Apr 24 FT Weekend Biden tax affects so few! Samsungs Tax bill, PBOC gets Ants data, Tips boom and Playboy +83% this month

24 Apr

Front PageHow the Super League collapsedBig Read. PAGE 6
Also • Janan Ganesh: Bring on the Americanisation of football LIFE & ARTS
• Florentino Pérez: a rare humiliation for Madrid tycoon COMPANIES

Biden tax rise fans investor fury
• Plan to double capital gains rate • Battle looms in Congress • ‘Carried interest’ in line of fire
Starts 'Joe Biden’s proposal to almost double capital gains tax rates for the richest Americans has triggered a chorus of disapproval from top investors, underscoring the intense opposition the US president is set to face as he attempts to push his plans through Congress.’
Which illustrates the knee jerk reaction to the issue. As UBS noted US taxable domestic investors own only about 25% of the US. stock market, the rest of the market is owned in accounts that aren’t subject to capital gains taxes such as retirement accounts, endowments and foreign investors, so the impact on overall stock prices should be limited even with a higher tax rate. Also UBS CIO Solita Marcelli said historically there is no relation between capital gains taxes and market returns and they expect the final rate will be lower.
I think the tax is well aimed; those earning over US$1m and it is still well below 50% so they will still be getting the majority of the gains and remember these are gains.
I haven’t been able to find up to date numbers on how many Americans it would affect but in 2018 there were 539,207 tax returns for adjusted incomes over US$1m that’s from 153,235,089 filed returns; that’s just 0.35% of the US population that filed tax returns.
The article mentions 'Another prominent tech investor agreed that “it shifts the model more towards consumption than investment. In my opinion [that] is bad for the economy [in the] long run, as rich people become more focused on consuming now [rather] than investing or saving for the future.” ‘
I very much doubt that, the rich will carry out the same amount of consumption they always have as seen from the rebound in luxury sales. They are also smart enough to realise that even at the highest proposed rated (which most agree is unlikely to get through and that somewhere in the high 20% is more likely) they are still making money.
It has a quote 'A doubling of the capital gains tax would represent “a slap in the face of entrepreneurs” who take the risk in starting businesses, said Michael Sonnenfeldt, chair of Tiger 21, a network for high net worth individuals.’
Entrepreneurs who are already earning over US$1m must have seen a significant success to be earning that amount of money. Most entrepreneurs will not be paying this tax until they have achieve success.
At a time when the US is facing huge social issues asking those who already earn over US$1m to contribute something back to society seems reasonable, as Kennedy said in his inaugural address ‘Ask not what your country can do for you – ask what you can do for your country,’. For those earnings over US$1,000,000 they have been given a freedom to invest and the benefit of the services and infrastructure of the US, surely giving some of the profit back to the 99% that don’t isn’t too much to ask?

Oxford success in malaria vaccine trial raises hopes of final victory over killer
A malaria vaccine trial from Oxford university indicated it was 77 per cent effective — dramatically better than existing shots for preventing one of the world’s most deadly diseases.A great leap forward, malaria kills around 400,000 a year , mainly children in Africa, from about 229m clinical cases reported. So this is good news.
I guess not so good news for us who justify their G&T's on the basis of the quinine! Still quinine is also good for leg cramps and restless legs syndrome!

Russia turns to China as space station tie-up ends
Moscow’s decision to leave 23-year project with US is part of wider pivot towards BeijingLook at the end of an era of co-operation. The move toward Beijing will be interesting as Russia is unlikely to find China such a lucrative source of funding. The article says NASA spent $3,9bn on seats to the International Space Station (ISS), before Elon Musk’s SpaceX system.
I suspect it heralds the decline of Russia in space with the financial problems of the country. It will be interesting to see how much funding China is prepared to spend in the light of its current credit tightening, concerns over debt defaults and other issues. Currently no doubt it is a priority as part of projecting the image of China but for how long?

