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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Update: Working Age Population Around the World 1960-2050

This is an update of a similar post from 2015. The UN projections have changed but only by small numbers. The main observations are the same as six years ago (click table to enlarge in a new tab).

The working age population (WAP, those aged 15 to 64) of sub-Saharan Africa continues to grow rapidly. It has more than doubled since 1990 from 252 million to 609 million, and is expected to more than double again by 2050 to 1.3 billion. If the reality turns out to be anywhere near these projections, it will be a significant challenge for African economies to absorb and to employ productively this enormous amount of new human energy.

India faces a similar challenge with its WAP growing from 928 million now to 1.1 billion in 2050. Though daunting, this represents a slowdown in the rate of growth from the previous thirty-year span 1990-2020.

The WAP of Europe, China and Japan have already peaked and will be declining for the rest of the century, per UN projections. Europe’s decline from near 500 million in 2005 to a projected 407 million by 2050 is mainly due to eastern and southern Europe. The WAP of France and the United Kingdom will flatline to 2050 while those of Germany and Russia decline.

In the United States, the steady growth in the WAP between 1960 and 2005 combined with a falling dependency ratio to fuel strong economic conditions. Growth in the WAP is expected to be more muted in the decades ahead.

Compared to the late 20th century and the first decades of this century, the future growth in the WAP will taper off or even turn negative in several regions and countries. Sub-Saharan Africa stands out as the exception that will maintain strong WAP momentum through at least 2050.

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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Peak Tesla?

This article first appeared in National Review.

Investors are finally beginning to hit the brakes on the sky-high electric-vehicle stock.

In the end, the needles that likely pricked the bubble were those used to inoculate millions of Americans starting last November. For the stock market, there was before November 9, the date of Pfizer’s vaccine announcement, and after November 9. The news that vaccines developed by Pfizer and Moderna were safe and effective fired a shot signaling that the pandemic would soon be controlled and that the economy would return to normal before long.

The market rotation since then has been rapid, with former leaders stalling or losing ground and former laggards recovering rapidly. Since that November date, the FAANG (Facebook, Amazon, Apple, Netflix and Google) stocks that led the way in 2020 have averaged a return of 3.1 percent, gaining mainly thanks to Google, which was up 15.7 percent (the FAAN without Google averaged a negative 0.1 percent return). Microsoft did better, up 5.5 percent. Zoom Communications and Peloton Interactive, the 2020 icons of work at home and exercise at home, were down 34.3 percent and 12.7 percent respectively. (Returns are as of the March 22 close.)

On the other side of the tracks, the old and unsexy names, which fell in March 2020 and could not sustain a decent recovery through the remainder of the year, have all soared. Since November, “ok boomer” companies Exxon and Valero are up 70.6 percent and 89.4 percent; Carnival Cruise, Delta Airlines, and Marriott International are up 98.8 percent, 52.7 percent, and 45.8 percent; Gap, Darden Restaurants, and Ulta Beauty are up 40.9 percent, 33.9 percent, and 46.5 percent.

But then there was Tesla. Tesla, the maker of fortunes and dreams. Tesla, the rocket, the star, the supernova. Continue Reading >>>