Curated Insights 2018.02.11

Why Expedia or Priceline might just be the next great hotel brand

“I think we [in online travel] have all innovated on the service layer, and most of the people in the room are working on the service layers, but the true innovation is going to be actually owning and operating the assets — the airplanes, the hotels, not so much the cars actually. But that aspect is hugely capital intensive, and it’s ripe for some new ideas, and someone will get there. I have a $100 billion, so it won’t be me. If you own and operate the hardware, you can do a lot more on the innovation side than from the service and software layer.”

“Online travel agencies are seeing their revenues go down and it costs them more to advertise on Google because the search criteria are going up. The search price is going up, and the online travel agencies had a tough third quarter. I think they see the writing on the wall. We’ve had overtures with online travel agencies reaching out to us and trying to find ways to partner more [with us].”

“They have to evolve because there are fundamental threats to their existence. They have to have a good relationship with hotels or they won’t have anything to sell.”

“The key point that we want to reinforce is that hotel commission rates are in the 10 to 15 percent range for the large chains and 15 to 25 percent for smaller brands that make up the bulk of Booking.com’s inventory. This compares to airline commission rates that are anywhere from zero to one or two percent in most developed markets. The rationale for the airline inventory is having a complete product to drive traffic, but the margins on those bookings themselves are much lower than for hotels. Booking.com has recently added airlines, but this is simply pushing traffic into its Kayak platform …”

“They were aggregating similar independent hotels with their own brands and it was a scale play. But they didn’t have access to every single hotel in a market. To compete with the online travel agencies who are spending several billion dollars a year in marketing is an expensive undertaking. Just because you have the capability of having content doesn’t mean you’ll be successful in bringing customers to your site, or doing it in a way that’s economically viable to run a business. I’m not surprised it didn’t work; AccorHotels at heart is a hotel brand company and hotel operator.”

What really matters most to consumers today, he said, isn’t the brand itself but the rankings and reviews associated with an individual hotel property. “The first thing a customer checks are the rankings and the commentary. That’s a much better quality assurance than a brand can provide. People choose to stay at an Airbnb based on social ratings and comments from users. They don’t need assurance that there’s a brand on it. That’s part of the dynamics and in essence, the brands are disappearing and what prevails is distribution. If I get the best distribution from an online travel agency, why would I sign up with another company?”

Tackling the internet’s central villain: The advertising business

And for all its power, the digital ad business has long been under-regulated and under-policed, both by the companies that run it and by the world’s governments. In the United States, the industry has been almost untouched by oversight, even though it forms the primary revenue stream of two of the planet’s most valuable companies, Google and Facebook.

The report chronicles just how efficient the online ad business has become at profiling, targeting, and persuading people. That’s good news for the companies that want to market to you — as the online ad machine gets better, marketing gets more efficient and effective, letting companies understand and influence consumer sentiment at a huge scale for little money.

But the same cheap and effective persuasion machine is also available to anyone with nefarious ends. The Internet Research Agency, the troll group at the center of Russian efforts to influence American politics, spent $46,000 on Facebook ads before the 2016 election. That’s not very much — Hillary Clinton’s and Donald J. Trump’s campaigns spent tens of millions online. And yet the Russian campaign seems to have had enormous reach; Facebook has said the I.R.A.’s messages — both its ads and its unpaid posts — were seen by nearly 150 million Americans.


Why JP Morgan, Daimler are testing quantum computers that aren’t useful yet

Chip experts say the phenomenon known as Moore’s Law that drove exponential gains in computing power for decades is now ending. Quantum computing could be a way to revive the rate of progress, at least in some areas. “If you can successfully apply it to problems it could give you an exponential increase in computing power that you can’t get” through traditional chip designs, says Bob Stolte, CTO for the equities division inside JPMorgan’s investment bank.

If and when they arrive, quantum computers won’t be good at everything. But physicists and computer scientists have proven, using theory, that even a relatively small quantum processor could do more than a phalanx of conventional supercomputers on some problems. Conventional computers work on data using bits that can be either 1 or 0. Quantum computers encode data into devices called qubits that can enter a “superposition” state in which they might be considered both 1 and 0 at the same time, allowing computational shortcuts.

The path to tackling other problems on the wish lists of Daimler and JPMorgan is less clear. Brecht says the automaker also hopes quantum computers could optimize routes for delivery vehicles, or the movement of parts through factories. Some problems in finance, such as adjusting portfolio risk, can boil down to similar math.


Why we didn’t invest in Ecolab

Integral to Ecolab’s moat in the Institutional segment is its direct sales force that provides customers with “high touch” relationships. Not only are these relationships hard to replicate, but no competitor is remotely close to matching Ecolab’s 26,000-plus salesforce. Ecolab estimates this figure is two-to-five times larger than any competitor’s.

