Why Must Elon Musk Buy Twitter?

Twitter originally accepted Elon Musk's $44billion bid to buy the social media giant, with the Tesla and SpaceX boss pledging to boost free speech on the platform.

Mr Musk, the world's wealthiest person and a prolific Twitter user, has a controversial past with the app.  More than 300 million people, including many world leaders use the service.

Source: https://help.twitter.com

The business tycoon, who is worth $267 billion, has more than 84 million followers on Twitter and tweets several times a day. He insists his takeover is not motivated by economic reasons, but rather out of a desire to safeguard Twitter as a venue for free speech. The billionaire self-identifies as a 'free speech absolutist' and believes Twitter has failed to live up to its free speech principles.

Free speech is essential to a functioning democracy. Do you believe Twitter rigorously adheres to this principle?' Musk asked via a Twitter poll. Musk's view that Twitter excessively censors some of its users is popular on the political right. 'Woke warriors' and Left-wing organisations have lashed out at the deal because “hate” may now flourish. 

In recent weeks, Musk has proposed relaxing Twitter content restrictions, while ridding the platform of fake 'spambot' accounts and shifting away from advertising as its primary revenue model. Musk believes he can increase revenue through subscriptions. 

Asked during a recent TED interview if there are any limits to his notion of 'free speech,' Musk said Twitter would abide by national laws that restrict speech around the world. Beyond that, he said, he'd be 'very reluctant' to delete posts or permanently ban users who violate the company's rules. He is said to instead favour temporary 'timeouts' for users who break the new rules.

Like most of Silicon Valley, employees of Twitter generally lean to the left, making them immediately more likely to be sceptical of Musk than those on the right. 

Then there is the issue of job security and the new working environment under Musk. While Twitter has guaranteed staff their jobs for the next six months and said 'no layoffs are planned', once the Tesla boss takes over any HR decisions will be up to him. 

Twitter currently has an option for staff to work from home, and internal messaging boards are now alight with fears Musk will now axe the policy. The entrepreneur has a contradictory approach to WFH, lashing out at stay-at-home orders during the early days of the pandemic and reopening his factories in the face of official opposition, but later saying staff did not have to come in if they felt uncomfortable about doing so. Musk is well known as a micromanager who has regularly slept on the floor of his factories, so he may become frustrated if he feels staff are not showing similar dedication. 

Twitter investors have for years been concerned with the company's slowing revenue growth. Its last quarterly results showed revenue had grown slower than expected, despite increasing by 22% to $1.6bn in the last three months of 2021. However, daily active users rose by 25 million in the year to 217 million, and the company aims to hit 315m by the end of next year. Despite some headwinds, Musk's huge $264.6bn fortune looks perfectly capable of financing Twitter long into the future. 

To purchase Twitter, Musk is said to have raised $25.5bn in debt, including a margin loan of $12.5bn against his shares in Tesla, from a group of banks led by Wall Street bank Morgan Stanley. He has also vowed to provide $21bn in equity financing for the takeover, which leaves him on the hook for more than 70% of the purchase price unless he finds other backers. 

There is nothing fundamentally wrong on the proposed acquisition. However, it is a question of where “free speech” ends and responsibility begins. Is this a right-wing takeover of social media? Also, as in all acquisition, there will be no GDP increase unless there are areas to improve revenue. And it is perhaps the financial returns from this venture has made Musk to press the “pause” button for now.

Reference:

Why has Elon Musk bought Twitter? Who are the winners and losers? Why are staff unhappy? And how will the social media giant change after $44 billion deal? Rory Tingle MailOnline, 26 April 2022

Is Netflix in Trouble?

Netflix’s share price has tumbled after it announced a net loss of 200,000 subscribers globally, and expects to lose a further two million over the next three months. Its share price slid more than 35% in early trading on April 20, wiping around $55bn (£42bn) off its value.

The headline failure for Netflix is a reduction in subscribers for the first time in a decade. Wall Street analysts had been expecting it to announce growth of about 2.5 million new customers, and were stunned when the company instead confirmed more had cancelled than joined.

Source: https://play.google.com

Around the world, Netflix has 222 million subscribers. In its biggest markets, however, it has an appreciable portion of all households: in the US and Canada, 75m out of a total 142m households have a subscription to Netflix. 

Netflix has been increasing its monthly fees sharply around the world, with some UK subscribers now paying a third more than they were less than two years ago for the same service. But the company says it has been happy with the results, saying the rises “remain significantly revenue positive” – and thinks it still has “among the best retention in the industry”. Netflix also points out that, were it not for the war in Ukraine, it would actually have gained subscribers: it suspended services in Russia, losing 700,000 accounts in the process.

