FT Weekend Thoughts Global tax done, Olympic regrets? BioLab dangers, Cyber criminals, HSBC, Tiger Cubs and more


05 Jun

This and previous notes can be found at found at Substack Asian Market Sense
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Front
Big economies set to unveil deal on taxing multinational profits
• First reform for a century • Hopes of ending ‘race to the bottom’ • US drives hard bargain
Reports that they are still haggling over the final details but had basically agreed to change the basis of corporate tax law for the first time in a century. A switch to paying tax where they do business not only where they are headquartered. The culmination of talks that started in 2013.
Key for Biden is that it will then make his tax negotiation with Republican’s easier. A sticking point is whether the ‘UK, France and Italy should get rid of their taxes targeting US-based tech giants when a deal is struck. The US wants this to be immediate, but France and the UK think this would be a nonstarter because it would leave digital giants paying less tax than they are now on the basis of a commitment that the US will implement an agreement, but without laws passed in Congress where a deal might come unstuck.’ It is worth noting that there are many agreements where the US has got agreement but failed to ratified its side of the bargain.
The other issue is whether 15% should be the rate or should it should be defined as ‘at least 15%’
The other issues include which companies are covered and how much of their global profits would be liable under the new tax.
It concludes ‘Much of the tax raised is likely to come from US companies, which was why Janet Yellen, the US Treasury secretary, was “driving a hard bargain”, said the person with knowledge of the negotiations yesterday.’
No doubt once a change is agreed there are going to be numerous tax cases as firms try and gain the most benefit from the system. It will also be interesting to see how current low tax charging countries respond.
News just out on the BBC that a deal has been reached by the G7 to tax multinationals who have a minimum  profit margin of 10% at a minimum of 15%.  

Olympics sponsors call for delay until vaccine drive allows more spectators.  
Evidently big sponsors want the event postponed again to allow for more spectators. Which makes sense as they have spent a lot of money sponsoring the event. But it appears that the Olympic committee is ignoring their calls and other requests from smaller sponsors and pressing ahead. Difficult to postpone now as some athletes have already arrived.
I think this years Olympics are a watershed and that future games will be marred by the determination of the Olympic committee to push ahead regardless of public or sponsor concerns. Local press in Japan quotes Japanese Olympics Committee board member Kaori Yamaguchi who said on Friday her nation had been “cornered” into pressing ahead with the 2020 Games despite public opposition during the coronavirus pandemic.
Personally I think it will be a decision the Government will also regret when it comes to the election; it is rumoured PM Suga will call a snap election post Olympics. I also think the Olympics themselves have lost credibility. Where sport becomes more important than lives smacks not of Olympian vitues but the taint of commercial money. As Yamaguchi said “What will these Olympics be for and for whom? The Games have already lost meaning and are being held just for the sake of them.”
A sad day for athletes.
see LEX  Tokyo Olympics: losing game ‘Opinion polls show that 80 per cent of people in Japan want the Olympics to be either cancelled or postponed until the pandemic has eased. Yet the head of Japan’s Olympics organising committee has ruled out further delays. Sponsors must hope that their lossmaking involvement will not also have a negative impact on their brands.’

