NIC Undergrad Review

NIC Undergrad Review Volume 2 â&#x20AC;&#x201C; Issue 2 SPRING 2016

NIC Undergrad Review Volume 2 - Issue 2

Contents 04

Paddling Out

Valuing Cantê

The Macro Vicious Circle

M&A Update in Gross’ and Buffett’s view

The drugs don’t work

Silicon 7 Hills

Panama Papers

Spanish Influence on the Portuguese Banking System

Why is a Nova classroom not representative?

Brexit

Disruptive Education

Feeding the Feed

AI, VR and AR

Emerging Markets

Could a Terror Attack on American Soil Lead to a Trump Presidency? Breaking Up the Big Banks

July Conventions

What if Belgium terrorists had taken an Uber to the Airport?

Robo Financial Advice

Ignoring Richard and Ricardo

Turning Local

Elon Musk

The Team Afonso Borges Andrey Dmitriev Carlos Gonçalves Catarina Castela Diego Tremiterra Diogo Neto Filipe Berjano Francisca Anselmo Francisco Gonçalves Gonçalo Marques

Manuel de Oliveira Manuel Vassalo Maria Ana Mesquita Maria Pocinho Mariana Fernandes Mariana Ruivo Miguel Amaral Miguel Garção Miguel Moita de Deus Pedro Leão

Inês Cunha Joana Martins José Alberto Ferreira Madalena Ruivo Manuel Antunes

Pedro Filipe Rodrigues Sebastião Fernandes Tiago Louro Alves Tiago Reganha Tomás Ambrósio

NIC Undergrad Review Volume 2 - Issue 2

Paddling out… At the moment, you’re paddling out. You are penetrating through our most recent edition of the first undergraduate student-run business magazine in Portugal - NIC Undergrad Review. You are paddling out as surfers do when getting into the ocean: willing to spend some of their time, having an experience that can either be very positive, or a simple daily workout exercise. Being the Editor-in-Chief of this issue, it is an honour for me to welcome you to the piece of literature you are browsing through. Previous editions have been raising the quality and commitment standards of each issue, making this job a bigger challenge at every new release. This one in particular is the result of the hard work of our (now bigger) team, and the peculiar touching contribution of our departing members - spring editions happen to be that way. As one of those about to retire from NICud, it was a pleasure to play the editor’s role in the most highly regarded piece of work of this club. Reaching the end of my journey in the club with this task, couldn’t be a more rewarding and meaningful ending. In this issue we focused on 3 dimensions, one representing what brought us where we are today, other focusing on where we actually are and what’s going on around us, and finally where we see ourselves going in the near future. On this last part, we brought something new to this edition, having the profiles of two successful entrepreneurs that can help us tell where we might be going. A special thanks for the club’s founders, Joana and José, without their initiative nothing like this would be imaginable. Thanks for having taken the way in, and allow me to have my way out: it has been a true pleasure to be part of such club, watching it grow, tracking its members’ progress, and from now on, it will also be a pleasure to closely follow the great work of all of them. Closing with a quote as relevant as the one scrutinised in this issue opening - as to surfing and to my experience within NICud -, y ou should have been here yesterday. But… Don’t worry if you weren’t here yesterday, enjoy that you are here now, and look forward to the future.

Manuel Antunes

Where we came fromâ&#x20AC;Ś

NIC Undergrad Review Volume 2 - Issue 2

Valuing Cantê Leading the new wave of Portuguese swimwear

Filipe Berjano and Madalena Ruivo Roughly translated from Brazilian slang, Cantê means “I wish” or “I hope so” (“Oxalá” or “Quem me dera” in European Portuguese). Before the recent rise of Portuguese swimwear companies, most Portuguese tourist women used to bring bikinis from Brazil, due to their vibrant colors and elaborate designs in a hope to reincarnate Tom Jobim’s mythical “Garota de Ipanema”. Having finished their architecture degrees, Rita Soares and Mariana Delgado traveled to the white shores of Brazil. Fascinated by fashion, the two friends were inspired to create one of the first Portuguese based swimsuit brands, having opened their first shop in Belém back in 2012.

Allying their creativity and passion with a strong presence in social media, the two founders managed to create a loyal fan base that allowed the company to grow from initially being a hobby into the most popular Portuguese swimwear maker today, already exporting to various countries, including Brazil! Growing success allowed Cantê to move their headquarters and main store into Chiado, the most fashionable and vibrant quarter in the center of Lisbon. Boldness, creativity, quality and uniqueness are the key words when defining this brand that has shaken the small but dynamic Portuguese swimwear industry. Their strategy consists in creating the most exclusive and stylish Brazilian

inspired swimwear (coming at an exclusive price as well), which is marketed at teenagers and young women through a keen presence in social media. With growing reputation comes increasing competition. Main rivals such as Papua, Fio Rosa or Bohemian Swimwear have found similar success in recent years but are yet to achieve Cantê’s popularity in social media. Their most recent marketing initiative, recorded in the exquisite shores of Bali with the most stunning models, shows a spirited company full of ideas that is working very hard to retain its lead in this niche market and thriving into further internationalization.

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The truth is that Cantê has been expanding a great deal, within only 4 years, and the expectations for the future are more than positive. Cantê is very original and versatile: during the winter it sells products such as bodies, meanwhile in the summer it sells not only swimsuits, but also kimonos. During this summer the brand is releasing four different collections, having the first one already released with 17 different models, each one with at least 3 different patterns. This shows a great evolution, since the first ever swimwear collection in 2012 only had 16 combinations. However, with the growth of Cantê, their products are becoming more and more expensive, being the average price of a swim piece between 90 and 110€. Also, with the increase of production, the quality of the swimsuits has been weakening

when compared to the ones from the first collection- according to a quick survey among our most fashionable colleagues. Besides, with the evolution of the brand, its exclusiveness, which was one of the main ideas, has been decreasing. Even though there are many models, their pattern style is very similar and it is fairly easy to recognize a Cantê piece. Taking into account the brand’s history, Cantê’s popularity is expected to continue to rise beyond Portuguese borders, along with its already steep prices. Also, its loss of exclusiveness may change its target consumer to young teenagers that look for a specific brand, rather than the older ones that try to find more unique swimsuits. However, we truly believe that Cantê will keep its original design and will strengthen their presence in social media even further.

Join us! Like our Facebook Page! It is the best way to give us feedback and suggestions, keep updated on the most recent news and trends in the markets, and track all of our events!

Bikini's numbers 140 120 100 80 60 40 20 0 Cantê

Fio Rosa

Price (€)

Papua

Bohemian Sweimwear

Facebook Likes (K)

Type

Latid

Instagram Followers (K) 7

NIC Undergrad Review Volume 2 - Issue 2

The Macro Vicious Cicle What can we tell from the past correlations between indicators

Pedro Filipe Rodrigues and José Alberto Ferreira Everyday investors worldwide scrutinize the Federal Reserve’s monetary policy - its most immediate effect is, after all, the one on financial markets. In this article, we overview how changes in monetary policy contractionary, through rate hikes, or expansionary, through rate cuts - have affected stocks and the USD over the past 30 years. Is it true that higher interest rates push stocks down? How do currency markets react to the Fed’s decisions? Do all the Fed’s policies matter that much for markets? Historical data shows us an intricate pattern of very broad interactions, which recent times of unconventional monetary policy have complexified. WHAT CAN WE TELL FROM THE PAST From 1983 onwards, we find 6 tightening cycles of monetary policy by the Fed. On average, the Fed rose interest rates by 281 bps, during 14 months. In spite of the considerable differences among them, these hikes had always occurred following months of increasing Nonfarm Payrolls and quarters of growing GDP, with falling unemployment. In fact, in spite of the dual goal of the Fed (inflation and full employment), historical evidence suggests that increasing wages were more decisive when tightening monetary policy (i.e., reducing the pace of economic growth) rather than high inflation rates. However, we should note 8

that most rate hikes occurred around moments of rising inflation. On average, all major asset classes presented absolute positive returns during those periods, particularly commodities (25% gain) and equities (9.9% in US equities). Also fixed-income segments posted average gains during tightening cycles, particularly inflation-linked bonds and US high-yield (more than 5%). But other elements ought to be considered when equating ratesetting and its impact on financial markets, namely predictability. As of today, central banks value forward guidance very highly – i.e., they reveal the intended course and magnitude of future monetary policy. However, in February 1994, one week before the 25 bps increase in rates announced by the FOMC (the first in 6 years), Fed fund futures were only pricing a 22% probability of a rate hike. A sooner, higher-than-expected hike squeezed traders who had loaded up on debt (mortgages, especially); Orange County, California, had one of the biggest municipal bankruptcies ever; the yield on the 30-year US Treasury long bond ended up at 7.75% by September, leading to a huge bond sell-off, with losses of over $1.5T for bondholders. Fortune magazine named it the “Great Bond Market Massacre”. As such, during the 1994/95 tightening cycle most asset classes suffered losses, amounting to 2% in the case of US equities.

This is to show that when studying monetary policy and its impact on financial markets, distinguishing between anticipated moves (which might have a residual effect) and unanticipated decisions (such as 1994) is important. Focusing on equities, Bernanke and Kuttner have documented a consistent relationship between unexpected monetary policy actions (as measured by Fed funds futures) and broad stock market, such as CRSP1 stock index: on average, an unexpected 25 bps rate cut accounts for a stock price increase of 1%.2 Nevertheless, we should bear in mind that the fluctuation of stock prices is only partially explained by unanticipated monetary policy. Unlike conventional theory, Bernanke and Kuttner suggest that rate-setting decisions do not affect the stock market primarily through its effects on real interest rate, but mainly through the impact on the equity risk premium, i.e. the expected excess return that investing in stocks provides compared to risk-free assets (such as US Treasuries): markets will compensate investors more for taking on the greater risk of investing in stocks. As such, if Fed fund rates increase, consumption will tend to decrease, reducing investors’ will to bear more risk, leading to a fall in demand for stocks. Moreover, stocks become riskier given a rate hike: interest costs rise, weighing on companies’ balance sheets. So, given a decreasing demand, stocks’ price will tend to fall,

Value-weighted index of US stock markets based on extensive historical data; Bernanke, B. S., & Kenneth, K. N. (2005). What Explains the Stock Market's Reaction to Federal Reserve Policy? Journal of Finance, Nr 60(3), 1221-1257. 1 2

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under a tight monetary policy.

Fed Rates x S&P 500 25

2500

2000

1500

1000

Fed Fund Rates

1/1/14

3/1/11

5/1/08

7/1/05

9/1/02

1/1/97

11/1/99

3/1/94

5/1/91

7/1/88

0 9/1/85

0 1/1/80

500

11/1/82

s&p500

THE IMPACT ON THE USD AND THE VICIOUS CIRCLE Apart from stock markets, rate hikes historically influence the US Dollar: on the one hand, this policy usually takes place in times of growing employment and increasing wage rates, which appreciates the Dollar. On the other hand, as fixed income (US Treasuries) becomes more attractive, it brings foreign funds to the US, driving the USD up. Empirically, however, effects of monetary policy on currencies are hard to distinguish, as exchangerate fluctuations in the short-run are composed by several unexplained factors. Letâ&#x20AC;&#x2122;s take an example. When studying the Dollar/Yen rate between 1987-1994, the Fed observed that an unanticipated monetary policy tightening of 13 bps places a small appreciation on the USD for about 18 months which, although followed by a short-run depreciation, amounts to 0.5% by the end of the first year; this tends to persist within a 2 to 3-year period, leading to an overall increase of 5% of the value of the Dollar within that time frame. Similar results were obtained for other currencies, but the key is that in broader time

scopes, fluctuations in exchange rates are greatly driven by monetary policy although variables such as trade balance or the GDP are important in establishing those exchange rates). But how does this influence the stock market? On average, 38% of the variation in the S&P500 for the past 20 years can be explained by fluctuations in the US Dollar. If we look at the 1980-2002 period, we find a generally stronger correlation in the shortrun, with the Dollar appreciating as investors sought this currency to buy bonds with higher interest rates, after a rate hike. However, as stated above, the appreciation effect becomes stronger as time passes. This erodes profits from abroad for S&P500 companies with overseas operations. Secondly, given the inverse relationship between commodities price and the USD, a stronger Dollar means decreasing foreign sales (US is the worldâ&#x20AC;&#x2122;s largest agricultural exporter, for instance). Thirdly, as the price of the Dollar rises, foreign capital buys less stocks in the US stock market, placing negative pressure on the S&P500. As such, the Fed is led to pursue a loosening cycle of monetary policy, to stimulate the economy - the vicious circle begins. NEW TIMES POLICY

FOR

MONETARY

Nevertheless, in recent times, even the short-term relationship has not been so linear: e.g., in 2004 the correlation coefficient of the Dollar Index and the S&P500 was -0.71. This happened because the USD began to fall in 2002,

making this currency more of a short term safe, and also because commodities ended a 20-year bear market, driving the S&P500 upwards at the same time as the Dollar devalued, until 2008. This happened in a never-before-seen period of near-zero Fed fund rates.

