Wednesday Briefs – 12 May 2021

THIS WEEK: Big City Mayors; Virgin Galactic; Copper/Gold; Cyberattacks.

Big City Mayors

A little known fact outside of England is that the City of London did not have a mayor before 2000. For some people, that was just fine; they do not see even today a need for a mayor. The city was administered by the Greater London Council until 1986 and by joint boards in the various boroughs from 1986 to 2000. By contrast, New York City has had mayors for over three centuries, starting with Thomas Willett in 1665, a British sea-captain and Plymouth colony trader.

If a metropolis like London could do without for so long, and in view of the tussle between Mayor Di Blasio and Governor Cuomo, the role of big city mayor needs better definition. In the present case, the Governor wants to call the shots on the most important questions concerning the City, while the Mayor is determined not to cede ground easily. It seems then that we have two leaders claiming executive privilege over the same set of decisions. A wry Londoner may sum it in one word: redundancy.

While we still have a mayor however, let us look at the most prominent candidates for the impending election. On the Democrat side, which in New York usually means the winning side, there are former presidential contender Andrew Yang and seven other candidates that all have some credentials in business, in non-profits, within the City’s administration or in government more broadly. Mr. Yang has a comfortable lead in all the polls. This is not surprising since he enjoys name recognition and had previously promised free money in the form of a universal basic income.

On the Republican side, there are two candidates: Curtis Sliwa founder of the Guardian Angels and Fernando Mateo, founder of the New York State Federation of Taxi Drivers. Mr. Mateo has unbounded optimism on his side as he is trying 1) to beat a household name in the primary (Mr. Sliwa), 2) to overcome the Democrats’ huge advantage in the main election, and 3) ostensibly to reverse Uber’s tidal disruption of the taxi business.

The New York Post has endorsed Brooklyn Borough President Eric Adams who is running not far behind Andrew Yang in the polls. The New York Times has endorsed Kathryn Garcia who has occupied for a decade senior positions in the City’s administration. Judging from their endorsements (an imperfect approach), Mr. Adams is an established local politician and Ms. Garcia seems an effective decision-maker. Unless Ms. Garcia can catch up quickly, Mr. Yang or Adams will be the next mayor.

Virgin Galactic

Founded in 2004 by Richard Branson, Virgin Galactic went public on 28 October 2019 when it merged with a SPAC (special purpose acquisition vehicle) managed by investor Chamath Palihapitiya. The stock closed at $11.79 on that day. Five months later in March 2020, it made a high of $42.49 right before the pandemic crash brought it back to $9.06. Then came three spikes (see log-scale chart), in July 2020 to $27.55, in December to $35.82 and ultimately in February of this year to $62.80. Two of these three spikes were followed by retracements of 50% and 35%. The latest is more serious with the stock now at $17.88, or down 72% from peak. That is a lot of launches and crashes in a seventeen months period.

Log Scale.

Space exploration is a long duration investment that will not show real tangible results for years or even decades to come. But the market value of assets moves faster and compels investors to adjust their holdings. Mr. Palihapitiya offloaded all of his personal holdings last March, or 6.2 million shares at an average price of about $34 for total proceeds of $213 million. He still owns 15.8 million shares (worth $276 million today) through another SPAC. And Mr. Branson sold 5.6 million shares last month at prices between $26 and $29, a small part of his stake. He retains 24% of the company through his company Virgin Group. Both billionaires remain committed to Virgin Galactic, though they are less invested than two months ago.

Virgin Galactic had revenues of $238,000 in 2020 and has now a market cap of $4 billion down from a peak of $14.7 billion. But the SPAC way of going public has already begun to deliver for its main shareholders.

Copper/Gold

The ratio of copper to gold prices has tended to move in sync with the 10-year treasury yield. In recent months, the two have diverged with copper/gold rising (copper has boomed while gold has weakened) and the 10-year marking time.

As these things go, there will be a reversion which can take one of three forms: a weaker copper price signaling a softening economy, a stronger gold price reflecting investor concern, or a higher yield representing either a strengthening economy or higher expectations of inflation.

Cyberattacks

In a plot that only existed in James Bond movies until a few years ago, a group named DarkSide has crippled the Colonial Pipeline that carries gasoline from Texas to the eastern seaboard. Cyber warfare is the new form of terrorism, destroying or attempting to destroy economic or infrastructure assets for monetary or political gain. Until the proper safeguards are put in place, we will likely face more and larger attacks in the months ahead. In the worst case, just as smaller terrorist attacks foretold 9/11 and just as contained virus outbreaks preceded Covid-19, we are seeing manageable attacks that could be followed by a larger cyber attack. With the experience of those precedents, we will be better prepared.

