The frenzy in stock markets

The story (before the big rally on Friday):

The S&P 500 has returned 37.7% over the last 50 trading days, making it the benchmark index’s largest 50-day rally in history, according to LPL Financial.

And if history is any indication, there could be more gains ahead.

Looking at the other largest 50-day rallies, the firm found that stocks were higher 100% of the time six and 12 months later. The average 6-month return was 10.2%, while the average 1-year return was 17.3%.

The firm crunched the data going back to 1957, which is when the index moved to a 500-stock model. [Link]

Another piece of news:

Using data from the timesheet company Homebase, University of California professor Jesse Rothstein and colleagues have identified businesses that shut down and are now reopening in real time. “It’s giving us a sense that reopening has gone faster than I anticipated. I would not have guessed that such a large share of firms have reopened at this point.

The most recent update from Rothstein and his colleagues using the Homebase data shows that about half the businesses that did shut down have reopened. “Reopened firms had collectively regained over half of their baseline hours and nearly 60 percent of their baseline employment levels. Almost 90 percent of this reemployment came through rehiring employees who worked at the firms before they shut down, as opposed to new hires,” he said. [Link]

Another piece of news:

Whether deemed essential or not, workers are being pushed by public policy and financial necessity back into restaurants, bars, stores, offices, warehouses, work sites, and factories. [Link]

The reactions:

(1) The jobs report, as an aside, was again skewed by reporting irregularities. Not just that, the payroll pop seems to reflect businesses re-hiring so as to get the PPP loans switched to grants. So put away that champagne! [Link]

(2) The CBO took a butcher’s knife to the 10-year US GDP outlook — $16 TN hit from the pre-Covid baseline trajectory in nominal terms. But hey — buy stocks! The SPX should now be valued on helium per share. [Link]

(3) Just imagine that most regular forecast forward earnings in the S&P 500 of 100 dollars a share. That would mean that at current prices the valuation goes up over 30 times. This is pretty mad. It‘s just an example of how markets are manipulated by central banks through quantitative easing. It’s so extreme, such a grotesque distortion that it’s almost embarrassing. [Link]

The social returns to financialisation?

Envision, one of the largest medical staffing companies, completed a restructuring of its roughly $7bn of debt this month as it moved to stave off bankruptcy. This comes less than 18 months after KKR — one of the oldest and largest US private equity firms with more than $200bn of assets — bought the Nashville-based company for nearly $10bn. The Envision deal highlights one of the stress points in a financial system that is creaking under the pressure of the coronavirus-induced recession.

To fund around two-thirds of the acquisition, KKR loaded the company’s balance sheet with junk-rated loans and bonds — a familiar private equity tactic. Those securities provided fuel for one of Wall Street’s least known but most important debt machines: collateralised loan obligations…..

…. In April, Envision began cutting the hours of emergency room doctors who have been one of the first lines of defence for Covid-19 patients. Bonuses have also been postponed and non-clinical staff were told they would be temporarily furloughed or see pay reductions.

“We are putting ourselves literally on the line, often without the protective equipment we need, to then be told our hours are cut, or that schedules are going to change,” says one emergency room doctor working for Envision in Florida. “It’s frustrating that this large company backed by a very large private equity group can’t find other ways around this that don’t hurt the doctors facing this disease head on.” Envision and KKR declined to comment. [Link]

A report from New York Times:

In July, a report from the Center for Popular Democracy, a progressive advocacy group in Brooklyn, said 10 of the 14 largest retail chain bankruptcies since 2012 involved companies that private equity firms had acquired….

… the collapse of Toys “R” Us in 2017 put a spotlight on how major buyouts by the firms could go sideways. The chain had been burdened with $5 billion in debt from a 2005 leveraged buyout by the private equity firms Bain Capital and Kohlberg Kravis Roberts and the real estate firm Vornado Realty Trust, and it did not have sufficient funds to invest in its stores and e-commerce business during a crucial period of growth for Amazon and Walmart.
It was eventually liquidated, and more than 30,000 workers were laid off. The workers were not paid severance — even as creditors, bankruptcy lawyers and consultants received payments — until they lobbied pension funds, which invest heavily in funds managed by private equity firms. The situation galvanised politicians and union activists and spurred public outrage. [Link]

Quite what the economy and the society gain from these transactions? What for?

Truly ‘Being Sattva’

Conscious Business

My friends Subba and Renuka Vaidyanathan have created an outstanding yoga and retreat center called BeingSattvaa in Ubud, Bali. I have conducted retreats there myself twice and it’s been fantastic in every way.

