Equity Advisory

Are looking for an honest, transparent and independent equity research and advisory? www.intelsense.in is run by Abhishek Basumallick for retail investors. Subscribe for long term wealth creation.

Friday, 16 August 2019

Weekend Reading - Some Interesting Stuff

1) Americans are now buying survival bunkers for themselves
Americans have, for generations prepared themselves for society’s collapse. They built fallout shelters during the Cold War and basement supply caches ahead of Y2K. But in recent years, personalized disaster prep has grown into a multimillion-dollar business, fueled by a seemingly endless stream of new and revamped threats, from climate change to terrorism, cyberattacks and civil unrest.
“Fear sells even better than sex,” Professor Hoopes said. “If you can make people afraid, you can sell them all kinds of stuff,” he added, “and that includes bunkers.”

2) Keeping calm under stress - from those whose accomplishments will blow your mind
This elite organization was founded in 1904 and has 3,000 invitation-only guests. To qualify for nomination, you need to have done something truly earth-shattering (literally, for those members who study earthquakes). At their annual dinner this year, for example, 250 people had been to the North Pole, 150 to the South Pole, an odd dozen had summited Everest, two had been to the bottom of the Mariana Trench (the deepest point in the ocean), a bunch had orbited the Earth, and six people—six!—had been to the Moon.
Last month, the group held its inaugural Global Exploration Summit in Lisbon. It was the kind of conference where you’d overhear stories that started with “So, when we were coming back to Earth…”

3) How US Fed policy created the last 2 boom and bust cycle
The central bank cannot control the economy. The idea of discretionary monetary policy is a flawed concept stemming from Keynesian ideas of government intervention in the economy. It creates a boom and bust cycle. Until central bankers abandon the boom and bust cycle idea, things are not going to change—there is no "correct" rate hike or decrease. Once a boom occurs (tech bubble), a bust happens when interest rates are raised (2001 downturn). In order to get the country of the downturn, another boom is created (housing bubble), which also leads to a bust (2008 crisis).

4) The great companies of the future is not going to look like those of the past(!!)
As tech companies move into finance, as the fortunes poured into health research reap a new harvest of breakthroughs, as our dependence on fossil fuels for transport and energy disappears, as robots eliminate mindless work, the consensus is that we will genuinely move into a brave new world of ever-better modern conveniences. But while this sounds attractive and exciting, we should remember that multi-year investment trends are like very big dogs: they seldom live past their first decade. Instead, the historical precedents would suggest that the top 10 companies of 2030 are more likely to reflect either the growth of capitalism into new territories (India? Latin America? China? South East Asia?) or the fear that there won’t be enough for everybody.

On this point, the Mayans used to believe that history was made up of recurring cycles of 52 years; a notion which fits nicely with the popular belief that people avoid making their parents’ mistakes, only to repeat their grandparents’ errors. So perhaps in 2030 the market will be primed for a return of the belief that democracy can only lead to inflation, as politicians chase votes with barely-dry cash?

5) More food will be delivered than eaten in restaurants
In 2020, more than half of restaurant spending is projected to be “off premise”—not inside a restaurant. In other words, spending on deliveries, drive-throughs, and takeaway meals will soon overtake dining inside restaurants, for the first time on record. According to the investment group Cowen and Company, off-premise spending will account for as much as 80 percent of the industry’s growth in the next five years.



Looking for an honest equity advisory service for long term wealth creation? Subscribe to www.intelsense.in

Friday, 2 August 2019

Weekly Reading: Some Interesting Stuff


1) The cure for baldness is here
I have always maintained that anyone who can find the cure for two problems will become billionaires - baldness and obesity. Looks like one of the problems is coming to an end. And technology is intervening here as well.

The physiology of balding has long vexed even the most entrepreneurial of scientists. Despite a rare confluence of commercial forces and scientific interest, generating new hair remains outside the realm of the possible. This could be changing, though—and not owing to new packaging of the same old medicines. Recently a series of scientific publications have explored advances that involve both stem-cell research and 3-D printing, with the goal of cloning a person’s actual hair and then inserting it into his or her scalp—in tremendous, unlimited quantities.
 Using cells from a person’s own body minimizes the risk that the immune system will reject the hair transplants 

2) The big business of sleep
The Western world is currently undergoing an epidemic of poor sleep – fueled by everything from auto-play streaming services to the rise in millennial anxiety. And yet, new and alarming research is telling us more than ever about its dangers, from higher rates of heart disease to doubling our risk of cancer. But now, coming to the rescue is a £100 billion sleeping giant, as tech titans and start-ups repackage rest as the ultimate wellness cure.

3) Fungi are getting ready to kill us! (And we are helping them!!!)
Candida auris, a fungus that can kill anyone who comes into close contact with a carrier, was first identified in 2009 in a Japanese patient with an ear infection. It then started showing up in hospitals in Asia, Africa and South America in patients without a clear link — and no one could figure out why.

The majority of fungi grow well in ambient temperatures but only a small percentage can tolerate our body temperature. The concern is that the higher ambient temperatures caused by global warming will eventually lead some kinds of fungus to breach the thermal restriction zone, what Casadevall explains is a zone that is so hot that it typically keeps most fungal species off our body. Without those defences working, Candida auris and other fungal species that adapt to higher temperatures can infect and possibly kill humans.

