Netflix, Uber, WeWork, and CHINA!

Whew it's been a big week in the tech/startup world.

1. Uber IPO went sour

The ride-hailing giant capped off its tumultuous journey with a NASDAQ listing Friday.  Shares disappointed, falling well below IPO price, but the company still commands a whopping $69bn market cap.... which is still lower than the pre-IPO valuations at which investors in the past 3 years entered.  Maybe it's because Silicon Valley loves Uber -- its constant fights, breaking of laws, habit of pouring VC money (=lobbyists) onto problems -- more than the wider public does?

Investors are basically betting that the juggernaut will continue to dominate the market, until such time that autonomous vehicles can replace those pesky (costly) drivers.  By that [undetermined time in the future, can be up to 30 years??], Uber's bottom line will turn green -- otherwise the company has shown no visible path to profitability (it burned $2bn of cash in 2018 alone).  But in the meantime, Softbank to the rescue (again) ?

2. China's Luckin Coffee also failed to excite

An outlet in Beijing

China's Starbucks/convenience-store-coffee competitor Luckin Coffee listed on NASDAQ Wednesday.  Shares fell below IPO price -- not unlike Uber and Lyft -- but the barely-two-year old 2,100-strong coffee chain still raised $560m, putting its market cap at $4.0bn.  Luckin has achieved "hyperscale", but let's hear it from Peking University professor Jeff Towson on the bottom line: the Chinese "don't seem to really like coffee" that much, so do any of those metrics even matter?  

Maybe it's just another case of China imitating a Western invention, and replicating it to scale [usually with the help of friendly government regulations/direct support].  -->See: Weibo.

Outlet at Jakarta's Grand Indonesia mall

If that seems rough, here in Indonesia a number of similar startups (Kopi Kenangan, Fore, Tuku, etc) looks to be modeled closely after Luckin.  Expect scenes like this in other markets.

3. WeWork also plans for IPO, skepticism abound

Co-working behemoth WeWork is a really strange animal.  Just like Uber, it's backed by Softbank, so operating losses never seem to faze them.  It's already the biggest tenant in Manhattan, and it's moved into co-living and other co-activities that generate no profits whatsoever -- I guess even the company doesn't believe its own core business could be viable.  It blindly focuses on the high-end segment, seemingly disregarding local market nuances. Now founder Adam Neumann wants to set up a real estate investment fund (named "ARK", after Noah, naturally) to buy up office properties to lease to WeWork.  Unsurprisingly everybody's screaming bloody murder conflict of interest.

Articles about WeWork are eerily reminiscent of how people described the past decade's housing crisis.  Just like the mid-2000s, "property values always rise... ", but now it's "... thanks to WeWork's presence".  Sure its sites are hip and wildly popular with clients, but that itself doesn't necessarily make the business model sustainable.  [I too can pitch an idea: why don't we sell $100 bills for $10?]  Ellen Huet from Bloomberg notes:

'...even by the standards of its cash-incinerating startup cousins, the company’s business model—taking out long-term leases and renting out short-term parcels—doesn’t deserve the favorable treatment of a tech company and looks glaringly vulnerable to an economic downturn as the global bull market in equities stuttersteps toward Year 12. “They don’t make money even with the economy roaring,” says Scott Crowe, the chief investment officer at CenterSquare Investment Management, which focuses on real estate. “If the economy softens, [it's all over].”'

4. Netflix faces impending doom

The video streaming/cord-cutting pioneer has less than 180 days to answer to a new competitor.  Disney is launching its video streaming platform, Disney+, and it will undercut Netflix's subscription pricing *and* pull all of its content out of Netflix.  We are talking all of Marvel, Pixar Animations, Star Wars, ESPN, NatGeo, Modern Family, The Simpsons, and all the classic characters like Mickey Mouse and Donald Duck.

Content is king, and Disney is still the king of content, for better or worse.

5. Tight driver market can bring autonomous trucks sooner

There's actual interesting development within autonomous vehicles, and it has nothing to do with Uber.  The US Postal Service, working with startup TuSimple, is testing self-driving trucks to deliver mail across Arizona, New Mexico and Texas.  USPS expects the technology to improve delivery times and costs, noting severe driver shortages and regulatory constraints among interstate freight haulers.