Yesterday Subba was telling me the situation there with Covid 19. Even though Bali has almost no cases, tourism has pretty much completely stopped. This has badly hurt the island where almost 80% of the economy is tourism based.

Since Beingsattvaa is making no revenue, they had a difficult decision to make regarding retaining staff or letting them go at this time. Instead of getting trapped by this dichotomy, Renuka and he decided to do something they don’t teach you at Business School: they made a determination to not let anyone go and asked each of their staff to write their own paycheck!

I found this decision so wise, brave and compassionate. So trusting. The result is that the staff is treating the property like their own. Everything is super well kept. They are aware of the economic situation and are voluntarily taking as much of a pay cut as they can. I was moved to hear about this. It seemed like an amazing example of conscious business.

Subba is an expert in the Yoga Sutras of Patanjali. I asked him what advice the Yoga Sutras have for the present times. He said it would have to be the most oft repeated phrase of the sutras: Ishwara Pranidhana. Which roughly translates to surrender to the larger intelligence of life. I could see that he is doing this so beautifully. Instead of worrying about his business, he using this time to serve others with his knowledge through online meditation classes and other creative initiatives.

I felt like sharing this as it moved me. Next time you are planning on going to Bali, be sure to check out BeingSattvaa – one of the finest eco-tourism resorts in the island.

May all of us learn something from this example and lead with compassion, trust and vision. All will turn out for the best.

– Nithya Shanti [Link]

It is our small good fortune that we know the couple and the spiritual teacher who posted the above story.

The husband-wife team of Subba and Renuka, the promoters of ‘Being Sattva’ a holistic resort in Bali, live in Singapore. We know them. They are both alumni of the IIM ecosystem in India. One is from B and one is from A, I think.

The gentleman who posted the FB post below is Nithya Shanti, ex-Buddhist monk and spiritual teacher. A cheerful young man. I know him quite well too.

The story above is relevant not just for businesses but for all employers.

Enjoy the weekend!

The paradoxes of liberalism

I am devouring John Gray. It will be stating the obvious to say that I am impressed. He makes me think and he makes me re-think and learn. Not much else can be asked of a writer/thinker/scholar.

In a piece written in October 2018, he dissects the contradictions in ‘liberalism’, in the context of the fact that university graduates voted for Jeremy Corbyn while John Stuart Mill, whom many invoke today as the torchbearer of classical liberalism, actually wanted a higher weight for the votes of university graduates!

So, with that backdrop, read the extracts below from this article [emphasis mine]:

The ironies here are multiple. If Labour had won, it would have presided over an eclipse of liberal values. Equipped with the resources of British state, the alt-Left party Corbyn has created would have been in a position to condone antisemitic racism and endorse terrorist movements. At the same time, the erosion of freedom of expression in universities would intensify. The progressive consensus would become immovably entrenched. Soon the contestation of received truths Mill celebrated would be barely a memory.

 At this point, a fork in Mill’s liberalism becomes visible. If only one set of values can be grounded in science, why allow others to be promoted in centres of learning? There can be little reason for giving anyone who rejects scientifically established truth equal freedom to speak or shape collective decisions. In effect, this was the rationale of Mill’s proposal for plural voting. But if those who base their values in a science of society are given overriding weight and influence, the result will be intellectual uniformity of the kind Mill attacked in On Liberty….

…The very idea that humans share a common historical destination is a remnant of monotheism. Reframing the universal clams of western religion, Mill’s secular liberalism – like his science of society – was not the result of any process of rational inquiry but an expression of faith.

Viewed historically, the liberal era was a moment in the aftermath of post-Reformation Christianity. If Europe had not been Christianised, it would most likely have been shaped by the polytheistic and mystery cults of the ancient world. Today it might resemble India. A universalistic, evangelising impulse would be weak or absent. Whether it would have been better or worse – or both – the West would not have produced political faiths like liberalism, that aim to project their values throughout the world.

Core liberal values, such as freedom of belief and expression, are by-products of early modern struggles within Christian monotheism. This fact could be passed over as long as successive versions of liberal values were underwritten by Western power. In Mill’s day they rested on European colonialism, and following the collapse of communism on the supposed triumph of free-market capitalism. The illusion persisted that the rise of liberalism revealed a universal law of human development.

