How should we prepare for rapidly changing labor market?

What would be the keyword that describes the incident in 2020? A few might answer Presidential Election in U.S. is the most significant issue in this year, others will answer the conflict between U.S. and China. But majority will indicate COVID-19 as the biggest issue in 2020 that happened world-widely. In the first half of 2020, the major concerns that investors had was about how to respond to the pandemic; the second half was more of preparing post-pandemic life. 

Pandemic is just a trigger 

Pandemic has accelerated the structural shift that were already been planned throughout 2010s. Globalization on service sector especially on information technology, finance or investment has been speeding up whereas international transfer of goods and people has diminished. As lock-down was implemented to countermeasure against the pandemic, people started to stay at home. The demand on in-house service surged as indoor time spending increased. Consumers started to shop online through e-commerce platforms, food delivery was in high demand, and needs for stay-at-home device such as laptops, projector screens and home training equipment were inevitable. The change does not only apply to the lifestyle, but also the frame of education and work.

Working trend now

The article "After the Pandemic, a Revolution in Education and Work Awaits" written by Thomas Friedman shows how much the education and work trend will change according to the spread of COVID-19. The border between employers and employee will blur. Why? Video conference platform, Zoom has been one of the issue during 2010. In fact, Zoom was the only major company which has profit among the firms which were listed public in 2019. This is the sign that remote workers have increased significantly due to the great lockdown. In New York Times, staffs in 1990s had to work at office, where as they are now working at home. They are both full-time workers but the working environment has shifted significantly! Unwanted job status shift to freelancer was inevitable as furloughs were progressed from their own companies.  The place we work is not a considerable issue now. The frame has changed more than we think!

In the future

Many job-seekers are young generations worry about gradual job decrease due to development of artificial intelligence and automated robot systems. It is true that AI can replace the jobs which had less productivity to save more time. As shareholders require more earnings to the corporate, employers may lay-off more staff in need to secure cash and invest on something more profitable which can be seemed to lead more of unemployment rate. However it is not true. AI would not take the job, instead will create more of work. 

Luddite fallacy

Do you remember the incident in the 19th when industrial revolution was on the movement? To explain the background, The Luddites were a group of English textile workers. It is found that they were violently destroyed as new machines were supplied. People started to worry that the rise of new machines will take over the power of labor market. However, the new technology did not lead to overall unemployment in the economy. Somehow, it destroyed the existing jobs with low skill, however, the new demand surged as technology enhanced. This is called the Luddite fallacy that new technology creates new field of jobs. 

Future talents

As mentioned above, AI and automated machines will replace the job with low skills. This means that jobs with low barrier will gradually replaced by automation. The new jobs will emerge as technology develops. Competent workers will be in the demand to operate the firm efficiently. The trend of staff working permanently in only one company will slowly fade away as need of new ability rise. Workers or job applicants might change the work frequently. In order to be suitable for the company, people need to adapt to new technology and learn frequently. Learn-and-work is not applicable in the recent jobs; each applicant should have learning ability by themselves in using their private time. 

The future education in university or college will also change its position. As technology and demand of consumers are  constantly developing, university should be the place for nurturing students to be ready-workers in any environment. The studies in university should be more practical and useful in their future career and jobs. The workplace is not for learning or studying. It is to prove themselves how competent they are to accomplish their mission. The trend is rapidly changing and demand for adaption in new technology is skyrocketing. Employers will change employees more often, and employees will change the jobs very frequently by demand in new skills. That is what I think the labor market will be in the future. 

Source: NYT

https://www.nytimes.com/2020/10/20/opinion/covid-education-work.html?searchResultPosition=1

Source: Luddite Fallacy

https://www.economicshelp.org/blog/6717/economics/the-luddite-fallacy/

Why does BTC Gas Pipeline (Baku-Ceyhan) pass through Tbilisi.

Georgia is located between Russia and Turkey. The country was formerly called the Republic of Georgia, but in March 2009 it changed its name to Georgia. Georgia is a country located at the southern foot of the Caucasus Mountains and its capital is Tbilisi. Tbilisi is adjacent to Baku, the capital of Azerbaijan, and the pipeline for oil and gas is connected between the two. The pipeline is extended to Turkey, allowing oil to be transported over long distances. 

