Curated Insights 2018.08.24

Tech firms account for 60% of profit margin growth in the past 20 years

The information technology sector – which contains the bulk of superstar firms – accounts for 60% of the increase in S&P 500 profit margins over the past 20 years, while the “adjacent tech” sector, comprising the health care (including biotech firms) and consumer discretionary sectors (incl. firms such as Booking Holdings and Expedia) accounts for 40% of the rise. It also means the bulk of the market – i.e., all firms ex. tech, healthcare and consumer discretionary – have seen no margin growth at all since 1998.

Dear Elon: An open letter against taking Tesla private

First, as a private company, Tesla will be unable to capitalize on its competitive advantages as rapidly and dramatically as it would as a public company, an important consideration given the network effects and natural geographic monopolies to which autonomous taxi and truck networks will submit. Second, in the private market, Tesla would lose the free publicity associated with your role as the CEO of the public company not only with the bestselling mid-sized premium sedan in the US, but also arguably in the best position to launch a completely autonomous taxi network nationwide in the next few years. Just ask Michael Dell: he wants to lead a public company once again for a reason. Third, you will deprive most of your individual investors of a security to bet on you and your strategy, ceding that opportunity to high net worth and institutional investors. Finally, if you do not take Tesla private, you will be surprised and gratified at investor reaction once they realize and understand the scope and ramifications of your long-term vision and strategies.

Thoughts on Xiaomi’s eighth anniversary and inaugural month as a public company

As of March 2018, Xiaomi already had 38 apps with more than 10 million monthly active users, and 18 apps with more than 50 million monthly active users, including the Mi App Store, Mi Browser, Mi Music, and Mi Video apps. Rather than paying search engines to acquire users, Xiaomi is essentially getting paid for acquiring users through selling its smartphones. This allows Xiaomi to have a negative CAC (customer acquisition cost) for its Internet services.

Another under-appreciated pillar of Xiaomi’s growth is its “ecosystem strategy.” Xiaomi strategically invests in many startups as well as the many Internet services providers they work with, both in China and outside of China. Companies in the Xiaomi ecosystem include SmartMi (air purifiers), Zimi (power banks), Huami (Mi bands), Chun Mi (rice cookers), and 80-plus more. Thanks to these prolific investments, you can find a wide variety of products in any Xiaomi store, from scooters to ukeleles (see below). As a result, every time consumers visit a Xiaomi store, they can find something new, and the frequency of store visits is a lot higher than typical smartphone brands, even Apple.

Ensure the price of the hardware is as low as possible so the company can grow market share and users. Sell the phones online, direct-to-consumer, bypass the middlemen, and past the enormous cost savings to consumers. Overtime, the company will monetize on Internet services.

When Yahoo! Invested in Alibaba (another GGV portfolio company) in 2005, the world had 1 billion Internet users. Now, the world has 3.5 billion Internet users. Over the last 13 years, Alibaba’s valuation increased 100 times from $5 billion to $500 billion. The fact that China was the fastest growing market for Internet users during this period, coupled with Alibaba’s amazing ability to execute, turned the company into a growth miracle. In the next 12-13 years, the world will most likely grow to 5 billion Internet users. The world’s next 1 billion Internet users that will come online in the next decade – via affordable but high-quality smartphones – are outside of the US. They are in the 74 countries that Xiaomi is already in today. Going forward, Xiaomi is very well-positioned to take advantage of the next phase of growth through selling hardware, software, and bundled Internet services, as well as by investing in partner companies in those countries.


Does Tencent Music deserve a Spotify-like valuation?

Tencent Music this year could generate revenue less than half of Spotify’s projected $6 billion. Tencent Music is profitable, which is rare in music-streaming. The firm pulled in roughly two billion yuan ($290 million) in net income last year. Spotify, in contrast, reported a net loss of about $1.4 billion last year, although nearly $1 billion of that was due to a one-time financing charge.

