Ten interesting things we read this week

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At Ambit, we spend a lot of time reading articles that cover a wide gamut of topics, ranging from zeitgeist to futuristic, and encapsulate them in our weekly ‘Ten Interesting Things’ product. Some of the most fascinating topics covered this week are: Business (Know your country; WeWork IPO; Separation of platforms and commerce), Technology (How AI will change the way you manage money), Sports (Man on his horse), Neuroscience (Will we ever control the world with our minds?), and Politics (How the views of a few can determine a country’s fate).

Here are the ten most interesting pieces that we read this week, ended August 23, 2019.

1) Know Your Country - Mr. G. Maran (Unifi Capital) [Source: YouTube]
How much do you know about your country? In this 2-hour video and talk organized by the CFA Society India, Mr. G. Maran, the executive director and co-founder of Unifi Capital asks a few questions and presents interesting facts as well. He starts with a quote by Joan Robinson, Amartya Sen’s tutor in Cambridge, “Whatever you can rightly say about India, the opposite is equally true.” If India is a poor country, so it is rich. 

India’s colourful cultures, languages and contrasts reveal a land of extremes. We seem to know so much about the US and other global markets but seldom realise how little we know about our own country. These interesting facts (in Q&A format) are collated by Mr. Maran and his team not to test the knowledge of the audience, but to help in understanding business trends and the so-called 100-bagger opportunities for investors and entrepreneurs pursuing those businesses.

You can watch this video to: 1) learn more about your country and its economy; 2) understand the journey of your country through his discussions; 3) get a quick primer on capital cycle – how it has played out and how it could play out; 4) see how Indian economy and Nifty are very different; 5) see how change is slow and it is difficult to predict the future. More importantly, this video will make you realise why averages are wrong.
  
2) The WeWork IPO [Source: Stratechery]
You know there’s an IPO coming out. In order to understand a firm’s strengths and weaknesses, one of the most important tools you have is the draft red herring prospectus (DRHP). Coming out with a pre-IPO note requires the analysts to: 1) deep dive into the DRHP; 2) read in between the lines; and 3) compare with the best players in the niche. But, what do you do when there’s no peer company to compare? Using your imagination, you compare it with the best possible nearest company (that’s what we at Ambit do!). Just like the author of this piece has done; compared WeWork with Amazon Web Services (AWS).

The author says that the IPO document of WeWork is defined by audaciousness, besides massive losses despite massive amounts of capital raised. He feels these all are related. He says, AWS is the WeWork bull case. Talking about ‘fixed cost’, there is nothing more fixed than real estate, yet WeWork’s offering transforms real estate into a variable cost for all kinds of companies, with benefits that roughly mirror public clouds. WeWork is claiming nearly every desk job around the globe as its market, a move that by definition means moving beyond being a real estate company.

The author also elaborately talks about WeWork’s bull case, losses & ambition, lack of competition, capital & recessions, corporate governance, and the capital glut. The author feels that there is a case that WeWork is both a symptom of software-eating-the-world, as well as an enabler and driver of the same, which would mean the company would still have access to the capital it needs even in a recession. Investors would just have to accept the fact they will have absolutely no impact on how it is used, and that, beyond the sky-high valuation and the real concerns about a duration mismatch in a recession, is a very good reason to stay away.  

3) How AI will change the way you manage your money [Source: Financial Times]
If you are a customer of Chinese financial services group Ping An, you can use a new service allowing you to send the company photos of your vehicle captured on your smartphone. Its computers will automatically assess the damage, cross-check records of your driving history and offer you a while-you-wait quote to settle the claim — bypassing the usual rigmarole. Launched earlier this year, Ping An’s innovation is one example of how accelerating developments in artificial intelligence and data science are shaking up our personal finances — including banking, pensions and investments as well as insurance.

But, the greatest challenge is whether technology can interpret the human emotions that play a part in setting financial goals and making major money decisions. Will financial consumers be prepared to trust machines — and the companies behind them — when it comes to sharing insights into their financial data? “We’re seeing the development of services based on algorithms which, while increasingly sophisticated, aren’t artificially intelligent,” says Sarah Coles, personal finance expert at Hargreaves Lansdown.

Whilst AI can potentially open up the financial advice market to consumers who are currently excluded on cost grounds, traditional advisers are not losing much sleep. For now, the face-to-face model is what the wealthiest clients expect. But just as lower cost advice solutions offer automated processes backed up by human expertise, there is potential for AI to move up the wealth management value chain, streamlining services and cutting costs. The obvious downsides are the privacy concerns, and the risk that the robots will get it wrong. The one thing that humans have over machines, advisers claim, is the ability to build a relationship of trust.

4) How compatible are democracy and capitalism? [Source: Economist]
In recent years, political economists have argued that rising inequality in the Anglo-American world must eventually threaten the foundations of democracy. That argument channels a time-worn view, held by thinkers from Karl Marx to Friedrich Hayek, that democracy and capitalism may prove incompatible. But if capitalism and democracy are such uneasy bedfellows, what explains their long co-existence in the rich world?

