of them to manipulate them into voting a certain way. A New Era of Political Advertising Political advertising has been around for as long as politics has been. Voters are petitioned from every side during an election. Vote for this candidate for lower taxes, this one for better government services, and so on. CA provided detailed voter profiles based on their Facebook information, but how is this different and any more sinister than a party political broadcast or attack ad on television? Previously, ads were based on demographic data. Demographics were determined and targeted based on age, income level, education attainment, the likelihood a household would contain children and so forth. A voter was targeted based on averages and abstractions. CA created psychographic profiles that took a person’s attitude and personality into account, which would allow them to target people based not just on the issues they cared about, but in a way which was more likely to get a reaction out of them. What They Did CA got access to the personal data of an estimated 87m people, though only several hundred thousand consented to their data being collected. CA could acquire data on such a large number of people because the app they used to scrape the information from Facebook, thisisyourdigitallife, also got data from the friends of those who used it. Once the revelation became public knowledge, Facebook acted quickly to make sure this could not happen again. However, severe criticism was levelled at the company over its use and protection of their users’ data. Living in the modern world, we are surrounded and bombarded by adverts wherever we go. Going to work on the metro or the bus, listening to the radio in your car, or even walking down the street people see or hear commercials everywhere. Ads are becoming less effective because of their ubiquity. Traditional advertising, party political broadcasts or flyers, approach people in good faith. They are clothed fully in the garb of an ad, and people understand them as such. People have developed a tolerance and psychological barriers that mostly block them out, ads just become part of the world and are as noticed as the street furniture such as bins, benches and bus stops voters encounter on every street. What CA did was try to get around our critical faculties. It was an act of trickery, of manipulation. Are Our Thoughts Our Own? CA undermined the methods people have that reclaim power over their attention and intentions. It used trickery and underhandedness to make a person’s thoughts not their own. Approached in a way that was not seen as advertising people could not engage their critical faculties and they lost the chance to act as a rational constituent weighing up their political choices in an obvious and well thought through manner. This is why what CA did was so sinister. It undermined a population’s right to engage in political debate and substituted unthinking reaction in its stead. It spoke of a candidate or platform which one would not usually vote for and replaced nuance and good faith political debate with deception. What Must Be Done CA’s tactics were not illegal, just immoral. Legislation to outlaw such an approach would be hard to craft. Either it would become too broad, banning more than it should, or too narrow and easily sidestepped. Regulation, like GDPR, does still have its place, and people should be aware of who has data on them, and what they will use it for. However, people need to realise that they are being pandered to, and need to develop the barriers similar to those that stop them being overwhelmed with the urge to purchase every little thing they see advertised around them every day. It is only in the reaction people have to the CA news that will help solve the problem. CA has shut down now, though the key members have set up a similar company called Emerdata. Psychographic profiling and targeting will not go away. What must change is how people interact and view this new kind of political advertising. CLICK TO COMMENT CONTINUE READING MORE ON CAMBRIDGE ANALYTICA TECHIs Managing Identity on the Blockchain the Next Revolution? Screen Addiction COMPANIESFacebook, Social Media and Screen Addiction. Do You Have It? Facebook Regulation COMPANIESSenator, We Sell Ads… CRYPTOCURRENCIESTim Draper and Alex Ohanian Weigh in on Bitcoin and Ethereum 3 min read / May 5, 2018 By Satya Doraisamy The cryptosphere went crazy this week after Reddit co-founder Alex Ohanian said that Ethereum would reach $15,000 by year’s end. He amended his comment, however, and stated that he had meant to say $1,500. Meanwhile, he predicted that bitcoin would end the year roughly where it started – at $20,000. Bitcoin’s biggest bull, venture capitalist Tim Draper, did the opposite several weeks ago; after tweeting that bitcoin would hit $25,000 in 2022, he apologised in a subsequent tweet and revised his prediction by an order of magnitude to $250,000. Draper famously predicted back in 2014 that bitcoin would hit $1,000 by 2016, followed by $10,000 in 2017 – two predictions that in the end were vindicated. Bitcoin has recovered to nearly $10,000 at the time of writing, driven by rapidly relaxing fears of regulation and increased institutional interest in the space. In the last few weeks, Goldman Sachs has opened bitcoin trading desk in its commodities division, while George Soros’ family fund announced that it would begin taking long positions in cryptocurrencies. Draper, however, reckons that it will take a lot more than institutional interest to boost the profile of cryptocurrencies. Instead, he foresees more and more people transacting in cryptocurrencies rather than fiat currency. To support his prediction of bitcoin at $250,000, he thinks that the total fiat market capitalisation will fall from $80trn today to roughly $30trn, giving cryptocurrencies a total market capitalisation of nearly $100trn. Ohanian is less bullish on bitcoin and reckons that in the long-term Ethereum will surpass the original cryptocurrency due people “actually building things on it”. Yet Ethereum is still not without its flaws: at this week’s Toronto Ethereum developer conference, co-founder Vitalik Buterin again struck a sombre tone regarding the platform’s scaling problems. Several months ago, the entire platform nearly ground to a halt as the Ethereum-based game CryptoKitties went viral. Clearly, there’s a long way to go before Ethereum scales into Web 3.0 and bitcoin becomes a major medium of exchange. Yet, many of the world’s top engineers are currently tackling these problems. Ethereum has a solid pipeline of scaling solutions – Plasma, Loom, Raiden, state channels and sharding to name but a few – while bitcoin is experimenting with its own Lightning network. Although bullish cryptocurrency predictions always look ridiculous when they are made, it’s clear that despite a downtrend in the past few months, the overall trend remains up. There is still everything to play for and with some of the brightest engineering minds working on these projects, Draper’s estimate might once again be proven correct come 2022. CLICK TO COMMENT CONTINUE READING MUST READS sme blockchain COMPANIES57 mins agoSmall Businesses Need to Get Serious About Blockchain armenia demonstrations ASIA2 hours agoArmenia Fights Against Dictatorship As the World Becomes Less Free india real estate market ASIA3 hours agoIndia’s Coming Real Estate Surge Elon Musk media BLOG4 hours agoAre We Treating Elon Musk Fairly? TECHIs Managing Identity on the Blockchain the Next Revolution? 8 min read / May 5, 2018 By Priyanka Somrah An identity is a difficult thing to lose. Beyond some of the widely covered data breaches in the United States, it is hard to see how critical the state of the identity management system truly is. When having the misfortune of losing one’s passport on a trip to some island far off the Eastern coast of Africa, security was by far the most challenging issue faced. The cumbersome process of re-applying for a new passport prompted the thought that if one could store all of their valuable information somewhere on some remote network that only they could own and access, then one would not have to wait to be assigned a new form of physical identification. Therefore, one of the best solutions for solving the pain points of Identity and Access Management is by adopting a biometric solution. The world at the tipping point, experiencing waves of underlying trends central to identity management. The more one struggles to thwart sophisticated fraud and theft incidents, the more it becomes clear that security is, fundamentally, a human identity problem. Enterprise Security Is Reactive by Nature Human beings are increasingly leaving trails of digital signatures in almost every interaction with technology. Think about the number of times one does things with technology that go beyond its original intent: One’s daily jogging routine is captured on my android’s GPS because #SamsungHealth Daily texts and email exchanges? They leave a digital imprint too. One’s Facebook presence is sparse and yet Facebook owns one’s relationship architecture. Sure, one’s penchant for technology deserves to be celebrated. After all, it is technology that drives almost every radical innovation to its completion. Alas, almost everything one does today, whether that be intentional or unintentional, is leaving a digital trail behind. One describes enterprise security as being reactive in nature because each time the user or the enterprise leverages some consumption of technology, it is increasingly impossible to predict all the vulnerabilities that will ultimately infiltrate through that medium of consumption. Data Sovereignty People only tend to care about identity management when their identity is compromised. While penning this article, Mark Zuckerberg was testifying before Congress in the wake of the Cambridge Analytica scandal, in which tens of millions of Facebook users had their personal data harvested. Many of the solutions one is hearing Congress call for are comprehensive privacy solutions. The “privacy bill of rights” that would require Facebook to get its users to opt-in before using or sharing their personal data has already been proposed. While the buzz is all about the Facebook data breach these days, one should know that Amazon looks at data too. Every time one makes a purchase on Amazon, Amazon generates a record of their consumer behaviour that maps out their preferences, purchase history and spending habits. The truth is, data leakage is not something that should be taken lightly. In a time where one faces the threat of data abuse, it is imperative to have a solid understanding of what the framework of each of these services looks like. At the heart of every service that one leverages through technology, there is a model that embodies one’ss digital essence. This abstracted model contains data that can be 1) easily breached or 2) traded without one’s consent. Schematic behaviours feed into this model to create a sense of who the user is. How else would Amazon know that someone “might” like almond butter? Could it be because they have a record of that someone buying peanut butter? Fragmented data is constructed into this convenient model that gets someone just what they need. But if fragmented data can be be used in profiling consumer preferences, then the same fragmented data can be employed by a different online channel to manipulate someone’s online presence. It is only a matter of time before someone defaults on someone else’s credit card. Identity Access Management and Decentralized Data-Defined Security Could a blockchain security solution be the one that ultimately resolves identity-borne vulnerabilities? If one develops a solution that allows the user to centralise and store their digital genome onto the blockchain in a way that reinstates total ownership of the service nodes to the user, then the user can both reclaim their data sovereignty and prevent their digital entity from being compromised. The blockchain technology is now adequately mature for one to easily embed a bundle of applications that would control the type of data that one shares with third-party services. A more potent solution would sustain the storage of all valuable data such as medical records, immigration information, intellectual property, credit histories and personal identifiable information (PII), all in one localized disc. On HYPR CORP and Decentralized Data Given its distributed cryptographic technology, blockchain is addressing the “lack of trust” problem between counter-parties at a very basic level. On one hand, enterprises are now replacing passwords with SSL certificates while, on the other, the enterprise system is getting audited for every new iteration with a greater level of transparency. Moreover, a decentralised Domain Name System means that the enterprise is now barred from those much dreaded DDoS attacks. HYPR CORP, for example, is a startup producing a decentralised biometric security platform onto which biometric credentials are encrypted before being distributed across all media. Digital photos, iris scans and fingerprints are all typical methods through which the enterprise consumer can scan their individual biometric identities and pre-register them into one single database. A biometric solution that feeds off this database has great value for an enterprise that is looking to replace their use of passwords. The disruptive principle behind a decentralised biometric authentication lies in the “one-to-one” matching scheme. The one-to-one matching scheme has the ability to destabilise hackers by forcing them to loop from one device to the other for each of the individual encrypted biometric. HYPR’s architectural fortress shields the enterprise from data breaches as follows: first, it encrypts each biometric record onto its platform, then it decentralises the biometric data across millions of devices, and tokenises their use each time the account needs to be accessed. Besides the appeal that HYPR’s passwordless authentication has on UX, the fact that enterprise users are protected against the loss of their registered mobile, desktop or IoT devices, is a huge advantage. Since HYPR stores all biometric records on-device, it protects the end-users by enabling the enterprise to disable the public keychain to the lost device once the theft is reported. HYPR and the Enterprise Market A technology that has been around for so long is still in its early infancy in the security market. Biometrics is by no means a new concept, yet this phenomenon is just starting to seep into the computing world. Perhaps there are few people who actually understand what biometrics really is. Do people have a flawed understanding of how to integrate the data-defined security factor into an existing system of biometrics, or are they clueless as to the number of ways such a system can be scaled for optimality? A biometric authentication is always going to play a key role in validating a user’s identity for smart contracts, but the world needs engineers who are already developing biometric systems to morph the concept into a viable security solution. Centralising the bulk of biometric credentials is still seen as a liability by many, and rightly so. It is a huge risk to deploy the repository at scale but there are ways around easing the process of validating the user’s identity. So far, HYPR has successfully implemented a solution that determines the user’s identity in small contracts by enhancing security and usability upgrades. While the focus is on scaling its deployments, the HYPR encryption suite also takes to aligning with standard-based protocols like Fast Identity Online (FIDO) Alliance: by reinforcing these protocols enterprises can ward off the risks that they would have otherwise encountered. One should be optimistic of what lies at the intersection of biometrics and data-defined security and 2018 will be an interesting year for biometrics where one will see more of the consumer market supporting the enterprise market in their attempt at going passwordless. As is the case in the high-tech security market, the race between the cutting-edge security gurus and the equally talented hackers will define the core business. Whether that shift will turn out to be a positive or negative development is yet to be seen but this uncertainty is what should empower engineers to build a robust and reliable biometric security system. 2 COMMENTS CONTINUE READING MORE ON BLOCKCHAIN sme blockchain COMPANIESSmall Businesses Need to Get Serious About Blockchain CRYPTOCURRENCIESIs EOS Really the Ethereum-Killer? CRYPTOCURRENCIESTransforming the Space Industry with Blockchain Technology GLOBAL AFFAIRSThe Future of Wealth Management 3 min read / May 5, 2018 By Raphael Rottgen Wealth managers do not seem to make much use of the data they possess on their customers in order to make the customer experience better — and they have considerable data, including credit card statements and tax returns. Besides e.g. Facebook, Google, large retailers like Amazon, and credit card firms, wealth managers (and banks in general) are probably among the biggest owners of data on people in the world. And this is probably even before trying to complement the data they already have with other publicly available information or directly obtaining more data from customers via highly targeted questionnaires. By smartly mining this data (one’s data but also that data compared to others’ data), wealth managers should be able to learn a lot about clients and suggest/offer value-added solutions to them, which would build loyalty, embedded value and possibly even (see below) a network effect that serves customers but also raises competitive barriers. Instead, clients usually receive offers of run-of-the-mill products with no significant effort to personalise them. Data for a Platform of Wealth Apps There are so many things that could be done with the wealth (pun intended) of data that wealth managers have on their customers. Probably too many different things for a wealth manager to realistically come up and execute by itself. So why not try to enlist the help and the creativity of outsiders — like Apple and Google do in the AppStore and PlayStore, respectively? Obviously, the data security/confidentiality angle would have to be religiously watched/safeguarded — but assuming it can be resolved, offer some anonymised data to developers who could come up with all sorts of apps, e.g. visualization/aggregation tools (like a Yodlee), social investing (e.g. eToro), retirement planners etc. Besides random third-party developers, wealth managers could also try partnerships with the tech giants – Amazon (Echo), Apple (wearables/iPhone apps), Facebook (apps, maybe something with Oculus VR), Google (Android apps, wearables etc.). It Is Not about “Wealth”, It Is about Lifetime Utility Wealth is not an end in itself, but rather a means to the end of utility. For different people, it will mean different things, but such things that can provide utility to customers may include charitable giving, building bequests to family or others, VC investments, real estate, travel, events etc. Here, too, big data techniques could help wealth managers transform themselves from “mere” wealth managers (which, with all due respect, are probably a commodity) to “bespoke lifetime utility managers” – how? For example: By using big data analysis to discover what high-utility activities are for a customer. Even help the customer discover such high-utility activities that they would enjoy but was not even aware of yet (similar to recommendations on Amazon). Thereafter, proactively help the customer realise this utility, e.g. identify clusters of similar customers and extract value from these networks, via helping to form co-investment groups, obtaining group discounts for travel/items/events, even facilitate asset sharing (real estate, yachts) etc. Are some of these solutions already being offered? For sure, but for now probably mostly in the ultra high net wealth individuals segment. Availability of data and algorithms should now make it possible to take these bespoke solutions downstream into the high net wealth individuals and mass affluent segments. CLICK TO COMMENT CONTINUE READING MORE ON WEALTH MANAGEMENT Wealth Management MARKETSWealth Management: The Sector Taking Over Investment Banking and Trading? COMPANIESThe Future Of The Machine Advising You How To Invest musk conference call COMPANIESMusk Crumbles as Competitors Take on Tesla 4 min read / May 4, 2018 By Oliver MacDonald Jaguar, Mercedes, Porsche and Audi are just a few of the brands that displayed their latest all-electric cars at the Geneva Motor Show. This comes after years of increasing pressure for manufacturers to lower the production of high carbon footprint cars. 2018 saw new regulation from