In terms of users, Tencent Music is way bigger than Spotify. Tencent Music operates streaming service QQ Music as well as karaoke and live-streaming music apps Kugou and Kuwo. The three services had a combined 700 million monthly users in China as of September 2017, according to Tencent Music. Tencent Music operates a fourth service, the karaoke app WeSing, which at the end of last year had more than 460 million registered users. By comparison, Spotify had 180 million monthly users and 83 million paid subscribers as of June, the company has said. But Spotify’s ratio of paid versus free users is higher than at Tencent Music, where only a fraction of its Chinese users pay for music.

The secret of Tencent Music’s profitability is virtual goods and cheap music rights. Most of its revenue comes from non-subscription services including karaoke and live-streaming services, where users can pay to send virtual gifts to performers.

Swelling clout of US corporate giants is depressing pay, analysts say

As the economic weight of a small number of highly profitable and innovative “superstar” companies has increased, workers’ slice of the pie has fallen in their industries. This may have contributed to a broader fall in labour’s share of income that has been particularly noticeable in the US since the beginning of the 2000s. At the same time, corporate profitability has surged to record highs. 

Goldman Sachs analysts say rising product and labour market concentration has imposed a drag of 0.25 percentage points on annual wage growth since the early 2000s. They also stress, however, that America’s dreary productivity growth is a bigger problem.

ARK Disrupt Issue 138: GPUs, crypto, fintech, mobility, and disease

Turing will be able to perform graphics, deep learning, and ray tracing operations simultaneously, a first for any processor. The Turing GPU can perform 10 billion operations per second, enabling ray tracing in real time. In addition, it is capable of 125 trillion deep learning operations and 16 trillion graphics operations per second. Nvidia and other chip companies rarely dedicate hardware to a specific algorithm in the absence of a large market opportunity. Nvidia posits that the $2,000 Turing ray tracing GPU will target 50 million artists and designers globally. A 10% hit rate would create a $10 billion market, nearly matching Nvidia’s annual revenue today.

Because 98% of all genetic diseases are polygenic, that is involving more than one gene, the clinical utility of whole genome sequencing (WGS) is taking on new importance. To date, roughly two million whole human genomes have been sequenced. If DNA sequencing costs continue to drop by 40% per year, the number of whole human genomes sequenced should increase at 150% rate per year. As a result, genome-wide association studies should power poly-epigenetic models of disease and result in molecular diagnostic tests which introduce more science into health care decision-making.

Why battling bugs is a booming business, and may be getting bigger

Preventing pest infestations—or mitigating them after the fact—is particularly important for restaurants, hotels, and hospitals. Not only can regulators impose heavy fines or shut down businesses that violate health ordinances, customers who encounter a bug-infested business may shame them on social media. “In the age of customer review apps such as Yelp, businesses are well-aware that a customer report or, worse, photo of a pest infestation can be shared around the internet within minutes and potentially damage their brand,” says Zhu. With reputations at stake, businesses in the food and beverage, hospitality, and health care sectors are especially inclined to hire a pest control company promptly when faced with an infestation. In fact, many commercial customers schedule routine treatments to prevent potential infestations, providing pest control companies with a recurring revenue stream.

The companies best positioned to thrive in this environment are those with access to sufficient capital to acquire or open new locations. Operating an extensive branch network confers a number of competitive advantages, including the opportunity to generate greater brand recognition through cost-effective advertising and the ability to operate with lower average costs due to economies of scale. In recent years, consolidation has been intense in North America, which is still home to about half the world’s pest control companies. In fact, four of the 100 largest pest control companies in the US were acquired in May 2018 alone, two of them by US-based Terminix, and one each by European firms Rentokil and Anticimex.

Despite modern pesticides and the efforts of tens of thousands of companies, pest control remains a Sisyphean task. “It’s easy to kill bugs, but it’s much harder to keep them from coming back,” Zhu says. For the foreseeable future, the bedbugs will continue to bite—and demand for professional pest control services should continue to grow.

