Paul Strassmann’s blog

#204 Data About Senior Citizen

2021-02-24T16:59:00.004-05:00

#203 McKinsey Long Range Outlook

2020-12-27T11:37:00.018-05:00

Since its founding 30 years ago, the McKinsey Global Institute has explored key trends shaping business and the economy. In 2020, COVID-19 paused some of those trends, accelerated others, and added a new set of risks and challenges.

See: https://www.mckinsey.com/featured-insights/innovation-and-growth/twelve-highlights-from-our-2020-research

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As average temperatures rise, acute hazards such as heat waves and floods grow in frequency and severity, and chronic hazards such as drought and rising sea levels intensify. The impact of these hazards is non-linear and can have severe knock-on effects. Global average temperatures are expected to increase between 1.5 and 5 degrees Celsius relative to today in many locations by 2050.

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Economic outcomes in the past 20 years have varied widely. While employment rose, wages stagnated for many, and the rising cost of housing, healthcare, and education eroded income gains. More expensive: Large increases in the cost of basics including housing, healthcare, and education absorb income gains for many. Housing accounts for about 24% of household consumption and its cost has risen faster than general consumer prices. Less expensive: Prices of discretionary goods and services such as communications and clothing fall significantly.

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Even early in the crisis, the economic of COVID impact in the United States could exceed any event since World War II.

CEO surveys suggest that the pandemic has accelerated adoption of digitization and automation. Job growth in the United States and Europe is concentrated in a small number of dynamic cities and counties. Automation could accelerate the unemployment trend.

The burst of remote work during the pandemic is unlikely to continue at the same level, but some occupations have considerable potential to work from home in hybrid models several days each week without losing productivity. Three-quarters of the time spent on activities in fi nance and insurance can be done remotely without a loss of productivity.

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Women make up 39 percent of global employment but account for 54 percent of pandemic-related overall job losses. The pandemic had an especially significant eff ect on certain demographic groups. For example, our analysis showed that women’s jobs were 1.8 times more vulnerable to this crisis than men’s jobs. One reason: the virus significantly increased the burden of unpaid care, which is disproportionately carried by women.

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Fewer health conditions and expanded participation in the labor force could increase global GDP by about 8 percent by 2040. The global disease burden could be reduced by about 40% through broader application of known interventions.

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Biology-based innovation is transforming what we eat, what we wear, and the way we build our physical world. Science already feasible today could transform sectors from agriculture and consumer goods to energy and materials. A visible pipeline of ~400 applications could deliver direct annual economic impact of up to $4 trillion over the next ten to 20 years.

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How Asia can boost growth through technological leapfrogging Asia has been building its technological capabilities and infrastructure. More is to come based on the scale of markets and investment and the speed of technology adoption, as well as through intellectual property creation. Asia has a strong presence in 11 technologies in startup investment, ten in IP creation, and four in both.

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Beyond the 5G revolution, an evolution in connectivity is boosting digital access worldwide The next generation of connectivity technologies and upgrades to existing networks worldwide could create trillions of dollars in major sectors across advanced economies while bringing two billion new internet users online in the developing world. The share of global population remaining unconnected or under-connected should be reduced by half by 2030. Greater flows of information, communication, and services could add another $1.5 trillion to $2 trillion to global GDP.

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#202 Dollar as the Dominant Global Currency

2020-12-05T12:10:00.010-05:00

SOURCE: https://medium.com/galaxy-digital-research/on-free-markets-for-money-d99f80c6dd7f

#201 Balancing the Budget Trough Tax Reductions

2020-11-30T16:52:00.020-05:00

The prospects that the US national budget would rebalanced depends on a cut in federal spending. The current budget deficit would have to be reduced. Is that possible?

The current prospects for the US economy is to cut the taxation levels. Such cuts would not be feasible because the current levels of tax revenue are already the lowest among advanced economies.

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The USA has the world's largest GDP and the ratio of its public debt to GDP remains at tolerable levels. However the public debt of China is even lower and its external debt is already the lowest in the world.

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Although the total tax revenue of $3.5 Trillion can not substitute for the post COVID GNP gap, increasing individual taxes and some payroll tax reductions will be on the agenda for the new administration. Only 7% of corporate taxes from corporations show a disproportionate allocation of taxation for the dividend-earning part of the high earning population that is not likely allocate income to the growth of the economy.