4) Ruchir Sharma on why a US Fed rate cut can be dangerous
The US Federal Reserve appears poised to cut interest rates for the first time since the global financial crisis a decade ago. Adjusted for inflation, the Fed’s benchmark rate is now just half a per cent and the cost of borrowing has rarely been closer to free, but the clamour for more easy money keeps growing.

Everyone wants the recovery to last and more easy money seems like the obvious way to achieve that goal. With trade wars threatening the global economy, Federal Reserve governors say rate cuts are needed to keep the slowdown from spilling into the United States, and to prevent doggedly low inflation from sliding into outright deflation.

In this environment, cutting rates could hasten the outcome that the Fed is trying to avoid: a debt-fueled market bubble, followed by collapse and an economic downturn with falling prices – much like Japan in the 1990s. Japan showed that central banks can print all the money they want, but can’t dictate where it will go. Easy credit could not force over-indebted consumers to spend, and much of it ended up going to finance “bridges to nowhere” and the rise of debt-laden “zombie companies” that still weigh on Japan’s economy.

5) Urjit Patel's insights into the Indian banking system
Indian funding model is bank-led; hence, the banking sector health has to be a priority area.
The dominance of bank-led funding is slowly changing, but, expected to remain important, plus there is interconnectedness between banks & non-banks.

There is a significant divergence in the performance of private banks (PBs) and government banks (GBs) in terms of operations & financial indicators. GBs have a high ratio of non-operating expenses to earnings compared to PBs. High-cost structure of GBs is borne by economy; maybe impinging transmission of policy rate changes.

As many as 90 per cent of frauds occurred in GBs while the share of PBs is about 10 per cent.
In Indian banks, capital is low relative to NPAs compared to global standards.

Friday, 26 July 2019

Weekly Reading: Some Interesting Stuff


1) The psychology of prediction
Anything that Morgan Housel writes is worth reading.
This article describes 12 common flaws, errors, and misadventures that occur in people’s heads when predictions are made.

2) Electric vehicles in EU have to sound like traditional vehicles
I don't know if when cars were first introduced if it was required to sound or look like horses :-) But, new electric vehicles will have to feature a noise-emitting device, under an EU rule coming into force on Monday. It follows concerns that low-emission cars and vans are too quiet, putting pedestrians at risk because they cannot be heard as they approach. All new types of four-wheel electric vehicle must be fitted with the device, which sounds like a traditional engine.

3) Mauboussin on what he would tell his younger self (~read more)
The motto of the Royal Society – “nullius in verba” – roughly translates to “take nobody’s word for it.” Basically, the founders were urging their colleagues to avoid deferring to authority and to verify statements by considering facts. They wanted to make sure everyone would think for themselves.
In the world of investing, that means constant learning—which entails constant reading. So I would encourage my younger self to read widely, to constantly learn, and to develop points of view independent of what others say and based on facts. Specifically, I would recommend developing the habit of reading. Constantly ask good questions and seek to answer them.

4) How global money laundering operates
Corruption isn’t something that happens only in hardscrabble countries led by dictators and plagued by instability. It happens everywhere. Public money is stolen and siphoned away from poor countries at the expense of citizens, while private money is invested in wealthy nations where the well-heeled bask in luxury.
The global financial system, the international financial system, these offshore centers of finance essentially provide an open door from their countries to the world, which means that they can just walk out of their countries with as much money as they like, stash that money offshore, then spend it without anyone realizing that it’s them.
Money moves freely from country to country; law and law enforcement can’t. It becomes very easy if you’re very wealthy to just put your money wherever you like. That means you put your money where it will be treated best, where you will get less scrutiny for it.

5) The anatomy of a fraud
Be wary of companies that are all story and no numbers. If the story is so great, shouldn’t there be plenty of numbers to back it up?


Friday, 19 July 2019

Weekend Reading - Some Interesting Stuff


1) Pay attention to your attention
I felt that I had to pay attention to my attention, that I had to focus on my focus. It was new. It wasn’t something I’d had to think about since I was a kid.
The same way we discovered that the sedentary lifestyles of the 20th century required us to physically exert ourselves and work our bodies into healthy shape, I believe we’re on the cusp of discovering a similar necessity for our minds. We need to consciously limit our own comforts. We need to force our minds to strain themselves, to work hard for their information, to deprive our attention of the constant stimulation that it craves.
The same way the consumer economy of the 20th century called upon us to invent the nutritional diet, I believe that the attention economy of the 21st century calls upon us to invent an attention diet. 
The first and most important goal of an attention diet should be to consciously limit the number of distractions we’re exposed to.
Basically, the name of the game is quality over quantity. Because in a world with infinite information and opportunity, you don’t grow by knowing or doing more, you grow by the ability to correctly focus on less.