Litigation finance offers investors attractive yields

Funds that invest in litigation are on the rise. In the past 18 months some 30 have launched; over $2bn has been raised. Last year Burford Capital, an industry heavyweight, put $1.3bn into cases—more than triple the amount it deployed in 2016. Lee Drucker of Lake Whillans, a firm that funds lawsuits, says he gets calls weekly from institutional investors seeking an asset uncorrelated with the rest of the market—payouts from lawsuits bear no relation to interest-rate rises or stockmarket swings.

Returns are usually a multiple of the investment or a percentage of the settlement, or some combination of the two. Funders of a winning suit can expect to double, triple or quadruple their money. Cases that are up for appeal, where the timespan is short—usually 18-24 months—and the chance of a loss slimmer, offer lower returns. New cases that are expected to take years offer higher potential payouts.

As funders compete for high-quality investments, opportunities in new markets arise. Bentham IMF, a litigation funder based in New York, has joined Kobre & Kim, a law firm, to set up a $30m fund for Israeli startups to pursue claims against multinationals—for example, over trade-secret violations. A burgeoning secondary market is likely to develop further, allowing investors to cash out before long-running suits are closed. Burford recently sold its stake in an arbitration case concerning two Argentine airlines for a return of 736%. Such mouth-watering profits should keep luring capital into the courtroom.

Network-based businesses will disrupt all sectors of the economy

Networks are even more powerful because their foundations are even stronger. Large corporations leveraged mass production, mass distribution, and economies of scale. Networks leverage mass computation, mass connectivity, and network effects. Because computation and connectivity improve at exponential rates, the owner of a network has insurmountable advantages over the owner of a traditional corporation.

Corporations believe that bits enhance atoms. Networks recognize that bits are the new capital and atoms are the new labor.

Dragon quest

China now has over 100 cities with populations topping one million, compared to the entire continent of Europe which has a paltry 34. Ever heard of Zhengzhou? Don’t worry if not, it’s a tier two city in Henan province that only just makes it into China’s top 20, yet it has a bigger population than the whole of Denmark. Expressed another way, China already has more millennials than the US has people.

China is of course the world’s second biggest economy and poised one day to reach the top, but consider this: if its per capita wealth were to catch up with that of Hong Kong’s, then its resulting GDP would not just surpass the United States’ today, but triple it. This is more simply reflected in the fact that each year approximately 35 million Chinese enter the middle and affluent classes. No wonder multinationals around the world are flinging everything they have at the country.


China reaches 800 million internet users

The U.S is estimated to have around 300 million internet users. The number of internet users in China is now more than the combined populations of Japan, Russia, Mexico and the U.S., as Bloomberg noted. The new statistic takes internet adoption in the country to 57.7 percent, with 788 million people reportedly mobile internet users. That’s a staggering 98 percent and it underlines just how crucial mobile is in the country.

Jakarta, the fastest-sinking city in the world

It sits on swampy land, the Java Sea lapping against it, and 13 rivers running through it. So it shouldn’t be a surprise that flooding is frequent in Jakarta and, according to experts, it is getting worse. But it’s not just about freak floods, this massive city is literally disappearing into the ground.

“If we look at our models, by 2050 about 95% of North Jakarta will be submerged.”

It’s already happening – North Jakarta has sunk 2.5m in 10 years and is continuing to sink by as much as 25cm a year in some parts, which is more than double the global average for coastal megacities. Jakarta is sinking by an average of 1-15cm a year and almost half the city now sits below sea level. The impact is immediately apparent in North Jakarta.

There is technology to replace groundwater deep at its source but it’s extremely expensive. Tokyo used this method, known as artificial recharge, when it faced severe land subsidence 50 years ago. The government also restricted groundwater extraction and businesses were required to use reclaimed water. Land subsidence subsequently halted. But Jakarta needs alternative water sources for that to work. Heri Andreas, from Bandung Institute of Technology, says it could take up to 10 years to clean up the rivers, dams and lakes to allow water to be piped anywhere or used as a replacement for the aquifers deep underground.