Ecolab benefitted mightily over the last 10-20 years from inept competition. Its main competitor for North America institutional cleaning business is Diversey, which was most recently sold to Bain Capital in 2017 by Sealed Air. This was the fifth time Diversey had been sold in the previous 21 years. As a consequence of being passed around like a hot potato for two decades, Diversey’s strategy was inconsistent. Ecolab capitalized on many of Diversey’s mistakes.

We also had concerns about S.C. Johnson re-entering the institutional cleaning business, Bain Capital’s push into the European hygiene market, and potential impacts from food service automation.

We further concluded that the acquisitions of Nalco and Champion diluted Ecolab’s overall moat by diminishing the impact of the wide-moat Institutional operations. Indeed, we think the two deals were motivated by growth rather than by ROIC. If that’s the case, it would support our thesis that the Institutional business is a legacy moat with slower growth potential. Otherwise, we would have expected management to reinvest capital that was used in M&A back into the cleaning business.

An inventor of the VIX: ‘I don’t know why these products exist’

In my wildest imagination I don’t know why these products exist. Who do they benefit? No one, except if someone wants to gamble -– then, OK, just go gamble… And who exactly made money? The VXX from its inception in 2009 is down, what, 99%, even after this move… It’s kind of sad that these products exist in the first place, but it’s hard to stop it. If you stop this, something else will come up. Bitcoin will come up.


This physics breakthrough could help save the world

…the turbulence created when we pump air, water, oil, gas and other substances through countless miles of ducts and pipes. Thanks to its confounding effects, fully 10 percent of all the electrical energy produced on Earth gets wasted.

They investigated, for example, the effect of extra stirring from rotors placed inside a pipe, or by the injection of jets of fluid along the pipe walls. Intuition suggests that these would increase turbulence, and they do, but in both cases the flow downstream quickly returns to the smooth state. More important, the interventions can reduce the overall friction associated with turbulence by as much as 90 percent, something few researchers would have expected.


The magnetic field is shifting. The poles may flip. This could get bad.

The dangers: devastating streams of particles from the sun, galactic cosmic rays, and enhanced ultraviolet B rays from a radiation-damaged ozone layer, to name just a few of the invisible forces that could harm or kill living creatures.

Solar energetic particles can rip through the sensitive miniature electronics of the growing number of satellites circling the Earth, badly damaging them. The satellite timing systems that govern electric grids would be likely to fail. The grid’s transformers could be torched en masse. Because grids are so tightly coupled with each other, failure would race across the globe, causing a domino run of blackouts that could last for decades.

Curated Insights 2017.11.05

This company’s robots are making everything and reshaping the world

Earlier this year, during one of Fanuc’s rare open houses, Vice President Kenji Yamaguchi told investors that about 80 percent of the company’s assembly work is automated. “Only the wiring is done by engineers,” he said. And when you have lots of efficient robots making your other robots, you can sell those robots more cheaply—about $25,500 for a new Robodrill. (You can find a well-used older model on EBay for $8,500.) Volkswagen Group, for instance, pays about 10 percent less for Fanuc robots than it paid for ones it previously purchased from Kuka AG, a German company.

Fanuc manages to offer these savings while maintaining 40 percent operating profit margins, a success that Yamaguchi also traced to the company’s centralized production in Japan, which is made possible, even though most of its products are sold outside the country, by the 243 global service centers that keep its robots operational. The company even profits from its competitors’ sales, because more than half of all industrial robots are directed by its numerical-control software. Between the almost 4 million CNC systems and half-million or so industrial robots it has installed around the world, Fanuc has captured about one-quarter of the global market, making it the industry leader over competitors such as Yaskawa Motoman and ABB Robotics in Germany, each of which has about 300,000 industrial robots installed globally. Fanuc’s Robodrills now command an 80 percent share of the market for smartphone manufacturing robots.

Orders from the U.S., though, are dwarfed by those from China—some 90,000 units, almost a third of the world’s total industrial robot orders last year. Sales to China amounted to about 55 percent of the $5 billion Fanuc’s automation unit generated in the fiscal year ended March 2017. The International Federation of Robotics estimates that, by 2019, China’s annual industrial robot orders will rise to 160,000 units, suggesting Fanuc will be insulated from any slowdown in the world’s second-largest economy. Yoshiharu told investors at his most recent Q&A session in April that the company expects demand in China to outstrip supply even after Fanuc opens a factory next August in Japan’s Ibaraki prefecture. The facility will be dedicated solely to keeping up with Chinese demand.

The result of Nishikawa’s insight was the Fanuc Intelligent Edge Link and Drive, or Field. The system, introduced in 2016, is an open, cloud-based platform that allows Fanuc to collect global manufacturing data in real time on a previously unimaginable scale and funnel it to self-teaching robots.