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The top income quintile and particularly the top 1% will be targets for increased taxation of incomes. However, the large accumulation of assets (> 50% of wealth) will be among the top 1% will most likely be the targets. As the workforce declines there will be no incentives to raise payroll taxes.

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#199 Global Statistics

2020-11-27T10:44:00.006-05:00

The huge decline in fertility rates from an average of 5 children/woman in 1965 to 2 children/woman largely reflects increased progress in childcare to rising survivability of born children.

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The world population increased from 2.5 billion in 1950 to 7.9 billion in 2020. That is an addition of 5.4 billion people in 70 years, or a 216% gain.

For the remainder of this century, or 80 years, the world population will level off at 11 billion. That is an addition of 3.1 billion people, or a 39% gain.

The huge increases in the global population during the past 70 years will never be matched again by increases in the next 80 years.

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As the population ages and the number of people in the workforce declines it will require increased welfare payments for an economy to support the aging population. That will require more taxes and immigration from low-wage countries.

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A snapshot of the evolution in GDP/capita in 500 years. There was no growth for 300 years until the end of royal control. Afterwards industrialization boosted growth for 120 years followed by US dominance for 70 years and ending in 2020 with a financial crisis.

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The global population is aging. After 2017 the growth of people over 65 more than double to number of new children,

#200 November 26 2020 USA Assessment

2020-11-26T11:48:00.051-05:00

The current BEA forecast projects recovering to the prior peak of $19.5 trillion by the end of 2021. The prior projected levels of $21 trillion are not reached until sometime after 2025.

How credible is the BEA forecast? It presumes the resumption of the GDP at rates at least equal to the 2014-2018 period when GNP was stimulated by steep increases in debt, a rise in the budget deficit and huge trade deficit.

We doubt the BEA forecasts because a recovery from unemployment cannot take place without an unaffordable increase in debt or a massive upward shift in workforce participation. There are many GDP downward drafts we will track, such as increases in the unemployment in clerical and administrative positions, reduced corporate profits from increased taxes and the continuation in deficit balances both in trade and federal government.

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Personnel over the age of 55 will be showing the most decline as younger and less expensive workers will displace the largest part of the workforce. As government funded retirement pay vanishes, the traditional demographic patterns will disappear.

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By 2020 the USA has accumulated huge amount of debt which far exceeds its GDP. To restore its GDP growth would require greater profits (such as from a rising Trade Balance or new export products) or a substantial increases in unfunded debt (such as from cuts in welfare).

The most likely solution will be found in the devaluation of the dollar as the currency used in global trade. Depreciation of a currency is the usual method for dealing with a decline in the earning capacity of the GDP and with excessive debt.

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With a large government and trade deficit it is hard to see how the US economy can recover to a positive GNP trend without a decrease in spending.

Corporate profits will be insufficient to compensate for government deficits.

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With a quarter of the workforce living in poverty and 30% of the workforce as food stamp recipients added social programs will not make a difference unless a highly productive workforce is created.

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There are about 12 million additional illegal aliens in the USA that require more unfunded social welfare support.

The resident illegal alien population is defined as all foreign The resident illegal alien population is defined as all foreign born non-citizens who are not legal residents. Most illegal aliens either entered the United States without born non-citizens who are not legal residents. Most aliens either entered the United States without inspection or were admitted temporarily and remained past the date they were required to depart. Persons who are beneficiaries of Temporary Protected Status (TPS), Deferred Action for Childhood Arrivals (DACA) or other forms of prosecutorial discretion, or who are residing in the United States while awaiting removal proceedings in immigration court are included among the illegal alien population estimates.

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The purchasing value of dollar cash has deteriorated in ten years (2010-2020) from 46 to 39 by 15%. 2010 assets of $1.5 million are now worth $1.26, or an annual depreciation of 1.5%*1.5= $2,250 which is tolerable.

#198 - Old Age Demographics

2020-11-23T11:26:00.014-05:00

After 2020 the global population will be dominated by people over 65 years old as the population of children under age if 5 will keep shrinking. The higher rate of increase of old people reflects their increasing life expectancy.

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US average life expectancy increased from 63 in 1940 to 78 in 2018. People living until the age of 65 will have an additional 6.5 years to live.

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In 1955 it took approximately 12 workers to generate the social security funds needed to support one person over the age of 65.