We all have it now

Think about that. It took 7 months for the biggest volcanic explosion in the last 10,000 years, one that affected the global climate and killed twice as many people as any other volcanic explosion in recorded history, to become news. If the same event were to happen today, we could have someone tweeting it within minutes and we would probably have video footage online within the hour. This is possible because of the democratization of information. We all have it now. Historically, having an informational edge was worth something. Being faster or having better access meant making more money. Not anymore.

This is where we are. Only those using advanced quantitative techniques have any chance of exploiting anomalies in the data. The rest of us will need to do something else. We went from a world of privileged access to information to a world where a single tweet can change everything. A world where anyone can break the story, anyone can get the data, and anyone can be a media company. If, as Brendan Mullooly points out, today’s edges are tomorrow’s table stakes, what does that leave the typical investor to do? The answer lies in a maxim from Jim O’Shaughnessy: you must arbitrage human nature.


Buyback derangement syndrome

Investors generally do not spend the money paid out in buybacks on champagne bubble baths or other forms of consumption. Rather, they reinvest it in other stocks and bonds. Buybacks thus facilitate a movement of capital from companies that don’t need it to those that do. That’s how markets are supposed to work.

Yet another claim is that much of the market rise over the last few years has been from buybacks. The numbers don’t bear this out. The direction is plausible, as researchers have found that share prices do tend to increase—by around 1%—when buybacks are announced. Several explanations have been offered for this positive reaction including that investors see repurchases as a signal that management thinks shares are undervalued, and that investors cheer when management returns cash to shareholders rather than, perhaps, wasting it on “empire building.” These explanations are behavioral effects at the margin.

Indexers will cause the next stock market crash?

My Bloomberg colleague Eric Balchunas points out that during the 2008 credit crunch, the money flows were into index funds and exchange-traded funds; more than $205 billion was put into these funds while active funds experienced $259 billion in outflows. In other words, the 57 percent sell-off of U.S. equity markets during the financial crisis gives us a good idea how passive indexers will behave when markets crash: they become net buyers while active funds become net sellers.

Beyond the 2008 crash, we have seen several market corrections since 2009. As my colleague, Michael Batnick observed, from May to October 2011, the Standard & Poor’s 500 Index fell about 20 percent. Again, between May 2015 and mid-February 2016 the S&P 500 fell about 14 percent. Other indexes, such as the Russell 2000 fell even more. And what happened? Passive index funds continued to gain market share at the expense of actively managed funds.

Which raises the question: Just who was “cruelly exposed” in those corrections? By all lights, it looks like it was the actively managed funds.

Curated Insights 2017.08.27

Inside Waymo’s secret world for training self-driving cars

Collectively, they now drive 8 million miles per day in the virtual world. In 2016, they logged 2.5 billion virtual miles versus a little over 3 million miles by Google’s IRL self-driving cars that run on public roads. And crucially, the virtual miles focus on what Waymo people invariably call “interesting” miles in which they might learn something new. These are not boring highway commuter miles.

And in both kinds of real-world testing, their cars capture enough data to create full digital recreations at any point in the future. In that virtual space, they can unhitch from the limits of real life and create thousands of variations of any single scenario, and then run a digital car through all of them. As the driving software improves, it’s downloaded back into the physical cars, which can drive more and harder miles, and the loop begins again.

Not surprisingly, the hardest thing to simulate is the behavior of the other people. It’s like the old parental saw: “I’m not worried about you driving. I’m worried about the other people on the road.”

“Right now, you can almost measure the sophistication of an autonomy team—a drone team, a car team—by how seriously they take simulation. And Waymo is at the very top, the most sophisticated.”

And in reality, those 20,000 scenarios only represent a fraction of the total scenarios that Waymo has tested. They’re just what’s been created from structured tests. They have even more scenarios than that derived from public driving and imagination. “They are doing really well,” Peng said. “They are far ahead of everyone else in terms of Level Four,” using the jargon shorthand for full autonomy in a car.