Amazon faces a similar issue, but is proposing a totally different solution: offering its own employees $10,000 to quit and become its delivery drivers.  

If anything, this suggests that maybe the coming robot apocalypse is just a tad overhyped.  In the future, *we* will be the robots.

Siri, what is survivorship bias?

So this pic went viral on Twitter today.  Aside from a misleading case of survivorship bias, it also completely ignores the big breaks that each founder caught.  Malcolm Gladwell even wrote an entire book about it, and it was so popular that even I read it.

Not saying we all could succeed "if only we had that rich uncle", but there's no need to belittle our own limitations; in most parts of the world, the economy is propelled by small businesses.

Thread below explains it well:

Jeff Bezos' parents lent him $250k to start Amazon pic.twitter.com/O4HA9qEVr0

— Historic.ly (@historic_ly) April 21, 2019

What's really up with Venezuela?

"I personally believe that US Americans, like the Iraq, and South Africa, don't have maps"

I haven't written about what's happening in Venezuela, except for that time when I showed the John Oliver episode below (featuring a somehow-not-too-funny Wilmer Valderrama and a very sassy Popeye), or when John Bolton strangely pointed at Venezuela in his axis-of-evil-redux speech.  Despite my best effort, it's just annoyingly difficult to find an expansive writeup that doesn't just dwell on mistakes of recent past. So recently I read an excellent article on the crisis that not only gives nuanced historical context (beyond "people are eating rats because socialism") but also elaborates as to why we should pay attention to it.

So isn't Venezuela just a basket case of crazy people with ass-backwards ideology and no money? 

As usual, the answer is a bit more complicated.  The hometown of Simón Bolívar brewed a perfect storm, mixing a potent concoction of corruption and gross economic mismanagement in a monumental scale.  However, when we dig deeper, surprisingly certain key factors are wholly unrelated to the Chavismo ideology.

Dr. Nafeez Ahmed, former investigative journo for The Guardian, sees Venezuela as symptomatic of the end of the oil era. It's not that there's no more oil (remember "peak oil", from like ten years ago?); in fact the shale revolution in North America means there's "enough oil to fry the planet". It's just the economics of oil have been upended, and Venezuela's 32mn population is the first large-scale victim.  The country's crude production peaked in 1997 at 3.5mmbopd; over the last two decades, output continued to fall to just 1.0mmbopd in February, or 72% drop (!!), according to OPEC.

Looking back 50 years ago, Venezuela was a notable US ally with a dynamic and flourishing economy. As Latin America experts Moises Naim and Francisco Toro explain on Foreign Affairs:

"[1970s Venezuela boasted] a stronger social safety net than any of its neighbors and is making progress on its promise to deliver free health care and higher education to all its citizens. It is a model of social mobility and a magnet for immigrants from across Latin America and Europe. The press is free, and the political system is open; opposing parties compete fiercely in elections and regularly alternate power peacefully. It sidestepped the wave of military juntas that mired countries in dictatorship. Thanks to a long political alliance and deep trade and investment ties with the United States, it serves as the Latin American headquarters for a slew of multinational corporations. It has the best infrastructure in South America. It is still unmistakably a developing country, with its share of corruption, injustice, and dysfunction, but it is well ahead of other poor countries by almost any measure."

The 1973 OPEC oil embargo and the price shock brought wealth to Venezuela -- which by then was producing and exporting well over 3mmbopd -- but even then, technocrats saw plenty of red flags.  Oil minister (and OPEC co-founder) Juan Pablo Pérez Alfonzo presciently warned in a prophetic 1976 speech, "you will see, oil will bring us ruin... [oil] is the devil's excrement,"  foreseeing the pains that his country will suffer from.

Sure enough, crude prices normalized in the next decade, and the economy's rapid growth quickly came to a halt. Lower petroleum revenue meant cuts in public spending, scaled-down social programs, runaway inflation, a banking crisis, and mounting unemployment and hardship for the poor. The heavily indebted country faced currency devaluation and was forced to seek bailout from the now-infamous International Monetary Fund (IMF) in 1989. The lender imposed austerity that further crippled the economy and worsened everyday life.

