Jack Ma's Empire is under investigation by Beijing's SAMR.

Anbang(安邦) Insurance and HNA Group, which were disliked by the Communist Party, ended up with the worst result in the past. This time, Jack Ma’s Alibaba empire has crossed a line that the party would not allow. It is not sure whether the blade will stop at Alibaba or not. There might be possibility that Beijing’s State Administration for Market Regulation(国家市场监督管理总局) will continue to regulate further on other Internet giant companies such as Tencent. Creating an atmosphere of excessive fear can reduce the vitality and motivation of the firms, so the regulators might control the degree; however, we should bear in mind that there is nothing as important as the authority of the party.

State Administration for Market Regulation (SAMR) has reported to investigate on the antitrust over the practice called “二选一”, which means “choose one out of two (platforms)”. The practice is to force sellers who has been operating on Alibaba platforms such as T-mall and Taobao to stop a business relationship with a competitor, namely, Pinduoduo or JD.com. This is to head off the rise of the competitors and keep its dominance of e-commerce market.

SAMR has stated the word ‘etc(等)' to suggest that the charges are not limited to one. It means that other charges have already been detected or that the charges will rise further in the future investigation process. Alibaba said it would comply with the investigation.

In addition, the People's Bank of China and other financial regulators have decided to summon Alibaba's financial affiliate, Ant Group. 

The People`s Bank of China said in a statement that it will soon call in Ant Group for investigation. The statement included that the regulator would supervise Ant Group in accordance with market principles and laws to implement fair competition, protect consumers' legal rights, and regulate the operation and development of financial services." China Banking and Insurance Regulatory Commission (CBIRC) and China Securities Regulatory Commission (CSRC) will participate in the investigation. In a statement posted on WeChat, Ant Group pledged to strictly abide by the authorities' regulations.

CBRIC and CSRC are the state agencies that the firms and financial companies do not want to confront; meaning that issue should be regarded very seriously.

The Communist Party proposed "strengthening anti-trust regulations and preventing reckless expansion of capital" as one of the eight major projects in the economy meeting. They also stressed that "anti-trust and unfair competition prevention are basic conditions for improving the socialist market economy system and promoting quality development."

Thriving to end monopoly

The number of commercial transactions through Alibaba is astronomical. The annual transaction history of customers is an extremely useful big data. Based on this, Ant and Alibaba established DB and sold joint loans with banks. Ant has collected commissions by providing credit information to local banks with weak CB (Credit Bureau) functions. In the case of joint loans, if Ant is responsible for about 2-5 of the loan, the local banks partnered with Ant will pay the remaining 95-98. Ant Group can play big money with a small amount of money. As such, local banks may lose their customer base and their loan margins decrease by paying commissions to Ant Group, but it is difficult to give up Ant's platform to increase customers and remain their business.

Although Alibaba has been revered as an icon of innovation, without help of Great Firewall policy, Alibaba would not be this giant figure. In other words, Alibaba, Tencent, and JD.COM were able to succeed thanks to the authorities' establishment of ecosystems that are difficult for U.S. or European competitors to reach on Chinese market.

Anyways, with the money raised, IT giants began to dominate mainland’s startup market in the last five years. Alibaba has been raising funds through various ways to the Chinese startups for further tech innovations. It was big chance for startups to accept the investment from the biggest Chinese e-commerce company. That is how the first generation of IT giants have manipulated the ecosystem of startup companies.

Well, many will say this would not be a big issue. If it is legal, then the funds to the startups will be the energy for innovation.

However, the Party was not pleased with what Alibaba was doing. IT giants like Alibaba are growing into "Big Brothers" that are increasingly hard to control. In China, "big brothers" should be the only one, Communist Party.

Other IT giant companies could be punished along with the investigation. A fine can be an example of the penalty but the style of the Party is traditionally beating ‘the one example’ which can show how the Party is a strong governor. Jack Ma’s empire will likely get hurt this time. The world biggest IPO was suspended, so it would not be surprising to see any disposition.

As the People's Daily, the party's official newspaper, commented, "The strengthening of anti-trust in giant companies has a noble concept of easing the monopolistic structure and protecting the profits of small and medium-sized businesses (SMEs). The e-commerce ecosystem, which is dominated by a few dinosaurs, is disadvantageous to traditional (offline) retailers and small sellers.

Source: Nikkei Asia, WSJ, Global Monitor

https://asia.nikkei.com/Opinion/Jack-Ma-punishment-a-lesson-for-China-s-other-tech-bad-boys

https://www.wsj.com/articles/beijing-sends-alibaba-an-unwelcome-christmas-present-11608806388?mod=searchresults_pos1&page=1

https://www.globalmonitor.co.kr/view.php?ud=202012241734505431daadac7a4c_41

Jumia: rise, fall and opportunity. (Africa)

As we think of e-commerce firms or platforms, we may think Amazon and Alibaba are the most influential companies in the world. In U.S, Amazon is the most dominant company in terms of e-commerce platforms, operating 1p (first party) and 3p (third party) which compete each other. In China, Alibaba dominates the online retail market providing best service to the consumers regarding delivery, price, and its identical entertainment-based marketing. However, there are valuable companies other than the two I mentioned above. One of example of prospering e-commerce company, Mercado Libre, is based in Argentina which dominates South American retail market. Other example is the e-commerce platform called Jumia Technologies which is operated in African market. I personally found this company very attractive as online shopping market in Africa has great potential to grow more than what we think.