In the event, a liberal world order has lasted only as long as Western hegemony. Today, non-Western powers are pursuing different paths of development, while much of the West has become the site of a paralysing culture war between hyper-liberal ideology and the forces of populism.

The time has passed when the West could dictate the terms of human development. Yet the delusion persists that the growth of wealth will give liberal values another lease on life. The sub-Marxian mantra that expanding middle classes will demand liberal freedoms as societies become richer is repeated endlessly in business gatherings and academic seminars….

.… Never mind that that middle-class graduates are demanding that liberal freedoms be shut down in the institutions that once embodied them. Best not dwell on such facts, for they suggest that a liberal world order was an historical accident that cannot be repeated. [Brilliant!]

… Anyone who looks to classical liberal thinkers to deliver the West from its present difficulties is fixated on an irretrievable past.

It is possible to envision a stoical and realist liberalism that would accept that freedom and toleration must survive in a hostile or indifferent world. Liberalism would be recognised to be a particular form of life, like the others that humans have fashioned and then destroyed, but still worth defending as a civilised way in which humans can live together.

In practice a stance of this kind is hardly possible. Liberals cannot do without the faith that they form the vanguard of an advancing way of life. The appeal of John Stuart Mill is that he allows them to preserve this self-image, while the liberal world continues to evaporate around them.

This is a near-perfect companion piece on post-truth liberalism by John Gray, published a month earlier in September 2018.

The world needs an anti-Sapien vaccine

I enjoyed writing my column for Mint, published online on 4th May and in the newspaper on the 5th May. The column header should have been “Vaccine or cleaner environment? You cannot have both.”

Most of us are now happy about the cleaner environment, cleaner air and clear skies that the world is experiencing, although it is coming at the cost of economic activity, the absence of which, unfortunately, hurts the poor and low income households more than the rich.

Of course, it is also true that a polluted environment too hurts the poor and the low-income earners more for they have little savings to deal with the adverse health outcomes that pollution creates.

Further, this story reminds us that even as carbon dioxide emissions are lower (2.6 billion metric tonnes not emitted), April was one of the warmest on record:

This past April equaled the warmest on record. Global temperatures were 0.7 degrees Celsius warmer than the average April between 1981 and 2010, according to Europe’s Copernicus Climate Change Service. [Link]

That is a reminder that our love for environment has to sustain for a long period involving actions on multiple fronts, to reverse global warming.

However, limited evidence of healing is here. Ms. Pilita Clark of the FT writes:

It was while I was on one of those lopes, down the local high street, that a more profound realisation dawned. Shop after shuttered shop existed to sell stuff for a rushed, commuting office life that I — and millions like me — may never lead again. [Link]

She also correctly recalled that modern culture is about spending

money we don’t have, on things we don’t need, to create impressions that won’t last, on people we don’t care about?

On reading these lines, I made a mental note to complete watching ‘The Century of the Self’ – a four-part documentary available on BBC here, here, here and here. I have watched the first two parts.

Daniel Humm, the owner of one of the world’s best restaurants, Eleven Madison Park (EMP), said he might not reopen and if he did, he would do the following:

If EMP were to reopen, Humm says, he will continue to use his restaurant to feed the homeless and hungry, along with the very fortunate. “The infrastructure to end hunger needs to come out of the restaurants. Any way that EMP reopens—and it’s like a blank canvas right now, we would need to redefine what luxury means—it will also be an opportunity to continue to feed people who don’t have anything. [Link]

One also sees plenty of creativity being unleashed in captivity. In the sphere of Carnatic Classical Music, see this, this, this, this and this. All this is making the tedium of the isolation bearable and, more importantly, point to a different way forward, if we could imagine it. But, will we?

Pilita Clark, who has tasted frugality, is not so sure herself:

The question is, now that people like me have had a taste of frugality, how long will it last once a semblance of normality returns? Will there be a pent-up splurge of excess?

She spoke to an artist by name Michael Landy, who catalogued and burnt everything he owned, in a public display in 2001. He said it had left him with two permanent behavioural changes:

“It changed me as a consumer, most definitely,” he said. “I have a lot less things than I had before.” He also became much more aware of what he was buying, he said, and prone to periodic clear-outs. [Link]

So, it does change some people for the better, for good! The question is whether enough people change by enough.

In the BBC article linked above on how the virus-induced lockdown has been good for the bees:

 …. like with all the other environmental changes we’re seeing now, any long-term benefits for bees would depend on these changes being carried forward as lockdowns lift. For some, like leaving verges wild, the change may not be so hard to maintain. For others, like keeping traffic volumes low, the changes would need to be more systemic.

