Strategy Boffins

Daily Strategy and News Journal

Update on financial, business and world news

and how they are interconnected

August 15, 2023

Strategy Journal

Diversifying Supply Chains: Foxconn’s Intensified Push into India Amid Global Shifts

  • Saudi Arabia and the UAE are acquiring Nvidia chips for AI development, aiming to lead in the field and bolster their economies. Concerns arise about potential misuse due to autocratic leadership. Saudi Arabia has bought 3,000 H100 chips, while the UAE developed its own model named Falcon. The race for AI chips extends to China and the US, but ethical implications arise over potential lack of safeguards.
  • Airlines are collaborating with farmers to promote corn-based biofuels as sustainable aviation fuel to reduce emissions in the US
    • Tax credits for aviation fuel: $1.25 to $1.75 per gallon
    • Estimated annual global need for sustainable fuel by 2050: 450 billion liters
    • Sustainable fuel produced by refiners in the previous year: about 300 million liters
    • Cost of sustainable aviation fuel: $7.98 per gallon
    • Cost of standard petroleum-based jet fuel (Jet A): lower than $7.98 per gallon
    • Cost of ethanol: $2.18 per gallon
  • Foxconn, the world’s largest contract electronics manufacturer, is intensifying its push into India due to multinationals’ interest in diversifying their supply chains away from China.
    • Number of years Foxconn first invested in India: 15 years
    • Number of Foxconn’s global workforce: 1 million
    • Number of Foxconn employees in India: about 50,000
    • Percentage of Foxconn’s global operations in China: 75%
    • India’s share of Foxconn’s 2022 revenue: $10 billion (4.6%)
    • Percentage of Foxconn’s 2021 revenue from India: 2%
    • Number of Foxconn campuses in India: 9

August 14, 2023

Strategy Journal

Russian Companies Exploit Inflated Shipping Costs for Oil Profits – FT

Russian companies reportedly earn over $1 billion from inflated shipping costs in crude oil sales, according to Financial Times analysis.
-Despite Western-imposed oil price caps post-Ukraine invasion, Russian producers charge higher amounts including freight costs.
– Investigation suggests potential $1.2 billion profit from overcharging and fees from Russia-linked vessels in three months.

UK July inflation data gains significance after Bank of England’s conservative interest rate hike.
– Economists predict 6.7% inflation rate, slightly lower than the central bank’s 6.8% forecast.
– China’s economic health uncertain with mixed signs of recovery, retail sales slowing, and industrial output figures due.

KoBold Metals, backed by powerful venture capitalists, embarks on $150 million copper exploration in Zambia.
– Zambia aims to triple copper production to over 3 million tonnes by 2032, addressing global energy transition copper shortage.
– Despite challenges, Zambia leverages substantial copper endowment and geographic potential for growth.

July 29, 2023

Strategy Journal

World’s 2nd largest shale gas reserve

  • 573 km pipeline named Nestor Kirchner pipeline was completed from Patagonia to Buenos Aires. Vaca Muerta is the second largest shale gas reserve in the world. Companies are looking at feasibility of $ 10 bn LNG plant to export the gas  25 Jul’23
  • India is the world’s biggest rice exporter accounting for 40% of global exports
  • Rich Americans are now spending more on services than luxury goods. Europe is now full of American tourists.
  • Goldman reduced its forecast probability of a recession in the next year from 25 % to 20 %
  • Tightening of monetary policy – increasing interest rates to reduce economic activity and hence inflation
    • Quantitative tightening – reducing bond holdings, reducing size of their balance sheets by central banks
    • Bond buying in crises ( like COVID ) – selling in normal times preparing for next crises
    • Over tightening – may cause collapse of banks due to shortage of liquidity
  • Integration of businesses after acquisition – Processes, Corporate structure, IT, customer accounts ..
  • Inflation – Consumer demand or due to imported commodities
    • Dollar strengthens when investors expect higher rates
    • 10 year treasury yield is proportional to inflation
  • Heat causes low productivity, does that mean India has low productivity due to heat ?

July 17, 2023

Strategy Journal

How is Chinese economy doing ?

  • President Xi Jingping are maintaining strategic focus for the economy – pursue global leadership in advanced technology, transition to green energy and security. He doesnt define economic success in terms of GDP growth, but in terms of tech self sufficiency
  • Chinese economy grew 6.3 % y-y, but q-q it is falling due to falling exports, weak retails sales, and dying property sector. Inflation in western world is significantly impacting China’s manufacturing sector. China has relied on investment driven growth over the years, and it has slowed down transition to consumer based economy. Youth unemployment is at 20 %
  • Defence groups in Europe : SAAB, Sweden; Thales, UK; Renk, Germany; Rheinmetall, Germany; Diehl, Germany
  • Political deadlock in Thailand means no chance of reforms to raise the sluggish rate of economic growth
  • Loan to Deposit ratio – Ideal is 80 to 90 %

July 17, 2023

Strategy Journal

why is Euro looking attractive

  • “Product strategy, business strategy, people, operations: those things you can easily figure out, but you have to learn how to quickly get your mind in the right spot” – Ryan Roslansky
  • Eurozone is in technical recession, then why is Euro looking attractive ? Euro has risen 2.3 % against the dollar since July start
  • Credit and debit card spending can predict overall spending in the economy
  • Kitchen sink approach: stuffing in as many one off items as company can in a quarter

July 15, 2023

Strategy Journal

Startup bubble ?

  • JP Morgan Chase, Citigroup and Wells Fargo collectively earned $49 bn in Q2 net interest income. Banks are not passing on the benefits of higher interest rates to the depositors
  • In 2022, EU countries spent € 46bn on funding towards price caps, energy savings and finding alternative fuels to the gas lost by Russia cutting supplies – Acer, the EU energy watchdog said
  • Spot prices rising due to intermittency of renewable power. Wind is not always blowing, and the sun is not always shining.
  • Due to rising interest rates in the developed countries, demand for Chinese goods is falling, and there is a risk of deflation in the Chinese economy
  • China would be restricting exports of Gallium and Germanium which are used in solar panels, as well as optical fibres from August 1
  • Startup Bubble: As many as 1000 unicorns are stuck without a clear path to liquidity. Except AI startups, that are seeing funding and acquisition, other tech startups are struggling. Especially in capital intensive sectors, startups are finding it very difficult.

July 7, 2023

Strategy Journal

Efforts to reach net zero – mining, cooking gas

  • More than 47 million US households cook with gas. The republican controlled House passed the Save our Gas Stoves Act and Freedom Act last month. Should gas be used to cook ? But why is the industry fighting against stopping gas stoves ? Its seen as the first step to stop gas use
  • Shipping – delivers upto 90 % of traded goods. Efforts on to impose a levy on shipping emissions. Developing nations oppose
  • Finance –  Two year US treasury note tracks interest rate expectations. If it goes high, interest rate expectations also climb
  • There are 3 types of credit markets –  Private, Public, and hybrid. Private has been rising in recent times, but is still needs public credit to thrive
  • Fidelity has agreed to sell Worldpay to private equity GTCR for $18.5 billion. FIS had acquired it in $30 B
  • Mining:
    • Congo’s copper and cobalt capital – Kolwezi
    • Main mining operators – Glencore, Chinese CMOC, Freeport McMoran
    • Supply chain lobby – Responsible Minerals Initiative, Fair Cobalt alliance
    • Avoiding critical mineral shortages will require 330 new mines in the next 10 years, including 59 lithium
    • Exporter cartel may be formed, on the other hand there are importer cartels which no one talks about
    • Indonesia is the leading nickel producer

Source: Financial Times

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