2) Tax on BigTech by France - will others follow?
France has approved a digital services tax despite threats of retaliation by the US, which argues that it unfairly targets American tech giants. The 3% tax will be levied on sales generated in France by multinational firms like Google and Facebook. The French government has argued that such firms headquartered outside the country pay little or no tax. At present, they are able to pay little or no corporate tax in countries where they do not have a large physical presence. They declare most of their profits where they are headquartered. The European Commission estimates that on average traditional businesses face a 23% tax rate on their profits within the EU, while internet companies typically pay 8% or 9%.France has long argued that taxes should be based on digital, not just physical presence. It announced its own tax on big technology firms last year after EU-wide efforts stalled.

3) Is FaceApp, the new sensation, safe or is it collecting information about you to be able to misuse later?
Wireless Lab, the company behind FaceApp, has very expansive Terms of Service that raise a growing number of privacy concerns. Section 5 of the Terms of Service “grants FaceApp a perpetual, irrevocable, nonexclusive, royalty-free, worldwide, fully-paid, transferable sub-licensable license to use, reproduce, modify, adapt, publish, translate, create derivative works from, distribute, publicly perform and display your User Content and any name, username or likeness provided in connection with your User Content in all media formats and channels now known or later developed, without compensation to you.”
“You just sent them close up, well-lit images of your face,” he continues. “Now, they know your name and vital details and can create an annotated image record of you as a human. The next model would have no problem triangulating and verifying and adding more data from other sources like LinkedIn which would then give them your education, your work history, skies the limit.”

4) Cordless charging of EV batteries - now a reality
If the future of mobility is destined to be electric, CEO Alex Gruzen of WiTricity wants to make sure it’s cordless, too. WiTricity, a Massachusetts-based start-up, designs systems that deliver power wirelessly to car batteries using a technology known as magnetic resonance.
Electric vehicles are now the single largest consumer of battery-watt hours. EVs have surpassed cell phones and all consumer electronics. That’s kind of remarkable, given the billions of phones sold every year.
This summer, they hit a major milestone: for the first time, a global automaker, BMW, launched a plug-in hybrid car featuring their wireless-charging technology.

5) What is wrong with India's PSU banking system in the backdrop of 50 years of bank nationalization
Bank nationalization was a by-product of a power struggle between Gandhi and rivals within the Indian National Congress party that was only superficially about economics. 
Gandhi wanted to isolate her rivals, including her finance minister, and force them out of the government. So, she maneuvered them into declaring that the public sector was inefficient and should be dismantled. Then she herself took the opposite position, nationalizing the banks and leaving her enemies with no option but to go. It was a matter of intra-party politics, not poverty relief.
The Harvard Business School economist Shawn Cole found that “while nationalization initially spurred financial development and caused unprecedented amounts of credit to flow to agriculture, this came at a cost of lower quality intermediation. Moreover, a more than doubling of agricultural credit to villages led to no measurable increase in agricultural investment. Even the increase in credit was not sustained.”
The effect on industry, meanwhile, was clearly negative. Banks, once nationalized, became risk-averse and hidebound, rarely lending to new firms. Under-lending became chronic; manufacturers found themselves severely short of credit. Bank officials did not have to care about finding and evaluating profitable firms. Instead they lent to those companies selected, for whatever reason, by their political bosses.
Such cronyism led to periodic bad loan crises that required bailouts by the banks’ owners, the taxpayers. The same dynamic continues to this day: The last Indian budget set aside 700 billion rupees ($10.2 billion) for recapitalizing public sector banks. This means a total of 2.7 trillion rupees has been infused into the state-controlled banking sector since 2017. Even so, banks are still burdened with bad assets and reluctant to lend.



Friday, 12 July 2019

Weekly Reading - Some Interesting Stuff

1) Why plants don't die from cancer?
I recently watched the fantastic documentary series on Chernobyl. I would recommend it to anyone interested.
Chernobyl’s exclusion zone isn’t devoid of life. Wolves, boars and bears have returned to the lush forests surrounding the old nuclear plant. And when it comes to vegetation, all but the most vulnerable and exposed plant life never died in the first place, and even in the most radioactive areas of the zone, vegetation was recovering within three years.
Critically, unlike animal cells, almost all plant cells are able to create new cells of whatever type the plant needs. This is why a gardener can grow new plants from cuttings, with roots sprouting from what was once a stem or leaf.
All of this means that plants can replace dead cells or tissues much more easily than animals, whether the damage is due to being attacked by an animal or to radiation.

2) The downfall of Ranbaxy
The Ranbaxy story remains a fascinating one for me. How in a span of a few years, how the two Singh brothers managed to completely destroyed a reputed business is a lesson to be learnt for all.
In its race for profit, Ranbaxy had lied to regulators, falsified data, and endangered patient safety in almost every country where it sold drugs. Ranbaxy had not properly tested the stability of almost any drugs on the US market. The most basic good manufacturing practices require continuous monitoring of drug quality. 

3) Chinese private enterprises start stuttering
We’ve been smacked by roaring trains of nonsense this year. In April, drugmaker Kangmei Pharmaceutical Co. said that it overstated cash holdings by $4.4 billion, due to an accounting “error.” Kangde Xin Composite Material Group Co. didn’t skip a beat, telling us its auditor could find no trace of a 12.2 billion yuan ($1.8 billion) bank deposit.  “Qualitative factors are playing an increasing role” when assessing Chinese enterprises, S&P Global Ratings wrote in June. Put more bluntly: Firms may look great on paper, but the cash you see on their balance sheets may not even be there. 
A loss of investor confidence is the last thing private enterprises need as the economy stutters. With banks reluctant to lend, stock and bond offerings remain their key funding channels.