Why Georgia was selected

The purpose of the pipeline is to transport crude oil easily and safely from one another covering long distance. BTC gas pipeline is connected wide range from oilfield, shipping port, and finally to the destination. The initial cost can be overly high but later will save the cost of long-distance transportation. However, there is not only advantage of it. The transportation range is fixed (more pipeline should be installed to expand more route), management is difficult due to hundreds of kilometer length, and can be the easy target of terrors. As you see the map, the pipeline passes through Georgia instead of taking the shortcuts. The reason can be found by observing the recent history. 

There are many oilfields which is rich in reserves near Caspian Sea. The lake is located inland which makes difficult in transportation to European countries. In 1991, after the collapse of Soviet Union, the countries try to seek new pipelines which can supply the oil which later leads Turkey to construct it. In order to get supplies from Baku, Turkey had to select the countries among Iran, Armenia, and Georgia for the pass-through. During the times, Iran had faced economic sanctions from the United States, which made difficult to deal with it. Turkey did not have good relationship with Armenia as there was a case of massacre of Armenians during Osman period. Armenia claims that it is intentional offense, but Turkey has never admitted. Eventually, Georgia remains the only option. 

Conflict between Azerbaijan and Armenia

There is religious conflict between these two countries. Most of the Azerbaijani people Muslims, and most of the Armenians believe in Christianity. Moreover, these two countries are fighting for Nagorno-Karabakh, which belongs to Azerbaijan but located in part of Armenia. Nagorno-Karabakh was regarded as part of Armenian province during Soviet days. In the late 1980s, the territorial conflict for the land was raised later eventually led to military conflict. Gorbachev issued a statement saying Nagorno-Karabakh would not be part of Armenia, which also prompted Armenia to take a tough stance. In December 1988, Azerbaijan The earthquake in Armenia killed more than 20,000 people and damaged more than 400,000. However, Armenia is said to have discarded most of the rescue supplies sent from Azerbaijan. This was a trigger for the bilateral relations to worsen. The recent clash between two former Soviet republics in September fueled deteriorated relationship.

Georgia's geographical advantage

Due to the historical background of Caspian area, pipelines had to pass through Georgia instead of Armenia. Transit via Georgia is costly in terms of time and construction expenses. However, it is politically safe. Eventually Georgia added its dollar earnings through tolls. Pipeline construction started from 2003 and ended in 2005. After the initials of Baku, Tbilisi, and Ceyhan, the pipeline is called BTC. The total length is 1,768 km and the crude oil transport capacity is 1.2 million barrels. On June 4, 2006, after the first ship departed from Ceyhan, 233 million tons of crude oil had been shipped by late 2013. 

However, it seems that economic growth through the laying of pipelines has not been so smooth. This is because Georgia is facing the issue of segregation and independence between South Ossetia and Abkhazia, and Turkey is also involved in the issue of Kurdish independence. The security issues of the BTC pipeline remains till now.

Source: Understanding Economics: A Geographical Approach

Source: NYT, WSJ 

https://www.wsj.com/articles/armenia-azerbaijan-conflict-11601325097?st=dk81fothh67t9zl&reflink=article_copyURL_share

https://www.nytimes.com/article/armenian-azerbaijan-conflict.html?referringSource=articleShare

Why is economy of Singapore in near crisis.

Singapore's economic is in crisis. The growth in second quarter of 2019 was negative 3.3% which was the lowest in seven years. Non-oil exports shrank 17% compared to the same period last year. Retail sales plunged 8.9% for five consecutive months, car sales shrank 32%, furniture and home appliances fell 15%, computers and technology equipment plummet over 7%, which were the signs of a fall of durable goods. The aftermath of the recession was quickly transmitted to the corporates and led to the cases where the corporate bond transactions have halted. Unprecedented recession has taken over Singapore economy recently.

Singapore is one of the richest countries in Asia. The population of Singapore is about 5.5 million, but it is enough to be the 20th largest economy in the world. Port of Singapore was the world largest trading port (later it was overtaken by Shanghai Port) as a center of transit trade taking advantage of its geological location connecting the Indian Ocean and the Pacific Ocean. And as the world's number one transshipment port, the transshipment volume is responsible about for 20% of the world's transshipment cargo.