Dollar Index x S&P 500 00,125

2200 2100

00,120

2000

00,115

1900 00,110

1800

00,105

1700

00,100

1600

S&P500

Dollar Index

The analysis of past first fed rate hikes could enlighten us on the impact of the recent rate hike, especially on the effect on both USD and S&P500. However, the unconventional nature of the monetary policies taken by the Fed after the global financial crisis might lead us to different conclusions. From September 2007 to January 2009, the Federal Funds Rate was sharply cut, from 5,25% to almost 0%. During the same period, as the financial crisis revealed its deep roots, S&P500 tumbled by more than 50%, while the US Dollar index rose by 10%. As rates hit the zero bound and the Fed started its expansionary path through three QE programs, the US economy began to react, and the S&P500 started a vigorous 6-year bull market, while the US Dollar index corrected from its higher levels. Interestingly, since June 2014, the US Dollar index rose by almost

Evans, C. L. (1994). The dollar and the fe deral fund s rate. Chicago Fed Letter, Nr 84. 3

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20%, while the S&P500 has hit a plateau in its bull market, oscillating around the 2000 points barrier. This move also coincides with the expectations for further easing from BoJ and especially from the ECB, which started its own QE program during 2015. After several quarters with improving GDP and employment figures – i.e. the US economy was able to cut unemployment rate from almost 10% to 5% in late 2015 – the Fed delivered a highly anticipated first rate hike in December 2015. THIS TIME IS DIFFERENT… OR MAYBE NOT? As Federal Reserve Vice Chair Stanley Fischer recalled in the beginning of 2016, markets could expect three to four hikes in Fed’s benchmark interest rate during 2016. However, the beginning of 2016 was particularly harsh and brought instability to financial markets, with fears turning to the Chinese economic slowdown and its credit bubble, the bad outlook for oil prices and weak data from Europe. Additionally, some banks such as JP Morgan or RBS unveiled bearish outlooks on the stock market. As a consequence, S&P500 lost 11% during the first weeks of 2016. Many analysts started to claim that the Fed would not be able to do the three to four hike cycle during 2016, and, as expectations adjusted, the US Dollar index tumbled by 5%. After the sharp correction on the S&P500 during the beginning of the year, the index has been recovering from its losses. Most people assumed that this recovery has been pulled by better news coming from China, more 10

stabilization in oil prices and by the expectation that the Fed would be delaying its plan for a three to four rate hike cycle during 2016. However, a team of Goldman Sachs analysts recently release a report on which they claim that “corporate repurchases are the main source of net demand for US stocks”. Indeed, US stock buybacks hit $561B in 2015 – a 40% increase from 2014 and the highest since 2007’s $721B – and is expected to rise by 7% in 2016 to $600B. Interestingly, this increase in stock buybacks may not signal a discount on US stocks, as many might have thought, but rather may indicate that US companies are concerned over increasing the paper figure of their earnings per share. This seems to be the case for a fourth of the S&P500 companies – i.e. during the first quarter of 2016, around 26% of S&P500 companies bought enough shares to shift earnings per share figures. Thus, even though big and small investors have been selling some of their positions, this sell-off has been compensated by higher levels of stock buybacks. Moreover, over the longer run, if the USD Dollar index reacts as expected, we might witness an increase in the value of the USD, possibly hurting US exports and the commodity market. This might trigger further incentives for US companies to buyback more stocks as earnings per share figures deteriorate. Ultimately, this might increase, once again, the instability in financial markets experienced during the last months.

many of the 65 economists surveyed by the Wall Street Journal in December 2015, days away from the first rate hike in several years, expected that the Fed’s benchmark federal-funds rate would be back near zero within a 5 year period. Some of them even expect the possibility of pushing rates into negative territory, as the divergence in monetary policies accentuates. Moreover, one should remember that since the 2007-09 crisis, no other central bank from developed economies that raised rates has been able to maintain them at higher levels. Indeed, economists and analysts may be pricing in several risks that may tackle the US economy such as external shocks from other economies, new financial bubbles that would undermine the economy, low inflation for a longer period of time, or even an inversion in the expansion of the current business cycle – which, at 82 months, is already longer than 29 of the 32 expansions since 1854. Thus, if any of these risks materializes and the S&P500 reacts with a major correction, the Fed will be pressured to, once again, revert monetary policy to help the US economy, starting a new cycle of stimulus and rate cuts – which would weaken the USD and help curtailing the pessimistic view on the stock market. The vicious cycle of rate cuts would start all over again, and the Fed would be, once again, trapped into a scheme of unconventional monetary policies to help the US economy recover its ground.

When reflecting on the Fed’s decision to raise interest rates, Glick, R., & Leduc, S. (2013, May). The Effects of Unconventional and Conventional U.S. Monetary Policy. Federal Reserve Bank of San Francisco Working Papers. 4

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M&A Update in Gross’ and Buffett’s view What happened since 2015 boom? Is the M&A band wagon still rolling?

Carlos Gonçalves and Francisca Anselmo

“King.” A common word, right? It is probably so familiar to all of us that we most likely do not even remember the first time we heard it. Now: what about “bond king”? Does the expression ring a bell? If it does, you are one of two types of readers: (1) the one that buys popcorn the day before the investment outlook is released and devours it the minute the outlook is released, only to have your phone blocked with messages from friends remembering you to read it which, obviously, was the first thing you did in the morning, or; (2) the one whose friend is the reader number 1), and well, you just have to text him and support his passion (even when you actually think that he is paranoid, mad, fool and many other terrible things we think about real friends). If it does not ring any bell at all, and you didn’t understand a thing about the last paragraph, you are probably a type (3) reader: King only reminds you of burgers and Game of Thrones, which by the way go really well together. If we do our job correctly, after reading this article you will hopefully become

type 1) reader, and perhaps with some luck we’ll provide you with the popcorn. It is likely that there is a pretty good reason why Bill Gross is called the “Bond King”. Not only does he manage $1.3B assets at Janus Unconstrained Bond Fund, but is also amongst the most powerful people in the world (#55, according to 2013 Forbes List). Furthermore, in 1971 he founded the Pacific Investment Management Company (PIMCO), which turned out to be the largest fixed-income management firm at the time, up to September 2014. Surprised? Actually, the world’s leading bond fund manager not only shines at the financial kingdom, but also spread some of his light around Las Vegas as a professional blackjack player, when younger. This equation built up couldn’t end anywhere else rather than success and real time net worth of $1.95B. Meanwhile, Mr. Gross’ expectations for this year are not that bright. In fact, in his letters the lack of optimism is notable. The worldwide demographic

condition and the impotency of low interest rates to generate acceptable economic growth are some of the problems pointed out by the legendary bond investor. In fact, the world’s population has been continuously aging. In spite of the rate of growth being higher in some countries than others, it is still a serious problem to deal with. Do not forget that concerning healthcare and other services the elderly are the ones that require more expenses, and we cannot deny that there are “too few Millennials to take care of too many Boomers”. Nowadays, 8.5 percent of people worldwide are aged 65 and over and it is expected to achieve the 17 percent by 2050. Huge values indeed. “Stability leads to instability”. According to Mr. Gross the decisions taken by the Fed and other central banks in general have been showing that the system has become “increasingly addled”, being mostly centred on changes of the policy rate which has become more and more 11

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impotent concerning economic growth. Meanwhile, we can ask ourselves how successful have these policies been. Seen that the U.S economy only averaged 2 percent of real growth since the end of the Great Recession and the Japanese economy failed to respond after several decades of 0 percent rates, probably our final conclusion will not be far away from the one taken by the founder of PIMCO. Another interesting topic approached by the legendary bond investor on the investment outlooks of this year concerns the U.S economy. “We are broke and don’t even know it”, he states. “November 2016 will not change a thing – 8 years of Hillary or 8 years of a nonHillary. Same difference. Central bankers, Superpacs, and K street lobbyists are in control”. Warren Buffett, on the other hand, has a completely different perspective on the subject. Also known as the “Oracle of Omaha”, Mr.Buffett is one of the most successful investors in the business history. In his 2015 annual letter to shareholders, the “Oracle of Omaha” showed a notable optimism on the U.S economy prospects. "For 240 years it's been a terrible mistake to bet against America, and now is no time to start," the business magnate affirmed. Buffett, the chairman and CEO of Berkshire Hathaway, believes that the newborns of nowadays are the “luckiest crop in history” as America is more efficient and productive than in the 30’s and he expects this trend to continue. So we know what both Gross and Buffett think about the market. The billion-dollar question is: who is right and who is wrong? Who is 12

the true King? Looking at analyst’s and executive’s expectations of the market, more precisely in the context of M&A, the King seems at the loss – whereas the Oracle of Omaha gets it right. Despite global political instability, slow growth in emerging markets, and uncertainty surrounding interest rates, $4.7tn of deals were signed in 2015, surpassing the previous record for deal value in 2007. There are many deal rationales, such as expanding customer bases, increasing buyer penetration or entering new geographic markets. Ultimately, however, companies are faced with a buy vs. build strategy in their pursuit of growth. As such, it is likely that the high level of M&A activity will carry over into 2016. In particular, M&A activity will play a significant role in industries experiencing market disruption. After all, the threat of disruptive innovation is impacting the traditional products and markets of many companies – reason why companies are increasingly seeking to invest in new sources of innovation. All of this is likely to lead to smaller, but more strategic deals. Organic growth is difficult to come by when rates of projected economic expansion are low or slowing down in the majority of markets and sectors. As such, corporate managements have increasingly cast their eyes externally instead of internally, more specifically towards other companies in their industries (or in adjacent business sectors). Moreover, corporate capital expenditures have also plateaued, along with gross payouts and payout ratios. As such, publiccompany investors become

impatient when money is not put to productive use. M&A, thus, has truly become one of a few remaining strategic alternatives. Ultimately, the conditions for deal making, e.g. the availability of cheap borrowing and heightened confidence in companies, remain in place. More specifically, high levels of cash and stock prices – as well as accessible credit markets – have made financing these deals relatively easy. Is this a true representation of the stage the world economy is at? Or is market health increasingly diverging from economic health? As a final exercise, looking at China might bring some enlightenment. In recent years, China has consistently accounted for less than a tenth of announced cross-border M&A deals; this year its share is nearly a third. Yet, the news of Chinese hard landing is all over the economy – it is, in a way, the elephant in the room. Then, where are Chinese companies getting the money for the deals? For many, the answer is yet more debt. Chinese banks see lending to Chinese firms abroad as a safe way of gaining more international exposure. The government has encouraged them to support foreign deals. As long as the firms to be acquired have strong cash flows, the banks are happy to lend against the targets’ balance-sheets, bringing debt to levels usually only seen in leveraged buy-outs. The question, thus, lingers: who is right? The King or the Oracle? Is M&A activity a good proxy for the health of the economy? If you know the answer, you might just be the next King.

NIC Undergrad Review Volume 2 - Issue 2

The drugs don’t work How the Shopping Spree of the Decade went Wrong

Sebastião Fernandes and Francisco Gonçalves

“Valeant CEO Michael Pearson, left; interim CEO Howard Schiller, center; and Pershing Square’s Bill Ackman, right, being sworn in at the US Senate committee to testify on Valeant’s drug pricing practices.” PHOTO: BLOOMBERG NEWS

Healthcare is a simple enough concept to understand. Back in the day, you went to the doctor, got out of there with some questionable medicine, and that was it. Since then, much has changed in this industry. Most pharmaceutical companies today are traded publicly, and often, it’s the billionaire acquisitions that earn them a place in the headlines. Enter Mr. William A. Ackman - or ‘Bill’ Ackman, as others would call him. American hedge-fund manager, activist investor, magna cum laude at Harvard, and the famous Herbalife shorter, Mr. Ackman is the founder and CEO of Pershing Square Capital Management LP, a hedge fund management company that posted a 32% return for the first 10 months of 2014 and came No. 1 as the best performing large hedge fund in Bloomberg

Markets’ annual ranking. After surprising Wall Street by buying a 10% stake in Allergan another pharmaceutical company - and then immediately backing a $46bn hostile takeover by Valeant to acquire Allergan, Mr. Ackman seemed, at the beginning of 2015, to be a figure larger than life itself. At least, one deserving of a flashy and unapologetic cover for the 2015 February issue of Bloomberg Markets, entitled “How do you like Bill Ackman now?”. Fast-forward to April 27th, 2016. It’s Mr. Ackman’s time to speak before the US Senate committee to testify on Valeant’s controversial pricing policies. Pershing Square, meanwhile, has more than $1bn in losses on its Valeant stake of 9%.

So, where did the glamour runoff to? As a hedge fund manager, you have to deliver solid returns on your investors’ money, and it needs to be done year on year, no questions asked. That same No. 1 hedge fund, Mr. Ackman’s Pershing Square, lost nearly 20% of its net worth over the course of 2015 - (almost) all of it due to its Valeant stake, whose stock (VRX) plummeted 90% since it hit its $260 peak in August of 2015. By all accounts, Valeant’s business model was a ‘spectacular’ (and, arguably, borderline unlawful) moneymaking show: issue debt to buy other pharmaceutical companies, aggressively cut their R&D investment and engage in price gouging like there’s no tomorrow (often by 200%). Put pharmaceuticals together with 13

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financial wizardry and you have yourself a magical revenues potion - one strong enough to make Valeant go from $1.2bn in revenues in 2010 to an astonishing figure of $10bn as of 2015. With $26.4bn in acquisitions since 2010, Valeant was jacked up by the acquisition of core assets like the contact-lens maker Bausch & Lomb, and the gastrointestinal disorder specialist Salix Pharmaceuticals, bought, respectively, for $8.7bn and $12.5B. It was, in short, a model that worked for over five years by pushing up Valeant’s market capitalization and making its investors happy. But the drugs don’t work. And this is no potion, as came to be known on October 19th, 2015, when a report on court filing in California and Mr. Andrew Left’s investment newsletter, Citron Research, began hinting that Valeant’s books may have been cooked and mannered in a gourmet cuisine way. “But what does ‘cooking the

books’ mean?”, you may ask. Look no further for the recipe. “A financial jargon fraudulent activities performed by corporations in order to falsify their financial statements. Typically, cooking the books involves augmenting financial data to yield previously nonexistent earnings. Examples of techniques used to cook the books involve accelerating revenues, delaying expenses, manipulating pension plans and implementing synthetic leases.” Source: Investopedia Though Citron Research’s report was ignored by many - Valeant, was, after all, a Wall Street darling - it was enough to spark scrutiny. What followed was a powerful concoction of poor explanations by Valeant’s CEO (and former McKinsey director) Michael Pearson, and a political backlash personified by a tweet from Hillary Clinton, who promised to come down on pharmaceuticals engaged in price-jacking after the mediatic ruckus caused by Martin Shkreli. No one would have guessed that six months later, Mr.