German court which grants cities the ability to ban diesel cars to fight air pollution; the market has reacted positively. Car Companies Celebrating the Death of Diesel It is a move that sent shock waves across vehicle manufacturers share prices. It confirmed projects supporting and the production of electric cars could get underway. Unlike smaller firms, car manufacturers have a rigorous process of model creation, from design, market analysis to pricing. This process takes months, and more often years, to complete. New regulation has forced many firms, such as Mercedes, to speed this up exponentially to regain shareholder confidence. The established car companies need to show that they have the required adaptability to new market conditions. This culminated at the Geneva Auto Show in March 2018, when consumers saw the introduction of models such as Mercedes’s all-electric SUV, dubbed EQC. Tesla is beginning to feel the heat. Being a new entrant in the challenging automobile market means things for the Elon Musk captained company are tough to say the least. Production remains an obstacle. The latest production report shows: “[R]ealization of growing competitive threats to Tesla could take it back down quickly.” The Conference Call The increase in competition for Tesla, the company which has dominated the electric vehicle market for close to a decade, has taken its toll on the 46-year-old South African-born entrepreneur and CEO Elon Musk. In a recent investor conference call he crumbled, feeling frustrated by questions he was being asked. Under pressure, Musk told investors not to buy shares in Tesla if they cannot handle volatility. They got the message, and many sold their shares or taking up sell positions on Tesla. George Schultze, the founder of Schultze Asset Management, said: “Tesla’s results and Elon’s demeanour on the call definitely rattled investors.” This was then followed up by an 8.6% drop in the share price for Tesla, a dramatic shift which could prove to be a pivotal point in the direction the company is taking. The 2018 first quarter results, which Musk was discussing on the call, revealed that the company has managed to burn through $1bn in cash, leaving it with $2.7bn in reserve. Tesla’s Problems The problem for Tesla is that this is new territory. No one has attempted something as significant as this before. The Tesla brand has changed the market, forcing it to adapt. This change that Tesla wanted to drive has come about. Germany’s decision that diesel cars could be banned is only one example of recently introduced regulations. Electric cars are the next big thing in personal transport, and if Tesla plays its hand correctly, it is estimated to be worth $1trn by 2025, according to CNBC. Tesla’s ambitions continue to grow. The new Model 3 showed just how ambitious Musk was, perhaps even delusionally so. Production projections of 500,000 cars per year, set by Tesla, have not been met. Even estimates of 120,000 cars being built next year is a figure that may not be met. It is not all bad news for Musk though. Part of the production problems faced by Tesla was to do with batteries, and this issue could be solved soon. A majority of speculators are working under the assumption that Tesla will soon look to the financial market to resolve the cash flow problem. The funds they can expect to raise will depend on if they can iron out the production problems of the Model 3 sell in time to sooth the banks. The sooner Tesla is open about this the better however in the meantime one thing is certain, Tesla’s stock will continue to be volatile. By Heisenberg Media (Flickr: Elon Musk – The Summit 2013) [CC BY 2.0 (https://creativecommons.org/licenses/by/2.0)], via Wikimedia Commons CLICK TO COMMENT CONTINUE READING MORE ON TESLA Elon Musk media BLOGAre We Treating Elon Musk Fairly? Elon Musk COMPANIESMeet the 21st Century Rocket Man elon musk reputation COMPANIESElon Musk: The Market Will Decide CRYPTOCURRENCIESThe Rise of Non-Fungible Token Assets: The Case of CryptoKitties 6 min read / May 4, 2018 By Ben Sparango By now everyone will most likely have heard of CryptoKitties. CryptoKitties is an Ethereum-based game and mini economy where users buy, sell, trade, and breed digital cats. To outsiders, projects such as this look like ridiculous applications of blockchain technology that seemingly serve no purpose. While cats on the blockchain sound inherently unimportant, there is significant value in the underlying protocol that allows these assets to exist. “Fungibility is, essentially, a characteristic of an asset, or token in this case, that determines whether items or quantities of the same or similar type can be completely interchangeable during exchange or utility.” Gerald Nash The ERC721 protocol was developed in September of last year in order to create non-fungible assets on the blockchain. This enabled a group of developers to design digital cats with unique traits on Ethereum’s blockchain while simultaneously allowing for immutable ownership of these assets for the buyers. On the surface, this seems insignificant. However, the concept of unique, digitally scarce assets on the blockchain has far-reaching implications. The Collectible The most talked about aspect of Non-Fungible Tokens (NFTs) has been the idea of digitally scarce assets as collectables. Humans have a rich past of collecting things, from baseball cards to rare coins. Therefore, many folks in the digital asset space have surmised that people will seek to own NFTs purely for their unique and scarce traits. However, research regarding the psychology of collecting suggests that humans collect things more often for emotional purposes as opposed to monetary. Currently, NFTs such as CryptoKitties or Rare Pepes are being bought and sold primarily for the expected monetary gain of selling the asset at an appreciated future value. There is little emotion involved in the purchase of these assets. With that said, NFTs will not be adopted on a wide scale based solely on their scarce and unique properties. One needs to develop a usability function for these assets that either increases the emotional response from the user or provides a utility that was not previously possible prior to this protocol standard. Gaming One vertical for NFTs is within the gaming industry. A few months ago, e-sports revenues hit $655m in 2017, with a projected growth of 38% in 2018. Now, one could imagine how NFTs could impact this already booming industry. For example, say there was a similar economy for Call of Duty characters as there are for CryptoKitties. Users can purchase their character, port them in-game, and play with them. With this application, one transcends NFTs as solely collectables. The in-game usability and the pride associated with owning a well sought-after character triggers that emotional response humans so desperately crave. The other significant implication of the ERC721 protocol is the ability for assets’ characteristics to be altered. In the current world of digital cats, one can breed one cat with another to create an entirely new cat with completely different physical characteristics. Taking this idea a step further, one think of CryptoKitties as developing into a 21st century Tamagotchi of sorts. One owns their CryptoKitty and has an open world environment where they walk it, feed it, and buy accessories for it. Everything one buys for it affects the traits of the cat and, therefore, the value. For example, if one feeds their cat cheeseburgers every day, it will gain weight, become sluggish, and ultimately function differently than if one had fed it healthy meals. This gives way to entirely new facets of the NFT economy. Owners can now directly affect the traits of their NFTs, impacting their market value on the in-game economy. At the same time, this introduces a new revenue stream for the owner of this in-game space. To give an idea of how lucrative this could be, Activision Blizzard raked in over $4bn on in-game purchases alone in 2017. Portability solutions for NFTs to in-game environments is ambitious for the current state of this protocol and blockchain as a whole. However, it is surely something to keep an eye out for in the future. Licensing The most recent and most exciting application of NFTs involves their potential use in licensing. Licensing of software has historically been complicated. Users can purchase software and then pirate it off on the internet to millions of users for free, resulting in a significant loss of revenue for the software company. On a similar note, if one wants to simply resell the software when they’re done with it, one cannot. As was made clear in the 2008 case of Vernor v. Autodesk, almost all software today is “licensed” rather than “sold”, thus making its resale to a third party illegal. Enter NFTs. “What if all our software licenses were compatible and we could go to a single integrated app store and sell say three days of Adobe Creative Cloud and buy two days of Microsoft Office? This flexibility would be a clear win for consumers but would surely lead to a loss of revenue for software vendors. Hmm, but what if this easy transferability of licenses also reduced piracy?” John Griffin Licensing something as an NFT alleviates issues on both the consumer and vendor side of software sales. For consumers, the primary benefits are transferability and privacy. One no longer needs to be locked into a year subscription to Microsoft Office. Whenever one is finished, they simply sell their license on an open market on top of the Ethereum blockchain. In terms of privacy, there is no need to share any information with the service provider other than their public Ethereum address. Benefits for vendors are significant as well. Since NFTs are just smart contracts, vendors can code parameters into the licenses. Some of these parameters include, but are not limited to, revenue sharing on a secondary sale or restrictions on time periods before and after transfers of the license are made. Licenses as NFTs also thwart the rampant piracy problem with software today. In order for one to pirate an NFT software license, one would need to share your private key. In that case, one compromises their Ethereum address and risk the license being stolen. Ripple Effects and Investable Verticals The implications of NFTs go well beyond digital cats. However, as exciting as this may be, the ripple effects of rapid growth in this area could be troublesome. The CryptoKitties mania absolutely crippled the Ethereum network in December of last year. If NFTs continue to grow at a faster rate than Ethereum scaling solutions, one should expect to see skyrocketing TX fees and major network clog ups in the short term. Investing in anticipation of NFT growth is particularly tough at present time. The obvious and unsatisfying answer is to buy ETH in anticipation of the increased demand in the network to pay elevated gas fees. However, the proper investable vertical exists yet. In the coming months, one should be on the lookout for novel projects working on custodial solutions for NFTs, consumer-friendly UIs for interacting with NFTs, and developments in the marketplaces in which these unique assets can be exchanged. CLICK TO COMMENT CONTINUE READING MORE ON CRYPTOCURRENCIES CRYPTOCURRENCIESIs EOS Really the Ethereum-Killer? CRYPTOCURRENCIESTim Draper and Alex Ohanian Weigh in on Bitcoin and Ethereum Bitcoin Forex CRYPTOCURRENCIESBitcoin vs Forex Trading: What’s the Difference? Screen Addiction COMPANIESFacebook, Social Media and Screen Addiction. Do You Have It? 8 min read / May 4, 2018 By Stephen Bitsoli As digital devices grow ever more omnipresent, there is more and more concern that people are becoming addicted to them. It is not a new worry. Television has long been reputed to have a similar addictive character, even though one could not take a TV with them everywhere. Video games provoked similar worries, increasingly so as they moved from large arcade kiosks to small consoles attached to the TV and then to downloads on computers and handheld devices. Computers were their own concern, from desktops to laptops to tablets. Now one can carry a device no bigger than a deck of cards in one hand that is all of those things and more, including a telephone, a camera, and other things the prognosticators of yore never imagined. Websites and apps such as Facebook, Twitter, YouTube, Snapchat and/or Instagram are types of social media that enable all types of interaction and communication. Fear of Screen Addiction The question of whether or not any or all of these are addictive remains unanswered. The American Psychiatric Association’s most recent Diagnostic and Statistical Manual of Mental Disorders (DSM) does not include what was then sometimes referred to as internet addiction disorder (IAD) – or simply screen addiction – as an official disorder. Video game addiction was noted as worthy of further study, however, and the United Nations’ World Health Organization seems set to declare gaming disorder a disease soon. Though one probably has never heard about it, the world is currently in the middle of Screen–Free Week (April 30 to May 6), the latest iteration of an international event (it has evolved, along with the technology, from the earlier TV Turnoff Week and Digital Detox Week) conceived by the Campaign for a Commercial-Free Childhood to explore other types of interaction and entertainment. That still does not mean Facebook, Twitter or Google are actually addictive. What Is Addiction? According to Britain’s National Health Service (NHS), addiction is “not having control” over using a substance or continuing in a behaviour, “while neglecting other aspects of their lives.” NHS accepts that addiction can include such things as social media, video games, and online shopping. Not everybody agrees that the use of a smartphone or spending time on Facebook equals addiction. That does not mean it is not a behavioural problem, even a pathology, but it might affect how to treat the problem. Another symptom of addiction is what happens when one stops using: withdrawal symptoms. Withdrawal is the addiction’s way of making sure one keeps feeding it. It makes stopping more unpleasant than continuing, even when the addict no longer enjoys it and realises how harmful that is. In the case of alcohol or drugs, this manifests as intense physical pain and can be fatal, but there also is psychological withdrawal. Reasons to be Skeptical of Screen Addiction One can agree that excessive use of social media is a bad thing without calling it an addiction. Not even all the people who offer treatment for those who want to reduce their time online think that calling it an addiction is necessarily true or helpful. The studies that find similarities between heroin and screen addiction tend to be small—only 35 people between the ages of 14 and 21 is not conclusive proof. No wonder that there are more heroin rehab facilities than screen addiction rehab facilities. Another reason to be suspicious of considering IAD an actual addiction is that the term was invented as a deliberate joke. In 1995, psychiatrist Ivan Goldberg created the concept of IAD and posted it on Psy.com as a parody of the way the DSM “medicalises every excessive behaviour,” according to Greg Beato in Reason magazine. To his surprise, many people told him they actually had IAD. Evidence that Screen Addiction Is Real They are not alone, and many people who study addiction agree. Psychotherapist Nicholas Kardaras, author of Glow Kids: How Screen Addiction Is Hijacking Our Kids – And How to Break the Trance, wrote in the New York Post that “I have found it easier to treat heroin and crystal meth addicts than lost-in-the-matrix video gamers or Facebook-dependent social media addicts.” A paper on “Online Social Networking and Addiction” found that increased use of social media reduces other things, such as “real life social community participation and academic achievement,” as well as harming relationships – all signs of possible addiction. An experiment in Italy and France found that when graduate students went without their smartphones for one day they experienced anxiety not dissimilar to that which addicts feel during withdrawal. A study of screen-addicted teens, presented at a Radiological Society of North America conference, found that the reward circuits of some of their brains had some chemical differences that disappeared after cognitive behaviour therapy (CBT). Addiction also responds to CBT. One of the developers of Twitter admits some features were designed to be “addictive.” Consequences of Screen Addiction Based on the number of people who spend time staring at their smartphones in social situations, public and private, who post photos of their plated food on Facebook, who announce every passing thought on Twitter, and who have accidents because they were instant messaging someone instead of paying attention to the road, screen addiction, particularly to social media, does not seem like much of a stretch. According to data cited by Bloomberg, last year the average American spent 135 minutes on social media daily, up from 90 minutes in 2012, and that 26 percent are online “almost constantly.” Some of that time seems to be while driving. In 2015 the National Safety Council (NSC) reported that 27 % of car crashes in the United States were due to cell phone use. (The numbers may be even worse. An earlier Bloomberg article revealed that not all police reports indicate when a smartphone was involved. a RAC Report on Motoring similarly found British police also think the numbers are under–reported.) Economics of Social Media Countering these risks are the benefits of pleasures of using social media. In Smarter than You Think, technology journalist Clive Thompson argues that having instant access to information and communication makes people more intelligent and better workers. For example, instead of driving to a library to get already hopelessly dated information from a book or periodical, you can find breaking news, facts, and statistics. According to some experts, one can and should design phones, apps and social media for addiction – slot machines were – but that will not deliver a loyal and satisfied customer or user relationship. Designing for loyalty makes for happier users and long-term success that also extends to advertising on the site. The rise of social media also has created social media stars, writers, and entrepreneurs. The new documentary The American Meme explores how one social media darling gets paid $50,000 for a single post on Instagram, or how another celeb received $1m for a single photo. Global social media advertising has increased from less than $18bn in 2014 to $41bn in 2017. Three quarters of that revenue was generated on Facebook and Twitter. The UK’s share is about $2bn. That explains why Facebook seems worried about the fallout from the Cambridge Analytica fiasco despite revenues of $12.7bn ($4.3bn profit) in the last quarter of 2017, and $12bn for the first quarter of 2018: that they might lose the users’ trust and see the #deleteFacebook movement become a serious threat. Is Facebook Addictive? Facebook also is worried about losing to the next big thing. In testimony before the US Congress, Mark Zuckerberg said he felt like he had competition. According to Pew Research statistics about social media use by adults, more use the Google video YouTube than Facebook, and that third-place Instagram (though still far behind) is gaining. (More Facebook users visit it at least once a day, however.) Frequent or excessive time on Facebook could be a sign of addiction but, according to the American Society of Addiction Medicine, the difference between having or not having an addiction is not only quantitative (how often or long) but also qualitative, such as continuing to pursue the activity despite increasingly negative consequences. A 2014 report on an experiment in Austria (though only of 101 people) found that the more time people spent on Facebook -which they regarded as wasting time – the worst they felt, even though they thought they would feel better. Other symptoms of addiction, according to the American Society of Addiction Medicine, include an inability to abstain consistently, an intense desire to repeat the activity or behaviour, and a failure to realise how the behaviour is causing them problems with interpersonal relationships. In the end, whether Facebook, Twitter or other social apps are actually addictive does not matter. There is more than enough evidence that they can become bad habits or hazardous to health to one degree or another. The question is what one can or should do about it. Technology is not destiny. Not every Facebook user is a problem user. If it turns out to be a problem, one should try walking away. If they cannot, whether it os an according-to-Hoyle addiction or not, they