Singapore can be regarded to be an economy in which exports and imports are taking over the most part. Singapore's import and export volume exceeds 200% of its gross domestic product. Singapore economy is showing a marked decline in 2019. Since, Singapore's largest trading partner is China, the downturn in China's economy and the outcome of the US-China trade dispute are hurting economy of Singapore directly. Singapore has also served as a financial hub and a gateway to investment in Chinese companies. Indeed, many Chinese real estate developers have raised enormous amounts of financing from Singaporean banks. However, some of which are now in default, which is a factor holding back Singapore's economic growth.

Singapore economy grew through a dictatorship under the leader of Lee Kuan Yew and took advantage of strategic ally of the United States. Also, the economy benefited from globalization for the past 40 years and China’s economic reform. However, while Japan, Korea, and Taiwan have achieved remarkable industrial leaps from automobiles, shipbuilding industry, electronics, and semiconductors. Meanwhile Singapore is mainly focusing on finance, services, and software.

It should be noted that the countermeasures of economic policy makers can create a discriminatory response amid concerns about how the decline in global trade volume due to de-globalization and the US-China trade dispute will have an adverse impact on Singapore's economy.

Source: Big Hit

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.

What makes oil prices volatile? History explains.

Crude oil prices had many rise and fall in history. After crude oil attracted media attention in the 1850s, the price now has been lower than the average price. Energy and petroleum expert, Daniel Yegin indicated that crude oil could be the most popular speculative option for investors to bet against the volatility. 

Rise of Crude Oil

Crude oil was the first discovered by Edwin Drake and was industrialized by John D. Rockfeller. The oil started to be used in many different areas. By 1890, Standard Oil Co. controlled almost 88 percent of the refined oil flows in United States which triggered to face antitrust legislation that restricted the market monopoly. In March of 1908, geologist George Bernad Reynolds started to explore other than U.S. and founded out the possibility the oil could be discovered in Persian area (which is now considered Iran). 

As crude oil production places increased, the supply of crude oil also surged. According to the law of supply and demand, demand remains the same, but when supply increases, prices go down.

Automobile

Oil prices, which had been cut in half due to increased supply in oil, doubled again in around 1910. This is the time when Henry Ford installed first moving assembly line for the mass production by applying the conveyor belt system to the automobile plant. The innovation contributed automobiles to be widely popularized. Demand for crude oil soared as demand in automobile fueled.

WWI and Great Depression

However and the supply of crude oil became unstable due to World War I, which pushed the oil price higher. With the onset of the Great Depression, oil prices fell again due to the loss of demand and more countries started to extract more oil. In the early days of oil market, short-term prices were determined by supply and demand, and in a longer-term, the rise of crude oil supply made the prices fall gradually and steadily. 

Aramco and OPEC

However, things got different after significant amount of oil was discovered on March 4, 1938. The name Aramco (short meaning of Arabian American Oil Company) started to be famous in the beginning of 1944 and the company reached the milestone of supplying 500,000 barrels a day in 1949 and later, one million barrels a day in 1953. As Aramco had a domination of global oil market in 1960 which later came up with foundation of Organization of Petroleum Exporting Countries. OPEC’s objective of formation is “to co-ordinate and unify petroleum policies among Member Countries, in order to secure fair and stable prices for petroleum producers.” 

Wars in Middle East

However, political issues happened in 1970s. In 1973, oil-producing Arab nations cut off supply of crude oil to U.S in retaliation for supporting Israel in the Yom Kippur War ($24  $56). In 1979, Iranian revolution resulted in sharp drop in oil production which lifted oil price from $56 to $125. After that President Reagan controlled the price of oil to $26 from $113 in 1986 by abolishing last price controls on U.S. produced oil. Gulf War lifted $34 to $77 in August 1990 when Iraq invaded Kuwait. Later the price fell back to $37 after U.S. military success in removing Iraqi forces that Saddam Hussein regulated. 

Expansion of Emerging Market

From 2004 to 2007, oil prices continue to rise and reach $74 because emerging economies such as China, India, and Southeast Asia spurred industrialization, resulting in enormous energy demand, while the supply remained stable. It was because oil-producing countries did not increase production to have more gains by benefiting high oil price. 

