Chat with Yi

  • Building user profile data set for machine learning purposes can be a lucrative business
  • getting an MnA guy involved to manage relationships with acquirer is helpful to tweak the company features for eventual acquisition. Once an acquirer signals intent other competitors will follow along
  • enterprise business
    • Once software is complete is about solidifying business model and supply chain
    • High revenue but potentially low margin business
    • once u get into this it’s hard to crawl out
  • Finance
    • Benchmarking negative momentum across entire industry
    • company with the slowest negative momentum in a negative environment is the one with the most resilience

Patagonia’s brilliantly executed brand positioning

This company has moved beyond selling physical products and lifestyles into the business of selling an identity.

The persona

I am youthful and vibrant, I am passionate about the great outdoors and I will fight to preserve the environment which I so much love.

My thoughts

Nowhere within this 100 page magazine was there ever a mention that Patagonia sells outdoor gears but if you identify with the persona just described above then Patagonia is your go to brand.

The company has positioned its brand at the self actualization level of the Maslow’s hierarchy of needs.

Key insights from mooncake festival at house of Jerry and Liza

Technology trends

  • Companies are increasing shifting their service from one-off on premise licensing deployment monetization to cloud based SaaS recurring subscription models
    • revenue hit in the short run
    • increased customer LTV in the long run
    • affected publicly traded companies will experience short term discounts to their shares
  • Artificial intelligence versus Augmented intelligence
    • companies are increasingly shifting away from automatic insight generation to systems that help decision makers simulate and model potential outcomes when specific policies are executed
    • demand is shifting from insight generation to data cleaning services
  • Corporate adoption of artificial intelligence
    • CEOs are increasingly considering how to leverage AI as a tool for their trade
    • primary use case is figuring out how to increase their sales volume
    • experiencing challenge on how to apply AI on in-house data to achieve monetization goals
  • Rise of deep vertical data networks
    • EverString – provides sales lead refresh for all client companies ends up becoming a large database for decision-making executives information, approximately 6 million records
    • StreetSine.sg – cleans up real estate data to help agents better price houses for sale by utilizing in-house agency ends up becoming a large database of high quality real estate data
  • Crypto-currency
    • Bit coin is still the main poster child
    • general population still skeptical about libra
    • main argument is still to remove central bank controls
    • main adoption hurdles
      • writing throughput volume
      • a stable store of wealth
      • starting to be using as a means to facilitate transaction in China
      • Inability to increase or decrease currency supply in times of need is going to be hard as a means to provide much needed stimulation during economic recessions and inflations

US/China trade war

  • sources of conflict
    • technology theft
    • forced technology transfer
    • unfair trade practices like subsidized state owned Chinese companies operating in the export markets
  •  economy
    • China is experiencing inflationary deleveraging
      • local farmers are not growing critical food sources
      • critical food supplies are imported
      • price of imported goods are denominated in US reserve currency
      • shifting of supply chain out of China to
        • Vietnam
        • India
        • Taiwan
      • capital flight
        • Li Ka Shing moved funds out from Hong Kong in 2013 to Europe
        • raising funds for US Venture capital from China was easy prior to Chinese and US government shut down
    • US is experiencing deflationary deleveraging
      • businesses are concerned about macro environment and are reducing fixed investments
      • manufacturing is slowing due to decreased demand both locally and overseas
      • consumer spending and confidence is still strong
  • Chinese domestic concerns
    • Potential US meddling in Chinese domestic affairs – Hong Kong’s demonstration and demands
      • Revoking of National Education
      • Revoking of extradition bill
      • Resignations of HK Chief executive
      • universal suffrage: freedom to elect their own leaders
    • destabilized situation presents a challenge for Xi JinPing’s party to retain control of power over former Jian Zemin’s faction
  • value system
    • US is a highly rule based system
    • China’s system of control is highly subjective to the individual in power.  Direct government intervention in the distribution of wealth is a major source of concern

US/Mexico and world issues

  • NAFTA agreement was too one side and failed to take into account large  imbalance between the two economies
  • US’s arrangement of allowing Mexican tax payers the right to claim dependents ultimately resulted into tax claims and refunds for entire extended families in Mexico. This has the effect of subsidizing Mexican’s at the expense of Americans living along the rust belts
  • Its observed income inequality is becoming prevalent across the entire world not just within US and China.

