Things I Learned This Week – January 28th, 2018

Article: Kimberly-Clark to Cut 5,000 Jobs, Close 10 Factories, WSJ

The key factors contributing the job cuts and closure of factories are:

  • Low birth rates in the U.S.
  • Pressure on prices from retailers like Wal*Mart, who are competing against Amazon.
  • Higher commodity prices – oil, pulp, etc.,
  • Increased competition

This news has implications beyond just Kimberly-Clark. Birth rates have been in decline since 2008 and it will start having an impact on economic growth.

USBirthRates

Article: U.S. Household Debt Reaches New Record as Some Delinquency Rates Rise, WSJ

Key points:

  • Sub-prime Auto loan delinquency is rising.
  • But, auto loans are just $1.213 trillion out of the $12.955 trillion in household debt.
  • 23 million people own sub-prime auto loans in the U.S.
  • Student loan debt stands at $1.357 trillion, which is much higher than the total auto loans.
  • Mortgages totales$8.743 trillion or about two-thirds of the total household debt.

Article: Techlash Against Amazon, Facebook, and Google – and What They Can Do, The Economist

To prevent getting into an antitrust battle, the author suggests the following:

  • Stop acquiring new companies and thus increasing their market reach.
  • Spend more on lobbying in the U.S. and across the globe.
  • Spend more on philanthropy.
  • Break yourself up before the governments do it. The author thinks that may not solve the problem.

Author has coined a new acronym for these giants:

BAAD – Too Big, Anti-Competitive, Addictive, Destructive to Democracy.

It’s an interesting read and can get you thinking about the impact and use of anti-trust laws.

Article: Efficiency Eludes the Construction Industry, The Economist

ProductivtyAcrossIndustries

Key Points:

  • The industry has become less capital intensive, with workers replacing machines.  For example, in Saudi Arabia, it is cheaper to get workers from India than to buy equipment.
  • The industry has learned from bitter experience to prepare for the next recession, so that has curbed capital spending and increased the use of human labor.
  • There is no consolidation of the industry because there is no advantage to scale when you consolidate since building codes vary widely within countries and beyond countries.
    • In the U.S., there are 730,000 building construction firms with an average of 10 employees each.
    • In Europe, there are 3.3 million with an average of just 4 workers.
  • Construction firms do not use software applications as widely as architects and have paper-driven processes.

Article: US ‘constructech’ start-up raises $865m in SoftBank-led round, FT.com

Katerra hopes to use software to streamline operations involved in construction. They have about $1.3bn of committed orders.

Article: The World’s Priciest Stock Market, Barron’s

Nobel Laureate Robert Shiller has written a thought-provoking piece arguing that the U.S. stock market is way too overvalued. He uses the Cyclically  Adjusted Price/Earnings (CAPE) ratio to make his point. Shiller says: “The CAPE is the real (inflation-adjusted) price of a share divided by a 10-year average of real earnings per share.” The U.S. has the highest CAPE ratio of 26 countries. The data was compiled by Barclays.

Shiller argues that the correlation of past decade’s real earnings growth with the P/E ratio is a positive 0.32. There’s zero correlation between the CAPE ratio and the next 10 years’ real earnings growth.

Key Point:

There’s no justification for its high CAPE ratio and so all investors should be well diversified at this point.

Article: The Muni Market Time Bomb, Barron’s

Key Points:

  • Many state and local governments, even more than corporations, have promised generous pensions they can’t afford.
  • New Jersey’s pension system may have reached an unfixable tipping point. The system is missing so much money that even when it achieves its investment goals, it falls far short of the money it needs to remain solvent over time.

Article: Driverless Cars Will Not Save Cities From Either Traffic or Infrastructure Expense, The Economist

Key Points:

  • Congestion is a near-inevitable side-effect of urban growth. Proximity allows people to find friends, mates, and business partners, to discuss ideas and generate new ones.
  • Driverless cars will lower accidents and this accident related hold-ups. Cars can travel much closer together and that will boost road capacity.  But that reduction in in traffic will make living in currently congested areas more attractive and hence more populous.
  • Roads are underpriced, so more people travel and use their cars.
  • Impose more tolls.
  • Currently people do not seem to mind paying by the mile for services from Uber or Lyft. So, political resistance to road-pricing could ease and congestion could ease along with it.

 

 

 

 

 

 

 

 

 

 

 

 

 

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