The Econgram

The Economic Perspective on the Barbenheimer Phenomenon
#Econgram_Business

The Barbenheimer* phenomenon, a summer 2023 sensation, sparked online trends. However, it is also noteworthy for its economic impact.

Data on Barbie:
1) Barbie’s Warner Bros. is the highest-grossing* global release in the studio’s 100-year history, beating out 2011’s “Harry Potter and the Deathly Hallows: Part 2.”

2) “Barbie” made $155 million domestically in its opening weekend, marking the largest opening weekend of the year and the biggest-ever debut for a female director.

3) “Barbie” hit the $1bn global box office mark barely three weeks into its run. This is remarkable considering that the highest-grossing movie of all time is Avatar (2009), with a lifetime gross of $2,846,089,541 ($2.85bn).

4) Gerwig became the first solo female director with a billion-dollar movie.

5) Warner Bros. had a marketing budget of $150mn. It is higher than the $145mn budget to produce the movie.

Data on Oppenheimer:
1) "Oppenheimer" has generated around $300mn at the domestic box office and topped $925.9 million worldwide, making it the highest-grossing biopic in history.

2) Outside of the U.S., the movie’s top markets include the UK, Germany, and France. They accounted for more than $121mn in ticket sales.

3) "Oppenheimer" is Nolan’s third highest-grossing* domestic release, behind Batman movies “The Dark Knight” and “The Dark Knight Rises.”

4) “Oppenheimer” is also the second-biggest R-rated* film in history, behind 2019’s Joker.

Inspired by CNN, Forbes, CNBC, Insider, The Economist

Lockdowns and streaming services contributed to cinema’s recent decline. However, data shows that people are still attracted to the big screen, as the Barbenheimer phenomenon suggests. Is there still hope for the cinema industry?

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A new way to connect East and West
#Econgram_World

Facts:
1) During the G20 summit, the project for a new ship and rail corridor connecting India, the Middle East, and the Mediterranean area was proposed. That would make trade between India and Europe 40% faster.

2) “This is nothing less than historic. It will be the most direct connection to date between India, the Arabian Gulf and Europe,” stated Ursula von der Leyen, president of the European Commission.

Analysis:
1) Despite no binding financial commitment being made yet, the parties agreed to come up with a plan over the next 2 months. The proposal includes a new undersea cable and energy transport infrastructure. Indeed, both Saudi Arabia, the world’s top oil exporter, and the UAE, the Middle East’s dominant finance centre, are willing to become a key logistic hub between East and West.

2) Both the EU and the U.S. have backed the development of this project. The EU negotiated its commitment during a visit by von der Leyen to Abu Dhabi. The collaboration is fundamental to deepening trade and investment ties with the Gulf region. Therefore, the EU has planned to invest €300bn into overseas infrastructure up to 2027.

Inspired by FT

What could be the main difficulties involved in the project?

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U.S. bans investments in China
#Econgram_World

Facts:
1) Earlier in August, Biden signed an executive order to prohibit new investments in sensitive Chinese technology firms. The decision is aimed at stopping the Chinese military from accessing American capital and knowledge. Restrictions will come into force from 2024.

2) According to U.S. Commerce Secretary Raimondo, restrictions on Chinese technology investments are not meant to “decouple” the American economy from China’s. Instead, the bans are necessary to protect national security.

Analysis:
1) Raimondo is the fourth senior Biden administration official to visit China over the last three months. Her goal is to soften the relationship between the two world’s biggest economies following the announcement of new restrictions. Indeed, in her speech, Raimondo stressed the importance of trade relationships between the U.S. and China.

2) Hong Kong's response to the announcement was prompt. The government described the restrictions as “unreasonable measures” because they “damage the economic and commercial interests of American companies themselves”. The restrictions will affect private equity and venture capital firms: they are going to redirect their capital.

Inspired by FT and Reuters

Will these restrictions influence the relationship between the U.S. and China in the long run?

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Is it the end for Erdoganomics?
#Econgram_Turkey

Facts:
1) After years of unorthodox economic policies*, Erdogan is finally fighting inflation.

Analysis:
1) Erdogan is a proponent of unorthodox economic policies. They suggest that the lower the cost of borrowing*, the lower the prices: "low rates, low inflation". That theory made it impossible for the Turkish Central Bank to tackle the country’s rising inflation. In 2022, it skyrocketed to 86% (now 44%).

