Tag Archives: Government

China Is Crushing One of Its Most Innovative Companies

Didi Chuxing, or “Honk Honk Taxi”, was one of the greatest success stories of Chinese tech. Founded in 2012, it broke out just months later by providing rides during a heavy Beijing snowstorm. A regular taxi was impossible to get, but Didi came through.

After that, the company was on the fast track. It raised over $23 billion in funding from major venture firms like Softbank and beat Uber to dominate the Chinese market. So when the time came to go public this summer, markets had every reason to cheer.

Just sixteen days later, things look a lot different. Here’s what Didi’s stock has done:

Investors are down 15% in just two weeks, a disappointing debut. Meanwhile, Didi’s offices are flooded with Chinese state security agents:

China sent regulators including state security and police officials to Didi Global Inc.’s ride-hailing business on Friday as part of a cybersecurity investigation, the latest development in a regulatory saga that has gripped China’s tech industry.

Regulators from government units including the Ministry of Public Security, the Ministry of State Security, the Cyberspace Administration of China, the Ministry of Transport and Ministry of Natural Resources will be stationed at Didi starting Friday for the investigation, the cyberspace administration said in an online statement.

Potential outcomes include financial penalties, suspensions of business licenses and criminal charges.

Imagine if, shortly after its IPO, FBI and CIA agents raided Uber headquarters. This is exactly what’s happening to Didi.

Didi may not have adequately disclosed the concerns the Chinese government had about its security practices. That, and substantial investor losses, set the stage for a tsunami of shareholder lawsuits. Indeed, a class action suit has already been filed against Didi.

I see Didi being increasingly distracted by heavy pressure from the authoritarian Chinese government along with cascading lawsuits in the US. Even if the company survives, they’re distracted and ripe for disruption.

There is no evidence Didi has actually done anything improper with user data. But the Chinese government doesn’t like any information passing outside its borders, and companies are required to make disclosures to IPO in the US, so Didi is now under fire from a powerful and dictatorial government.

Another company had its IPO on the same day as Didi: SentinelOne, a California-based cybersecurity startup. Here’s how they’ve done since:

Up 4% with no regulatory problems: a situation Didi can only dream of.

If one Chinese company after another comes under the Communist thumb, and investors suffer as a result, why wouldn’t the venture funding go to the SentinelOnes rather than the Didis? Even in today’s hot market, there are always more startups than there is funding. Chinese companies, with their unique regulatory risks, are likely to be the last in line.

China has generated amazing innovation, but those days may be coming to an end.

Have a good weekend everyone!

More on tech:

HOW CHINA’S TECH INDUSTRY DIES

CHINA IS KILLING ITS TECH INDUSTRY

INSIDE A STARTUP ACCELERATOR DEMO DAY

Photo: “crushed can” by subsetsum is licensed under CC BY-NC-ND 2.0

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This Congressman Is Buying Dogecoin

Dogecoin has become so popular, even Congressmen are getting into the game:

U.S. Rep. Mark Green purchased Dogecoin on April 1 and April 14 according to Congresstrading.com. The purchases were in the amount of $1,001 to $15,000 on each occasion.

A $1,000 purchase each time would now be worth $17,078 based on today’s price of $0.4009. A $15,000 purchase each time would now be worth $127,985.

More here.

As cryptocurrencies including dogecoin become increasingly mainstream, with more investors holding them and more companies accepting them as payment, it will become harder and harder for the government to ban or even regulate them. Congressmen won’t want to hurt their own portfolios, nor those of their wealthy contributors.

For more on dogecoin, check out these posts:

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Why Aren’t Flu Vaccines Free for Everyone?

If you have health insurance in the United States, you can usually get a flu vaccine for nothing. But for the 28.9 million Americans who are uninsured, a flu vaccine can cost up to $50. For a population that is often hard pressed, this can be unaffordable. And if you have a family of 4 to vaccinate, the numbers are even worse.

Meanwhile, COVID vaccines cost absolutely nothing, whether you have insurance or not. Why aren’t we doing the same for flu vaccines?

Medicare pays $10-60 for flu vaccines, with an average price of $36 across all the vaccines they cover. If the federal government bought one for every uninsured American, the price would be $1.04 billion.

In the midst of the COVID pandemic, it’s easy to forget just how deadly the common flu can be. But the flu has killed between 12,000 and 61,000 Americans per year since 2010.

How do we decide if a policy is worth it compared to the number of lives it could save? The government uses a figure called the “statistical value of a human life” to measure whether many policies, such as environmental regulations, are worth it or not. That figure is about $10 million.

At that rate, giving a free flu shot to every uninsured American would only have to save 100 lives a year in order to pay for itself entirely. That’s just 0.2% to 0.8% of all flu deaths. Offering free flu vaccines to 8.8% of the entire population would probably prevent a lot more than a fraction of a percent of flu deaths.

Let’s give this policy a try!

