Silicon Valley’s low key Loki, What China’s Housing Bust Means, and the Undrinkable now Served in the Inedible

Gru?zi! I’m Adrian Monck – welcome to this World Economic Forum newsletter, coming to you from Washington DC!

Also this week – Storm hit spaghetti, a young refugee asks you to put yourself in his shoes, and Ted Lasso gifs!

Need an excuse to reach out? – Share this newsletter!

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1???Silicon Valley’s Loki #business

A dark origin story from the Palo Alto universe.

Not so fast. Max Chafkin profiles the Valley’s non-fictional favourite villain in a new book. According to Chafkin, the real life god of mischief, Peter Thiel, is:

• “the single person whom tech’s young aspirants and millennial moguls most seek to flatter and to emulate, the cult leader of the cult of disruption.
• “The blitzscaling strategy he and his employees pioneered at PayPal created the growth playbook for an entire generation of start-ups, from Airbnb to WeWork.
• “His most legendary bet — loaning $500k to a socially inept Harvard sophomore in exchange for 10 percent of a website called TheFacebook.com — is significant less for the economic return and more for the terms he embedded in the deal.
• “Thiel ensured that Mark Zuckerberg would be the company’s absolute dictator. No one, not even Facebook’s board of directors, could ever overrule him. Similar maneuvers were adopted at many of Thiel’s portfolio companies, including Stripe and SpaceX, and today, across the industry, it’s more the norm than the exception...
• “He collected his thinking in a book, Zero to One. It became a bestseller, partly because it promised a path to Thiel-scale wealth and partly because it developed the idiosyncrasies that had been present in the college-age Thiel into a full-blown ideology...

Founders are godlike, monarchies are more efficient than democracies, cults are a better organizational model than management consultancies.

• More than anything, it celebrates rule-breaking.”

The god of mischief isn’t done yet.

??A god should work on this: challenges in making sustainable economies.

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2?? China’s Housing Bust #economy

Demolishing buildings and balance sheets.

Ming Zhao has a great thread on what’s going on, with Evergrande, China’s most indebted property developer:

• “In 2020 Evergrande was China’s most indebted real estate companies owing USD $300 billion. According to the company’s 2020 annual report, just over a third $104 billion (35%) is interest-bearing debt, which means it incurs new interest liability of $29 million every day!
• “Comparatively, it only has $24 billion in cash to repay all its short term debt + interest which means ... Major defaults to come.
• “How did Evergrande land in such a position? Real estate developers are notoriously known to have terrible (i.e. long) cash conversion cycles. Long CCC means the company has tons of cash tied up in accounts receivables and/or inventory & therefore not “free.”

But while Evergrande was already disadvantaged from the get go due to the nature of its industry, mismanagement at the exec level certainly exacerbated its cash problem 100x. Allegedly Evergrande spends $150-300 million on football every year. And in the last 10 years, it burned > $3 billion.

• “But it didn’t just stop at football. The ‘real estate dev’ also established an entire subsidiary for electric vehicles (‘Evergrande Auto’), another for streaming media (‘Hengten Networks’), an amusement park (‘Evergrande Fairyland’) & health chain (‘Evergrande Spring’).
• “By 2020, Evergrande had erased 75% of all operating income (EBIT) compared to 2018. EBIT in 2020 was only $15 billion compared to $55 billion just 2 years prior. Gross margins had also dropped from 36% in 2018 to 24% in 2020.
• “Then on July 19, 2021, China’s Guangfa Bank (one of Evergrande’s biggest lenders) ordered a freeze on $20 million in deposits. Two more banks (Hang Seng Bank & Bank of East Asia) then suspended new mortgages for Evergrande’s 2 new projects in HK. The house of cards was falling.
• “When are Evergrande’s current debt obligations due? A significant chunk ($55 billion) is due end of 2021 & another ($26 billion) end of 2022 – exact dates not specified.
• “Does Evergrande have enough cash+EBIT to meet its interest + principal obligations for all shareholders? No...”

Property/real estate is nearly a third of China’s economy, according to Ken Rogoff.

Unwinding the property sector is going to weigh heavy on China’s economic future. And that is bad news for the country and for the global economy.

??This might be a better investment: breakthrough decarbonizing tech.

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3?? Take a Moment to Imagine What Another Life Might Look Like

Meet Okello’o Joseph, poet, filmmaker and refugee and friend.

I got to know Okello’o through a visit to Kenya’s Kakuma refugee camp. It’s more city than camp. He’s an extraordinary young person. Put yourself in his shoes.

??How to save the lives of migrants and refugees.

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4???Foiling Forest Fires #innovation

The world’s biggest trees are getting aluminum wrapping to save them.

??We need to save the oceans too: blue carbon credits.

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5?? The Storms Casting a Shadow Over Your Spaghetti #climate

Extreme weather could be hitting a pasta plate near you.

??To tackle the climate crisis, we can apply lessons from COVID-19.

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6?? Edible Coffee Cups #circulareconomy

At one British soccer club, the undrinkable is partnering with the inedible.

??4 industry leaders on what it takes to go circular.

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7?? Belgian #Workplace Comedy

If you’ve been hiding in a bunker, you may not have caught this.

??More back to work fare in our podcast –?Radio Davos.

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If you enjoy this newsletter – please recommend it!

Best,

Adrian

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Thanks to everyone for the help and encouragement.