2) Turkish investors do not believe the central bank will successfully fight inflation. That caused mass investments in foreign currencies and real assets. In turn, that led to an even higher inflation rate: people prefer buying an overpriced good to storing a fast-debasing Turkish lira.

3) Erdogan is retracing his steps. Now, the new central bank governor and the finance minister are voices of economic orthodoxy. Short-term interest rates are as high as 25%, and the new treasury minister is targeting policies that would shield Turkish Public Finances from the lira's fluctuations.

Inspired by The Economist, FT

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Zero-day options: the evidence of increasing market volatility*
#Econgram_World

Facts:
1) Zero-day options* have become increasingly popular in the market since the beginning of the Coronavirus. These options now represent 43% of the overall S&P 500 options volume, up from 6% in 2017.

2) JPMorgan's research indicates that institutional investors* dominate demand. Despite potential gains, some traders acknowledge the high-risk nature of zero-day options.

Analysis:
1) Analysts attribute the recent surge in demand for zero-day contracts to increased market volatility. Moreover, the increase in demand for this type of option might further stimulate S&P 500 price swings.

2) Goldman Sachs noted that a substantial volume of zero-day put option* orders forced market makers to buy protective hedges*, pushing the S&P 500 down 0.4% in just 20 minutes.

3) However, Cboe Global Markets disputes claims that these contracts are exacerbating volatility. In fact, according to the head of derivative market intelligence at Cboe, “The order flow is remarkably balanced between buys and sells, users are diverse, and the use cases are diverse. If volume is evenly balanced, as it is the vast majority of the time, there wouldn’t be an impact on market volatility”.

Inspired by FT

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Saudi Arabia plans to create a domestic arms industry to reduce its dependence on the U.S.
#Econgram_World

Facts:
1) In December 2022, Italy, the UK and Japan signed The Global Combat Air Programme (GCAP). Its purpose is to create an advanced and exportable combat aircraft by 2035.

2) Despite Italy and the UK supporting the admission of Saudi Arabia into GCAP, Japan is against it.

3) According to a senior British defence source, “The kingdom of Saudi Arabia is one of the UK’s strategic partnerships, and UK Defence is keen to deepen work on GCAP”.

Analysis:
1) Japan disapproves of the admission of Saudi Arabia to the GCAP because it would slow down the agenda. In fact, Japan claims that Saudi Arabia does not own the technologies needed to contribute to the project. Besides, the country does not want to give Saudi Arabia access to confidential information and the ability to manage sensitive technologies.

2) Nevertheless, it might be beneficial for the alliance to welcome Saudi Arabia. Indeed, the country could provide a significant financial contribution to the programme.

3) In turn, Saudia Arabia is interested in the project because it is one of the world’s biggest importers of weapons. The majority of imports come from the United States. Hence, Saudi Arabia plans to develop a domestic arms industry.

Inspired by FT and The Guardian

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Germany will legalize Marijuana
#Econgram_EU

Facts:
1) Germany's cabinet plans to draft a controlled legalization of cannabis.

2) The law will allow individuals aged 18-21 to possess up to 25g of cannabis. Those aged over 21 will be able to possess up to 50g monthly. Moreover, the law permits cultivating a maximum of three plants for personal use.

Analysis:
1) Two years ago, the soon-to-be chancellor Olaf Scholz promised to allow the sale of cannabis for recreational purposes in licensed shops. Germany would have been one of the few countries in the world to fully liberalize the sale of cannabis.

2) The initial idea of a commercial model has been disapproved by the European Commission: German marijuana could be illegally exported to other member states. Therefore, Germany has chosen a more cautious approach: only the creation of small "Cannabis Clubs" will be allowed, a practice also adopted in Spain and Malta. Later, Germany will experiment with limited commercial activities in certain pilot regions.

3) Through partial legalization, the country will earn between €600,000 - €1,100,000 in payroll tax and social security from workers in Cannabis Club. A full legalization with shop licenses and a cannabis tax will create additional revenues of €3.4bn.

Inspired by FT, Spiegel Online

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Why do competitors open their stores next to each other: applying the game theory
#Econgram_economic_concepts

The Game theory
One of our previous articles unveiled the game theory and the Nash equilibrium (https://t.me/TheEcongram/343).

The Game theory studies strategic decision-making. In turn, the Nash equilibrium in game theory is a situation in which each player has chosen a strategy and has no motivation to change it.

Why do competitors cluster together?
Why cafes, gas stations and restaurants are often put together instead of being evenly distributed throughout a community? At first glance, that seems to be inefficient. Let us explore Hotelling’s model of spatial competition, which employs the concepts of game theory.