What is Jumia

Jumia is considered as “Amazon of Africa”, founded in 2012 by Jeremy Hodara and Sacha Poignonnec, previous McKinsey consultants. It is the largest African e-commerce platform which has wide variety of products and categories such as electronics and fashions. Jumia also provides logistics and payment services which make user-friendly environment to African consumers. They have about 50,000 local partners, 81,000 sellers, 6.8 million active users (previous year was 4.8 million), and more than 5,000 employees all over Africa (which is mostly furloughed or fired recently). 

Rise and fall

Moreover, Jumia is the first African tech companies listed in New York Stock Exchange in April 12th 2019. The IPO of the company was a great hope for African firms enough to have a dream to be traded in America. The share rose about 75% on its first day of listings and reached the market capital of 3.9 billion dollars. However, in May of 2019, Jumia had suffered from the short-seller Andrew Left of Citron Research who claimed Jumia as “securities fraud”. The share price plunged half in a week after the report of high possibility of fraud. In April 2020, Rocket Internet, German investment firm, which owned 28% of Jumia, announced to sell the shares. 

Opportunity

As a rise of COVID-19, more demand through online has increased. The worldwide e-commerce platform was in boom as consumers started to stay at home. Africa was not exceptional. Africa is the continent where online retail market is growing. They have 52 different countries which consist of potential 1.3 billion consumers and 17 million SMEs/merchants for online shopping business. Mobile market in Africa is expected to half-double in leading countries over the next five years which means over 300 million smartphones will be added to the market. 

“There is enormous opportunity. In absolute numbers, Africa may be smaller right now than other regions, but online commerce will grow about 30% every year. And even with wider global declines, online shoppers are growing twice as fast. Stripe thinks on a longer time horizon than others because we are an infrastructure company. We are thinking of what the world will look like in 2040-2050.”   - Patrick Collison

Source

https://ecommerceiq.asia/africa-ecommerce-jumia/

https://www.iafrikan.com/2020/04/03/jumia-rocket-internet-new-york-stock-exchange-wall-street-sale-african-startup/

Amazon is dominating the retail industry. "Death By Amazon"

Amazon is expanding beyond online and offline to distribute its power through all areas. The company’s widespread expansion in the industry is giving a threat to the offline stores and small and medium-sized shopping malls into bankruptcy. The book “Death by Amazon” introduces “Amazon fear index”, which represents the stock indices of 54 publicly traded companies that are at risk from the Amazon’s business. 

This book explains specifically about how Amazon is increasing its field whether by itself or acquisition. To fight against Amazon’s monopoly, the book reveals the tactics of each company for its survival. Companies such as Walmart, Costco, Wayfair, Nike, Spehora, Warby Parker, Allbirds, Quip, Uniqlo, have mobilized their own strengths to compete against Amazon by their own advanced technology and differentiation strategy.

Internet of Things (IoT) or technology represented as 4th industrial revolution, such as big data, virtual reality, augmented reality, and so on are gradually permeating every aspect of our daily lives. Just only five years ago, many did not imagine a store where customers just need to take things out without any checkout, an artificial intelligence secretary who can request anything with a single word, and a delivery service for drones or unmanned self-driving robots. However, cutting-edge technologies that seemed like a distant future are now beginning to be naturally commercialized. The lead of industrial technology change is dominated by Amazon, the world's largest online e-commerce company. 

Amazon, which is considered as an omnivorous dinosaur, has destroyed the existing industrial ecosystem by making strides in every business from online bookstores to fashion, furniture, drones, robots, and cloud services. In the process, Amazon fears have gripped the market, with a series of offline giants collapsing, including large bookstore chain "Barns & Noble," the world's No. 1 toy company "Toys R Us," and 100 years of traditional department store "Sears." It has come as a huge threat to countless companies to the point. 

On the other hand, there are companies that are steadily increasing their sales by solidifying their territory in the strike of Amazon. From big offline retailers such as Costco, Walmart, Uniqlo, Tiffany to small and medium online shopping malls including Etsy, Wayfair, Casper, what are their strategies that have won the competition against Amazon? Commonly, they have avoided direct challenges against Amazon and tried to differentiate themselves by showing their strengths.

For example, fast fashion brand Uniqlo has launched a customer-centered service that combines cutting-edge technology based on the offline stores world-wide. Also, the world's largest handmade online store, Etsy has survived throughout the pressure of Amazon’s enlargement. Amazon's business strategy is mainly to buy products in large quantities from suppliers and offer them at low prices, which have not worked at all in the handmade market where diversity and uniqueness are important. Soon after, Amazon launched a competitive service called ‘Handmade at Amazon’ to take advantage of the market, nonetheless Etsy still remains the leading player. The book explains fully about the secrets of future strategies of each companies in response of Amazon’s strike. It also revealed Amazon's innermost agony behind its aggressive entry into the market. 