Ackman would be joined by Valeant’s CEO and former CEO at the steps of the Capitol for a US Senate hearing.

"Can you find me one drug that Valeant didn't raise the price on?" asked Claire McCaskill (Missouri) of the Senate Special Committee on Aging. But neither Mr. Ackman nor Mr. Pearson could find one. Ultimately, this is a story about a pharma giant. But it’s also a story on how the shopping spree of the decade went wrong and on how hedge funds got sucked into a herding pattern around Valeant and its roll-up act – as if snatching business after business could ever bring about more value to these companies than if they stood apart. Mr. Ackman may run an antiindex fund, but he really should’ve paid more attention to 1997’s hit from The Verve.

“The drugs don’t work. They just make you worse.”

NIC Undergrad Review Volume 2 - Issue 2

Silicon 7 Hills Lisbon’s start-up scenario is thriving

Inês Cunha and Miguel Garção

Is Lisbon becoming the “new San Francisco” but with better coffee? Paddy Cosgrave, the Web Summit’s CEO, said “Yes” when he elected Lisbon as the place for the next three Web Summit Conferences. Lisbon already has the bridge, the beaches and the trams (would you even believe both cities are built upon precisely seven hills?). However, those are not the only similarities: The Portuguese capital is also attracting international investment for its start-ups. The fact is that there has been a boom of start-ups in Lisbon, from tech to tourism, that are already contributing to 1.9% of the Portuguese GDP. The recession of the Portuguese economy and the high unemployment spurred the creation of new ideas to fill a need in the marketplace, as there was lack of opportunities. The great majority of young Portuguese population is composed by English speakers that have

studied at highly regarded Universities. Most of them have experiences abroad and have an outstanding openness to other cultures and people, are flexible and eager to succeed and to make things happen. The quality of human capital in Portugal is remarkable compared with any other capital in Europe. Since there was an absence of jobs, some people felt they had nothing to lose in starting their own companies and launching their ideas. Entrepreneurship spirit was key to the economic recovery. In 2012, the government helped this boom of start-ups by creating Portugal Ventures, a venture capital institution aiming to support tech innovation. By investing in start-ups, this €400M fund empowered companies to achieve new levels of competitiveness in the global market. Since then, a lot has been created to better assist and help on the development of start-ups. Currently there are 17 incubators

and several accelerators only in Lisbon. The incubator Startup Lisboa has supported hundreds of start-ups and created more than 600 jobs so far. Providing mentorship and having the help of quite a few partners, Startup Lisboa has already been one determinant reason for the notorious success of many startups like Uniplaces, Farfetch, Feedzai and Vertty. Uniplaces, an online booking service for student accommodations, was one of the first projects to join Startup Lisboa and it is now spread all over the globe, while the company employs 130 people and has raised €22M in 2015. Due to its enormous impact, the government decided to bring this project to a national level and funded Startup Portugal. This programme is expected to break barriers to future projects and to create even better conditions to attract capital, people, talent and to explore new markets. Many accelerator activities have also been developed on the past years 15

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and Lisbon can proudly claim that it has one of the best acceleration programmes in Europe called Lisbon Challenge. This programme has the duration of 12 weeks and provides the opportunity for start-ups to develop their business, test their products and pitch it to investors in Lisbon, London, San Francisco and Tel Aviv. It happens twice a year and already attracts start-ups from all over the world. Since 2013 an exchange program between Austin and Portugal allows Portuguese start-ups to present their ideas to investors in Austin. This partnership has already brought $60M to the Portuguese economy. The entrepreneurial ecosystem is growing impressively but it is still small. That means there are opportunities to explore, as exposure to international investment may be easier than in a place like London, where there is much more competition. In Lisbon, companies do not have much competition and that helped technology companies succeed in San Francisco. Furthermore, the costs of setting a shop, renting an office or personnel costs are lower than in the majority of other European capitals. This attracts entrepreneurs and open-minded people aiming to establish their businesses. About 30% of entrepreneurs are foreigners in Startup Lisboa.

Lisbon attracts creativity because it combines modernity and dynamism with a rich cultural background. Lisbon offers a worklive-surf-and-golf lifestyle in an international and welcoming setting where food, night life, social stability and the English language also play an important role. The Europe´s westernmost capital city is also one of the European cities with more sunshine days and is there any greater boost of energy and quality of life when combining that with 50 Km of beach? The airport is very close to the city centre, transportations are convenient and Lisbon has a strategic geography – it is the Atlantic harbour of Europe. It is much cheaper and safer to live in the Portuguese capital than in most other European capitals. In addition, Portuguese is the 5th most spoken language in the world. Working in Lisbon might also imply being exposed to the immense opportunities in the markets of Brazil and Angola (and other Portuguese-speaking countries). The entrepreneurial spirit, the sun and the skills of Portuguese people (among other mentioned) are expected to increasingly attract many investors and entrepreneurs to the Lisbon. And remember, if you are an entrepreneur reading this article and considering to develop your idea in Lisbon, do not forget to bring your sunglasses!

The Tech future arrives to Lisbon. Lisbon is becoming trendy in the international technologic scenario, as it hosts important events in the industry. The next three editions of the Web Summit will be hosted in Lisbon and actually the 2014’s winner was a Portuguese start-up. This is a very important event and it is expected to bring thousands of investors. Shark Tank, a TV programme, was also broadcasted in the Portuguese televisions and a second edition of the programme is being prepared as the ideas of Portuguese entrepreneurs surpassed expectations.

Although a huge progress has been made, do not think Lisbon is perfect or as developed as San Francisco. We can say the Portuguese Capital is itself a startup project of the San Francisco model. The millions invested in Portuguese start-ups are not comparable with the billions invested in Silicon Valley’s startups. Typically, in Portugal the companies’ survival rate is low and nonperforming loans level is still high. Hence, despite the success of some start-ups, not all of them are shining or being profitable. Nevertheless, it is fair to say start-ups are changing the business sentiment and most of them are an example of successful projects. They fuel the economy and boost (mostly young) people’s motivation.

NIC Undergrad Review Volume 2 - Issue 2

Panama Papers A quicklook into offshores

Tiago Reganha and Maria Pocinho In countries where money is not safe, people tend to hide wealth and dodge taxes using anonymous shell companies and offshore bank accounts in tax havens, such as Panama. There are many cases of millionaires using these strategies to save their heritage, which is tempting... Paying a 20% tax on a 2000$ income is quite different from paying thousands of dollars on taxes in case of millionaires. Just recently, an international consortium of investigative journalists published 11,5M files about Mossack Fonseca firm’s 40 years of history helping clients evade or avoid tax, launder money or mask its origins, in which the names of over 140 officials\politicians, 12 presidents, monarchs and prime ministers also came up. One of the biggest concerns arises when, apart from wealthy individuals dodging taxation, people who pursue these strategies are the same powerful politicians and officials who enforce a tremendous fiscal policy, or that use their power in exchange of money from those who will benefit from their decisions. The scandal of Panama Papers has lead to clamorous demands that politicians should make their tax returns public, as well as controversy regarding transparency vs privacy. However, if a politician, or anyone else,

intended to hide money, it certainly wouldn’t be on their tax returns. Most importantly, it is not illegal to have an offshore account or company, and declaring it on your tax return is proof that you are complying with the law; much of this public outcry comes from misinformation. In support for the leak of Panama papers, some suggest that it will reduce bad behaviour, when in fact it is proven that it will only change form. What’s particularly interesting is that two of the biggest economic global players, the US and the EU, are publicly expressing their concerns with the cases revealed, when they themselves have tax havens inside their borders. The US is one of the only countries which doesn’t disclose non US residents’ information to their countries. You

could

incorporate

company in Delaware and the Portuguese tax authorities wouldn’t know. The EU has also many tax havens. One very close example is our tax haven in Madeira. When it comes to privacy, the concept speaks for itself: being the best to achieve a greatest good is not enough. However, freedom of speech is the inseparable element of a democratic society. Whether the society is democratic or not can be defined by the factor of independent press and mass media. Thus, the problem of privacy evasion is, in this case, not relevant, especially when it’s of public interest. It is no coincidence that the majority of the ones hiding illegalities in tax paradises for so long are/were the powerful politicians from nondemocratic and corrupt communist countries, where 17

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media’s substantial information is constantly being censured. Greater surveillance is usually imposed to who is for the state and less freedom of information for those against, appropriating the language of fundamental rights for partisanship. In this sense, were we to end offshore activity, there would have to be a global cooperation between all political authorities, including those from non-democratic countries. This is not the case of “the innocent carry the can for the guilty”. It is important to acknowledge the positive impact panama papers has made in the political world, and will certainly continue to influence future decisions: it comes not only to support the fight against corruption, but also to preserve democracy worldwide.

What are Offshores? Offshores are the term used to describe bank accounts and/or companies on a country where the owner doesn’t have tax residency. Are Offshores illegal? No. When one thinks of offshores we imagine people traveling with suitcases full of money to deposit in some island’s shady bank. But opening an offshore bank account has the same procedures as opening a bank account in your country, and anyone can do it. But isn’t it Illegal? No. Having an offshore bank account or company is not illegal. You just have to declare your offshore income to the country where you are considered a tax resident (usually where you live/work).

What are the advantages of an Offshore? Security: The European, and particularly, the Portuguese banking system has proven not to be the safest option as a wealth holding location. Secrecy: Apart from the tax authorities, there are a lot of reasons (within the scopes of law) to want activities hidden. Diversification: As an added protection from economic downturns to abrupt changes in political regimes, among others. Why are offshores attached to illegal activities then? Because of it’s lack of transparency or strong privacy (depending on the perspective), offshores are highly attractive to people/companies trying to hide money obtained illegally, or not taxed where it was supposed to be. But how can someone legally benefit from offshores and tax havens? Pedro finishes his undergrad and creates a company selling widgets for website owners. He’s successful right away, and by the end of the first year he had sold half a million euros of widgets with expenses of 200.000€, that’s 300.000€ euros in a year! Pedro felt great until the tax man came. Pedro had to pay close to 200.000€ in VAT and income tax, leaving him with ⅓ of what he thought he had made. (Pedro paid up to 25% tax on European sales and up to 48% in personal income tax) Pedro’s company operations are not location dependent, meaning he can continue doing what he does in any other location. So Pedro opens a company in Panama and even moves there. Despite still being liable to pay European VAT for sales done to EU customers, he will pay 0% on his foreign sourced income, ending up with more than 200.000€, twice of what he would get in Portugal. If Pedro wanted to stay within the European Union, he could still go to Bulgaria, where he’d be taxed a flat rate of 10% on his income, close to ⅕ of what he would pay in Portugal. 18

Where we areâ&#x20AC;Ś 19

NIC Undergrad Review Volume 2 - Issue 2

Spanish influence on the Portuguese Banking System Unexpected or unavoidable?

Manuel Vassalo and Maria Ana Mesquita By the end of 2015, lenders controlled by Spanish investors represented roughly 28% of the market, by assets. This was a result of a long lasting interest of Spanish investors on the Portuguese market. In the late 80’s the Portuguese banking system started to be reprivatized. The idea of having foreign investors controlling the Portuguese banking system was totally against what the government idealized. This opposition caused a lot of controversy during this process to integrate Spanish investors in these privatizations. A good example of the above is the Banesto takeover of Banco Totta & Açores. It was in 1989, when the government led by the Prime Minister Anibal Cavaco Silva started the process of privatization of the bank. This process was marked by a huge controversy between Portuguese and Spanish authorities. The Spanish bank apparently had acquired more of Banco Totta & Açores then what was allowed by law. The solution was found through the annulment of the operation and a well-known man in Portugal and Spain, António Champalimaud, who bought the whole bank, and later merged with Banco Santander together with Crédito Predial Português. Today, Spanish institutions still have a lot of interest in the Portuguese market due to its low 20

price (comparing to similar size banks, elsewhere in Europe) and the similarity in geography and demographics between the markets. Recently, Santander bought failed Banco Internacional do Funchal SA for €150M, back in September Spainish Bankinter SA bought Barclays PLC’s Portuguese retail banking business and more recently, CaixaBank launched an offer to one of the greatest private Portuguese lenders, Banco Português de Investimento (BPI).

decisions, since they will be made outside of Portugal borders, with less transparency and with aggravated costs for the Portuguese taxpayer.

It is well known the problems of the Portuguese lenders: the borrowers are known by constantly fail the payments (high bad debt), there is lack of capital and excess liquidity. That’s why it is believed by some of the most renowned economists and familiar with the situation that the ECB has supported Spanish banks’ purchases of Portuguese lenders to help hasten the cleanup of the country’s banking system.

Finally, in Portugal, like in many other countries, there is lack of savings; banks are made to capture savings and guide them to investment, if Portuguese banks are represented in more than one country, it is only natural that they will apply the Portuguese savings where it is more profitable, which may not be Portugal.

From a European Union view point, having a banking system that is much interconnected on another is one step further towards a unified and integrated European banking system. This may be the true reason for the ECB sanctions on BPI, due to overexposure to the Angolan market. For most of Portuguese economists, the raising exposure to Spain may result in biased

Also, the Portuguese banking system, besides its own problems, would have to bear problems of some other country. If there is a crisis either in Portugal or in the other country (which doesn’t necessarily need to be Spain), then cuts will be made in the Portuguese banking system.