4) EV battery technology (for the uninitiated!)
There are, essentially, three problems to solve in order for batteries to truly transform our lives: power, energy, and safety.
In common parlance, people use “energy” and “power” interchangeably, but it’s important to differentiate between them when talking about batteries. Power is the rate at which energy can be released.
The article discusses the developments of battery technology and explains it well for laymen.

5) Brian Lara scores a half-century
Now, that the World Cup is over and we are all disappointed, let's go down memory lane with one of the greatest batsmen in world cricket - Brian Lara.

Friday, 5 July 2019

Weekend Reading - Some Interesting Stuff


1) Will the DMart story play out like Aldi?
when Walmart’s US CEO Greg Foran invokes words like “fierce,” “good” and “clever” in speaking almost admiringly about one of his competitors, he’s not referring to Amazon. Foran is describing Aldi, the no-frills German discount grocery chain that’s growing aggressively in the United States and reshaping the industry along the way. Aldi has built a cult-like following. When it enters a new town, it’s not uncommon for hundreds of people to turn out for the grand opening. The allure is all in the rock-bottom prices, which are so cheap that Aldi often beats Walmart at its own low-price game.
There’s no secret to how Aldi keeps its prices so low: The company strips down the shopping experience in an unapologetically and brutally efficient way.

2) Or will it grow up to be like Costco?
I am reading up on the retail companies after a friend insisted I study Dmart. I am fascinated by Costco. I have shopped a few times there but never bothered to learn its history or to track its story.
Costco is an unlikely fashion retailer, but has somehow managed to become a fashion powerhouse.
Costco’s 85 million members, who pay an annual fee starting at $60 to gain access to goods at bargain prices, are filling their baskets with $70 North Face jackets and $13 Jessica Simpson jeans, along with bulk salmon and pasta. The company generated $7 billion in sales annually in clothes and footwear, which is more than Old Navy, Neiman Marcus, or Ralph Lauren. Its fashion revenue has been growing at a rate of about 9% a year for the past four years, which is faster than its food or electronics business.

3) How to be happy?
When we first get something that’s awesome, it feels really awesome. But then we get used to it pretty quickly. This phenomenon is what psychologists call “hedonic adaptation.
The prescriptions?
One was to spend time and money on things that don’t last as long—that is, things that are harder to adapt to. What this ends up translating to is the by now well-known consumerist commandment to “buy experiences, not things.” 
The other was to set aside time to be grateful for what you already have. This may come in the form of a gratitude journal or a period of brief reflection, and could be as basic as acknowledging the luxury of taking a hot shower or having a choice about what to eat for dinner. 

4) R3 pontificates on a range of issues
Raghuram Rajan discusses a vast range of issues. He discusses globalisation, the rise of nationalistic politics across the world, migration, adapting to new skills, welfare systems,
Very good read and practically not possible to summarize.

5) When you are a victim of your own success
You may be aware of Kleenex, Velcro and ChapStick, but what about escalator? Or dumpster? Linoleum, zipper, trampoline? All of these are (or were) trademarks of companies whose products were so successful that they came to represent an entire category. And it can actually cause quite a problem for those companies.
“When something becomes so pervasive in everyday society as a result of its own fame, there’s an argument that it no longer represents the brand, it almost represents the action,” Mr. Cohen said. “So as a result of that, in trademark law, you cannot trademark things that are descriptive or generic in nature.”
Bayer Co. v. United Drug Co. was a seminal case in which Bayer lost its trademark for Aspirin to what experts now refer to as “genericide.” That 1921 case set the table for the modern standard that courts currently follow: If a brand name is understood by the public to refer broadly to a category of goods and services rather than a brand’s specific good or service, a company may be at risk of losing its trademark. Escalator, cellophane, and laundromat have all lost their trademark status to genericide.

Friday, 28 June 2019

Weekly Reading - Some Interesting Stuff


1) One business where Amazon failed
Amazon plans to shutter its four-year-old Amazon Restaurants delivery service in the US this month. Amazon started the food-delivery service as on-demand meals were becoming big business for tech startups, with companies like Postmates, DoorDash, Caviar, and Uber Eats competing to deliver food from restaurants to consumers. Others, like Sprig and Maple, went further, vying to both prepare and deliver freshly cooked meals. In the US, Amazon Restaurants was available for free to customers with a $119-a-year Prime account.
Restaurants aren’t the first delivery-based business to evade Amazon, which is otherwise a master of logistics. The company has famously struggled to make online grocery-delivery work, with Amazon Fresh still a niche player more than 10 years after its launch.
Food delivery is a tough business with complex logistics, labor practices that are often poor, and notoriously thin margins. Many of the hottest delivery companies in Silicon Valley just a few years ago have since gone out of business.