INSIDE
US jobless rate drops back below 6%
Pivotal moment as lifting of restrictions and fiscal stimulus fuel rebound.
Looks at Friday’s numbers up MoM but not as good expected. But some businesses are still complaining that they are struggling to hire workers and that that will hold the recovery back. Some employers in the lower paid sectors are still complaining that they are struggling to hire workers and have to raise wages to attract staff. The fact is that there are a miriad of reasons for why that may be.
Interestingly hiring in the leisure and hospitality sector fell but other sectors like transportation and warehousing, manufacturing, healthcare and temporary jobs picked up. Also Average hourly earnings rose to $30.33 in May vs $30.18 in April and $29.74 in May 2020, showing signs of wage inflation that the fed is likely to monitor closely.
For Biden and the Fed the improved numbers MoM will be a relief although listening to a number of economists like Paul Donovan at UBS who was saying the numbers are erratic because of the unique situation that the economy is coming out from the pandemic.
It quotes Emily Roland, co-chief investment strategist at John Hancock Investment Management who says the '“disappointing” jobs report bolsters the Fed’s case to be patient when it comes to removing its policy support. “Today’s jobs report provides evidence that the Fed has been right in their assessment that there is way to go until we see maximum employment,” '
I think for the Fed this was a ‘Goldilocks’ number that gives them breathing space before having to admit to discussions on tapering.
I also think that the US return to work is going to be far from straight forward. During the pandemic there has been a remarkable development of small online businesses. Many of those people had skills that are important to other businesses but they are unlikely to re-enter the jobs market and so creating a further skill shortage. There are also likely to be some companies that don’t re-open and some that re-open but as stimulus is withdrawn go bankrupt.
Worth also remembering the rental eviction moratorium is due finish at the end of June that will significantly increase the pressure on many to find work or claim benefits.

Global spread of high-security bio labs raises fears of new pandemic
At least 59 Wuhan-style centres are planned or already in operation. An interesting read as the Wuhan Institute comes under scrutiny again as experts say the WHO should investigate the lab leak theory in more detail.
‘According to the Global Health Security Index, less than a quarter of countries with labs operating at BSL-4 have “high” levels of biosecurity preparedness, such as the US and UK. About a third, including China, have “medium” levels, while 41 per cent have “low” levels, such as South Africa.’
But more worrying is the lack of international regulation over these labs. Another big worry now must also be regarding ransomeware hacking of them too.
It outlines how in the US ‘the Centers for Disease Control jointly monitor the use of 67 different types of toxins and other potentially dangerous materials. Their latest report found that in the US in 2019, such substances were lost 13 times and accidentally released 219 times. This led to more than 1,000 people undergoing medical assessments, and some taking preventive drugs. None, however, contracted identified illnesses as a result.’ Not exactly encouraging and it outlines how the US increased its scrutiny after the 2001 anthrax attacks. Also how in 2004 in China 9 people were infected with SARS ‘and one person died after two researchers were separately exposed to the virus at the Chinese Institute of Virology in Beijing.’
The article notes that China is keen to build more of these labs with Guangdong announcing that it is planning ‘25 to 30 biosafety level three labs and one BSL-4 lab in the next five years.’ But it notes that ‘Chinese officials have warned about poor security at facilities.’
A worrying read, especially is the fact that China has not allowed full access to international experts regarding the data and samples associated with the covid pandemic.
It’s worth remembering that there is a Biological Weapons Convention (which China is a member) that prohibits countries ‘developing, producing, stockpiling, or otherwise acquiring biological agents or toxins that have no justification for peaceful or defensive purposes;’. I’m not sure how it is policed but with more of these bio labs being set up I would suggest it be reviewed.
Interesting to note that one of the first use of biological weapons was in 1346 when Mongols catapulted corpses contaminated with plague over the walls of the Crimean city of Kaffa.

Also read Fauci urges China to release Wuhan workers’ records  He’s requesting to see the medical records of 3 researchers that went ‘sick’ before the pandemic and six miners ‘who fell ill after entering a bat cave in 2012. Scientists from the  Wuhan Institute of Virology subsequently visited the cave to take  samples from the bats. Three of the miners died.’
In response ‘Shi Zhengli, the institute’s leading expert on coronaviruses, has previously denied there were any infections at the lab — a claim Fauci did not dispute, but said should be investigated further.’
‘China’s foreign ministry declined to say whether it would consider releasing the medical records of the nine individuals. But Wang Wenbin, a spokesman, repeated a statement made by the institute in March that none of its staff had ever been infected with Covid-19.’
Whilst Beijing is no doubt trying to control the narrative on covid at some point you would hope they reveal the truth. The delays only suggest that they do have something to hide.

FT BIG READ. TECHNOLOGY
The cyber threat to America’s beef
The online attack on JBS, the world’s largest meat processor, was the latest example of the relentless rise of ransomware. But will US pressure on Russia to hold hackers to account make a difference?

