Ten interesting things that 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, including investment analysis, psychology, science, technology, philosophy, etc. We have been sharing our favourite reads with clients under our weekly ‘Ten Interesting Things’ product. Some of the most interesting topics covered in this week’s iteration are related to ‘Risk of lithium supply to electric cars', ‘Effect of mind on aging’ and ‘World's hardest language’. 

Here are the ten most interesting pieces that we read this week, ended June 16, 2017.

1) Grantham says higher valuation will persist [Source: Financial Times]
The US stock market has entered an era of higher valuations and probably has further room to rise, according to Jeremy Grantham, the founder of asset management firm, GMO. Grantham, a notoriously bearish “value investor” who correctly called and dodged the Japanese, dotcom and housing bubbles, sees little to worry him in the US market today. Expressing a preference for emerging market equities to US stocks, GMO’s founder points to seemingly durable pillars of healthy corporate profits, low interest rates and any lack of euphoria. “I’ve dedicated my life to financial bubbles, and I don’t think it is a bubble,” said Mr. Grantham, “This is the broadest market of all time . . . That is not the nature of a bubble.” The central reasons are globalisation increasing the earning power of US multinationals, the growing political influence of American corporations and more onerous regulations stifling the growth of disruptive upstarts, in turn leading to increasingly monopolistic US companies, and above all a secular and durable decline in interest rates.

2) Why doesn’t Hermes want you to buy their amazingly expensive bag? [Source: Economist]
Whilst with most goods, demand falls as price rises, with Veblen goods like Hermes’ bags, the higher the price, the higher the demand (for the more expensive they are, the more effectively they proclaim the status of their owners).. Yet in a couple of ways, Hermes’ Birkins do not look like classic Veblen goods. First, they’re not all that conspicuous. Almost everyone can identify the provenance of Gucci’s double-G spangled Dionysus shoulder bag; only initiates can spot a Birkin. Secondly, the producers of Veblen goods ought to raise prices until they are just below the point at which normal economic laws start to reassert themselves. But, as the existence of a flourishing secondary market suggests, Hermès could charge far more than it does for a Birkin. Instead of rationing by price – standard market practice – Hermès rations by queue. So why does Hermès starve the market for Birkins when it could sell many more, and so make much more money? There are good commercial reasons why rationing by queue rather than price can make sense. First, it gives Hermès a buffer: even if demand drops, sales will not. Second, it creates surplus demand for the bags, which overflows into demand for other Hermès products. Much of the firm’s business consists of selling consolation prizes: wallets, belts, beach towels and so on. The wait induces impatient buyers to switch to other products of the brand, to calm their hunger until the much-awaited object of desire is achieved. Third, although market-clearing prices might raise profitability in the short term, in the long run they would drive French women away, leaving nouveaux riches from the developing world as the bags’ main buyers. If elegant Parisiennes lose interest, so, eventually, will women who aspire to be like them.

3) Electric car demand sparks lithium supply fears [Source: Financial Times]
Concern is growing among analysts, and some other carmakers, that the supply lithium will not be able to keep pace with demand as the expansion of electric vehicles begins to erode the world’s century-long reliance on oil. Prices for lithium carbonate, used in the cathode of a battery, have more than doubled since 2015. Asset managers, including BlackRock and Capital Group, have recently bought up shares in smaller lithium producers, while there is speculation that battery and carmakers could also begin to invest in miners to secure a tighter grip on supply. Some now point to the possibility of a “lithium supercycle”, echoing what unfolded in the iron ore market at the turn of the 21st century, when Chinese demand drove prices higher.

4) Executives take a quiet turn away from globalisation [Source: Financial Times ]
American corporates are increasingly talking about “localisation” — and the benefits of operating in the mighty US of A. For the past three decades western multinationals have been outsourcing production to low-cost places such as China, creating global supply chains. But today, instead of celebrating “free” trade, American executives are calling for “fair” trade, along with “reciprocity” and “equalisation” of trade deals. This is a euphemism for better terms for US companies. While this change in strategy does reflect the new mood in the White House, there is a further crucial factor behind this shift. When Mr Trump started talking about restoring US manufacturing last year, he was not swimming against the tide. On the contrary, he tapped into a subtle trend that was already emerging. One reason for this shift is a rise in relative wage costs in China. Another is that production costs in the US have fallen because of automation and cheap energy. However, a third point is that chief executives have realised that long supply chains create political and logistical risks. “The days of outsourcing are declining,” Jeff Immelt, then General Electric’s chief executive, observed late last year. “Chasing the lowest labour costs is yesterday’s model.” While this does not mean global chief executives are turning their back on the globe, the main point is that even before Mr Trump arrived in office, the C-suite was losing its blind faith in globalisation. For better or worse, we face a more localised world. And that trend owes as much to robots and digital technologies as any political firebrand — and will probably outlast any president, too.