Great Recession

However, in 2007 and 2008, series of event such as Venezula cutting oil production to Exxon Mobile, slow recovery of Iraq’s export on oil, labor strikes in Nigeria and the U.K.’s North Sea oil fields, and Mexico’s decline in oil. The price of oil reach in $118 in December 2007, and peaks $165 in mid 2008s. However, after weak demand of oil during great recession caused by financial crisis, the price sank till $50s. 

Shale Revolution

Recovery from global economic crisis made oil price rebound to nearly $95 until huge increase in shale gas production. The revolution of fracking the oil led oil price plummet in 2015. It was a strategy to increase the market share in the long run, bearing short term low oil price. Afterwards, OPEC reduced production again until 2018, and oil prices recovered.

COVID-19

In April of this year, Western Texas Oil's May futures price hit an unprecedented oil price of negative $37.63. It means that the future price (May) for crude oil has fallen to negative as of April. The price of crude oil was too low that the seller had to give more premium to the buyer. The demand for crude oil dropped sharply as COVID-19 spreads globally. Shutdown of factories and lockdown sharply reduced oil but supply remained the same, creating a huge gap between supply and demand. This situation is regarded as contango where future price of commodity is higher than the sport price. (Backwardation has opposite meaning)

Warehouses that handle oil inventory were insufficient, which increased more on storage fees. However oil producing countries did not reduce production. (China used it as chance to buy crude oil cheaply) OPEC+, a group of oil producing countries no matter they are in OPEC or not, failed to reach an agreement to reduce production. Rather than cutting production, Saudi Arabia and Russia increased their production, and the rest of the countries were also struggling to increase their production, which made refinery companies in danger. 

If the price of crude oil went down too much, it would be a big problem for each countries. In particular, Russia was worried American shale oil would take over market share. Afterwards, with the agreement to cut production gradually, the oil price slowly recovered. However, anxiety still remains since oil cut tapering puts pressure on OPEC+’s economy such as unemployment and GDP. 

Summary

Oil prices move according to supply and demand in this way and it is also closely related to international political abuse. 

• Increase in oil-producing countries

• Significant increase or decrease in demand for external reasons such as political and economical issue.

• Rise of industries that replace crude oil such as shale gas

Future

The shifting to the energy industry also has an impact on crude oil market in the future. Alternative energies such as solar power, electrical energy, hydrogen fuel, and nuclear power, are threatening the crude oil market. Will they change the frame? Well nobody knows for sure, but decline in need for crude oil is now on process.

Source

https://www.wsj.com/articles/oil-prices-drop-on-faltering-recovery-in-demand-11599562101

https://www.investopedia.com/history-of-oil-prices-4842834

https://courses.lumenlearning.com/suny-hccc-worldhistory2/chapter/the-discovery-of-oil-in-the-middle-east/

https://www.businessinsider.com/the-history-of-saudi-aramco-timeline-2017-11#aramco-gradually-increased-its-production-throughout-the-course-of-the-1940s-reaching-the-milestone-of-500000-barrels-per-day-in-1949-11

'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#

Luxury brands are flourishing? Here is what we miss.

Luxury brands, would they still be luxury without explosive demand? What if China lose its needs for haute couture? Well, we still don't know yet. However, it is convincing that luxury industry is hugely relying on one nationality. Carol Ryan, journalist of WSJ, mentions that having a stock of Hermès and Gucci’s owner Kering could be riskier than the past.

Rapid recovery for expensive luxury goods are prominent in China after Covid-19; that does not mean luxury brands are carrying out excellent performance. Weak demand problem still remains outside of China. Luxury spending from China or Chinese nationals were about only 11% of total global spending in 2019.

But in other side, Chinese demand for luxury brands are steadily increasing, in which China will cover about half of global luxury spending by 2025. Investors were positive about those luxury brands since China has been eagerly looking for it for the past few years. Stocks of Louis Vuitton, Christian Dior, etc has climbed up.

