Ten interesting things that we read this week
The interesting reads this week range from Norway giving a miss to the 'curse of the oil economy', Facebook changing the democracy game, a cult underwear brand 'Toot', and more
Image: Shutterstock.com (For illustrative purposes only) 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 ‘The inevitability of market bubbles’, ‘Norway’s ability to avoid Dutch disease’ and ‘Poland’s rise to economic superpower’.
Here are the ten most interesting pieces that we read this week, ended July 07, 2017.
1) The inevitability of market bubbles [Source: collaborativefund.com]
This piece provides an insightful perspective into why market bubbles are inevitable. The author of the article says that despite suffering through several financial bubbles over hundreds of years, there is still a lack of a good and clear definition of what 'market bubbles' actually are, and how they form. Consequently, we end up attacking other factors, like the Federal Reserve (the US central bank), banks, and the Congress; and worse, every market bubble is assumed to be a one-off accident. This report argues three points: a) Bubbles are not anomalies or mistakes. They are an unavoidable feature of markets where investors with different goals compete on the same field; b) Bubbles have less to do with rising valuations and more to do with shrinking time horizons among people playing a different game than you are; and, c) Protecting yourself as an investor is mostly a function of understanding and acting upon your own time horizon, accepting that other people’s goals are different than your own.
2) The devil’s excrement: How Norway warded off the oil curse [Source: Livemint]
This article talks about how Norway has been able to ward off the fate of other “petro states” such as Venezuela, Saudi Arabia, Nigeria, Algeria, and Iran. Unlike other petroleum-rich states, first, Norway had the benefit of not discovering petroleum until much after it had already built a stable, wealthy, and equitable economy with high standards of living. Second, Norway succeeded in avoiding the oil curse thanks to its bureaucracy and institutions. Social scientists and economists have argued that Norway has long been a “civil servants’ state” - that by the 1900s, their bureaucracy was already independent, relatively incorrupt and highly specialised. Importantly, Norwegian bureaucrats were not competing socioeconomic elites through much of the 19th and 20th centuries, and did not rely on external influence for career advancement. Third, Norway avoided the “oilification” of its economy by moderating welfare spending with the need for fiscal prudence after oil was discovered.
During the international economic slowdown in the 1970s, the Norwegian government pursued a counter-cyclical expansionary fiscal policy by borrowing from abroad. Public expenditures went from Kroner 1.5 billion (approximately $230 million) in 1970 to Kroner 14.5 billion (approximately $2.2 billion) in 1975, and continued to rise until 1979. The ruling Labour Party increased spending in social services, pensions, agricultural and industrial subsidies, and public employment. This debt was planned to be paid back from the anticipated windfall oil revenues from the 1980s.
The government had also set up a Petroleum Fund to insulate the nation from the boom and bust cycles of oil. The idea was that the revenues from oil exports will not be converted into the domestic currency, thereby avoiding exchange rate pressure on it, and that domestic government budget would not become too reliant on oil revenues. Revenues would accumulate in a fund that would be invested into the international financial markets. To ensure prudent domestic use and maintenance of the size of the fund, there is a budgetary rule that prevents the government from withdrawing more than the annual expected returns of the fund. This fund is independently run and transparent, with every investment listed online.
3) The next economic powerhouse-Poland? [Source: NY Times]
Since Poland completed the transition from communism to democracy in 1991, its economy has been growing at an average annual rate of 4 percent and, remarkably, has not suffered a single year of negative growth. In these 25 years, Poland’s average income has risen to near $13,000 from $2,300, and it is now on pace to pass the $15,000-mark by the turn of this decade. This is testimony to the long-term fiscal sobriety of Poland’s leaders, and its sharp break with communism. After the collapse of the Soviet bloc, Poland set out to distance itself as far as possible from Russia, and embraced American-style entrepreneurship with an enthusiasm rarely found elsewhere in Europe. It is working its way up just as the Asian miracles did, as a manufacturing power, even though this path is much harder now. Manufacturing is declining as a share of the global economy, and with China taking much of this shrinking pie, few other major manufacturing nations are still expanding their share of global
exports. That select group of around half a dozen includes South Korea, the Czech Republic — and Poland.
No other sector can come close to the impact that manufacturing has in a country, in generating jobs and the productivity gains that can make a nation rich. With its cheap currency and relatively low wages — still one-third to those in Germany — Poland is more than competitive with the Asian manufacturing powers. Moreover, the secret to getting rich is less about speed than stability. Many emerging economies have managed to generate spurts of rapid growth, often well above Poland’s 4 percent average, only to lose all their gains by running up debts and heading into a crisis.
4) Japanese CEO takes a cult underwear brand global [Source:Financial Times]
For most of the 17 years since it was founded — anonymously and by a Japanese artist — Toot has been in no doubt about who its core customers are. They are gay, discover the brand by word of mouth, and yearn for something meticulously well-made with a distinctively Japanese eye for detail. Since becoming its CEO in early 2015, its CEO Keiya Masuno has expanded the brand outside its comfort zone. In the past two years, sales have increased by 10 percent, while overseas they have risen from a single-digit share to nearly 30 percent of the total market share.
Till now, Toot had never sought mass-market sales. Even now, the founder and private equity investors want a slow transition from a niche label known for quality, to a global luxury brand such as Hermes or Louis Vuitton. While Masuno has been trying to meet the demand, the underpants, whose designs veer suggestively between lurid, luxuriant and ludicrous, have gained a wider market among heterosexual men. In their strut to the mainstream, the pants have become a knowing gift exchanged by Tokyo’s fashion cognoscenti. Priced between ¥3,000 and ¥5,000 (approximately $27-$45), they are more expensive than Uniqlo’s wares yet within reach for young professional urbanites.