However, Netflix is exploring the possibility of a soft price cut, in the form of an ad-supported tier. A cheaper subscription funded by adverts could help expand Netflix into households and regions that had previously been unable to afford the service at full price.

Netflix estimates 100m households globally access its services through password sharing. For years, it has tacitly allowed the practice, which functions as an effective discount.

But now, it has started experimenting with stricter controls to try to turn some of those additional households into customers in their own right.

In trials in some South American countries, Netflix has simply started to ask subscribers to pay a small additional fee, about $3 a month, if they share their service with people outside their household.

The deeper question for the company is whether it needs to change its actual product, rather than simply fiddling with price points and subscription tiers. Unlike many of its competitors, Netflix has focused almost entirely on a relatively narrow slice of original and licensed film and TV. 

Competitors such as Amazon, Apple and Disney have looked to include sports, news and light entertainment in their wider packages. A 2018 report suggested Netflix was exploring news programming, but the company instead appears to have gone down other routes – launching a free gaming service for subscribers. Netflix’s troubles are a warning sign for its peers and competitors. After watching millions of customers abandon pay TV for streaming, US entertainment giants merged and restructured to compete with Netflix. Investors encouraged this strategic shift, boosting shares of companies like Walt Disney Co that demonstrated a commitment to streaming.

Netflix remains well ahead of most of its competitors outside the US, and is the largest streaming service in the world. The company believes it can execute its way out of the current predicament by luring new customers with better programmes and finding more ways to charge its existing user base. The company still expects to add customers this year, and will have a stronger slate of new shows in the back half of the year. Whether Wall Street believes that is up for debate.

References:

Why is Netflix losing so many subscribers and what can it do to about it?, Alex Hern, UK Technology Editor, The Guardian, 20 Apr 2022 (https://www.theguardian.com)

Netflix breaks its own rules as subscriber losses batter shares, Lucas Shaw & Subrat Patnaik, 

Bloomberg, TheEdge CEO Morning Brief, 21 April 2022

Russian Oligarchs: Where is Their Dark Money?

US think tank the Atlantic Council says that Russians have about $1tn (£750bn) in "dark money" hidden abroad. Its 2020 report estimated that one-quarter of this amount is controlled by Russian President Vladimir Putin and his close associates - wealthy Russians known as "oligarchs".

Another US think tank, the National Endowment for Democracy (CIA sponsored), says Putin has encouraged close associates "to steal from the state budget, extort money from private businesses, and even orchestrate the outright seizure of profitable enterprises". It says that in this way, they have built up personal fortunes running into the tens of billions. 

Russian opposition leaders Boris Nemtsov and Vladimir Milov have claimed that between 2004 and 2007, $60bn was transferred from oil giant Gazprom's funds to Putin's cronies. The Pandora Papers, released by the International Consortium of Investigative Journalists, notes that people close to Putin have become very wealthy - and could be helping him move his own wealth around.

Source: https://news.yahoo.com

Historically, much of this money had gone to Cyprus - enticed by favourable taxes. To some, the island became known as "Moscow on the Med". According to the Atlantic Council, $36bn (£27bn) of Russian money went there in 2013 alone. Much of it arrived via shell companies, which are used to obscure the true owners. In 2013, the International Monetary Fund persuaded Cyprus to close tens of thousands of bank accounts held by shell companies.

The British Virgin Islands is also a favourite haven for Russian money.

A report by Global Witness said that in 2018, Russian oligarchs had an estimated $45.5bn (£34bn) in these tax havens. Some of this money finds it way to financial capitals such as New York and London, where it can be invested and reap returns.

The anti-corruption organisation Transparency International claims that at least $2bn (£1.5bn) of UK property is owned by Russians accused of financial crime, or with links to the Kremlin. The breadth of Russian money laundering was further exposed in a 2014 report by the Organized Crime and Corruption Reporting Project into the "Russian Laundromat". It said that between in 2011 and 2014, 19 Russian banks laundered $20.8bn (£15.6bn) to 5,140 companies in 96 countries.

The usual way that Russian oligarchs hide their "dark money" abroad is through shell companies. These oligarchs hire the best lawyers, auditors, bankers, and lobbyists in the world to develop legal means to conceal and launder their funds, says the Atlantic Council.

A serious oligarch has layers of anonymous shell companies in a score of offshore jurisdictions, and his funds move at lightning speed between them. In 2016, the International Consortium of Investigative Journalists published the Panama Papers, which showed one company alone had set up 2,071 shell companies for wealthy Russians.

