Chat with Joe and his dad

On Kaoshion

  • KaoShiong is where the bulk of industrial manufacturing occurs
  • Taiwan is a Japan trend follower

On peronal growth

  • Adversity in youth provides an opportunity to build character and gain experience.
  • restricting the amount of resources your offspring has access to might be a good thing but it breeds resentment
  • Good things come from seemingly bad experience too

on DDP policy in KaoShiong

  • Too radical in their actions and lacks calibration in their policies. Really good at manipulating the press
  • Stance
    • Anti China
    • Pro resource less young
    • Pro taxing businesses for social welfare
    • Pro reducing pension to retired
  • Equally corrupt as the KMT but too aggressive in their policies leaving nothing for the business to continue operations
  • manufacturing businesses has been negatively affected with over regulation and rising administrative cost
  • Worker protection makes overtime illegal severely restricting the throughput volume businesses are allowed in their operations
  • Workers not making enough from their day job due to such restrictions are forced to take on a second job on top of their main one
  • 30,000 to 40,000 businesses have failed within the KaoShiong area over the past 12 months at the point of writing with more set to fail if policy should persist
  • While GDP growth rate has been reported at 2% in 2019, shipping volume through KaoShiong has continued to drop

On KMT

  • A more mature party with measured policies which lost leadership due to lackluster performance
  • Stance
    • Pro-China
    • Pro-business
    • Pro-protecting pension of the retired

Social security system and the aging population

  • Social security system is in a state of flux. Employers are required to contribute to two systems. The contribution for the old system is 5X the new system and was too much overheads for the employers.
  • Retirees are concerned their pension will get cut while the young are concerned their contribution to the social security system is to heavy a burden

On China

  • China has imposed restrictions on independent Chinese tourist to Taiwan
    • Chinese tourist are easy customers who engage in indiscriminate spending
    • Night markets looked empty
    • Quite a few restaurants have closed down along the main street due to the lack of tourist spending
  • The bulk of Taiwan’s export has been to China it makes economic sense for both territories to become unified
  • noteworthy to observe Joe’s shift to a pro Chinese stance the on Chinese Taiwan relationship as compared to the high school days.
  • Observation of Taiwan style politics in contrast to Chinese style politics leads me to have reservation about how these two systems can be resolved.
    • the Taiwanese have no reservation with injecting outrageous humor into the legal framework afforded to them by their political system with candidates as outlandish as Mr Crazy Friday and Mr Fortune God
    • China’s one country two system need to become more robust for this undertaking
    • Recent HongKong riots has caused concern for Taiwanese and has lead to increased support for the DDP whose leader English Tsai is known to be a strong negotiator

On Korean Japan trade war

  • Huge influx of Korean tourist observed during this period of tension (Sept 2019)
  • Korean tourist are more discriminate in their spending, hence a lower per capita spending as compared to the Chinese tourist.

Dinner with Mansu

On financial industry

  • Lots of quant funds operating within the South Korean market
    • Very fund has its own strategy and model
    • Things will work until they don’t.
    • The long tail where shit happens can be very fat
    • Funds tend to graduate towards excessive leverage overtime. This is the nature of an industry largely driven by fear and greed
  • KoStar, Korea’s equivalent to Nasdaq is the exchange of choice for Quant operations
    • illiquid/inefficient
    • more volatility
  • Merrill Lynch in South Korea
    • their two largest clients are quant funds
      • Citadel capital
      • Susquehanna Capital group
        • drives 10% of all daily transactions on the Korean stock market
        • up to 100 times per day on each listed company
    • client requirements
      • lesser demand for sales and account representatives
      • demands for high throughput cable connection to their exchange networks
    • client technology stack
      • large scale utilization of neural networks
    • Equities sales representative teams has been reduced from 8 to 3 over the past year
  • On valuation and economy
    • Multiples are becoming exceedingly high given free money provided by Federal reserve and central banks around the world with low to negative interest ranks
    • largely driven by decoupling of interest rates and inflation
    • global deflationary pressures
      • aging population
      • productivity driven by technology proliferation
    • asset prices will contract when interest rates increases

On real estate industry

  • property prices has more than doubled in prime Gangnam area in Seoul over the past 4 years
  • In times of economic recession property valuation at the center of premium districts will remain stable while those at the fringes will become soft
  • segments within the prime Gangnam area
    • integrated apartments
      • situated in complexes with amenities day care services and grocery stores
      • USD1000/sqft – USD1 million for a 3 bedroom apartment
    • normal apartments
      • up to 16 units within a building
      • USD700/sqft – USD750K-800K for a 3 bedroom apartment
  • While governments of both Japan and Korea are trying to further decentralize urbanization across their countries, organic tendency thus far has been towards centralization. Seoul and Tokyo occupy major proportion of the population with smaller townships in the outer fringes dying out. Same thing is observed with San Francisco, coastal cities of Australia and Auckland in New Zealand.