Apple should shrink its finance arm before it goes bananas

Apple does not organise its financial activities into one subsidiary, but Schumpeter has lumped them together. The result—call it “Apple Capital”—has $262bn of assets, $108bn of debt, and has traded $1.6trn of securities since 2011.

Since Jobs died, its assets have risen by 221%, twice as fast as the company’s sales, reflecting Apple’s huge build-up of profits. Its investments are worth 32% of Apple’s market value, and its profits (investment income, plus gains on derivatives, less interest costs) have been 7% of Apple’s pre-tax profits so far this year. It is also sizeable compared with other financial firms. Consider four measures: assets, debt, credit exposure and profits.

In 2011 a majority of its assets were “risk-free”: cash or government bonds. Today 68% are invested in other kinds of securities, mainly corporate bonds, which Apple says are generally investment grade. The shift may explain why Apple’s annual interest rate earned on its portfolio (2%) is now higher than that of the four other Silicon Valley firms with money mountains, Microsoft, Alphabet, Cisco and Oracle. In total, they still have 66% of their portfolios squirrelled away in risk-free assets.

Its foreign operation swims in cash while its domestic one drowns in debt. Profits made abroad are kept in foreign subsidiaries. That way Apple does not pay the 35% levy America charges when earnings are repatriated. Some 94% of Apple Capital’s assets are “offshore” and cannot be tapped for ordinary purposes. The domestic business must do the hard work of paying for dividends and buy-backs. Its profits are not big enough to cover these, so it borrows. Domestic net debts have risen to $92bn, or five times domestic gross operating profits. Each year Apple must issue $30bn of bonds (including refinancing), similar to the average of Wall Street’s five largest firms.


To understand the benefits of tax reform, start by understanding Apple’s taxes

Now we have the numbers that answer the basic question: What accounts for the difference between what Apple pays and the official 35% rate? Page 56 of its 10K shows the numbers. Once again, if Apple had faced the full 35% rate, it would have paid $21.46 billion in federal taxes (as well as another $990 million to the states). Instead, it paid $10.444 billion in cash, and accrued $5.241 billion in U.S. tax owed on foreign profits, but deferred to be paid later. That’s the total of $15.685 billion that it booked in tax expense on its income statement. The difference between that number and the approximately $21.5 billion it would have paid at the 35% rate is the almost $5.6 billion exclusion for “indefinitely invested foreign earnings.”

Surprisingly, companies such as Apple with an extremely large proportion of foreign sales, could actually pay more U.S. taxes in cash each year under the current proposals. That’s because elimination of deferrals and the exception for reinvested earnings would sent more money to the Treasury even at the far lower minimum rate.

 

Google’s profits are exploding because the web is massive

The bigger the web grows, the more valuable Google becomes. And, with more than one billion websites in the world and more than 4 billion people with regular access to the Internet, finding your needle in that haystack is the fundamental problem of Internet use. As the tech writer Ben Thompson wrote, “Google is the king of aggregators because, when information shifted from scarcity to abundance, discovery became the point of leverage, and Google was better at discovery than anyone.”

Second, the migration of attention from print and television to the internet—both desktop and mobile—has created a advertising duopoly for Google and Facebook. As these slides from the last Kleiner Perkins internet presentation show clearly, mobile is the future of media attention and Facebook and Google’s share of digital ad revenue is growing faster than the rest of the industry combined.


How Google’s quantum computer could change the world

Early next year, Google’s quantum computer will face its acid test in the form of an obscure computational problem that would take a classical computer billions of years to complete. Success would mark “quantum supremacy,” the tipping point where a quantum computer accomplishes something previously impossible. It’s a milestone computer scientists say will mark a new era of computing, and the end of what you might call the classical age.

That potential is a result of exponential growth. Adding one bit negligibly increases a classical chip’s computing power, but adding one qubit doubles the power of a quantum chip. A 300-bit classical chip could power (roughly) a basic calculator, but a 300-qubit chip has the computing power of two novemvigintillion bits—a two followed by 90 zeros—a number that exceeds the atoms in the universe.

Volkswagen AG is testing quantum computers made by Canadian firm D-Wave Systems Inc. In March, the companies said that, using GPS data from 10,000 taxis in Beijing, they created an algorithm to calculate the fastest routes to the airport while also minimizing traffic. A classical computer would have taken 45 minutes to complete that task, D-Wave said, but its quantum computer did it in a fraction of a second.

Such a complex and expensive setup means that Google and its peers will likely sell quantum computing via the cloud, possibly charging by the second.


Google has a new plan for China (and it’s not about search)

Rather than another splashy product launch, Google’s latest China strategy is a grassroots effort focused on getting developers in the country trained and hooked on its AI building blocks. It’s similar to the way business software startups get employees using their services before corporate IT departments notice. Once the tools become popular, companies often accept the technology and sign up for full service.