A good read, key I think ‘Beyond the political posturing, analysts and cyber security experts say companies, government and other entities must treat the hack as an overdue wake-up call to not only develop adequate defences but also to develop a unified approach to dealing with the soaring number of attacks.’
It also notes that the recent rush to digitise infrastructure have made life easier to the cyber criminals and hospitals especially as they tend to have low security and also the incentive not to let people die.
It mentions about ‘hacking back’ which could include doxing or making the gangs private details public. But that is contraversial because of the risk of escalation/retaliation. It suggests exerting political pressure on Russia. I honestly don’t think Putin is worried about political pressure. He would ask the international community for proof; so the doxing approach could be quicker. Equally for the governments of Russia, China, N Korea we don’t know if they really are just ignoring the cyber criminals or are linked with them.
It notes that ‘Experts recommend companies and governments follow two paths. The first is technical: keep good backups, use up-to-date software and hardware and teach staff not to open suspicious emails or plug in compromised USB sticks.
The second is educational: to raise awareness of the threats to the highest echelons of politics and business and create a coherent framework to counter attacks.’ That is good advice for everyone.
It concludes by quoting ‘Rubin from Palo Alto Networks says the important thing is to make “it clear to ransomware operators that law enforcement will track them down”.
“We’re in uncharted waters here.”’
The trouble for law enforcement is the enforcing when the criminals are in a foreign country.
I was on a webinar with Gerald Minack of Minack Advisors (Covid Changes Everything available on the ERI-C portal) and he was saying that many in the US are keen to carry out some sort of retaliation to show that the cyber criminals are not beyond the reach of government agencies. It sounds harsh but this is a war. There can be a lot of ‘pressure’ but the criminals usually only stop when they are caught and put in jail.

Editorial
A slow population decline is nothing to fear

Choice, not numbers, should be the focus of family planning policies. Written in the light of China’s recent change on the size of families. A good read and concludes
‘Governments should concentrate on enabling women’s choices. Where birth rates drop dramatically it often reflects that something is interfering with people’s ability to make truly free choices. Patriarchal expectations of how women should care for both young children and elderly parents can mean some opt out of starting families entirely. A lack of access to childcare, discrimination against mothers at work, and the career “penalty” for taking time off for child rearing, also have an impact on fertility choices. Achieving real freedom of choice rather than maintaining “human resources” should now be the focus.’

When ‘new’ can also mean preloved
Etsy’s deal with Depop points to the rise of the second-hand economy. An interesting read about buying secondhand, which is becoming more not only accepted but seen as socially positive.
It concludes ‘Brands such as Patagonia and The North Face have begun selling used and repaired pieces collected from customers. But the trend affects retailers well beyond clothing. Ikea has launched a furniture buyback and reselling scheme, offering customers vouchers to spend in-store if they return preloved items such as Billy bookcases or Hemnes sideboards. In the Netherlands, Sweden and Switzerland it is trialling leasing as a payment option. When shoppers are in effect renting not just clothes but the wardrobes they store them in, that reflects perhaps the most profound shift in consumerism since the birth of online shopping.’

OPINION
Apologies for historical atrocities fall short of a proper reckoning
By Kim Wagner professor of global and imperial history at Queen Mary University of London.
Key seems to be ‘This is not simply a matter of avoiding legal liability, however. Former colonial powers, it seems, will say anything short of admitting that the imperial project may not have been so progressive after all, since doing so might undermine their national myths of exceptionalism.’
He concludes ‘If the past week’s statements raise awareness and encourage more people to learn about the past, that can only be a good thing. But these rituals should not be mistaken for a genuine historical reckoning. We are still a long way from facing up to the brutal reality of western imperialism, let alone addressing its continued legacies in the modern world.’
An interesting read and it is certainly true that hindsight gives a much better view of what is good, bad, right and wrong; the problem is that at the time we are rarely so insightful.Person in the News

The prince in charge of Saudi Arabia’s oil
The kingdom’s mercurial energy minister has had to deal with many daunting challenges, write Anjli Raval and David Sheppard
Some interesting insights.