Imagine that John is selling corn at the beach. The beach is rectangular, 1km x 1km. The sea is to the West of the beach. If John had no competition, he would place his shop in the middle of the beach: 500 metres from the Northern border and 500 metres from the Southern border. In this way, John serves as many people as possible.

Nevertheless, Nick has decided to sell corn at John’s beach too. As a result, the two competitors agree on an efficient solution: John will place his shop 250 metres from the Southern border and Nick 250 metres from the Northern border. In fact, that is a socially optimal solution. It minimizes the number of steps visitors should make to buy corn.

One day John comes to work and puts his shop in the middle of the beach. Now, Nick is at a disadvantage: John gets all clients from the North and half of Southern clients.

Eventually, both competitors will put their shops in the middle of the beach, reaching a Nash equilibrium.

Inspired by Ted-Ed

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From pessimism to a bull market: the AI boom
#Econgram_World

John Templeton* said: "Bull markets* are born on pessimism, grown on scepticism, mature on optimism, and die on euphoria." We can observe that pattern today.

The phase of pessimism and scepticism
1) In the Eurozone, in October 2022, interest rates were rising rapidly, and inflation was hitting double digits. The S&P 500 index was down by nearly one-quarter from its peak.

2) U.S. tech companies started 2023 in the doldrums*. Several American regional banks collapsed.

3) Investors were betting on interest rate cuts, contrary to the Federal Reserve's claims.

Phase of optimism
1) Hopes for a productivity boom fueled by generative AI* have replaced fears about growth and inflation.

2) Stocks of large technology companies soared. In the first half of this year, Alphabet, Amazon, Apple, Microsoft, Tesla, Meta, and Nvidia dominated America’s stock market returns. By July, they accounted for more than 60% of the value of the Nasdaq 100 index.

3) Overall, stock market indices such as the S&P 500, the KBW bank index, and the S&P 500 EWI suggest that we are in a full-blown bull market.

Inspired by The Economist, The Guardian, CNN

After a successful July, the S&P 500 and the Nasdaq marked their fifth consecutive month of growth. Will this trend continue towards market euphoria?

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Italy's new bank tax will cause a welfare loss of €7bn
#Econgram_EU

Facts:
1) Italy plans to impose a windfall tax* on banking activities. The tax will generate roughly €3bn in revenues for the government. In turn, it will cause losses to the banking sector worth almost €10bn.

Analysis:
1) After 15 years at a 0% interest rate, the European Central Bank is raising rates to fight inflation. That has increased banks' profits.

2) Despite increased profits, banks have not raised interest rates on savings accounts. Italy's government aims to redistribute those "unfair" profits through welfare programs*.

3) Nevertheless, economists are sceptical about the consequences of the imposition of the windfall tax:

- Firstly, the banking sector risks losing €10bn. That is a serious threat to Italy's fragile banking industry.

- Secondly, it is likely that the tax will reduce investors' willingness to buy Italian banks' stocks.

- Thirdly, the imposition of a windfall tax sets a precedent, allowing the implementation of new taxes on excessive profits. That decreases investors’ confidence.

- Finally, the windfall tax will make it even more difficult for the public to borrow money, since banks will have fewer incentives to issue extra credit (which is overtaxed).

Inspired by Corriere della Sera, FT

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Who is profiting from the war in Ukraine?
#Econgram_Business

Facts:
1) BAE Systems, Britain's largest defence company, announced a record £21.1bn worth of new orders in the first half of the year. Demand for submarines, aeroplanes and warships drove the revenues.

2) BAE aims for the full-year EPS* growth of 10-12%, twice its previous target.

3) The BAE Systems' share price has soared by over 70% since the start of 2022.

Analysis:
1) The war in Ukraine has significantly boosted demand for defence equipment and technology. Besides BAE, other defence companies benefited. Among them are Germany’s Rheinmetall and Sweden’s Saab. Rheinmetall’s shares grew by 200%, while Saab’s by 100%.

2) BAE Systems' decision to increase its annual profit forecast reflects its confidence in the business environment and growth potential. In fact, the firm claimed that the orders might increase by over £400mn.

3) The surge in BAE's shares by 70% made it the second-best performer in the FTSE 100 index. That indicates positive market sentiment towards the company. Apparently, investors expect the war to continue in the near future.