One change that Perkins anticipates carrying forward, though, is people’s reconnection with nature. “They are beginning to realise how their mental health and wellbeing is supported by nature – particularly by bumblebees, which are so iconic and beautiful and buzzy,” she says. “I hope that remains after lockdown.”

Recall what Gillian Tett wrote on the 11th March this year in FT:

When I emerged from my brush with meningitis in Singapore, I felt so giddy to be alive that I declared I would try to feel grateful each day — and never “sweat the small stuff” again. Sadly, that pious resolution probably lasted about a month; humans are hard-wired to lose perspective amid the daily grind. [Link]

She deserves full marks for honesty. As she writes later in the same column, humans need periodic reminders to stay the ‘enlightened’ or ‘reformed’ course. But, equally, there are, perhaps, far more powerful reminders to go back to the easier and familiar ways and ‘sweat the small stuff’. That is the power of the world of illusion we live in.

That is why it is not just enough to appreciate the silence, the blue skies, the birds and bees, sitting in an apartment balcony that is part of one’s fast paced life that has temporarily slowed. When it all resumes, we may get out of the balcony, take the fast elevator down and the next flight out…

In a brilliant piece for ‘The Statesman’, John Gray assesses the likelihood of a return to a ‘better world’:

With all its talk of freedom and choice, liberalism was in practice the experiment of dissolving traditional sources of social cohesion and political legitimacy and replacing them with the promise of rising material living standards. This experiment has now run its course.

So, is there hope for an alternative path? Well, not quite:

This does not mean a shift to small-scale localism. Human numbers are too large for local self-sufficiency to be viable, and most of humankind is not willing to return to the small, closed communities of a more distant past.

John Gray channels John Stuart Mill here:

Mill recognised the danger of overpopulation. A world filled with human beings, he wrote, would be one without “flowery wastes” and wildlife. 

Again, a dose of reality:

In many ways this is an appealing vision, but it is also unreal. There is no world authority to enforce an end to growth, just as there is none to fight the virus. Contrary to the progressive mantra, ….., global problems do not always have global solutions. 

Does this give a glimpse into how we would behave once the vaccine is at hand?

The most harrowing of Ballard’s experiences as a child in 1940s Shanghai were not in the prison camp, where many inmates were steadfast and kindly in their treatment of others. A resourceful and venturesome boy, Ballard enjoyed much of his time there. It was when the camp collapsed as the war drew to a close, he told me, that he witnessed the worst examples of ruthless selfishness and motiveless cruelty. 

John Gray concludes and I concur:

Dealing with the virus requires a collective effort that will not be mobilised for the sake of universal humanity. 

I will paraphrase him:

Ushering in a better world requires a collective effort that will not be mobilised for the sake of universal humanity. 

The bailout to the airline industry in the United States and the terms on which it was secured, the policy measures that central banks around the world have unleashed, the pervasive fear of emerging out of lockdown and the insouciant (ht: Srinivas Thiruvadanthai) reaction in stock markets around the world all suggest that the collective effort will not be mobilised for the sake of universal humanity.

Many are dazzled by the possibility of a cleaner environment, cleaner air and water; some reflect on it but only a few will act on it, eventually.

If a vaccine is found, many would interpret it as a signal (from God) to continue with their old ways; the ‘few’ will become a trickle.

Uncertainty keeps humans grounded; the false promise of certainty has influenced them to telescope experiences of multiple generations into one or two. They will feel vindicated with a vaccine against the virus and stick to ‘business as usual’, per pre-Covid-19.

That is why all other living organisms and the elements of nature need a vaccine to protect themselves from Sapiens.

The business of fear

Few days ago, I wrote this post titled, ‘What is the agenda?’ dealing with the issue of why some feel it is appropriate to keep whipping up fears on the virus, when all objective evidence, notwithstanding some concerns, point to low incidence and lower fatality in people below 65, not obese and not having pre-existing vulnerabilities. This tendency to keep up the paranoia seems particularly acute in the technology industry. Mr. Bill Gates is leading by example.

Manu Joseph has an interesting explanation:

What is behind a successful fear is the same as what is behind all kinds of success—chance, which is our vague word for a complex set of numerous anonymous events. But there are some broad knowable factors at work in the success of fears, as in the case of GMOs or Aadhaar. For instance, the support of influential people who have an ideological interest in the transmission of a fear…..

