Weekly reading – 16th July 2022

Business

Don’t Read History for Lessons. It’s true that history is one of, if not, the best teachers that we can have. The problem is that it’s often context-dependent and we have to be careful when using history for lessons. This post explains why

($) Netflix Seeks to Renegotiate Deals to Show Ads Next to Popular Shows. “When Netflix wanted to offer customers the ability to download content, it had to renegotiate its licensing agreements with outside suppliers. The price tag for download rights was an additional 10% to 15% of the agreement, one studio executive said. In discussions with content providers, Netflix has declined to provide details on its advertising plans, including where it will place commercials, what content will be on the platform or what it will charge consumers for the service, studio executives said. Entertainment-industry attorney John Berlinski said if Netflix doesn’t have an explicit agreement allowing it to place ads in and around content, it could face risks in doing so. Since top talent and producers often get a share of profits from successful shows, they will be keenly interested in whether studios collect bigger paychecks from Netflix after amending their deals.”

VW creates new company and enters global battery business. This is another signal that electric vehicles will be the future. VW believes so and puts money where their mouth is with a €20 billion investment in a battery company. A strategic investment to control their fate as much as possible. Plus, the US already crossed the critical point of mass adoption a couple of weeks ago.

($) Big-Name Investors Pour Billions Into Clean Hydrogen Projects. “The newest wager is on a Nebraska startup trying to upend the burgeoning industry of clean hydrogen with a process that uses natural gas but traps carbon by producing an ingredient vital for everyday products like car tires.” Monolith is the name of the startup. On their website, they have a simple demonstration of the process. It looks super interesting and a real boost to our fight against climate change. I’d love to learn more about how they source the natural gas required for this process and how that’d affect the net outcome on our environment.

A really great episode on Rolex. I didn’t know that Rolex was managed by a non-profit organization. It’s also mind-blowing the length Rolex goes to protect their brand integrity and products.

How peak events like Prime Day helped Amazon navigate the pandemic. A look into how Amazon does forecasting. It is hard.

Lessons from History: The 1990s Semiconductor Cycle(s)

A wonderful talk by Howard Marks at Goldman Sachs

Other things I find interesting

In Sri Lanka, Organic Farming Went Catastrophically Wrong. An example of when an ill-conceived and poorly-thought-out policy led to an economic and social disaster

Lifestyles. Another banger post from Morgan Housel. “I have no idea how to find the perfect balance between internal and external benchmarks. But I know there’s a strong social pull toward external measures – chasing a path someone else set, whether you enjoy it or not. Social media makes it ten times more powerful. But I also know there’s a strong natural desire for internal measures – being independent, following your quirky habits, and doing what you want, when you want, with whom you want. That’s what people actually want. Last year I had dinner with a financial advisor who has a client that gets angry when hearing about portfolio returns or benchmarks. None of that matters to the client; All he cares about is whether he has enough money to keep traveling with his wife. That’s his sole benchmark. “Everyone else can stress out about outperforming each other,” he says. “I just like Europe.”

Stats

The US is the latest country to pass what’s become a critical EV tipping point: 5% of new car sales powered only by electricity.

June U.S. eGrocery sales total $7.2 billion

Prime members purchased more than 300 million items worldwide this year

Source: awealthofcommonsense

China using capital as a strategic competitive advantage

Forget SoftBank. China is a great example of how you can use capital as a competitive advantage.

Yesterday, I came across a clip on China’s investing in one of Montenegro’s infrastructure projects and using it to benefit itself geopolitically. The European country doesn’t have sufficient infrastructure and badly needs capital assistance. China came in and loaned a huge sum of money to the country. The loan came with a few catches. Chinese suppliers would have to be involved in the project. The loan came with interest after the first few years. Failure to pay back the loan could result in China’s repossession a part of Montenegro.

The same thing happened with Sri Lanka. The country had to give China 99-year access to a strategic port due to its inability to pay back what was owed.

African countries such as Kenya and Djibouti face the risk of losing strategic ports to China as a payment for their outstanding debt.

Securing maritime keypoints isn’t the only thing China is after. In Africa, China also lends capital to help with infrastructure projects in exchange for natural resources.

“The Chinese come and they want your iron, your bauxite, your petroleum. In return, they’ll deliver you turnkey projects, where they supply the materials, the technology and the labor, with salaries that are mostly not paid in the country and do not contribute to the economy”

Source: China’s Second Continent: How a Million Migrants Are Building a New Empire in Africa

A booming natural resources exporter, with large exports of gold, cocoa and now oil, Ghana was one of a rapidly growing number of African countries where China had recently structured a huge package deal of loans and investments in order to gain a seat at the banquet. Early in their discussions, it appeared likely that Ghana would agree to a resource-for-infrastructure swap, similar to big financing packages that had been pioneered a few years earlier by Angola and Congo, both large African countries that were immensely rich in oil or minerals, and, significantly, lacking in any meaningful practice of democracy.

In Ghana’s much more vibrant political system, though, public debate helped nudge things in a different and arguably more prudent direction. The country’s recently tapped commercial oil production would not be used as a direct collateral, but paid into an escrow account, as had been the case in Angola. Ghana would remain free to sell its oil on the international market, even if under the contract terms China legally reserved the right to pocket income from its production if Ghana fell behind in its payments

Source: China’s Second Continent: How a Million Migrants Are Building a New Empire in Africa

In Zambia

There, the state-owned China Nonferrous Metal Mining Company bought the mothballed Chambishi Copper Mine, once one of the crown jewels of Zambian mining, for a mere $20 million…

The new Chinese owners poured over $100 million into rehabilitating and modernizing Cambishi, where production resumed in 2003. By 2008, the Chinese buyers had reportedly recoued their investment. And by 2010, according to the Chinese newspaper Southern Weekend, the Chambishi mine was producing a regular profit

Source: China’s Second Continent: How a Million Migrants Are Building a New Empire in Africa

China is in Africa for not only natural resources, but also for food security.

This doesn’t mean, of course, that China doesn’t need African farmland, or indeed that it doesn’t aim to eventually obtain control of as much of it as it can. China has 20% of the world’s population, and only 9% of its farmland. There were only two large developing countries with less arable land per capita: Egypt and Bangladesh, and massive construction, pollution and erosion were whittling away at China’s farmlands all the time.

Vaclav Smil, a prominent environmental scientist who studies China’s land use and food security, has said that as the country’s living standards rise, by 2025 its food needs will far surpass what is available on today’s open market.

Africa alone has 60% of the world’s uncultivated arable land and whatever Beijing declares, it stands to reason that China will come to see its food security as increasingly bound up in bringing that land into intensive production.

Source: China’s Second Continent: How a Million Migrants Are Building a New Empire in Africa

China uses its massive capital to gain influences around the world, help Chinese companies with new businesses and secure natural resources, strategic checkpoints as well as food security while putting in place measures to protect its investments. What’s there not to like? What’s the point of accumulating capital if you can’t put it to great use?