Japan had similar experience during 1980's and 1990's. Global luxury sales to the Japanese nation covered about 55%. Rapid economic growth, increase in affluent middle class, and income level enhancement were the common factor between these days China and past Japan. It as to show off their wealth and spending life. Most of the consumers in China are youngsters whose income are mostly from parents' allowance, meanwhile, Japanese consumers were mostly living on home in rent-free during 1990s and were able to buy the luxurious goods. (designer bauble)

The boom on Japanese lavishness was slowly fading away not only because of economy recession so called "lost decade" in the 1990s. It was also due to demographics. As population is getting more age, expenditures on luxury goods started to decline. It applies similar to China. Chinese economy now is slowing to show weak fundamental in many reasons (such as excessive corporate debts, U.S-China conflict), but it does not mean of slowing demand on the brands. Demographic challenge is the main reason. Chinese population has been dis-inflated due to the policy of 1 child starting from 2015. World Bank data shows about 1.7 children per family. The cost could be spent on supporting an older population in the future.

Also there are signals of danger of oversupply issue in China since the demand is quite robust for the next couple of years. Chinese spending by luxury companies surged 230% year by year in the second quarter (Gartner). That can lead to lose of preciousness and their exclusive image like example of Japan, which made luxury brands suffer.

However, brands cannot abandon Chinese market since the demand is sturdy, and population is huge. Luxury sales in Europe has been decreasing since consumers lost appeal for it. Now, they rely heavily on China which can risk investors on betting luxury brands higher.

Source : Forbes
https://www.forbes.com/sites/pamdanziger/2020/05/15/fate-of-luxury-depends-on-china-but-continued-success-there-is-not-guaranteed/#5e0b819c530c

Source: WSJ
https://www.wsj.com/articles/luxury-brands-dust-off-their-japanese-lessons-11598871601

Cross-Boarder Trade when exporting to China. (跨境)

Chinese government started levying excise tax on foreign consumer starting from January 1st, 2019. This is new policy called 跨境, which is China's own cross-border trading. CBT is to replace The rise in Chinese CBT is originated as platforms such as Alibaba, Kaola, JD are developing infrastructure of e-commerce system from fin-tech to delivery. This system is to ease regulation of general trade and it is form of new and legal trade. There are four benefits using CBT in trade with China.

1. Fighting with smugglers
The Chinese government has to impose tariffs on cross-border logistics transactions, but smugglers are interrupting it. The government wants to get rid of them by strictly regulating to those parties who did not register as an official business.
Therefore, the Chinese government designated CBT possible product lists and levied unified tax rates of 9.1% by registering as a white list and minimizing customs clearance lists.

2. Logistics
CBT transaction method is divided into individual special delivery and bonded area. It can be selected according to volume of transaction, enabling more efficient operation and management of logistics costs.

3. Risk hedge
Items must have FDA such as CIQ during general trade method (bulk trade) but CBT do not require authorization since it is traded in small amount. Unlicensed products are allowed in small amount.

4. Security
Since CBT is permitted by government, it has a safe transaction management of buyer information, payment method, and delivery detail.

Understanding of CBT (Cross-Boarder Trade)

CBT exists in countries of borders, act of the buying and selling of goods and services between businesses in neighboring countries. CBT is beneficial for reduction of excise tax by buying consumer products from countries with low regulation of tax.

EU
Europe has many countries; CBT is crucial in EU area. Borders between Ukraine and Russia, between Norway and Denmark/Sweden/Finland/Russia/Estonia, between Denmark/Switzerland and Germany, and between Lituania and Poland benefit from CBT.

For example, the tax on alchohol is very low in Estonia than in FInland and Sweden. It is common to purchase massive alcohol from Estonia when returning to their countries. Other examples are down below in EU.

Lithuania - Poland : Food (Poland is cheaper)
Northern Ireland - Republic of Ireland (Petrol is cheaper in the Republic, where as groceries, furniture and clothing are cheaper than in Northern Ireland.
Netherlands - Belgium, Germany, France: Marijuana trade
U.K - France/Belgium: Brooze cruise (Alcohol, tobacco, etc)

North America
Cross-border trading between three countries in Canada, Mexico, and the United States is robust. The North American Free Trade Agreement (NAFTA) has reduced barriers and tariffs, facilitating cross-border trade. Each day from 2008, $2 billion of cross-border trade was conducted between Canada and the United States alone. However, president Trump has announced a new tariff of 10% on Canadian aluminum to protect American industry. The measure is said to be re-established just a month after the NAFTA came into force, which could worsen relations with Canada. 'Era of Nationalism'

Asia
Singapore has cross-boarder trading with Johor Bahru in Malaysia or Batam in Indonesia, to take advantage of price differences and differing product availability. For example, the Singaporean government has a law that requires a car leaving Singapore to have the fuel tank filled by at least 75 percent, to prevent it from being filled with fuel from outside Singapore.