need help. CLICK TO COMMENT CONTINUE READING MORE ON FACEBOOK TECHIs Managing Identity on the Blockchain the Next Revolution? Facebook Regulation COMPANIESSenator, We Sell Ads… China AI GLOBAL AFFAIRSAI and China: Leading the Charge CRYPTOCURRENCIESLaw and Order: Regulating Cryptocurrencies 5 min read / May 4, 2018 By Alena Kalionova The crypto evangelists who stand at the very roots of the blockchain technology, associate it with freedom: freedom from banks, the state, intermediaries — from everyone. The legendary Satoshi Nakamoto, who created bitcoin in 2008, wrote: “Yes, [we will not find a solution to political problems in cryptography,] but we can win a major battle in the arms race and gain a new territory of freedom for several years.” Now, almost 10 years later, the world witnesses a radically different situation: cryptocurrencies are surrounded by state financial and banking institutions trying to impose strict regulations. David vs. Goliath A lot has changed since 2008. Following bitcoin, other coins appeared. Cryptocurrencies are no longer just a hobby of some hackers who used to mine them at home. The digital, cyber future has become a reality today. As of March 2018, the total market capitalization of cryptocurrencies exceeded $300bn (back in the day it surpassed the $400bn mark). Every day dozens of projects mushroom on the market, attracting money through the ICO mechanism and issuing their own coins. According to Coinspeaker 382 token sales were successfully completed in 2017, in total collecting more than $3.7bn. In January 2018, 82 startups launched ICOs. Today payments in cryptocurrency are supported by many influential companies and industry giants, including Microsoft, Expedia and KFC Canada. No doubt that the skyrocketing of digital money and its ubiquitous expansion could not slip under the radar of governments. Banks and financial regulators saw that bitcoin and other cryptocurrencies would not disappear, either now or in a couple of years. The traditional banking sector sees a clear threat from the digital currencies. These coins and the blockchain technology going to disrupt the conventional patterns with their anonymity and decentralization. Evidently, central banks are aware of the enormous potential that the distributed technologies have and thus are actively engaged in studies and implementation. But while they are spending money and time to achieve milestones, nothing prevents them from regulating the use of cryptocurrency. Wild Wild West The main issue governments have with cryptos is that there are too many blank spots in this field. Till now no one can give a straightforward definition of cryptocurrency: whether it is an asset, how should it be taxed and how to monitor and identify confidential transactions. Moreover, there is no clear interpretation of the ICO instrument. The cryptocurrency market resembles a chaos — and chaos carries a threat. It jeopardizes the order. The anonymity of transactions opens up almost endless opportunities for money laundering and fraud — and criminals have already been grasping them. Crypto exchanges also remain in a grey zone for regulators — especially in relation to speculation and cash-out operations that involve the conversion of cryptocurrency to fiat money. Also, governments have serious concerns about security and safety of depositors’ funds. So, after numerous cases of fraud, the authorities of South Korea tightened the requirements for exchanges, closing down some of them and promising more serious measures in the future. ICOs have been a headache for financial institutions for a long time. It is one of the fundraising methods used by a company, when issues its own tokens (digital assets) and sells them to the community in exchange for other, more established cryptocurrencies. Quite often projects promise investors not only the product’s continuing development but also a highly speculative possible income. However, in reality, some companies that have collected funds turn out to be scammers not in a hurry to fulfil their obligations. What is more, they can even run away with the money right after the ICO ends. How can the state protect the aggrieved investors? They can warn, or even better, prohibit. For example, in Singapore and Switzerland, central banks issued guidelines for conducting an ICO and described cases when tokens are to be defined as securities and thus must fall within the scope of the law. The Chinese government went much further and completely forbade anyone from holding token sales or participating in them. A Caged Lion The United States Securities and Exchange Commission (SEC) has already become a nightmare for all companies that have launched or plan to launch an ICO. The regulator’s attitude is tough. As SEC chairman Jay Clayton declared during a US Senate hearing, “every ICO I’ve seen is a security”, and therefore it must fall under the law. According to the Securities Act of 1933, a defrauded investor who bought unregistered securities can sue the company to recover their investments. The most notorious case is the trial of Tezos, a company that collected an astronomical sum of $230m. A group of investors filed a class-action lawsuit against the startup in the Supreme Court of San Francisco, accusing the troublesome Tezos of fraud and trade of unregistered securities, i.e. tokens. In early March it was revealed that the SEC had sent subpoenas to the companies involved in ICOs, their lawyers, and advisors. Likely, new trials are to come. According to former SEC commissioner Dan Gallagher, “This was the tip of the iceberg and that there would be a ton of enforcement activity.” An End or a Beginning? People vary in opinion as to whether the crypto world should be regulated or not. Some crypto evangelists shudder arguing that control contradicts the philosophy of digital currencies and their main value — freedom. Meanwhile, the others say that regulation is a sign that cryptocurrencies, albeit unofficially, have already been accepted by the authorities as an integral part of the new cyber reality. They believe that laws will not kill bitcoin and ICOs, but on the contrary, will help them to progress. CLICK TO COMMENT CONTINUE READING MORE ON CRYPTOCURRENCIES CRYPTOCURRENCIESIs EOS Really the Ethereum-Killer? CRYPTOCURRENCIESTim Draper and Alex Ohanian Weigh in on Bitcoin and Ethereum CRYPTOCURRENCIESThe Rise of Non-Fungible Token Assets: The Case of CryptoKitties GLOBAL AFFAIRSIs the US Exporting a Recession? 9 min read / May 4, 2018 By Colin Lloyd After last week’s ECB meeting, Mario Draghi gave the usual press conference. He confirmed the continuance of stimulus and mentioned the moderation in the rate of growth and below-target inflation. He also referred to the steady expansion in money supply. When it came to the Q&A he revealed rather more: “It’s quite clear that since our last meeting, broadly all countries experienced, to different extents of course, some moderation in growth or some loss of momentum. When we look at the indicators that showed significant, sharp declines, we see that, first of all, the fact that all countries reported means that this loss of momentum is pretty broad across countries.” “It’s also broad across sectors because when we look at the indicators, it’s both hard and soft survey-based indicators. Sharp declines were experienced by PMI, almost all sectors, in retail, sales, manufacturing, services, in construction. Then we had declines in industrial production, in capital goods production. The PMI in exports orders also declined. Also we had declines in national business and confidence indicators.” This passage out is quoted out of context because the entire answer was more nuanced. It is meant to highlight the difference between the situation in the EU and the US. In Europe, money supply (M3) is growing at 4.3% yet inflation (HICP) is a mere 1.3%. Meanwhile, in the US, inflation (CPI) is running at 2.4% and money supply (M2) is hovering a fraction above 2%. Here is a chart of Eurozone M3 since 1999: Source: Eurostat The recent weakening of momentum is a concern, but the absolute level is consistent with a continued expansion. Looked at over a rather longer time horizon, here is a chart of US M2 since 1900: Source: Hoisington Asset Management, Federal Reserve The letters A, B, C, D denote the only occasions, during the last 118 years, when a decline in the expansion (or, during the 1930’s, contraction) of M2 did not lead to a recession. 17 out of 21 is a quite compelling record. Another concern for markets is the flatness of the US yield curve. Here is the 2yr – 10yr yield differential since 1990: Source: Factset, Mauldin Economics More importantly, for international borrowers, the 6-month LIBOR rate has risen by more than 60 basis points since the start of the year (from 1.8% to 2.5%) whilst 30yr Swap rates have increased by only 40 basis points (2.6% to 3%). The 10yr – 30yr Swap curve is now practically flat. Also worthy of comment, as US Treasury yields have risen, the relationship between Bonds and Swaps has begun to normalise – 30yr T-Bond yields are only 40 basis points above their level of January and roughly at the same level as in the spring of last year. In April 2017 I wrote in Macro Letter – No 74 – US 30yr Swaps have yielded less than Treasuries since 2008 – does it matter?: Today the IRS market increasingly determines the cost of finance, during the next crisis IRS yields may rise or fall by substantially more than the same maturity of US T-bond, but that is because they are the most liquid instruments and are only indirectly supported by the Central Bank. But here is the Bond vs Swap table revisited: Source: Investing.com, Interestrateswaps.com, BBA What is evident is that the Bond/Swap inversion in the longer maturities has closed substantially even as shorter maturity spreads have narrowed. Federal Reserve policy has been the dominant factor. Why is it, however, that the effect of higher US rates is, seemingly, felt more poignantly in Europe than the US? Does this bring us back to protectionism? Perhaps, but in less contentious terms, the US has run a capital account surplus for many years. Outside the US investment is closely tied to LIBOR financing costs, these have remained higher, except in the longest maturities, and these rates have risen most precipitously this year. Looked at another way, the higher interest rate policies of the Federal Reserve, despite the continued largesse of other central banks, is exporting the next recession to the rest of the world. An article back in April 2017 said: “Meanwhile, although interest rates have risen from historic lows they remain far below their long run average. Pension funds and other long-term investors still require 7% or more in annualised returns in order to meet their liabilities. They are being forced to continuously increase their investment risk and many have chosen to use the swap market. The next crisis is likely to see an even more pronounced unravelling than in 2008/2009. The unravelling may not happen for some while but the stresses are likely to be focused on the IRS market.” One year on, cracks in the capital markets edifice are beginning to become more evident. GDP growth has started to roll over in the US, Eurozone and Japan. Yields are still relatively low but the absolute increase in rates for shorter maturities (e.g. the near doubling of US 2yr yields from 1.25% to 2.5% in a single year) is guaranteed to take its toll on corporate interest servicing costs. US capital markets are the envy of the world. They are deep and allow borrowers to finance far into the future. The rest of the world is forced to borrow at shorter tenors. A three basis point narrowing of 5yr spreads between Swaps and Bonds is hardly compensation for the near 1% increase in interest rates, or, put in starker terms, a 46% increase in absolute borrowing costs. Conclusion How is the rise in borrowing costs impacting the US stock market? Volatility is back, but earnings are robust. Factset – S&P 500 Earnings Season Update: April 27, 2018 – described it thus: To date, 53% of the companies in the S&P 500 have reported actual results for Q1 2018. In terms of earnings, more companies are reporting actual EPS above estimates (79%) compared to the five-year average. If 79% is the final percentage for the quarter, it will mark the highest percentage of S&P 500 companies reporting actual EPS above estimates since FactSet began tracking this metric in Q3 2008. In aggregate, companies are reporting earnings that are 9.1% above the estimates, which is also above the five-year average. In terms of sales, more companies (74%) are reporting actual sales above estimates compared to the five-year average. In aggregate, companies are reporting sales that are 1.7% above estimates, which is also above the five-year average. If 1.7% is the final percentage for the quarter, it will mark the largest revenue surprise percentage since FactSet began tracking this metric in Q3 2008. The blended (combines actual results for companies that have reported and estimated results for companies that have yet to report), year-over-year earnings growth rate for the first quarter is 23.2% today, which is higher than the earnings growth rate of 18.5% last week. Positive earnings surprises reported by companies in multiple sectors (led by the Information Technology sector) were responsible for the increase in the earnings growth rate for the index during the past week. All 11 sectors are reporting year-over-year earnings growth. Nine sectors are reporting double-digit earnings growth, led by the Energy, Materials, Information Technology, and Financials sectors. One is now more than halfway through Q1 earnings. Results have generally been above forecast and now the Fed seems conscious that they must not be too hasty to reverse the effects of both zero rates and QE. Added to which, while US stocks have been languishing mid-range, European stocks have recently broken out of their recent ranges to the upside, despite discouraging economic data. The US stock market looks less expensive than it did in January 2017, when one wrote this article. Then, one was looking for stock markets with a low correlation to the US: they were (and remain) hard to find. Other indicators to watch which exert a strong influence on stocks include the US PMI Index – last at 54.8 up from 54.2 in March. Above 50 there is little cause for concern. For the Eurozone it is even higher at 55.2, whilst throughout G20 no economy is recording a PMI below 50. The chart below shows the Citigroup Economic Surprises Index (blue) vs the S&P500 Forward P/E estimates (red): Source: Yardeni Research, S&P, Thompson Reuters, Citigroup Economic surprises remain positive rather than negative for the US. In the Eurozone it is quite another matter: Source: Bloomberg, Citigroup A number of economic indicators are pointing to a slowdown, yet US stocks are beating estimates. To judge from price action, the market appears to be unimpressed by earnings. One is reminded of the old adage, ‘When all the buyers are in the market it’s time to sell.’ From a technical perspective it makes sense to be patient, but the market has failed to rise substantially on a positive slew of earnings news. This may be because there is a more important factor driving sentiment: the direction of US rates. It certainly appears to have engendered a revival of the US$. It rallied last month, having been in a downtrend since January 2017 despite a steadily tightening Federal Reserve. For EUR/USD the move from 1.10 to 1.25 appears to have taken its toll. On the basis of the CESI chart above, if Wall Street sneezes, the Eurozone might catch pneumonia. CLICK TO COMMENT CONTINUE READING MUST READS sme blockchain COMPANIES57 mins agoSmall Businesses Need to Get Serious About Blockchain armenia demonstrations ASIA2 hours agoArmenia Fights Against Dictatorship As the World Becomes Less Free india real estate market ASIA3 hours agoIndia’s Coming Real Estate Surge Elon Musk media BLOG4 hours agoAre We Treating Elon Musk Fairly? COMPANIESMachine Learning Will Change the Future of Finance 4 min read / May 4, 2018 By Adam Peace If one has ever accidentally wasted an hour of their time scrolling through the news feed on Facebook, chances are they have just experienced the power of machine learning. Whether it be facial recognition algorithms used on new smartphones or fraud prevention algorithms used by major credit card companies, machine learning is a technology of the future that has the ability to reshape the financial world forever. Figure 1 Modern machine learning algorithms use a supervised learning model (Figure 1). This model feeds training data, split into its input data and the known outcomes of those data, into the machine learning algorithm, creating a series of triggers and outputs called a neural network. The result is then manually paired with a label. Once the algorithm is trained with an adequate amount of data, it is used to take new data with an unknown outcome and predict what the outcome will be. Whilst extremely effective for picking out a face in a picture or figuring out which song is playing in the background, neural networks have yet to master more complex financial tasks such as predicting a fluctuation in the stock market. Forecasting the Network The vision of research into stock market forecasting is that machine learning algorithms will reach a stage where they can make judgements on stock value direction and magnitude with a success rate that significantly exceeds their running costs. This might seem like an unattainable and unachievable goal, however, with the prospect of a large financial reward, huge amounts of money are being poured into research for this by many financial services companies such as JP Morgan and Morgan Stanley. Obviously, it’s not that easy to just start up an algorithm and become rich within days. In an extensive investigation, André Anderson, from the Norwegian University of Science and Technology, comes to the conclusion that currently : “No trading system was able to outperform the [average trader] when using transaction costs.” Dr Yoshua Bengio, Head of the Montreal Institute for Machine Learning Algorithms said: “Market inefficiencies tend to be localized in time and ‘space’ (particular markets, with a limited potential volume of profits). So it may well be that some firms have used and are using machine learning but it’s not like [hitting the jackpot], rather like patiently pulling profits here and there, each time with a different specifically tuned model.” Dr Bengio goes on to say that companies at the moment are using significant amounts of human judgment to assess which trades to make. Unfortunately, this is the underlying theme with current stock prediction applications using machine learning; the algorithms just are not good enough to exceed the performance of an average speculative trader. Speculating About the Future Past systems have used data from news articles to assess specific companies’ success but fail to take into account the virtually random speculative investment playing an important role in driving stock values. Speculative investment is the process of buying and selling stocks on a short-term basis with little to no evidence for an increase in value over that period. Although counter-intuitive this process, when performed by a significant amount of people, can seriously affect a stock valuation. This is why it is integral to incorporate some sort of detection of popular opinion on companies being traded to even begin to accurately predict their future values. New, cutting-edge research performed by the Indian Institute of Technology uses sentiment analysis, a process of analysing language in sentences to assess opinion on specific matters. Complex sentiment analysis engines must be able to determine that “that horror movie we watched was so scary” is a positive subjective comment, for example, something that is easy for humans but much more difficult for computers due to the use of contextual language (‘scary’ being positive in this case). This research uses sentiment analysis on Twitter to assess public opinion of particular companies which can later be fed into the machine learning algorithm. This technique is being employed by many research departments including at Stanford, Cornell and many more. This, in conjunction with computers’ ability to trawl through billions of words with ease, will enable machine learning algorithms to detect a much much larger spectrum of information ranging from hints of speculative trading on social networks to discussions on trading forums in a way that humans could never do before. If successful, this research will mark a new era for the world of finance. 