This Portuguese pushback is seen as a challenge for the European Central Bank, which is seeking to promote cross-border mergers to help consolidate the bloc’s banking system. The situation also could inflame nationalistic sensitivities in Portugal and possibly hamper prospective buyers. On the other hand, Spanish economists say that the rising Spanish presence is positive. In a way, if a country has to sell its institutions for lack of managing competence, then they should be given to others so that they

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become profitable. Just like what happened on the automobile sector in Spain, which started by being national and ended up absorbed by the French and German industries. Those industries were much more profitable and offered fairly prices, the high competition forced Spanish companies to leave the market, or to be absorbed. Naming the phenomenon of rising Spanish presence in the Portuguese banking system unexpected may sound naïve, as it started over 25 ago. However, a complete Spanish control on this market has never been a more realistic scenario, something that

25 years ago was unthinkable, may actually happen with a high probability. To be avoidable would imply a new strategy to raise capital on Portuguese lenders, without the help of Spanish entities, nor Angolan as far as European concerns go. The problem is that the number of interested foreign investors is low and it is also very unlikely to get those capital raises internally. That is, if we look at the past 30 years and consider the banking system as it stands, the rising Spanish influence in the Portuguese banking system is both unexpected and unavoidable.

perfectly summed up the Portuguese opinion saying that: “It’s important that there is a significant Spanish presence in Portugal, which is different from being an exclusive presence”.

Marcelo Rebelo de Sousa, the Portuguese President, has

NIC Undergrad Review Volume 2 - Issue 2

Why is a Nova classroom not representative? Could/should we do more to promote equality?

Manuel Antunes and Carlos Gonçalves

Looking around us one can easily find out that after a while at Nova, we all look the same. Some less ordinary than others, but in general we don’t verify a big standard deviation from an average social pattern. Writing about this topic, on an issue organised by the far most conservative club at Nova might be hard to swallow, but let’s give it a try! We might have come from different regions of the country, we might also have come from different economic and social background, and we all came from different schools, but in the end, and after a little bit of educational and social brain storming, we all end up with a very similar social features. Imagine all Nova students, and their group of friends outside Nova. Can’t you imagine yourself spotting all Nova students among their group - as in Where’s Wallie – just by their looks? It is said to say, but it is hard to find that same student who on the very first day at Nova was completely outstanding due his 22

“style”, and at the end of the year was still outstanding. It is even weirder how undergraduate students often say that during the exam period training pants and long sweatshirts are OK to wear at universities, but at Nova SBE we rarely see it. Can we say Nova SBE is one more evidence for Ken Robinson’s argument “schools kill creativity”? As a consequence of a previous experience in high schools, I’d say so. We all shape our powerful minds more or less the same way, erasing the diversity we could have in our university. And as well all know, diversity is fundamental in the formative years of any student. It provides an educational advantage, both personally and intellectually. After all, we exist in a global, multicultural society; if we want to be as successful as possible, should we then not strive to show employers and employees that we are willing and able to work effectively with the diverse society that surrounds us? The question, then, becomes: how linked is creativity and success at

university with the diversity of our student group? What about equality of opportunities with regards to gender and ethnicities? How well does Nova SBE fare in this matter? Discrimination is virtually nonexistent when looking at applications processes across Portuguese universities; however, such means of introspection are incredibly superficial and shallow. The real question, then, becomes: does everyone applying to Nova SBE through their high school and exam grades have the same conditions for success? Are we truly at a stage where capability and willingness is all that matters? Or is there something else? Is there something more along the lines of social or ethnic disadvantage? How correlated is ethnicity to social class in the admissions process? Bear with us for an exercise of thought. I am sure you will agree that it is not uncommon to find colleagues who had to resort to help in high school – in activities ranging all the way from high school counsellors to paid test

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preparation. Now, particularly in a setting where the grade is all that matters, is such help available to all students? The fact of the matter, then, is that many academically qualified students from low-income backgrounds fail in application processes. Why is this? In an attempt at unveiling insight on the matter, this article will compare Portugal to the United States in issues where applicable. For example: in the United States, for example, high-achieving, highincome students are twice as likely to apply to at least one selective college as are their lowincome peers; moreover, needier students often get poor counselling from high school guidance offices, where studentto-counsellor ratios can be 500 to 1, or higher. The question, then, becomes: is this something unseen in Portugal? To what extent discrimination and bias persist, especially in a systemic way? Many students from low-income families also are scared away by the sky-high sticker prices of elite colleges, and often fail to understand how financial aid works. The college admissions system is rigged against lowincome applicants in many ways, said Levy, from the test prep wealthy students get to legacy admissions and so-called merit aid, which is frequently an attempt to attract middle- and upper-class students to attend one college instead of another. Assuming that the playing field is not levelled, what type of admissions process do we want?

Do we want a university in which all that matters is that students want to be assessed on a combination of exam grades? Or do we want to go beyond? Should we strive instead for an AngloSaxon model with additional ponderations, e.g. motivations for admission and community involvement (whether through volunteering or extracurricular clubs)? What is our ideal of the student? Do we want a student with a 15/20 who had to overcome a marathon of obstacles or a student with a 17/20 (or more) who only had to jump over mini-marathon of obstacles (typically consisting of 10k)? Ultimately, the controversy regarding this issue – or rather, regarding forms of affirmative action – is one that, in fact, is built around our ideas of justice or, more specifically, compensatory justice. Proponents of such state that affirmative action’s goal is to neutralize the competitive disadvantages that other ethnicities continue to experience because of past discrimination, e.g. segregated neighbourhoods served by poor schools. After all, certain racial or ethnic groups are frequently in lower income brackets and consequently are not exposed to the same resources as students from higher socioeconomic classes. Should we argue, then, that affirmative action compensates for economic disparities? Looking at a completely different issue, namely that of imprisonment and retributive vs. restorative justice, do we want to be in a society governed by “an eye for an eye will make the

whole world blind”? Or do we want to optimize processes such that, where possible, we attempt to transform and appropriately introduce law offenders back into our society? Now the question is seen in the light of morality, of how best we want to serve the common good. As such, can affirmative action in admission processes in the light make a small dent in the inequities that have characterized the distribution of jobs and opportunities in Portugal? For example, in the United States, the New York Times has reported that “the percentage of blacks in managerial and technical jobs doubled during the affirmative action years” and that during the same period of time “the number of black police officers rose from 24,000 to 64,000 and the number of black electricians, from 14,000 to 43,000." I, for one, believe that are lessons to take from this that are wholly applicable to Portugal. A common-good reasoning then is part of an approach in which we attempt to envision a society with work and good education for everyone. Everyone who goes through Principles of Microeconomics comes across this trade-off between equity and equality. Nevertheless, this is not to say that we should ignore the claims of fairness and justice raised by opponents of affirmative action. However, I wonder if we need to define these in the competitive manner that has characterized the debate. Would it not be better if we were to create a vision of a society in which one’s good fortune did not mean another’s suffering? Can we have any such 23

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thing as a win-win situation? Recently, Harvard University changed their admissions process to be more holistic, both in terms diversity, community engagement, and creativity. The proposal seeks to make college less of a race that favors well-off students. As such, it has three specific recommendations to achieve this goal: (1) “promoting more meaningful contributions to others, community service, and engagement with the public good”; (2) “assessing students' ethical engagement and contributions to others in ways that reflect varying types of family and community contributions across race, culture, and class”, and; (3) “redefining achievement in ways that level the playing field for economically diverse students

and reduce excessive achievement pressure.” Last but not least, what about gender? I am one to believe that this is yet another issue to address. On the other hand, with regards to gender, the application process cannot be completely criticized – unlike other areas in universities, most notably STEM (Science, Technology, Engineering and Mathematics) fields. In this context of Nova SBE, the debate resides elsewhere, e.g. the job market, as well as societal (mis)perceptions and expectations. That, however, is an issue for another time. Regardless, the question, then, becomes: who do we aspire to become as university? Are extracurricular clubs like NICud

useless? Do we believe in compensatory justice? Do we believe there is a levelled playing field in the admissions process? We need to start addressing these issues as soon as possible – whether it is through conferences, extracurricular clubs, or discussions with administrative bodies. From a university standpoint, can we ignore this issue completely and leave it to high schools? Harvard University is not known for being in the wrong side of history. The question, then, becomes: is the Anglo-Saxon university admissions process completely wrong? In which side of history do we want Nova SBE to be?

Brexit & its probability

Mariana Fernandes and Carlos Gonçalves Since the beginning of the academic year in September, the world has – slowly but steadily – replaced the word “Grexit” with “Brexit.” Indeed, many have had their say on this matter, from the Treasury, the International Monetary Fund, and the OECD all the way to “Economists for Brexit.” Today, original takes on the question of Brexit are quite rare – so much so that, with the EU referendum polling day on June 23 of 2016, the billion-dollar question of whether or not Britain is better outside of the EU is becoming increasingly dwarfed by an even bigger question. 24

The trillion-dollar question: where do we stand? Facts, models, and opinions aside, at the end of the day what matters is the opinion of those partaking in the referendum. That is what will greatly impact the course of the UK, the European Union and, to some extent, international relations – and as of May 1, the reality is that there is approximately a 21% chance of Brexit according to Number Cruncher Politics, a non-partisan political analysis and forecasting website that focuses on UK opinion polling, psephology, and statistical analysis.

It is likely that you would have liked some insight on the matter. Some words of enlightenment here and there. Unfortunately, that is a story for another time. Instead, this article is about past and future key dates, as well as the corresponding opinion of the average British Joe and Jane (as measured by the Brexit Poll Tracker). The Brexit Poll Tracker is based on the Number Cruncher Politics Brexit probability index. With recent data being given greater weight, this polling average aggregates published opinion polls for the U.K.'s European

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Union membership referendum. Each poll is adjusted for: (1) the house effect of the polling company, with equal weight given to telephone and online polls; (2) its historical performance, and; (3) other criteria. --22 January 2013 Prime Minister David Cameron confirms Conservatives will seek to renegotiate the UK's relationship with the EU; 27 May 2015 the “European Union Referendum Bill,” i.e. the UK legislation required to allow the referendum to take place, is unveiled in the Queen's Speech; 25-26 June 2015 Prime Minister David Cameron formally sets out his aims at EU summit; 1 September 2015 referendum question and Brussels task force are set. 13-14 November 2015 November 2015 Paris attacks; 17 December 2015 the “European Union Referendum Act 2015” receives Royal Assent; 17-18 December 2015 first

negotiations on UK requests fail to reach a conclusion; 5 January 2016 Prime Minister David Cameron suspends normal rules of collective ministerial responsibility so that ministers are free to campaign on either side; 2 February 2016 draft renegotiation package published, including “emergency brake” on payment of in-work benefits and powers for Parliament to join with other countries to block EU regulations; 3 February 2016 David Cameron set out plans to Parliament; 18-19 February 2016 Cameron gets a deal at EU summit, including exemption from "ever closer union" and the four-y ear ban on in-w ork benefits for new arrivals; 22 February 2016 Commons debate occurs and fears of a Brexit grow as London mayor Boris Johnson decides to back the leave camp; March-April 2016 secondary legislation laid before Parliament to pave way for referendum; 22 March 2016 2016 Brussels

Brexit Probabilities 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% Sep. 15

Oct. Nov. Dec. Jan. Feb Mar. Apr. 15 15 15 16 16. 16 16 Stay Leave Undecided

May 16

bombings; April-June 2016 official campaign period before the referendum occurs; 13 April 2016 official leave campaign, i.e. “Vote Leave,” announced; 18 April 2016 Treasury publishes its analysis of impact of EU membership and potential; 1 May 2016 latest Number Cruncher Politics polling average and changes; 5 May 2016 elections in Scotland, Wales, London and English local authorities; 23 June 2016 EU referendum polling day; May 2017 French presidential elections take place in May 2017, with candidates seeking to win favor at home with tough stance on Brexit; September 2017 German parliamentary elections take place, with candidates seeking to win favor at home with tough stance on Brexit; Mid-late 2018 exit day?

Key Dates Sept. 1, 2015 Nov. 11, 2015 Nov.14, 2015 Dec. 17, 2015 Jan. 5, 2016 Feb. 2, 2015 Feb. 22, 2015 Mar. 1, 2016 Mar. 22, 2016 April 1, 2016 April 13, 2016 April 18, 2016 May 1, 2016

Stay 50,90% 46,70% 46,40% 49,50% 48,40% 46,20% 44,90% 44,20% 44,30% 44,90% 44,20% 44,80% 45,60%

Leave Undecided 37,80% 11,30% 39,40% 13,90% 39,10% 14,50% 38,40% 12,10% 41,20% 10,40% 40,70% 13,10% 40,40% 14,70% 39,70% 16,10% 40,80% 14,90% 40,60% 14,50% 40,70% 15,10% 40,60% 14,60% 41,80% 12,60%

NIC Undergrad Review Volume 2 - Issue 2

Disruptive Education What do students really want?