Halliburton and Microsoft do not compute for OPEC

Contrary to conventional wisdom, the oil business is a high-tech one. You don’t map out complex rock formations thousands of feet beneath the ground in three or four dimensions and then drill into them without advanced tools. For example, Total SA, the French oil major, boasts the 19th-most powerful supercomputer in the world, Pangea, which has clocked a speed of more than 5 quadrillion calculations a second (technical note: pretty fast) according to The Top 500 List.

…the average well has less than 10 gigabytes of data associated with it, equivalent to a couple of high-definition movies.

…the company’s teams now have access to more than 80 real-time data streams and sensors embedded in wells, giving them a constantly updated picture of what’s happening beneath the ground. The killer app here, in every sense of the word, is providing crews and their managers with an integrated platform; a suite of sensors and software communicating seamlessly, updating constantly and available to all involved.


Costco is playing a dangerous game with the web

Costco’s reluctance to embrace the web is understandable. Its warehouse club business model is based on selling a limited assortment of bulk-size food and household items at low prices, alongside an ever-changing selection of general merchandise—everything from margarita machines to kayaks. This creates an in-store treasure hunt experience. Both elements are costly and difficult to replicate online.

Potentially more worrisome: Half of Costco’s shoppers are Amazon Prime members, Kantar Retail says, up from 14 percent five years ago. Sharing too many of the same subscribers could be risky, since Planet Retail RNG analyst Graham Hotchkiss says Amazon now offers many bulk-size goods at prices that rival Costco’s. And Amazon’s pending $13.7 billion deal to buy Whole Foods Market Inc. will give it a firm foothold in groceries—the primary reason people shop at Costco, according to Barclays’s Short.


What is Amazon, really?

At last count, Amazon’s delivery infrastructure included more than 180 warehouses, 28 sorting centers, 59 local package delivery stations, and 65 hubs for its two-hour Prime Now deliveries. Investment bank Piper Jaffray estimates that 44% of the US population lives within 20 miles of an Amazon warehouse or delivery station. Amazon’s proposed $13.7 billion acquisition of Whole Foods could add another 431 distribution nodes in bougie neighborhoods to that network.

“Our goal with Amazon Prime, make no mistake, is to make sure that if you are not a Prime member, you are being irresponsible,” Bezos told shareholders in May. The plan is working: 63% of US Amazon users subscribe to Prime, and estimated to reach more than half of American households by the end of the year. Prime doesn’t just lift $99 off of regular Amazon users each year—it’s proven to be a powerful customer loyalty program. The average Prime user spends $1,300 each year on the site, with 78% of Prime users still citing free 2-day shipping as the main reason for coughing up the fee.

The service first reached customers by 2005, and was officially launched in the summer of 2006. Tom Szkutak, Amazon’s CFO at the time, said the business was “exposing the guts of Amazon,” using the knowledge gained from 11 years of building Amazon.com. Today AWS is on a tear. It’s the world’s dominant cloud computing provider, and the nearest competitors aren’t even within shouting distance: Amazon’s servers deliver 34% of the world’s public cloud services, reports Synergy Research Group, while Microsoft, IBM and Google provide 24% combined.


Amazon vs Maersk: The clash of titans shaking the container industry

Manufacturing is new step for Amazon and they won a patent earlier this year to develop a system to rapidly create clothing and other products after a customer order is placed. This forms a cheap and simple method for Chinese exporters as Amazon have effectively wiped out the middle man, acting as a shipbroker for itself and on behalf of smaller companies.

Freight forwarders may find it hard to compete with companies as powerful as Amazon and Maersk, who can afford to develop disruptive technology and prioritize increasing market share over higher profits.

Small independent ship owners will be left behind unless they adapt their business model to seek different shipping routes, for example choosing container lanes that do not feed into deep sea ports where the ultra large container vessels operated by Maersk can only dock.


Great Wall Motor’s better path leads to emerging markets

The Proton purchase not only gives Geely inroads to the Malaysian consumer market but also access to production plants in the region that could be used to manufacture other car brands. Being closer to the end customer would lower production costs. While Proton’s Tanjung Malim plant has the capacity to churn out one million cars annually, it made only 72,000 last year, according to the Malaysian government.

