A stroll through the peaceful streets of Rome. In contrast, it felt like the end of the world is here if you read news about Italy recently.
The human brain is a remarkable pattern recognition engine. When given incomplete information it will conjure up the “missing” pieces to generate a coherent whole that could be comprehended. More often than not what gets generated is the worst case imaginable scenario. In a normal time and age this is a wonderful function to have running automatically in the background to keep this primate alive.
However, this automatic function becomes problematic as three trends converge.
Trend 1 – big tech like Google and Facebook consolidated advertising revenue putting news entity under increasingly pressure to sustain themselves as their advertising revenue dwindled
Trend 2 – the proliferation of publication medium means anyone can now claim to be a news entity.
Trend 3 – Proliferation of Growth hacking techniques perfected by tech companies like Facebook that hijacks the human brain’s automatic fight or flight to generate user action that gets converted to revenue.
News entity generate revenue with hyper inflated news that drives readership and vitality by tapping into fear and anger. This drives wide spread panic. Corona is perfect catalyst.
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
- 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
- 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
- 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.