Eventually this lead to the rise of Hugo Chávez, a populist demagogue who vowed to bring economic and social justice to the downtrodden, who lead an unsuccessful coup in 1992 and won presidency in 1998.  By then, the economy was limping along, as oil prices slumped to just $11, emptying the government coffers.  Chavez' brilliance was in mining discontent: he eloquently stirred public opinion against inequality, poverty and corruption of the political elite. For support, he turned to Cuban dictator Fidel Castro, offering oil (over 150,000 barrels/day at discounted prices -- over $1bn in value every year) in return for skilled professionals (brain drain was well underway) and political cover.

After Chavez' passing in 2013, his handpicked successor Nicolás Maduro deeply curtailed economic freedoms and erased all traces of liberalism from the country’s institutions. He expanded Chávez’s practice of jailing or exiling opposition leaders.  Other than Cuba, Maduro also deepened alliances with anti-Western regimes, turning to Russia for weapons, cybersecurity, and expertise in oil production; to China for financing and infrastructure; to Belarus for homebuilding; and to Iran for car production.

Fast forward to today: more than three million Venezuelans have fled the country (mostly towards Colombia and Brazil) in search of a better life as its once-robust oil industry collapsed, the bolivar currency loses value due to hyperinflation, and life savings were depleted.  Widespread shortage of food and medicines was inevitably followed by an unchecked wave of violent crimes including robberies and kidnappings.  In the last five years, real per capita income shrunk by 40% – a peacetime decline that parallels those seen in recent wartime Iraq and Syria.  Just this month, the country's electrical grid failed, causing prolonged power and communication blackouts.  Fifteen dialysis patients died, and foods went stale due to the heat and lack of refrigeration.  Maduro, naturally, blames the blackouts on an "international cyber-attack" by the United States.

Although poverty, corruption and economic crises are quite common in South America’s various republics, Venezuela's sensational decline into a failed state “eclipses anything witnessed in decades”, according to British newspaper The Independent.

So what's really the culprit?

Source: Council of the Americas

Economics of Heavy Oil

Ahmed writes that while failed socialist experiments, corruption and neoliberal capitalism are all implicated in various ways, no one is talking about  how the world has shifted into a new era over the last decade or so. From largely drilling cheap, easy crude in the Middle East, we are now  dependent on "unconventional" fossil fuels that are much more difficult and expensive to produce. As a result, the highest cost producers have become increasingly unprofitable.

Venezuela's product is categorized as "heavy oil", a highly viscous liquid that requires unconventional techniques to extract and flow, often with heat from steam, and mixing with thinners or lighter forms of crude in the refining process. Heavy oil thus has a higher cost of extraction than normal crude, and a lower market price due to the refining difficulties. This isn't any fault of Venezuelans; it's just a fact of geology.  Where Venezuela is at fault, they don't even try to make production efficient: gas byproduct is flared instead of captured, where it can be (and is widely) used for power generation. 

When oil prices were at their peaks between 2005-2008, Venezuela was able to weather the inefficiencies and mismanagement in its oil industry due to much higher profits thanks to crude prices of US$$100-150/bbl. At today's US$60-70/bbl, the country's production becomes unprofitable and unsustainable.  Adding insult to injury, the Trump administration's August 2017 sanctions severely restricted national oil company PDVSA's access to financing, a difficult problem given Venezuela's highly-levered economy (110% debt-to-GDP).  Economist Fransisco Toro wrote that the sanctions made any dealing with Venezuela toxic, and slams the door shut to any Western diplomatic rapprochment to the Maduro regime.

This US policy greatly exacerbated the economic and humanitarian crisis; in fact, former UN rapporteur Alfred de Zayas criticized the US for engaging in “economic warfare”.  He declared that “sanctions are killing Venezuelans”, they fall most heavily on the poorest people in society, demonstrably cause death through famine and malnutrition, are aimed at illegally coercing "regime change", and lead to "crimes against humanity" under international law.

Climate Change

Pico Humboldt: 4,940m above sea level

Over the past two decades, Venezuela has experienced severe and persistent drought, including the 2013-16 period when rainfall was lower by 50-65% than the recorded historical average.  In 2016 water levels reached within five meters of a dead pool at the Guri Dam, the nation's largest hydroelectric facility (around 70% of the country's electricity is generated by hydropower), causing months of blackouts in and surrounding Caracas. This is caused by the El-Niño Southern Oscillation, the fluctuation in the climate system comprising a cycle of warm and cold sea-surface temperatures in the tropical Pacific Ocean -- a well-documented phenomenon going back to the 17th century -- which has increased in intensity due to climate change.  Piled on top of the devastating effects of the country's mismanagement, these shortages adversely affect agricultural output.