A lean company, analysts estimate Great Wall makes 60 percent of its parts in-house. It spends little on marketing and is the fourth-most-profitable automaker globally by net margin and return on equity. Its return on invested capital ranks number one among 40 manufacturers tracked by Bloomberg Intelligence.


A handful of companies control almost everything we buy — and beer is the latest victim

A whopping 182 beauty brands fall under the massive umbrellas of seven huge manufacturers: Estée Lauder Companies, L’Oréal, Unilever, Procter & Gamble, Shiseido, Johnson and Johnson, and Coty.

A 2015 Morgan Stanley report found that 10 companies controlled 41% of the clothing market. No other retailer had more than 2% of market share. The retailers dominating the market were Walmart, T.J. Maxx, Macy’s, Gap, Kohl’s, Target, Ross Stores, Amazon, Nordstrom, and J.C. Penney.

According to a Bank of America Merrill Lynch chart, in 2014 AB InBev and SABMiller alone controlled about 58% of the beer industry’s $33 billion in global profits.

Winner-takes all effects in autonomous cars

… it seems pretty clear that the hardware and sensors for autonomy will be commodities. There is plenty of science and engineering in these (and a lot more work to do), just as there is in, say, LCD screens, but there is no reason why you have to use one rather than another just because everyone else is. There are strong manufacturing scale effects, but no network effect. So, LIDAR, for example, will go from a ‘spinning KFC bucket’ that costs $50k to a small solid-state widget at a few hundred dollars or less, and there will be winners within that segment, but there’s no network effect, while winning LIDAR doesn’t give leverage at other layers of the stack (unless you get a monopoly), anymore than than making the best image sensors (and selling them to Apple) helps Sony’s smartphone business. In the same way, it’s likely that batteries (and motors and battery/motor control) will be as much of a commodity as RAM is today – again, scale, lots of science and perhaps some winners within each category, but no broader leverage.

Maps have network effects. When any autonomous car drives down a pre-mapped road, it is both comparing the road to the map and updating the map: every AV can also be a survey car. If you have sold 500,000 AVs and someone else has only sold 10,000, your maps will be updated more often and be more accurate, and so your cars will have less chance of encountering something totally new and unexpected and getting confused. The more cars you sell the better all of your cars are – the definition of a network effect.

The more real world driving data that you have, the more accurate you can make your simulation and therefore the better you can make your software. There are also clear scale advantages to simulation, in how much computing resource you can afford to devote to this, how many people you have working on it, and how much institutional expertise you have in large computing projects. Being part of Google clearly gives Waymo an advantage: it reports driving 25,000 ‘real’ autonomous miles each week, but also one billion simulated miles in 2016 (an average of 19 million miles a week).

So, the network effects – the winner-takes-all effects – are in data: in driving data and in maps. This prompts two questions: who gets that data, and how much do you need?

This leads me to the final question: how much data do you really need? Does the system get better more or less indefinitely as you add more data, or is there an S-Curve – is there a point at which adding more data has diminishing returns? That is – how strong is the network effect?


The stereo speaker company giving sight to self-driving cars

Although it will soon face plenty of competition, Velodyne has become the industry’s go-to lidar supplier and is cranking up production to match. Last year, Ford Motor Co. and Chinese Internet giant Baidu pumped $150 million into Velodyne, money the company used to open its “mega-factory” on San Jose’s southern edge.

Lidar works by firing laser beams — thousands per second — at nearby objects and measuring how quickly they bounce back. With the notable exception of Tesla, most companies pursuing autonomous vehicles rely on lidar, along with radar and cameras.

“The prevailing view is that in the near term — at least a decade — you’re not going to be able to execute this safely without lidar,” said Mike Ramsey, research director at Gartner.

“One major automaker told me they had vetted 50 lidar companies,” Ramsey said. “So more than 50 companies exist, but only Velodyne is producing a lidar they can use.”

Now, the race is to cut lidar’s cost. Velodyne’s most popular lidar, about the size of two stacked hockey pucks, sells for $8,000. As it ramps up production, the company hopes to bring prices down to “a few hundred dollars,” Hall said. “We’re in the inventing business, so we’re going to keep working on this thing until we crack that nut.”