3 COMMENTS CONTINUE READING MORE ON MACHINE LEARNING humanities GLOBAL AFFAIRSHumanities and the Rise of Robots Machine Learning FINTECHBig Data, AI and Machine Learning: Could New Technology Reduce Society’s Capacity to Make Objective Choices? Quantum Computing COMPANIESTech Megatrend: How Quantum Computing Is Triggering the Next Industrial Revolution AMERICADo Americans Really Hate Taxation? 13 min read / May 4, 2018 By Karine Schomer It comes around year after year on April 15, or a day or so later. It’s Tax Day! When all good Americans run up exhausted to their post office at midnight, or crowd the internet, in order to meet the deadline for filing their tax returns and making their tax payments. It follows several months of procrastinating, complaining, scheming, drudging and general grumpiness. During this time, individuals and businesses seem united in their distaste for the whole annoyance of filing tax returns. And for the requirement that they part with some of their gains of the previous year in order to support the operations of their national and state government. For most people and most businesses, complying with taxation and the hassle of filing is a matter of mild grousing, sighing, paying up what you owe, and moving on. For the unscrupulous and the greedy, it’s a matter of exploiting every possible loophole for avoidance, often skirting or going beyond the boundaries of legality. But there’s also a sizable constituency, fanned by conservative media, politicians and interest groups, for whom all but the most minimal taxation is a matter of outrage and grievance. Hearing this chorus of venom, you could easily get the impression that the country is groaning under an unbearable burden of taxation, that is stifling all our initiative, and preventing the individual’s pursuit of happiness. And that the Internal Revenue Service is an agent of tyranny engaged in a vast conspiracy against the American people. This is patent nonsense. The question is: where does all the anti-taxation hot air come from? A little digging is necessary to understand the context of things and to unearth the sources of the pathological opposition to taxes seen in present-day America. From ‘No Taxation Without Representation’ to ‘No Taxation’ The American Revolution was sparked by the Boston Tea Party and several prior years of protracted conflict over taxation of the colonies by the British Parliament. The chief complaint of the colonists was that they were being burdened with excessive taxation without having any say in the matter. It turns out the story is somewhat more complicated than the contemporary Tea Party folks and their anti-taxation ilk make it out to be. One of the reasons the British Parliament started imposing these taxes on the American colonies was to help pay for hefty expenses incurred by the British in support of the colonies! Most significantly, the French and Indian Wars, fought to determine whether the French or the British would control the land west of the Appalachian Mountains, and hence the ability of the colonists to settle the rest of the continent. In this story a version of the thinking about taxation is seen that has so many of US citizens today in its grip: “I hate taxation because it takes away some of the wealth I’ve created through my individual effort.” While we may identify somewhat with the sentiment, the missing piece in this thinking is: “What public good, in which I benefit too, do the tax revenues pay for?” And the reasonable complaint of the colonists, that there should be ‘no taxation without representation’ becomes transmuted into a dogmatic belief that taxes themselves are evil and that cutting taxes is the solution to all the complex issues of governing a state and a nation. The Price We Pay For Civilization No doubt most people have heard the famous statement made by Supreme Court Associate Justice Oliver Wendell Holmes, Jr. in a 1927 dissent on a case involving taxation: “Taxes are what we pay for a civilized society.” These words are now inscribed above the entrance of the IRS building in Washington. This was not a unique or original idea, or even an original phrasing of the idea. Despite the fervour about taxes perceived as unjust at the start of history of the US, the dominant thinking about taxation for a long time was in general harmony with that principle. Taxes are needed to create and maintain the institutions and infrastructure that make collective life possible. Without them, it is the jungle. And so, in the service of civilization, as the US grew and became more complex, more came to be required of government. And different forms of taxation were experimented with, argued about, imposed, resisted, removed, re-imposed, increased, decreased, changed. Some taxes were levied at the federal level, some at the local and state levels. Over time, there have come to be tariffs on imports, excise taxes on certain ‘sin’ products such as alcohol and tobacco, estate taxes, gift taxes, property taxes, taxes on income, social insurance taxes (like medicare and social security), licenses, permits, and, last but not least, sales taxes. Parallel to the evolution of the taxation system, of course, the fine art of avoiding and evading taxes also evolved, with ever greater sophistication, on the part of those who, while not disputing the government’s right to tax, wanted to make sure that the taxation did not impact their income and wealth. Jump forward from the Boston Tea Party to 1937. President Franklin D. Roosevelt is in the midst of dealing with the costly collective undertaking of pulling the nation out of the Great Depression. The methods by which people seek to evade their share of the tax burden has become ever more ingenious. In a letter to Congress outlining the urgent need for legislation, Roosevelt writes, with justified exasperation: “Mr Justice Holmes said ‘taxes are what we pay for a civilized society’. Too many individuals, however, want the civilization at a discount’.” That’s as apt a description of the anti-tax attitude that one may ever encounter. It’s All About How Progressive The Taxes Are The real boogeyman of today’s anti-tax right wing crowd is, of course, the federal income tax. In 1913, the 16th amendment was passed by Congress, affirming the federal government’s right to levy a tax on all Americans, directly, without any mechanism of apportioning the tax burden differently to states. It also instituted the principle of a progressive, or graduated, income tax, based on differences in income level. This amendment, passed during the Progressive Era, signified a major change in thinking about the proper role of government. Besides ensuring a steady source of income for the federal government, the amendment also had the goal of addressing the ever-widening extremes of wealth created by the industrial revolution, and of enabling the federal government to fund beneficial programs to address social and economic ills plaguing the nation. Was it about ‘redistribution’? Of course it was! And that is where the heart of the matter lies. For conservatives, ‘redistribution’ is an affront to a deeply held belief that those who have wealth are deserving of it, and should be able to hold onto it. Attached to this view is the magical belief that those with more wealth will automatically invest it in economic activities that will create jobs and ‘trickle-down’ benefits for others — the ‘rising tide’ that is supposed to ‘lift all boats’ but effectively lifts all yachts and sinks all dinghies. For liberals, ‘redistribution’ is a commonsense approach to making the entire society more successful — through burden-sharing of government costs that asks more of those who have more, and national-level infrastructure and programmatic initiatives on a sufficient scale to make a real difference in the lives of millions. This argument about taxation, particularly if it is progressive taxation (favouring those with less ability to pay) rather than regressive (like sales tax, which falls equally on all), continues to this day. It seems unbelievable, over a century since the passage of the 16th amendment, but there continue to be elements in the Republican party who seriously advocate repealing it and shutting down the IRS. In 2012, one of the planks on the Republican platform was the repeal of the federal income tax. And as recently as spring 2016, the Republican Study Committee in the House of Representatives called for the complete elimination of the IRS! The difference between the so-called ‘tax and spend’ Democrats and the ‘tax cuts for the rich’ and ‘spend without taxing’ Republicans boils down to a fundamental moral difference. A difference relating to the question ‘Am I my brother’s keeper?’ and the principle ‘From everyone to whom much is given, much will be required’. Deplorables and Disingenuous Intellectuals Some more poking around is necessary in the search for answers about the present-day anti-tax hysteria is needed. In an eye-opening background report by the Anti Defamation League, it becomes clear this hysteria grew out of an extreme right-wing tax protest movement of the 1950s that believed the principle of a progressive or graduated income tax was a plank in Karl Marx’s Communist Manifesto. There were repeated attempts to pass through Congress a ‘Liberty Amendment’ that would have abolished income, estate and gift taxes. When this failed, the tax protestors (often calling themselves ‘tax patriots’) focused on propaganda campaigns designed to convince Americans that the tax laws, particularly the federal tax laws, were invalid, or did not apply to them. A vast number of frivolous pseudo-legal and pseudo-historical conspiracy mongering theories were created. As the movement became more radical in the 1970s, it morphed into the belief that it is not only taxes that are illegal, but the entire government. Starting in California and Oregon, the so-called ‘sovereign citizen’ movement urged followers to use vigilante methods to protect the citizenry from what it perceived to be an unlawful and tyrannical government and to engage in fraud and scams to avoid paying taxes. According to the ADL report, this movement became a major point of entry into all sorts of other right-wing movements, from white supremacy to neo-nazism to the alt-right. So what is seen today as one of the sources for anti-tax energy is in the murky world of the alienated conspiracy theorists and nativists of the land — the ‘deplorables’ who have received unprecedented encouragement and legitimacy in this Age of Trump. The other, more rarified, source of anti-tax energy is at the other end of the social spectrum. The powerful politicians beholden to corporations and wealthy donors, for whom progressive taxation is anathema are pushing it too. The well-funded conservative think tanks, media, intellectuals and pundits, who seem bent on convincing the general public that what is good tax policy for the corporations and the wealthy is good tax policy for all. The chorus of these voices is highly influential, and their disingenuous message is relentless in reducing complex issues of government, tax policy, economics and social progress to a simple prescription: weaken and starve the government by cutting taxes, give free rein to unregulated private enterprise, let people keep their money rather than pay taxes, and all will turn out much better for everyone. It is an ideology, and like all ideologies, it is impermeable to logic and facts. For example, the fact that, while the statutory corporate tax rate in the US is indeed the highest among industrialized nations, the effective rate, after deductions and credits, is actually much closer to the average. Or the fact that personal income tax levels in the US, when compared with tax levels in other developed economies, are actually on the low end of the range. So it is not surprising that many Americans have become susceptible to the idea that there is something wrong about government itself, that our taxes are astronomical, that the IRS is diabolical, and that they will be personally better off if less tax revenue flows to the government. It is the idea that was crassly expressed by then-candidate Donald Trump in the September 2016 debate with Hillary Clinton, when she chided him about not paying taxes, and he boasted: “That makes me smart! I’m a better steward for my money than the government. It would be squandered too.” Surprise — What Most Americans Really Believe About Taxes Amazingly, the hype about how much America is in an uproar today about high taxes, and how many Americans resent having to pay them, has been highly overstated. Despite the tax-minimizing drumroll of intellectual conservatism, the ‘sovereign citizen’ antics of anti-government tax protesters, the high-level example of the nation’s President boasting about his own tax evasion — despite all of this, it seems that the vast majority of Americans may grumble, but do understand the principle that taxes are the price we pay for civilization. A recent book about this topic is the felicitously titled Read My Lips: Why Americans Are Proud To Pay Taxes, by Vanessa W. Williamson, a Fellow in Governance at the Brookings Institution. In this surprising 2017 study, based on national survey data and in-depth individual interviews, she upturns the conventional wisdom about Americans and taxes. Contrary to what has become commonly accepted — that the majority of Americans are knee-jerk opponents of taxes — Williamson shows that the picture of tax attitudes in the United States are far more nuanced and complex. What she uncovered is that Americans largely play by the rules, and dutifully pay the taxes they owe. They believe in the value of government in general, and of the institutions, infrastructure, initiatives, programs, benefits and services that taxes enable the government to provide. They may disagree, often passionately, and along party lines, about where tax money should go or not go. But they are not as naive as to think that there is something inherently wrong with taxation, or with the principle that taxes should be in some way graduated or progressive. But they tend to believe that other people may be cheating, or not paying their fair share. Wealthy people and corporations at one end of the spectrum, immigrants and the working poor at the other end. With high-visibility examples of the wealthy flouting their tax obligations, up to and including the current President, and corporations shielding their profits in offshore tax havens, the first form of scepticism is not surprising — nor unjustified. With the misinformation of right-wing propaganda about immigrants and the supposedly unproductive ‘47%’ of the people exempt from income tax liability because of their low-income level, the second form of scepticism is not surprising either — though quite unjustified. So there is some ambivalence. But by-and-large, says Williamson, belief in paying taxes as an ethical act and civic responsibility is far more common than the current folklore about tax-resenting Americans seething in a spirit of revolt against the evil IRS would predict. It turns out that most Americans view tax paying the way many people around the world view it. Paying part of the collective price for a civilized society is a moral obligation and an act of citizenship — something to be proud of rather than resentful about. Filing annual federal and state income taxes is cumbersome and frustrating. Parting with some of your income is not always easy on your budget. Admittedly, some American taxpayers may not always get every last penny of income reported correctly each time. Some may sometimes err on the side of overstating a part of their deductions. But on the whole, Americans do their taxes conscientiously, they pay willingly, try not to cheat, and feel that what they pay is their contribution to the common good. 2 COMMENTS CONTINUE READING MUST READS sme blockchain COMPANIES58 mins agoSmall Businesses Need to Get Serious About Blockchain armenia demonstrations ASIA2 hours agoArmenia Fights Against Dictatorship As the World Becomes Less Free india real estate market ASIA3 hours agoIndia’s Coming Real Estate Surge Elon Musk media BLOG4 hours agoAre We Treating Elon Musk Fairly? xiaomi ipo CHINAXiaomi’s $10bn Hong Kong IPO and Its Significance 3 min read / May 3, 2018 By Dev Mahtani Chinese smartphone and electronic device maker Xiaomi has filed for an IPO in Hong Kong valued at $10bn, making it one of the biggest listings in years and a decision which will carry Hong Kong’s financial markets into the limelight, and for good reason. This was the second biggest Chinese tech IPO since Alibaba’s 2014 listing on the NYSE at over $20bn and there was a reason as to why Alibaba did not decide to list in Hong Kong. Xiaomi’s listing has occurred at a pivotal moment in time for Hong Kong’s market which recently adopted new listing rules. These new rules open up the HKEX, opening doors for companies and sectors which were once shunned. The Catalyst of Change A large factor which prompted these new regulations was Alibaba’s loss of patience with HKEX, resulting in the biggest IPO in history being lost to the NYSE. The lack of regulatory accommodation for the weighed voting right (WVR) structure of Alibaba, giving the minority stockholders control over the majority of the board of directors, was one reason it stayed away from Hong Kong. This, along with other pull factors from the NYSE, such as US dollar-denominated listing and global scope, was a wake-up call for the HKEX to revamp its framework and make up for potential future losses. HKEX’s Evolution Following a consultation paper in December 2017, new listing regulations were proposed to incubate growth in emerging sectors and increase the global competitiveness of the HKEX by decreasing selected entry barriers. There were three significant changes: To allow companies with WVR structures to list in Hong Kong To allow Mainland Chinese companies who wished to list secondarily in Hong Kong to now list. Pre-profit companies and companies who do not meet standard financial eligibility benchmarks in certain sectors to list. Furthermore, a plan of market segmentation was proposed, to divide the market into two boards: New Board Pro – Target at earlier stage companies with great potential but do not meet minimum standards of listing. New Board Premium – Targeted at mature companies which meet standard financial requirements, but are unable to list due to non-standard governance structures such as WVR. How Adaptation leads to Success These changes aim to expand the scope of potential companies in Hong Kong’s markets. The initiative of adaptation will allow Hong Kong to thrive as seen by Xiaomi’s recent listing. The HKEX’s Cheif Executive, Charles Li stated: “In the past few months, we have collectively decided to take a big step forward as a financial centre and welcome emerging and innovative companies. Now, we are proposing a listing regime that will boost Hong Kong’s attractiveness for a new generation of companies as well as investors, bringing more dynamism to our stock market.” The concept of creating segmented listing boards allows for a broader spectrum of companies to list while allowing shareholder standards to be protected. Hong Kong has always had a successful stock market, with a market cap of over $3.3tn and ranked 3rd in Global markets for IPO in Q1 of 2018. Hong Kong’s success stems from an extremely solid legal system, transparent taxation and established network especially with mainland Chinese companies. And with these new rules put into place, Hong Kong’s future looks promising as it adapts to the market and Xiaomi’s listing is a testament to HKEX’s future success. CLICK TO COMMENT CONTINUE READING MORE ON XIAOMI xiaomi west CHINAXiaomi: Journey to the West asian tech companies AMERICASEast v West: Asian Tech Companies Seize on Western Distraction china smartphone sales CHINASmartphone Sales in China Are Falling globalisation UNCATEGORISEDGlobalisation Is Changing in the 21st Century 5 min read / May 3, 2018 By Soham Shaligram Globalisation was never a straight path as might have thought. A change in the past trend has taken place over the past two to three years. The new global economy has evolved into one with no borders and propelled by technological advances. Globalisation is not at an end, it is just changing. Standardisation The invention of the standardised, or intermodal, shipping container in the 60s sparked the drive toward globalisation. Intermodal containers allowed cargo to be transferred from ships to trucks to trains seamlessly. This reduced the cost of transporting goods internationally drastically. Containers did far more for promoting global trade than any other single factor. Containerisation led to the globalisation of goods. Similarly, investments in fibre-optic cables sparked the globalisation of the service industry. The speed, resilience, and, most importantly, the reliability of internet connections have changed how businesses operate by allowing them to work with staff remotely. Companies have benefited immensely by gaining access to a geographically distributed workforce. This has allowed countries, like India, to export software services, leading to the globalisation of services. Future Innovations Will Drive Globalisation Technology is continuously reshaping modern life, and this continuous change is accelerating us to yet another inflexion point. Technology has long been one of the fundamental drivers of globalisation, but in coming years its role will become even more important. The world is becoming borderless. It is now one where capital and goods move swiftly and freely between international citizens and organisations. Three transformational innovations will have a profound impact on how businesses will operate in the future. These three innovative forces are powerful enablers of globalisation and have the potential to change the competitive landscape at an unprecedented pace. 3D Printing Many corporations took advantage of the global supply chain by offshoring production to low-cost manufacturing countries. 