Shenzhen, on the border of mainland China with the special administrative region of Hong Kong, also benefits from CBT. South Korea also benefits from CBT with China by exporting Korean consumer products such as cosmetics and foods.

Source 1: Border Trade
https://en.wikipedia.org/wiki/Border_trade

Source 2: Trump to Reimpose Aluminum Tariffs on Canada

https://www.wsj.com/articles/trump-to-reimpose-aluminum-tariffs-on-canada-11596747137

Incoterms 2020 (by ICC)

Why is Inconterms 2020 important?

There are more than 200 countries in the earth that are engaged in cross-border trade (CBT). Each country has different culture and history, which has to be a unified rule to make transaction easier and more convenient. 

In this regard, the International Chamber of Commerce (ICC) established Incoterms to limit the risks and costs that may arise in the process of exchanging goods between countries.

Incoterms 2020: Classification of eleven rules.

< RULES FOR ANY MODE OR MODES OF TRANSPORT>

1. EXW EX WORKS 

- Refers to the sellers (or also regarded as shippers) handing over contracted product from their factory or warehouse to the buyer (or also considered as consignee)

- The seller has minimum obligation, on the other hand, buyer covers all costs and organizes transport. (Buyer takes resposibility from seller's factory)

- Convenient condition for exporters who are not familiar with trade transactions since buyers takes own risk and cost for carrying out all the trade process.

- EXW is proceeded when seller is in A's position and buyer is in B's position.

2. FCA FREE CARRIER

- Seller's obligation: EXW + Transportation to specific place + customs clearance cost

- When the seller clears the delivery to the specific designated place nominated by the buyer, seller's obligation is terminated (risk and cost)

- If FCA takes place within the seller's territory, the seller must load the goods into the buyer's transportation, but in a place other than the seller's area, the seller is not obliged to unload the goods from their vehicle. It is the buyer's duty to unload and reload it on the new vehicle.

3. CPT CARRIAGE PAID TO 

- Seller's cost: FCA + transportation costs to designated destinations (where the destination is an agreed point inland)

- The seller must enter into contract of carriage. When the seller delivers the goods to the frieght forwarder, only the junction of the risk is terminated, and the bifurcation of the cost is terminated only when the goods arrive at the designated destination of the export destination. The bifurcation of risk and cost is different.

- If CFR, which is a maritime transport condition, is changed to a combined transport method, it becomes CPT.

- The seller must clear export customs, but the seller has no obligation to clear import customs and pay customs duties.

4. CIP CARRIAGE AND INSURANCE PAID TO

- Seller's cost: CPT + insurance contract settlement obligation

- If the CIF, which is a condition for sea transport, is changed to a combined transport method, then it becomes CIP condition

- The conditions under which the seller is required to pay the shipping cost and additional insurance premiums to the designated destination, which are mostly similar as the CPT. As with CPT, the junction of the risk is terminated upon delivery to the freight forwarder.

5. DAP DELIVERED AT PLACE

- Seller's Cost: When the goods are left at the designated destination without being unloaded, the breakpoint of the seller's risk and cost is terminated.

- Arrival transportation method can be ship and designated destinations can be a port.

6. DPU DELIVERED AT PLACE UNLOADED

- DPU rule [seller's obligation of concession] is added in Incoterms 2020.  

- This is a condition in which delivery takes place after the seller dismisses at the destination or at the agreed point of agreement.

- The seller bears the risks and costs of the transfer and the arrival of the destination is the same. If the seller does not want to bear the risks and costs of the transfer, the DAP condition must be used.

7. DDP DELIVERED DUTY PAID

- Seller's expenses: DPU + import duties and payment of VAT or GST.

- Sellers are required to pay both customs clearance and customs duties at their designated destination.