The internal combustion engine is not dead yet

Mazda, which now markets no hybrid vehicles, calls the engine Skyactiv-X and says it is scheduled for a 2019 introduction. In simplest terms, the big difference with the new engine is that under certain running conditions, the gasoline is ignited without the use of spark plugs. Instead, combustion is set off by the extreme heat in the cylinder that results from the piston inside the engine traveling upward and compressing air trapped inside, the same method diesel engines use. The efficiency gains come with the ability to operate using a very lean mixture — very little gas for the amount of air — that a typical spark-ignition engine cannot burn cleanly.

…addresses the challenge of gasoline’s future from a somewhat different direction: the practical limitations of battery electric cars. “Holding a gas nozzle, you can transfer 10 megawatts of energy in five minutes,” he said, explaining today’s refueling reality. To recharge a Tesla electric at that rate today, he said, would require “a cable you couldn’t hold.”

By 2050, Dr. Heywood’s studies project, today’s fuel economy could be doubled. “A quarter to a third of that improvement would come from improvements to the vehicle,” he said, in areas like aerodynamics and weight reduction. Other promising areas include variable compression ratios — a technology Nissan plans to introduce next year — and making better use of available fuels.


Wind power is all grown up now

People tend to think of renewable energy companies as the new kids on the block but Vestas Wind Systems A/S, the world’s biggest wind turbine manufacturer, is no pimply teenager. The Danish group entered the turbine business almost 40 years ago and went public in 1998…

The wind industry is consolidating — Siemens merged its wind business with Gamesa in April — and competition is intensifying. This puts pressure on margins and makes it more difficult to lift revenue.

A bigger concern is that more countries are adopting auction-based contract awards. These promote projects that deliver the cheapest electricity as opposed to feed-in tariffs, which guaranteed a fixed electricity price. So life’s getting a little tougher for Vestas.

There are other ways to make money. High-margin maintenance contracts are an increasing share of business. There are opportunities too to upgrade the installed base with those newer, better turbines.


The very symbolic collision of Sotheby’s-Christie’s and Poly-Guardian in China art

If Sotheby’s and Christie’s are purely commercial Giants, then Poly Culture and Guardian are something else. They are certainly Giants, dominating the domestic art auction industry. But Poly in particular is also a direct extensions of the State. Because it turns out, what happens to historic Chinese art is a significant concern to the Chinese government. Part of this sensitivity is about repatriating works that were stolen and misappropriated over the centuries. Many of the works that have been returned can be seen on display at Poly’s headquarters in Beijing.

Poly Auction is now not just one of the top two auction houses in China. It is also the number three art auction house in the world (after Christie’s and Sotheby’s). Their 2013 turnover was over a billion dollars (about one-fourth of Sotheby’s). They sell approximately 10,000 objects each week, with as many as 40 different catalogs per show.

Because at the same time, Poly and Guardian have been expanding internationally. And they are now on Sotheby’s and Christie’s home turf for the first time. Both have moved into Hong Kong. And Poly is now moving aggressively into New York City, where Sotheby’s is headquartered. Thus far, they have focused mostly on finding consignments in the US for sale in China, particularly Chinese collectibles. But Poly’s openly stated ambition is to become the world’s top art auction house. According to CEO Jiang Yingchun, “We are very big in the art auction market in Mainland China but still have a long way to go to become the biggest auction house worldwide”.


It’s hard to keep up with all that lithium demand

Australia is the biggest lithium producer, though Chile and Argentina account for 67 percent of global reserves, according to the U.S. Geological Survey.

Extracting lithium from the salt flats that dot the arid northern regions of the South American countries is a lot easier and cheaper than digging underground for metals like copper. Producers just pump the brine solution into evaporation ponds, harvesting the mineral once the moisture is gone.