In 2099 it required at least 2.8 workers to support one old person. This shift in dependency ratios indicates that the productivity of the entire global workforce would have to rise by at least 430% more in order to deliver equivalent old age support benefits as they were in 1955.

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#197 Investing in Alibaba

2020-11-21T12:45:00.026-05:00

On 11/21/2020 there is a question whether invest in the Alibaba corporation, now traded on Vanguard, to finance future retirement needs. The objective is to diversify depreciating dollar funds into a small share of rising China equities.

Though Amazon has 4.5x more revenue and started in 1994, Alibaba is more profitable but started in 1999. The big difference is in employees: Amazon has 798,000, Alibaba only 103,690. Alibaba has >755 million customers in >2.5 billion market place as compared with Amazon's >2 million an >0.4 billion. One characterize Alibaba as a tortoise and Amazon as a hare. Fundamental long term investment choice for a conservative investor: Alibaba.

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For a the long run Alibaba investment strategy is fairly valued. Current financial indicators are positive except that the gross margin has been declining.

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At current $270/share Alibaba is fairly priced for long term based on continuation of trend in the future and the absence of US regulators cutting off Alibaba from the NY stock market. Do not buy at a price below trend line (under $277) adopting a conservative approach to rely only on an actual long term appreciation to deliver profits.

Another view of the short term difference in the spread in Alibaba stock prices is shown below:

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As an added precaution we also examined the trends in revenues and in Alibaba profits:

Short term trend line confirm that both revenue and profits are consistently positive and that past trends are likely to continue. The only risk arises from government intervention to cut off trading on the NY stock exchange.

SUMMARY: Continue weekly >10 shares purchases of Alibaba if price >$290/share.

SOURCE OF DATA: https://www.gurufocus.com/stock/BABA/summary

#196 China Statistics

2020-11-01T15:41:00.034-05:00

China’s economic data system is a work in progress and a hurdle that statisticians have yet to overcome. The Chinese NBS could improve its system by offering greater transparency behind the data-gathering process and statistical procedures, allowing data users to better identify weaknesses in the official numbers. But the heavy criticism of Chinese officials and accusations of intentional falsification or manipulation are likely misplaced. The truth is more likely that economic growth in China is too challenging to capture as effectively as growth in developed countries.

See reference article from analysts of the Federal Reserve Bank:

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China has recovered +6% of GDP growth since the 2020 pandemic.

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China's trade balance (e.g. Exports minus Imports) as been consistently positive. The current rate amounts to >$400 billions, down from a peak of >$600 billions in 2015. Countries with a positive trade balance are enriched, countries with a negative trade balance are becoming impoverished.

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China has shifted its land exploitation low-productivity workforce from 90% rural in 1950 to 40%. The increasingly high-productivity workforce became increasingly industrial based, moving from 10% in 1950 to 60% in 2019 where continues to grow.

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Chinese population growth diminished from 200 million per ten years in 1975 to 4 million in 2019. The annual growth rate declined from 3% in 1975 to the current 0.35.

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A view of the 2000 years of the history of the China empire.

#194 A Review of Surprising USA Statistics

2020-11-01T11:07:00.064-05:00

The USA birthrate has remained on the average of 4 million/year since 1939. The current birth rate is only 12 births per 1000 people or 0.09%. The population growth rate is 0.6% which suggests that the growth in the population is due to immigration, not birth. Legal immigrants now constitute >14% of the population.

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There are 44.7 million legitimate immigrants in the use or 13.7% of the government recorded population. A large share (40%?) come from impoverished South American countries and constitute a significant share of population in the lowest quintile of income.

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The US labor force participation rate has declined from 51% in 1980 to 35.5% in 2010. The rise from 1962 to 1980 reflects the entry of women into the workforce. The decline since 1980 reflects a decrease in the share of young people in the workforce as the immigrants are of a more mature age and as the distribution by age shifting to older people.

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As the US population increases the savings rate decreases. Increased amounts of government benefits reduces unemployment while low wage immigrants can find employment.

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The rising optimism and an increasing trust in future by the top earning 1% is reflected in the rising disparity between the stock market and the forward cash earnings of corporations.

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The rise in imports as compared with diminishing exports shows that in terms of international trade some of the USA assets are losing value.

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Since 2001 there has been a large increase in the Federal deficit.