Inspired by FT

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BlackRock will hugely invest in the Indian market: what does that mean for New Delhi?
#Econgram_India

Facts:
1) BlackRock reenters the Indian market striking a new joint venture* with Jio Financial Services.

2) BlackRock and JFS agreed to invest up to $150mn each. The project’s profit will mainly come from fees and commissions. The clients might be savers who, for instance, include financial products in their retirement plans. In this way, millions of Indians will get access to innovative investment solutions at affordable prices.

Analysis:
1) “India represents an enormously important opportunity”, said Rachel Lord, head of BlackRock’s Asian and Pacific business. Indeed, the Indian market has undergone a significant reshaping due to digital transformation and rising affluence. BlackRock is determined to reinforce its presence in India, which already represents 15% of the company's assets in Asian emerging markets.

2) The joint venture is expected to be a success: “(it) will leverage BlackRock’s deep expertise in investment and risk management along with the technology capability and deep market expertise of JFS to drive digital delivery of products”, said the chief executive of JFS. Besides, the venture will allow the Indian financial market to expand and get visibility.

Inspired by FT, CNBC

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How to measure income inequality: the Gini coefficient explained

What is the Gini coefficient?

The Gini coefficient is a measure of income inequality within a population. It represents the extent to which income distribution differs from perfect equality.

The Gini coefficient of 0 implies perfect income equality: every person in the population receives equal income.

The Gini coefficient of 1 implies perfect inequality: all income is concentrated in the hands of one person.

How does the coefficient work?

Mathematically, the Gini coefficient is the area between the Lorenz curve and the perfect equality curve.

Lorenz curve is unique to a population. It represents the relationship between the cumulative share of income earned and the cumulative population.

For example, a Lorenz curve could show that 75% of a country’s income is concentrated in the hands of the wealthiest 25%. In contrast, the perfect equality Lorenz curve would imply that 50% of the country’s income is uniformly distributed among 50% of the population.

The Gini coefficient in the real world

The country with the highest Gini coefficient (highest income inequality) is South Africa. The coefficient there equals 0.63. Just below South Africa are Namibia, Suriname and Zambia.

The country with the lowest Gini coefficient of 0.232 is Slovakia. Just above are Slovenia, Belarus and Armenia.

Inspired by Wisevoter

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Korean chipmakers will leave China for America: the Tech Cold War
#Econgram_World

Facts:
1) Due to the recent Inflation Reduction Act*, Korean chipmakers are set to receive billions of dollars in U.S. subsidies, provided that they decouple their supply chain* from China.

Analysis:
1) Up to now, Korean chipmakers have been absorbing America's technology while manufacturing in China. However, China aims to gradually recover from the technology gap by replacing foreign companies with domestic ones. As Chris Miller* claimed, "Beijing will retaliate against you only in places where it can replace you”.

2) The Biden administration recognizes Korean tech firms' fears: America offers billions of dollars in incentives to Korean firms for moving production plants from China to the United States. Besides, Biden makes in-the-U.S. production more convenient by offering tax cuts and subsidies (the same way China has done in the last twenty years).

3) The tech cold war is reshaping the semiconductor industry and the Korean economy. The idea of "seeking protection from the West while making deals with the East" now seems a reminiscence from the 2010s.

Inspired by FT

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Why do personal short-term gains lead to shared long-term losses: unravelling the tragedy of the commons
#Econgram_economic_concepts

What is the tragedy of the commons?

The tragedy of the commons is a situation in which people having access to a public resource act in their own interest, ultimately causing the resource’s depletion.

Overfishing

Overfishing occurs when individual fishermen or fishing companies compete to catch the most fish, leading to declining fish populations in the long term.

For example, imagine there are three fishermen and one pond. In the pond, there are six fish. Every day, each pair of fish reproduces and adds one newborn to the population.

What is the optimal number of fish that should be caught per day? It must be no more than three: one for each fisherman. That is because every day, three fish are born. Hence, the number of fish in the pond can stay constant or even increase if no more than three fish a day are caught.

Unfortunately, people usually act in their own interest irrespectively of the consequences for others. If one of the three fishermen started catching two fish per day, the fish population would decline. In the long term (in our example, three days), no fish would be left.

Some other examples of the tragedy of the commons include deforestation, air pollution, traffic congestion and littering.

Ways to tackle the tragedy of the commons

Economists suggest several ways to address the tragedy of the commons. Among them are the implementation of strict regulations and the imposition of taxes or other economic incentives.

Inspired by Harvard Business School

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