It’s hard to find a place as fertile for AI as China. The country has one of the fastest growing TensorFlow developer communities in Asia, despite the fact that Google’s cloud services are unavailable there. The Chinese government has made AI a national priority. Scores of Chinese companies are deploying machine-learning systems — AI software that automatically adjusts to data — to update banking services, identify faces in crowds and control drones.

Beijing-based Wang Xiaoyu said TensorFlow was a vital tool for her podcast startup CastBox.FM. Developing her own tools would’ve required a team of 20 expensive machine-learning specialists. Instead, she turned to TensorFlow and hired a single Chinese PhD graduate with TensorFlow experience capable of producing the same results. Her company is now worth about $60 million with more than 8 million users downloading her app.

Ricky Wong, an investor who often works in China, analyzed the location of the first 5,000 developers to access the tools and found more came from Beijing than all of Silicon Valley.


Tech goes to Washington

I still believe that, on balance, blaming tech companies for the last election is, more than anything, a convenient way to avoid larger questions about what drove the outcome. And, as I noted, the fact is that tech companies remain popular with the broader public.

What this hearing highlighted, though, is the degree to which the position of Facebook in particular has become more tenuous. The fact of the matter is that Facebook (and Google) is more powerful than any entity we have seen before. Magnifying the problem is that, over the last year, Facebook has decided to “take responsibility”, and what is that but a commitment to exercise their control over what people see?

More broadly, it is hard to escape the conclusion that tech companies have been unable to resist the ring of power: the end game of aggregation is unprecedented control over what people see; the only way to handle that power without risking the abuse of it is a commitment to true neutrality. That Facebook, Twitter, and Google — which, by the way, holds just as much if not more power than Facebook, but without the attendant media scrutiny — have committed to fixing the Russian problem is itself more problematic than those urging they do just that may realize.

Inside Fort Botox, where a deadly toxin yields $2.8 billion drug

Scientists differ over how much of the toxin would be required to inflict massive damage. Data on the topic is scarce, and that may be intentional. But a study published in 2001 in the Journal of the American Medical Association said that a single gram in crystallized form, “evenly dispersed and inhaled, would kill more than 1 million people.” Experts are divided over what it would take to effectively weaponize the toxin, but the mere possibility of a botulism bomb has the U.S. government on edge. That puts Allergan in a remarkable position. The government’s vigilance enhances the company’s own secrecy, and together they give Botox a near-monopoly that is almost unassailable. Allergan says Botox has more than 90 percent of the market for medical uses of neurotoxins and 75 percent of the market for cosmetic uses.


Gene therapy helped these children see. Can it transform medicine?

Spark’s product, named Luxturna, is designed to help a subset of LCA sufferers with a mutation in a gene known as RPE65 — who number about 6,000 in northern America, Europe and the other developed markets the company hopes to enter. But its approval would have much broader implications for the way we fight sickness and disease. 

Drugs are designed to fight illnesses by cajoling the body, opening up one biological pathway or closing down another. Gene therapy takes a different approach, replacing the faulty or missing DNA that is causing the disease in the first place and helping the body fix itself. Because it tackles the illness at its biological root, it could offer a one-time treatment for an array of genetically driven conditions that have either had poor options or none at all, from haemophilia and Parkinson’s to Huntington’s disease, cystic fibrosis and myriad rare diseases. It opens up the possibility of that thing still so elusive in modern medicine: a cure. 


Patient deaths show darker side of modernized Chinese medicine

Having struggled for decades to rein in the sector, regulators have recently begun pushing for an overhaul of Chinese medicine injections, seeking to weed out unsafe and ineffective products. But the process could take up to a decade, given the complexity of these intravenous pharmaceuticals.

Still, due to the history of lax regulation, many injectables based on Chinese medicine haven’t been evaluated in strict scientific clinical trials. That means the reactions they set off in the body aren’t fully known. Chinese medicine is based on centuries of practical experience. But it is traditionally taken orally, which gives the digestive system a chance to shield patients from harmful chemicals. Injecting the concoctions into the bloodstream can heighten side effects.


This budget airline is buying seaplanes to reach areas others can’t

SpiceJet Ltd. is in talks with Japan’s Setouchi Holdings Inc. to buy about 100 amphibious Kodiak planes that can land anywhere, including on water, gravel or in an open field. The deal, valued at about $400 million, would help SpiceJet capitalize on Prime Minister Narendra Modi’s ambitious plan to connect the vast nation by air without waiting for billions of dollars in upgrades to colonial-era infrastructure.