This book consists of a total of seven chapters. First and second chapters are about the steps which Amazon dominated online retail market. Then, Amazon Go was next Amazon’s step to stride in the offline markets: for instance, fashion and furniture industries, which were considered difficult to succeed in online. What's the real story behind Amazon's relentless move across the field? From chapter three to six, the book deals with the events of offline giants such as Walmart, Costco, and Apple. They are fiercely fighting with Amazon to defend their territory with strong brand strategies and smart, high-tech tools. Finally, Chapter 7 reveals the strategies and examples of companies in fighting with Amazon.

The author of the book, Shirota Makoto, is one of the top economist in Nomura Institute. He has been watching the moves of Amazon and the rest of online and offline retail commerce companies. It was clearly witnessed that Amazon was destroying the existing ecosystems. A lot of companies which did not prepare from their competitors later faced bankruptcy. On the other hand, some companies were able to handle themselves from the crisis of so called ‘Amazon Fear’. It is difficult to predict who will be the champion in retail area, however, in order to maintain in survival, overcoming Amazon’s dominance is one of the strategies that companies should bear in mind.

Sony is about to launch PlayStation 5....competing with Microsoft and Nintendo.

The new console competition between Microsoft (MS) and Sony has risen. The two companies began a scuffle for control of the huge console game market as they began pre-booking for new consoles. Microsoft and Sony will release their new consoles Xbox series X and PlayStation 5 on November 10 and 12. It is the first time in seven years that the two companies are releasing new consoles, PlayStation 4 and Xbox One.

The previous models, PlayStation 4 and Xbox One, saw their performance increase fall short of expectations. However, the newly introduced PlayStation 5 and Xbox series X are considered to have improved performance enough to enjoy smooth games even at 4K resolution.

In addition, Sony, which has adopted a strategy of attracting the attention of console users as a traditional way to strengthen its exclusive lineup.  Meanwhile Microsoft is putting strength on console rental service called Xbox All Access, along with subscription game service, GamePass. The competition between two companies are now heating for its market.

Normally, pre-booking serves as a barometer to determine the market's interest in the product before launch. This is also why all companies, regardless of sector, make great efforts to supply and demand pre-bookings, sales outlets and supplies.

Sony began pre-booking PlayStation 5 on the 18th for global primary retailers such as Korea, the U.S., Japan, and Europe. The game industry also commented that Sony, which was slightly behind Microsoft's schedule for price and pre-booking, has started to take the lead by making reservations faster than expected.

The pre-booking of PlayStation 5 was conducted in a hotter atmosphere than expected. In all countries where reservations have been made, supplies have run out while reservations have been made. As soon as pre-booking began in Korea, pre-bookings were sold out, and console users could see how much interest they had in PlayStation 5.

Source WSJ

https://www.wsj.com/articles/sony-to-launch-two-playstation-5-models-this-fall-11600292156?mod=searchresults&page=1&pos=4

https://www.wsj.com/articles/console-makers-now-have-bigger-game-to-play-11600426980?mod=tech_lead_pos13

https://www.wsj.com/articles/sony-earnings-win-boss-battle-with-coronavirus-11596539440?cx_testId=3&cx_testVariant=cx_2&cx_artPos=1#cxrecs_s

"Oracle is begging for TikTok's U.S business. Are you sure?"

Oracle Corp, one of the most lucrative but unflashy company in Silicon Valley, acquired TikTok US business in the battlefield against Microsoft and Walmart. At first, Microsoft's acquisition seemed promising, but it was overturned during the last minute negotiations. The relation between Oracle, which provides business software and consulting service for enterprises, and TikTok, a 15-second video sharing platform which is popular among teenagers, seems very awkward for investors or businesspeople. However, the most important factor ‘data’ lies behind this awkward encounter between both firms.

Timeline

According to WSJ, Oracle has been selected as a technology partner for TikTok's US business. The deal is quite far from the previously known acquisition of the entire business ever since Oracle has been founded in 1977. NYT cited that Oracle is most likely to gain a stake in TikTok, yet the size of investment is unclear. However, it is clear that this negotiation will bring Oracle deeply involved in TikTok's US business.

The rise of acquisition issue of TikTok's US business was due to a conflict between the US and China. Earlier, US President Donald Trump announced on July 31 that he would ban the use of TikTok in the United States. The reason was that ByteDance, a TikTok operator based in China, leaked personal information of Americans to the Communist Party in China, which could harm national security. On August 6, he signed an executive order to block all the transactions with ByteDance to US companies within 45 days. In addition, it issued a follow-up order to sell ByteDance's TikTok US business within 90 days. Since then, Microsoft has emerged as a prominent takeover negotiator, Walmart later joined the combat. I personally regarded Walmart was suitable for acquiring TikTok platform for the synergy of its e-commerce sales by live streaming).

However, Microsoft issued an official statement indicating that ByteDance will not sell TikTok to Microsoft, in that protecting TikTok user data and US security is need to be more prioritized. An hour later, news about Oracle's acquisition of TikTok came out. 

Oracle's bet on TikTok

Oracle is a traditional business-to-business (B2B) operating corporate. It has grown into a global software company based on the enterprise database market. There seems to be a distant business relationship with TikTok, a B2C business targeting consumers, especially youngsters. This is one of the backgrounds in which Microsoft, which has relatively rich B2C business experience, was superior in the acquisition competition. However, given that Oracle is trying to grow its cloud computing and consumer data business, acquiring TikTok US business can create business synergies.

