4 min read

Time to get fit

The tech sector needs to adapt to a positive-rate world; China's slowing growth; Xi Jinping thought; and the last European colonial empire.
Time to get fit

1—Time to get fit

The tech-heavy US Nasdaq index is down over 30% from around a year ago, with the sector's decline perhaps best exemplified by Meta, the value of which has been slashed 65% over the same period. Writing on Medium, Altimeter Capital's CEO Brad Gerstner said it's "time to get fit":

"Like many other companies in a zero rate world — Meta has drifted into the land of excess — too many people, too many ideas, too little urgency. This lack of focus and fitness is obscured when growth is easy but deadly when growth slows and technology changes."

Meta is spending $US10 billion annually on the metaverse, which may well prove to be a massive white elephant. Meanwhile Facebook's ad business has stalled and its userbase is in decline. According to Gerstner, Mark Zuckerberg is trying to spend his way out of trouble:

"Over the last three years, Meta has also dramatically increased its capital expenses. Even excluding its large metaverse investment, Meta has gone from $15B in annual capex in 2018, 2019, and 2020 to $30B in annual capex in 2022. To put that in perspective, excluding your large metaverse investment, Meta is investing more in capex than Apple, Tesla, Twitter, Snap, and Uber combined!"

You can read Gerstner's full writeup here (~8 minute read), which urges Mark Zuckerberg to cut Meta's payroll by at least 20% (to mid-2021 levels), halve its metaverse spend and slash its other capex by 33%.

2—China's slowdown

Xi Jinping has a secured a third term, which will probably extend into a fourth so long as he's healthy enough. But can he fix China's ailing economy, which has slowed considerably under his reign? According to Ruchir Sharma of Rockefeller International, the answer is no:

"Growth in the long term depends on more workers using more capital, and using it more efficiently (productivity). China, with a shrinking population and declining productivity growth, has been growing by injecting more capital into the economy at an unsustainable rate.

China is now a middle-income country, a stage when many economies naturally start to slow given the higher base. Its per capita income is currently $12,500, one-fifth that of the US. There are 38 advanced economies today, and all of them grew past the $12,500 income level in the decades after the second world war — most quite gradually. Only 19 grew at 2.5 per cent or faster for the next 10 years, and did so with a boost from more workers; on average the working age population grew at 1.2 per cent a year. Only two (Lithuania and Latvia) had a shrinking workforce."

China is also loaded with debt, far more than any of "the 19 countries that sustained 2.5 per cent growth after reaching China's current income level".

It's unlikely that Xi will deviate from the model he has used over the past 10 years; if anything, he's more likely to double down on anti-growth ideology such as "Common Prosperity" in an attempt to avoid China becoming like the West.

You can read Sharma's full article here (~3 minute read), which concludes that "China at 2.5 per cent growth has major implications for its ambitions as an economic, diplomatic and military superpower."

3—Xi Jinping thought

4—The last European colonial empire

Is there a future for Russia, an empire that clings to superpower status through its nuclear arsenal, rather than its ailing conventional army? Perhaps not:

"Russia is not so much a nation-state as it is basically the last European colonial empire that wasn't decolonised. Imagine if the Portuguese Empire just stayed intact and Brazil was still ruled from Lisbon. That's very close to how the Russian Empire is governed in reality. I think if the decolonisation and dismantlement of the Russian Empire could be pulled into the focus now, it would be a very good thing."

That's from open-source researcher Kamil Galeev, who notes that the various ethnic groups that make up Russia and have "served as taxpayers and cannon fodder for Russian imperial wars for centuries", might be getting tired of the regime. So too "a group of decision makers within the ruling class", who:

"[D]o not invest available resources into military victory in Ukraine. Instead, they're preparing for a situation when Russia gets into chaos."

There are a number of scenarios going forward, including one where Putin keeps power via "militarisation, state ownership of economy, using the bulk of the male population as cannon fodder, and eliminating the last remnants of the rule of law".

The other two scenarios, which you can read in the full interview here (~17 minute read), involve an "imperial reboot" or Russia breaking up into smaller states.

5—Further reading...

🕵️‍♀️ Which country's government controls TikTok again? "In just two years, the share of US adults who say they regularly get news from TikTok has roughly tripled, from 3% in 2020 to 10% in 2022."

👩‍🎓 "US students in most states and across almost all demographic groups have experienced troubling setbacks in both math and reading, according to an authoritative national exam released on Monday, offering the most definitive indictment yet of the pandemic's impact on millions of schoolchildren."

📉 The RBNZ's chief economist Paul Conway said the "very rapid tightening in monetary policy" is starting to have an effect and "there are early signs that the economy is starting to cool", but there are also challenges "from financial market chaos to central banks sort of running low on ammunition and out of control public spending going forward".