2)  A real simple guide to the controversial paper by Arvind Subramanian
This is a very well-articulated, yet simple article on what Arvind Subramanian has talked about in his paper on GDP mis-representation. A must-read.


3) Chennai is facing an unprecedented water crisis; and it can spread to all of India, unless we start acting fast
Rains have become more erratic because of climate change. That, coupled with a delayed arrival of the seasonal monsoon, which usually comes in June, has all but dried up Chennai's water supply. Government data show that the storage level in the four lakes combined is less than one-hundredth of what it was at this time last year. A severe heat wave gripping most of India, including Chennai, has aggravated conditions.
What's happening in Chennai could easily happen anywhere across India
Public institutions are suffering. Hospitals and nursing homes are charging more for services to cover the increased cost of water, according to the local press. There are also reports that toilets at schools are dirty due to a lack of water.
One thing that could have possibly averted this acute water shortage? Rainwater harvesting.
In 2002, the government of Tamil Nadu passed legislation that mandated rainwater-harvesting structures on all buildings, including private homes, in the city. The goal: to capture rainwater and store it for later use. It was a revolutionary idea. When the city got hit with heavy monsoon rains a few years later, rainwater harvesting raised the water table enough to last the city until 2016.


4) Understanding the psychological drivers behind the mistake made by Bill Ackman on Herbalife
Although this article does not deal with the psychology, it does provide the narrative of what happened in the Herbalife deal. I was thinking on the errors made by Bill Ackman. Incentive caused bias, endowment bias, commitment and consistency bias scream at me. That is why it is never a good idea to take a public stand on a stock and make its success a matter of one's own ego.


5) JP Morgan's view on how to navigate a cycle which may be peaking
JP Morgan is not suggesting that US is getting into a recession yet believe that investors should start taking precautions. Moving to higher quality bonds and equities is the first and most important step. Looking at investments from a yield perspective and moderating capital appreciation expectations is the next. The third is to look where the growth is. Trade war, global manufacturing slowdown and liquidity in markets are all marked as risks.

Friday, 14 June 2019

Weekly Reading - Some Interesting Stuff


1) No more laundry - how will detergent companies handle this disruption??!!
Unbound is part of a broader wave of startups designing clothes that require less laundering. An eco-friendly brand called Pangaia, which launched late last year and already counts celebrities like Jaden Smith and Justin Bieber as fans, creates $85 seaweed fiber T-shirts that are treated with peppermint oil to keep the shirts fresher longer between washes. The brand estimates that this will save about 3,000 liters of water over the course of a lifetime, compared to a regular cotton T-shirt. Then there is menswear label Wool & Prince, which creates everything from $128 oxford shirts to $42 boxer briefs out of wool, all designed to be washed infrequently. Last year, the company launched a sister womenswear brand called Wool& that makes dresses that can be worn for 100 days straight without washing.

2) Alpha in investing is derived from behavioral psychology
Alpha is finance-geek speak for an investor’s skill that allows her to outperform an index. In a sense, all alpha is behavioral. Whether you follow an algorithm (set of automatic rules) to select investments, decision rules, gut feeling or all three. It is a human who is making the trading decisions. (Even an algorithm is programmed by humans, with all their biases and skills.)
The most direct thing individuals can do to reduce their negative alpha, is to trade as little as possible, minimize costs and above all, keep it simple. Behavioral alpha is about building our skills and knowledge about both the financial markets and our own decision-making processes. The first job is to avoid the costly mistakes.

3) A new digital bank in Brazil is shaking up the traditional banking industry
Not many people are familiar with Nubank, a digital bank that has become the most valuable startup in Latin America by extending credit cards to the unbanked and challenging the financial system of one of the world’s biggest markets, Brazil. Brazil is a particular opportunity — 55 million people there don’t have access to a bank, primarily in the country’s poorest households. Even Brazil’s own government has criticized the country’s banks for gouging locals for “excessive” profits, with the country’s economic chief saying this week that insufficient competition had led to a “cartelized” economy. The top five banks in Brazil, led by Itaú Unibanco, control about 82 percent of assets that are banked. Nubank announced last month that it was expanding to Mexico, where it plans to launch credit cards later this year. The company envisions serving millennial customers all across Latin America and possibly could represent a way for younger, internet-connected customers to avoid the bureaucracy found commonly in their home countries.

4) I have been wondering why I see a lot more bearded men all around these days. Two interesting articles giving a perspective on this.
The razor industry nervously recorded a 5 percent decline in sales last year as men’s shaving frequency has continued to decline; producers of shaving accouterments have tried to cut prices and diversify into new grooming products, having apparently accepted that our beards are here to stay.
We can thank the Global War on Terror and the reluctance of military leaders to impose discipline on special operations forces.The war on terror widened, and more tactical operators—Green Berets, Seals, Rangers—got explicit or tacit approval from military higher-ups for their beards while on missions in the Middle East and Southwest Asia, once-unheard-of exceptions to the services’ longstanding grooming regulations, which had posited that facial hair might run counter to good order and discipline. The evidence of this is the proliferation of beards in the military, which now extends to civilian society. We worship the post-9/11 military operator.