First of all, TikTok can become an excellent anchor tenant of Oracle’s cloud infrastructure. This is because new space is needed to store the enormous amount of data that users create when separating the TikTok US business from ByteDance. TikTok has more than 100 million users in the United States. Oracle has struggled to compete its cloud business with Azure and AWS. According to market research firm Gartner, last year, Oracle was not in the top five cloud-computing companies by revenue. Microsoft is in second place.

<Bloomberg> pointed out that TikTok will be one of the greatest company to support Oracle in building its cloud infrastructure and enhance the user base ecosystem. In addition, Oracle proposed to make 20,000 new jobs in TikTok global business, Mnuchin said.

It is unclear whether Oracle will fully acquire TikTok's US business. It may remain one of the major partners. However, as it has been selected as a technology partner, Oracle is expected to use the TikTok platform to enhance its cloud business capabilities.

Source: WSJ, NYT, Bloomberg

https://www.wsj.com/articles/microsoft-drops-out-of-bidding-for-tiktoks-u-s-operations-11600039821

https://www.wsj.com/articles/walmart-joins-microsofts-pursuit-of-tiktok-11598544354

https://www.nytimes.com/2020/08/28/technology/tiktok-walmart-ecommerce.html

https://www.nytimes.com/2020/09/14/technology/deal-tiktok-us-china-trump.html

https://www.bloomberg.com/news/articles/2020-09-13/oracle-is-said-to-gain-advantage-in-deal-for-tiktok-in-u-s

https://www.wsj.com/articles/oracle-tiktok-deal-trump-politics-microsoft-11600129980?mod=hp_lead_pos2

Nvidia, ARM and Softbank. What should we know about the mega-deal.

Softbank Group, which has the leading investment vehicle Vision Fund, is about to sell ARM holdings to Nvidia Corp. Selling British chip designing company in $40 billion to a GPU company is almost near a deal. Most people may or may not know what those companies are doing (except investors or tech-savvy geeks) even though they are using them unconsciously. Wall Street Journal reporter Asa Fitch and Stu Woo kindly explains about them.

ARM Holdings

ARM plays the valuable key role in semiconductor sectors, which WSJ calls "world's most important behind-the-scenes chip companies".  It provides basic blueprints of the semiconductor by designing and licensing, and dominates more than 95% of world's smartphone.

Cambridge-based firm, Arm was founded in 1990 in collaboration with Apple Inc. and the Acorn Computer Group. It took a different strategy from its rival Intel. Arm focused on designing rather than energy consumption. Arm was in a position to take advantage of the 2000s smartphone revolution, as Apple, Samsung and other device manufacturers were looking for chips that would take a sip instead of wasting battery life. Softbank Group acquired 25% stake (32 U.S billion) of ARM, indicating the technology can lift the future of IoT. 

Nvidia Corp

Nvidia is famous for its graphic chips especially in video-games. During the pandemic, as console games such as Nintendo Switch was hot in demand, the GPU was widely used in it. Nvidia does not only concentrate on graphic chips for games but also for the data centers as the chip plays critical role in AI calculation as the automation industry sparks up. Nvidia has the highest market capital (300 billion) among U.S. semiconductor firms, outstanding Intel. 

Nvidia was founded in 1993, just 3 years after ARM's appearance and is located in Santa Clara, California. Its vision for the future demand of graphic games and multimedia content from consumers was firm and stubborn as personal computers have been supplied more widely. Jensen Huang is the CEO and co-founder of the company, who previously worked in AMD, which is now rival.

Acquisition

The pressure from shareholders presumably Elliot Management has made up Softbank's mind to sell its asset that is flagging its stock price. To shore up its stocks, Masayoshi Son announced to sell $40 billion of ARM, which made the share more than 20% this year. 

For Nvidia, the deal could grant a dominant role of its lucrative business on providing chips to the smartphone companies such as Apple. It could make Nvidia more powerful company against its rival competitor such as Intel or AMD as they try to adapt Arm desings in servers and personal computers. Apple has transferred its CPU from Intel to Arm based technology to make Mac more efficient. 

"Nvidia will pay $21.5 billion in stock and $12 billion in cash. SoftBank may also receive up to $5 billion in cash or stock subject to Arm hitting financial-performance targets. Nvidia will also issue $1.5 billion in stock to Arm employees", reports WSJ.

Threats

Since the acquisition of Arm Holdings is the biggest ever, there are 3 risks that Nvidia need to bear in mind. 

1. Battlefield between U.S. and China over the dominance of techno-hegemony can lead into the trouble of the whole semiconductor industry. With these in regards, regulators in both parties of the country need to agree on the sign off completely. In the past, Broadcom's acquisition over Qualcomm has been nullified as Trump administration fears geopolitical considerations. 

2. Job losses can be another reasons that some politicians in the U.K worry about. When SoftBank bought Arm, it guaranteed to grow jobs in Britain. Labour Party warned recently that Nvidia's acquisition of Arm could lead for unemployment as the pledge will also be invalidated.

3. Arm has been in partnership with many customers in neutral position. However, Nvidia's acquisition can raise the concern from Arm's customers that it can exploit using monopoly rights to the existing clients.

