@GSElevator" – #1: [At the gym] What machine should I use to impress the girls?
#2: The ATM.
1. Quote Of The Week / 2. Unlock The Philippines Potential To Boost Economic Growth? / 3. What I'm Reading / 4. Joke Of The Week
1. QUOTE(S) OF THE WEEK
Selected quotes from management this earnings season:
Confidence is still weak in many areas…like resources
“When we were sitting here a quarter ago, we were expecting sales in a range of $40 billion to $42 billion…We’ve taken that down…And the gist of that is just everything that we’re seeing in the economy today around the world…It’s not any one thing, I would say…we have sluggish economic growth throughout the world in general, but not enough to drive growth in our end markets. And the news we’ve seen over the last few months is definitely not giving us more confidence.” —Caterpillar VP Michael DeWalt (Construction)
…and Venture Capital markets are still soft
“[capital raises] were dominated by a small number of very large rounds to late-stage private companies. At the same time funding to early stage startups…Concern over late-stage valuations and uncertainty in the markets continue to weigh on IPO prospects…As you can hear from our remarks our innovation market is still a little bit soft.” —Silicon Valley Bank CEO Greg Becker (Bank)
There are signs that hiring has slowed
“clients remain cautious. There’s less sense of urgency…the U.S. economy is slugging along in the 1% to 2% GDP path that it has for some time, but as clients have gotten more cautious, our growth rates have slowed.” —Robert Half CFO Keith Waddell (Temp Staffing)
But so far companies aren’t seeing much impact from Brexit
“As I said, we have no strong signs of Brexit so far.” —Volvo CEO Martin Lundstedt (Automobiles)
“Trade is still occurring and we’re executing for our customers. While the UK has new leaders in place, trade in some form or fashion will continue regardless of the direction that new government takes, so we aren’t really concerned from that perspective.” —CH Robinson CFO Andrew Clarke (Third Party Logistics)
“There is no reason for us to change the strategy in Europe based on the outcome of the Brexit. No reason for us to do that.” —3M CEO Inge Thulin (Industrial)
And nothing is as bad as Venezuela though
“In Venezuela, severe shortages in certain raw materials resulted in us temporarily suspending production at the bottling partners’ plants during the quarters…the most extreme example perhaps is Venezuela, where there was no sugar.” —Coca Cola COO James Quincey (Beverage)
Ultimately you have to accept that the investment environment is what it is
“15 or 18 years ago I wrote a memo called that is what it is, in which I said the investment environment is what it is, if we give in, we can’t change it and we can’t order up the new one, we have to work within it and this investment environment offers us lower prospects than ever…10-15 years ago 10% looked like a modest accomplishment, now it looks like nirvana… you have to be modest about your expected returns and modest about the amounts you can manage. The one thing you can’t do is say well, the capital market line is lower but I want the same returns I used to get with the same risk on the same amount of money.” —Oaktree Chairman Howard Marks (Asset Management)
Here’s a more comprehensive list.
2. CAN THE PHILIPPINES’ NEW PRESIDENT UNLOCK THE COUNTRY’S POTENTIAL TO BOOST ECONOMIC GROWTH?
In stark contrast to China’s demographic headwinds, the Philippines is endowed with substantial demographic tailwinds, owing to cultural and religious factors. The Philippine population has grown 65% in just a quarter century, from 62 million in 1990 to 102 million in 2015, and rapid growth is likely to continue for decades. According to estimates by the Philippine Statistics Authority, the population could grow another 40% to 140 million by 2040, implying that the country could benefit from a rising working-age population until the middle of this century, while most of the world’s economies will be trapped by relentlessly-aging demographics. By 2045, the working-age population is expected to reach 68% of the total, an increase from 2010’s level of 62%. Nevertheless, if there are not enough jobs available for this fast-growing population, the demographic dividend could be wasted.
Despite its fast-growing economy and population, the Philippines now has the highest unemployment rate in emerging Asia. Unemployment stood at 5.8% in the Philippines at the beginning of 2016, compared to 4.0% in China, 2.3% in Vietnam, 5.5% in Indonesia, 3.5% in Malaysia, and 1.0% in Thailand.