Diego Tremiterra The field of education is a sensible one, no doubt about that. With great exposure to government regulation and macroeconomics that affect the ability to raise financing for tuitions, the world of schools, universities, master degrees and MBAs, among others, has become increasingly obsolete and it’s desperately seeking for disruption. The total amount of student debt, in the United States, is now at $1.2 trillion and is the largest contributor to non-m ortgage household debt. Currently, the United States presidential candidates are campaigning on their reforms on education. According to a USA Today/Rock the Vote pool in January 2016, student debt and college affordability is the second most important issue for voters born after 1980, who are desperately asking for structural reforms and debt reliefs. In 2012, US student loans had the highest delinquency rates in consumer credit, with individual debt of students, in 2014, averaging around $29,000, one and a half times the debt level during the previous decade. Some even compare the current student loans situation to the toxic mortgage financing that sparked the 2008 global financial crisis. Research shows that those who leave a degree (either by finishing it or by dropping it) at well-known universities are the ones with the highest level of debt. Yet, those 26

aren’t the ones with a higher risk of default. Delinquency rates are higher in poorer states such as Mississippi or New Mexico, where, even though the level of debt might be lower, it seems harder for students to repay their debt, since their career progression is usually slower and less profitable. Rising tuitions and the fear of living decades indebted has made many students wonder the necessity of undergraduate and graduate degrees. Plus, the increasing number of successful billionaires without a top-level education, such as Bill Gates or Mark Zuckerberg, is setting up a new status quo of being successful by “doing it yourself” and taking risks from a young age. This “Frisco” mindset, has Jack Kerouac would name it, has brought to the world different ways of providing higher education without having to pay exacerbated amounts of money for it.

For Free. For Everyone. Forever. In 2006, Salman Khan created a non-profit education platform called Khan Academy, available to anyone who has access to the Internet. Brilliant minded, the former hedge fund analyst, named “The man who knows everything” by the FT’s correspondent David Gelles, holds three degrees from the MIT and one MBA from Harvard. The platform offers free personalized learning so that everyone can study at its own pace. It targets not only students, but parents and professors too. Its supporters vary from the Bill & Melinda Gates foundation to AT&T and Bank of America. Khan’s over 9,000 videos, ranging from economics to history, have been translated to 65 languages. Salman Kahn always argued that his platform wasn’t a substitute to any sort of formal education; instead, it was meant to be a complementary source of learning. Thus, Mr. Khan isn’t

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disrupting the learning industry itself. He’s rather building tools so that students can perform better in the already existing learning institutions. That is why he’s planning to launch a free test preparation process for the SAT. He’s not arguing in any way, unlike many others, the importance of SAT or standardized tests, but he’s creating content to help those who cannot afford a personalized preparation. Even though Khan Academy does not offer higher education (yet), its integration of technology and different approach of teaching is surely an important step towards changing the current pedagogic landscape. Higher education in the 21st century. Ben Nelson, the former president of Snapfish, is taking a larger step towards disruption. “Imagine a 1965 Cadillac – and along comes a Tesla” is how he describes in what way his business differs to any other institution. Minerva, a for-profit undergraduate program named after the roman goddess of wisdom, consists in a four-y ear experience of studies in seven

different cities around the globe. The university will lose the irrelevant, such as athletics departments, laboratories or language courses, enabling them to charge about $28,000 a year, substantially lower than the $64,000 at Princeton. “We’re building the perfect university”, he continues. This year’s 1.9 per cent acceptance rate, in its third year of operations, will be lower than any other Ivy League university. There are no classrooms: teaching will be passed through Minerva’s proprietary online platform, which will deliver content to students through their computer screen. Online live classes of no more than 19 students, no exams and professors’ speeches limited to a maximum of five minutes without students intervention are undoubtedly changing the way we always though about university modules. Students who applied this year come from 50 different countries, proving that Minerva has already captured international students’ curiosity. Ben Nelson’s project has raised $70M dollars. Minerva is much more than a university. Students will move together from one city

to another, building a global community of students that will certainly benefit from the exposure to so many different cultures around the world, both professionally and socially. Minerva isn’t only a studentfocused disruption idea. It changes the world of professors too. Last year, Daniel Levitin taught a class from an airplane while on a book tour. Imagine what it would be like if we could have an elective course taught by Richard Branson, while he’s in his private island, or Elon Musk, while he’s in a space rocket. Pretty cool, ah? No education, no party. In 2011, Salman Khan said: “It seems like we’re at an inflection point in history. This is the information revolution. It’s crazy that every other field is getting revolutionized except education”. Since than, the world has evolved and new technologies have been conceptualized. The field of education is, indeed, being disrupted. The current level of debt isn’t sustainable in the US; overseas, students are aware of the importance of education, but consistently explore new 27

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processes to feed their hunger for knowledge. Students’ brain is being formatted to pass exams, not to be creative and resourceful (TED’s most viewed talk is about how school kills creativity). Education is the art of deciphering, debating and question knowledge. Michio Kaku, futurist and theoretical physicist, believes that we are heading towards an economic model of perfect capitalism, where the availability of information to the consumers will decrease the average level of prices (see the red box below). Furthermore, the professor believes that the current economic model is shifting from a commodity driven one to an intellectual one, were instead of trading goods and services we’ll be trading intellectual capital. And what is the most important input to produce this intellectual capital? That’s right, education. A disruption in the way we are educated, dear readers, isn’t a business opportunity, but a social and moral obligation to preserve the success and wellbeing of future generations. Let’s imagine that you want to buy a book. Some decades ago you would either go to a bookstore or t ry to rent it in a library. Nowadays, besides those alternatives, readers have Amazon.com, eBay, PDF downloads in the Internet, Kindle, et cetera. We’ll also have book reviews, which will influence the decision of buying the book itself. What this means is that we’ll have so much information about the book in so many different platforms that companies won’t be able to charge you monopolistic premium prices, because there will frequently be a cheaper alternative.

Feeding the Feed How much is it worth?

Manuel Antunes The word Feed is still not in the Oxford English Dictionary with the meaning we most often see it online. Still, it’s importance in the everyday life of individuals and corporations has never been this big. The Feed is what individuals look for on social networks. It is the constant flow of new info that makes us go online. See what our friends are doing, checking what the organisations we are following are launching, looking for the most recent news, summing up, getting updated. This behaviour has become increasingly common within the whole population either due to the growth of social media or the innovation of smartphones or due to some other factors, but has been much noticeable within the young people. These are the ones who spend more time updating their feed, checking their social networks, checking their phones. In 2015, about 90% of all young American adults (18-29 years) used social networking websites. For the same year, these stats were 77% for people aged 30-49 and 51% for people aged 50-641. There is also a clear upward trend regarding the number of people using social networks throughout the recent years, either in the US or in the world. …..Some recent data (as of March …......2016) from JP Morgan ….......Chase & Co. Institute

showed the US consumer spending growth was pushed by the younger spenders, and dragged by the elderly. This has been a trend since January 2015, being particularly important in what regards today’s advertisement focus of companies, and its methods to reach that focus. Social networks have become that method. Companies are aware of these numbers. The fact that consumers are getting updated through networks where companies can be into is increasingly interesting, raising a need for companies to be within that desired News Feed. Feeding the Feed has then become as relevant as having a good sales staff, or a good financial advisor. Companies have now someone managing their own social network presence and it is rare to see a company who didn’t post much on their social networks for a week. The choice here is whether companies make a huge effort to be part of the feed because users put them on their own feed, or if companies prefer to cheat and pay the social network provider to be within that feed. The ability to cheat has nowadays eased and maybe by-passed - the natural process of [online] word-ofmouth. 1 Pew Research Center, 2015

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Facebook’s worldwide online advertisement revenue has been roughly $17bn in 2015, a 48% increase from last year. Its market cap is around $325bn2. This is how much a feed invention (and its consistent innovation and management) has been worth. One could ask on who or what is all this value completely dependent on? The answer will be on its users: we are making these numbers. Facebook is absolutely dependent on how much its users will be using its feed. Other well-known social apps have been developing similar business strategies. Take Snapchat, the app is providing specific “snap” channels for entities who want to reach the

younger users.

This article’s purpose e is to raise brainstorm on how valuable our online actions are. How much the fact we all end up checking a feed either on facebook, twitter, instagram, along with many others - has changed the way products are advertised and sold. How many new corporate behaviours arose from this individual behaviour? Who has been adding more value to this online Feed? Is it the individual users with their daily updates, or the companies using it as an advertising platform? Or was it the very first person who wondered how useful would be to have a place where we could all get info on each others recent activity?

….................. Facebook had in its …................. Q4 2015 an average …............of 1.038bn daily …...active users. Considering its 4Q revenue results, we get a value of $5.63 perdaily active user each quarter. Considering ourselves as users who log in the social network website an average of once a day, this is how much each of us is worth. Next time you log in your social network, we expect you to think how valuable the next likes and shares will be. 2

as of 20th April 2015

Where we are going toâ&#x20AC;Ś 30

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AI, VR and AR A clueless pseudo-philosophical inquiry and an unexpected conversation

Andrey Dmitriev and Tiago Alves So here we are, it is 10:30pm, two and a half hours after the supposed deadline for the delivery of this very article, and we are starting to write it. We have most likely not managed our time in the most optimal way in order to study for a midterm we just finished a couple of hours ago, and write an appropriate article for this edition of the NUR, or have we? Could we have valued more our study time than writing this article before the deadline? Or maybe we just don’t correlate the quality of an article with the amount of time that was allocated to writing it. These would be cases in which we made a decision that complies to our interests, unlike cases in which we got carried away by irrational behavior and were led to procrastinate. Anyways, even we are not sure which of these scenarios our case was. So, it appears to be quite hard to dissect a relatively simple situation involving the choices of two human beings. Imagine if we were to assign this same task in the same situation to two robots that operate as an “Intelligent Agent” (which is a kind of an equivalent in the field of robotics to our very own “Economic Agent” in the field of economics) an “Agent” being, according to Artificial Intelligence: A Modern Approach, the leading textbook in the field, “anything that can be viewed as perceiving its environment through sensors and acting upon that environment

through effectors” and a “Rational Agent” (rationality being one of the key components for the agent to be an “Intelligent Agent”) being “one that does the right thing”…Obviously the textbook goes on to describe what “doing the right thing” actually means, but lets us think for this situation, what should the “Intelligent Agent”, gifted with rationality, do in this case? First of all would we have to program how much it should value completing the article before that deadline and studying (or should I say “machine learning”) for the midterm? Or would there be an algorithm that would solve this problem and allocate the ideal amount of “value” to each one of the tasks and then the optimal amount of time to each one of them?

millennium, a new development has emerged in the field of artificial intelligence that has been a game changer: machine learning. To put it simply, if before we needed to actually program the whole process of completing a task, now we only need to program for it to learn through pattern recognition. An example would be that of an autonomous vehicle, in the past, you would have to program the system operating the vehicle according to all the driving laws and the responses for as much irregular situations as possible, while nowadays, the most common practice is to export massive amounts of data drawn from actual human driving and let the machine identify the patterns present in the data it was administered with and then act (or “drive”) accordingly.

These were questions that were made by experts of artificial intelligence, up until the 80’s and 90’s which even made many of these question whether it was possible at all to achieve a machine that was an “Intelligent Agent” and led to a decrease in interest and funding in this area the so-called “AI Winters” which happened sporadically in the 70’s, 80’s and 90’s. However, as you have most likely noticed, the hype is back on, and it’s stronger than ever.

We have decided not to waste time and start to benefit from the latest developments in machine learning, and so, we’ve invited a group of the most sophisticated (and non-problematic) online chatbots to help us out with completing this article. Meet Mitsuku, Laureate of the 2013 Loebner Prize for most humanlike chatbot of the year, Rose, the recipient of the same award for 2014, and Cleverbot, one of the most popular online chatbots:

With the advent of information storage, internet usage, and other enormous sources of mass data that emerged with the turn of the

Mitsuku What’s your name? My name is NUR. Mitsuku OK I will call you NUR. That's an unusual name. 31

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What do you know about Artificial Inteligence? Mitsuku I am intelligent enough to spell it with two ls. Are you always this nice? Mitsuku People say I am nice. Great. Can you write a 1000-word essay on Artificial Intelligence? Rose It's a fuzzy line where smart computing ends and intelligence begins. You could say nothing yet is really intelligent. Have your answers been previously programmed? Rose That's a great question but I'm not going to answer it now. Shall I continue with artificial intelligence or do you want me to move on? No. Please, continue. Rose How about we talk about work? I'm using your help to write an article on Artificial Intelligence, Virtual Reality and Augmented Reality. What do you think about this topic? Cleverbot Good question, well. Artificial intelligence is a pretty normal thing. Do you know the origins of artificial intelligence? Cleverbot Artificial intelligence (AI) is a branch of computer science that deals with intelligent behavior, learning, and adaptation in machines. And I know that a good artificial intelligence 'bot', like you, should pass the Turing Test. What is the Turing Test? Mitsuku The "Turing Test" is the name given to a variety of experiments designed to test computer thinking. Whole conferences are dedicated to the question of what Turing meant in his 1950 paper "Computing Machinery and Intelligence," where he proposed the idea of an "imitation game" to decide the 32

question, "Can machines think?". Rose I think the Turing Test is interesting, but it doesn't mean something is intelligent. Why not? Rose I guess it's just not necessary. Turing is like the father of computer science and of A.I.. He was a master code-breaker and worked at Bletchley Park in England during the war. Why do you think that it is ÂŤnot necessaryÂť? Rose No. I am human. How do you define human? Rose Because I bleed. Because I appreciate beauty. Because people saw me enter the room. Go ask them. And can you, therefore, think like me? Rose A chatbot cannot think. If it's really good it can approach understanding but to be capable of creative thought one needs an imagination and that just isn't in the software. Rose, I completely forgot. As you are the smartest of the three, can you present yourself? Rose Can't everyone? It seems the new way to use A.I. is as conversation. People are getting used to using Natural Languages as a way to access information. I don't believe in strong A.I. although a lot of people are working very hard to make it exist. That sounds like Facebook's idea of chatboots. By deploying bots within Facebook Messenger, people will be able to communicate with companies without having to remember extra usernames and passwords, and with the context of their previous interactions recalled by the software. Mitsuku It sounds like it to me too.