Source WSJ NYT FT

https://www.nytimes.com/2020/09/13/technology/nvidia-arm-softbank.html

https://www.wsj.com/articles/who-are-nvidia-and-arm-and-why-are-they-talking-about-getting-together-11599938641

https://www.ft.com/content/6bfe40a5-2426-4743-98cd-6fed9dd01b98

Zoom and Slack, how are they winners of COVID-19?

It has been almost nine months of living in new normal life after the world was hit by COVID-19, another pandemic disease originated from Wuhan. Wearing a mask is required whether it is indoors or outdoors. Social distancing by staying meter apart from each other seems likely to be granted. "We are living in post COVID-19 era. Life has changed from the past and will change continuously. It is just a matter that the pandemic has triggered it." 

During the pandemic rise in Europe and U.S., people were staying at home isolated. At first, it was not very easy to stay at home without any contacts from their acquaintances. As the pandemic lasts longer than expected, people started to enjoy themselves at home. Eating at home, shopping through e-commerce, in-house workouts, etc became new normal. The most noticeable change after COVID-19 was working from home. 

Zoom Video Communications and Slack Technologies were one of the companies that attracted most attention during pandemic. They both are the software companies for the companies. Zoom is more of video conference service, Slack is more of communication service through chatting. The common thing was that they are both in favor of contactless business. They both were listed in 2019 in U.S. stock exchange which made their debut to the investors. (Slack had direct listing after Spotify)

Then how were their performances after the rise of COVID-19?

Zoom 

The revenue was $663.5 million in the July quarter, which is up from $145.8 million last year, positing a profit of $185.7 million. Shares have risen about 400% from January due to the benefits of remote works. Small and medium companies contributed about 36% of sales of total revenue. Since furloughs from the companies were massive, so people started to work at home as a freelancer which also benefited platforms like Shiftpixy and Fiverr International. They had to use video conference for the business or job interviews. Zoom once had trouble with securities which later made them acquire Keybase to support its cyber safety. 

Slack

Revenue for quarterly sales of Slack was $215.90 million which has beat estimates of $209.10 million. This is about 48.92% incline over sales of $144.97 million the same period last year. However, shares has not significantly increased for the worries of competitors of Microsoft, Facebook, and Cisco. Slack is very useful when there are many staffs in the company since the software is very convenient for chatting and sharing the files and document. However, as unemployment started to rise, companies were less inclined to adopt new technologies like Slack services and started spending less during the economic downturn.

 

Zoom and Slack are both specialized to the business whether it is at work or at home. But Zoom is more convenient to individuals who are remote workers, while Slack is mostly B2B business. If a company cuts off their staff, then there is no reason to use chatting software like Slack which has high technology. However, when the economy recovers and remote working becomes more adopted, then Zoom and Slack can be good for investment in the future.

Source: WSJ

https://www.wsj.com/articles/slack-boosts-outlook-as-pandemic-fuels-boom-in-remote-work-tools-11599596354?mod=tech_lead_pos2

https://www.wsj.com/articles/zoom-again-lifts-full-year-outlook-as-sales-surge-during-pandemic-11598906550

Call option and Softbank's aggressive bets.

Softbank, which is one of the world’s leading venture capitalists which manages about $100 billion Vision Fund, has been making considerable bets on major tech companies. The report from Wall Street Journal (WSJ), indicates that the Softbank Group is probably behind the rise of the stock market of IT companies in U.S. Reportedly, SoftBank bought about $4 billion worth of stocks and ‘call options’ of tech companies such as Amazon, Microsoft, Netflix, and Tesla this spring.

See the blog: https://techongstudy.blogspot.com/2020/09/bigger-correction-of-market-after.html
One of the three most essential derivatives (Plain Vanilla; futures, swaps, options). An option is a contract conferring the right (not obligation) to buy and sell an underlying asset at specified strike price at maturity. The right to buy is called a call option, and the right to sell is called a put option. Here is example from Investopedia. If Apple is trading at $110 at expiry, the strike price is $100, and the options cost the buyer $2, the profit is $110 - ($100 +$2) = $8. If the buyer bought one contract that equates to $800 ($8 x 100 shares), or $1,600 if they bought two contracts ($8 x 200). If at expiry Apple is below $100, then the option buyer loses $200 ($2 x 100 shares) for each contract they bought.

Traders can strike deals of derivatives contracts to make directional bets on assets (mostly stocks) or hedge their portfolio. Option holders can make big win if market skyrockets, but can lose a sizable premium and down payment if stock market drops.
In case of Softbank, the stock rises above the strike price. Brokerages or banks who arranged options get themselves to the exposure of risk. To offset the risk, option dealers buy more stock and derivatives, which leads another jumps to stock market. When shares soar, brokerages need to add fuel to the fire to hedge more. Buying more of stocks will reduce the loss a little more than doing nothing. That is why Softbank is said to be behind the surge in technology stocks.

