Stock markets are shrinking


deflating duck

  • The US stock market has de-equitised, a fancy term that basically means that companies are buying more shares than they are issuing, every year since 2011. It’s shrunk 2.3% since 2018.
  • This is natural, according to Citigroup strategists led by Robert Buckland. "This is a rational response to a radical shift in the cost of equity and debt financing," the team said in a note.
  • Meanwhile, a second equity market, one for private equity, is growing just as the public market is shrinking.

The stock market is shrinking. 

More specifically, the US stock market has shrunk by 2.3% since 2018, according to Citigroup strategists led by Robert Buckland, adding to shrinkage in every year since 2011. In the UK, the stock market has shrunk 3% since 2018, meanwhile. 

This shrinkage, or de-equitisation, is a result of companies buying more shares than they are issuing.

Why are stock markets shrinking? Here’s what’s going on:

Buybacks: Yes, companies are spending lots of money on buybacks. Buckland et al say that 3% of the US stock market was redeemed in 2018. Debt is cheap, and equity is expensive. The cost of debt in the US is 4.1%, while the cost of equity is 6.7%, according to Citigroup. In the UK, the contrast is even more striking, with a 4.6 percentage point spread between the cost of equity and the cost of debt. So buying back equity enhances earnings per share, both in reducing the share count and reducing the overall cost of funding. 

M&A: There’s been a bunch of big-ticket M&A of late, with much of that financed through debt. Think of it this way: Company X is worth $10 million and borrows the money to buy Company Y for $5 million. This, again, leads to de-equitisation, as it reduces the total amount of shares on the public market. (Also, reminder, M&A often destroys value.)

IPOs: Private companies are waiting longer to go public (see Uber), while there’s a surplus of venture capital and private equity dry powder, or cash waiting to be invested in private companies. That’s meant that the flow of private companies on to the stock market via initial public offerings has slowed in recent years. 

Capex: Big companies used to issue equity to finance big capital expenditures, like a new plant or mine. But these investments have (1) been more muted in recent years, given a weak and volatile global economy following the Great Recession and (2) been financed with cash flow and/or, you guessed it, debt. 

This trend has some worrying for the public markets, wondering whether public markets have perhaps permanently become less appealing. (See here, here and here for more on this.) Buckland isn’t so sure. He writes:

There has been much soul-searching about other drivers of de-equitisation. Maybe companies are becoming increasingly reluctant to use public equity markets because of burdensome listing requirements, increased scrutiny or investor short-termism. But we suspect these wouldn’t matter much if cheap capital and high valuations were on offer, as they were in the late 1990s. 

Instead, he says that public equity markets are shrinking because companies can find cheaper capital elsewhere, with private equity and venture capital investors providing a second equity market of sorts. 

And overall, the shrinkage of the stock market is entirely to be expected, given the impact of quantitative easing and post-recession central bank policies on the cost of debt, according to Citigroup. 

"It is not our job to say whether de-equitisation is a force for social good or bad," the note says. "But we do see it is a rational capitalist response to major divergence in the cost of debt and equity."

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How to Teach Yourself to Do Hard Things


Practice (supposedly) makes perfect, but who among us has never spent hours upon hours practicing something they didn’t even come close to perfecting? I, for one, played a LOT of tennis as a teenager and wrestled with a clarinet for many years in many bands, and guess what? I was never more than solidly average at both.

It’s too bad software developer David MacIver’s “Fully General System For Learning To Do Hard Things” wasn’t around back then to help me. He created this step-by-step system to help us learn how to do hard things. The “hard thing” might be anything from learning to play chess to running a marathon; it doesn’t really matter what hard thing we’re talking about. He explains his process this way:

The system “always” works in the sense that “eventually” either you will find out why the objective is impossible for you or you will succeed, but it’s very much the unhelpful kind of eventually where there’s no guarantee that it won’t take an interminably long time. The more likely outcome is that either you will succeed relatively quickly or get bored and give up, but that’s OK—the system is designed so that you will have gained benefit from following it at every step along the way even if you do not achieve your final goal.

So it’s not a guarantee but rather a structured plan to follow if you’re not sure how to start mastering the hard. He offers two approaches—one process if you already know what success looks like and one process if the definition of “success” is more subjective. In both cases, you’ll follow these steps:

1. Find something that is like the hard thing but is easy.

2. Modify the easy thing so that it is like the hard thing in exactly one way that you find hard.

3. Do the modified thing until it is no longer hard.

4. If you get stuck, do one of the following:

  • Go back to step 3 and pick a different way in which the problem is hard.
  • Recursively apply the general system for learning to do hard things to the thing you’re stuck on.
  • Go ask an expert or a rubber duck for advice.
  • If you’re still stuck after trying the first three, it’s possible that you may have hit some sort of natural difficulty limit and may not be able to make progress.

5. If the original hard thing is now easy, you’re done. If not, go back to step 2.

The idea is that, instead of focusing on improving everything about the hard thing all at once, you can pick apart the problem and, piece by piece, master the challenging aspects of it.

Or you discover it’s just too hard for you, but hey, at least you tried.

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from Lifehacker

Sony built an IoT chip with a 60 mile range


Sony is quietly launching a chip that could change how e-bikes, cars, street lamps and all kinds of other connected devices can relay information. The module, when installed on any IoT object, will allow it send data to Sony’s proprietary low-power wide area (LPWA) ELTRES network launching this fall. It can transmit up to about 60 miles and work in noisy urban environments on objects moving at high speeds, opening up a lot of new applications in security, monitoring, tracking and more.

Most IoT systems use the internet to transfer data to the cloud, either via WiFi with very limited range, or an expensive cellular data connection. Sony’s ELTRES LPWA network harnesses low-power wireless technology to transfer low-bit data across a wide area, with lower power consumption, making it feasible to connect a wide range of devices.

The CXM1501GR chip transmits signals in the 920MHz band to Sony’s ELTRES network, and is also equipped with GPS/GNSS sensors to obtain time and position data. Sony said it’ll work in a "broad range of IoT devices, aiming to develop various services making the most of stable wireless communications over long distances and while moving at high speeds, thereby creating a new market."

In a use case document, Sony said the tech could be used to "help friends find each other at a ski hill," track wildlife, geolocate ships, follow yacht races, monitor bike rentals, while tracking numerous things like drones, rental cars and trains.

The technology appears to be limited to Japan for now, where Sony recently launched an application program for interested companies. It plans to build out the network there and do extensive testing. If it works out, it could make things much more connected than they are now, with all the good — and bad — that entails.

Source: Sony

from Engadget