For more on health, check out these posts:

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Photo: “01a.UStreet.NW.WDC.13September2015” by Elvert Barnes is licensed under CC BY-SA 2.0

GameStop Hearing 2.0: What You Need to Know

At 10am Eastern time today, Congress will be having its second hearing about the frenzy in GameStop Corp. shares that sent the stock up 1700% in January. This hearing is unlikely to affect the price of the stock much. Rather, it will dig into whether or not the trading system around it is fair.

A major focus will be a process called “payment for order flow”. This is the revenue model used by brokers including Robinhood, which handled many of the trades in GameStop. Under this model, the app user pays nothing to trade stocks. Instead, Robinhood gets money from the companies that execute the trades for the privilege of fulfilling those orders.

Experts on payment for order flow will testify:

Sal Arnuk, co-founder of trading firm Themis Trading, plans to spotlight the growing role of payment-for-order-flow, where retail brokerage houses such as Robinhood channel customer orders to specific trading firms in exchange for payments.

“These practices create a massive incentive for such brokers to sell their clients orders to sophisticated trading firms uniquely tooled to profit off of them,” Mr. Arnuk will say, according to preliminary testimony released by the House committee. “This is a needless conflict that can harm retail investors, and it degrades the integrity of the market ecosystem as a whole.”

Why do the companies, like Citadel, that execute the trades want to pay to do it? Because they can find a price better than the public market, buy or sell to you for a slightly worse price (but still better than the public market), and keep the difference for their trouble.

Robinhood and Citadel maintain this is a better deal for investors. And indeed, there is independent research to support that claim. However, Citadel has been fined for giving customers worse prices than public markets, as has Robinhood.

A month ago, I called for Robinhood and Citadel to release a data set of executed trades to prove their service is a better deal than public markets. Congress may demand something similar. If their service really is better, they have nothing to lose and everything to gain by showing us what a great deal they provide!

For more information on payment for order flow and GameStop, check out these posts:

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Photo: “Maxine Waters” by Gage Skidmore is licensed under CC BY-SA 2.0

10 Years of Legal Weed: Fewer Opioid Deaths, More Jobs and Tax Revenue

I got an interesting message in my e-mail this morning. The NPR Planet Money newsletter reviewed the prior nearly ten years in legal marijuana in some states, and came to some interesting conclusions:

What’s changed:

  • More marijuana use
  • Way more jobs
  • Way more tax revenue. California makes over $600 million a month.

What hasn’t:

  • No effect on crime or traffic accidents
  • No change in price of marijuana. Evidently the product and service at the legal stores is so good people prefer it to anything else.

What might have:

Use of opioids. In the working paper linked from the newsletter, I found this incredible stat:

…Chan, Burkhardt, and Flyr (2020) show that RMLs [recreational marijuana laws] reduce opioid mortality by 20% to 35%, implying that both opioid use and misuse decline as legal marijuana access expands.

Given the mass death caused by opioids, this alone seems like reason enough to legalize marijuana in my book.

I read this newsletter with particular interest since I live in New Jersey, which recently legalized marijuana but doesn’t yet have weed stores the way California, Colorado and other states do. It looks like we mostly have positive changes to look forward to.

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Photo: “Vancouver Global Marijuana March 2015 – by Danny Kresnyak” by Cannabis Culture is licensed under CC BY 2.0

The US Government Is Selling Its Bitcoin

The US government is selling its bitcoin…all $38,000 worth:

Tucked away among the Ford, Dodge and Chevy sedans, the 12,000-gallon storage container and the inoperable Caterpillar tractor being auctioned off by the U.S. government is an unusual item: 0.7501 of a Bitcoin.

The federal government did not reveal the source of its cryptocurrency holdings, but I imagine they were probably seized in a bust of some sort. Indeed, a far larger collection was sold off when the Silk Road was shut down:

The government doesn’t say where its surplus digital currency came from. And while it’s a far cry from the 30,000 Bitcoins auctioned off by the U.S. Marshals Service in 2014 after they were seized from the Silk Road marketplace, the GSA auction is one more indication of how Bitcoin is becoming more and more mainstream.

This does make me wonder if eventually states and sovereign wealth funds will buy crypto and hold it. Can the day be far in the future?

For more on the latest in cryptocurrencies, check out these posts:

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Photo: “Vice President Joe Biden visit to Israel March 2016” by U.S. Embassy Jerusalem is licensed under CC BY 2.0

Bitcoin Anonymity Could Become A Thing of the Past If This Regulation Passes

In the waning days of the Trump administration, the government proposed regulations that would ban anonymity for holders of cryptocurrencies:

Users whose wallets now are only identified with codes would have their true identities recorded with the financial institutions they zealously avoided.

This proposed regulation has now been passed on to the Biden administration. There’s no timeline for a decision, but removing anonymity from crypto transactions could hammer the price:

If adopted, the regulations could cause a sharp fall in the prices of virtual currencies like Bitcoin, said Matthew Maley, chief market strategist for Miller Tabak & Co., adding that he thinks Bitcoin’s price will continue to rise in the long term.