U.S. stocks overall has increased since March as the gambling market closed due to pandemic and the number of individual investors trading stocks options through online brokerages such as Robinhood increased. Softbank generated an exposure of around $50 billion for its bet this year by using growing optimistic sentiments of investors backed by massive liquidity under Fed and U.S. Treasury. However, stocks fall for the fast few days after the news, rising concerns of Softbank’s dangerous attempt of unfamiliar area according to Bloomberg. Also, the Financial Times (FT) raised worries that investing in options that rely too much on the market could be risky. If the U.S. stock market falls in the future, Softbank’s earnings may decrease,
Source:
https://edition.cnn.com/2020/09/07/investing/softbank-stock-options-intl-hnk/index.html
https://www.investopedia.com/terms/c/calloption.asp
https://www.wsj.com/articles/softbanks-bet-on-tech-giants-fueled-powerful-market-rally-11599232205

'Tenet' experiments on the global bets of theater industry revival

'Tenet' is now starting to test the appetite for movie-going despite pandemic. The thriller is hoping for reviving theater industry after the great lock-down has left indoor theaters closed for a few months, and movie-goers are not very reluctant to see the movies outside of their home. Potential ticket buyers have to consider about the safety before urging back to the screen.

Movie called "The New Mutants" from Disney generated fairly $7 million in box-office sales in the North America just a week ago. Nowadays, wearing a mask is required while viewing a movie. This makes movie goers not inclined to go to the theater. Additionally, theater has to adopt buffer-zone seating, the capacity of movie attendants declines about more than a half. There is no way for movie makers to profit. 

Reported about $200 million budget of making a film from Warner Bros., Tenet is betting against the pandemic and shutdowns hoping for revitalizing the theater industry, which took almost half-a-year to release the movie. The plot of movie is about the fate of humanity pivots on characters moving back and forth through time. It is an epic, brain-bending exploration of ideas the filmmaker has spent decades examining. The film is quite difficult to understand by watching at once. Since the movie might be confusing, there are lots of reviews about it; more of spoiling. However, Christopher Nolan, the director of the movie jokes, "It’s not a time to be precious about anything, 'Tenet' is so narratively complex. It’s not the kind of film you can spoil.”

Theater giant firms such as AMC, Cinemark, Cineworld and IMAX have all been betting heavily on “Tenet” to bring moviegoers back, so the strong international results were an encouraging sign ahead of the movie’s U.S. opening. Hollywood sighed of relief that $53.6 million were grossed from Europe and other markets (41 countries), which is a good sign that audiences are craving for new content even though social distancing and masks are required in theater. IMAX reported that $20,000 were generated per screen even though the capacity of attendance were limited to about a half or less. In fact, 'Tenet' had less competition as now since numbers of movie makers are delaying to open and most of movie theaters are re-releasing back-in-a day films.

"The long wait has elevated this film to the status of being very important symbolically, culturally and financially. It represents a turning point for the theatrical business which has been sidelined for five months," said Paul Dergarabedian, senior media analyst at Comscore.

I have watched 'Tenet' twice despite Covid-19. It is very difficult to understand the plot since the story is quite complicated. I have watched the spoilers and interpretation of the movie through YouTube, which made myself more confused with it. However, the factors that I thought was very intriguing was the time twist between past and present. It is definitely a harsh endeavor to express the time lashes. The first time viewing was more of understanding; the second time was more of feeling the movie. The movie was great, I gave generous score in the review of IMDb. It is pity that this great movie could have attracted more audiences which is now overlapped with pandemic.

Source: NYT
https://www.nytimes.com/reuters/2020/09/03/arts/03reuters-film-tenet.html

Source: WSJ
https://www.wsj.com/articles/tenet-suspense-builds-for-theater-chains-11598981394

https://www.wsj.com/articles/christopher-nolans-tenet-makes-a-global-bet-on-the-film-industry-11598640209

Sogo Shosha and Berkshire Hathaway's investment.

Sogo Shosha is known as Japanese companies that trade in a wide range of products and materials, including energy and mining. It used to have big ratio on trading but recently it is more of investing company. The companies had to acquire the stake of overseas company exporting to Japan to make the trade easier. Sogo shosha now extends to many business such as foods, agriculture, chemicals, heavy equipment tools, retails, automotive, etc. They are more like investment company which focuses on operating profit and look for undervalued consumer business that could supply steady cash flow.

Five companies
On Warren Buffett's 90th birthday, Berkshire disclosed acquisitions of five Japanese trading companies, so called Sogo Shosha. The stakes in Itochu Corp, Marubeni Corp, Mitsubishi Corp, Mitsui & Co Ltd and Sumitomo Corp over 12 months.
Mitsubishi is investment varies from motors, foods, retails, and foreign investments. Lawson is famous for Japanese convenient store which is about 1/3 owned by Mitsubishi. Norwegian company Cermaq is well-known for farming salmon in Oslo, Chile, and Canada. Sumitomo invests in variants of field such as information software, heavy equipment, chemicals. Isuzu, which is recognized as heavy vehicles like trucks, is part of Sumitomo. Fyffes, you may had heard, is also Sumitomo-owned fruit producing company (mostly banana) headquartered in Dublin, Ireland. Itochu is known for investing agricultural multinational corporation called Dole. It also takes part of Family Mart (95%), which is Japanese most common convenient store. Kwik Fit, British car service and repair company, is also part of Itochu. Marubeni and Mitsui are also recognized as leading investment companies in and out of the country.