5) A wildcard entry into the IPL rights scramble [The Ken]
The Indian Premier League final may have been done and dusted last month but the scramble for fresh rights is about to begin. With digital set to emerge as the new battleground of sorts, BCCI managed to attract almost every big player in the game for IPL digital and media rights. From existing television conglomerates (like Star India, Sony-ESPN) to large foreign tech companies (Amazon, Twitter and Facebook) to key Indian digital content companies (Times Internet). Even a telecom company, Reliance Jio, was in the fray. The most interesting name in the list looks to be Amazon. While one might think what on earth is an e-commerce company doing in an IPL rights auction process, the answer lies in that question itself. Selling e-commerce. Amazon’s interest in acquiring the IPL digital rights is in line with its larger ambition to add live sports streaming to its Prime Video offerings. But what would Amazon winning the rights mean? For a start, it would give Amazon a property that will help them scale their video service and in the process sell more Prime memberships, which is what the company’s endgame is. It believes that through live sport streaming, it could gain a healthy edge over, say, Netflix, since it has emerged as a key product differentiator. Not just that, the IPL is perceived by those in the media and entertainment business more as India’s biggest ‘consumer product’ than a live sporting event. It is an important, if not a must-have, marketing property. Which is also why it would neatly tie in with Amazon’s larger e-commerce strategy. They could tie up with some companies for the IPL as sponsors – mostly electronics and appliances, since they sell well during the season – and offer deals around it on their platform.

6) It took a century to create the weekend and only a decade to undo it [qz.com]
Not long ago, free time was a defining political issue. The first instance of American workers rising up in unity wasn’t about child labor, or working conditions, or salaries—it was about shrinking long work hours. As the industrial revolution changed the very nature of work, things got worse. With industrialsation, clocks now determined the task, and the measure of productivity was how much labour could be wrung out of a worker over a period of time. Time had a dollar value, and became a commodity, not to be wasted. Between the late eighteenth and mid-nineteenth centuries in England and before the weekend became official, many workers took it anyway.  Vast numbers of employees didn’t bother to show up on Monday. Low-paid workers were actually willing to lose out on a much-needed day’s salary in exchange for a day of freedom, so deeply felt was the need for two days’ reprieve. One of the key agents in normalizing the weekend for American workers was auto tycoon Henry Ford. In 1914, Ford raised the daily wage in his factories from $2.34 per day to $5.00. It was a radical move, and a PR sensation. However, Ford was convinced to go along with an increased wage only when his vice president, James Couzens, pointed out that not only would the move be great publicity, but more money would give the workers an incentive to spend—perhaps on cars. In 1926, Ford echoed this argument when he introduced the five-day workweek. He had then, probably by accident, articulated a contradiction that sits at the heart of the weekend as we have come to know it: It’s both a time of rest and a time of consumption. As the economist John Kenneth Galbraith put it, the mission of production—and business—is to “create the wants it seeks to satisfy”—and the weekend is the time of satisfying wants.

7) Why you can’t help but act your age [Source: nautil.us]
In 1979, psychologist Ellen Langer invited a group of elderly men in their late 70s and early 80s to spend a week and live as they did in 1959. Her idea was to return the men, at least in their minds, to a time when they were younger and healthier—and to see if it had physiological consequences. Every day Langer and her students met with the men to discuss “current” events. They talked about the first United States satellite launch, Fidel Castro entering Havana after his march across Cuba, and the Baltimore Colts winning the NFL championship game. Everything was transporting the men back to 1959. When Langer studied the men after a week of such sensory and mindful immersion in the past, she found that their memory, vision, hearing, and even physical strength had improved. She compared the traits to those of a control group of men, who had also spent a week in a retreat. The control group, however, had been told the experiment was about reminiscing. They were not told to live as if it were 1959. The first group, in a very objective sense, seemed younger. Langer’s experiment was a tantalizing demonstration that our chronological age based on our birthdate is a misleading indicator of aging.