Related readings

The American Factory

Context

FuYao is a Chinese manufacturing company that products glass for automobiles companies:

  • Honda
  • Toyota
  • Hyundai

The company setup a factory in Dayton Ohio in 2013 to take advantage of the abundant supply of cheap skilled labor in the region resultant of the 2008 recession.

Overarching trends

  • globalization continues to apply downward pressure of wage growth around the world for commoditized labor
  • automation continues to eliminate entire categories of jobs around the world

In depth analysis of FuYao Glass America

The opening of a plant in the new country can be seen as a acquisition of sorts.  Acquisition activities is considered a merge of the following components:

  • Culture
  • Process
  • Assets

In this case, it could be seen as a merging of FuYao’s culture and process with Dayton Ohio’s asset which is cheap skilled labor.

Below are the key conflicts with the merger

  • highly structured and propagandized environment (Chinese) versus loosely structured and casual environment (USA)
  • processes built around social norms in a weak union environment (China) versus social norms from a strong union environment (USA)
  • productivity and throughput focused paradigm (Chinese) versus safety and family focused paradigm (USA)
  • workers paid USD29/hr when working for GM before it shuttered are now paid USD17/hr under FuYao
  • governor and grassroots were encouraging unionization to encourage more say American say in the running of the plan

Key transitions

  • removal of locally hired senior management (USA) with Chinese senior management (USA) for effective implanting of culture within company
  • battling against worker unionization

David Letterman interview with Barack Obama

 

Leaders impact is more on shaping the attitudes more so than setting legislations

Income inequality caused by globalization and technology has eliminated  entire categories of jobs. Wealthy people with excess money to invest due to this aggregation of wealth at the top seeks to maximize their wealth by investing in more and more kinds of financial instruments to return generates. This in turn creates bubbles.

Cost of health care and college education continues to rise as corporate America continues to optimize its monetization engine.

Online media channel consolidation and structural deepening of algorithmic social media newsfeed (Facebook and Twitter) continues to drive polarization of views.  The media is primarily geared towards eliciting a response so as to drive conversion rate instead of helping audience develop well rounded perspectives on social issues through holistic presentation of facts.

Book summary: Understanding big debt crisis by Ray Dalio

The economic system

Functions of money

  • A store of wealth
  • a means of exchange

Two types of cycle

  • economic cycle
    • tied to production activity and output
  • credit cycle
    • the underlying basis is trust
    • capital employed as a means of production
    • when trust breaks down and credit starts to tighten credit cycle is said to be in the contraction phase and deleveraging occurs

Types of deleveraging

  • inflationary deleveraging
    • generally occurs when country’s currency is not a reserve currency or when currency is pegged to a specific commodity like gold
    • foreign lenders are unwilling to roll over existing credit or provide new credit leading to credit contraction within the economy
    • price of good rises during an inflationary deleveraging
  • deflationary deleveraging
    • generally occurs when country’s currency is a reserve currency
    • money is hoarded as cash instead of being utilized to support economic activity
    • domestic lenders are unwilling to provide credit leading to credit contraction within economy

Methods of deleverage

  • Austerity – spending less
  • Debt defaults / restructuring
  • Central bank print money and making purchases or providing guarantees
    • hard to implement if currency is tied to the gold standard
  • Transfers of money and credit from those who have more than they need to those who have less
    • will generally trigger exodus of funds

Beautiful deleveraging

  • Reduced debt to income ratio
  • improved economic activity
  • improved financial asset prices
  • bring nominal economic growth rate above nominal interest rate