Torben Iversen of Harvard University and David Soskice of the London School of Economics see capitalism and democracy as potentially mutually supporting, with three stabilising pillars. 1) Strong government, which constrains the power of large firms and labour unions, and ensures competitive markets. 2) A sizeable middle class, forming a political bloc that shares in the prosperity created by a capitalist economy. 3) Large firms that are not very mobile. Though multinationals are adept at shifting production and profits around the world, in a knowledge economy leading firms cannot break their connections to networks of skilled individuals like those in London, New York or Silicon Valley.

Demographic change might also take a toll: older and whiter generations may not care much whether a would-be middle class that does not look like them has opportunities to advance or not. Then, too, the authors may have underestimated the corrosive effect of inequality. Threatening to leave is not the only way the rich can wield power. They control mass media, fund think-tanks and spend on or become political candidates. Proud democracies may well survive this period of turmoil. But it would be a mistake to assume survival is foreordained.

5) Income inequality alone isn’t responsible for the global rise of populism [Source: scroll.in]
Growing inequality is held responsible for a wide range of social and political ills. Politically, it caused the election of Donald Trump, the UK’s Brexit vote and the broad rise of populism seen as threatening democracy. Household surveys show that income inequality has risen significantly since the 1980s in about two-thirds of the rich countries of the Organisation for Economic Co-operation and Development – leaving one-third where it has not. When it comes to ordinary living standards, middle class income growth has been even more varied. The UK, for example, saw substantial income growth around the middle from the late 1980s up to the mid-2000s, in sharp contrast to its lack of growth since then. Countries such as Australia, Belgium, Canada, Denmark, Finland and Sweden also saw periods of quite strong growth.

The extent to which rising inequality and stagnating living standards over decades have driven the recent rise in populism across the rich countries is also open to question. The fact that support for populist parties has risen in countries where inequality has been fairly stable over time, illustrates the complexity of the factors at work. The evidence does suggest that economic insecurity has been a significant driver of votes for populist parties.

While common forces such as the advance of AI and robots will continue to play out across rich countries, as in recent decades, the way they do so will depend on the institutions in place and the policies adopted there. One size fits all solutions, such as universal basic income, turn out to mean very different things depending on the structure and generosity of the welfare system that it would be replacing. While there is scope to learn from experiences elsewhere, each country will have to find its own road to salvation in tackling inequality and promoting inclusive growth.

6) What’s the deal with that inverted yield curve? A sports analogy might help [Source: New York Times] 
Are we nearing recession? 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. 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. Any adult can walk into a casino and bet on how an N.F.L. team will do this year. For example, bettors once again expect the New England Patriots to be an excellent team — that they are likely to win 11 or 12 out of their 16 games. Casinos will let you wager on how many games they will win this season.

But what if casinos would let you bet not only on how a team will do this year, but on how it will perform over the next two, five, 10 or even 30 years? What would you pay for a betting slip that promises, say, a $10 payout for every Patriots regular-season win in the next decade? And what if you could then sell that slip to other gamblers, with its price rising and falling as bettors’ views on the outlook for the Patriots changes? Essentially, you could take the price that people are paying for those slips with different durations and, with some simple math, figure out how many games bettors expect the team to win each year in the future. If you buy a 90-day Treasury bill, you are likely to receive an interest rate that is closely tied to whatever the Federal Reserve has currently set as its main target for interest rates in the banking system and any changes the Fed might make in the near future.

It’s like betting on next week’s game: We know a lot about what opponent your team is facing, how well it has been playing, whether there are injuries likely to affect the outcome. But if you buy a 10-year Treasury note, you’re making a bet on the more distant future. The economy will probably change a lot over the next decade. You can’t predict exactly what will happen, but you are betting on the general direction of things: Do you expect the economy to heat up, creating inflation pressures and causing the Fed to raise rates? Or do you expect it to cool down? So the purchase of a longer-term Treasury bond is like making one of those long-term bets with a casino on how a team will perform for many years to come. You have no idea what the details are of which players it will sign or who will be coaching the team. You are betting on the general direction.

7) Will we ever control the world with our minds? [Source: BBC]
In the film Upgrade (2018), Grey Trace, the main character, is shot in the neck. His wife is shot dead. Trace wakes up to discover that not only has he lost his wife, but he now faces a future as a wheelchair-bound quadriplegic. He is implanted with a computer chip called Stem designed by famous tech innovator Eron Keen which will let him walk again. Stem turns out to be an artificial intelligence (AI) and can “talk” to him in a way no one else can hear. It can even take over control of his body. You can guess the rest of the story. So, can we get this in real life? Some have already tried.

There were many experiments done to implant a brain-computer interface. But, the equipment wasn’t user-friendly. Brain-computer interfaces are possible today only because in the 1800s scientists tried to understand the electrical activity that had been discovered in the brains of animals. During the 1920s, Hans Berger developed the electroencephalograph (EEEG) to detected electrical activity from the surface of the human skull and recorded it. Fifty years later computer scientist Jacques Vidal’s research at the University of California Los Angeles (UCLA) led him to coin the term “brain–computer interface”. But, one of the challenges is to make it nano. If these techniques work, then the performance of a minutely invasive interface should be able to match that of a chip surgically implanted into the body.