The country has also lost, or in the midst of losing, all of its glaciers, including its iconic Pico Humboldt at Merida, threatening an important source of freshwater.

Professor Juan Carlos Sanchez, Nobel laureate for his work with the Intergovernmental Panel on Climate Change (IPCC), says Venezuela is extremely susceptible to climate change because 75% of the population reside along coastal lines and unstable terrains, such as in the Zulia, Miranda, Carabobo and Aragua states. Throughout the 20th century, the average temperature in the country rose by up to 3°C, making these areas vulnerable to rising sea levels.  Short-term effects include increasing frequency of extreme weather events, like torrential rains, massive flooding and mudslides, droughts and hurricanes -- all of which we are already witnessing.  There are also alarming outbreaks of infectious diseases: vector-borne malaria, Zika, and dengue fever are up 400% over the last decade.  However, his long term predictions are ominous:

"Big parts of already-dry Falcon, Sucre, Lara and Zulia states, including the north of the Guajira peninsula, can expect desertification: the permanent degradation of the land and its capacity to carry crops, as a result of insufficient water. The pabellón criollo and even the iconic arepa are at risk: land degradation and decreased rainfall could make it difficult to impossible to grow corn, black beans and plantains in much of the country.  In general, water will become scarce in the coming decades as it will rain less over the country – in some regions up to 25% less than what they see today."

Warning to Humanity

When Ahmed underlines the rising cost of oil production, he isn't singling out Latin America.  Even in North America, where the energy industry is enjoying a renaissance at the Permian and Bakken fields, most of the companies have yet to show any profits whatsoever.  In fact, exploration activities are artificially sustained by the availability of cheap debt and private equity funding; market observers expect the bubble's burst is not so far away.

Of course, the cost cannot just be measured in US$ terms.

When we study the Venezuelan case, we begin to understand the impact of our civilization's addiction to fossil fuels and how it affects the Earth.  Very often, city dwellers and policymakers gobble up finite resources, demanding higher and higher amounts of energy in the name of "economic progress" without understanding its source and the toll that society pays to provide it.  Some may call it the "resource curse", or "paradox of the plenty".  Are renewables the solution?  Perhaps, or perhaps not, but at least it's time for the world to study and discuss the science in earnest, instead of stubbornly sticking to one's ideological grounds.

In Venezuela, we are seeing in real-time what happens when mother nature pushes a nation to its breaking point, to the brink of unraveling into a failed state.  If I am to offer one prediction: it won't be the last in our lifetime.  

What do Elizabeth Warren and Prophet Muhammad have in common?

The recent World Economic Forum 2019 in Davos brought fame to one Rutger Bregman, a Dutch historian and author on history, economics and politics.  In his viral speech about inequality, he told the forum that taxes -- specifically, equitable treatment of taxes and ensuring the rich pays their fair share -- is the only real way to eradicate poverty, while "all the rest is just bullshit".

Around the same time, 2020 presidential hopeful/Harvard law professor Sen. Elizabeth Warren (D-MA) announced her proposal for a wealth tax of 2% on fortunes above US$50mn (and 3% above US$1bn), under a scheme co-formulated by renowned French economist Thomas Piketty, to stop spiraling inequality, curb poverty, and address the balooning sovereign debt problem.  This is a novel idea, since tax is typically collected on flows (i.e. income), but not on accumulated assets -- putting the burden on the working class who pays payroll tax and letting those with passive income mostly off the hook.

I'd argue that in what many consider the backwoods area of the Middle East, a certain leader has the same vision.

That leader is Prophet Muhammad (pbuh), who lived in the 6th century AD Arabian peninsula.

Disclaimer: I am not preaching to impose sharia law to anyone.  Zakat is a policy that would be suitable for many Muslim countries, but otherwise needs to be voted on by a nation's citizens.  Nevertheless, let's take a peek what it prescribes -- there's quite a bit to digest.

What is Zakat?