There are some major companies like Fidelity and Coinbase pushing to retain anonymity, and I think their political influence may stop such regulations. But on the other hand, the possibility for anonymity to facilitate drug deals and terrorism could push the government in the opposite direction.

For more on the latest in cryptocurrencies, check out these posts:

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Photo: “Bitcoin, bitcoin coin, physical bitcoin, bitcoin photo” by antanacoins is licensed under CC BY-SA 2.0

Europe Is Falling Behind the US, and It’s Going to Get Worse

A huge untold story of the world today is how far Europe has fallen behind the US economically in recent decades:

Here are the 2019 numbers (in 2019 dollars, again World Bank) US: $65,297. UK $42,330. That’s 35% less than the US. Or, the US is 54% better off than the UK.. France: $40,494. Italy: $33,228 That’s 50% less than US. Or the US is 96% better off than Italy. China: $20,261.

And it’s been getting steadily worse. France got almost to the US level in 1980. And then slowly slipped behind. The UK seems to be doing ok, but in fact has lost 5 percentage points since the early 2000s peak. And Italy… Once noticeably better off than the UK, and contending with France, Italy’s GDP per capita is now lower than it was in 2000.

More here.

So why is this happening? Regulation and lack of investment in IT in the services sector are chief suspects.

I definitely noticed this difference when I went to Paris for the first time in the fall of 2019. I was expecting a gleaming city, but I was surprised at the poverty I saw. There were panhandlers at the airport, which I’ve never seen in the US, and a lot of crumbling buildings and down-and-out people. It was rather sad. However, I enjoyed my time there a great deal, and would recommend their delicious food and superb art highly.

With the vaccine rollout in Europe going far more slowly than in the US, I think they will fall much further behind, and quickly. Other parts of the world will be wide open while they’re still locked down.

On the bright side, this could provide a great opportunity for the UK to catch up, since it has outpaced the US, China and almost every other country worldwide on vaccines. Their speed and innovative policies, like delaying second doses of vaccines, have impressed me a great deal.

For more on the economy and financial markets, check out these posts:

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Photo: Image by Nocturnales is licensed under CC BY-NC 2.0

Texas Failed to Prepare Its Energy System for a Deep Freeze

As many in Texas enter a fifth day without power in freezing temperatures, I searched for information on how such a disaster could’ve happened.

I came upon some excellent perspective from Professor Daniel Cohan at Rice University:

See the entire Twitter thread here. Very much worth reading.

Not preparing the full energy system, from natural gas wells to the electrical grid, for a deep freeze seems to be the culprit.

This makes sense to me as someone who has lived his entire life in the frozen North…northern Maine, Wisconsin, and New Jersey. We’ve had storms and cold even worse than what Texas is experiencing on a regular basis, but I don’t recall the power ever going out. And I’m very grateful for that as I type this in my warm living room.

To me, this calls into serious question the Texas regulatory model, where ERCOT regulates a Texas-only grid that’s exempt from Federal oversight. If they can’t plan for extreme events, why do they exist?

In the mean time, as families resort to making little fires in their homes to stay warm, perhaps Governor Abbott can help. If the Governor’s Mansion has power, why not invite people to come there and warm up? Even a small gesture like that could bring warmth to a few people.

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Photo: “Caricature: Texas Governor Greg Abbott” by DonkeyHotey is licensed under CC BY-SA 2.0

Payment for Order Flow Really Does Help Investors, Research Indicates

Citadel CEO Ken Griffin claims that even though they pay Robinhood to execute their trades, investors are getting a better deal than they would in public stock markets:

Citadel CEO Ken Griffin said Thursday that the system has been “very important to the democratization of finance. It has allowed the American retail investor to have the lowest execution cost they’ve ever had.”

Sounds hard to believe, right? I’m naturally skeptical they’re giving those small investors a worse price and keeping the difference. However, one of the few recent studies to analyze payment for order flow (PFOF) finds the opposite:

Focusing solely on execution prices, we find that the cost of liquidity on exchanges utilizing the PFOF model is 80 bps higher than on exchanges utilizing maker-taker pricing. Nevertheless, when taker fees are incorporated into the analysis, the cost of liquidity on the PFOF exchanges is 74 bps lower.

More here.

In other words, the prices the PFOF model gave investors were a bit worse, but when you consider the commissions they would’ve paid otherwise, they came out ahead. This study was limited to options, not stocks, but many Robinhood users trade options as well.

On the other hand, Citadel has been fined before for offering worse prices than public markets. Until we see a comprehensive data set on Citadel-completed trades versus comparable ones on public markets, this will remain a difficult question to answer. I know of no such data currently available to the public.

If Robinhood or Citadel came out with something like that, I think it would go a long way toward allaying the concerns of investors and regulators.

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Photo: Citadel CEO Ken Griffin. “Ken Griffin with computers” by insider_monkey is licensed under CC BY-ND 2.0