India’s airlines handled 100 million domestic passengers last year, making it the No. 3 market behind China and the U.S. To handle growth, India will need at least 2,100 new planes worth $290 billion in the next 20 years, Boeing Co. estimates.

“The basic logic for this is that in India, we need last-mile connectivity,” Singh said. “The amphibian plane opens up a lot of areas, creates a lot of flexibility.”

“High-end tourists use amphibious aircraft at exotic locations all over the world,” said Amber Dubey, a New Delhi-based partner and India head of aerospace and defense at KPMG. “There’s no reason why it can’t be successful in India.”


This doctor turned $15,000 into a $1.6 billion beauty empire

“We focus on mid-end customers because they’re the biggest group of people,” said Suwin, who trained as a doctor before becoming an entrepreneur. “The high-end segment is small and very competitive.”

In mainland China, Beauty Community sells through online channels including Alibaba Group Holding Ltd.’s Tmall platform. The country’s beauty market is forecast to grow at an average of 9 percent a year until 2020, outpacing the 5 percent expansion expected in Thailand, according to Euromonitor.

Beauty Community is the ninth biggest company in Thailand’s cosmetics industry, with a 3.1 percent share of a fragmented market, according to Euromonitor. L’Oreal leads, with 12 percent, followed by direct sales company Better Way (Thailand) Co. and Estee Lauder Cos. The firm aims to have 450 shops domestically in the next three years, under brands such as Beauty Cottage and Beauty Buffet.


Debating where tech is going to take finance

The point of most innovations in consumer finance has been precisely to reduce its presence in our lives: Instead of talking to a bank teller to get money, you use an ATM. Instead of physically walking into a broker’s office to talk about which stocks to buy, you buy index funds through a web page. Or, now, you click to enroll in an app and it does all of your asset-allocating and stock-picking and tax-harvesting and so forth for you. I think that a lot of financial technology is heading in the direction of perfecting that vanishing act, so that in 20 years you’ll just think about financial things less than you do now.

The EU’s definitive defeat: digital tax plans and a declaration of surrender to Silicon Valley

The EU has a huge competitiveness issue already, and due to the eurozone’s lack of innovation, especially in its Mediterranean member states, the sovereign-debt crisis is never going to be resolved. The European Central Bank is, in some ways unlawfully, keeping Europe’s south afloat and will do so for some more time, but at some point there will be a crisis of unprecedented proportions–either an acute and dramatic crisis or an extended depression from which the eurozone as an economic area won’t really recover.

By now the EU appears to have given up on its ambitions for the digital economy. Instead, its focus is on a new tax that could lead to a full-blown trade war with the U.S. and would definitely harm European companies and consumers in the end.

There are structural reasons for which the EU not only lacks major players like Apple and Google but why it’s highly unlikely that any of its startups will, as an independent company, ever reach that level.

Unfortunately, the Commission’s tax initiative has drawn support even from normally libertarian, free-market and fiscally conservative parties such as Germany’s FDP, whose secretary-general said last week that she wants to impose higher taxes on the likes of “Apple, Google, and Facebook.”


China’s critical role in technology and geopolitics

There are 214 private companies in the world valued at $1 billion or more, known as unicorns. Slightly more than half (108) are,as you would expect, based in the United States, but 55 are in China, with the remaining 51 located in other countries throughout the world. Of the top ten unicorns, China has four (including numbers two and three) and the U.S. has six. China’s innovation has been engineering-based rather than science-based and it is consumer-focused and efficiency-driven. Baidu, Alibaba and Tencent together represent 16% of world net digital advertising revenue and 20% of world net mobile Internet ad revenue. Google and Facebook are the leaders with a combined 43% of net digital and 51% net mobile ad revenue.

China’s investment in research goes beyond information technology. Prior to 2010, the country committed almost $10 billion to research with biotechnology a focal point. The Chinese biotech industry has been growing at 30% and is valued at over $10 billion today. There are more than 580 biopharma companies. Chinese scientists have transformed normal adult cells into embryonic stem cells and produced live mice from these lab-produced cells. There are two major state funding sources – the State High-Tech Development Program and the Basic Research Program. China is the third largest filer of patents, after the United States and Japan.

An issue of concern for many investors is the level of Chinese debt, which has risen from 149% to 269% of GDP over the past decade. Increasing debt has accounted for two percentage points of China’s 7.25% growth from 2012 to 2016. There is also the worry that there are a number of non-performing loans on the books of the banks and “shadow” banks, but the adverse effects of these has been deferred by the country’s growth.


The conventional view of China’s problems may be all wrong: Q&A

If migrants are allowed to live and settle in cities and they spend as much as normal Chinese, the savings rate would fall. Consumption would increase by 2 or 3 percentage points of GDP, which is the entirety of the trade surplus.