Zakat, or alms-giving, one of the five pillars of Islam, is a religious obligation for all Muslims who meet the necessary criteria of wealth.

Some texts equate zakat to "tax", but there is an important distinction. Tax in its modern form is a form of government revenue; proceeds are used to fund government spending and capital expenditures. Zakat has purely social functions; according to Islamic doctrine, proceeds are to be paid only to (i) the poor (i.e. no income whatsoever), (ii) the needy (i.e. cannot meet basic needs), (iii) those who collect zakat, (iv) those who are interested in Islam, (v) to free from slavery, (vi) for debt relief, (vii) those in the cause of Allah and (viii) to benefit the stranded traveller.

The amount of zakat is calculated by the amount of wealth one owns. The customary amount is 2.5% p.a. on the assets owned for over one year, in excess of a certain minimum level ("nisab").  According to Majlis Ulema of Singapore, the current level of nisab is approx S$4,900 (US$4,000).  Note that it's assets owned for over a year, so if you're living paycheck-to-paycheck, your income is likely not subject to zakat requirements.

If this all rings a bell, this is basically Warren's wealth tax, but that much more inclusive and with a specific emphasis on eradicating poverty and alleviating hardship.

Focus on basic needs

Going back to Bregman, he argues against philanthrophy: sure, the Gates foundation sponsors well-intentioned research to cure HIV and malaria, but for every Bill Gates, there's a Steven Schwarzman who in 2015 "donated" $150m for a new concert hall at Yale, or a Charles Koch spending tens of millions to conservative PACs during every election cycle.  Bregman's argument is that for the most cases, philantrophy is misdirected because the rich rarely if ever understands the needs of the less fortunate.

In an article for the Guardian (and told in his TED talk above), Bregman highlights a research by social psychologists showing that poverty affects cognitive function, and makes the argument for universal basic income.  He writes as follows, and I quote at length:

"It all started when I accidently stumbled on a paper by a few American psychologists. They had travelled 8,000 miles, to India, to carry out an experiment with sugar cane farmers. These farmers collect about 60% of their annual income all at once, right after the harvest. This means they are relatively poor one part of the year and rich the other. The researchers asked the farmers to do an IQ test before and after the harvest. [...] The farmers scored much worse on the tests before the harvest. The effects of living in poverty, it turns out, correspond to losing 14 points of IQ. That’s comparable to losing a night’s sleep, or the effects of alcoholism. 

A few months later I discussed the theory with Eldar Shafir, a professor of behavioural science and public policy at Princeton University and one of the authors of this study. [According to Shafir] people behave differently when they perceive a thing to be scarce. What that thing is doesn’t much matter; whether it’s time, money or food, it all contributes to a “scarcity mentality”. This narrows your focus to your immediate deficiency. The long-term perspective goes out of the window. Poor people aren’t making dumb decisions because they are dumb, but because they’re living in a context in which anyone would make dumb decisions. 

Suddenly the reason so many of our anti-poverty programmes don’t work becomes clear. Investments in education, for example, are often completely useless. A recent analysis of studies on the effectiveness of money management training came to the conclusion that it makes almost no difference at all. Poor people might come out wiser, but it’s not enough. As Shafir said: “It’s like teaching someone to swim and then throwing them in a stormy sea.” 

So what can be done? Modern economists have a few solutions. We could make the paperwork easier, or send people a text message to remind them of their bills. These “nudges” are hugely popular with modern politicians, because they cost next to nothing. They are a symbol of this era, in which we so often treat the symptoms but ignore the causes."

He notes a Canadian city that experimented with universal basic income in the 1970s, ensuring nobody fell below the poverty line.  The results, he says, was a resounding success:

"[...] school performance of children improved substantially. The hospitalisation rate decreased by as much as 8.5%. Domestic violence was also down, as were mental health complaints. And people didn’t quit their jobs – the only ones who worked a little less were new mothers and students, who stayed in school longer. 

So here’s what I’ve learned. When it comes to poverty, we should stop pretending to know better than poor people. The great thing about money is that people can use it to buy things they need instead of things self-appointed experts think they need. Imagine how many brilliant would-be entrepreneurs, scientists and writers are now withering away in scarcity. Imagine how much energy and talent we would unleash if we got rid of poverty once and for all."