5) An investigative report on Eros International
Eros’s key Indian operating subsidiary had its credit rating lowered 10 notches to “default” by CARE ratings, the second largest Indian ratings agency. The issue, according to CARE was “a slowdown in collection from debtors”.
After extensive on-the-ground research in India, interviews with multiple former employees, and a detailed review of Indian private company filings, we believe the underlying problem is that a significant portion of Eros’s receivables don’t actually exist.
We have uncovered details of highly irregular related-party transactions. For example, Eros has directed $153 million to a supposed production company based in tiny office located in a residential Mumbai slum. The entity is operated by the brother-in-law of Eros’s Chairman and CEO.
We have also documented what we believe to be multiple undisclosed related-party transactions that appear designed to hide receivables.
It is hard to imagine Eros’s equity makes it out of this scenario intact. We expect the price of both the BSE and NYSE stock to end up worthless, barring some sort of bailout from a friend of Eros’s leadership.
In our opinion, this situation has arisen due to a complete failure of Eros’s auditor, Grant Thornton, to apply even basic scrutiny to Eros’s financials.

Thursday, 6 June 2019

Weekend Reading - Some Interesting Stuff

1) The chocolate we eat is produced by child labour and no one is doing anything about it
Mars, Nestlé and Hershey pledged nearly two decades ago to stop using cocoa harvested by children. Yet much of the chocolate you buy still starts with child labor. The farms in Ivory Coast  form the world’s most important source of cocoa and are the setting for an epidemic of child labor that the world’s largest chocolate companies promised to eradicate nearly 20 years ago.
About two-thirds of the world’s cocoa supply comes from West Africa where, according to a 2015 U.S. Labor Department report, more than 2 million children were engaged in dangerous labor in cocoa-growing regions.
One reason is that nearly 20 years after pledging to eradicate child labor, chocolate companies still cannot identify the farms where all their cocoa comes from, let alone whether child labor was used in producing it.


2) Puncture-proof tires, at last
Michelin is developing a tire called the Uptis (or Unique Puncture-proof Tire System), which is a tire that cannot ever go flat or blow out because it doesn’t require oxygen to stay rigid. Instead, the Uptis features an internal system of flexible spokes that support the tire.
Airless tires are not an entirely new idea. They already exist in the world of cycling, and even Michelin sells something called the Tweel for lawnmowers. The Tweel looks a whole lot like a mini version of the Uptis, with the same rubbery spokes in the middle of the tire. As the Tweel’s marketing materials explain, those spokes don’t merely replace the need for air, they work like mini shock absorbers, deforming to bumps to ensure a smoother ride than a bouncier, inflated tire offers today. Yet the car industry has been shy to adopt airless tires because, when properly contained, air is in many ways the perfect material for a tire. Air is virtually weightless, so it doesn’t impact a vehicle’s performance and efficiency. Air can also be hit with bump after bump and it doesn’t lose any structural integrity. After all, it’s just air.


3) We are eating microplastics!
Every day we are ingesting tiny, often microscopic pieces of plastic -- "microplastics" -- with our food, beverages and with the very air we breathe.
Those who exclusively drink bottled water rather than tap water can add up to 90,000 plastic particles to their estimated annual total.
The full impact on our health isn't known. Research shows some particles are small enough to enter our tissues, where they can trigger an immune reaction, or release toxic substances and pollutants absorbed from the environment, including heavy metals.


4) Overtourism is a new phenomenon
Late in May, the Louvre closed. The museum’s workers walked out, arguing that overcrowding at the home of the Mona Lisa and the Venus de Milo had made the place dangerous and unmanageable.
This phenomenon is known as overtourism. That has led to environmental degradation, dangerous conditions, and the immiseration and pricing-out of locals in many places.
The root cause of this surge in tourism is macroeconomic. The middle class is global now, and tens of millions of people have acquired the means to travel over the past few decades. International-tourist arrivals around the world have gone from a little less than 70 million as of 1960 to 1.4 billion today: Mass tourism, again, is a very new thing and a very big thing.
A number of places have implemented or expanded or proposed tourist taxes, among them Amsterdam, Bali, Edinburgh, Ireland, Rome, and Venice. These levies on hotels and day trips both reduce the number of visitors to a given place and provide it with revenue to improve infrastructure and defray the damage that tourists inevitably cause. Governments are also rolling out regulations, such as bans on tour buses in Rome and gating-and-ticketing in Barcelona.


5) Away, creating Instagram-friendly luggage, bets on the overtourism boom
The startup world has a new unicorn, and its name is Away. Away joins the ranks of other “unicorns” — private companies worth over $1 billion— like Slack and WeWork.
The global industry for luggage will be worth nearly $55 billion by 2025, according to one estimate by Hexa Research.
Away boasts a direct-to-consumer model that helps them stay out of the red. “We’re profitable on each suitcase that we sell,” Rubio told Yahoo Finance. In just over 3 years in business, Away has sold over a million suitcases— and is on track to make $300 million in revenue this year. It has plans to open 50 more stores in the next few years.