All Consuming
Nestlé is engineering an exit from the fat years  By John Gapper
An interesting read about changing consumer habits.

Companies & Markets
HSBC splits Asia leadership amid increased focus on China

Looks at life at HSBC after Peter Wong; not that he is leaving but at 69 will take on a different role. They are splitting his role with co-heads; one focused on China and the other on the rest of the region. I don’t know the either of the new co-heads but the fact that Liao who is to focus on China used to run HSBC China makes good sense. The other Rosha is chief of its Indian operations. The article does not mention if outside candidates were considered. HSBC does historically have a reputation of looking internally even though Mark Tucker was an exception.
It notes that ‘Wong’s retirement comes at a tricky time for the lender, which has headquarters in the UK but makes the bulk of its profits in Hong Kong. It has become caught in a geopolitical tussle between China and the west.’
The bank has made a significant pivot to Asia and conintues to refine its focus on China but I doubt the transition will be smooth. Already the relocating top staff from London to Hong Kong has ruffled some local feathers. Bringing top staff to Asia may show an indication of the importance of Asia but it also suggests that those in Asia were not up to the task. China is hugely competitive and the fact that rivals in the wealth management and other businesses are increasingly focused on HSBC’s home patch may reveal its short comings. HSBC’s advertising used to point out that is was local and global. Bringing top staff from London seems to run contary to that; what works in London is unlikely to work in China.

Asset management. Talent incubation
Tiger Cubs on prowl after Robertson built dynasty in hedge fund jungle
Psychoanalysis, competition and vigorous debate shaped a generation of top investors.
A good read and insight into what made the Tiger cubs successful. Basically ‘He picked people who were ‘well-rounded instead of specialists” was the “special sauce” that “created a culture of people who were competitive, curious and extroverted”.’
‘It is a deceptively simple approach: using fundamental research to buy the best companies and bet against the worst.’
‘Younger analysts worked alongside more experienced peers to learn their trade. Everyone worked hard, some doing up to 14 hour days and working on Saturdays.’
'“We were young and hyper-competitive analysts competing against people [in other firms] who worked seven-hour days and were used to two-martini lunches,” said Lee Ainslie, founder of Maverick Capital.'
A good read the most out line was the use of fundamental reserch. It also notes looking at both sides of the arguement and taking a three to five year view. You have to know a company and its business very well to be able to do that.

Read also Founder backs Big Tech to keep marching higher  which outlines the stocks Julian Robertson currently likes; ‘ Facebook, Google parent Alphabet, Microsoft, chipmaker Micron  Technology, wireless technology firm Qualcomm and ride-hailing and food  delivery company Uber,’
It doesn’t outline his shorts which I sure would be interesting .
It concludes ‘The pair said they saw parallels between the Big Tech companies of today and the group of “nifty 50” stocks that originated in the 1970s, referring to the most highly regarded blue-chip stocks of the era.Robertson added that he was “starting to see some signs of” over exuberance “throughout the entire investment world”. But he added: “I don’t think it’s enough to overwhelm the whole market.”’

Hedge fund stars shy away from the limelight
A good read about how investors have increasingly wanted access to lead fund managers.
It concludes ‘Investors should always be entitled to ask questions about what fund managers are doing with their money. But they may also come to realise that overzealous box-ticking just for the sake of it could eventually drive away some of the best managers.’
A good read, as in all these things the key is getting the right balance.

The Long View
Stock pickers should seek Europe and EM opportunities next.
An interesting read. It notes the recovery has been stronger and quicker than many were expecting so further upside may prove difficult. The US could prove challenging through the summer with the potential for the Fed to start talking about tapering
Conclusion is that ‘“After a prolonged period of US out-performance you should see Europe and EM start closing a large valuation gap,” Colin Moore, global CIO at Columbia Threadneedle says. “Global equities are relatively cheap versus the US and that is the opportunity for investors”.’
An interesting read but refering back to the Julian Robertson interview, the key thing to look for will be good fundamentals and a 3 to 5 year time horizon.

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