…..American tech billionaires came next. Many of these billionaires have two qualities that are good conductors of fear—they seem more afraid of death than others, and they appear to constantly anticipate their own destruction in the rise of sentient machines or diseases. Also, they have deep respect for China, which manufactures their goods. Some of them, especially those who did not make physical goods, called for the US to imitate China and lock itself down. They transmitted their panic to a few influential journalists who were wondering what their own opinions were on the matter when leaders such as US President Donald Trump and British Prime Minister Boris Johnson expressed contempt for the idea of a lockdown. This set in motion a powerful Western humanitarian reaction in favour of a lockdown. [Link]

Earlier in March, in another column, Manu Joseph served up this hypothesis for the over-reaction of technology billionaires:

Usually, tech billionaires overreact to danger. There is a reason why they speak so much about artificial intelligence and machines taking over the world. Human beings tend to have an inherent need to be oppressed, to a reasonable extent. Resisting this oppression then becomes the primary preoccupation of life. But tech billionaires are not oppressed by anything human, so they see their oppressors in intelligent machines. And, of course, in lethal viruses and death. [Link]

Two years ago, in March 2018, in another piece Manu Joseph wrote about GMO crops. He wrote about the Greenpeace activist Mark Lynas who was against genetically modified crops and was the face of anti-GMO. Lynas confessed to using ignorant ideals and deceit successfully to defame GMO. He wrote the book, ‘Seeds of Science’ which released two years ago.

Manu Joseph had again briefly touched upon the book, ‘Seeds of Science’ in his column dated 26th April 2020, linked above. Two years ago, he had taken a deeper dive and it is a delight.

There are many quotable quotes:

… activists stayed with the fear because they are in the business of fear….

… Across the world, the educated middle class is generally against GMOs. The fear is primarily a belief that pretends to have a scientific explanation……………..

…..The success of prose today lies in confirming the biases of people, not in changing them.

Scientists get caught in facts and concepts, and they should learn an important lesson from the cesspool of activism—never try to tell a popular story without first creating a villain. [Link]

Manu Joseph is dead right that activists are in the business of fear and billionaires-turned-activists are no exception.

Two, we all need villains to set up and tell the story. I am glad Manu Joseph confirms it. Samuel Huntington mentions it in ‘The Clash of Civilisations’. Humans need the ‘other’ to hate, to define themselves.

At a less dramatic level, it is also easier to see now as to why it is far more impactful to be anti-something (anti-capitalism, anti-reforms, anti-establishment) than to be pro-something (pro-enlightened capitalism, pro-reforms and pro-liberalisation and pro-establishment). It just isn’t that impactful or exciting.

It is far more heroic, thrilling, exciting and seems more meaningful (and, these days, gets more ‘likes’) to be anti- than to be pro-.

A rant, a blistering critique and a withering criticism make for arresting reading than a purposeful critique replete with meaningful suggestions.

That is why reforms are hard-sell and revolutions are easy-sell.

When guardians of capitalism over-reach

Entrepreneurial over-reach is always with us. So is the tendency of bankers, lawyers, accountants, PR professionals — and even some business journalists — to go with the flow, permitting or hyping up bad business propositions. The difference is that these guardians of capitalism rarely suffer personal consequences when it all goes wrong. As the next set of scandals emerge, it is time that changed. [Link]

Excesses of capitalism are unravelling. Softbank was, unfortunately, a poster child of that. Softbank’s excessive optimism was coterminous with that of the rise and fall of Wework. Now, Softbank has backed out of an incremental USD3.0 bn capital infusion.

The rise and fall of Lovin Coffee is the story of the day. Check out this link. For me, this is the interesting information from Nisha Gopalan’s article above:

Investors in the chain include Singapore’s sovereign wealth fund, GIC Pte, U.S. fund manager BlackRock Inc. and crop trading giant Louis Dreyfus Co., as well as a slew of venture capital firms. Early backers included Centurium Capital, a private equity fund founded by the former China head of Warburg Pincus. [Link]

The Cruise Ships industry is another one that is hitting the skids.

A very thoughtful and thought-provoking piece by Izabella Kaminska in FT Alphaville (ht: Gulzar). But, what gives? who bells the cat? How will businesses voluntarily build in the redundancies, given the obsessive emphasis on profits? Doesn’t it depend on a change in paradigm? Who, how and what will bring about that change? Will Covid-19 do that? Gulzar Natarajan has promised a blog post on these questions.