But even if we can do it, how exactly do we communicate? Will we be communicating in words or in pictures? Will we be able to talk with a friend or pay bills online? How much will this be unique to each individual? No one really knows the answers to such questions because the rules haven’t been written yet. In the end, it may not make any difference.  At the end of the film Upgrade, Stem takes full control over Grey’s mind and body. The mechanic’s consciousness is left in idyllic dream state in which he isn’t paralysed, and his wife is alive.

8) A man on his horse [Source: fountainink.in]
This elaborate piece talks about the effort that goes into a horse race and how jockeys prepare themselves for the race. This piece also reveals the diet of the jockeys to losing 2kg in two days, and much more. Top athletes in all sports shift the boundaries of human capacity, but perhaps racing is tougher than most. Horse racing was first introduced to India by the British in Madras in the 1770s. Gradually in the 1800s, clubs came to be formed in the major colonial cities to administer racing. India has five “classic races” per season in every centre during the winter, the most prestigious events in the calendar.

India’s most accomplished jockeys have included Pesi Shroff, now a trainer, Aslam Kader and Vasant Shinde, who had a legendary rivalry through the Eighties. Each won more than 1,500 races over their long and storied careers, and between them more than 250 classics. Today’s star jockeys include A. Sandesh and Trevor Patel, men who ride India’s champion steeds in the hopes of making their owners rich and proud. But, talking about a jockey’s life isn’t easy. Every day, they have to get up at 5:30am, hit the track for three-odd hours for different kinds of workouts with the horses, then they may exercise or return home. Afternoons are usually free or spent watching races, but many jog or walk in the evenings. Some swim, cycle or do yoga, always conscious of avoiding muscle mass.

On what makes a good jockey, P.S. Chouhan, a jockey with 1,750-odd wins, says that “You have to be dedicated, talented, and fit. At the finish line fitness counts. If a rider gets tired, his horse will automatically slow down”. After all, it’s about riding through a time capsule of 90 or 100 seconds. “When I am on the horse I am just enjoying my ride,” Mr. Chouhan said. “That gives me the kick.”
 
9) The separation of platforms and commerce [Source: Columbia Law Review]
Only a couple of players, like Facebook, Amazon, Alphabet and Apple dominate online commerce and communications. How lawmakers and regulators should respond to this concentration of market power is now the subject of a global debate. Public authorities around the world are studying digital platforms to understand how antitrust and competition tools can be applied to markets mediated by digital technologies. These studies vary slightly in their methods and conclusions, but they generally demonstrate that digital platform markets today are governed neither by real competition nor regulation—giving dominant platforms astounding power to shape market outcomes.

The process of identifying how to confront the challenges posed by dominant platforms requires: 1) an understanding of the relevant problems, and 2) an understanding of the relevant set of legal tools and principles available to confront them. Recovering our understanding of structural separations—traditionally a mainstay regulatory principle for confronting dominant intermediaries—is one part of this process. Reviewing the tradition of separations, moreover, underscores the broader set of values and concerns that traditionally informed how we assessed and arrived at the proper form of intervention when confronted with dominant intermediaries.

This longish article seeks to give structural separations a seat back at the table. Tracing the history of separations reveals that they have been motivated by a host of functional goals, ranging from fair competition and system resiliency to media diversity and administrability. Recalling this broader set of concerns brings into focus the range of factors at stake when dealing with dominant intermediaries and invites consideration of the degree to which separations in platform markets would also respond to a diverse set of problems.

10) How the views of a few can determine a country’s fate [Source: BBC]
Social scientists have historically explained polarisation as the result of irrational thinking. Surely, any reasonable, although mis-informed, person will accept when they are mistaken, the argument goes. Someone who stubbornly sticks to their wrongly held beliefs when presented with evidence is, you would think, clearly acting irrationally. But a recently published study challenges that common-sense theory. In fact, polarisation could happen in populations of perfectly rational people when you consider the limitations of the human brain.

It is hard to predict when someone might react rationally or irrationally. So, a group of researchers from the US, Japan, Belgium and South Korea worked with computer models of agents who they programmed to act either rationally or irrationally. “These agents were assigned an opinion, but could change their opinion after interacting with other agents,” says Jiin Jung, co-author of the paper and researcher at Claremont Graduate University in California, US. If they were all acting rationally, you would expect them to share their opinions and sometimes to alter their views if they found that others’ arguments were stronger than their own.

This research can help to guide how we approach talking about polarised groups, says Jung. When we meet someone who holds a different belief, we should try not to dismiss it as irrational. Instead of thinking that we need to “correct” their thinking or re-educate them, we could reflect on what might be affecting their judgement. Poor memory, stress, uncertainty, discrimination – all these things could be pushing people away from the norm. We are all part of small sub-groups nested within complex networks in society. Extreme minorities can have both positive and negative impacts on the larger whole. And even when you dismiss someone’s radical idea as nonsense, remember that they might already have changed how you think.