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You Are What You Risk, With Michele Wucker, 19 April 2021

“For some people, risk is scary and dangerous, and means peril and loss. For others, it means risk assets and they have to pile on because they just see the upside. But risk is actually value-neutral. It is important to be aware of the bias that you bring to things. Do you see both sides and do you weigh them? Or are you likely to overweigh the downside or overweigh the upside?” ________ Michele Wucker

We all have an ambivalent attitude towards risk. In 1850, a young Emily Dickinson wrote to her friend Abiah Root “the shore is safer, Abiah, but I love to buffet the sea. I can count the bitter wrecks here in these pleasant waters, and hear the murmuring winds, but oh, I love the danger!”

In her new book You Are What You Risk, author and strategist Michele Wucker codifies this ambivalence to risk. In this podcast with Sami, Michele explains the concepts of “risk fingerprint” and “personal risk portfolio”, among others.

Topics include:

  • 0:00 Introduction of Michele Wucker
  • 2:13 Thesis of ‘You Are What You Risk’
  • 5:20 Attitude towards risk: innate vs. acquired through experience
  • 10:40 Taking a risk vs. following a path; Risk and entrepreneurship
  • 14:10 About each person’s risk fingerprint
  • 19:45 Taking risk as the only woman in the room
  • 24:40 “Risk is value-neutral”
  • 33:00 Matching risk fingerprints in interactions; Measuring risk
  • 38:20 The personal risk portfolio
  • 42:25 Remembering the onset of the pandemic as a gray rhino

TO HEAR THE PODCAST, CLICK HERE OR ON THE TIMELINE BELOW:

(photo of Michele Wucker by Hal Shipman)

Wednesday Briefs – 21 April 2021

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THIS WEEK: The Billionaires’ Skyline; Troop Movements in Ukraine and Afghanistan; Immunity and Secrecy.

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Wednesday Briefs – 14 April 2021

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THIS WEEK: Most People are Very Smart; Back to the Border; Podcast: Lebanon in Crisis.

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Lebanon in Crisis, with Joe Issa El Khoury

“Historically, Lebanon prospered as a result of inflows of people and funds – people who came to take refuge in Lebanon and also funds. If we look at the post World War 2 period when modern Lebanon became independent and also at previous periods that Lebanon went through – and I mean over the past 100 or 200 years – one thing that was common to all these eras is its liberal economic system that was adopted by all who lived on this land. The constant was the liberal economic system.”____ Joe Issa El Khoury

Sami J. Karam speaks with Joe Issa El Khoury, a Beirut-based financier, about the tragic events that have unfolded in Lebanon since 2019. A sharp fall in the currency, a banking freeze, a political crisis, hyperinflation, and widespread street protests made 2019 a difficult year. But these events were then compounded by the Covid-19 pandemic and the explosion in the port of Beirut in 2020.

Issa El Khoury explains the sequence of events that led to the present, and offers a possible way forward.

Topics include:

  • 0:00 Introduction of Joe Issa El Khoury
  • 2:25 What is it like right now on the ground in Beirut?
  • 8:33 Why did Lebanon have a golden period in 1945-75; why was it later so prone to crisis?
  • 17:40 The Rafik Hariri era and the return of growth 1990-2005
  • 20:00 What explains the weakness of the Lebanese state: geography and demographics
  • 26:30 Lebanon’s diversity as a source of wealth; Example of Lebanese cuisine
  • 30:40 Crossing the line from a laissez-faire economy to a crony economy
  • 35:05 The real estate boom of 2007-11
  • 36:55 The impact of the Syrian civil war
  • 39:10 Crowding out the private sector
  • 44:10 The proximate factors that led to the meltdown
  • 46:15 The current condition of the banking sector; Role of the Central Bank
  • 51:00 Will depositors suffer a haircut? The Lazard and other plans
  • 54:45 Talk of privatization of state assets
  • 59:45 Political patronage in the public sector
  • 1:01:50 “All roads lead to Washington DC and the acronym IMF”
  • 1:05:20 Political reform and the role of the diaspora

TO HEAR THE PODCAST, CLICK HERE OR ON THE TIMELINE BELOW:

Wednesday Briefs – 31 March 2021

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THIS WEEK: Suez – Container Shipping; VolTswagen; New York Coronavirus; Triumphing on the Venom of a Snake.

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