Following the invasion of Ukraine, countries have announced a series of measures to track down Russian money. The US is setting up a new "KleptoCapture" task force to crack down on the finances of Russia's oligarchs. It will be run by the Justice Department and is meant to seize assets obtained through unlawful conduct. The UK government has taken steps to increase its use of Unexplained Wealth Orders (UWOs), which oblige people to prove where they got the cash to buy assets in the UK.

Account Freezing Orders (AFOs) allow courts to freeze funds in a bank or building society if they suspect the money is linked to criminal activity. And the U.K. government has approved the Economic Crime Act, with a register of beneficial ownership for property owned by overseas entities. The UK has also scrapped its "golden visa scheme", which gave residency rights to wealthy foreigners if they invested large amounts of money in the country.

Malta, a favourite haven for Russian money, has also scrapped its "golden passport" scheme which allowed oligarchs to buy citizenship. Cyprus and Bulgaria scrapped their golden passport schemes in 2020.

The problem is not just Putin. It is also the West. Why accept these funds when you know full well that these are laundered funds. It is hypocritical of New York, London (and other financial centres) to say they hold high standards when money flow and investments prove otherwise.  That’s how Malaysian elites can scheme and move funds around when these centres (including Singapore) behave as prostitutes!

Reference:

Russian Oligarchs: Where do they hide their “dark money”? BBC, 28 March 2022

https://www.bbc.com 

South Korea’s Chaebols: Does It Serve A Purpose?

The chaebol structure is a business conglomerate system that originated in South Korea in the 1960s. Chaebol is an English transliteration of the Korean word 재벌, which means plutocracy, rich business family, or monopoly. The chaebol structure can encompass a single large company or several groups of companies.

• Chaebols are owned, controlled, and/or managed by the same family dynasty, generally that of the group's founder.
• Samsung, Hyundai, SK Group, and LG Group are among the biggest and most prominent chaebols.
• Critics say chaebols impede the development of small and medium-sized businesses and may have a big impact on the country's economy if they fail.

Source: https://koreaexpose.com

South Korea's chaebols represent a group of large business entities that are very important to the nation's economic structure. Investment in South Korea's research and development (R&D) is largely driven by chaebols. Chaebols represent roughly half of the value of the country's stock market. They are generally industrial conglomerates that are made up of different affiliates.

Chaebols are owned, controlled, and/or managed by the same family dynasty, generally that of the group's founder. Family members are usually placed in management positions, which gives them more control over the way the businesses operate. Although some of the originating families are not necessarily majority stakeholders in the chaebols now, they may still have some association with them.

There are roughly two dozen well-known family-owned chaebols that operate in the South Korean economy. Samsung, Hyundai, SK Group, and LG Group are among the biggest and most prominent chaebols. These companies account for more than half of the country's exports. And together, they help bring in the majority of South Korea's capital from foreign sources.

 

The chaebol structure is often compared with Japan's keiretsu business groups, but there are some fundamental differences between the two. Chaebols are generally controlled by their founding families, while keiretsu businesses are run by professional managers. Chaebols ownership is also centralized, while keiretsu businesses are decentralized.

A charge often leveled against the chaebols is that they have impeded the development of small and medium-sized businesses in South Korea, creating massive imbalances in the economy. While the South Korean government has made occasional attempts to curb the power and influence of chaebols over the years, these efforts have met with mixed success.

Another concern about chaebols is that consolidating significant market resources into these conglomerates puts the economic stability of South Korea at risk should they fail. Samsung, for example, on its own has grown to represent some 20% of the gross domestic product (GDP) in South Korea.

Chaebols are often accused of hoarding profits and expanding their operations and factories overseas rather than reinvesting in the domestic economy. This is contrasted by about 90% of workers in the country working for small and medium-sized businesses, meaning a small portion of the overall population is employed by conglomerates that hold considerable sway over the country’s economy.

The concentration of market power and reliance on chaebols has made South Korea dependent on these conglomerates to the point where the government has to support these entities during financial crises. This is also problematic as smaller, more nimble businesses from other countries offer more competition.

Though chaebols often comprise a multitude of business units with extensive manufacturing capabilities, the sheer size of the overall organization can be a detriment when swiftness is needed. Furthermore, their ability to innovate and grow may not keep pace with the speed and dexterity of smaller companies from other nations. When chaebols suffer from such slow or stagnating growth, the effects can be felt significantly across large segments of South Korea’s economy.

For Malaysia, this is not the way forward, although Mahathir dallied for a while with large trading companies following his “Look East” policy. The GLCs are the next best to chaebols and where they are profitable, they are owned by PNB or Khazanah. Otherwise, they are probably part of MOF Inc. For too long the GLCs have been a “law to itself” – not sufficient oversight and governance, unless they are listed on the Bursa. There is a need for a re-think of the vast array of GLCs and GLICs to move the country forward. Will we do that?