What’s unique in China and doesn’t happen anywhere else is this migrant worker phenomenon. In any other country, you don’t have a hukou policy. Hukou is a link to savings, and then links to global trade surpluses. That’s a real strange link. This never would have been a logical way of thinking about it in any other country.

If you liberalize hukou, it reduces pressure to save. It increases your incentive or opportunity to consume. This increases demand for resources. It doesn’t require credit expansion or generation or stimulus. Therefore, you have GDP growth without debt buildup, which is exactly what you need. It’s a simple reform with tremendous impact. Allow people to live in Beijing and Shanghai where jobs pay more, and productivity will be higher.


Backlash against Chinese products ramps up in India

Two-way trade statistics tell the tale. India’s deficit with China has ballooned nine-fold over a decade to $49 billion in 2016 as China’s manufacturing edge stacks the odds against Prime Minister Narendra Modi’s three-year-old ‘Make-in-India’ program. The result: India’s current account deficit is worsening again, threatening the outlook for an economy already straining under the fallout of a snap ban on high-value notes a year ago and a new sales tax.

“The imbalanced trade relationship reflects the fact that India’s manufacturing sector remains strongly underdeveloped. Unless it is able to develop its manufacturing sector so that it can produce a large share of the growing demand for goods in its economy, India’s economic growth will be constrained by rising current account deficits and/or inflation and their consequences.”

“No one is capable of competing with the Chinese.”


Abandoned land in Japan will be the size of Austria by 2040

A private research group headed by a former government minister today warned that the area (link in Japanese) of vacant land and homes could by 2040 be as big as Japan’s northernmost island of Hokkaido—about 83,000 sq km (32,000 sq miles), or the size of Austria. The area is currently about 41,000 sq km, slightly bigger than Japan’s southern island of Kyushu.

Hiroya Masuda, the former minister who chaired the group, warned in a 2014 book that about 900 cities, towns, and villages in Japan would be extinct by 2040.

Singapore is finding it harder to grow, literally

By filling the sea along its coasts with imported sand, the tiny island nation has expanded its physical size by about 24 percent since 1960, according to data from the Singapore Land Authority.

The government has plans to continue expanding its land size and said in a 2013 proposal that it expects to increase its land size to 296 square miles by 2030 to further support economic and population growth.

Supersized family farms are gobbling up American agriculture

Farms with $1 million or more in annual sales—only 4% of the total—now produce two-thirds of the country’s agricultural output, the largest portion since the U.S. Agriculture Department’s census began tracking the statistic in the ’80s.

Three-quarters of America’s farmed cropland is controlled by 12% of farms, USDA data show. The number of million-dollar-plus revenue farms more than doubled between 1992 and 2015, while the ranks of smaller farms, with revenue between $350,000 and $999,999, fell by 5%, as farmers get older and have a hard time making consistent profits. USDA researchers, in a December report, said consolidation is likely to continue.

An average farm household in the Colby area needs income of at least $50,000 annually to get by, said Mr. Wood, the agricultural economist, which has become harder to generate from a smaller farm. “The big guys can cover their costs and have money left over to grow,” Mr. Wood said. Smaller farms, he said, “are going to struggle.”

Curated Insights 2017.09.03

Google, IBM primed for a quantum computing leap, says Morgan Stanley

The immediate advantage is speed: “To sort a billion numbers, a quantum computer would require 3.5 million fewer computing steps than a traditional computer and would find the solution in only 31,623 steps.” Other problems, many having to do with computing physics, become possible on quantum machines, the authors write, whereas they might never be possible on traditional binary computing devices.

We think the high-end compute platforms could see a transition post 2025, similar to how steam engines coexisted with combustion engines and electric motors for decades before being decommissioned. In the medium term, we see incremental demand for FPGAs and GPUs (possibly benefiting Xilinx, nVidia, and maybe Intel) as more supercomputers from Atos and Fujitsu are developed to simulate the behaviour of quantum computers. If quantum computers eventually do become ubiquitous, then the growth of high-end computing systems that emulate them could be affected, hence limiting the valuations of those stocks, but this is more a post 2020 event, in our view.

The size of the market will also depend on the business model used (one-off hardware sales vs. cloud-based, the latter being the most likely, in our view, as the hardware needs to run at a very low temperature (below 1 degree Kelvin) in a very stable radio frequency environment, and as such is more likely used as a shared asset).


Vuitton knows fashion is a money pit—and keeps throwing money in it

High-end clothes are famously unprofitable. The expense of producing collections, staging shows, and displaying apparel in boutiques wipes out the clothing’s potential profit, says luxury analyst Luca Solca of Exane BNP Paribas. He estimates Vuitton loses more than €100 million ($118.1 million) a year on ready-to-wear, which generates less than €450 million of the brand’s $8 billion to $9 billion in annual sales.