Samsung family weighs art sale in effort to pay $12bn tax bill
Lees’ wealth divides Koreans while investors see succession opportunity
I would imagine the Samsung family wish they were in the US with its inheritance tax system (top rate 40% but average paid is 17%) over S Korea’s 60%.
It is something that divides the country '“They have benefited from society to become so rich,” said Chang Sung-ja, a 56-year-old in the southern city of Suncheon who, with her husband, drives people home after they have been drinking. “People like us can’t even imagine the amount of their wealth.”’
The Samsung family have only said the tax will be paid in full and on time. 'The most likely scenario is the payments will spread across five years under a complex structure that will reshape the family’s fortunes, say analysts and commentators.’

Key for investors is that Samsung companies are likely to pay higher dividends as the family tries to raise cash to pay the tax bill +VE for other shareholders too.

The article also mentions Japan
'generational changes in company ownership and control are driving a boom in private equity interest that has drawn all the world’s biggest funds to set up shop in Tokyo.Japan is not only the world’s fastest ageing large economy but also has the highest concentration of company founders reaching their late 70s and looking for a structured exit from the businesses they spent decades building.’
Not mentioned but a key factor in Japan is either the lack of an heir to take over the business or the fact the the heirs are not interested in running the business, something that is becoming more common in Asia.

An interesting read but KEY is higher dividend payouts from Samsung and associated companies where the family has interests.

Japan imposes new state of emergency
Restrictions planned for big cities to halt rapid growth in infections
The move came with an apology as you would expect in Japan. PM Suga said “I sincerely apologise for causing trouble for many people again,” . Comes as his gamble of easing restrictions early failed; partially because of the viruses mutation and the new more virulent mutations.
'Unlike a previous state of emergency in January and February, the government requested the complete closure of large shops, excluding supermarkets, and venues serving alcohol. The public is asked to work from home where possible but schools will stay open.’
Coming over the Golden Week holiday (April 25 to May 11) it will be a big hit to many shops and restaurants and the focus on alcohol will hit the brewers.
Economists are saying this could push the country into recession; Q1 GDP data will be out in May.
I expect the market on Monday to open higher with the new measures largely priced in. Daikin likely to see renewed interest after recent selling as it new air-conditioners seen as having benefits and being energy efficient. The game makers also likely to see interest with people forced to stay at home.

Hospitals in India run low on oxygen as Covid cases hit record
'Hospitals in India are running dangerously low on oxygen, causing panic among medical workers and raising fears that the country’s death toll from Covid-19 will rise sharply as a surge of infections overwhelms health services and funeral sites.'
A worrying read with over 332,000 new cases in 24 hours.It notes that 'Modi has been accused of complacency and prioritising domestic political concerns ahead of the health crisis, holding mass election campaign rallies in West Bengal, where cases numbers have jumped. The government also permitted the Kumbh Mela, a Hindu festival and the world’s biggest religious gathering, to go ahead, with millions of pilgrims flocking to the Ganges.’
What is true is that the authorities are at best ill prepared.
The key for investors is whether this will result in increased spending on the health service in India and where the opportunities may be. At this stage it would appear that money needs to be spent on every aspect; bottled oxygen is usually bought in, so for supplies to be running low suggest budgetary problems.
The next elections are not due until 2024 but Modi will have to work hard between now and then.

Washington’s climate comeback masks differences with EU
'The Biden administration marked the US return to international climate leadership this week with ambitious plans to halve greenhouse gas emissions by 2030. But the move also resurfaced some old faultlines.’
An interesting read '“The Americans have a strategy based on the development of new technologies,” France’s environment minister Barbara Pompili told the Financial Times this week. “It’s great to develop hydrogen, as we are doing, and carbon capture. But I think we have an extra ingredient in France and Europe. We’re going further because we’re also looking at our ways of life.”EU officials are also quick to point out what they see as gaps in the US strategy, which is heavily reliant on new green technologies and private sector innovation and investment.’

For investors the key is the 'green technology’ is now back on the agenda and likely to occupy government attention which is good news for companies involved. As the article makes clear the EU already has its legislation in place providing the framework for companies to work with. It will be important to see what legislation the US proposes.

