Salah Demolishes Man U

Mohamad Salah scored three and assisted one as Liverpool gave Manchester United a 5-0 drubbing at Old Trafford yesterday. Salah is now top scorer in the EPL with 10 goals from 9 matches, three ahead of Jamie Vardy. He's also joint second in assists with 5. And scored in ten consecutive games, a Liverpool record. Will they extend his contract, now?!

The China Equity Paradox

In an earlier post we looked at Japan's boom & bust cycle. But just as Japan's economy was starting to falter, another Asian economy was taking its place. According to the World Bank the size of the Chinese economy in 1990 was just $847 billion, by the end of the century it was $2.2 trillion, and at the end of 2020 it was $11.8 trillion, the second biggest economy in the world after the U.S. Between 2000 and 2020, China's economy increased over 5.3x. Over the same period the U.S. economy grew just 2.0x. Yet the CSI 300 and its U.S. equivalent the S&P 500 had the same overall returns over that period, as shown below: 

While there are many factors and nuances behind why this may be so, one line of economic thinking believes the overarching reasons have to do with (i) relative strength of labor in China and (ii) higher corporate taxes (there vs here); with the former being by far the stronger driver. While median real wages in the U.S. has remained largely stagnant over the past two decades, wage increases in China has moved largely in lock-step with GDP growth. This brings us to the famous "elephant" chart from Branko Milanovic, a former lead economist at the World Bank and author of Global Inequality:A New Approach for the Age of Globalization,  covering the period between 1988 and 2008.

How labor and owners of capital fared generally over those two decades of globalization depended on where you were on the "elephant." Branko labels 3 points (A,B,C) as of particular importance. He explains that 9/10 people at point A are from Asian economies, mainly China and India. While 7/10 people at point B are from the older, mature OECD countries. Finally, point C consists of the global 1% or the biggest owners of capital, more than half of whom were in the U.S.

So, labor took in a larger share of corporate profits in China than in the U.S., where the lion's share of gains accrued to shareholders. So despite significantly higher growth in China, returns to equity were the same in both countries. Is it more complicated than that? Of course, but it is an interesting argument. Marx's revenge? 

Note, the above chart ended in 2008. It may very well be that China has moved closer to point B now more than a decade later. In which case, future equity returns could be better even as growth slows as the same labor-capital dynamics play out. But that's probably what the Communist Party is at pains to avoid.   

Banksy's Shredded Painting Sells for $25 Million

Banksy set a new personal record this week, with the British street artist’s self-destructing piece “Love is in the Bin” selling for a record $25.4 million at a Sotheby’s auction in London on Thursday. The sale comes almost three years ago to the day the piece became a viral sensation when the original work, “Girl With Balloon,” became “the first artwork in history to have been created live during an auction.” After selling for a then-record $1.4 million, the artwork was sliced when a hidden shredder was activated. Like this:

And increased the work's value by $24 million! Nice. It was a just the type of insubordinate and audacious act that would have made Thomas Crown proud. Oh, Sinnerman...

The Nobel Peace Prize Goes to Maria Ressa and Dmitry Muratov

The most high-profile (and controversial) Nobel Prize is the one for peace. The 2021 Peace Prize was awarded by the Nobel Assembly to journalists Maria Ressa and Dmitry Muratov "for their efforts to safeguard freedom of expression, which is a precondition for democracy and lasting peace." 

Ressa has been a journalist in Asia for more than 30 years. She is CEO and executive editor of the Philippines-based online news organization Rappler.com. She graduated from Princeton in 1986 with a bachelor of arts in English.

Muratov is a veteran Russian journalist and founding editor of the fiercely independent Novaya Gazeta newspaper known for hard-hitting investigative work. He attended Kuibyshev State University and served in the Soviet military, before working in journalism.

Apple Watch Meet Smart Toilet

A Stanford study finds that a disease-detecting “precision health” toilet can sense multiple signs of illness through automated urine and stool analysis.