Runway shows can create an aura around the brand that helps sell more-profitable items, Som says. With Vuitton, that’s handbags; with Chanel International DB, it’s perfume, which Som estimates accounts for 70 percent of revenue at the privately held luxury house.

Vuitton is the world’s most valuable luxury label, according to consultancy Interbrand, which pegs its brand value at $24 billion, almost twice that of runner-up Hermès International.

Harvey has made the world’s most important chemical a rare commodity

Texas alone produces nearly three-quarters of the country’s supply of one of the most basic chemical building blocks. Ethylene is the foundation for making plastics essential to U.S. consumer and industrial goods, feeding into car parts used by Detroit and diapers sold by Wal-Mart Stores Inc.

With Harvey’s floods shutting down almost all the state’s plants, 61 percent of U.S. ethylene capacity has been closed, according to PetroChemWire. Production may not return to pre-storm levels until November, according to Jefferies.

Ethylene and its derivatives account for about 40 percent of global chemical sales, said Hassan Ahmed, an analyst at Alembic Global Advisors. The U.S. accounts for one of every five tons on the market, and ethylene plants globally were running nearly full out to meet rising demand before Harvey, he said.

Prices for ethylene-derived products, meanwhile, have begun to show signs of the looming shortage. Polyethylene prices globally have begun to climb on the expectation that U.S. exports will be slashed, IHS said.


How the three-tiered beer distribution system works

As of April 2008, 35 states now permit some form of direct wine sales to the consumer. It only accounts for about 2% of the wine sales in the United States, but there is huge opportunity in this market. The distributors see this as a direct challenge to their place in alcohol commerce. Craft brewers would love this access to the consumer, and some states are starting to permit it in small quantities. If everyone can sell directly to the consumer, there is no need for distributors.

Budweiser dominates in world sales, and was the number one selling beer in the world until recently. Part of the reason for their success is it is much easier for Budweiser to penetrate foreign markets than it is for foreign beers to penetrate the American market. The most likely reason InBev pursued the purchase of Budweiser was to gain better access to the distributors, not for the “great taste” of Budweiser.

Corruption now exists at the distributor level. Powerful distributors determine which beers make it to the shelves. For example, Bell’s Brewery in Michigan gave up trying to penetrate the Chicago market and pulled out of Illinois completely.

Markets are becoming more open for wine, so it is a matter of time before the beer producers demand the same treatment. The distributors will fight for their existence, but the US government may have already signed their death warrant with world trade treaties. No matter what happens, eventually the path beer takes to your glass may change.


Switch to renewables won’t end the geopolitics of energy

In the world of fossil fuels, this curse has generally applied to big producers of oil and gas. In a world heavier on renewables, the curse will probably not be so relevant for producers of power. Rather, we may see this curse surface in countries rich in the materials required to produce the components that make renewable energy possible.

China provides approximately half of the indium consumed globally today, whereas the Democratic Republic of the Congo is the source of more than half the world’s cobalt. The big producers of lithium, another material essential for the production of batteries, are Argentina, Australia, Chile and China. Yet Bolivia’s large untapped reserves of lithium could catapult it into this league in the future. Tellurium is not a rare-earth mineral, but it is another key component of solar panels. The U.S. has imported most of this material from Canada, but relies to some extent on Belgium, China and the Philippines.

The U.S., too, is rich in many of these resources; the U.S. Geological Survey estimates that the United States possesses 13 percent of global rare-earth reserves, 14 percent of global tellurium deposits, and 3 percent of the world’s indium reserves.

The majority of the world’s cobalt reserves are believed to be in the Democratic Republic of the Congo. Thus it would benefit U.S. policymakers to look at the African country as not only a humanitarian crisis and failed state, but as a more pressing a strategic priority.

More than a third of those ages 18 to 34 say they can’t go without Amazon, according to comScore’s 2017 US Mobile App Report. Gmail and Facebook ranked second and third. That bodes well for Amazon, especially as millennials age and grow their earnings power.


The case for a breakfast feast

A recent review of the dietary patterns of 50,000 adults who are Seventh Day Adventists over seven years provides the latest evidence suggesting that we should front-load our calories early in the day to jump-start our metabolisms and prevent obesity, starting with a robust breakfast and tapering off to a smaller lunch and light supper, or no supper at all.

The group issued a scientific statement emphasizing that skipping breakfast — which 20 to 30 percent of American adults do regularly — is linked to a higher risk of obesity and impaired glucose metabolism or diabetes, even though there is no proof of a causal relationship.


The complete guide to not going to college

Adopt a different attitude right now: Understand that the most important kinds of education have nothing to do with degrees. If you think you’ll benefit from hours of scholarly debate about niche topics, by all means go to college; but if you already know that you won’t, there are hundreds of high-paying jobs that don’t require you to waste your time.