See Editorial Targets alone will not solve the climate crisis
Biden administration kicked agenda into new gear but more is neededIt concludes 'This will not change until governments bring their climate targets to life with robust, concrete action. So far, there is too little sign of this happening anywhere on the globe.
Two measures in particular require immediate action. Subsidies for fossil fuels must end, and a meaningful price must be placed on carbon. This requires government action. Corporate climate initiatives are welcome, such as those that Amazon, Unilever and others unveiled this week to tackle deforestation.
But as France’s Emmanuel Macron told the White House summit: “Taking action for the climate means regulating, and regulating at an international level. If we don’t set a price for carbon, there will be no transition.”’

China’s central bank grapples for control of Ant lending data
• New front in crackdown on Ma • State would gain group’s most valuable asset
The Chinese government wants Ant Group to hand over its data to a state-controlled company to be run by former central bank officials, The newly created credit-scoring entity would serve rival financial institutions, including state lenders, it reported. Ant has said it wanted to lead the new company to minimize government intervention, the FT said, citing one banker who has worked with the fintech company. The government has proposed establishing a joint venture with local technology giants that would oversee the lucrative data they collect from hundreds of millions of consumers, Bloomberg News reported last month.
It notes 'Ant’s supporters argue existing credit scoring agencies, all of which are government-controlled, are poorly run. The PBoC’s Credit Reference Center has been subject to dozens of lawsuits over inaccurate or out-of-date information.
One person close to the CRC said its performance had suffered because it collects data through “administrative power”. Ant’s efforts have been underpinned by the popularity of Alipay, and Alibaba’s ecommerce platform. “Lenders lack incentives to [give CRC] high-quality information reporting,” the person said. The CRC did not comment.
‘There is no question that Ant’s credit data have a lot of value for banks’
Former PBoC official'

As I have always said one of the reasons for the crackdown was the Govt/PBOC wanting the data, which both Ant and Tencent have been resisting. This now increases the pressure on Tencent to hand over its data too. The PBOC sought to set up its own but couldn’t get the type of data that Ant and Tencent have. But this move I think this could severely undermine the Fintech in China. Citizens are reasonably happy handing their data over to Ant and Tencent because they get the benefits of deals and services but not to the government. I think the real reason is the government wants the data is less about helping the SOE banks giving better credit ratings and make better loans and more about controlling where those loans go and taxing people and the shadow ‘cash’ economy. This data will enable the government to see how much people are spending, what they are spending it on and if that is inline with declared incomes.
This could put further strain on the social contract that the party has with the public. The people allow the party to rule as long as the party allows them to spend their money as they want . Recent years of curtailing property investment has caused some strain, along with restricting car ownership in cities. The well off middle class where the wife wants a car the drive the kids to school and the husband wants to drive to work; outward signs of success. This further intrusion of the government into the finances of the people might be a step too far. The people trusted Ma with their data because he gave them more financial freedom and he wasn’t seen as being a member of the communist authorities. It is probably that popularity that worried President Xi. But having the government know about all your spending might be a step to far.
Tencent will be under pressure now to hand over its data, although Pony Ma was always more likely to do that than Jack Ma.

We will only really know the impact in the months ahead and if the online services are still as well used. Yesterday Tianhong Asset Management announced that the net asset value of Yu'e Bao, Ant Group's money market fund managed by Tianhong, shrank by 18.3% yearly to RMB972.4 billion in the first quarter of 2021. As it was forced to reduced the interest rates offered and suggest clients move to other funds. At least if Ant officials were leading the new group there would be vision. I worry that bing run by Ex PBOC officials they would look to try and shoehorn it into the old model. China I think risks stepping backwards in Fintech.

Tencent sidesteps curbs to back Indian rival for TikTok
Chinese technology group Tencent quietly backed Indian social media start-up ShareChat, investing $225m via Europe, despite new rules imposed by New Delhi to restrict Chinese investment into Indian companies. Using two Dutch entities, there is no suggestion that Tencent or ShareChat broke any rules but it shows the importance they attach to the Indian market. +VE for Tencent as long as India doesn’t now change the rules.