Reference:

Chaebol Structure, Will Kenton, https://www.investopedia.com        

Is the Dollar Dying?

 Some say we are nearing the final days of the dollar’s reign as the world’s reserve currency. The greenback has lost 11 percent of its value since the beginning of the coronavirus crisis. It may lose another 10 percent in 2022. The Federal Reserve lifted its key interest rate by a quarter of a percentage point to combat inflation. At the same time, policymakers projected six more rate hikes this year. These moves should slow the inflation rate and economic growth by driving up interest rates on all borrowings.

But America has a bigger problem than inflation and rising mortgage rates. The federal debt load recently passed $30 trillion. Hence, interest rate hikes add billions of dollars to the sum America owes its creditors. In 2021, the government paid $562 billion in interest—more than $1,500 for every man, woman and child. And it stands to pay much more than in 2022 if the Federal Reserve raises interest rates six times.

Source: https://crowdwisdom.live

Nearly 60 percent of the $12.8 trillion in global currency reserves are dollars. This gives the United States the ability to borrow cheap money since dollars are always in high demand. But were the dollar to lose its reserve currency status, the federal government would no longer be able to borrow money cheaply.

Financial historian Niall Ferguson warns that nations and empires often fall when the costs of servicing their debts exceed the cost of defending their borders. The U.S. is close to this tipping point. China, Russia and Saudi Arabia are realising this fact. So they are targeting the dollar’s reserve currency status.

Both China and Russia have been reducing their dependence on the dollar for bilateral trade since 2014. Some analysts predict that these powers will start dumping more dollars in retaliation against U.S. sanctions on Russia over the war in Ukraine. China, India and Russia are already exploring an alternative to the U.S.-dominated SWIFT payment mechanism. Such an alternative payment mechanism would be a significant blow to the dollar’s status as a global reserve currency.

Many nations besides China, India and Russia would join. Saudi Arabia is also talking with China about pricing some of its oil sales in yuan instead of dollars. If they reach an understanding on this issue, it would end an agreement U.S. President Richard Nixon struck in 1973. America promised to arm and protect Saudi Arabia if Saudi royals would denominate all future oil sales in dollars. But now, Saudi royals want yuan-denominated oil sales.

Suppose China, India, Russia and Saudi Arabia stopped using the dollar. The greenback would then become an isolated North American currency that is barely needed in the Eastern Hemisphere. Banks would stop accumulating dollar reserves. The U.S. government would have to offer high interest rates if it needed to sell treasury bonds to borrow money. It would have to enact high tax rates to pay the interest on those treasury bonds.

The U.S. has been living beyond its means for decades. It can no longer escape the debt death spiral that awaits it. The onset of such a death spiral might not mean the immediate end of the U.S. as a nation. But it would mean the immediate end of the U.S. as a financial and military superpower.

It is in this context that it (U.S.) may well provoke a war in East Asia. Some say before 2030. That could even end in nuclear holocaust for all. The war machine of the likes of Boeing, Lockheed-Martin, Northrop and the Pentagon would be delighted. U.S. cannot accept a new rival, be it Russia, China or some other state (EU?).That’s the Wolfowitz doctrine. Until the people of the U.S. realise this madness of endless wars, peace will not break out.

Reference:

The dollar is dying, Andrew Miller (https://www.thetrumpet.com), 22 March 2022

Malaysia’s Self-inflicted Food Crisis?

McDonald’s had a French fries shortage in February. This was perhaps symbolic of a much bigger problem. Many food items are in short supply and subject to rapidly rising prices. Some analysts claim that rising prices and shortages are the result of supply chain glitches, natural disasters, and labour shortages. However, the food crisis cannot be just a cyclic issue as there are deep structural issues involved.

Malaysia imports nearly 60% of its food needs. Consequently, food security is a major issue. In 2019, Malaysia produced only 46% of its vegetables, 70% of its rice, 61% of its fruits, 25% of its beef, 11% of its mutton, and 5% of its dairy requirements.

Source: https://www.thesundaily.my

The food import bill in 2020 was RM 55.5 billion. Five million hectares of land is cultivated with palm oil, and 1 million hectares with rubber, while only 1 million hectares are utilised for food production, mostly by smallholders.

The mentality in Putrajaya has been that the value of commodity exports far exceeds the nation’s food import bill, thus alleviating any need to bump up local food production. However, Putrajaya’s solution was for agriculture development to be led by government agencies and GLCs. This has resulted in wastage of money and resources.