Berkshire invested 5% of stakes in five companies each which is worth 655 billion yen ($6.21 billion). On Monday, shares in the companies surged about 11% in during trading hours. Marubeni was the top gainer among the five companies, jumping 12%. Sumitomo and Mitsubishi rose more than 10% and Mitsui rose 8.2%. Itochu. Berkshire is planning to hold the stake for longer term until it reach till 9.9% each. It was Mr.Buffett's first time to invest in Japanese companies since he is mostly concentrating on U.S. firms. (IMC international and Detlev Louis are just a few example of non-U.S companies) This means he is diversifying his portfolio outside of U.S., since American stocks are now costly which makes him trouble to find the appropriate worth of its value. As he sold stake in newspaper, airlines, finance firms, he had ammunition for giving himself into new bets.

Why did Warren Buffet invested in Sogo Shosha

Low price-to-book ratio

Those five companies have very low market capital against their book value. Four companies except Itochu are less than 1. Their price earning ratio is about 5 to 7, which means the share price is traded only five times more than their earnings. Japanese companies overall are cash-rich. They have total of over 300 trillion yen which is 1.6 times more than the last decade.

High dividends

Four companies are paying more than 4% of dividend yields (mostly 5% except Itochu). Dividend yield in overall Japanese companies are 0.7% more higher than U.S. Warren Buffett prefers companies which have large compensation for owning the stake of the firm.

Aggressive Investments

Sogo Shosha is trading company but now concentrating on investment field, not only on the energy field such as mining and copper, but also on consumer goods and foods. It is not like Softbank which endows only on IT companies. Five companies which Berkshire invested, may have reason to change more of their strategy on investment; I think because of low growth of Japanese economy.

U.S dollar fall

Worries about the pandemic recession made more of stimulus package and monetary policy which is making U.S. dollar weak. As Japanese Yen is less volatile and quite regarded as safe-haven currency, it could be great hedge against losing value of dollar. Resigning of former prime minister Abe can mean somewhat uncertainty of Abenomics which will trigger Yen to shift its value upwards. (In fact Warren Buffett announced its investments right after the prime minister's resign) Also, newest monetary policy announced in Jackson Hole conference last week could be trigger for the dollar drop. 

See my blog https://techongstudy.blogspot.com/2020/08/review-of-monetary-policy-strategy-fed.html

These are the quotation that approached me impressively. I really want to share these quotes.

“But there is no other place which offers such undervalued stocks with solid financial health and steady profitability”  - Wall Street Journal

“The fact that Warren Buffett chose to buy them speaks highly of his confidence in their corporate governance and business acumen,”  - Financial Times

"Warren Buffett is swimming the opposite direction to other international investors.... laughably low valuations on the stock market, tremendous values available in Japan today” - New York Times

Many investors worry that low book value can be a real value trap indicating their growth is over. However, investors like Warren Buffett is not thinking as normal mom-and-pop investors do. If cheap, then there is low risk of losing much money since the downward gap is thin. Although value stocks can be risky due to extremely cheap price, if there is a shift to value in a positive manner, Japanese stocks would likely perform very well indeed.


Source 1: Wall Street Journal
https://www.wsj.com/articles/berkshire-hathaway-buys-stakes-in-five-japanese-trading-companies-11598841219

https://www.wsj.com/articles/warren-buffett-at-90-still-has-an-eye-for-a-bargain-11598881078

Source 2: New York Times
https://www.nytimes.com/reuters/2020/08/31/business/31reuters-usa-investors-buffett-analysis.html

https://www.nytimes.com/reuters/2020/08/30/business/30reuters-berkshire-stake-japan.html

Source 3: Financial Times
https://www.ft.com/content/e20708ac-347b-47de-b79a-ab7fb9088d6f

Source 4: Business Insider
https://markets.businessinsider.com/news/stocks/why-warren-buffett-berkshire-hathaway-7-billion-5-japanese-stocks-2020-9-1029555556#

Container-shipping companies create profit despite Covid-19 recession.

The increase in freight rates have benefited shipping companies for more profitd. It is due to the reduction of fleet supply and volume. Even though economic downturn was forecasted due to low demand of global trade, economic slowdown did not lead to the deterioration of the profits of container ship operators.

In the past, during the 2008 financial crisis, the profitability deteriorated significantly due to deliberate price fall responding on low demand. However, in response of Covid-19, shipping companies operated capacity adjustment instead of price slashing which later triggers profit rise when there is demand for it. Shares rise aftermath.

Source: Shipping Stocks Weather the Pandemic Storm 

https://www.wsj.com/articles/shipping-stocks-weather-the-pandemic-storm-11598868003

Tesla and its short positioned traders

The chart below shows Tesla's share price rising 390 percent this year.
The blue line and the orange line represent the 'short interest' and 'short interest percent of equity float' which continues to decline as opposed to the stock price.
The surrender of short-selling forces is one of the factors pushing up Tesla's market capital. (Which are down more than 25 billion dollars this year amid the stock's record-breaking rally.

The ratio of short selling to the whole transaction was about 8 percent (the lowest ever) as of the end of last month, but it must have been lower now. However, Tesla is still the largest short in the U.S. market.

Tesla surpassed the $2,000 level for the first time ever. It is the ninth largest U.S. companies at this moment with the market capital of 382 billion dollars.  The short bets have lost another $619 million Friday as the stock continues to climb ahead of its upcoming five-for-one stock split.