Friday, 31 May 2019

Weekend Reading - Some Interesting Stuff


1) Can cancer be treated by bioelectricity?
The human body—including the brain—runs on electricity - the movements of mostly positively charged ions of elements like potassium, sodium, and calcium.
Two recent meta-analyses concluded that amplifying the natural wound current with electrical stimulation prevented them all from getting worse, and even healed some of the worst ones completely. Electrical stimulation almost doubles their healing. Similarly intriguing results have been obtained for non-healing diabetic wounds—the kind that lead to the amputation of limbs, which usually leads within a few years to death.
Cancer is beginning to be viewed increasingly as a failure of communication; a misregulation of the field of information that orchestrates individual cells’ activities towards functioning as part of a normal living system. Individual cells “forget” they are part of a larger whole and treat the rest of the body as an environment whose resources can be exploited to feed themselves.
In 2013, Levin’s group showed that they could prevent or reverse some tumors in tadpoles by using drugs to target their bioelectric signaling. The same drugs could turn cancer on and off at a distance, by treating the environment, not the cells themselves.
The broader implication still is that within the next decade, we could learn enough about bioelectricity to change how cell networks communicate and make decisions about how they grow and develop. New computational modeling tools will be a major factor here.


2) China's food delivery app boom has an odd fallout - plastic
The astronomical growth of food delivery apps in China is flooding the country with takeout containers, utensils and bags. And the country’s patchy recycling system isn’t keeping up. The vast majority of this plastic ends up discarded, buried or burned with the rest of the trash.
Scientists estimate that the online takeout business in China was responsible for 1.6 million tons of packaging waste in 2017, a ninefold jump from two years before. That includes 1.2 million tons of plastic containers, 175,000 tons of disposable chopsticks, 164,000 tons of plastic bags and 44,000 tons of plastic spoons.
More plastic enters the world’s oceans from China than from any other country. Plastic can take centuries to break down undersea.


3) Sustainable growth is more important than PE multiple
The reason that Wal-Mart produced a fantastic return from 1974 to now is not that it was cheap relative to its present or near-term future earnings.  By the standards of 1974, it was actually a growth stock–priced at almost twice the market multiple.  In the current market, an equivalent valuation would be something like 30 or 40 times earnings–for a business with uncomplicated earnings that had already been in operation in Arkansas for three decades.  It produced a fantastic return because it was a fantastic business, with miles and miles of growth still in front of it.


4) The way to master more things is to simply focus on one thing right now
When you begin practicing a new habit it requires a lot of conscious effort to remember to do it. After awhile, however, the pattern of behavior becomes easier. Eventually, your new habit becomes a normal routine and the process is more or less mindless and automatic.
The counterintuitive insight from all of this research is that the best way to change your entire life is by not changing your entire life. Instead, it is best to focus on one specific habit, work on it until you master it, and make it an automatic part of your daily life. Then, repeat the process for the next habit.


5) Walk 5000 steps a day, not 10,000 for the health benefits
There's nothing magical about the number 10,000.
In fact, the idea of walking at least 10,000 steps a day for health goes back decades to a marketing campaign launched in Japan to promote a pedometer. And, in subsequent years, it was adopted in the U.S. as a goal to promote good health.
In fact, women who took 4,400 steps per day, on average, were about 40 percent less likely to die during the follow-up period of about four years compared with women who took 2,700 steps.
The benefits of walking maxed out at about 7,500 steps. In other words, women who walked more than 7,500 steps per day saw no additional boost in longevity.

Monday, 27 May 2019

An Overview Of The Markets

Some time back I shared this with the members of the Intelsense advisory services. 

Friday, 24 May 2019

Weekly Reading - Some Interesting Stuff


1) Finland is teaching school students how to identify fake news (and we should follow suit)
As the trolling ramped up in 2015, President Sauli Niinisto called on every Finn to take responsibility for the fight against false information. A year later, Finland brought in American experts to advise officials on how to recognize fake news, understand why it goes viral and develop strategies to fight it. The education system was also reformed to emphasize critical thinking.
“It’s not just a government problem, the whole society has been targeted. We are doing our part, but it’s everyone’s task to protect the Finnish democracy,” Toivanen said, before adding: “The first line of defense is the kindergarten teacher.”
The students broke off into groups, grabbing laptops and cell phones to investigate their chosen topics – the idea is to inspire them to become digital detectives, like a rebooted version of Sherlock Holmes for the post-Millennial generation.
Her class is the embodiment of Finland’s critical thinking curriculum, which was revised in 2016 to prioritize the skills students need to spot the sort of disinformation that has clouded recent election campaigns in the US and across Europe.

2) The slow building of the second iron curtain - China and US fight it out with Huawei caught in the crosshairs
The worries about Huawei have historically stemmed from the fact that the company’s founder, Ren Zhengfei, was a technician for the People’s Liberation Army prior to founding Huawei — not to mention the tens of billions of dollars the Chinese government has invested in the company. Fears have been exacerbated in the wake of China’s passage of its National Intelligence Law and other cybersecurity laws in 2017, which, according to Lake, “compel corporations to assist in offensive intelligence operations” instead of just requiring them to cooperate with law enforcement on national security matters.