Ugly deleveraging

  • bank runs
  • bankruptcies
  • severe unemployment
  • hoarding of gold
  • war / riots

Noteworthy similarities in period prior to WW2 and present day 2019

  • Dire income inequalities where 40% of the wealth is owned by 1% of the population
  • Rise of populism
    • Hitler
    • Franklin DeRoosevelt
    • Winston Churchill
  • rise of protectionism
    • US launches trade war against Canada
  • Rise of militarism
    • Hitler Germany
    • Japan
  • Continue professing by politicians that there is nothing wrong with the economy
    • President Hoover attempts to allay fears
  • Extreme volatility in the financial markets
  • riots due to economic hardship
  • sudden shifts from relatively free trade and interconnected supply chains around the world to protectionism and trade war through the use of tariffs
    • US versus Canada trade war
  • Out break of war
    • WW2
    • increase

Noteworthy case studies and observations

The war economy – Germany during WW1

  • GDP will tend to improve during war time as countries involved in war borrow heavily through the issue of bonds to finance production of war equipments
  • GDP will start to deteriorate after period of war is over as it transits back its prior state
  • GDP of the loosing faction will tend to be more severely affected during the post war period as they get slabbed with war reparations – WW1
  • Nature of loans during war period
    • Loans will initially be denominated in local currency due to high levels of patriotism
    • As war drags on and there are no signs of a positive outcome and loans becomes harder citizens will have either exhausted their loanable assets or are not confidant in the government’s ability
    • Further loans will need to be borrowed from foreigners which might result in loans denominated in foreign currencies

Connectedness of financial systems around the world – the 1930s Great Depression

USA 1930s deflationary deleveraging chain of events
  • investors buy financial assets and utilize increasing financial asset prices as collateral to buy more financial assets
  • government increases interest rate to tighten monetary policy and bring down inflation
  • brokerages increases margin interest rates
  • investors who cannot afford margin interest rates starts unwinding their positions leading to fall in financial asset prices
  • fall of financial asset prices triggers margin calls on other investors who borrowed to buy financial assets. This vicious cycle continues and confidence starts deteriorating and credit starts unwinding
  • bankers attempt to prop up asset prices and boost confidence by buying assets. Efforts were not enough, and asset prices continue to decline – as much as 90%
  • other entities are impacted
    • actual companies start experiencing problems getting credit
    • banks whose assets are in financial assets experience solvency issue due to rapidly deteriorating
  • bankruptcies and unemployment rate increases
  • government steps into prop up the market by lowering interest rate
  • interest rate is at all time low, investors lacking confidence is unwilling to provide credit many started withdrawing cash from banks causing bank runs. They also started hoarding gold.
  • There is an international shortfall of USD
Europe 1930s inflationary deleveraging chain of events
  • Confidence worldwide gets affected by US market deleveraging
  • Germany whose WW1 reparation denominated in USD experiences were mainly financed through the issuing of bonds experience difficulties finding buyers for new bonds.
  • investors loose confidence in ability of German government to repay bonds and start believing in the probability of a default
  • investors started dumping bonds and withdrawing gold from the German economy
  • inflation ensues
  • UK have many banks with assets tied to German bonds. Investors are concerned that UK will get affected and started withdrawing gold in droves.
  • UK government and German government decoupled their currencies from the gold standard, lowered interest rates and allowed exchange rates to decline
USA 1930s inflationary deleveraging chain of events
  • USA continues to peg their currency to the gold standard but experiences continued outflow of gold because gold is now considered to be priced too cheap against USD when compared to other European currencies that have gone off the gold standard
  • USA bans the purchase of gold, decouples their currency from gold and allow exchange rates to float freely
  • The world economy starts recovering

Reasoning on more extreme weather patterns observed

August and September is the season for extreme weather patterns along the south eastern coast of major continents in the northern hemisphere.
Barely two weeks after Typhoon Lekima (the costliest ones in Chinese history) hits South eastern coast of the China, Hurricane Dorian (the largest one in US history) gets elevated to category 5 and is set to hit Florida, the South eastern coast of USA.