3D printing is disrupting and streamlining this decades-old trend. The technology brings with it two major leaps benefits: The digitisation of goods will enable production and trade of large volumes at a minimal cost. Helping make products easier to modify. This will make it possible to have each product developed with unique specifications without retooling costs. Raw materials will still need to be transported, but the design of parts and components will be digitised. The designed product will then be 3D printed and assembled into a final product in-house. This could eliminate the off-shoring of factories. This would impact the labour markets in low-cost countries. However, at the same time, it would create vast opportunities for small-scale businesses, which are the bedrock of employment in many economies. 3D printers could also reduce start-up costs usually required in the production of goods. McKinsey Global Institute estimated that 3D printing could generate $550bn in economic gains per year by 2025. Hyperloop Advances in transportation technology reshape lives, communities, and how and where people live and work. When Elon Musk first described his vision of a futuristic transportation system that could send passenger or cargo through tubes at high-speed in 2013, it seemed far-fetched at that time. The Hyperloop system has come a long way over since then and has been developed rapidly with inventors and investors backing this project. Hyperloop can revolutionise modern-day transportation systems by carrying a large number of people and goods over long distances in an efficient and quick manner. This would be beneficial for businesses which manufacture goods at a location away from their main markets and also for manufacturers trying to expand in newer locations as the transportation costs would plummet. This technology has the potential to disrupt the present day supply chain models and be environmentally efficient at the same time. Blockchain Technology The invention of Bitcoin presented the most interesting opportunities not in the coin itself, but rather in the underlying blockchain technology. The use of blockchain, as a secured, decentralized and encrypted public ledger, could be groundbreaking. It can change the way trade is currently done and revolutionise the shipping and finance industries. It can enhance transparency, speed, trust and, most importantly, reduce costs along the way. Supply chains today have become so complex that there is a significant lack of transparency. Consumers do not know the true value of the products they are purchasing, and it is very difficult to investigate supply chains due to the logistical complexities involved. The blockchain is essentially a distributed ledger, on which every transaction is recorded across multiple copies of the ledger which are distributed over many computers, enhancing transparency. The technology is secured since every block links to the one before it and after it. It is efficient and scalable and can increase the efficiency and transparency of supply chains and positively impact everything from supplying to warehousing to delivery to payment. Bottom Line With these technological innovations acting as a catalyst for sustainable development, the world could be entering a new era which will bring economic and social benefits, increasing productivity and providing unprecedented access to information. With the rise in nationalist and protectionist feeling, the strategic challenge of the coming decade would be navigating a world that is simultaneously integrating and fragmenting. CLICK TO COMMENT CONTINUE READING MORE ON GLOBALISATION african development AFRICAThe African Free Trade Dividend africa free trade AFRICAAfrica Readies Itself for a Free Trade Economic Boom lawyer ceos COMPANIESWhy Aren’t There More Lawyer CEOs? India Economy UNCATEGORISEDIndian Collywobbles 8 min read / May 3, 2018 By Ryan Shea On the face of it, the Indian economy is in good shape – economic growth is rebounding, inflation rates are converging to the central bank’s target range and the stock market is edging back to the recent highs seen in late January before global equity markets succumbed to a bout of anxiety-driven profit-taking. However, as is often the case, looks can be deceiving. When one examines the recent evolution of crowd-sourced sentiments in India not everything is as rosy as the official data seem to indicate, something that may have a bearing both on the near-term performance of India asset prices but also on the upcoming general election. Last year’s demonetization programme, which saw more than 80% of currency abruptly withdrawn from circulation had a damaging effect on Indian economic growth. But that, as they say, is fish and chip wrapping (ie. old news, for those unfamiliar with the quaint – many would say unhygienic – tradition of using old newspapers to wrap up Britain’s world-renowned national dish). Over recent quarters the economy has bounced back, with Q1 real GDP growth coming in at 7.2% y/y driven by a combination of strengthening private consumption and rising investment. The expectation of the RBI is that India’s growth trajectory will remain robust over the coming year. Reviewing the recently published minutes from the April 4/5th MPC meeting it is clear that this growth profile, combined with the inflationary effects of higher energy prices and expansive fiscal policy, were the main reasons why the committee is signalling a more hawkish tilt. Lulled by the gradual downward drift in CPI inflation over recent months, and the RBI’s trimming of its official inflation projections just a fortnight prior, this emerging tightening bias certainly caught investors by surprise and contributed to the jump in 10-year government bond yields, which are now close to year-highs. (No doubt, the rise in yields reflects both upward revisions to short-term interest rate projections plus an increase in risk premia because of uncertainty about the RBI’s reaction function). When one takes a look at the evolution of public perceptions towards the inflation outlook in India one sees little evidence to justify the RBI’s concern about the transitory nature of the recent disinflationary trend – see exhibit below. The crowd-sourced inflation sentiment indicator, which last year anticipated the rebound in headline inflation (it peaked two months prior to the official CPI inflation data) remains firmly in negative territory, at levels consistent with inflation complying with the RBI’s target. Exhibit 1: Crowd-sourced Inflation Outlook Sentiment – India Source: Amareos It does not take too much effort to understand why the crowd has such subdued views on the inflation outlook in India. Country-level sentiment – our broadest measure of sentiment – has fallen very sharply over recent months from what was, in early November, extreme positivity to extreme negativity. In level terms, crowd sentiment is lower in Russia, hardly a surprise in light of recent geopolitical developments, but India is not far behind. Over the past several months it has witnessed the most pronounced fall in sentiment of all the 100 countries tracked – see exhibit below. Exhibit 2: Crowd-sourced Country Sentiment – India Source: Amareos Obviously, at the country level sentiment could be influenced by numerous factors, including non-economic (politics/geopolitics being two good examples). However, as a general rule, the two tend to go hand-in-hand. India is no exception. There has been a clear deterioration in economic growth sentiment over the same time period – see exhibit below. Exhibit 3: Crowd-sourced Economic Growth Sentiment – India Source: Amareos Admittedly, the crowd’s bearishness on India’s economic growth prospects are not as extreme as at the country level – and certainly not as negative as witnessed during “peak demonetization” – but its significance is that it does not accord with the tone of official data releases, nor with the expectations of the country’s central bankers. Neither does it not accord well with the crowd’s assessment on the country’s stock market. One could argue the Nifty 50 index does not provide a true representation of the Indian economy because like the other major equity benchmark it tends to be quite narrow as inclusion is based on liquidity rather than market cap coverage and India’s equity market tends to be fragmented (similar criticisms have been made about the Sensex, which has 30 constitute firms). However, as shown in the exhibit below, historically crowd sentiment towards India stocks (Nifty 50) and the economy tend to move in tandem. It was not until late 2016 that the two series significantly diverged. It is, therefore, hard to make the case that a structural reason – the unrepresentativeness of India’s equity benchmarks in relation to the economy – accounts for this divergence. Exhibit 4: Crowd-sourced Equity And Growth Sentiment – India Source: Amareos When one looks at the breakdown of Indian equity sentiment by media type, what is clear is the resilience of crowd sentiment towards stocks lies primarily with social media, which one considers to be more reflective of a retail investor mindset. By contrast, sentiment in mainstream media, which is more reflective of a professional investor mindset, is much less constructive. Exhibit 5: Crowd-sourced Equity Sentiment By Media Type – India Source: Amareos Given this, it is fair to conclude that the strength of Indian stocks lies mainly on the shoulders of retail investors. Unlike some commentators, who like to use “dumb” and “smart” labels as synonyms for retail and institutional investors respectively one has no particular qualms about an equity market being reliant upon retail investors. However, what does concern us at this juncture is that in terms of tone social media, which has been consistently positive towards Indian economic growth prospects, is quickly converging with less optimistic mainstream media. It is difficult to see how equity sentiment in social media can remain so upbeat when faced with such a gravitational pull from economic sentiment. Exhibit 6: Crowd-sourced Economic Growth Sentiment By Media Type – India Source: Amareos One possible explanation for the loss of economic positivity, is concern about the banking sector. In recent weeks, there has been an unusual increase in demand for bank notes in some states – notably Andhra Pradesh and Telangana – that some have attributed to fears over possible financial resolution legislation, an issue when the banking sector is estimated to have bad loans totalling USD 210bn. It could also reflect ongoing reaction to the banking scandal that erupted in February. While banking sector worries appear plausible explanations the recent bout of negativity, or in the case of social media less positivity, towards the Indian economy, one doubts it. Bearing in mind that confidence is the most critical asset of any bank, one would expect a serious cash crunch to show up in the sentiment indicators measuring public perceptions of financial instability and there are no warning signals at present. Moreover, the RBI, which attributes the cash shortages to logistical issues, has committed to print more bank notes to meet the increase in demand. Whatever the reason for the drop in crowd confidence towards India (one welcomes any thoughts from the readers), the magnitude of the fall certainly warrants close attention if for no other reason than it could also have a bearing on domestic politics. General elections are due to be held next spring. However, there is some speculation that Prime Minister Narendra Modi might call a snap election later this year. Looking at the evolution of government anger sentiment in India, there has been a clear deterioration in the public mood towards the incumbent– see exhibit below. Despite the rise though, it is not yet at levels seen at the time of the last general election in 2014 when voters firmly rejected Singh and his UPA government and Modi swept to power with one the BJP’s best ever results. Exhibit 7: Crowd-sourced Government Anger – India Source: Amareos Moreover, the BJP did not fare well in the recent Uttar Pradesh state election because opposition parties adopted a “Modi versus the rest” strategy. Given the hammering the Congress Party received in the 2014 election, a loose coalition of opposition parties opposed to Modi is probably the best chance to oust him as PM. If, as the sentiment indicators suggest, the Indian economy is starting to lose positive momentum, and given the souring of public mood towards the incumbent government, the BJP may well think they are better served “by going early”, especially if it also serves to thwart the possible formation of an anti-Modi opposition coalition. Perhaps, this is the reason why opposition Congress Party President Rahul Gandhi this week launched their party’s “Save the Constitution” campaign – a campaign focused on the alleged attacks on the Constitution and Dalits under Modi’s government. It is set to continue until April next year (just prior to the scheduled election date) and looks suspiciously like the unofficial start of election season. Amareos sentiment analytics incorporate Thomson Reuters MarketPsych indices. CLICK TO COMMENT CONTINUE READING MORE ON INDIA ASIAIndia’s Missed Opportunity Belt and Road Support ASIAChina Misses India’s Support for Belt and Road Initiative India Cryptocurrency Regulation ASIACryptocurrency in India: Beginning of the End? Bitcoin Forex CRYPTOCURRENCIESBitcoin vs Forex Trading: What’s the Difference? 5 min read / May 3, 2018 By David Webb Bitcoin investors will probably know the name of Satoshi Nakamoto, the God whose invented cryptocurrency is so famous and controversial that many look to make it a permanent part of their (online) wallets and rich ever-afters. Although the identity of this mysterious inventor is still unknown to the public, his invention lives and thrives, occasionally oscillates, and is being one of the main, if not the main topic of traders’ interest and investment. Along with Forex, of course. Bitcoin Essentials to Know Bitcoin has been around for almost a decade (first heard of in 2009), and unlike the conventional currencies, it does not have a central bank, regulatory authority or a nation state. Despite its coin-suggestive name, Bitcoin does not operate with actual coins but a sum of complex mathematical problems produced by computers solving assigned algorithms. Bitcoins are not spent in a regular way, either: there are specific types of transactions designed for this type of trading, exchanges such as San Francisco-based Coinbase. All transactions are recorded on the blockchain, a public ledger independent of any type of central authority. These (Bitcoin) digital keys do not exist in the physical world but are stored in a digital wallet, the starting “bucket” of all Bitcoin transactions. According to TechSpective.net, “Bitcoin itself is almost impossible to hack as the blockchain technology that forms the basis of the currency is constantly under review by other Bitcoin users” but that “does not mean it is completely safe to use”. Nevertheless, it is speculated that Bitcoin is a far safer option than any others, especially for those looking to save up without facing the potential of being robbed of their money. The Good and the Bad of Bitcoin Bitcoin is extremely secure and it is believed that hacking a cryptocurrency is virtually impossible. With Bitcoin, one trusts in the mutually-beneficial incentives, the code and protocol. No bank or any other external body can prevent people from making a Bitcoin transaction. Buying Bitcoin is pretty much a guarantee of a rich future, as its value keeps increasing. Unfortunately, just as all good things have a negative side to them, so does Bitcoin. Due to its deflationary nature, Bitcoin can be one’s worst enemy. The more people get onboard, the more deflationary Bitcoin will be, and given the current situation on the market, everything points at an increased Bitcoin interest and it is not impossible for the currency to erode to zero. Just as its value tends to skyrocket and drop in a week, one can witness a bubble popping and everyone losing their entire life savings in a day. Given this insecurity and the current state of the market, trading Bitcoin is a much better option to get rich than it is investing in it. Forex Key Facts After being introduced as a derivative to trade, Forex – just like Bitcoin – was met with a lot of conflict and concern. Experts were the first ones to speak against Forex, calling it “rigged”, “over-leveraged” and a “scam”. However, over two decades later, the world is talking about Forex and successfully investing in it. Known as foreign exchange, Forex is a decentralised global market supporting the trade of all world’s currencies. Forex daily trading volume surpasses $5trn, making Forex not only the largest but the most liquid market in the world. But what exactly is a Forex transaction? As explained by Fxcm.com, once this type of transaction is made, “the forex exchange rate between the two currencies – based on supply and demand – determines how many euros one gets for their pounds. And the exchange rate fluctuates continuously”. One of the greatest things about Forex trading is that one can trade it based on its fluctuations, i.e. what one thinks its value is headed towards. Usually, people buy when the currency is increasing and sell when it is dropping. Forex trading allows both individual users and trusted and trained Forex brokers to monitor the market for (in)favorable changes. Essentially, one’s fx broker will monitor the market and currency fluctuations, and advise the currency holder when to invest and how much. This saves the investor a lot of time and money and helps them make safer transactions. The Good and the Bad of Forex Forex trading is favoured for its low costs in terms of commissions and brokerage, it suits varying trading styles and offers very high liquidity. Being an over-the-counter market, Forex does not have a central exchange which helps avoid any sudden surprises and it keeps costs low. Volatility in Forex trading is the perfect way to make a profit if trades are placed wisely; with 28 major currency pairs to trade, what’s there not to like? Also, the capital requirements are pretty low opening the possibility of making good money even if one starts small. However, Forex’s lack of transparency, high risk and leverage, as well as CPDP (Complex Price Determination Process) make it less attractive. High volatility is also a factor, as huge losses are in play given that there is no control over macroeconomic and geopolitical developments. The Bottom Line Although Bitcoin is currently the popular kid in the schoolyard, rushing into a popular type of monetary trading comes with a lot of risk and benefits, so thinking twice before making a final call is the wisest thing to do. CLICK TO COMMENT CONTINUE READING MORE ON BITCOIN CRYPTOCURRENCIESIs EOS Really the Ethereum-Killer? asset-backed cryptocurrencies COMPANIESAre Asset-Backed Cryptocurrencies a Myth ? CRYPTOCURRENCIESTim Draper and Alex Ohanian Weigh in on Bitcoin and Ethereum Facebook Regulation COMPANIESSenator, We Sell Ads… 5 min read / May 3, 2018 By Neil Winward It is misguided to think that government can solve all our pressing problems – the things that concern us deeply at any moment in history – by regulation. It is especially misguided at this point in US history when public trust in Congress and in the politicians whose efforts would be joined in crafting such regulation is at an all-time low. There is a delicate bargain between the free market and elected officials to work carefully together to ensure that each constituency