Bureaucrats and consultants have untenable ideas like creating padi estates. The latest idea is smart farming, with high intensity investments in technology benefitting consultants.

There are interested parties now for the broiler industry. It has been hit with rising feed prices, substantially adding to production costs. The maximum price of RM9.10 per kg retail (in 2021), well below the current poultry (chicken) monthly price of US$2.89 (RM12.40) per kg on the Mundi Index.

The government’s maximum price has caused companies producing chicken for the wholesale and retail markets to cease production. Other producers have switched to producing value-added chicken-based products not subject to price controls, or selling chicken through the black market.

The government has allowed some 35 companies to import chicken on a temporary basis to alleviate chronic shortages in the market. These highly sought-after import permits or APs were, according to industry sources, not given out fairly. A cartel of companies is now preparing to enter the market as producers, once existing producers have closed down. A local newspaper report also revealed that cartels dominated the daily market with 1.5 million chickens, which was 70% of the total 2.2 million sold nationwide every day.

The APs carry unrealistic terms and conditions. The import permits have taken months to obtain from the Department of Veterinary Services. Then with more permits there is always the hint of corruption.

The chicken supply chain in Malaysia is in somewhat of a turmoil. It was previously one of the best managed and self-sufficient farming sub-sectors in the Malaysian economy. But this is now almost destroyed due to the government’s price manipulation.

Companies using the APs are converting the chicken into finished consumer products that are beyond government price controls, or are sold on the black market. Regulation of the food industry has led to unwanted corruption and diversion to crony capitalism.

Restrictive market regulation is only presenting further opportunities for one’s own self-benefit. The Malaysia Competition Commission (MyCC) is now probing allegations that there was political interference in the issue of cartel operations in the poultry industry. But this is not the only case. There is allegedly the so-called extortion cartel at a highland resort.

A farmer is protected from prosecution for engaging illegals as workers. Monthly contribution mentioned is RM300-RM600 per worker. If a farmer defaults on payment, the entire crop is destroyed by the “recipients” of the donation. According to some, the “sheriff” of the Highlands lives in a “castle” on a hilltop! How wonderful, our local “sheriff” and Robin Hood episodes for a mini-series!

References:

Malaysia’s looming food crisis, Murray Hunter, FreeMalaysiaToday, 28 February 2022

MyCC probing allegations of cartels in poultry industry, Bernama/FreeMalaysiaToday, 

26 April 2022

Consequences of Indonesia’s Palm Oil Export Ban

Market analysts doubt Indonesia’s ban on its palm oil exports effective from Thursday (April 28) will ensure the country has an abundant supply of affordable cooking oil in its domestic market.  The move however is poised to raise crude palm oil (CPO) and other vegetable oil prices even further and worsening inflationary pressures.

CPO exporters in Indonesia may suffer as a result while downstream players with refining capacity could benefit as there would be a significant shift in the demand-supply mechanics. That’s the view of RHB Research.

There is no guarantee that there will be additional supply released to the market as CPO refiners may also decide to hold back their refined oil stocks to benefit from higher prices. Refined oils can be kept for as long as six to eight months with no impact to quality while after packaging, they can be kept for a further 12-18 months. Vegetable oil prices could spike as a result of this news but should Indonesia change its stance, this will also reverse quickly.

Meanwhile, Maybank IB Research expects the Indonesian palm oil export ban to worsen the tightness in global edible oil supply given the country’s position as the world’s largest producer and exporter with 31% of global exports in 2020.

As the industry enters into its seasonal peak output period in 2H 2022, this could trigger sharp price correction. 2022 will likely be a year of two halves for CPO price. CPO spot price has averaged RM6,248/metric tonne (MT) year-to-date.

Given the high prices and new export ban, Maybank IB Research expects 2022E/2023E CPO average selling price (ASP) to RM5,000/RM3,400 per MT (from RM4,100/RM3,200 per MT previously forecasted).

In the short-term, for Malaysia this is a good move but we need to examine what is the motive for Indonesia. Is it to reform its industry? To devolve control from a handful of conglomerates to small farmers? Will not Indonesia lose USD2.2 billion in export in one month? How will 30m metric tons of supply glut in Indonesia be handled? Will Malaysia release from its palm oil inventory of over 1.6 million tonnes?

There are several issues here and the winners are soybean and other vegetable oils in this instance.

References:

Indonesia’s palm oil export bank unlikely to achieve its intended objectives, Cheah Chor Sooi, Focus Malaysia, 25 April 2022

With ban on palm oil exports, Indonesia reaps condemnation and praise, Hans Nicholas Jong, 25 April 2022