Hollywood plays a smaller role in China’s thriving film scenario
Homegrown blockbusters flow out of studios as Sino-US rift takes toll on Tinseltown
Looks at the Chinese film industry ahead of the Oscars. Notes that ‘If Chloé Zhao wins any of the Academy Awards she is nominated for on Sunday night, she will make history as the first Chinese woman to break into the upper echelons of Hollywood.’ But the Oscar’s will not be shown in China because in 2013 interview she described China as a place where “there are lies everywhere”. Such comments are seen as disloyalty and hence anything she does will not be promoted by the government which has a lot of influence over the industry.
Its big business in China; 'China last year toppled the US to become the biggest film market by revenue, in part due to Covid-19, which left US cinemas empty for much of 2020.''China’s film industry reached an “inflection point” in 2016 when its technology and storytelling skills became as competitive as those of Hollywood, said Aynne Kokas, a China cinema expert at the University of Virginia. Chinese producers put it more bluntly.
“This is a booming market. We are pretty confident in five years [China] will definitely be the biggest market with or without the pandemic impact,” said Yue.’
An interesting read and notable that for all its advances they still use DNEG 'a UK special effects group that has won Oscars for film such as Inception and Blade Runner 2049.’ '“The financial incentives are there [in China] to do bigger and bigger things, to make their own Star Wars or Avengers,” said Namit Malhotra, chief executive of DNEG.
The other key thing is the government control over content. Not mentioned in the film but The Eight Hundred, a Chinese production about the Battle of Shanghai that was the world’s highest grossing film of 2020 was re written and filmed at a very late stage because the government wasn’t happy with the content.

If Hwang could have a family office, perhaps we all can. A light hearted take on the Archegos situation.  Worth noting the article mentioned a 5:1 leverage, since the blow up most prime brokers have reduced that to 3:1 which could explain some of the recent weakness in markets as fund de leverage.

Investors plough money into Tips vehicles
Funds that hold inflation-protected bonds are enjoying their longest streak of inflows in more than a decade as investors gird themselves for an increase in consumer prices as the US economy recovers.
Key is that is shows a lot of people are concerned about inflation. It notes they have seen net inflows for 29 weeks!
A good read; key the market seems to believes the Fed’s ’transitory’ nature of inflation from the Tips rates.
But it concludes '“Transitory [inflation] can move markets,” said Alexandra Lawson, a fixed income portfolio manager at Goldman Sachs Asset Management. “That in itself can lead to higher inflation expectations. If you believe that inflation expectations lead to more permanent inflation, you can help offset that in Tips exposure.”’
The really important fact is, as Powell himself has said is on inflation expectations, especially on wage inflation; which I believe the Fed is focusing on. If at wage review you think prices are going up you ask for more money, once that thinking is in place stopping it is very hard. Who looks ahead and thinks I can do with less money this year ?

Bitcoin boom fuels fight over money creation
Looks at the history of money and credit; focuses on the fact that 'Whoever controls what we use as money has great power.’
Worth a read concludes 'People have ways of creating the money they want. There’s never been a good way to stop them.’

Debate over Libor’s replacement provokes resentment among banks By John Dizard
Key is that despite knowing its supposed to be phased out by December 31 there is still no accepted alternative.'The process of finding practical ways to replace it has led to increasingly audible shouting and blame trading between the major dealing banks and the Fed, along with the central bank’s entourage of agencies, academics, policy wonks and whisperers.’
Worth a read, if only to be informed about where we are so far, as he says 'I have been surprised at the banks’ bitterness about the Sofr “solution”. This is not over.’