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The disparity in US income shows up as follows: The lowest 20% quintile of the population earns 3% of the total. The next quintile (20-40%) earns 9%. Next quintile (40 - 60%) earns 14%. The top ranked 20% quintile of households receive 52% of income.

Income-based comparisons are inadequate. The difference in quintiles is much greater when the share of assets is ranked.

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Upper income households increased their share of income from 29% in 1979 to 48% in 2018 while the share of middle income households declined from 62% to 43%. Lower income households declined from 10% to 9%.

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While trend in the share of GDP of personal income declined slightly, the government social benefits compensate persons with grants of social benefits.

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The current administration made up budget deficits by means of a steep rise in treasury debts obligations.

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Investments in USA structures have risen from $220 billion in 1960 to $430 billion in 2020 and leveling off since 1980. However, intellectual property products have increased during the same time from $25 billion to $1,000 billion and keep rising. Consequently the USA GDP assets are now dominated by intellectual property (soft assets). Hard assets (equipment) is now dependent on intellectual assets that are easily exported.

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Wealth countries (G7) are declining in the importance of global trade. Emerging countries (mostly the rest of world)) the gainers in global trade.

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The huge decline in fertility rates from an average of 5 children/woman in 1965 to 2 children/woman largely reflects increased progress in childcare to rising survivability of born children.

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The world population increased from 2.5 billion in 1950 to 7.9 billion in 2020. That is an addition of 5.4 billion people in 70 years, or a 216% gain.

For the remainder of this century, or 80 years, the world population will level off at 11 billion. That is an addition of 3.1 billion people, or a 39% gain.

The huge increases in the global population during the past 70 years will never be matched again by increases in the next 80 years.

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Dalio/Toynbee view of history cycles. Accordingly the USA is now on a down part of the pattern of civilizations.

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Displays how civilizations drift in historical cycles.

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The fracture of the US society: A drift to a more conservative (more nationalistic and more right wing - e.g. republican view).
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The wealth of the top 0.1% of the population is 20%, the wealth of the bottom 90% is 30%.
That shows rising inequality! Similarly the difference in income is 47% for the top 10% of families. What matters is the inequality in wealth, not income.
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#195 A McKinsey View of the Future Technologies

2020-10-17T15:17:00.002-04:00

#193 US Economics Data and Trends

2020-10-12T17:47:00.015-04:00

The Dow Jones added 251 points or 0.9% to 28,838, up from a deep decline. The S&P 500 climbed 57 points or 1.6% to 3534. The Nasdaq jumped 296 points or 2.6% to 11,876. The current prospects are that Dow Jones will decline in 2021.

The Gross Domestic Product (GDP) in the United States was worth 21,427 billion US dollars in 2019, according to official data from the World Bank and projections from Trading Economics. The GDP value of the United States represents 17.65 percent of the world economy.

GDP per capita PPP in the United States is expected to reach 59,770 USD by the end of 2020, according to Trading Economics global macro models and analysts expectations. In the long-term, the United States GDP per capita PPP is projected to trend around 60,500USD in 2021 and 61,100 USD in 2022, according to our econometric models.

Wage Growth in the United States is expected to be -2.00 percent by the end of this quarter, according to Trading Economics global macro models and analysts expectations. Looking forward, we estimate Wage Growth in the United States to stand at 2.80 in 12 months time. In the long-term, the United States Wages and Salaries Growth is projected to trend around 5.80 percent in 2021 and 3.60 percent in 2022.

#192 Global COVID Data

2020-10-11T14:41:00.008-04:00

The USA with a population of <4% has 20% of COVID cases, ranking #1 in the number of inflicted infections:

China, with a population of 17% of the global population has only 0.4% of COVID cases:

New Canaan COVID death concentrated on the aged population:

COVID infections continue as a threat, but death remain concentrated when high infection rates prevail:

Summary:

People in New Canaan aged over 80% continue to be vulnerable to COVID death.

#191 Federal Budget Forecast - October 2020

2020-10-10T11:59:00.007-04:00

SOURCE: https://www.cbo.gov/publication/56517

The budget deficit will reach a record $3.3 trillion (16 percent of GDP) in Fiscal Year (FY) 2020 and total $13 trillion over the subsequent decade.

Deficits through 2030 will be $2.1 trillion higher than estimated prior to the pandemic and debt-to-GDP will be 11 percentage points higher.