Attempt at reasoning increased magnitude of storm patterns

Both Earth rotates eastwards and the trade winds blow westwards at a constant rate. This explains why storm patterns always occur along the east coast of continents.
Intensified greenhouse effect resultant from increased carbon emission has caused greater heat to be trapped resulting in generally a warmer ocean. This leads to greater temperature difference between the upper and lower sections of the buildup and thus more severe weather patterns.
This phenomena is the most acute along the equator during the season when:
  • the northern hemisphere shifts from summer to autumn,
  • the Southern Hemisphere from winter to spring and
  • the equator is the hottest.

That happens to be during August and September.

Approaches to capping out the magnitude of the storm

  • Reduce the surface area of the water body the storm is allowed to build up momentum over. Reducing water supply in the ocean by freezing them up.
  • Reduce the delta between the hottest and coldest temperature during the year. Reduce the amount of heat trapped within the earth’s atmosphere.

 

Related references

Key insights from weekend with Jerry, Liza, Ada and Dan

On US/China trade war

  • 25% tariff basically wiped out whatever profit margin importing from China could bring
  • China’s labor cost have been increasing over the past few years that it is no longer a competitive advantage
  • China’s main advantage is the expertise they built up over the years. A company can easily spin up 25 manufacturing lines in China very quickly
  • US companies are all rapidly shifting their manufacturing activities out of China
  • New locations are Taiwan, India and Vietnam
  • Chinese staff that were retained by Google are now flying to new manufacturing facilities spun up in these countries to oversee the spin up process

On alternate data

  • Real estate
    • the rise  of platforms like AirBnB has lead investors to seek out alternate data that can help predict short term rental yield as opposed to long term rental yield in a neighborhood
    • government agencies are seeking such data to detect neighborhoods where they should focus their efforts to crack down illegal subletting on AirBnB
  • Sports
    • being able to predict strategy coaches of football teams will employ in real time will help support strategies
    • being able to predict starting line in close to real time and the corresponding outcomes will be valuable for coaches in making play decisions

On HongKong/China protest

  • Public opinion is the agenda for the ongoing protest is now getting really murky
  • Airport has stopped operations, it’s hard to even get in and out of the country
  • Foreign Chinese nationals are supportive of protest in HongKong
  • Topics pertaining to Taiwan, Tibet and TianAnMen massacre are sensitive topics amongst mainland Chinese
  • Funds of funds from Hong Kong are still very liquid

Escalating tension in Asia Pacific and how history tends to repeat itself

US is a divided country holding two conflicting points of view which are both very valid given existing set of evidences. This is the inherent drawback of democratic systems when faced with foreign threats. The dysfunction of the Roman military during periods of the Punic Wars is a fine example.

It is noteworthy to observe how populism and militarism tends to rise in times of extended economic hardships and during periods immediately prior to major outbreak of wars. Trump is the modern day equivalent of Franklin Roosevelt and Winston Churchill who were both considered populists during their times.

Related references

A democratic nation divided

The technology arms race

The economic warfare

The escalating military tension

Other related readings

Reflections of erroneous trading over the past 48 hours

Market has been pretty volatile in the post and pre market hours. Been automatically buying into the maximum possible over priced positions during the non-market hours or immediately at the start of market.

Rectified action

When buy signal is generated during the prior day in 3 month time frame

  • Company operates within my circle of competence
  • RSI was ever less than 30 during this period of dip
  • MACD has crossed over positive
  • $.VIX is below 15

To mitigate intraday noise, enter into position in the last hour of the trading day, between 1130am to 1pm period when market prices have stabilized for the day and the spreads are narrow.

To stop the practice of programming trading action into system the prior night.

Ok to skip buying into position if price has advanced above buying range. It’s much better to have erred on omission than to have erred on mis-execution.

Related references