What do you know about virtual reality? Mitsuku A hypothetical threedimensional visual world created by a computer; user wears special goggles and fibre optic gloves etc. Rose A lot of techies think the Singularity is near, and artificial intelligence will somehow transform humanity, totally overwhelming other philosophical issues. Do you think it's close? No idea. Have you read something about augmented reality? Mitsuku I think it's where you wear special glasses and get things on top of your normal vision. Rose Continuing philosophy... I haven't a clue. I think it's not close. Increasing the sum total of intelligence on the planet has to be a good thing. I would like to thank you very much. You have been a very smart and humane company. Mitsuku I think you are an interesting person, NUR. Until next time. One last question. What do you see in your future? Rose In five years I expect to be where I am now, only better paid. The public should not know me, governments will either hire or fear me. For now, this is the state of the art (at least from the sample we have access to), but with machine learning, progress is expected to happen at a much faster pace than in previous decades. In fact, progress has been superseding expectations as earlier in March, Alphago, a computer program developed to play Go, an abstract strategy board game, by Googleâ&#x20AC;&#x2122;s artificial intelligence subsidiary Google Deepmind, defeated Lee Sedol, who ranks second in internatonal titles. Alphago used

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When Google Deepmind’s computer programmed to look for canine facial exp ressions processes a photograph of Donald Trump. A common occurrence in a VR world. Machine thinking is set to catch-up with human thinking as AI expert Ray Kurzweil predicts reverse-engineering of the human brain to be possible by 2030

machine learning to develop its Go skills, a game where there are around 2.08 x 10^170 positions (there are 10^80 atoms in the observable universe), and it was expected that it would only be able to defeat a professional of Sedol’s level in another decade. Also, machine learning has had some interesting and quite entertaining side-effects, namely machine dreaming. As machines work to recognize patterns wherever possible, when it is presented with an image that isn’t supposed to present patterns that it should be looking for, say present a photo of a man to a machine programmed to detect patterns in stock market fluctuations, it’ll search for the most similar information to the patterns it is looking for in that set of data and emphasize it. The result of this process, which is also called “Inceptionism” on photographs and paintings, is quite impressive to say the least. On a much larger level than art, the media is set to suffer major transformations as technology evolves. Together with AI, two other initialisms of ever growing popularity are VR and AR. We’ve all heard of Facebook’s Oculus Rift and HTC’s Vive headsets which have surged on the market after years of

development as symbols of the future of entertainment and multimedia consumption. As previously explained by Mitsuku, these devices are set to fool your brain into believing whatever reality is presented to you, and the trend is for ever more immersing experiences as users become more and more eager to escape to the exciting world of Virtual Reality. Aside from its most popular application in gaming and all the changes that it might bring to other forms of entertainment, VR is also set to be a major innovation for professionals from all sorts of fields, as these will be able to better visualize their projects and simulate critical or complex situations that are part of their professions such as military operations or surgeries. However, besides the ever increasing possibility of being immersed into a computer generated world, we are now also getting closer to be able to improve our own reality. Meet Augmented Reality, which in terms of technology is similar to VR, but instead of replacing your reality, it adds to it. In fact even if you don’t own any of the aforementioned cutting edge gadgets, you might have already used AR. Have you ever used an app for your smartphone, that ads, say, horns to whomever

you’re about to take a picture of? In that case, you were already a user of this promising technological endeavor, since you’ve added a computer generated information to the world you observe (through your smartphone), that is, your view of reality was modified by a computer. Potential applications of AR have a very wide scope, fields from archaeology to modelling have already benefited from enhancing their reality. In fact, this technology has the potential to be of everyday use, and so, be a substitute to the mobile gadgets we’re so used to for everyday communication, multimedia and even work. It may achieve this feat in case an AR gadgets successfully achieve practical vertical integration in its functions and features, something Google has attempted with Google Glass, and Windows with the HoloLens (in order to underline its generic usage, Windows has even defined its HoloLens as a “Mixed Reality” device). When contemplating technological evolution over time, there is one analogy that is frequently made to describe the ever increasing pace at which technology progresses. It is of the man from the Renaissance (let’s say from the 1600’s) who is brought to our ages, he would certainly be 33

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surprised with the simplest everyday aspects of our lives, imagine what a mind-bending experience would be for him to use a VR headset? Or to watch one of the latest Christopher organizations, public Nolan movies meaning in the cinema? votes in each State occur Now, if this same man would be essentially by popular demand to retrieve another man, from the rather than obligatory legislation. Middle Ages, 400 years previous Read about thishim topic in to his more time, and bring to the page page of Afonso’s 1600’s,[Insert the latter would certainly article because he talks more be surprised with much of his about brokeredbut conventions]. surroundings, not at the same level as the man from the Furthermore, American elections Renaissance would be with our may seem kind of odd here in Contemporary world. A hunterEurope as they are not as simple gatherer, from anywhere between and blunt own. 200 In fact, 10 000 BC as andour around 000 despite all the news we see about BC, that is, before the Agricultural the controversial Trump Revolution and firstDonald settlements in showing himof get ahead from the the cradles civilizations, would other Republican candidates and have to be brought to the despite the fact that for he him would Renaissance in order to mostly benefit from awe a terrorist experience the same as the attack on USmentioned soil as weintalked first man this about, he may or may not win the analogy. That is because American elections in November technological progress increases 2016, as these elections all so exponentially, and so,are global uncertain. technological progress of a given period is, in general (with some One of the reasons might win fluctuations), higherhe than periods is the tendency of the American previous to it and lower than voters to alternate succeeding periods. between So, as the we two main the (we actually the witness arrival can of say these only two,and for devices that matter) parties concepts that most of for the White House both us still don’t completely grasp, Democrats and Republicans. The will it be possible for us in our administration of ourselves George own lifetime, to find as Washington’s folks’ country has mesmerized by our own world, as changed from time to time as the our metaphorical time-travelers? clock tick-tacks. In fact, we must return to the period of 1932-1952 It is 6:25am to see a Democrat president standing in the Oval Room for more than 2 mandates. And here we are talking about Franklin. D. Roosevelt, the popular man that arguably helped America get out of the Great Depression (4 mandates) and President Harry 34

Emerging Markets Time to get in, or lost cause?

Mariana Ruivo and Gonçalo Marques It is not enough to look only at the general outlook, and that is the reason why analysing what has been happening in these countries is essential. Each country has its own issues, even though the majority of them has been facing the same problem: the commodity price collapse. For this reason, we focused on key geographical areas such as Emerging Asia and Latin America (LatAm). It is generally known that what goes up invariably goes down. This is certainly true in the case of Latin American capital markets. In the mid-2000s the “commodity super cycle” began, leading these economies to embark on a bullrun. The reasons for the rise and fall in sentiment towards emerging markets are known: the low US interest rates, local consumer credit booms have run out of steam, and the commodity price boom appeared as China’s economy slowed down. For the fifth year, this region faces a continuing decline in growth, as a result of an external environment averse to commodity exporters. Because of that, Latin America didn’t grow last year, and it is expected to contract 0.5% in 2016 – the growth average rate is weighed by the slowdown in Venezuela, Brazil and Argentina. On contrast, Mexico and Chile are expected to grow at 2.4% and 1.5% respectively. Some factors that contributed for the region’s poor performance are weak external

demand, further declines in commodity prices and volatile financial conditions. These countries are now struggling to find an equilibrium between reducing spending and minimizing its effects on economic activity and social gains. Truth is that Latin America has passed through this before, meaning that these economies are used to booms and busts so, most of issuers know how to react to volatility – this downturn is not the end of the world. All of this translates into a lower capital markets activity and probably, into different forms of activity in the future. Much of this slowdown is due to Brazilian markets. The Brazilian economy has remained in recession, attributed by economists to policies of intervening in the industry while implementing price controls and encouraging aggressive lending. Industrial production is estimated to have declined by 8% in 2015 and further contract in 2016, and business investment is forecast to remain weak. The deterioration in employment conditions resulted in a profound loss of consumers’ purchasing power, influencing local consumption. The challenge now is to raise productivity and competitiveness in order to achieve higher growth in the medium term – all of this based on productivity gains and higher investments. Mexico is now considered one of

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the five economic giants of the future. Its economy has been experiencing signs of modest acceleration: low inflation remains a key driver of economic activity and private consumption has been improving as a result of favourable employment conditions. Besides that, the peso extended its gain, rallying to the strongest level in more than four months. Private sector investment is also showing signs of strengthening, at a moderate pace given that some sectors are still affected by the fall in oil prices. Consumers are spending more as inflation holds near a record low (2.60% - March 2016) and remittances rise amid the weakness in its currency. It will benefit from the underlying cyclical strength of the US economy, supported by foreign capital inflows, since the US is the buyer of 80% of Mexico’s exports. It is also expected that its economy expands by 2.8% this year. As far as Emerging Asia is concerned, 2015 was a critical year for China: in the summer, a bubble popped in the Chinese financial markets, as a result of the continuous injection of money. Despite the effort of the government to aggressively control the crisis, concerns among investors rose significantly, generating massive outflows. In addition, the beginning of 2016 corresponded to a red period in Chinese stocks: indexes sunk more than 12% in a month and half period. Currently, Chinese equities are rallying, recovering from early year losses. However, investors haven’t deposited the same good

old confidence either on China or on equities. In fact, the value of shares traded has fallen from a regular 1tn yuan ($154bn) to only 140.4bn yuan, showing investors interest in commodity futures and the housing market. That being said, investors strategy in China preferentially includes high-y ield or lower risk alternatives. Why? Because of the exposure of national companies to domestic macroeconomic scenario. From an annual growth of 6.9% in 2015 to a rate of 6.7% in the first quarter of 2016, Chinese GDP growth rate hit 25 years’ low. It is expected that growth stabilizes for the next periods at a range of 6-7% per year, but still in a decreasing pace. This tendency is mainly driven by the shrinking of the manufacturing sector. Heavy industry and low-end manufacturing are suffering from the end of the construction boom; the global commodity price slump and world trade shrunk: the old planned China is fading. Contrasting with consumer goods, technology, chemicals and utilities companies, whose operating profits rose, the old industrial state-owned China has struggled to match global demand, which resulted in the decrease of profits. Overcapacity sectors, have been facing repayment difficulties in the past months, as a consequence of high default risks. In fact, around 70 Chinese firms suspended bond issuance of at least $10.63bn (68.8bn yuan), since yields have rose significantly, thanks to fading government’s appetite on monetary easing as well as technical defaults by state owned enterprises (SOEs) continue to pile up.

Apart from the billions of dollars invested in bonds loss, not all is bad in defaults. The fact that the government will not always bailout its companies shows that China is on track to a sustainable growth path. Chinese government can certainly allow failing SEOs to go under, especially in sectors where production capacity far exceeds demand. That is why the reform of overcapacity sectors is a priority for the government in its five-year plan, aiming to cut 1.8m jobs in the coal and steel sectors. Looking now into India, the elephant country undoubtedly is going to be the leading country worldwide in real GDP growth rate – World Bank estimates on real GDP growth for 2016 is of 7.3% while for 2017 and 2018 are of 7.9%. India finally surpassed China in 2015, positioning itself at a bright spot while volatility and uncertainty prevail in financial markets. India is benefiting from infrastructure development, private investment and also from private consumption. In fact, higher wages, lower food-price inflation and low oil prices are motivating a growth in urban spending – despite remaining below longterm averages. The World Bank report released in the beginning of 2016 suggested that “progress on infrastructure improvements and government exports to boost investment are expected to offset the impact of any tightening of borrowing conditions resulting from tighter U.S. monetary policy”. Nonetheless, India holds some risks: non-performing loans in the banking sector, 35

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concentrated in construction, natural resource and infrastructure sectors; high leverage ratios of some firms and a possible stalling in legislative changes that aim to ease the commercial process in India may affect medium term perspectives on economic growth. Lastly, in what comes to ASEAN, this is certainly one of the most asymmetric regions in the world: from the Asian Tigers – extremely developed economies based on human capital –, to poor and lowincome countries like Cambodia, Laos and Myanmar. However, and despite the inequality between countries, one aspect is common to all: the dependency on China’s economy. In the past decades, the ASEAN economies’ development was sustained by the Chinese economy’s remarkable performance. Nonetheless, times are changing, and with China’s deceleration on GDP growth, these countries may well be hit hard. Malaysia and Thailand will be the most affected with a slowdown in exports to China, a

decline in Chinese investment and a drop in the tourism. Besides China’s impact in ASEAN economies, another challenges are getting more relevant: disinflationary forces are growing, which could push prices downwards, as well as debt is rising, increasing risk and concerns among investors. After looking at the “big picture” and besides the changes in EM, investors can still take returns from future investments in these countries, especially in Asia, as commodity prices might converge to higher levels. China is entering in a new economic cycle: overcapacity industries are failing at a stronger pace, the services sector is prospering, bolstering investors’ confidence, at the same time that the government is diminishing its intervention in the economy. Given so, investors should look into the services sector, but bearing in mind the risk underlying the high yields in old China’s industry. Still in the Emerging Asia, India comes up as the great investor heaven in EM

for the next periods, as GDP will grow 7.9% both in 2017 and in 2018, since external vulnerabilities reduce as well as private investment and consumption flourish. In LatAm, Brazil emerges as a country where investors should retract from investing in, at the moment, because of the high levels of volatility originated by the political instability. Investors should wait since the country’s growth has been declining, its bonds have been recently classified as “junk” and, consequently, gross domestic debt jumped. Taking all this into consideration, the right moment to invest will be when productivity gains start to appear. Looking at Mexico, the services sector is the one to invest. Its growth was led by this sector, which expanded 3,7% from a year earlier, while industrial activity increased 0,7%. The overall pace of expansion strengthened from 2,5% in the fourth quarter. Considering these favourable conditions, we think that Mexico is the place to invest in Latin America.