The current crisis will substantially depress revenue and increase spending in the near-term.

All major trust funds will exhaust their reserves in the next 11 years. CBO projects Highway Trust Fund (HTF) insolvency by 2021, Medicare Hospital Insurance (HI) insolvency by 2024, Social Security Disability Insurance (SSDI) insolvency by 2026, and the Social Security retirement program by 2031.

Debt could grow even higher than projected. If policymakers enact $1 trillion of additional fiscal relief, extend expiring tax provisions, and increase appropriations with the economy, debt will reach 121 percent of GDP by 2030.

Summary:

Congressional Budget Office newest figures show that our long-term course is unsustainable, and much worse than before. Once the current crisis ends, policymakers must turn their attention to long-term deficit reduction to put the country on solid fiscal ground. However, that is unlikely to happen

#190 The Global Risk Report

2020-10-07T11:18:00.009-04:00

The world cannot wait for the fog of geopolitical and geo-economic uncertainty to lift. Opting to ride out the current period in the hope that the global system will “snap back” runs the risk of missing crucial windows to address pressing challenges. On key issues such as the economy, the

environment, technology and public health, stakeholders must find ways to act quickly and with purpose within an unsettled global landscape.

SOURCE: World Economic Forum, <http://www3.weforum.org/docs/WEF_Global_Risk_Report_2020.pdf>.

The likelihood of global risks keeps shifting, with global environmental risks ending up in a 2020 assessment. Conclusion: the risk assessment changes and is not consistent.

The expected magnitude of a global impact of risks is also highly changeable and not subject to consistent policy decisions even though environmental effects (including water shortage) appear to dominate in recent years.

Environmental risk far exceed economic risks:

cvcx

Summary:

China government environmental protection policy: <http://www.china-un.ch/eng/dbtyw/zmjg_1/jgzfbps/t176940.htm>

#189 Dalio Comparisons of US vs.China - October 2020

2020-10-06T13:11:00.008-04:00

According to Ray Dalio the comparisons of USA vs. China shows matching: Trade, Competitiveness and Output but lag: Innovation, Military, Finance and Education. The largest gap is in the Reserve Status - which means that the dollar remains the dominant reserve currency.

But the dollar has been losing purchasing power. In more than a decade China may catch up.

It will be continuation of the "Big Cycle" that may ultimately allow China to catch up:

Summary:

Staring from a vastly inferior condition China has progressed so far but it may take at least another decade to surpass the USA. The critical dimension to watch is international currency finances. The best current forecast is in the escalation of the "cold war" which will leave the world split into two separate hegemonies for the foreseeable future.

#188 Gold

2020-10-05T13:26:00.004-04:00

October 05 2020 Gold:

Summary:

Gold should be sold only a an inflation safeguard. Expected price >$4,000.

#187 Current Stock Market Conditions

2020-10-05T11:55:00.012-04:00

The stock market has been showing a wide disparity between its price and its underlying worth. Clearly, the S&P 500 is overvalued.

The rationale behind the rising stock market have been a steady increase in after tax profits. Actual profits have been rising steadily at 7%/annum whereas the S&P 500 has been rising last year near 80%/annum.

The rise of dividends has continued even though the rate of dividend increase as shown a moderate decline recently. Investors continue to buy stocks even though gains from dividends continue to maintain the worth of stock worth. That is how conservative investors continue to make investments that were not too risky.

The problem with conservative investments is the steady decline in the yield of keeping cash in low risk treasury bonds. Close to zero bond yields will drive investors to investments that yield no returns.

In recent years inflation has been modest in services (e.g. +2%) and negative in all other expenditures, Consequently, inflation has so far not been a threat to the holdings of conservatively invested retired persons.

Summary:

Retired investors should keep away from S&P 500 investments while keeping in cash money needed to support living expenses.

#186 Current China Economics

2020-10-04T14:32:00.016-04:00

The real GDP of China has been subjected to wide gyrations in 2020. After dropping by 40% if the 1st quarter it recovered by close to 50%. This reflects a drastic total lockdown of China and subsequent recovery - with minimum COVID losses.

COVID did not cause a reduction in the GDP. The positive trade balance had declined since 2018 and remained close to +$400 billion positive even during the drop early in 2020.

These trends are apparent from the persistence of the China export trade even as the trade balance decreased from 2016 to 2018 largely on account of reduction of trade with the US.