Wealthiest members of 2018 US Congress - Source: Roll Call

Because politicians have no experience in poverty (e.g. ~50% of US congress comprises of multimillionaires), because of the outsized political influence of the wealthy, today’s populist insurgents are more concerned with immigration than with the top income tax rates, whereas social policies have only touched on the margins.  We saw this symptom during the 2018 debate for Affordable Care Act replacement: pundits offered concepts like the "health savings account", which insulted those who can't cope with constantly rising costs.  Or in billionaire/commerce secretary Wilbur Ross' insensitive suggestion during the recent government shutdown that furloughed federal workers should "just get a loan". 

Basic needs -- money, food, and shelter --  are the things the poor really needs, everything else is just gravy.  This is why bringing electricity to the most impoverished town in Rwanda didn't really change lives for the better.   On the other hand, food stamps -- one of many social programs politicians dream of cutting -- have been proven to put poor kids on the right path to success in adulthood.  In Islam, zakat is payable and distributed only in cash or basic foodstuffs (rice or grains). As only after the fundamentals are fulfilled, can more advanced social programs (e.g. education, public health, entrepreneurship) bring effective and measurable results.

What is an Inverted Yield Curve?

The yield curve inverted in 1989, in 2000 and in 2006.

Recessions occurred in 1990, 2001 and 2008 https://t.co/KeuvkAXFU8 pic.twitter.com/WrZ33XUcG5

— Bloomberg Opinion (@bopinion) January 4, 2019

In the past 60 years An inverted yield curve was a perfect indicator of US recessionshttps://t.co/ZPT8qwA1re

— François Bégin (@fpbegin) January 10, 2019

If you ever read Bloomberg, WSJ, or put on Bloomberg TV or CNN Finance (big fan of Julia Chatterley here), you've probably heard about the dreaded Inverted Yield Curve.  It's supposed to be this super-scary finance thing that shows the world is coming to an end.

So what is it, and why does it really show?

What is a Yield Curve?

The yield curve compares the returns ("yields") on bonds by the same issuer over different maturity periods.  99% of the time, people talk about the yield curve of the United States Treasury (UST) notes, because banks and governments use UST as the safe haven and universal store of value.

UST yields typically move depending on investors' confidence.  When the economy is doing well, investors take money out of USTs and into riskier, more profitable assets.  Prices of USTs go down, or their yields go up.  Conversely, when the economy is shaky, investors are cautious and would rather keep money in risk-free USTs, driving prices up and yields down.

(Normal) Yield Curve, per May 2018

The normal shape of the yield curve is positive, an increasing (hyperbolic) curve.  This implies that  for the same issuer (e.g. US government), investors still demand a premium to put money in long-term (e.g. 10-year vs 2-year) bonds.

Curse of the Inverted Yield Curve

That's in normal economic times. A few times in the past 50-years, the yield curve gets inverted, i.e. the spread between US10Y vs US2Y goes to zero or even negative.  This means, investors want to put money in long-term risk-free notes, because they're pessimistic on near-term investment opportunities and would rather not lose principal.  Conventional wisdom says this is a robust sign of a recession -- typically a severe one.  For instance, spreads went negative during the 1979 energy crisis, 1990s Iraq war, 2000 dotcom bubble crash, and 2007 global financial crisis.

Negative spreads in the past 50 years

On the flip side, there are some contrarians, like John Mauldin, who argue that inverted yield curve suggest investor overreactions, and that it either (i) is an indicator that's way too early, or (ii) presents opportunities for substantial gain.

What are other signs of recession?

Some other leading indicators are the VIX index (the "fear" index: it's actually just a futures contract for global market volatility).  Some countries also publish PMI (producers manufacturing index) and CCI (consumer confidence index), which are widely accepted leading indicators for the strength of their economies.  There are some unconventional measures as well, such as the skyscraper index (e.g. if a region builds way too many skyscrapers e.g. Dubai, then it's bound to hit a recession).

Hence, Yield Curve Inverted in December #VolQ pic.twitter.com/aGaOGH3WRF

— Volatility Quant (@VolatilityQ) January 9, 2019

So does that mean the world will end in 2019?

Yes, duh! Did you read anything I've wrote this far?