Companies, particularly those in Silicon Valley, are progressively looking away from transcripts and extracurriculars. Google, in particular, truly couldn’t care less about what school you attended; it only wants to know if you can a) solve problems, b) lead, and c) offer the company something different. IBM says that about 10-15% of its new hires don’t have a college degree. And in Google’s view, the experience of going to college can sometimes even detract from a candidate’s qualifications—serving as only an “extended adolescence.”

If you have an idea, and believe in it, take a risk, and work hard at it.

Curated Insights 2017.07.02

Too hot to fly? Climate change may take a toll on air travel

Hotter air is thinner air, which makes it more difficult — and sometimes impossible — for planes to generate enough lift.

As the global climate changes, disruptions like these are likely to become more frequent, researchers say, potentially making air travel costlier and less predictable with a greater risk of injury to travelers from increased turbulence.

A no-fly window of even a few hours at a particular airport could have a ripple effect across airline operations while further squeezing airlines’ already tight profit margins.

Home Capital, WTF just Happened?

This deal bought Buffett a favour from the government for upcoming infrastructure investments. He meet with PM Trudeau and Finance Minister Morneau just before this deal.

Buffett sees a Canadian house crash coming. By taking a 38% stake in a tiny bank that he can keep capitalized through a crash, this gives him a vehicle to buy some of the larger banks if/when they run into trouble. Say housing is down 50% in Canada (which is how much I think housing drops); my personal view is that CIBC is in big trouble in that scenario. BRK, through HGC, can buy CIBC. That would be a meaningful investment, and it breaks BRK into the profitable Canadian banking oligopoly. By owning 40% of HCG, perhaps Buffett can get around any foreign ownership restrictions when looking to buy some or all of a Big 6 bank.

Rigetti Computing

But quantum computing — which unlike classical computing, is based on nature’s more complex operating system of quantum mechanics — will take the world by surprise. Even established veterans of the first few computing revolutions could be caught off guard, unable to foresee the jump from impressive demo to devastatingly impressive production machine. How so? Because it turns out that quantum computing has its own Moore’s law, and that law takes exponential scaling to a whole new level.

In the quantum hyperscaling Moore’s Law, the speed of a quantum computer is exponential in the number of coherent quantum elements or “qubits” — that is, 2^q. But successfully incorporating technological advances in using silicon technology would enable the qubits themselves to follow Moore’s law (q = 2^n)… making the resulting performance power of the quantum computer 2^2^n. This means that the performance of quantum computing is exponentially more rapid than Moore’s Law. It’s as if Moore’s law itself sped up like Moore’s law.

Morgan Stanley: Cloud computing is at ‘an inflection point’ — but how big will it get?

“That 20 percent is a very important number because if you look at other adoption cycles, whether it’s notebooks, smartphone penetration, the x86 server, even digital music and video games, when you get to that 20 percent penetration point, that curve inflects and growth accelerates.”

The real threat of artificial intelligence

Unlike the Industrial Revolution and the computer revolution, the A.I. revolution is not taking certain jobs and replacing them with other jobs.

This transformation will result in enormous profits for the companies that develop A.I., as well as for the companies that adopt it.

The solution to the problem of mass unemployment, I suspect, will involve “service jobs of love.”

…most of the money being made from artificial intelligence will go to the United States and China. A.I. is an industry in which strength begets strength…

While a large, growing population can be an economic asset, in the age of A.I. it will be an economic liability because it will comprise mostly displaced workers, not productive ones.

Ends, Means, and Antitrust

…the U.S. is primarily concerned with consumer welfare, and the primary proxy is price. In other words, as long as prices do not increase — or even better, decrease — there is, by definition, no illegal behavior.

The European Commission, on the other hand, is explicitly focused on competition: monopolistic behavior is presumed to be illegal if it restricts competitors which, in the theoretical long run, hurts consumers by restricting innovation.

Market dominance is, as such, not illegal under EU antitrust rules. However, dominant companies have a special responsibility not to abuse their powerful market position by restricting competition, either in the market where they are dominant or in separate markets. Otherwise, there would be a risk that a company once dominant in one market (even if this resulted from competition on the merits) would be able to use this market power to cement/further expand its dominance, or leverage it into separate markets…

Lessons From the Collapse of Banco Popular

Don’t trust bank stress-test results.

Regulators should require banks to maintain higher leverage ratios, another measure of capital adequacy. And yet this is a regulatory requirement the Trump administration wants to loosen.

Don’t reach for yield if you’re not ready for the risk.

Roadmap for MSCI Emerging Markets Index inclusion

China A: MSCI inclusion decision

China represents roughly 17% of global GDP, 11% of global trade, and 9% of global consumption but today comprises only a 3.5% weight in the MSCI ACWI Index