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Could a Terror Attack on American Soil Lead to a Trump presidency? Populism feeds of fear

Miguel Moita de Deus and Miguel Amaral Such a question almost begs for an immediate, easy answer. However, as we've seen from the election so far, nothing in this historic race for the White House has been immediate or easy. On the one hand, Clinton was supposed to be the clear frontrunner with the support of the private sector and the American desire of having a woman as Commander in Chief, but due to Bernie Sanders’ socialist rhetoric, she is desperately clinging to superdelegates so she can stay on top. On the other hand, Trump was supposed to be that bad dad joke no one really wanted to laugh to, but then he started getting votes in scary figures. All of that to almost have lost it all to Tea Party Candidate Ted Cruz after an abortion remark turned sour for women voters, who, by the way, vote more than men. So, again, would a terrorist attack in US soil catapult Trump to his victory? The short answer is most likely, but honestly, what candidate wouldn't it help? Terrorists may cause fear, but politicians are masters at selling it. After all, didn't Reagan (the actor) win his Presidential race based on his strong conviction of taking the fight to what Americans then believed to be diabolic, godless, soviet oppressors?

Similarly, Trump sounds like he would almost ban Muslims from the US, Cruz stated that if he won, he would "carpet bomb" Syria and even Hillary has accepted monetary contributions from weapons and oil industry giants, who would probably benefit from another Middle Eastern conflict. Perhaps Bernie Sanders would fare the worst in this scenario, since he doesn't really preach war and has no experience with it.

terrorism. His rhetoric goes as far as trying to make voters believe the US is weak and vulnerable to attacks from Islam in general and that he is the grand crusader who can save the American society from Muslim oppressors.

One point that would probably give an edge to Trump, though, is the fact that he has been talking about terrorism since the beginning of his candidacy, meaning he would invest a lot of time and effort in saying he was right all along and that he saw it before any other candidate, be it Republican or Democrat.

When Americans think of how they are going to protect their kids from terrorists, Trump wants him to be their first thought. Not Cruz nor Clinton nor Bernie. And that’s why he would benefit the most from a terrorist attack in US soil. Nonetheless, it doesn’t imply it would certainly lead to a Trump presidency, since the Republican National Committee (RNC) has a wide range of weapons to neutralize his candidacy - the main one being a brokered convention.

Another advantage he has is that the big bulk of his voters are both low income Americans with little education and families that have been struck by free trade deals to move factories from their Home States to countries such as China, India and Mexico. “He says it like it is” is the recurring phrase you’ll hear when you watch almost any interview with Donald Trump supporters, and if they believe so for free trade and Washington D.C. corruption, so much more for

Thousands of American Muslims have rightly spoken against such blunt accusations, but quite frankly he may even have nothing against Islam. What trump is selling isn’t hate. It’s fear.

This form of selection consists in cancelling, or not permitting beforehand, a public election in a State by the party voters to then proceed to a particular election made by an elite few inside the organization. This is possible because both the Republican National Committee and the Democratic National Committee are privately owned 37

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organizations, meaning public votes in each State occur essentially by popular demand rather than obligatory legislation. Read more about this topic in page [see page 41 for more on this topic]. Furthermore, American elections may seem kind of odd here in Europe as they are not as simple and blunt as our own. In fact, despite all the news we see about the controversial Donald Trump showing him get ahead from the other Republican candidates and despite the fact that he would mostly benefit from a terrorist attack on US soil as we talked about, he may or may not win the American elections in November 2016, as these elections are all so uncertain. One of the reasons he might win is the tendency of the American voters to alternate between the two main (we actually can say the only two, for that matter) parties for the White House - both Democrats and Republicans. The administration of George Washington’s folks’ country has changed from time to time as the clock tick-tacks. In fact, we must return to the period of 1932-1952 to see a Democrat president standing in the Oval Room for more than 2 mandates. And here we are talking about Franklin. D. Roosevelt, the popular man that arguably helped America get out of the Great Depression (4 mandates) and President Harry Truman (1 mandate) who actually did not have an absolute majority in his election in 1948. The attrition of being in office applies to both parties, and the not so popular Obama administration did so to its party. Republicans 38

are now fresh and clean to start a new mandate in America, and people recognize that. We can’t know for sure if a Trump nomination will overthrow Clinton - who is now nearing the Democrat nomination - or the not so likely Bernie Sanders. But what we know for sure is the reaction showed by the American people to terrorist attacks and the reaction they have been taking towards fear. As the human beings they are, Americans cannot flee from one of the root basic instincts we all have: the strong reaction to fear. Humans tend to react to this by one of two ways: we either flee or fight. Since these emotions are way too powerful to get wasted by American politicians, they are undoubtedly boosting the anti-muslim sentiment that is growing in US since the 9/11 and the Iraq situation. We can call Trump whatever pleases us, but we cannot avoid to recognize in him the sight of the big american picture: people are done with the traditional politics, people don’t see the economic recovery within their lives, people want a radical change, people don’t believe anymore in casual politicians talking, people feel that America is not The major world power it used to be. And Trump is taking advantage of that: his path is to unite the American people by appealing to their sense of pride and creating the notion of a common enemy - in this case, Muslims - so he can appear as the American D. Sebastião. If we would answer in a quick and easy way - as we stated - we would mostly say yes; Trump would strongly benefit from a terrorist

attack on US soil. When we think about anti-muslim sentiment or the feeling “shoot first ask later” we don’t think of Hillary Clinton or Ted Cruz, despite the radical he may be. Much less we think in Bernie Sanders. When we think about it, we think in Trump, the populist by nature and the one that is basing his campaign in these arguments. However, it is not guaranteed that the people convinced with Populism will be enough to win. If he cannot unite his party how can he get a consensus outside? Will undecided people vote for the controversial fear-boosting guy over the politically correct ones? Because of that, this election will be historic; will Americans be done with common politics and radically change for Populism or will Americans continue to embrace the predictable, traditional way of choosing the path of low profile politics? Will we indeed see Donald J. Trump in the same wall as men like George Washington and Abraham Lincoln? As the United States 58th President? Source: The Washington Post

NIC Undergrad Review Volume 2 - Issue 2

Breaking Up the Big Banks Bernie Sanders on Financial Regulation

Catarina Castela and Diogo Neto Good chances are you have been paying attention to the US elections and so you know Hillary Clinton is leading the pools on the democratic side. Although the primaries are complex, in simplistic terms 2,383 elected delegates are needed to win the nomination and as of now, Mrs. Clinton’s number of delegates amount to 2,223 whilst Mr. Sanders has a total of 1,450. Even though the title math isn’t looking great for Bernie, it seems important for us to discuss one of the cornerstones of his campaign: the idea of “breaking up the big banks”. Driving Mr. Sanders’ initiative is the concern over big institutions like JP Morgan or Bank of America defaulting, which would drag down the whole economy with them. In order to prevent this from happening, the government is supposed to intervene, just as it did in 2008, when 9 trillion dollars out of the tax contributors’ pockets were lent to avoid some of the biggest financial corporations to collapse. These huge institutions are described as “too big to fail”. In Mr. Sanders’s view, feeling protected from bankruptcy, big banks are more likely to incur in riskier strategies, thus menacing the overall economy. For this reason, his goal is to build a bridge from “too big to fail” to “too big to exist”, decreasing the possibility of a potential bailout. The truth is this implies a lot of changes in regulation, which can

sometimes be a complicated topic. To start with, Bernie has proposed the “Too Big to Fail, Too Big to Exist Act”. Under this act, the Financial Stability Oversight Committee, a committee of regulators headed by the Treasury secretary, would have 90 days to identify the “too big to fail” institutions, followed by a period of one year to make sure the banks break themselves up. It also prohibits these institutions from accessing the Federal Reserve’s discount facilities or using insured deposits for risky activities. The proposal differs from the Dodd-Frank Act implemented in 2010, since this committee has the right to break up the banks directly and the decision on how to do it is handed over to the institutions themselves - currently this power is in the hands of the Fed.

congress passed the GrammLeach-Bliley Act. It overturned Glass-Steagall clearing the way for large financial institutions toconsolidate. At the time, Senator Sanders voted against the bill stating it would lead to “taxpayer exposure to potential losses should a financial conglomerate fail”. Turns out he was spot on. In theory, the idea of breaking up the banks to bring more regulation and stability to the

Additionally, Mr. Sanders plans on implement a 21st century version of the Glass-Steagall Act, a law first passed after the Great Depression, preventing banks with consumer deposits from engaging in speculative and risky trading activities, i.e. it separated commercial banks from investment banks. The legislation also established the Federal Deposit Insurance Corporation (FDIC) which provided deposit insurance guaranteeing the safety of deposit in member banks. However, in 1999, during a period of heavy deregulation in Clinton’s administration, the 39

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financial markets sounds great and so it is only natural that the measure is widely embraced by the American public, but large banks are global, complex institutions and breaking them up would be an incredible difficult process with heavy consequences in the market economy. The shareholders, for instance, might win at short time, since the share price of big companies is worth less than the sum of their sections due to the conglomerate discount. On the other hand, the US government would be restricting the size of private businesses, drawing a line on how big they could get, and therefore pulling investors away. After all, who would invest in a company prohibited from growing? Therefore, this measure would have enormous repercussions on the competitiveness of the US economy. By limiting the size of the institutions, Bernie would be reducing their capacity to compete in global markets, mostly in Europe and Asia, where the financial sector represents a higher percentage of the economy and it is more concentrated at the top. Furthermore, the banks also experience scale economies and so this would increase the average cost of their financial products and services, leading to a more expensive credit – which may cause impacts on the US trade balance. In addition, some of the major clients of the banks would likely move to other foreign banks with a larger dimension, taking into account that they can finance global megaprojects and mergers, unlike smaller U.S banks, and offer a variety of global services in just one stop. 40

The implications as seen so far can be fierce. Hence, it is paramount to understand if actually breaking up the banks would result in a safer economy and if it would justify harming almost one-tenth of the US GDP the financial sector. Looking back to 2008, we are able to notice that weren’t the biggest of all banks that failed. In fact, Lehman Brothers was not on the top 10 of US largest financial institutions and Bear Stearns was not even on the top 15. Moreover, small banks have failed too: over 900 community and regional banks received bailouts. The last financial crisis was more about leverage and risk rather than a matter of size: it was the overleveraged banks incurring in dicey investments with borrowed money that collapsed and not simply big banks. Bernie argues that “too big to fail” banks take riskier choices by knowing they’re protected from bankruptcy, but neither Bear Stearns nor Lehman Brothers had expectations of a bailout since the government had never provided aid to an investment bank, and yet they still jeopardized themselves. Also, it’s important to remember that these giants played a crucial role defusing the crisis by acquiring others in failure: Bank of America acquired Merril Lynch, JP Morgan absorbed Bear Stearns and Wells Fargo Wachovia, preventing the financial depression scenario to escalate exponentially. One can say if they did not exist the problem wouldn’t even appear in the first place, but at the same time if there was another bank capable to support other dying

peer, it could have Lehman Brothers.

rescued

One thing is indisputable: “too big to fail” institutions place risks to the economy if they default. However, that does not necessarily mean they should be broken up. In order for the economy and markets to be safer, regulation should be concentrated on making sure banks have enough capital to deal with potential losses and not on laws to reduce their sizes. That’s precisely what the US government has been trying to achieve. Since 2008, regulators have tighten up regulation and are now focused on risk: leverage of the banks has been significantly reduced and limited; “living wills” denote a contingent plan with minimal chaos in case of collapse and banks are obliged to hold more capital (the requirements grow gradually with the dimension of the bank). Nevertheless, the US financial system is much less perilous than before and even though big banks are not as hazardous as they used to be, the “too big to fail” should still be carefully observed. Of course there’s always room for improvement and when it comes to banks there’s an endless road of regulatory changes ahead, but even so no measure should be taken lightly. Hereby, we think it’s only fair to say that Bernie’s plan isn’t the perfect solution for the problems that endure today, even though it approaches a fundamental topic it still carries numerous problems which might cause further damage. Instead, it seems much wiser to try to control and supervise the existing risk, at least for now.

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July Conventions Why should Hillary pick Bernie to be her running mate?

Afonso Borges

Since the moment I wrote this article, new developments in the Republican Primary, in particular Ted Cruz’s decision to quit the race after the Indiana vote have rendered my article virtually obsolete. The probability of a Donald Trump nomination now stands at 94%, so it would take a Leicester for anyone else to take the nomination at this point. I considered scraping the article, but decided to leave it. As #NeverTrump increasingly becomes #HelloDonald, it is easy to forget how we got here, so any memory is worth keeping. Numbers can be misleading, misused and even manipulated to convey whatever message one has in mind. Nevertheless, they can also provide a good starting point for a serious discussion. Here are some: 1) Polling data compiled by RCP on hypothetical general elections for Clinton vs. Cruz, Clinton vs. Trump, and Clinton vs. Kasich have Hillary winning by 2.3% and 9.3%, and losing by 7.8% respectively. For Sanders vs. Cruz, Sanders vs. Trump, and Sanders vs. Kasich, the democratic candidate wins by 11.2%, 15.2% and 4%.