Shifting population and resource equilibrium

Phases in the cycle

  • economy booms
  • competition for resources increases
  • housing and other amenities will become less affordable
  • income gap increases
  • people will have children later or opt not to have children
  • population starts aging at an accelerated rate
  • spending drops as population aging continues and population size starts contracting
  • economy slows down and starts contracting
  • competition for resources decreases
  • labor shortage becomes pronounced and wage levels starts increasing
  • housing and other amenities become more affordable
  • household confidence increases leading to more children
  • economy starts growing

East Asian countries

  • South Korea
    • is in the mid phase where households are feeling the pinch of scarce resources
    • birth rate per woman is starting to fall
    • 2019 fertility rate is at 1.323 per woman
  • Japan
    • in the latter phase where population decline
    • labor shortage are becoming pronounced
    • New college graduates are in high demand and can easily find jobs
    • 2019 fertility rate is at 1.478
    • immigration laws are loosen

On Singapore

  • Money laundry capital of the world
  • Stable government and economy
  • the SGD1000 note receive a premium rate brought to South Korean exchange offices
  • fertility rate is one the lowest in the world at 1.26 per women, the government has long adopted a very loose immigration policy to offset the deflationary effects of an aging population
  • Net effects on the economy
    • continued influx of high income earners and high net worth individuals
    • continued lowering of birth rates
    • average income per capita will continue to increase as low income households continue to die off due to low birth rates

On Korean politics

The legal framework is split into the police and the prosecutors. With the police handling the day to day executive work and the prosecutors given the right to investigate into any issues of concern.

The prosecutors has grown big in numbers over the past few years and the government is trying to curb its influence so as to maintain balance within the system.

The police was involved in a drug scandal in Gangnum where three popular night clubs were closed down. The prosecutors are using this as leverage to remove the brake on their continued growth in influence. Meanwhile Octagon which had been steadily losing popularity due to the existence of the three clubs is now surging in popularity again. This is mainly due to the lack of alternative options in the Gangnum area.

Related references

Book summary: Buffett the making of an American capitalist by Roger Lowenstein

Keep things simple. Simple should not be confused with easy.

Business model assessment

  • Easy to understand economics
  • Strong defensible moat
  • Trustworthy management who treat capital of shareholders with ownerlike care
  • Selling at a reasonable price
  • Able to generate high returns without excessive usage of debts

Guiding principles

  • Stick to companies with your circle of competence
  • Ignore macro economics trends and analyst forecast
  • Choosing between growth and value is a misguided one. See the business model holistically.
  • A share in a business is basically a bond whose coupon rate you need to figure in yourself
  • The character flaws of an individual tend to have very serious spill over effects. Always check for serious character flaws of individuals whose company you plan to invest in.

Float

  • Buy cash generating assets to finance purchase of more assets
  • Insurance is a prepaid model
  • Blue Chip is a prepaid stamp sales model

Management of cashflow

  • Give out dividend
  • Share buy back
  • Reinvest or MnA

The last option is almost always value destroying unless the management can generate ROI above it’s current RoA rate. This is predicated upon a strong defensible moat.

Leadership

  • Confidence
  • Perspective
  • Ability to focus
  • Communication

Book summary: to be a machine by Mark O’Connell

At some point given enough technological advances we might no longer be restricted to our human form. It make sense to seriously consider what it fundamentally means to be human.