is playing the part it is uniquely empowered to play. The history of regulation in the automobile industry has taken vehicular transport to a level of safety that would likely never have been achieved if companies had been left to the discipline only of the stock market. The pressure brought to bear by government agencies is felt in the stock price and management is compelled to act. No government regulator, however, is sufficiently familiar with the workings of a company that it is able to discern the full range of actions available to management to evade if it wishes to do so. The VW emissions scandal is evidence of this. The Social Media Octopus Facebook and Google have grown to assume a role and place in society they probably never imagined. They have made the journey from noun to verb and become entangled in people’s lives to an extent their users do not fully comprehend. Facebook has been accused of fomenting violence in Sri Lanka. It has been accused of helping Cambridge Analytica influence the outcome of the 2016 election in the United States. It may be complicit in both these things. Is it the gun or the shooter? In Sri Lanka, the nature of the violence is not new. The cries to invoke mad-crowd, internecine, tribal violence have a rich history of which Facebook is a part. Voters had to vote and, in the booth, owned their own biases. Facebook certainly, as it connects, does amplify and accelerate the story. But whose fault is that? It has been oft-repeated that “if you are not paying for it, you’re not the customer, you’re the product being sold.” It is an alluring quote and suggests an unwitting loss of agency. It dates back to the late 70s – Television delivers People – and has suffered from overuse. It does, however, serve to focus the discussion. If payment is not in the form of subscription revenue, what is the means of payment? What Are We? Products or Data? The user is not the product. The product is the data and the user needs to be thoughtful about that. #deletefacebook is a possibility. It is within the user’s power to do that. If the user is more properly thought of as a co-worker in delivering the product, the co-worker may choose to press for better working conditions. The walk through Google’s privacy and security options is not complex. It offers choices: a fully tailored product based on all the information offered up through user search and selection; or a barebones browsing experience with minimal footprints. Facebook is beginning to think more seriously about this. At its F8 developer conference, it is beginning to experience some pushback from the loss of access that developers experience through handing more privacy power to users. Facebook may have been naïve about its utility to those with devious and subversive motivations, but it is reacting quickly, chastened no doubt by the many hours its chief executive was obliged to spend before Congress. Big Brother Watching Before welcoming Congress into the regulation mode with Facebook, it is worth pondering how comfortable the user community would feel with the government policing first amendment speech. It is too easy to invite the regulators to fix the problems when much of the problem lies with users who need to spend some quality time educating themselves on how better to sift and weigh the information they consume. It is comfortable to live in one’s own bubble, admitting only affirming data and luxuriating in one’s own biases. There is a tendency to be lazy about the entertainment and information inputs one allows (there are clear parallels for diet and nutrition: education is easier than execution). Such laziness, however, comes with a price. Corporations are increasingly vigilant in educating their workers about information security and the dangers of data breaches. Steps are taken and measures put in place. On the personal side, most people still use weak passwords and expose themselves to hackers. The tools made available by Google and Facebook are more powerful than many realise. If users wish to use them safely and securely – and it appears they prefer to do so than they do to opt out – they must pay attention. Regulators can wield a big stick – the European GDPR standard would claim to be such a stick; and the US may develop something similar – but users cannot ignore their responsibility to be the first line of defence. CLICK TO COMMENT CONTINUE READING MORE ON FACEBOOK TECHIs Managing Identity on the Blockchain the Next Revolution? Screen Addiction COMPANIESFacebook, Social Media and Screen Addiction. Do You Have It? China AI GLOBAL AFFAIRSAI and China: Leading the Charge microfinance EMERGING MARKETSThe Macro Impact of Microfinance 5 min read / May 3, 2018 By Dev Mahtani We live in a time plagued by inequality, in developing and developed countries alike, and segments of society are weighed down by the burden of poverty. This seemingly never-ending problem is rooted in discrimination. Countries still host deeply ingrained forms of societal inequality, ranging from social and institutional sexism to hierarchical social structures such as the caste system in Southern Asia. Furthermore, simple financial myopia is one of the biggest obstacles faced by those in poverty. This makes it extremely difficult for those in unfortunate circumstances to succeed in the business world. Even though global inequality seems to be falling, there is still a need for a solution. Microfinance has been around for a while, but now is the best time to adopt it. Microfinance and its Flaws Pioneered by Muhammad Yunus in 1976, microfinance involves issuing credit and offering financial services to low-income households, small-medium enterprises (SMEs) and unbanked sectors. These services have become increasingly popular with annual growth rates of 20%-30% since 2008. Three billion people in the world do not have access to formal financial services delivering savings, loans, insurance, and remittances while 5 million of them have the potential to create income-generating businesses with small loans. Microfinance aims to solve this issue, allowing microenterprises and households to utilise microcredit loans to lift themselves out of poverty despite inadequate local access to these opportunities. However, in practical matters, microfinance is met with several challenges. One of the key downfalls of microfinance is trust, and this is a problem for both lender and borrower. Customers may not be fully aware of the intentions and credibility of microfinance institutions (MFIs), and MFIs themselves have to follow the Know Your Customer (KYC) protocols. The former is gradually diminishing given the sheer growth of MFI activity. However, the latter is still causing prevalent security issues. In order to provide microcredit and other services, adequate identification documents have to be provided by customers who are usually in circumstances in which they cannot do so. Secondly, transactions costs and interest rates are inherently high due to the ratio of such small amounts of loans to fixed costs per loan. Lastly, reach is an inevitable barrier preventing microfinance from reaching its potential. The majority of societies in need of microcredit are in rural areas and lack the connectivity to communicate with MFIs, leaving 2/3 of unbanked populations unreached. Today’s Technology for Tomorrow’s Microfinance Technological breakthroughs are paving the way for microfinance to fulfil its potential. Developments in wireless communication, internet access and price segmentation for mobile devices has improved drastically. Internet usage has increased over 250% in Asia from 2009-2017 and over 450% in Africa. When integrated with internet banking, microfinance becomes a powerful tool to be used by those in need regardless of geographic access. FINCA, one of the leading MFIs has made sure their services are available over the internet, allowing 43% of Tanzanian customers to make secure online transactions. Several MFIs are also introducing agent banking systems to reach remote areas, effectively creating mini branches of MFIs through local shops and merchants. As for interest rates and transaction costs, fintech has allowed interest rates which used to average at 37% and go up to 70% to drop down significantly. MFIs such as Zidisha and Kiva have made use of technology and machine learning algorithms to replace physical offices with electronic databases, using algorithms offered by SiftScience to detect and filter fraud and others to calculate risk, this eliminates overhead costs given that every transaction is made virtually. Lastly, issue of security can be effectively combated through blockchain technology. The slow and inefficient KYC process can be accelerated given the decentralised and transparent nature of blockchain which would encourage trust between customers and eliminate the need for intermediaries – further reducing interest rates. The ability to connect borrowers with lenders in a secure manner allows a rethink of microfinance. Blockchain would benefit the microfinancial landscape by speeding up transactions, allowing for increased identity security and reduced corruption. Next Steps Microfinance has been effective when properly utilised. Marginalized and underprivileged parts of society have the potential to use microcredit to build self-sustaining businesses. The challenges of scope, security and cost can be solved through technological advancements. Internet access and ownership of mobile devices are growing exponentially, allowing microfinance to extend its reach to more and more people. Pioneers in the industry are adopting machine learning and AI software to eliminate the need for physical offices, increase security and facilitate transactions. The integration of blockchain technology into MFI activity shows potential to eliminate most, if not all, the issues microfinance faces. While there is hope for progress, there is still a long way to go. As they say, time heals all wounds, as technology is integrated with the simple idea and ideals of microfinance, layers of complexity are added even if they bring potential benefits. It will take time for blockchain to mature and be adopted by governments and MFIs alike. One thing is for sure; microfinance can only go up from here. CLICK TO COMMENT CONTINUE READING MORE ON MICROFINANCE AFRICACould Microfinance Help the Least Economically Developed Countries? Microfinance Africa AFRICAMicrofinance in Africa: Benefits and Challenges COMPANIESMicro-investing: A Booming ‘Get Rich Quick’ Industry COMPANIESBrand Marketing in a Direct Marketing World 3 min read / May 3, 2018 By Marc A. Ross What was the top Super Bowl 2018 ad according to USA Today’s Ad Meter? It is hard to even remember one of the top ten. The reason is that ads are not the best tool anymore. Ads Are Bad They are not the best tool because they do not connect, make an impact, or leave a mark. Brand marketing does not work in the direct marketing world. Brand marketing is from a different age. A different business environment. A different communication era. Brand marketing was created when John Wanamaker’s statement “half the money I spend on advertising is wasted; the trouble is I do not know which half” worked because it could work. It could work because advertisers created a mass broadcast communications environment to serve its needs. Radio was created to sell ads. Television was created to sell ads. Brian Millar, co-founder of the Emotional Intelligence Agency, writes: “traditional advertising went after ‘share of mind’–the idea was to get you to associate a brand with a single idea, a single emotion. Volvo: safety. Jaguar: speed. Coke: happiness. The Economist: success. Bang, bang, bang, went the ads, hammering the same idea into your mind every time you saw one. “Advertising briefs evolved to focus the creatives on a single unique selling position and a single message. Tell them we’re the Ultimate Driving Machine. Tell them in a thrilling way. It worked when you saw ads infrequently on television, in a Sunday magazine, or on a billboard on your morning commute.” This type of advertising worked because it appeared in a communications environment in which an audience could be reached through only a handful of ways. But that is not today. Today we are living in a direct marketing world powered by the world-wide-web. Direct Marketing Is Taking Over Now we have micro-media and a personalized broadcast communications environment which serve the needs of the end user. The internet was not created for ads. The internet is not mass media. To better understand this new communications environment the Emotional Intelligence Agency conducted a study to understand what kind of content works. The firm found communications which used funny, useful, beautiful, and inspiring content delivers the best results. Not surprising the most successful brands do all four. Also, not surprisingly, these are the adjectives used by any top storyteller. She knows they are best words when executing micro and personalized communications. Yet most of us communicate using only one type of emotionally compelling content – if at all – employing brand marketing techniques that are closer to the days of Mad Men them to the present day of Laundry Service. Brand marketing still communicates only once a day, or worse just a few times a month. Instead, brands should use tools that follow and engage their most active supporters in their own media diet. Reaching People Is Easy When it comes to the world-wide-web and the direct marketing communications environment, being multidimensional beats being single-minded. Surprise beats consistency. Emotion beats fact. Funny beats dour. Useful beats sales. Beautiful beats boring. Inspirational beats directional. The best communicators have always understood this instinctively. By the way, USA Today’s Ad Meter ranked Amazon’s “Alexa Loses Her Voice” as the best 2018 ad. It is an ad which quickly slipped from popular memory. But I do remember my friends telling me a story or two about Alexa that used funny, useful, beautiful, and inspiring words to describe their experiences. CLICK TO COMMENT CONTINUE READING MUST READS sme blockchain COMPANIES59 mins agoSmall Businesses Need to Get Serious About Blockchain armenia demonstrations ASIA2 hours agoArmenia Fights Against Dictatorship As the World Becomes Less Free india real estate market ASIA3 hours agoIndia’s Coming Real Estate Surge Elon Musk media BLOG4 hours agoAre We Treating Elon Musk Fairly? facebook dating COMPANIESFacebook to Launch Dating Services 2 min read / May 2, 2018 By Fergus McKeown Facebook announced at F8, its annual developer conference, which they will be rolling out new dating features in 2018. As the news of the social media giant breaking into this new market broke shares in Tinder’s parent company, Match Group, tumbled. A dating profile will now be able to be created on Facebook, which would display only the first name of the user. If a user opts into making a dating profile that information will be hidden from their friends. Messages will be kept in an inbox separate from either Facebook messages or WhatsApp. Initially, only text will be allowed to be exchanged. People looking for dates to the same event will also be able to connect with one another. Mark Zuckerberg, announcing the new service, said: “This is going to be for building real, long-term relationships, not just hook-ups.” Facebook is not targetting hook-up app Tinder, which focuses on short-term relationships, and is popular among an audience younger than the social media platform core. Match Group, which apart from Tinder also owns dating websites and services such as OkCupid, Match.com, and PlentyOfFish, saw its share price fall over 20% after the revelation was made. Facebook Dating, which can leverage a lot more data on its users than Match’s offerings can, is expected to take users away from OkCupid and its like. Offering dating services has been seen as a natural expansion opportunity for Facebook, which already allows users to set their relationship status. Zuckerberg revealed in the launch that there were over 200m single users of Facebook. With a large amount of data already on hand, which love seekers will not have to reenter tediously, the success of the new venture will depend on the ability of Facebook Dating’s algorithm to match compatible users. However, it is unclear as to whether or not users will trust Facebook with more data. It has come under criticism recently for allowing Cambridge Analytica access to millions of users data. Mark Zuckerberg was questioned by the US Congress over the matter, and the UK’s Parliament has said that it may issue a formal summons to Facebook’s CEO if he refuses to appear before lawmakers in Westminster. CLICK TO COMMENT CONTINUE READING MORE ON FACEBOOK TECHIs Managing Identity on the Blockchain the Next Revolution? Screen Addiction COMPANIESFacebook, Social Media and Screen Addiction. Do You Have It? Facebook Regulation COMPANIESSenator, We Sell Ads… twitter disney live shows COMPANIESTwitter Will Host Exclusive Live Disney Shows 2 min read / May 2, 2018 By Tatiana Salmon The social network will soon host live sports, news, and entertainment shows created by Walt Disney Co., as reported by Reuters. The content will be produced specifically for Twitter Inc. in a move to attract viewers and expand Twitter’s streaming offerings. The two companies announced 30 live programming deals on Monday in an agreement ‘’to create live content and advertising opportunities’’, according to the ESPN’s press release. Content will be exclusive to the network, for example, Twitter version of ESPN’s ‘SportsCenter’ TV show. Twitter shares surged after the announcement by almost 6% to $30.74, Disney shares rose by 1.1% to $100.33. “Through this new agreement, participants from across the company will have the opportunity to create experiences unique to Twitter that will extend their brands in meaningful ways,” said Justin Connolly, Executive Vice President, Affiliate Sales & Marketing, Disney and ESPN Media Networks. Other companies who will develop live content for Twitter include Comcast Corp networks – MTV, NBC and MSNBC, Viacom Inc’s Comedy Central, and BET. Video content is growing in popularity and is increasingly used in social media to attract users. Video views on Twitter have doubled in the past year. In March, Facebook signed an exclusive deal with Major League Baseball to stream 25 afternoon games, as was reported by Bloomberg. 