8) Hospitals are dramatically overpaying for their technology [Source: HBR]
In health care, few things work as expected. Fewer than half of patients, and in some hospitals fewer than 20%, receive easily available life-saving interventions. One big reason why is that hospitals purchase technologies without requiring that they communicate with each other. Healthcare’s safety and quality challenges are exacerbated by its procurement problem. For years, hospitals have invested in sophisticated devices and IT systems that, on their own, can be awe-inspiring. Yet these technologies rarely share data, let alone leverage it to support better clinical care. Why is that so? First, the number of devices that work well with others is small. Manufacturers have been slow to embrace interoperability, which would allow health care technologies to share data with one another. Second, despite significant work, health care lacks widespread adoption of interoperability standards that govern formats and elements of data shared between different systems. Without such standards, data cannot be shared and understood among devices. An accelerated effort is needed to create mature standards and expand their adoption by manufacturers.

9) Why companies like Uber get away with bad behavior [Source: NY Times]
Silicon Valley is viewed by many people around the world as not just the hotbed of technical innovation, but also as the place to see the most highly evolved business practices, the models most worthy of emulating. Unfortunately, Uber has the unenviable distinction of being the one Valley company that should be emulated only on Opposite Day. The most powerful indictment of Uber was a quietly harrowing account about sexual harassment, discrimination and retaliation by former employee Susan J. Fowler. An investigation by outside attorneys revealed how Uber needs to change its official “core values” like “Always Be Hustlin’,” “Principled Confrontation” and “Let Builders Build,” principles that “have been used to justify poor behavior.” Students of Uber’s history can easily match particular recommendations to particular scandals, such as the sections related to “alcohol consumption during core work hours” or “consumption of nonprescription-controlled substances.” However it doesn’t shed light on the core issues that twist company culture in Silicon Valley. Weak boards, investors who compete among themselves to be the most “founder friendly” and dual-class stock structures, similar to those at Google and Facebook, that give founders’ shares 10 times the voting rights as ordinary shares only end up hiding away inexcusable behavior from founders or C-suite executives.

10) The search for the World’s hardest language [Source: medium.com]
English is a pretty simple language: verbs hardly conjugate, nouns pluralise easily (just add “s”, mostly) and there are no genders to remember and English-speakers appreciate this when they try to learn other languages. For instance, English vowels look ridiculously simple when compared to some of the exotic vowels that carry tones: pitch that rises, falls, dips, stays low or high, and so on. Mandarin, the biggest language in the Chinese family, has four tones, so that what sounds just like “ma” in English has four distinct sounds and meanings. But perhaps the most exotic sounds are clicks — technically “non-pulmonic” consonants that do not use the airstream from the lungs for their articulation. The best-known click languages are in southern Africa. Xhosa, widely spoken in South Africa, is known for its clicks. The first sound of the language’s name is similar to the click that English-speakers use to urge on a horse. For sound complexity, one language stands out. !Xóõ, spoken by just a few thousand, mostly in Botswana, has a blistering array of unusual sounds. Its vowels include plain, pharyngealised, strident and breathy, and they carry four tones. It has five basic clicks and 17 accompanying ones. The leading expert on the !Xóõ, Tony Traill, developed a lump on his larynx from learning to make their sounds. Further research showed that adult !Xóõ-speakers had the same lump. Comparing all the aspects that make a language tough, The Economist went for Tuyuca, of the eastern Amazon as the toughest of the lot. It has a sound system with simple consonants and a few nasal vowels, so is not as hard to speak as Ubykh or !Xóõ. Like Turkish, it is heavily agglutinating, so that one word, hóabãsiriga means “I do not know how to write.” The noun classes (genders) in Tuyuca’s language family (including close relatives) have been estimated at between 50 and 140. But the most fascinating is a feature that would make any journalist tremble. Tuyuca requires verb-endings on statements to show how the speaker knows something. Diga ape-wi means that “the boy played soccer (I know because I saw him)”, while diga ape-hiyi means “the boy played soccer (I assume)”. English can provide such information, but for Tuyuca that is an obligatory ending on the verb.

- Saurabh Mukherjea is CEO (Institutional Equities) and Prashant Mittal is Analyst (Strategy and Derivatives) at Ambit Capital Pvt Ltd. Views expressed are personal.