Conceived by a group of Stanford University scientists, led by Sanjiv Gambhir, professor and chair of radiology at Stanford Medical School, the "smart" toilet is an ordinary commode fitted with motion sensing technology to deploy different tests that can detect a range of disease markers in stool and urine, including colorectal or urologic cancers. Samples are captured on video and then processed "by a set of algorithms that can distinguish normal urodynamics (flow rate, stream time and total volume, among other parameters) and stool consistencies from those that are unhealthy." The toilet can also deploy uranalysis strips to measure features such as white blood cell count, blood contamination, and protein levels that can be used to identify a range of infections, and even kidney disease and bladder cancer. The toilet automatically stores data extracted from any sample to a secure, cloud-based system, which in the future could potentially be integrated into physicians' record-keeping system for easy access.

The reports notes that the smart toilet "falls into a category of technology known as continuous health monitoring, which encompasses wearables like smart watches...Gambhir envisions the smart toilet as part of the average home bathroom." And since everyone uses the toilet, it enhances its value as disease-detecting devise. If 40% of the world's population has access to flush toilets that's a potential customer base of at least 2.8 billion people.

But in most homes more than one person typically uses the same toilet. How the does "smart" toilet differentiate between users? Well, it has a built-in identification system. As Gambhir notes, “the whole point is to provide precise, individualized health feedback, so we needed to make sure the toilet could discern between users.” But how exactly does it do that? Initially, Gambhir's team used a flush lever with a fingerprint scanner, but soon realized, however, that wasn't enough. "What if one person uses the toilet, but someone else flushes it? Or what if the toilet is of the auto-flush variety?" To solve the problem the team added a small scanner that images your...butthole. It turns out, like fingerprints, everyone also has a unique anal print. A combination of finger and anal prints should make it nearly impossible to results get mixed up. But don't worry, no one, including your doctor will see the scans. They will be simple used a recognition marker by the system to match users to their data. Bottom's up! 

Then and Now: Japan Edition

A generation ago, Japan ruled the financial world and Americans were panicking about Japan Inc. taking over the U.S. Hollywood made movies about it; books were written about it, some that were even turned into movies; pop stars even sang about it. The mania reached its apogee when Mitsubishi purchased the iconic Rockefeller Center. And why not? The Japanese economy and its financial markets had experienced an astonishing and unprecedented 40-year growth, that seemed destined to continue. Ah, but how times have changed. 

In 1989, Japan accounted for 45% of the global stock market by market cap, with the benchmark Nikkei 225 Index growing 900% just between 1982 and 1989; the real estate value of just one single park in Tokyo was worth more than all of the real estate in the state of California combined! Seven of the world's top ten companies were Japanese conglomerates. 

Fast forward today...The five FAAMG stocks are worth 20% more than the entire Nikkei 225. It's again the U.S. that dominates global equity markets, accounting for 56% of market share by market cap; Japan just 7%. Seven of the ten biggest companies are American. No Japanese company is even in the top 10 or even top 30. 

Another interesting change...back in the 1980s, 8/10 biggest companies were either Financials (5) or Energy (3). Today, on two are: Saudi Aramco (Energy) and Berkshire (Financials). Five (AAPL, MSFT, GOOG, FB and TCN) are Technology and three (AMZN, TSLA and ALBA) are Consumer Discretionary. Shows the impact of falling rates. And that change is constant.                             

Men are from Mars, Women are from Venus...

The metaphor is apt in more ways than author John Gray probably thought when he titled his best-selling book. Room temperature has long been a common cause of arguments among couples, may even the most common. Now scientists at Tel Aviv University have discovered that female members of species are naturally drawn to warmer temperatures and men cooler temperatures because of an in-built 'evolutionary difference'...leading to physical distance between them at certain times of the year. Co-authors Dr. Eran Levin and Dr. Tali Magory Cohen hypothesize that differences in the heat-sensitive mechanisms of women and men evolved "to keep offspring away from aggressive males and to reduce competition for food."  

Oh, and going to back to our titular analogy, Mars has a surface temperature of -81 F, while Venus has a normal temperature of 847 F. Makes sense... 

Barcelona's $1.2 billion teen, Benzima's triumph, and Salah's Magic

FC Barcelona's teen sensation, Pedro González López ("Pedri"), has agreed to a new deal at the club which includes a $1.16 billion release clause. Barcelona increased its release clauses massively "since Neymar's move to Paris Saint-Germain, a transfer triggered by PSG activating the Brazilian's roughly $260 million release clause." Now big clubs like Barcelona and Real Madrid are incorporating ridiculously valued clauses in contracts to avoid losing their best players. Its the joint biggest ever with  Real Madrid striker Karim Benzema's.