85% of search traffic in the US will be driven by video content by 2019, says a recent Cisco report. Interestingly, in 2016 Disney was one of the companies considering a bid for Twitter, but the deal did not happen. However, the two companies are still collaborating. Twitter has been struggling to add new users and has taken a number of steps to tackle this problem. The company has made a profit for the past two quarters and has added six million new users in the first quarter of 2018, beating Wall Street expectations. Twitter and ESPN will announce what specific live shows are in development later this week. CLICK TO COMMENT CONTINUE READING MORE ON TWITTER COMPANIESMachine Learning Will Change the Future of Finance Facebook Market Sentiment AMERICAThe Market Sentimentalist: Media Trials (Part Two) bitcoin lightning network CRYPTOCURRENCIESBitcoin Lightning Network Is Released india's stressed assets ASIAInternational Firms Sense Opportunity in India’s Stressed Assets 5 min read / May 2, 2018 By Bhavik Gandhi If one happened to visit India from 2015 onwards then one would have surely sensed the mood vis-à-vis the new Modi government. As happens with most popular leaders who get elected, reality sooner rather than later drowns the post-election euphoria. The aura of Narendra Modi, portrayed not just as a powerful prime minister but also as the CEO of his nation, as someone who will solve the myriad problems of India with a no-nonsense style of working, strict disciplinary approach, and ability to cut through India’s notoriously byzantine bureaucracy has waned rapidly. Travelling in India, apart from Modi one might have also heard of other the other Modi, Nirav Modi, and of course Vijay Mallya, the ponytailed tycoon, currently a fugitive in India and who now resides in London. Both of them, Nirav Modi and Vijay Mallya, are poster boys of the biggest economic challenge facing India: accumulation of staggering levels of non-performing assets (NPAs) or bad loans. Indian banks are reeling under mounting NPAs either due to wilful defaults, as in the case with the two gentlemen mentioned above or due to a genuine economic downturn India went through in 2009-10. These challenges have been compounded by PM Modi’s demonetisation policies and his sluggish implementation of a national sales tax. However, there is still opportunity in the midst of this uncertain situation. Opportunity Knocks Stressed assets have earned a bad reputation after the Lehman Brothers collapse and 2008 financial crisis that followed. In India, however, they offer an opportunity which early movers and risk takers can cash in on. The total value of stressed assets in India as of June 2017 is estimated at a whopping $154bn, or ₹10,00,000 crore. In the short to medium term, the value of stressed assets can go up as the full effect of the new Insolvency and Bankruptcy Code passed by the Indian parliament begins to be felt. Stringent rules issued by the Reserve Bank of India enforcing mandatory an asset quality review by public sector banks (PSBs), which hold the bulk of stressed assets, along with tough provisioning standards for stressed assets are forcing banks to clean up their balance sheets. There is a catch, however. The PSBs in India are not in the position to write off all these stressed assets. They lack the necessary capital to absorb all the losses incurred by doing so. In fact, NPAs exceed the net worth of many banks according to McKinsey. Indian banks are still operating under Basel II capital reserve requirements, and things will get worse for them whenever they switch to Basel III conditions. These banks will have to sell off their bad assets. Here asset reconstruction companies (ARCs) and other institutional investors, mainly private equity (PE) firms, enter the scene. India has 24 active ARCs. These ARCs issue security receipts (SRs) to investors to fund their acquisition of stressed assets from the banks. The value of SRs depends on the value realised from turning around stressed asset. Under the new law, defaulting promoters are at the risk of losing their assets. The new code restricts these promoters from bidding for the stressed assets in an auction. This prevents promoters from bidding above the market price to gain control of their assets once again. Non-involvement of promoters in the bidding process has resulted in a more competitive acquisition price. With the global economy improving, and Indian government taking active steps to rejuvenate sectors which a lot of stressed assets operated in, ARCs have a much higher chance of realising profits from the assets. Long delays, though, in implementing many projects in these sectors have made net present value (NPV) of many of the assets negative and have also pushed down the internal rate of return (IRR). Yet, despite clumsy action on economic reforms, the current government’s initiatives to solve industry-specific problems have begun to show positive results. Recovery According to TN Ninan, Chairman of Business Standard, a highly rated Indian business newspaper, 2018-9 will be a year of recovery for India. As the Indian economy picks up, the returns on stressed assets will be handsome. Industrial production is up and inflation is within the target range set by monetary authorities. Exports have also started showing real growth and capital inflows are strong. As domestic and global demand picks up, fixed assets will reach optimal capacity utilisation. Consequently, prices for stressed assets will rise leading to handsome gains for investors who bought these assets at an earlier more attractive valuation. PE players are already gearing up to invest in these stressed assets. The streamlining of the insolvency process will give encouragement to more and more PE firms to invest in Indian stressed assets. PE funds also hope to include in their own ARCs to buy up assets and add them to their own balance sheets. A few PE firms have partnered with Indian firms. Apollo Global Management entered into an agreement with ICICI Ventures, and Bain Capital has done likewise with Piramal. Other big institutional players like Canadian Pension investor CDPQ are also eyeing these stressed assets. Meeting with Good Results Edelweiss ARC, the largest asset reconstruction company in India, is a success story which other players in the industry can emulate. Rasesh Shah, a banker turned entrepreneur and now the CEO of Edelweiss, has changed the perception entrepreneurs have toward ARCs. ARCs are viewed less as asset strippers and more as revival mechanisms. Edelweiss has started using its own funds, rather than relying solely on SRs. Edelweiss was also the first in the industry to back entrepreneurs with funds in order to turnaround their underperforming businesses. The success of Edelweiss’s strategy is evident from the jump in its profits, from ₹340m in 2014-15 to ₹450m 2015-16, and to around ₹600m in 2016-17. Turning around distressed assets is a niche opportunity for nimble and skilled players but it is not without its risks. However, it does present an opportunity for those able to navigate the sector. But with India returning to the levels of economic growth seen before 2009, things are looking less and less stressful. CLICK TO COMMENT CONTINUE READING MORE ON INDIA ASIAIndia’s Missed Opportunity India Economy UNCATEGORISEDIndian Collywobbles Belt and Road Support ASIAChina Misses India’s Support for Belt and Road Initiative
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asda COMPANIES ... Sainsbury’s and Asda Join Forces to Take on Tesco 5 min read / May 2, 2018 By Jeffrey Chu In the past month, Asda and Sainsbury’s – two of the UK’s major supermarkets – have come together in a proposed £13bn merger. Just why have two of the big four British fast-moving consumer goods retailers decided to join forces? Ultimately, it seems a desire to compete with Tesco requires both to scale up. At the lower end of the industry too, the persistent threat of discounters has placed significant pressure on traditional retailers, particularly Asda. Finally, with the two supermarkets arguably the least similar in terms of positioning, out of the big four, collaboration could bring significant coverage of the UK’s grocery market. Every Little Helps A deal between the UK’s second and third largest supermarkets inevitably reflects a desire to challenge the number one – Tesco. Of the big four grocery retailers, Tesco was the fastest growing during the final quarter of 2017. The Hertfordshire headquartered retailer’s £4bn takeover of the country’s largest wholesaler, Booker, made Tesco, at the time, bigger than Sainsbury’s, Morrisons, Marks & Spencer, and Ocado put together in terms of market capitalisation. As a result, it seems hard to avoid the conclusion that the proposed merger is about the acquiring the scale needed to compete with Tesco. Looking at the number of stores each retailer had in 2017, Tesco dwarves all others at 6,553; Sainsbury’s, on the other hand, had 1,415, and Asda maintained only 642. Of course, this is partly due to the fact Asda does not pursue a strategy of small convenience stores based in cities, unlike its two larger counterparts. As a result, looking at sales (excluding VAT) better reflects Asda’s power, based on their larger superstores, more accurately. Even still, Tesco’s dominance is reasserted bringing in a total of £54.43bn per annum. Even adding up both Asda and Sainsbury revenues, of £23.33bn and £23.51bn respectively, Tesco still reigns supreme with £7.6bn to spare. A merger will not only allow them to lower costs, due to economies of scale but also to bring greater purchasing power to the table when negotiating with suppliers, allowing them to compete on a level playing field with Tesco. Media statements from senior executives of Sainsbury’s seem to confirm this desire for scale. The merger is supposedly bringing “the power of Walmart in the form of buying general merchandise and in the form of their systems and investments”. A desire for scale may also be in response to a more long-term threat, one posed by Amazon. The US technology giant, with its acquisition of Wholefoods, may seek to challenge Sainsbury’s at the upper-end of the market. Despite previous projects in the grocery industry, most notably with Morrisons, not garnering as much media attention, Amazon’s immense purchasing power, customer data, e-commerce, and logistics capabilities is something to be wary of. As Steve Dresser, Director of the Grocery Insight consultancy, explains: “if they remain on their own it’s difficult to see how they get any real growth beyond standard organic growth, which isn’t necessarily going to be enough when Amazon joins the markets”. The Rise of Discounters At the same time, the desire to converge also says much about the challenges from cheaper grocery and general merchandise retailers, something that Asda in particular faces. Asda, acquired by Walmart in 1999, is known for its low prices. Since 2015, it has shared a slogan with its US parent company, “save money, live better”. Yet this low-price strategy has seen their position come under threat from the rise of German discounters Aldi and Lidl. Indeed, even in the fourth quarter of 2017, which included the Christmas period, where one might expect customers to be more relaxed with spending, Aldi and Lidl were the fastest growing supermarket brands according to Kantar WorldPanel. Both retailers grew sales by 16.8%, taking their share of the UK market to 6.8% and 5% respectively, corresponding to a respective increase of 0.8% and 0.4%. The shift towards discounters seems to suggest two things: price-elasticity and a willingness to buy unknown brands and private-label goods. In an attempt to tackle this, Asda has sought to push its own private-label goods, going against its traditional strategy of lower-priced branded goods. Asda’s own-brand sales were up by 6.4% year-on-year in 2017. Here, the scale provided by the merger can also help the two retailers deal with the discounter threat, with executives promising to pass on savings to customers by lowering the prices of popular products by as much as 10%. Potential Synergies Finally, in many ways, the merger is also about bringing synergies to each retailer in addition to the benefits of scale. From a customer segment perspective, the two retailers cover a wide range of shoppers. According to YouGov data, Sainsbury’s main customer base is located in Southern England, with a higher social grade, often shopping at more convenience-based locations. Indeed, 60% of Sainsbury’s sales can be said to come from London and the South-East. Asda, on the other hand, holds strength in larger superstores based in Northern England. Consequently, the merger would allow them to paint a clearer picture of the British grocery market, informing future decision making. Sainsbury’s 2016 takeover of Home Retail Group plc, the holding company of Argos, attracted some criticism. However, the catalogue retailer could help Asda defend against its discounter rivals. It has been rumoured that Sainsbury’s will seek to place Argos retail units within Asda’s superstores with either ineffective real estate or space to spare. Such a move is likely to drive foot traffic to these larger stores and potentially increase impulse purchases. Clearly, there are many potential benefits of the merger between the two grocery and general merchandise retailers. However, it remains to be seen whether the relevant competition authorities will clear the deal. For both companies, the wait continues. CLICK TO COMMENT CONTINUE READING MORE ON M&A akzonobel COMMODITIESAkzoNobel Struggling Against Headwinds akzo nobel vs ppg COMPANIESAkzo Nobel vs PPG: Contrarian Perspectives China's food sector ASIAWhat’s Behind China’s Food M&A Trend?
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GLOBAL AFFAIRS ... Why the US Should Welcome Chinese Investments 4 min read / May 2, 2018 By Marc A. Ross President Donald Trump has made keeping jobs in America his top priority. It was the issue that helped propel his remarkable victories across the Great Lakes, and while healthcare and taxes have recently claimed the headlines, jobs for Americans are still a prime focus for the President. Ironically, one of the most effective ways to keep jobs in the United States is through Chinese investment. It is foolish not to recognise there are challenges with the US’ commercial relationship with China, from lax intellectual property rights protection to over 100 sectors of the Chinese economy being off limits or heavily restricted to American companies. However, it is hard not to recognise that Chinese investment continues to grow and continues to have a substantial impact on the American economy. A Magnet for Investment Foreign direct investment in the United States reached a record $348bn in 2015. According to the Rhodium Group, the United States became the primary beneficiary of booming Chinese outbound foreign direct investment in 2016, with $45.6bn worth of completed acquisitions and greenfield investments. Cumulative Chinese direct investment in the US economy since 2000 now exceeds $100bn. Furthermore, a new report from Rhodium and the National Committee on US-China Relations put the total number of Americans employed by Chinese-affiliated US companies at 141,000, a 46% increase from 2015 and more than nine times higher than that of 2009. Critics of this increased investment, including some members of Congress, cited national security concerns – and those deals in sensitive industries should be scrutinised. Importantly, there is such a review process in place led by the Committee on Foreign Investment in the United States (CFIUS) — an inter-agency government panel that has the power to impose conditions and reject deals if they threaten national security. Creating Jobs But short of rejection by CFIUS, Chinese investment should be welcomed and indeed encouraged. While federal officials are often the most critical of Chinese investment for political expediency, governors, state officials, and mayors rightly recognise that Chinese investment creates and keeps jobs in their local economies. Prospective investments from China should be free from frivolous political interference and limited to legitimate national security concerns. Example after example in states and cities across America bear this out. Fuyao Glass is a textbook example. The Chinese manufacturing company acquired an old assembly plant near Dayton (Ohio). With a production capability of four million cars a year, double the current level, many in the auto industry predict this will require a workforce of 2,500 people, up from 1,700 now. Just last month, the shareholders of MoneyGram International, headquartered in Texas, voted overwhelmingly their support of the merger between MoneyGram and Ant Financial, a private Chinese entrepreneurial technology company. The deal will allow Ant to invest significant capital and resources in MoneyGram, including growing the company’s US workforce and providing growth opportunities to employees and customers worldwide. While the deal is still being review by CFIUS, Ant remains no stranger to such regulatory approvals. Last year, the company acquired Kansas City-based security technology company EyeVerify. Since that closing, the acquisition has led to a significant expansion of EyeVerify’s business and an increased number of American jobs. In Alabama, Chinese investment has helped put rural America back on track. In 2014, Golden Dragon Precise Copper Tube Group opened its first US plant in Wilcox County, one of the poorest counties in America. The investment created 300 jobs, and 40 more were recently announced. According to Sheldon Day, mayor of Thomasville “Now, we have a Chinese product that was previously made in China that’s now being made by Alabamians.” But it is not just local officials who recognise the benefit of Chinese investment. One of the most outspoken advocates has been Henry M. Paulson, Jr. former US Treasury Secretary and advisor to President Trump. While he admits that the idea of any foreigners buying US assets has never been popular, he argues that “the highest compliment anyone could pay the United States is to make a direct investment, which is a vote of confidence in our economy.” President Trump and his administration will soon be faced with deciding the future of Chinese investment in America. Given his pledge to keep jobs in the United States and grow the economy, the decision to encourage job retention and growth should not be hard. CLICK TO COMMENT CONTINUE READING MORE ON TRUMP AMERICAWhat Went Wrong with White Protestant Evangelicals In the US? AMERICAThe US’s Iran Strategy After Exiting the Nuclear Deal iran nuclear deal AMERICAIran and the Cost of US Isolationism
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italian elections EUROPE ... Italy’s Election Produced Only Losses for the Nation 4 min read / May 2, 2018 By Andrea Napolitano With a gross domestic product of roughly $1.85trn, Italy is the 4th largest economy of the European Union and will jump to third place once the UK leaves. However, its economy has never fully recovered from the financial crisis, and its population is feeling in a worse-off position with respect to the pre-crisis levels. In addition to this unclear picture, Italy is experiencing a post-election debate on which party should form the government, which is adding even more instability to the country’s outlook. A Small Recap Italy’s political situation took a sharp turn after the failed December 2016 constitutional referendum, which led to the resignation of the previous prime minister Matteo Renzi, and the creation of a temporary government under Paolo Gentiloni, who had a mandate to lead the country until the March 2018 general election. During this time, the parliament voted in favour of a new electoral law that would be used in the March vote. Many claimed, though, that this new law would make it impossible for any one party to win. In the election there were three main parties or alliances that could win: Partito Democratico, with Renzi leading it; the Five Star Movement, with Luigi Di Maio at its head; and the centre-right alliance of three parties, made up of Berlusconi’s Forza Italia, Matteo Salvini and the Lega Nord, and Giorgia Meloni’s Fratelli d’Italia. During this period Italy still had key challenges that needed to be addressed. First of all, its public debt, according to Oxford Economics, was the third largest among 34 OECD countries, after Japan and Greece, reaching a peak figure of 132% of GDP. At the same time, Italy was facing high unemployment, especially among the younger generations. The youth unemployment rate, at 32%, was particularly high, especially compared to the EU average of 18%. Italian banks holding a large amount of debt and low levels of foreign direct investment did not help this precarious situation. A properly functioning government was needed to overcome these obstacles to the expansion of the Italian economy. The Outcome The outcome of the election was surprising. In fact, the populist Five Star Movement emerged as the most popular party in the country obtaining a third of the votes. However, the centre-right alliance, made up of three parties, was the one “winning” the elections with a share of 36%. The Lega Nord was surprisingly voted as the largest party of that coalition. The Partito Democratico obtained a shocking 19% of the vote, forcing the secretary of the party, Matteo Renzi, to resign. However, due to the new electoral law, none of the parties was able to gain a majority in the Parliament. For this reason, soon after the election’s results, the main parties’ leaders started talks with the President of the Republic, Sergio Mattarella, who held the power to assign the mandate to form a government. It is here that the Italian tarantella started. An agreement between the parties allowed Maria Casellati and Roberto Fico to be appointed as President of the Senate and of the House of Commons respectively. Mr Mattarella gave an explorative mandate to both the newly appointed Presidents to see if they were able to find alliances and form a government. However, in both cases, neither succeeded. Present Situation Italy, 2 months after the election is still in an unstable situation. The inability of any party to form a government should have been expected. Ideological differences were apparent even before the polls, stopping some alliances from even being considered. Lega Nord and Partito Democratico would never get on; Berlusconi’s Forza Italia and the Five Star Movement would likewise never agree. For this reason, no ruling coalition could be put together. What Now? The least desirable outcome has come to pass. Though, as highlighted by the President of the Republic, a new election may clear the way for a new stable government to be formed. If this is the case, then a new electoral law must be approved before calling the Italians to the polls again. However, valuable time has been lost, which no-one can be happy with. Each day without an efficiently working government is a lost day, and Italy’s rivals are closing in. The boot-shaped peninsula is facing the possibility of losing a significant amount of not just influence, but also investment. CLICK TO COMMENT CONTINUE READING MORE ON ITALY Italian Elections 2018 EUROPEItalian Elections: Market Moves Ahead of Super Sunday Italy Economic Recovery EUROPEItaly’s Woes: Will It Rock the Eurozone Boat? Italy Fiscal Reforms EUROPEItaly’s Election: Fiscal Reforms in a Time of Austerity