Risk signals can help investors defy the next big shock. By Michael Mackenzie
A good read notes that most 'risk management typically becomes the focus of attention only when portfolios are already in trouble from a market shock.’
Suggest that most peoples risk management systems are secondary to making money; whereas they should be on an equal footing.
Reviews the recently released 'Strategic Risk Management', co-authored by Campbell Harvey, a professor at Duke University and Man Group’s Sandy Rat-tray and Otto van Hemert.
It says 'When market volatility began rising last year, Harvey, Rattray and van Hemert say this was a signal to reduce equity and credit exposure ahead of a bigger slide in those markets. “The spike in volatility led to sharp reductions in risk assets,” say the authors.’'
They also suggest tweaks to another aspect of portfolio management known as rebalancing — making sure exposure to certain assets, such as equities and bonds, remains within pre-determined limits. When equities rise sharply in value, they become a larger fixed share within a portfolio and that usually results in sales of the winners and buying cheaper or lagging stocks. Rebalancing often occurs at set times, such as monthly or quarterly, and also involves portfolios maintaining a relationship between equities, credit and sovereign bonds. That approach should be delayed when markets become stressed, so as to prevent a larger draw-down in the value of portfolios as quality stocks are not automatically sold.’
A good read and I would imagine the book is too.

Greensill saga shines spotlight on ‘friends of Sanjeev’
Majority of outstanding receivables at Gupta’s Liberty Commodities were from closely connected companies. More on the scandal read for interest.

Ambitious dash for cash keeps Carnival afloat
Cruise line’s finance chief was forced to navigate choppy waters for $24bn fundraising as Covid ravaged its financesAn interesting read, shows how the funds were active and makes you wonder why Berkshire Hathway was unable to find opportunities?

LEX Mattel: Barbie world  Babie now looking at NFT’s Concludes 'But Mattel also cannot count on the pandemic sales bump lasting indefinitely. Selling digital collectibles should not distract Mattel from its core toy business. But it does need to update its playbook. NFTs present an opportunity for the company to test the waters, appeal to a different audience and see if this might be a viable way to wring more money out of its existing brands.’
The interest in NFT’s is amazing as I wrote earlier:- Interesting to note that Playboy(PLBY group) is +83% this month and +173% since Feb on the prospects of being able to tap the NFT market having partnered with Nifty Gateway the online NFT marketplace.

JP Morgan in mea culpa over failed Super LeagueIt will be interesting to see whether this impacts clients attitude to the bank.  Only time will tell.

For interest
Putin’s autocracy blocks political and economic change in Russia. By Mikhail Khodorkovsky former chief executive of the Yukos oil company, is the founder of Open Russia
Looks at the state of Russia and the games that Putin is seeking to play and why change is unlikely to come through public pressure. He also outline the obstacles to change.
He concludes 'Russia today is simply not a good place to invest your energy, acumen and capital.
Regular scandals erupt in the form of corruption, money laundering and even violent crimes — explosions, poisonings, murders. My Dossier Center will shortly present a new report on the Kremlin’s illicit mechanisms of influence in western Europe. This work will continue.
By now, everyone should understand that the Kremlin sees the economy as a tool of politics. Simply put, one can only achieve and hold on to economic success in Putin’s Russia by agreeing to engage in corruption or by becoming an agent of Kremlin policies. This is what western investors should keep in mind.’
A good read. A number of his points could be applied equally to China.

Lunch with the FT António Horta-Osório. ‘Lloyds was about to die’
He led Britain’s biggest high street bank back to health — but at considerable cost to his own. Over Dover sole in Mayfair, the incoming Credit Suisse chief talks to
Patrick Jenkins about his battles in finance, his tabloid troubles — and why Rafael Nadal is his idol.

The robots are coming for Deliveroo’s riders. By John Gapper
A good read. He concludes 'Still, low margins and self-employed contracts tell a story: the delivery rider will be an endangered species as soon as machines can perform the transport element of the task. There will be a place for supervisors, ambassadors and doorstep greeters, but robots will be right behind them.’
Seems the technology is coming but its currently limited; nice line was. 'It still feels more like an experiment than a mass technology: today’s machines are travelling containers, with customers lifting out their orders on arrival. Amazon is testing its own Scout robots in the US but they are accompanied by “Amazon Scout Ambassadors”, like the men with red flags who walked in front of 19th-century motor cars to warn of their approach.’
I’d bet that those men with the red flags would be shocked at cars and transport today. Maybe we will be shocked by what robots will be doing shortly?

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