Speaking of Benzema, the Frenchman is having a dream start to the 2021-2022 season, leading the La Liga in goals scored (9) and assists (7). And this week he scored the goal of the tournament to help France lift the UEFA Nations League title.

Speaking of spectacular goals, Mohamed Salah keeps them coming, with another stunning solo effort, preceded by brilliant assist to Mane as Liverpool demolishes Watford 5-0.

 

But the game of the week seems to be Leicester City's 4-2 upset over Manchester United.

The Nobel Prize in Economics Goes to Messrs. Card, Angrist and Imbens

Monday the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2021 was awarded one half to David Card "for his empirical contributions to labour economics", and the other half jointly to Joshua D. Angrist and Guido W. Imbens "for their methodological contributions to the analysis of causal relationships" 

In plain language, the trio shared the prize for pioneering work in the use of "natural experiments" that use real-life situations to work out the impact of government decisions. The winners' work had "substantially improved our ability to answer key causal questions, which has been of great benefit to society," said Peter Fredriksson, chair of the Economic Sciences Prize Committee.

David Card is the Class of 1950 Professor of Economics at the University of California, Berkeley and Director of the Labor Studies Program at the National Bureau of Economic Research. He is best known for his study of the impact of minimum wage increases on employment in US states.

Joshua Angrist is the Ford Professor of Economics at the Massachusetts Institute of Technology, while Guido Imbens is the Applied Econometrics Professor and Professor of Economics at the Stanford Graduate School of Business. Their work help to develop the "framework for studying issues that can’t rely on traditional scientific methods research." 

The Nobel Prize for Literature Goes to Abdulrazak Gurnah

Last Thursday the Nobel Assembly announced they awarded the 2021 Nobel Prize in Literature to Tanzanian writer Abdulrazak Gurnah "for his uncompromising and compassionate penetration of the effects of colonialism and the fate of the refugee in the gulf between cultures and continents." 

The Tanzanian novelist is the first Black writer to be awarded the prize since 1993, and only the fourth ever. since the prize's inception 120 years ago. Gurnah was born in Zanzibar in 1948 and arrived in Britain as an 18-year old refugee half a century ago. He recently retired as a professor of English and post-colonial literatures at the University of Kent. Gurnah says the themes of migration, displacement, and identity explored in his novels are even more urgent now than when he began his writing career with the mass movements of displaced people from Syria, Afghanistan and beyond.  

Captain Kirk Goes to Space

William Shatner went to space yesterday on Blue Origin's New Shepard rocket. At 90, Shatner became the oldest person to boldly go where only a few have gone. And he was overjoyed...thanking Bezos for giving him the experience of his life.

As always Bezos was the shrewd businessman. He comped Shatner's ticket (sorry, the other non-celebrity passengers) but reaped multiples dollar's worth of free media coverage. And will be able to use footage of "Captain Kirk" for Blue Origin's PR plans. But sometimes a good message gets in the way of great messaging, as when Bezos cut off an emotional Shatner to spray congratulatory champagne. Stick to the script Shatner!

Then and Now

Captain Kirk himself went to space on Jeff Bezo's New Shepard rocket yesterday. How far Bezos and, really, all of us have come in making space travel a reality (for the rich), as these two clips show:

2000: Space travel is really hard, Charlie

 2021: Capitalism baby! Yee haw!

Wally Funk's expression is hilarious...Also, Bezos' voice has become a lot deeper, in correlation with his net worth.

Is the Climate Change Tax Here?

What a change a year makes. At one point last year early in the global pandemic, oil prices plunged into negative territory! The S&P 500 Energy index was down 50% in Q1 2020 and finished the year down 34% even as the broader market rallied 18%. This year the story is very different as synchronized global fiscal and monetary stimulus has jump-started the global economy. Oil prices have risen sharply YTD from ~$43/bbl to ~$73/bbl and Energy is, by far, the best performing sector.