The continuation in the positive balance of trade of China can be contrasted with a steady worsening of the US balance of trade:

The US imported large quantities of goods made by cheap China labor for immediate profits and traded that for acquisition of technology know-how that delivered long-term benefits. In this process China retained long term reserves as $1.5 trillion of increased US debt.

The great disparity between the financing of growth of China and the US can be seen from a much greater dependence on bank loans in China and the US. China funded increases in productive assets through $25 Trillions through locally (e.g. decentralized) administered bank loans whereas the US relied on centrally managed $10 Trillion.

Summary:

China has recovered from COVID, unlike any other economy, to resume positive GDP growth. One of its strength - a positive balance of trade - remained unaffected.

#185 US Population Over 65

2020-09-29T15:49:00.017-04:00

The population over 65 is currently rising over 36 million as the working population between in the 25 to 64 ranges remains between 20 and 25 years. Clearly, this show rapid gentrification of the US,

The % of the US labor force over 65 years old is increasing from 0% in 1986 to 6.6% in 2020. No relative growth in 1986 was due to higher mortality - the number of over 65 years old were dying faster than in prior years.

The top ranked 20% US population earns over 50% of the total household income while the bottom ranked quintile of the population earns less than 4%.

In 2020 there has been a dramatic increases in Government funded contribution of social benefits to the lowest two income quintiles of the population to compensate for a rise in unemployment. Included are mostly people over age of 65.

Meanwhile, the number of people out of retirement and seeking lower-wage employment in the workforce.

Summary:

The number of people and household share of total is rising faster than other sectors of the US population. The ultimate effects of such developments have resulted in a large increase in welfare payments from the government that is financed by rising debt. However, with the exhaustion of government reserves the prospects are that most of the population over 65 will find the financing of their declining years to be unaffordable.

#184 Population Forecasts to 2095

2020-09-29T15:18:00.010-04:00

The projected populations through 2095 show great variability:

SOURCE: https://www.yardeni.com/

Future negative growth rates are projected for: Europe (after 2020; China (after 2030) and Latin America (after 2060). Only US, India and Africa continue positive population growth through 2095.

The aggregate global population growth is as follows:

The US population growth:

The huge China population will age faster than US:

Summary:

Other than population growth in Africa future growth of food and natural resources will depend on the capacity of nations to innovate,

#183 Socio Economic Impacts of Climate Changes

2020-09-26T20:31:00.017-04:00

After more than 10,000 years of relative stability—the full span of human civilization—the Earth’s climate is changing. As average temperatures rise, climate science finds that acute hazards such as heat waves and floods grow in frequency and severity, and chronic hazards, such as drought and rising sea levels, intensify. In this report, we focus on understanding the nature and extent of physical risk from a changing climate over the next one to three decades, exploring physical risk as it is the basis of both transition and liability risks.

Source: <https://www.mckinsey.com/~/media/McKinsey/Business%20Functions/Sustainability/Our%20Insights/Climate%20risk%20and%20response%20Physical%20hazards%20and%20socioeconomic%20impacts/MGI-Climate-risk-and-response-Full-report-vF.pdf>

There has been a discernible warming shift since 1900 in the northern hemisphere.

There has been a pronounced increase in global temperature and precipitation in 10 and 30 years.

The incidence of drought, lethal heat and rising temperature of the water supply take place.

Some of the key climate variables show threshold of a sudden deterioration.

Detailed current measurements confirm trends.

Summary:

Prudent risk management would suggest limiting future cumulative emissions. While decarbonization is not the focus, decarbonization investments will need to be considered in parallel with adaptation investments, particularly in the transition to renewable energy. While adaptation is now urgent and there are many adaptation opportunities, climate science tells us that further warming and risk increase can only be stopped by achieving zero net greenhouse gas emissions. The next decade will be decisive, as decision makers fundamentally rethink the infrastructure, assets, and systems of the future, and the world collectively sets a path to manage the risk from climate change.

#182 Risks to Global Value Chains

2020-09-24T19:55:00.017-04:00

The following chart combines multiple factors, including how much of

the industry’s current geographic footprint is found in areas prone to each type of event,

the factors of production affected by those disruptions and their importance to that value

chain, and other measures that increase or reduce susceptibility. For example, heat waves

affect some regions more than others. Within them, labor-intensive value chains are at

comparatively higher risk—and within that group, those with the highest concentration of

workers in outdoor or non-climate-controlled settings are most exposed to disruption.