With demand expected to keep rising as electric cars gain a bigger share of the global auto fleet, Argentina and Chile are attracting interest from mining companies because it costs about $2,000 to $3,800 a ton to extract lithium from brine, compared with $4,000 to $6,000 a ton in Australia, where lithium is mined from rock.

Of the 39 lithium ventures tracked by CRU, only four have firm commitments, and all of those are in China, adding about 24,000 tons of annual supply. Another 10 projects representing 400,000 tons are rated “probable” — in Canada, Chile, China, Mexico, Argentina and Australia — but probably only about 30 percent will make it into production, CRU said.

“But we have a window of only 25 years to develop these projects because prices can fall again as soon as a replacement to lithium appears.”


Hunt for next electric-car commodity quickens as prices soar

As one of the key components in the new breed of rechargeable batteries and with supply dominated by the Democratic Republic of Congo, prices have surged at four times the pace of major metals in the past year.

The cobalt market is in a 5,500-ton deficit, according to CRU, with global supply contracting 3.9 percent in 2016.

“The mix of iron and cobalt is tricky. Cobalt is already mined as a byproduct of copper and nickel, but iron has the most negative impact on cobalt, which means processing would be more difficult and more expensive.”

Aging Japan wants automation, not immigration

In the absence of large-scale immigration, the only viable solution for many domestic industries is to plow money into robots and information technology more generally.

With unemployment down to 2.8 percent, companies are increasingly realizing they need to pay up to attract and keep qualified personnel. The other option — increased immigration — is politically difficult.

Bank of America Merrill Lynch forecast IT investment in Japan to rise as much as 9 percent annually in coming years, with the difference in software investment per worker versus the U.S. falling to 5 to 1 by 2020 from about 10 to 1 now.


Who really owns American farmland?

Farmland, the Economist announced in 2014, had outperformed most asset classes for the previous 20 years, delivering average U.S. returns of 12 percent a year with low volatility.

Today, the USDA estimates that at least 30 percent of American farmland is owned by non-operators who lease it out to farmers. And with a median age for the American farmer of about 55, it is anticipated that in the next five years, some 92,000,000 acres will change hands, with much of it passing to investors rather than traditional farmers.

It’s a tenuous predicament, growing low-cost food, feed, and fuel (corn-based ethanol) on ever-more-expensive land, and it raises a host of questions. Is this a sustainable situation? What happens to small farmers? And are we looking at a bubble that will burst?

In practice, our best hope of true stewardship of the land will come from enlightened, committed owner-farmers. But the trend toward treating farmland as a financial investment, and the high prices that have come with it, make it harder and harder for new young farmers to enter the field.

By buying land in other countries and farming it, foreign buyers are able to support their domestic food supply and other markets that depend on agriculture without having to compete for essential products on the global market.

The government of China now controls more than 400 American farms consisting of a hundred thousand acres of farmland, with at least 50,000 in Missouri alone, plus CAFOs (concentrated animal feeding operations), 33 processing plants, the distribution system—and one out of every four American hogs.


Yesterday’s “plastics” are today’s crypto tokens

Our ability to profit from our investments relies on two things: having the resources needed to purchase the asset and then having a way to sell it — a concept known as liquidity. Tokenizing real-world assets will allow buyers to access assets never before within their reach, and sellers to move assets that were previously difficult to unload. The secret lies in the possibility of fractionalization.

Imagine unlocking cash from the equity in your home without having to borrow or pay interest. Tokenize your home and sell fractions to the public. Buy the tokens back, or pay the investors their value at the time the property is sold.

In the future, you’ll be able to tokenize the value of unused bedrooms and backyards in your home. You’ll be able to tokenize use of your vehicle for Uber driving while you’re away on travel. You’ll even be able to tokenize access to your phone so marketers have to pay you tokens in order to gain access to your attention. Yes, this will happen.

At 5,4000 pounds, the Tesla is no lightweight, and the Aventador is a good 1,200 pounds lighter. But the Ludicrous + enabled vehicle not only beats the Lambo, it sets a world record for the quickest SUV with a quarter mile time clocking in at 11.418 seconds at nearly 118 miles-per-hour.