While there's always noise around Energy prices, Goldman Sachs notes the seeds of the current spike in energy prices can be traced back to years of under investment in long-cycle projects. Large scale oil & gas investments were shelved due to a combination of poor energy returns and ESG concerns for nearly a decade, as shown below. 

Instead capital flowed more to short-term investments in shale and renewables. Solar and wind are great, but the technology hasn't really caught up with the demand. The basic issue of intermittent power supply remains--what do you do when the sun doesn't shine and or the wind doesn't blow? So, you still need oil, natural gas and coal, and a lot of it, to keep up with growing energy demand.

Environmentalists have long pined for an explicit carbon tax to reduce fossil fuel consumption. At least 27 countries, including many EU countries and even China, have one. But here in the U.S., Congress has never seriously considered it. Rather the movement for clean energy has been driven by the private sector and individual states with sometimes very aggressive mandates. All good. But going green and also not paying more at the pump during the transition phase was always going to be difficult. And as energy demand is rising the structural supply constraints are becoming clearer. The likely result is more volatile energy markets in the future. In effect, a unintended carbon tax? 

The Nobel Prize for Chemistry Goes to Messrs. List and MacMillan

Nobel Prize season continues and on Wednesday the Nobel Assembly announced they awarded the 2021 Nobel Prize in Chemistry to Benjamin List and David MacMillan "for  their development of a precise new tool for molecular construction: organocatalysis. This has had a great impact on pharmaceutical research, and has made chemistry greener." 

List is professor at and director of the Max Planck Institute for Coal Research, while MacMillan is the James McDonnell Distinguished University Professor of Chemistry at Princeton University. They worked independently of each other but share the prize. Their discoveries "initiated a totally new way of thinking for how to put together chemical molecules...This new toolbox is used widely today, for example in drug discovery, and in fine chemicals production and is already benefiting humankind greatly," said Pernilla Wittung-Stafshede, a member of the chemistry Nobel committee.

The Nobel Prize for Physics Goes to Messrs. Manabe, Hasselmann & Parisi

Nobel Prize season continues and on Tuesday the Nobel Assembly announced they awarded the 2021 Nobel Prize in Physics one half to Syukuru Manabe and Klaus Hasselmann "for the physical modelling of Earth's climate, quantifying variability and reliably predicting global warming" and the other half to Giorgio Parisi "for the discovery of the interplay of disorder and fluctuations in physical systems from atomic to planetary scales." 

Manabe is a senior meteorologist in the Program in Atmospheric and Oceanic Sciences at Princeton University, Hasselmann is a  Professor Emeritus at the University of Hamburg and former Director of the Max Planck Institute for Meteorology, and Parisi is a professor in theoretical physics at Sapienza University of Rome. The overarching theme that linked the joint prize was to do "with disorder and fluctuation, and how together they help scientists predict events."

The Nobel Prize for Medicine Goes to Messrs. Julius & Patapoutian

It's Nobel Prize season and today the Nobel Assembly announced they have awarded the 2021 Nobel Prize in  Physiology or Medicine to David Julius and Ardem Patapoutian for "for their discoveries of receptors for temperature and touch."

Julius is a professor and chair of the Department of Physiology at the University of California San Francisco, while Patapoutian is a professor at the Department of Neuroscience in the Scripps Research medical facility in San Diego. Their discoveries have "unlocked one of the secrets of nature by explaining the molecular basis for sensing heat, cold and mechanical force, which is fundamental for our ability to feel, interpret and interact with our internal and external environment."

Give Him a New Contract Already!

Muhammad Salah proved his worth to Liverpool again (if it needed proving in the first place) with a stunning performance in a stunning game between two of the Premiership's best teams. Salah's wonderful assist to Mane and then a sublime solo effort that is arguably the best goal of the 2021-2022 season helped Liverpool capture a thrilling 2-2 draw at home against rivals Manchester City. 

Salah is off to a roaring start to the new season; he's joint top scorer with 6 goals from 7 matches. He has two years left on his current 5-year contract with Liverpool that pays him £200,000-a-week. So far, negotiations for an extension have stalled as Liverpool has balked at his demands for ~£500,000-a-week. But plenty of people he's more than worth it. And based on yesterday's performance, they are right!