As you can see in the chart above, spreads hit negative in December. But even looking at the 50-year trend, cyclical recessions tend to happen every 8-10 years, and the last one hit in December 2007.  Since then, the Dow Jones Industrial Average has soared from 6,600 up to 25,000+ in 2018.  So recession is probably way past due.  

Perhaps it has something to do with, I don't know, US$14tn of quantitative easing (QE) by the Fed, ECB, and BoJ, and Zero Interest Rate Policy (ZIRP), flooding the world with liquidity?  Not to mention the 2018 Trump tax cuts, basically adding a US$2.3tn sugar high to an already overheated economy -- leaving behind some US$22tn of US public debt and a central bank with no good tool respond to slowdowns.  So the question is whether irrational exuberance can continue to overcome gravity, or if what goes up must eventually come down.

Dow Jones Industrial Average, 2008-19

In any case, as wise-ass John Maynard Keynes once said, the market can stay irrational longer than you can stay solvent.  If I could accurately predict the markets, I would make so much $$$ so I could be chillin' on a beach in Tora Bora with Gal Gadot, instead of sitting here blogging for my two followers (six if you include Russian bots).

Quantitative Easing, 2008-18

Further reading

Enjoy! (No, I haven't read the below)

3) An inverted Yield curve has historically preceded recessions by 0-18 months and is considered a more short term indicator. The current yield curve is on it's way to being inverted within the next 3-6 months if trends continue. pic.twitter.com/44wyDmnx5I

— Vince Jansen (@Vince_R_Jansen) January 9, 2019

Wakanda-nomics, or the "Resource Curse"

"If you say one more word, I will feed you to my children.... I'm just kidding, we're vegetarians."

So I saw Black Panther back in April, and I took the time to watch it again on cable -- it really was that good.  Especially for a Marvel flick, BP easily surpassed the Avengers: Infinity War -- which I expected to be bad, but it exceeded my expectations.  What was really the point of IW, other than to make way for future sequels?

It was a stupid movie, with zero plot development whatsoever.

Anyways, back to Black Panther, the premise is quite intriguing: in the fictitious African country of Wakanda, an ample supply of super-rare metal "vibranium" (which fell to earth in an ancient meteor strike) blesses the nation with enormous wealth and the most advanced technology in the world. Having never succumbed to hostile outside forces, Wakanda has been free to develop its economy in complete isolation from the outside world.

The "Resource Curse"

So that's Hollywood. 

Now look at the real world: history is littered with economies that never escaped the Resource Curse (aka "Dutch disease"), where mineral riches keep a country poor by crowding out value-additive sectors or ushering in corrupt/predatory/totalitarian regimes.  Of course some have fared okay -- typically if they made their natural discoveries later in their economic development: Norway, which started developing its massive natural gas reserves in the 1970s, comes to mind; also Botswana, one of the largest producers of diamonds.  Angola, with its game-changing crude oil discovery in the 1960s, still struggles to diversify away from petroleum, but it has thriving young population and democratic political stability.  Angola's fate is a stark contrast to its neighboring Democratic Republic of Congo, which is:

• most famous for its longtime president Mobutu Sese Seko (dubbed "the archetypal African dictator"), with his lavish palace in the jungle, and the great war that beset most of sub-saharan Africa between 1997-2003, killing over five million and displacing many more.
• remains not very democratic to this day (despite its name change from previously Zaire), earning the "semi-presidential authoritarian dictatorship" status from Freedom House, under current president Joseph Kabila, who stirs ethnic violence for political gains. 
• endowed with world-leading natural resources, including cobalt, an important material for batteries powering future electric vehicles
• Despite the mineral wealth, the Congolese are among the world's poorest people, consistently having the lowest nominal GDP per capita in the world. The DRC is also one of the twenty lowest-ranked countries on the Corruption Perception Index.

 Ouch.

General Mobutu's palace in DRC, ransacked and reclaimed by the jungle

Other examples abound, as the Economist writes, "centuries of copper mining have only raised Chile [with its largest copper reserves on earth] to the level of Kazakhstan and Croatia in purchasing-power terms.  Indonesia's world-beating endowments of gold, coal, nickel, tin and copper have resulted in an income per capita somewhere between Albania and Tunisia."  Notably, resource-rich countries with large populations (e.g. Congo, Chile, Brazil, Indonesia) tend to do worse than those with smaller, more manageable population (Norway).