The Labor Force Participation Rate (LFPR), which measures the share of the working-age population working or looking for work, has fallen to crisis levels. In January 2016, the LFPR dropped to 63.4% — not far from the 63.3% registered in January 2009, during the Global Financial Crisis (GFC) — the lowest LFPR in over 30 years, since averaging 62.9% annually during the 1981- 1985 economic crisis during the closing years of the Marcos dictatorship. This explains why there are still so many Filipinos working overseas, mostly in service-sector jobs.
Unfortunately, the country’s prior leadership had adopted an adversarial approach with China on territorial disputes, rather than turn its geographic proximity into an advantage. This is best exemplified by its tourism industry. The Philippines should be a natural beneficiary of China’ tidal wave of overseas tourism, given the roughly five-hour flight time to major Chinese coastal cities. In recent years, China has become the top source of foreign tourists in many neighbouring states, such as Japan, South Korea, Thailand, and Indonesia. However, China market share of tourists to the Philippines was less than 9% last year, only the third-largest source of foreign tourists to the island nation.
In 2015, over 10 million Chinese tourists visited Southeast Asian countries, with Thailand alone attracting 8 million, up tenfold since 2009. During the same period, however, the number of Chinese tourists to the Philippines increase to only 0.49 million.
More recently there have been developments which suggest that a major change in the relationship between Beijing and Manila is in the works. Last month, during an ASEAN summit Chinese Foreign Minister,
Wang Yi, reportedly said the following to U.S. Secretary of State, John Kerry: “China and ASEAN had agreed the dispute should get back onto the ‘correct’ track of being resolved by direct talks with the parties concerned…China hopes the U.S. side takes actual steps to support the resumption of talks between China and the Philippines, and support the efforts of China and ASEAN to maintain regional peace and stability.” Last weekend, the South China Morning Post reported that China withdrew missiles from one of the South China Sea islands two days ahead of the ruling on the disputed waters. This is widely interpreted as a friendly signal from Beijing to the neighbouring states in the region, especially the Philippines.
Earlier, , Fidel V. Ramos, the 88-year-old former president who has maintained a good, albeit unofficial, relationship with the Chinese side since his presidency ended in 1998, was interviewed by China Daily, China’s official English-language newspaper. During the interview, Ramos said he would urge President Duterte to meet with Chinese President Xi Jinping in person during the coming year.
Duterte said that he is open to setting its legal victory aside to resume bilateral talks with China, adding that Ramos’ suggestion can help enrich the southern Philippine island group of Mindanao: “If we can just have a settlement with them despite the arbitral judgment, I think that we can get many benefits…we are planning to establish economic zones and farm-to-market roads…It is China that has money, not America. America doesn’t have money”.
The new President appears to be taking a very practical approach by setting territorial disputes aside, similar to the Chinese leadership’s solution to the disputed territory problem with Japan nearly 40 years ago, when the country began to “open-up.” In October 1978, when China’s then-Vice Premier, Deng Xiaoping visited Tokyo, he said before the signing ceremony of the Treaty of Peace and Friendship: “It’s not that China and Japan do not have any problems. For example, there are the Diaoyu Island and continental shelf issues. Don’t drag them in now, they can be set aside to be calmly discussed later and we can slowly reach a way that both sides can accept. If our generation cannot find a way, the next generation or the one after that will find a way.”
Deng’s proposition was well received by both the Japanese side and Chinese side, and afterward, Japan became China’s most important trading partner for more than two decades. Time will tell if the on-going thaw between Beijing and Manila, facilitated by Ramos will lead to a similar change in the Philippines.
3. WHAT I’M READING
Ego is the enemy [Ryan Holiday]; Bill Gross investment outlook [Janus Capital]; What happened to Yahoo? [Waiters Pad]; How China became the world's e-commerce king [TheDrum]; Why Uber "gave up" in China [Bloomberg]; Elon Musk opens the Tesla giga-factory [YouTube]; Where are the academic finance billionaires? [financial-math.org]; The Bridgewater Associates story keeps getting weirder [NYTimes]; A talk with Antonio Garcia-Martinez author of “Chaos Monkeys: Obscene Fortune and Random Failure in Silicon Valley" [Wharton]; Bill Gates giving the Mandela lecture [Gates Notes]; Why golf is back at the Olympics [The Economist].
4. JOKE OF THE WEEK