The three phases of the transhumanism

  • Biological body, biological brain
  • Biological body, augmented brain
  • Augmented body, augmented brain

Related readings

  • Mind Child: the future of robot and human intelligence, Hans Moravec

Federal reserve maintains interest rates 11th Dec 2019

Key indicators

  • Business investments slowed
  • Manufacturing has slowed
  • Exports has slowed
  • Unemployment rate remains at historical low

Employment rate

  • Wage increases of 3.7% observed at non supervisory production sectors.
  • Flexible deployment of jobs to low cost areas remains a strong downwards pressure.
  • Correlation between inflation and unemployment is at 0.1

Repo market concerns

  • Repo markets issue being looked into. Reviewing regulations that are hindering repo market operations by major banks
  • Will meanwhile continue purchase of treasury bills to provide necessary liquidity

Key long term deflationary pressure on the world economy

  • Automation
  • Globalization versus trade inhibiting government policies
  • Aging population

Reflections for the day

When travelling alone the primary focus of your attention is on the immediate surrounding you have put yourself in. When traveling in a pack the primary focus of your attention shifts to those within your pack. When wanting to immerse do the former when intending to become more intimate with someone do the latter.

When undertaking military affairs or activities performed under adverse environments, character weakness become apparent fast. Judgement must necessarily be passed  on allowed continued membership in the pack. Such judgements compared to those made under less adverse environments are permanent.

Analysis of MeetUp.com’s penetration into Japan and relevant mobile behavior on crowded trains

MeetUp.com observed to have significantly penetrated Japan.

A quick study shows significant levels of liquidity on both the supply and demand side for this two sided market place in major cities of Japan.

  • Tokyo
  • Kyoto
  • Osaka

Acquisition model attributes

  • Primary acquisition channel: SEO
  • Primary use case: interest groups as an excuse to practice English.
  • Retention pattern: Weekly recurring usage

Other noteworthy mobile user behavior

Primary data observed glancing over the shoulders of mobile users in crowded trains

recurring use cases

  • Reading comic
  • playing mobile games
  • reading up news on Google News
  • social media (Facebook)
  • No significant usage of music listening via ear phones on trains.

 

 

Learnings on the auto industry in Japan

  • the bulk of the profit margin is in the heavy equipment and second hand used car
  • dealers buy used second hand cars from wholesalers through auctions. They then resell the cars to end consumers for a profit
  • Osaka Japan is the bulk of where Japanese car manufacturers are based
  • Tesla has a presence in Japan though the model 3 is still on the big side when considering normal size of cars in Japan.
  • it is very hard to get prices of sold cars and parts from different parts of the world.
  • Japanese government publish the prices of exported cars the previous year.
  • van life is an officially recognized trend in Japan and has a defined segment

Book summary: The dollar crisis

Following the  end of world war two, with US being the world’s largest creditor, countries started largely denominating their debts in USD. US in turn pegged USD to a fixed exchange rate with Gold. This agreement was formally known as the Brettonwood Systems.

US experienced difficulty backing this exchange rate during the oil crisis of the 1970s when OPEC started artificially reducing it’s supply of oil thereby driving it’s price in USD. This had a strong downwards pressure on value of the USD which the US propped up through use of their foreign reserves.

Seeing this weakness in US foreign reserve, thereby an discrepancy of the USD against gold, other trading partners started exchanging US dollar for gold. This added further pressure.

To provide relief on their foreign reserves US finally decoupled the fixed exchange rate between USD and gold. This resulted in the collapse of the Brettonwood Systems, leaving USD as the official reserve currency in the world without any underlying backing.

What followed were decades of global growth largely funded by the US government through control of the world’s reserve currency.

Developing countries would sell goods to the US in exchange for USD. Instead of buying US goods in exchange for the USD earned, they would buy US Treasury bills, notes and bonds. This had the effect of maintaining favorable exchange rates for these countries while keeping their products competitive in the US market.

This widespread practice had the long term effect of driving balance of trade deficits in US with it’s trading partners. While negligible in times of strong US domestic GDP growth, this system has of late started exhibiting difficulty sustaining. This is largely due to slow down in US domestic growth and its inability to scale to support trading partners that 4 times times the population size of the US.

It is advised countries which had long relied on this approach to domestic growth transit their economies to become net importers as soon as their economy gains the necessary growth momentum to do so.

Related readings

  • Fault lines, Raghuram Rajan

Face altering social experiment

 

Noticing a discrepancy between Eurasian looking younger females in the streets of Osaka and a lack thereof in the more mature demographic, I chanced upon this discovery.

Japanese technique for makeup is way on the cutting edge…

Application of this technique elicits dopamine from the human brain when the original gene expression does not.

A similar Nobel prize winning experiment by Tinberger was performed on seagull chics. In the experiment, subjects were presented with a metal beak painted three red dots instead of two driving these chics into a wild pecking frenzy.