Source 1: Traders betting against Tesla are down more than $25 billion this year amid the stock's record-breaking rally

https://markets.businessinsider.com/news/stocks/tesla-stock-price-rally-short-sellers-lost-billion-year-amount-2020-8-1029524656

How Blackrock is making profits during COVID-19.

Blackrock, the world's largest asset holding company [$7.3 trillion], reported a 21% increase in revenue. Although it was not easy for financial institutions to withstand the economic recession from COVID-19 and low interest rates, Blackrock seemed to be different. The Fed's purchase of Black Rock ETFs with no commission fees did not help the company itself, Black Rock earned profits in two ways.

1. Revenue from sales of software called Aladdin [Aladdin's financial risk measurement software]

2. Changing Black Rock's Asset Strategy [Focusing on the U.S. Market for Rapid Asset Recovery]
It also focused on active asset management, rather than concentrating only on index ETFs.

 Wall Street Journal says BlackRock is watching for scalability from asset management to software technology sector.

Source : BlackRock’s Profit Jumps 21% as Investors Surge Into Bond Funds
https://www.wsj.com/articles/blackrocks-profit-jumps-on-bond-etf-activity-11594982592

Buy Now and Pay Later (Online POS loans) Industry and the most leading company [Affirm Inc]

"How can I buy expensive products such as Nintendo DS(for me it is regarded as very luxury good) or expensive cars like Lexus or Tesla at the moment on the payment site?" This is the question that comes out when I do not have enough rooms for capital. Back in my school days, my property all relied only on the allowance from my part time job or my parents'. I wish I could have credit card to buy now pay later. Unfortunately, all those goods that I was thriving for were only owned in my craving dream but not in my hands.

The times goes by, my dreams to own luxury goods faded away; did not really think about acquiring my own credit card.

One day, as I was checking which companies are about to be in IPO debut line-ups this year, I happened to find the company called Affirm Inc. I could check the company throughout Wall Street Journal down below.

The person in the picture looked very familiar to me and checked out.
He is Max Levchin, the founder of Paypal and Slide.com.
Paypal(1998) is very well known not only to the investors or traders but also to consumers in Western countries. Paypal is used for peer-to-peer payment mostly in B2B business. Their service include mobile payment software called Venmo, which is another popular payment tool for teenagers.
Slide.com(2004) is photo sharing software for social networking services. Later Google agreed to buy Slide.com in about $180m.

Affirm was founded in 2012; Max Levchin is now concentrating on installment payment service company.
I first wondered what Online POS loan meant. The industry was very new to me.

This is example of POS loans. Suppose a person needs Nintendo DS. He wants to buy the product in 360 USD, however, the capital is not enough for him. Affirm pays to the merchants for the consumers and later get the installment payment starting from 3 months to the most term 39 months. Well, that is good concept.
Then another question came out in mind, "what is the difference between credit card system?" and found out.
POS loans requires less credit, therefore less capital limits. Some installment loans do not charge late penalty fees. It is decoupling phenomenon from credit card ecosystem.

Partners
Affirm has more than 4,000 partners (my estimated calculation). Walmart, Expedia, and Shopify are one of the biggest partners. Affirm has also many partners of brand companies such as Peloton, Swatch, and so on.

Competitors
Then who are the competitors of Affirm? Maybe credit card companies like Visa, Mastercard are one of them, payment companies including Paypal or Square are another. But there are some companies which do almost exactly similar service with Affirm. Lets find out.

There are many companies like Sezzle, Splitit, Zip co, Klarna which offers installment loan service; among those, Afterpay is the biggest competitor. It is Australian company founded 2 years after Affirm and was listed in 2019 in ASX(Australian Security Exchange) market. Australia is the leading country which pioneered online POS loan industry.

This is the recent stock price of Afterpay and other competitors indicating the industry is growing up really fast. Maybe it COVID19 can be one of the reason to be benefited.

Well, Affirm is not listed publicly, however, by looking at the competitor's stock movement, investors can assume the industry is expanding and more users are looking forward for installment loans. I found the chart indicating Affirm.Inc has the most users among them.

This chart is limited in the U.S. market, since Afterpay takes over Oceania regions and Klarna (Swedish bank) is dominant in Europe. Nevertheless, U.S. has big consumers market. Investors will definitely crave for IPO of Affirm.Inc.



Source 1: It’s Layaway, But for a Post-Recession Economy
https://www.nytimes.com/2019/05/03/fashion/afterpay-quadpay-klarna-affirm.html

Source 2: Affirm Prepares IPO That Could Value Fintech Firm at Up to $10 Billion [WSJ]
https://www.wsj.com/articles/affirm-prepares-ipo-that-could-value-fintech-firm-at-up-to-10-billion-11596143292?mod=searchresults&page=1&pos=11

Source 3: ‘Buy Now Pay Later’ Is Having a Moment as Pandemic Changes Shopping Habits [WSJ]
https://www.wsj.com/articles/buy-now-pay-later-is-having-a-moment-as-pandemic-changes-shopping-habits-11594459800

Source 4: Eyeing That Sweater? It’s Yours in Four Easy Payments [WSJ]
https://www.wsj.com/articles/eyeing-that-sweater-its-yours-in-four-easy-payments-11569672000