3) India starts spending meaningfully for solar energy
India's investments in renewable sources are now outpacing those in fossil fuels. The falling costs of bringing solar power online as well as favourable government policies have seen solar’s star rise in recent years. At a time when other nations are curbing coal use, India is bucking the trend and the vast majority of the country is still powered by fossil fuels, mostly coal.

4) One of the oldest industries (meat industry) is about to be disrupted by factory produced meat
In the foothills of a mountain in a rural part of Japan northwest of Tokyo, a farm called Toriyama painstakingly breeds and raises cattle to make Wagyu beef–delicately marbled meat that sells for around $100 a pound. In a lab in San Francisco, food scientists now plan to recreate Toriyama’s meat in a bioreactor.
The best way to deal with the meat challenge is just to make better meat without all the issues associated with killing animals today.” Those aren’t just issues of animal ethics; the meat industry is also one of the world’s largest contributors to climate change. The basic techniques aren’t new and have been used in medical research for decades–for example, in tissue engineering of organs for drug discovery. The company still has major challenges ahead. After researchers figure out how to make cells grow quickly enough to address cost issues, it will move its focus to flavor; the nutrients fed to the cells can be tweaked to affect the taste of the meat.

5) How could auditors miss the issues in IL&FS?
There are a host of allegations against the auditors, from missing out on the sprawling IL&FS subsidiary empire and not highlighting the asset-liability mismatch on the company’s books, to inappropriate valuation of assets, poor recognition of non-performing assets (NPAs), and non-detection of circular rotation of funds between group entities.
The glaring failures prompted the government to set an example with this case. “Do the auditors work for the management or for stakeholders. Can auditors blindly accept the version of the management and rely on comfort from management?" asked a senior SFIO officer.

Friday, 17 May 2019

Weekend Reading - Some Interesting Stuff


1) 4D printing can help objects transform based on external stimuli
3D printing has helped companies use that data and information to address some of these demands, allowing them to customize product designs in ways that are difficult, if not impossible, to replicate with conventional manufacturing. Considered an extension of 3D printing, 4D printing has the potential to take customization a step further by enabling 3D-printed parts to transform their shape in response to external stimuli such as heat, light, pressure, and humidity. In practical terms, this means 4D-printed objects can theoretically react much more dynamically, rather than remaining as rigid, solid structures. In the future, it may be possible to envision a time when products created with 4D printing can adapt and adjust to their surroundings, in addition to being customized to fulfil user needs.


2) Utilizing a margin of safety can serve you well in nearly any area of life
All information—no matter how bulletproof it may seem—comes with some degree of error. The future is uncertain and life always seems to get more complicated. A margin of safety acts as a buffer against the unknown, the random, and the unseen.
The world is more uncertain now than ever before. There is too much information for one person to handle, too many moving pieces for one person to manage. This is why the greatest benefit that a margin of safety provides might be reduced stress and overwhelm. Nobody can predict the future, but there is a sense of quiet confidence that comes over you when you know you are capable of handling the uncertainties of life.
If your life is designed only to handle the expected challenges, then it will fall apart as soon as something unexpected happens to you. Always be stronger than you need to be. Always leave room for the unexpected.


3) US-China Trade war can escalate and lead to long term changes in supply chains
U.S. trade policies that are not rooted in economic considerations but are driven by political postures could prove costly for U.S. businesses and consumers, in addition to eroding the country’s leverage in global trade.
If people start to think this [trade war with China] is a lasting phenomenon, you could see significant dislocations,” he added. “You could see companies relocating their supply chains; in some cases, that’s going to be moving production into China to avoid tariffs on goods exported from the U.S., and in some cases [it could mean] moving sources out of China to countries that don’t face the tariffs that China does – all that could be very disruptive.”


4) How Amazon Prime came to be one of the greatest retail innovations ever
Amazon Prime launched in February of 2005, was a first of its kind: For an upfront payment of $79, customers were rewarded with all-you-can-eat two-day delivery on their orders. At the time, Amazon charged customers $9.48 for two-day delivery, meaning if you placed just nine of these orders in a year, Prime would pay for itself.
With it, Amazon single-handedly — and permanently — raised the bar for convenience in online shopping. That, in turn, forever changed the types of products shoppers were willing to buy online. Need a last-minute gift or nearing the end of a pack of diapers? Amazon was now an alternative to the immediacy of brick-and-mortar stores.
This is the story of how the greatest retail innovation of the internet age was created, in the face of sound logic and reason that suggested it might very well be disastrous. It’s also a story of how a frankly bland idea — fast shipping — was powerful enough to alter consumer psychology forever.


5) How experts make mistakes and how only some learn from it
In Tetlock’s 20-year study, both the broad foxes and the narrow hedgehogs were quick to let a successful prediction reinforce their beliefs. But when an outcome took them by surprise, foxes were much more likely to adjust their ideas. Hedgehogs barely budged. (Hedgehogs knew “one big thing,” while the integrator foxes knew “many little things.”) Some made authoritative predictions that turned out to be wildly wrong—then updated their theories in the wrong direction. They became even more convinced of the original beliefs that had led them astray. The best forecasters, by contrast, view their own ideas as hypotheses in need of testing. If they make a bet and lose, they embrace the logic of a loss just as they would the reinforcement of a win. This is called, in a word, learning.