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m&a uk COMPANIES ...M&A in the UK Grocery Business Is Growing 6 min read / May 1, 2018 By Amer Mahmood There is a new trend of mergers and acquisitions (M&A) activity between independent retail symbol groups, companies like Nisa which provide branding and act as suppliers to independently owned shops, and supermarket chains. In February Tesco appointed the head of Booker, the leading wholesaler in the UK, Charles Wilson as their new CEO. The giant grocery chain also put in a bid to buy Wilson’s old employer. Objections and Approval The deal was approved by the Competition and Markets Authority (CMA) after objections from competitors such as Spar and Bestway calling for the deal to be blocked as there were concerns that it would possibly make way for a monopolised market. In an opposition letter, Bestway stated that: “If the merger proceeds, Tesco will have incontestable power over the procurement of all grocery categories in the UK. Suppliers will find it even harder to resist Tesco’s demands. Some suppliers, particularly of branded products, will fail without access to Tesco stores. Others, aware of this risk, will give in to its demands. The latter go beyond price and include.” However, the CMA responded: “existing strong competition in wholesale and retail made this unlikely.” Continuing: “most shops use more than one wholesaler and frequently switch.” Also, the Co-op has struck a partnership with Costcutter to take over their supply chain and has recently been given the green light by the CMA on their proposed takeover of Nisa stores, bringing both symbol groups under their control. The new trend in activity has sparked enthusiasm from both sides, with Nisa chairman Peter Hartley saying: “We as a board are firm in our belief that a combination with the Co-op is in the best interests of Nisa’s members. The convenience store environment is changing rapidly and is unrecognisable from that which existed when Nisa was founded more than 40 years ago. Co-op will add buying power and product range to our offering while respecting our culture of independence.” M&A Activity Spikes It is quite evident that M&A activity has increased in the retail industry as we see more large chains penetrate the convenience store market by taking over symbol group chains. Much of the rationale is to do with offering more competitive and cheaper prices to consumers, and access to a broader consumer base in addition to more buying power. It was estimated that Booker would add about £2bn-£3bn to Tesco’s current £45bn buying power. Supermarkets are coming to a point where it is difficult to compete with each other by just a price differentiation and are now seeking alternative strategies to increase their market share. Research by the Institute of Grocery Distribution (IGD) shows that convenience stores control a significant part of the market and this is expected to grow, while supermarkets market share is expected to drop. Many of these stores are run as a part of symbols group as illustrated in the figure below. Tesco and the Co-op have executed their penetration into the convenience sector successfully with their smaller stores, Tesco express and Scotmid. They are now hoping to increase their presence by breaking into the symbol group area of the industry, as evident by the recent mergers and acquisitions. Asda has also recently made significant moves with their recent announcement on their merger with Sainsbury’s. Unlike Tesco however, Asda only operate large outlets and has been unsuccessful in tapping into the convenience store market. This merger could be evidence of Asda’s way of penetrating the convenience market, by combining efforts with Sainsbury’s and their success of Sainsbury’s local. Asda has yet to announce any moves in entering into any partnership with symbol groups as other competitors have done, however, perhaps this is something that might be seen in the future. In 2015, Morrisons also attempted to penetrate the convenience store market with their My local brand however collapsed a year later as customers defected to rivals, citing My Local’s poor produce, high prices, and lack of availability. In 2017 Morrisons took on a less risky approach to enter the convenience market as they agreed on a deal with McColl’s symbol group stores to supply fresh produce and groceries across its 1,300 convenience stores and 350 newsagents. What About the Independent Retailers? It is likely that there will be more M&A activity between independent retail chains and large retailers in the future. However, one question remains: How does the future look for independent retailers that are being taken over by some of their biggest competitors? Moreover, who will benefit from these new relationships? One retailer from Glasgow was enthusiastic about the outlook, claiming “that hopefully the Booker and Tesco merger will refresh us and bring new things, such as fresh signage and better offers for our customers”. On the other hand, however, independent retailers still feel sceptical as they are not confident that the symbol groups have acted in their best interests. James Lowman, chief executive of the Association of Convenience Stores, admitted that some shops “might not like the idea of working in partnership with Tesco”, while others were hopeful it could lead to higher buying power. Independent retailers and supermarkets alike may be able to benefit from the mergers as combined buying power could allow the businesses to offer more competitive prices to consumers. Meanwhile, retailers have been seeing their profit margins squeeze as customers expect the same prices that supermarkets provide. Retailers will have to rely on an increase in footfall to offset the lower profit margins. While this M&A trend is recent and growing, it is too early to tell the impact it will have. Many retailers are enthusiastic. However, some remain sceptical of what the future will bring. It is clear that supermarkets are targeting the convenience market and taking advantage of the symbol group side of the business. While these mergers may promote competitivity in the market, independent retailers will be forced to step up their game or struggle against the larger and more resourced competitors. CLICK TO COMMENT CONTINUE READING MORE ON M&A akzonobel COMMODITIESAkzoNobel Struggling Against Headwinds akzo nobel vs ppg COMPANIESAkzo Nobel vs PPG: Contrarian Perspectives China's food sector ASIAWhat’s Behind China’s Food M&A Trend?
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China AI GLOBAL AFFAIRS ... AI and China: Leading the Charge 8 min read / May 1, 2018 By Thisara Niriella China is battling with the US to become the world’s leader in artificial intelligence (AI). Government policy makes this clear, and it is a policy which should not be taken lightly. The Chinese government has delivered on its past development goals, like its commitment to high-speed rail. In 1990 the country did not have any high-speed rail infrastructure, now it leads the world with over 60% of high-speed rail track in China. Government Support China is investing quite heavily in the industrial applications of AI and has overtaken the US in AI startup funding according to technology analyst CB Insights. China is currently on track to be the global leader in the AI sector, driven by government strategic initiatives to develop its native AI industry. The Chinese State Council has produced supportive policies since 2015 such as Made in China 2025,; a strategy focused on the development of Chinese robotics. Made in China 2025 was a plan issued by the Chinese premier Li Keqiang aimed at upgrading Chinese manufacturing. One of the ways it hoped to do this was by developing the native IT industry and upscaling the manufacturing value chain via installing high-end computer numerical controlled machines and robots, a move focused on process automation and manufacturing efficiency. This will eventually facilitate the incorporation of AI into the Chinese manufacturing sector. As well as Made in China 2025, the Internet+ action plan was also issued. It concentrated on general technological advancement in China. Internet+ centred on the development of internet services across a range of sectors to support the growth of Chinese businesses, in effect aiding the modernisation of China and opening up avenues to allow AI integration into online companies. These policies laid the bedrock of the government strategy in fostering China’s AI industry. Industrial Growth According to Bill Studebaker, CEO of Robo Global, Chinese patents made up 42% of global filings in 2017, indicative of the heavy Chinese investment in its tech sector. Furthermore, as reported by Goldman Sachs, China surpassed the US in publishing research articles related to artificial intelligence in 2014, with 43% of the top AI related academic papers involving at least one Chinese researcher. China is estimated to be home to an excess of 700 enterprises related to AI across the sectors of computer vision, voice recognition technology, natural language processing, and machine learning. The Chinese AI sector is capable of upscaling due to the vast amounts of data available on account of its 1.4bn population. This massive amount of people provide an equally massive amount of data on which AI and machine learning firms can train their algorithms. Chinese strategy and investment have yielded momentous results, such as the Chinese startup SenseTime, which makes AI based security software, becoming the most valuable AI startup in the world with a valuation of $4.5bn. China is pushing its AI agenda forward with its newest developments which include an open source AI platform. Reuters reports the construction of a $2bn AI research park geared towards AI innovation in Beijing which will house 400 enterprises expected to generate revenues of approximately $8bn annually. Why Invest in AI? Chinese economic growth in the past has depended on using cheap labour for manufacturing. However, this labour force is now ageing. China is expected to face demographic challenges attributed to an ageing population in the next 15 years. According to the statistics published by the Renmin University of China, the proportion of the Chinese population aged 60 and above will increase to 25.2% by 2030. This will pose a challenge to Chinese productivity. According to an industry analysis by Accenture, AI can provide a 27% boost in Chinese by 2035, which will help offset this problem. AI is critical for the development of the healthcare sector as well; machine learning algorithms could be used in the prognosis of non- communicable diseases like cancer and can help deliver a more personalised form of healthcare. AI can also have interesting applications in agriculture. Alibaba, for example, has a joint pig raising initiative which utilises AI to improve consumer protection and food safety standards. AI would not only improve production efficiency but would also have implications on the job market giving rise to new types of businesses and related occupations creating a demand for a labour force which has a higher technical competency. As it stands, the major impact AI will have on the Chinese economy is an increase in productivity; the study conducted by Accenture has shown that AI will boost Chinese growth by 1.3%. This amounts to an additional $7.1trn worth of goods produced by the year 2035. Issues and Competition China will have to address some issues associated with the use of AI. Firstly, the question of weaponised AI will have to be confronted, but this will not be limited to China. The Chinese AI sector has access to a significant amount of sensitive data. This data is not only be collected via mobile devices but also via public security cameras and sensors. This raises serious questions regarding data security, ownership, malpractice, misuse, and breaches. It is crucial that a legislative framework is developed to regulate the AI industry and its use of data. China is also faced with a problem in sourcing AI talent which puts it at a disadvantage against the US with the Chinese Ministry of Information Technology, in 2016, stated that 5m skilled workers are needed for the industry. The sourcing of AI talent is needed to fuel the growth of the sector. Given that China has a talent shortage, it may capitalise on the Trump administration’s anti-immigration stance by incentivising highly skilled workers to come to China. However, despite the major strides made in AI, China hasn’t completely surpassed the US just yet. As reported by McKinsey, compared to the large number of papers by Chinese authors on AI, those from the US have a significantly greater impact. Although China does have the second biggest AI ecosystem after the States, the US still dwarfs the Chinese in terms of funding, patents and number of companies. Whilst the Chinese AI industry has been rapidly expanding under the government-sponsored campaign, the US AI industry has been making giant strides over that same period. Facebook has the self-learning chatbots Bob & Alice, Google’s AutoML teaching itself coding, and AlphaGo defeated the world’s best go player. AI has also made its way into the US Department of Defense’s military drone program via Google’s TensorFlow. The foundation for the growth of AI technology was built by the US tech titans and this is mirrored in China with the native tech trinity of Baidu, Alibaba and Tencent. They currently seem to be ahead of the US in robotics and speech recognition but trails the US across a majority of AI applications like natural language processing, computer vision and machine learning. Europe seems to be joining the race for AI supremacy as well. President Emmanuel Macron of France announced $370m of annual funding for AI research. A Bloomberg article reports German Chancellor Angela Merkel outlining an agenda to bolster support for artificial intelligence in a joint government venture with France. However, for Europe, which pales in comparison to the AI dominance of the US and China, it may be too little too late. The Future Is Uncertain There are concerns now, regarding the impact of the Trump administration immigration policies on the industry in terms of sourcing international talent. On top of this, a New York Times reported a 15% cut in government funding for science and technology research. However, the development of AI has been led by the US titans, like Amazon and Facebook. Hence, a solid foundation has been laid for the US to maintain its lead over China, even without government support. The anti-China rhetoric of President Trump seems to be having negative connotations for commercial tech partnerships. The Straits Times reports the US government potentially blocking collaborations between US and China companies owing to concerns about the use of AI in foreign military platforms. It is uncertain as to where this AI race is headed but one can expect an increase in Chinese partnerships with European companies and an increase in incentives offered in order to attract AI talent to China. CLICK TO COMMENT CONTINUE READING MORE ON ARTIFICIAL INTELLIGENCE CRYPTOCURRENCIESGolem Lands on the Ethereum Mainnet Pentagon Drone Research AMERICAArtificial Intelligence and Drone Surveillance: Why the Pentagon and Google Have Teamed Up future humanity BLOGWhat Does Facebook Tell Us About the Future of Humanity?
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Acquisitions Failed COMPANIESWhy Acquisitions Fail 5 min read / May 1, 2018 By Nate Nead The fact that most acquisitions fail won’t come as news to many. Auditing and consulting firm KPMG conducts extensive research into M&A every two years and their most recent research showed that only about a third of all transaction in this area generate value for shareholders, with the remaining two-thirds being neutral at best and more often destroying value. The good news is that companies partaking in mergers and acquisitions appear to be learning – previous editions of the same research report failure rates of close to 90% – but two-thirds is still a figure which is far too high. Establishing why so many of these transactions fail to generate the expected value is the first step to avoiding the pitfalls which are common in most deals. A Failure of Management Acquisitions are essentially about managing details. When a target company is acquired, the details which require attention more than double: for a period, they’re essentially managing two firms instead of one. Twice the workload and twice the expectations. It’s not difficult to see why this continues to overwhelm so many. The errors made by managers can be categorised into four broad groups. These are: Misguided strategy Misunderstanding the target Mismanagement of the deal process Mistakes during integration Rarely will an acquisition be a success unless all of these stages are well executed. Beating the odds of an acquisition becoming one of the approximately 67% of deals that fail isn’t easy, even when the buyer has experience in the field; the notorious case of Time Warner and AOL in 2001 – executed by a firm which was itself the product of multiple acquisitions – is proof enough of this. Why Acquisitions Succeed The odds of avoiding these pitfalls are significantly reduced through a good process. While each acquisition differs, good process does not. A matrix provided in Winning Decisions: Getting it Right First Time, by J. Edward Russo and Paul J. H. Schoemaker, captures this simply. What isn’t captured by the matrix is that the difference between being in one column or the other can amount to millions of dollars. The most basic elements of good practice are outlined in the headlines below: Source: Winning Decisions: Getting it Right First Time, J. Edward Russo and Paul J. H. Schoemaker Strategy: The first question every buyer must ask themselves before undertaking an acquisition is ‘why am I doing this?’ If the answer isn’t compelling, the acquisition is already doomed to failure. More often than not, the answer will be ‘growth,’ but if the growth expected post-acquisition isn’t considerably above what could be achieved organically, maybe the acquisition could be postponed until a later date. The Target: As much as textbooks would have us believe otherwise, companies are complex organisms. Their wider community of stakeholders (customers, suppliers, partners etc.) has shaped them as much as those working within their walls. There is no question about a target company which isn’t urgent enough to be asked before an acquisition in order to gain a fuller understanding. Deal Process: The thoroughness of the previous stage is often in indirect proportion to the thoroughness at this stage. That is, when a buyer has identified the ‘perfect’ target, they’ll do anything to get it. Instead, they should establish a price range with which they’re comfortable with and not move beyond it. Likewise, the terms of the deal beyond the acquisition price are highly important. Integration: Every one of the stages above needs to happen with one eye firmly on integration. When a target company has been acquired, managers already need to be thinking about issues of products and service range, branding, strategy and personnel. The price paid should be made with the costs of integration included. Speed is a recurring factor in successful integrations – the less time wasted, the more value can be extracted from the acquisition. Conclusion The slowly decreasing number of acquisitions which fail suggests that the knowledge accumulated from years of M&A has given businesses a much better handle on the process involved in making successful acquisitions. The recognition over the past 20 years that company culture, for example, is far more tangible than previously thought, has no doubt fed into this growing success rate. However, a growing rate of success does not hide the fact that a 67% failure rate is shockingly high. Too many managers are falling into the same pitfalls as those that went before them. Being aware of these pitfalls before undertaking the M&A process gives them the best chance of beating the odds and achieving a value-creating acquisition. CLICK TO COMMENT CONTINUE READING MORE ON M&A akzonobel COMMODITIESAkzoNobel Struggling Against Headwinds akzo nobel vs ppg COMPANIESAkzo Nobel vs PPG: Contrarian Perspectives China's food sector ASIAWhat’s Behind China’s Food M&A Trend? The Market Mogul PRIVACY POLICY TERMS & CONDITIONS COOKIES HELP CENTRE ADVERTISE WITH US CAREERS CONTACT US Copyright © 2018 The Market Mogul