SOURCE: <https://www.mckinsey.com/~/media/McKinsey/Business%20Functions/Operations/Our%20Insights/Risk%20resilience%20and%20rebalancing%20in%20global%20value%20chains/Risk-resilience-and-rebalancing-in-global-value-chains-full-report-vH.pdf>

7,033 suppliers (for Dell) illustrate the interdependencies on of a value chain.

These are not distant future risks; they are current, ongoing patterns. On top of those losses,

there is an additional risk of permanently losing market share to competitors that are able to

sustain operations or recover faster, not to mention the cost of rebuilding damaged physical

assets. However, these expected losses should be weighed in the context of the additional

profits that companies are able to achieve with highly efficient and far-reaching supply chains.

A survey of supply chain executives conducted in May 2020, an overwhelming

93 percent reported that they plan to take steps to make their supply chains more resilient,

including building in redundancy across suppliers, near shoring, reducing the number

of unique parts, and regionalizing their supply chains. The respondents

included supply chain and operations’ executives representing diverse value chains,

such as pharmaceutical and medical products, automotive, advanced electronics

and semiconductors, consumer packaged goods, chemicals, and metals and mining,

among others. When companies understand the magnitude of the losses they could face from supply chain disruptions, they can weigh how much to invest in building resilience. Many options can boost productivity at the same time, providing a win-win.

Summary:

Hedging against supply chain interruption is not advisable. Instead pursue possible conservative gains of secure stocks.

#181 Prospective Investments in Bio Firms

2020-09-24T13:39:00.009-04:00

Vertex (VRTX) - $ 261.5 - not an attractive investment yet.

Vertex Pharmaceuticals discovers and develops small-molecule drugs for the treatment of serious diseases. Its key drugs are Kalydeco, Orkambi, Symdeko, and Trikafta for cystic fibrosis, where Vertex therapies remain the standard of care globally. Vertex's pipeline also includes therapies for cancer, pain, inflammatory diseases, influenza, and other rare diseases.

Gilead (GILD) - $ 62.2 - not an attractive investment yet.

Gilead Sciences develops and markets therapies to treat life-threatening infectious diseases, with the core of its portfolio focused on HIV and hepatitis B and C. The acquisitions of Corus Pharma, Myogen, CV Therapeutics, Arresto Biosciences, and Calistoga have broadened this focus to include pulmonary and cardiovascular diseases and cancer. Gilead's acquisition of Pharmasset brought rights to hepatitis C drug Sovaldi, which is also part of combination drug Harvoni, and the Kite acquisition and pending Forty-Seven acquisition boost Gilead's exposure to cell therapy and noncell therapy in oncology.

#180 The Future of Bio Innovations

2020-09-24T12:47:00.011-04:00

Advances in biological sciences, combined with the accelerating development of computing, data processing, and artificial intelligence (AI), are fueling a new wave of innovation that could have significant impact in sectors across the economy, from healthcare and agriculture to consumer goods and energy. At present we are finding a rapidly evolved discipline to bring bio innovations:

SOURCE: <https://www.mckinsey.com/~/media/McKinsey/Industries/Pharmaceuticals%20and%20Medical%20Products/Our%20Insights/The%20Bio%20Revolution%20Innovations%20transforming%20economies%20societies%20and%20our%20lives/May_2020_MGI_Bio_Revolution_Report.pdf>

The projected applications will cover a wide spread of innovations that hitherto were not feasible:

There is a wide range of research efforts that will now cover the bio domains:

Human health and performance have the most scientific advances and the clearest pipeline

from research to application. The science is advanced, and the market is generally accepting

of innovations. However, based on our use cases, the impact could be far more broad-based:

in the next ten to 20 years, more than half of the direct impact is likely to be outside health,

primarily in agriculture and consumer products.

Summary:

The potential for beneficial economic and social impact seems enormous. As much as

60 percent of the physical inputs to the global economy could, in principle, be produced

biologically. Our analysis suggests that around one-third of these inputs are biological

materials, such as wood, cotton, and animals bred for food. For these materials, innovations

can improve upon existing production processes.

Personally this will require reliance on medical services. Investments in biological stocks is questionable.