So how can countries escape the resource curse?  Again, it's worth taking lessons from renowned political scientist Stan Lee:

Upstream and downstream investment around natural resources

It is very tempting for resource-rich countries to be satisfied exporting raw ores, fattening their elites while citizens remain hungry.  Wakanda, on the other hand:

[...] not only mines vibranium but designs and builds a dazzling variety of downstream applications. They include a nano-tech panthersuit that absorbs blows and bullets, then echoes the energy back against its source. [...] The applications extend to weaponry and transport, such as the royal talon fighter that zips from Wakanda to Oakland, California, and the vibranium rail above which high-tech chariots levitate.

“Wakanda’s upstream, midstream and downstream mineral sector are entirely controlled by Wakanda itself,” points out Nicola Woodroffe of the Natural Resource Governance Institute, a think-tank in London. It is as if Botswana not only mined, cut and polished diamonds, but also designed and produced the world’s diamond necklaces, drills and bearings. It is as if Norway had a monopoly on oil, petrochemicals and plastics.
This is actually harder in real life: Countries blessed with natural resources are not always blessed with labor, capital, skills and infrastructure required to succeed further down the production chain. The best place to cut and polish diamonds is not Botswana, with its [small] population of 2.3m, but coastal India, which can bring many more hands to bear.

Economic diversification

For example, diversifying away from oil is a major tenet of Saudi Arabia's Vision 2030 program (lord only knows what's gonna be left of this one).  While many leaders talk about broadening their economies, it's very hard to adopt new skills, and build up industries, instead of just keep taking things from the ground. Writing about Africa for Brookings, Mariama Sow and Amadou Siy explains:

[...] mineral exports made up more than 90% of exports in Equatorial Guinea, Nigeria, and Angola. In addition, the high dependence on oil exports in certain African countries has led to misaligned exchange rates, the decline of non-resource sectors, political authoritarianism, conflict, and economic inequality.

While none of the countries cited above mirror Wakanda’s isolationism, the fictional country shares many similarities with Norway and Botswana. Indeed, in the real world, such a fate is not inevitable in every resource-rich African country. For instance, Botswana [...] has not fell victim to the resource curse and has done so by implementing a three-pronged method, as highlighted in a 2012 African Development Bank brief. First, Botswana pursued economic diversification—although with mixed success. Second, the country established a fiscal rule that separates expenditures from revenues and thus shields expenditures from fluctuations in diamond prices. Third, it invested diamond revenues for the use of future generations—using a sovereign wealth fund called the Pula Fund.  Outside of Africa, Norway has been praised for its management of natural resources, largely based on the investment in its sovereign wealth fund. In addition, Norway spends 4% of the fund on public projects. In the comics, [Wakanda] sets aside a generous portion of vibranium revenue to create a social safety net.

In addition, while oil and diamonds are not as versatile as vibranium and cannot be used individually to promote the technological advancement of resource-rich African countries, there exists a space for the revenues they generate to be reinvested in technology and manufacturing, among other sectors.

Leadership matters

Some nations have the great luck to be lead by FDR, or Lee Kwan Yew.  Others are stuck for decades with Robert Mugabe, Gaddafi, Chavez/Nicolás Maduro, or Saddam Hussein.  So the lesson to draw from Black Panther is that while mineral deposits can bring in wealth, on their own they're not enough. The real wealth of Wakanda wasn't vibranium, but its good governance.

Recently colonialism is back in style -- not the Vasco de Gama/Chris Columbus western imperialism -kind, but the "soft power" debt trap -kind.  China's Belt and Road Initiatives aim to massively build up global infrastructure to secure raw materials and logistics to ensure the country's manufacturing supremacy. The Communist Party especially likes to prey on nations ruled by authoritarian leaders or one-party rules, with lackluster checks and balances, or distressed economies with no other viable alternatives: so far there's several parts of Africa (Zambia, Djibouti), South Asia (Sri Lanka, Pakistan), Europe (Greece) and South America (Venezuela), who else wants to be a Chinese (economic and military) colony?

So we shall see during the next US election cycle, where in lieu of a boring debate, Joe Biden challenges Trump to a deathmatch next to a waterfall.