- The seller should deliver the goods to the buyer's area or warehouse. While EXW is the seller's minimum obligation, DDP is the seller's maximum obligation.

< RULES FOR SEA AND INLAND WATERWAY TRANSPORT>

8. FAS FREE ALONGSIDE SHIP

- Seller's cost: inland freight to the port + wharf freight alongside ship

- The buyer is responsible for shipping costs loaded from the ship to the ship. In other words, the divergence of risk and cost for the seller is terminated by simply placing the contracted product on the side of the ship. It is mainly used for bulk cargo [ex) grain, coal, log, etc.]. When the product is in a container, it is better to use FCA than FAS.

9. FOB FREE ON BOARD

- FOB is the most commonly used condition with CIF in practice. 

- The divergence of risk and cost ends when the seller puts the goods on board of the buyer's nominated ship. Subsequent risks and additional costs are all up to the buyer.

-The buyer has the right to sign the nomination of vessel (frieght forwarder) and the contract of carriage, and at the same time bear all costs such as freight and insurance to the destination (port).

10. CFR COST AND FREIGHT INCLUDING FREIGHT

- Seller's Cost: FOB + seller bears the freight to the designated port of destination.

- When placing goods on the deck of the ship, the seller's junction of risk is terminated, but the seller must bear the export customs clearance and shipping costs (friehgt) to the port of destination. The end points of the divergence of risk and cost are different.- If CFR is changed to a combined transport method, it becomes CPT.

11. CIF COST INSURANCE AND FREIGHT Fare.Including Insurance Charges

- Seller's Cost: CFR + Sea Insurance Fee

- Under the CIF terms, if there is no agreement for insurance between each other. The seller must pay for insurance. When signing an insurance contract, the policyholder and the insured are the sellers, but after the transaction begins and the goods are shipped, the insured becomes the buyer.

- The rules dealing with the rights and obligations of the parties under the CIF are the Warsaw-Oxford Rule-Waluso-Oxford Rules.

- If CIF is changed to a combined transport method, it becomes CIP.

I have been doing trading business for more than 3 years. Incoterms rule gives exporters and importers the standard point of whom bearing the risk and the cost. As an exporter, I frequently use FOB or CIF when transportation through ocean, and EXW or DDP through air transportation. Normally it Incoterms differ according to the weight and the volume of the amount of contract. Small amount can be shipped by air, whereas bulk trade is proceeded by ocean.  When the buyer is more eager to buy the specific product and has their own transportation method, then EXW is used. However, most buyers do not have their shipping systems, so I tend to nominate the vessel and freight forwarder, which leads to the incoterms of FOB and DDP.

GATT / WTO / FTA and pursuing of free trade.

Background
Every all the countries have propensity to increase their exports and reduce imports.
If imports are greater than exports, then it will lead to the trade deficit. The expenditure of dollar will increase than the dollar earned. Later there will be currency outflow which will lead to reduction of foreign reserves. Therefore, the country will face the risk of losing purchasing power in external necessities such as oil, iron ore, etc. Eventually, the nation's fundamentals will be weakened. There will be tremendous inflation (stagflation) and the nation's economy will crash.

Of course, it's not that bad news for resource-rich countries, but it's very lethal for resource-poor countries like Korea, Japan, and China. Because they have to buy essential resources or food in order to foster their economy.

But there is a geopolitical problem. The action to raise trade barriers to protect domestic industries such as raising tariffs is seen from old days to the modern times. Tariffs are taxes on imported goods meaning it will increase the price of imported products.
As a result, consumers will lose the reason to purchase foreign product and find domestic products. If each country creates such tariff barriers, it will cause a great fight later on. World War II also was big example from this.

These factors lead to establishment in institutional policies or organizations like GATT, WTO, and FTA.

GATT
When the global economy was having difficult time during the Great Depression(1929), U.S (they had the strongest economy at that time) implemented protectionism to revive the economy by levying 60 percent tariff on imported goods on Canada and Europe, which lead to tariff retaliation back to U.S. World trade plunged, exports were blocked by country, production declined, industry halted, unemployment increased, and the global recession intensified. As the protection trade overheated, Japan, Germany, and Italy, trying to be one of the countries which have economic powers, faced economic difficulties, and eventually tried to resolve them with force. In the end, the protection trade in the United States caused World War II.

