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.

Saturday, 31 August 2019

Weekly Reading - Some Interesting Stuff


1) How AI is shaping new fintech
Data science is increasingly being used to speed up processes, compare products, find deals, and produce answers customised to an individual’s circumstances. 
Using natural language processing, chatbots are designed to cope with the huge variety of unstructured responses that people may type or speak into their devices. As they become more sophisticated, chatbots learn from each encounter, so they can pick up on more subtle or idiosyncratic phrasing and better identify ways to help users. This includes “sentiment analysis”, where the bot detects tension or upset in a user’s tone of voice, and quickly switches over to a human operative to resolve the issue. 

2) Inverted yield curve explained using a sports analogy
The financial world has been atwitter about the inversion of the yield curve. It is a phenomenon in the bond market in which longer-term interest rates fall below shorter-term interest rates, and has historically been a warning sign that a recession could be on the way.
This all seems obvious to people who are steeped in bond market math and the workings of fixed-income markets, and can be completely perplexing to those who are not. Maybe a sports gambling analogy will make the intuition clearer.

3) How deepfakes on social media is getting stronger as the technology to catch it as well
Misinformation has long been a popular tool of geopolitical sabotage, but social media has injected rocket fuel into the spread of fake news. When fake video footage is as easy to make as fake news articles, it is a virtual guarantee that it will be weaponized. Want to sway an election, ruin the career and reputation of an enemy, or spark ethnic violence? It’s hard to imagine a more effective vehicle than a clip that looks authentic, spreading like wildfire through Facebook, WhatsApp, or Twitter, faster than people can figure out they’ve been duped.
As a pioneer of digital fakery, Li worries that deepfakes are only the beginning. Despite having helped usher in an era when our eyes cannot always be trusted, he wants to use his skills to do something about the looming problem of ubiquitous, near-perfect video deception.

4) A city grows based on the commute time
From ancient Rome to modern Atlanta, the shape of cities has been defined by the technologies that allow commuters to get to work in about 30 minutes. Even if there is a vast amount of land available in the country, that land has no value in an urban context, unless transportation makes it quickly accessible to the urban core. And that pattern has repeated itself, again and again, as new mobility modes have appeared. This means that the physical size of cities is a function of the speed of the transportation technologies that are available. And, as speed increases, cities can occupy more land, bringing down the price of land, and therefore of housing, in newly accessed territory.

5) McDonalds is experimenting with a new futuristic store layout
The fast-food giant is known for its quick drive-thru service, but now it’s taking things a step further with a new to-go location that only serves food with no seating.
With its takeout location, McDonald’s is leveraging new technology and touchscreen ordering. McDonald’s creative solution makes the technology an integral part of its business operations, which could prove incredibly successful.

Wednesday, 28 August 2019

Understading the US and China trade war

Firstly, let me be upfront and admit that my knowledge about history and geopolitics is very rudimentary. However, I am fascinated by models and try to learn about how to view things and events from multiple perspectives. I am fascinated by the drama of the “US-China Trade War” and enjoy the edge-of-the-seat theatrics created by President Trump’s daily tweets!
am trying to understand the US-China Trade War in the context of “The Thucydides Trap”. Thucydides was a Greek historian who explained that when a rising power causes fear in an established power it escalates toward war. Thucydides wrote: "What made war inevitable was the growth of Athenian power and the fear which this caused in Sparta."
Nearly all such contests have ended badly, often for both nations. A team led by Graham Allison at the Harvard Belfer Center for Science and International Affairs has concluded after analyzing the historical record. In 12 of 16 cases over the past 500 years, the result was war. When the parties avoided war, it required huge, painful adjustments in attitudes and actions on the part not just of the challenger but also the challenged.
When I look through the lens of this mental model, then suddenly the US-China trade war begins to make sense.
Earlier, wars were fought for the control of territory and natural resources. Today, mega corporations, technology (both software and hardware) and data are probably more important tools of global domination and conversely also of conflict.
The world of today and of the future will be owned by those who control these new-age “natural resources”. Huawei then becomes a symbol or token of this struggle for control. The US is refusing to allow the company's technology to be used for key future communications networks and is pressuring its allies to impose a similar ban. China also prevents US tech giants like Google and Facebook from operating freely in their land.
As Singapore’s late leader, Lee Kuan Yew, observed, “the size of China’s displacement of the world balance is such that the world must find a new balance. It is not possible to pretend that this is just another big player. This is the biggest player in the history of the world. China wants to be China and accepted as such—not as an honorary member of the West.”
Eventually, all this could lead to others having to take sides in this “war”. We could be heading to a “cold war’ like situation with two completely disparate technology blocks – google, facebook et al on one side and Alibaba, Tencent, Huawei, ZTE on the other. This will play out in every sphere. In electric vehicles, BYD is taking a major leap ahead of US companies. Tesla and BYD may come to a head in defining the standards of interoperability in connected EVs. China already dominates the hardware industry globally and US is not even a credible player in that space. The more software technologies that China can become leaders in, the more dominant their future power becomes. And the closer they get to being the preeminent superpower.
So, the next time you see a “trade war” story, view it from the lens of this model and see if it makes more sense.