In 1947, after World War II, the GATT was established as a precautionary measure to prevent the war. The purpose of the establishment is to expand free trade so that the world can engage in economic cooperation. Consequently, the trade barrier was eased and the international trade system was established in the right order. South Korea joined the GATT in 1967 as the 71st country which became a foothold to be an export-driven country. 

WTO
In the 1970s, major industrial countries shifted to protectionism due to the first and second oil shocks. As trade pressure between countries rises, GATT was unable to stop the dispute. It was not an international organization but just a simple agreement. Dispute settlement system and the legal binding force were not very effective to stop the trade tension.

In addition, facing the limitations monetary system due to Bretton Woods system, President Nixon announced the New Economy Policy and adopted fiat money by abolishing the gold standard system. Fiat-money is not based on anything (maybe based on treasury bond), but to put the meaning of the currency itself. So, the volume of money increased rapidly and it played a role in mitigating barriers to the trade. The Uruguay Round negotiations were held and WTO was established. It is to prevent concerns over the spread of protectionism in the previous era as the dependence of the global economy deepened. Here is the rule of it:

- Pursue nondiscriminatory trade
- Concessionary tariff allowed
- Predictable and always accessible to the market.
- Stability in its free trade.
- Encourage fair competition.
- Aid the smooth economic development of frontier and emerging countries.

FTA
Multilateral trade negotiations to support for economic development have begun to feel limited in establishing new order. There was no settlement due to differences between developed countries and emerging markets. It is wiser to have trade negotiations between the countries as an alternative.

Increased free trade agreement (FTA) with bilateral trade negotiations was faster and more efficient than multilateral trade negotiations. FTA eases tariff and non-tariff barriers to promote mutual trade. However, it violates the principle of WTO including multilateral exception clause. However WTO also admits FTA for its value of “laissez-faire trade” or trade liberalization and contribute on prosperity on global economy.

[Marketing] Online advertising cost models [CPC, CPI, CPM, CPA, CPV, CPS, CPP]

In common, CP means cost per and the meaning varies depending on which word is used. If a marketer achieves the same goal through advertising, then he or she should choose to make the advertising method more efficiently by choosing the cheapest way. When advertising online, the unit price of the advertisement may be fixed, and sometimes can be calculated as bidding method. Therefore, it is important to set an upper limit on the unit price of the advertisement so that it does not exceed the available budget and goals before executing.

CPA (Cost Per Action)

It is advertisement payment method depending on a visitors' action after clicking the link. Most actions depends on purchasing, but also varies on even participation, downloads, application for more information etc. CPA puts more value on inducing visitor's actions.

CPC (Cost Per Click)

It is priced whenever a click in online ad occurs, regardless of exposure. The amount set counting on media, advertising products, and bidding prices. [Keyword or banners] 

CPV (Cost Per Views)

It is priced whenever the visitors view the video, mostly in YouTube or other streaming platform.

CPI (Cost Per Install)

It is a term derived from app marketing, referring to an advertisement in the form of billing based on the number of users installed. It is considered as a sub-concept of CPA as app marketing becomes more active.

CPM (Cost Per Mile)

The cost is estimated by exposing 1,000 times each time. It means unit price per 1000 exposures. Sometimes it is called as cost per thousand. CPM is used when increasing of exposure is a top priority.

CPP (Cost Per Period)

It is an advertising method that sets a certain period of time and exposes advertisements at a fixed amount of money. Generally, the exposure period is fixed for one month and the amount is provided accordingly.

CPS (Cost Per Sale)

The fee is valued when the visitors purchase the product. Mostly it is used for sales commission fee.

Good indicator of U.S-China relation? [HSBC]

HSBC is a good indicator of US-China relations since its main market is China and Hong Kong. Bank has lost more than half of its market capital since 2018. Now worth only $88bn, from $220bn in 2018 as Hong Kong's revenue accounted for 34% of the group's top line in 2019. Hong Kong share has slid to 9.5% in 1H, w/2Q bearing brunt. 

Twitter from Holger Zschaepitz

Source: https://twitter.com/Schuldensuehner/status/1293056550865719297?s=19

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