Note: If you are interested to read more about The Thucydides Trap, please read https://www.theatlantic.com/international/archive/2015/09/united-states-china-war-thucydides-trap/406756/

Disclaimer: The author is the Chief Equity Advisor at www.intelsense.in and nothing in the article should be construed as financial advice.

Thursday, 22 August 2019

Weekend Reading - Some Interesting Stuff


1) The Earth is burning
Major wildfires are burning all over the world right now.
More than 21,000 square miles of forest have gone up in flames in Siberia this month, putting Russia on track for its worst year on record for wildfires.
a wildfire in the Canary Islands forced more than 8,000 people to flee. Over the weekend, new fires ignited in Alaska, extending whats already been an unusually long fire season for the state. Last week, Denmark dispatched firefighters to Greenland combat a wildfire approaching inhabited areas. If not extinguished, officials are worried the blaze would burn through the winter, further driving up the already massive ice melt Greenland has experienced this year amid record heat.
But perhaps even more alarming are the wildfires in the Amazon rainforest, the worlds largest tropical forest. Its an area with torrential rain that almost never burns on its own, yet the blazes have burned for more than two weeks, growing so intense that they sent smoke all the way to São Paulo, Brazils largest city.


2) Mosquitoes - the greatest killer in history
Malaria laid waste to prehistoric Africa to such a degree that people evolved sickle-shaped red blood cells to survive it. The disease killed the ancient Greeks and Romans—as well as the peoples who tried to conquer them—by the hundreds of thousands, playing a major role in the outcomes of their wars. For much of military history, deaths caused by mosquitoes far outnumbered, and were more decisive than, deaths in battle. 
Globalization is helping to spread a new generation of mosquito-borne illnesses once confined to the tropics, such as dengue, perhaps a thousand years old, and chikungunya and Zika, both of which were first identified in humans only in 1952. Meanwhile, climate change is dramatically expanding the ranges in which mosquitoes and the diseases they carry can thrive. One recent study estimated that, within the next fifty years, a billion more people could be exposed to mosquito-borne infections than are today.

3) What if the cost of capital never rises again?
When the cost of money is low (or, effectively zero) as it is today, intellectual property and brand, intangible assets become more highly valued by investors than physical assets are because they are weapons that corporations can use to nullify the moats and assets of the incumbent corporations that they are competing with for customers, revenue and market share.

The implications of a world in which equity capital is flowing while interest rates on credit never rise to the level of being a serious roadblock for innovation are fascinating to consider. What if every new idea that comes along, no matter how world-altering and disruptive, no matter how unproven or risky, can get overnight funding without much of a problem? Masayoshi Son’s Vision Fund has been investing based on this premise. Massive pools of capital from sovereign nations and university endowments and gigantic corporations like Google’s moonshot division are investing this way as well.

There are no asset managers who represent their strategy to clients as “We buy the most expensive assets, and add to them as they rise in price and valuation.” That’s unfortunate, because this is the only strategy that could have possibly enabled an asset manager to outperform in the modern era. It’s one of those things you could never advertise, but had you done it, you’d have beaten everyone over the ten-year period since the market’s generational low.

4) A brief economic history of Independent India
The 73 years after India got its independence can be broadly sliced into three phases: The three decades post-1947 till the 70s was when Jawaharlal Nehru and, then, his daughter Indira Gandhi went about the task of institution and nation-building. The 80s was arguably a lost decade, with Indira pursuing her gambits of nationalising banks and loan melas when she should have been ushering economic reform and deregulation. That eventually came in the 90s when the country’s coffers had dried up. The last three decades have transformed India, made a fraction of Indians richer, but poverty and inequality are still fetters in the eighth decade after India became a free country.
The first three decades may be a distant memory, but to assume that they are gone forever would be a mistake. We still have not fully abandoned some of the mindsets and approaches of that era. 

5) Amazon's Prime Now service may be delivering your next meal
Amazon India has long been eyeing the food delivery business in India. People aware of the company's plans told The Times of India that Prime Now, Amazon's two-hour grocery delivery platform, could be the primary vehicle for its foray into food delivery business in India.

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.