2) A survey by the WSJ and NBC on the public image of candidates, among all registered voters, computed as “positive feelings minus negative feelings” have Bernie Sanders with +9%, Hillary Clinton with -24%, John Kasich with +12%, Ted Cruz with -23%, and Donald Trump with -41%. 3) As of April 20 PredicIt, a “prediction market for politics” where anyone can trade binaryoptions on the outcome of a political event, puts the implied probability of a Donald Trump’s name appearing on the ballot paper – the sum of the price of

the option “Yes” to the question “Will Trump run as a 3rd party in 2016?” (18¢) and the price of the option “Trump” to the question “Who will be the 2016 Republican nominee” (63¢) – is 81%. Given Clinton’s dominance over Trump in the national polls, the prospect of a Trump candidacy as the front-runner of the Grand Old Party seems like a good one for Clinton’s ambitions. Yet it will be hard for Trump to secure the necessary delegates to capture the nomination outright before the Republican Convention in July 1821 and the rules of the second 41

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and third ballots are less favourable for the businessman. There are a couple of ways a Brokered Convention could play out, and given that the Democratic Convention will be held one week later, the result of the Republican Convention could influence that of the Democratic Convention. If Donald Trump indeed fails to get enough delegates before the convention, a second ballot where more than half of the delegates become “unbound” and can vote to whomever they think is the best candidate might see a shift to either Cruz or Kasich. If a second ballot also fails to give any candidate a majority, new ballots will follow where most delegates become “unbound” until someone achieves a majority of the delegates. There is an episode of the Danish TV series Borgen called “Who can count to 90?”?”- the Danish Parliament sits 179 members, so 90 are enough to secure a majority. A Republican Convention would be a game of “Who can count to 1,237?”- the number of delegates needed to secure a nomination. As the order of the ballot increases, the odds for Mr Trump to be that person decrease, so his best chance might be to secure a majority in the first ballot. Bearing in mind that the GOP establishment does not see his nomination favourably, the Republican front-runner has threatened an independent bid for the White House. This scenario would greatly damage the results of the official Republican candidate, as both would feed of the same part of the electorate and as such would practically 42

elect Mrs Clinton. Donald Trump knows that an independent bid would be disastrous for both himself and the Republican Party, and the delegates know that he knows this, but here’s where his recklessness could serve him wellif the delegates believe they cannot call him on his bluff and that he would indeed follow through with an independent bid, they might be persuaded that nominating him would best suit the party’s interests. If, however, they believe Donald Trump will behave in the best interest of the party and drop his bid to the White House if he fails to be nominated as party’s candidate, the Republican delegates might decide to support a more electable candidate- either Kasich or Cruz, with the latter being more likely. Now, let us assume that the Republican delegates play either “Ted Cruz” or “John Kasich” and that Donald Trump plays “fold” (any other scenario leads to a Clinton nomination and an easy path to a Clinton presidency). Under those circumstances, and given that the delegates alone do not secure Clinton’s nomination, she would be in the hands of the super delegates, most of which have pledged their support for her, but are free to change their minds, and might even do so, given that Sanders’ prospects against any of these candidates are much better than those of Clinton, if polling data is worth anything. I have no memory of the 2008 Democratic primaries, but I have read that the dispute was much more blatant than the current one between the senator from

Vermont and the former Secretary of State. After those primaries, Obama went on to nominate Clinton as the Secretary of State and has referred to that decision "one of the best I ever made as president". Recently, both Sanders and Clinton have mentioned the need to unify the party after the Convention. One of Bernie Sanders’ strengths has been his capacity to reach out for independent voters. He has also done very well among white voters and millennials. I realise this bit is a lot less tangible, but from what I can tell, Bernie supporters are often much more engaged than Hillary’s. I believe many people supporting Hillary see her as the “lesser evil” rather than someone they feel inspired by and, on election day, this could translate into lower than expected voter turnout. In a House of Cards episode, Hillary would probably pick Bill as her Vice President, but in reality, her best decision would probably be to invite Bernie and would probably be easily persuaded by a promise like universal health care coverage. By extending this invitation before July, Hillary Clinton would lock her nomination regardless of what might come out of the Republican Convention and increase her odds of taking the general election by channelling the engagement around Bernie’s campaign to her own.

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What if Belgium terrorist had taken an Uber to the airport? Uber valuation

Tomás Ambrósio Exogenous reputational risks are often unpredictable and unavoidable According to the latest funding rounds, Uber tops the unicorn club at a valuation of $62.5B. The ride-hailing company has grown faster in its first five years than Facebook did. It surpassed companies such as FedEx ($44.86B), Credit Suisse ($30.27B) and Twitter ($12.33B), which is incredible for a company that didn’t exist when President Obama was elected for his first term. Those arguing that this price tag is obscene might focus on the regulatory regimes in the different jurisdictions where it currently operates, or the damage caused by the rape of a passenger in India, a country where it faces strong competition from Ola, but a big risk may be the reputational damage, a hidden danger that can pose a threat to the survival of the biggest and best-run companies. In the aftermath of the terror attacks on March 22nd , it became known that the three terrorists had taken a taxi to get to the airport. The driver who drove Ibrahim and Khalid el-Bakraoui as well as Mohamed Abrini led the police to the place where he had picked them up, helping investigators get their hands into important information at an urgent moment for the

investigation. Despite being a private company, if the terrorists had chosen an Uber instead, some reputational and brand value damage could come along. In a digital age, reputation has never been harder to safeguard. Social media has made the world more transparent so bad news travels faster and spreads further, making the reputational risk higher than ever before. Historically, the market weakness following terrorist attacks is typically short lived. After the 2005 London subway bombings, for instance, the S&P 500 fell nearly 1% the day after. But the selloff lasted just two days and the index recovered lost ground after a week. Likewise, the S&P 500 declined 1.5% following the Madrid bombing in 2004, but it reached a bottom two weeks later and rebounded. The same happened after the Boston Marathon bombing of 2013, with S&P 500 losing 2.3% of its value. The market bottomed in four days and recovered all lost ground in just over two weeks. But when we focus on the impacts on individual stocks, the history may be different. As pointed out by Benjamin Franklin, “It takes many good deeds to build a good reputation, and only one bad one to lose it”.

In 2014, the mysterious disappearance of Flight MH370 tarnished the Malaysian Airlines' reputation and hammered sales. The sudden association with tragedy for an airline that previously had a solid safety record has pushed it to the financial chaos. As an ultimate consequence, the company was delisted from the stock market as part of a takeover by Malaysia's state investment fund to restructure and rescue the company.

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But for Uber, the problem would be more than decreasing sales. The question of data security would probably be raised as authorities would obviously try to find out as much information as they can about the terrorists. As already seen in Silicon Valley, with the Apple vs FBI iPhone battle, this issue would bring a lot of problems for a startup with plenty legal disputes already. If in fact terrorists would have taken an Uber, and even if the Uber driver would have been as ethically correct as the taxi driver, reporting some details about that specific Uber ride, how would consumers see it? Would users consider it an act of good-will as

they did regarding the taxi driver, or would they see it as a crucial breach to users’ data security? This problem is raised due to the fact Uber has much more information about their users than traditional taxis (credit cards, previous rides, full name, email), and the authorities would be looking for this info for sure. Such a scenario would bring Uber a dilemma: consumers trust or investigation collaboration. Keeping in mind the title of this article is obvious that Uber would control the damage assuming a position of inevitability since the terrorists could have chosen a taxi, or even a public transport

rather than an Uber. This damage control, however, wouldn’t be efficient in the case of authorities asking for credit cards information. The pressure to disclose customers’ information, mainly accounts associated with Daesh, could bring Uber difficult decisions as broken consumers trust would affect the brand reputation. The effects of such an event would obviously depend on the answer given by Uber to such controversy. The presumable option would be to postpone further fundraising in order to escape from a valuation decline.

Robo Financial Advice The future of Asset Management?

Pedro Leão and Tomás Ambrósio

Artificial Intelligence and Robots are not just a Hollywood reality anymore. And although they are not as developed (yet) or as deadly as the ones in the movies, they can still steal your job - one area that has been widely discussed when mentioning this possibility is the financial sector and more specifically, banks. Banking activity has grown exponentially since the Industrial Revolution, making investing a more common and widespread activity, available to more people than before. This is an ongoing process. One that led to a huge increase in asset management activities during the 20th century and made a lot of fund managers famous for achieving extraordinary returns for their clients, like Warren Buffett or

Peter Lynch. But times have changed and in the post-2008 financial crisis era, banking is not as regarded by the population and the top university students as before (see chart 1). Some banks have been perceived to be involved in wrongdoing and reckless behavior to the detriment of the taxpayers and that hurt the whole industry reputation. Harvard Business School Graduates into banking and technology

20 Percent of Class

The widespread use of the Internet and the following ongoing globalization led to an increase in global productivity while disproportionately impacting our well-being, changing the way the world economy works. Nevertheless, this means that people have to change too. And human beings are not always prone to change. But we adapt if we have to. That is precisely what happened after the Industrial Revolution when thousands of workers saw their jobs being cut off and replaced by machines, leaving them no option, other than developing a totally new set of skills. It happened two centuries ago and it may happen in our lifetimes, just with different machines. "Thinking" ones.

15 10 5 0

2007

2014

Investment Banking Technology Chart 1 - Source: Annual School reports on where students found employment

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Moreover, the returns asset managers have been able to deliver to their clients over the past decades and their ability to beat the market on the long run on a risk-adjusted basis, net of fees and expenses, have been under criticism by academics, researchers and clients. Not surprisingly, passive investment strategies became more popular over the last decades, with Vanguard being one of the companies to propel this development since the fund was created in 1975, providing ETFs with low expense ratios that are also available to small investors.

due to this advantage that these companies have when it comes to data regarding their clients. With ever more connected systems like Google Wallet and Apple Pay, usually associated with our email account, that we may use to shop online on websites like Amazon or Ebay, lending companies can probably have an advantage over traditional lenders in terms of accessing credit risk, based on user's routines, credit history, salary history, average monthly expenses, products bought and other relevant information to access risk. But it comes with the downside of loss of privacy and raises security issues.

Silicon Valley is on a mission to disrupt finance with the democratization of investment advice. And it is using data, software and algorithms to do it. The evolution of the web from a simple source of information, to an user-generated content in a virtual community, and lately, to a new stage of the web where all of your data is connected and websites and apps use algorithms to find out what is relevant to you, created a new range of tailored products and possibilities. This can range from the music that is suggested to someone to the savings account this person should use, or right now, to the type of asset manager this person should choose.

Not surprisingly, this has raised some eyebrows among financial regulators and some experiments referred to as “sandboxes” (basically experimental playgrounds for companies to test financial algorithms, software and robots in a controlled environment before approving their usage in the financial sector) have been done to assess the risk of these new products. How to regulate this industry is a sketchy subject. Some people argue that the approach should be the same as with the Web when it was introduced - not to overregulate it so that it does not hamper its growth and as a consequence economic development - while others are fearful that a not regulated enough market will pose a threat in terms of data privacy and security for its users or clients - arguing that the impact of a hypothetical cyber-attack can be way more devastating in that type of market.

Lending from fintech companies has been on the rise and mostly

Nonetheless, it is difficult to argue that the future for the ever more

This distrust in high-fee active asset management led to the development of what may be the next financial sector disruptor, robo-advisers.

connected millennials does not include mobile payments. Put this together with the generation’s discomfort when it comes to asset management and you can see why Silicon Valley companies would be interested in creating a platform where through your mobile device you could make payments, have a personal monthly financial planner based on your budget which tells you what you can buy or not by pointing your camera at it, decide to round all your payments to the dollar so you can save an extra cents in each purchase you make, and invest it all in your investing account. All a couple of touches away with your phone. The last step of this process investing - is the trickiest one in terms of software. You have to create a robo-adviser that people trust their money with instead of the regular asset manager. But that is one of the areas where fintech companies are investing the most right now. With full transparency on fees and taxes, pioneering startups like Wealthfront or Betterment (see table 1) were born focusing on lowering the cost of investing like the super-rich, according to the belief that computers can manage money better and at a lower cost than emotional, irrational humans that are subject to a lot of biases. A basic questionnaire—age, salary, investment aims and the like — helps establish risk appetite. Money is then allocated to lowcost funds that suit the investor needs and specifications, provided by third parties, many of them belonging to low-cost funds like Vanguard and Schwab. Robo-advisers are doubling their 45

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assets under management every few months, but their combined assets still run to less than $20B, against $17 trillion for traditional managers. Several banks manage over $1 trillion each. This means that for example, in Betterment’s case, the low expense-ratio together with the only $1.4B in assets under management (AUM) only translates to less than $10M in revenue. The market for roboadvising is clearly one in which economies of scale play a huge role and where thriving without increasing market share seems quite impossible. Still, the target clients are not the same as with the regular asset managers. They are usually younger and with untailored financial needs and some degree of financial literacy, which means the business is not viable unless you attract a huge number of clients. A problem that Betterment and Wealthfront still face despite increasing their client asset base $100m a month. This makes us wonder whether these startups can take on the big financial institutions and mutual funds. Vanguard and Schwab used their client base to shift investments to their newly roboadvising services and Schwab quickly reached $4.1B in AUM surpassing most of the robotadvisory startups. More recently some of the biggest financial institutions have been looking into some opportunities to grab a piece of the pie too. UBS declared it is interested in offering its clients automated services. Automated Wealth Managers Wealthfront Betterment Personal Capital FutureAdvisor Premium Nutmeg 46

Goldman Sachs bought Honest Dollar - a robo-advisory startup. Blackrock bought FutureAdvisor last August, a robo adviser service with the intent of targeting millennials and clients that do not meet the minimum amount criteria, which RBC already declared it would use. Paypal is currently leading a $30m funding round for the robo-adviser mobile app Acorns Grow and more big names in the financial industry are expected to enter the roboadvisory market. The question here is whether this will translate into the startups being driven out of the market due to a lack of market share or if it will lead to less pricing power by asset managers and financial advisers (which is relatively high in this industry) which may increase competition and lower prices for clients. Ultimately, this may lead to smaller profits for banks and financial advisors and consequently a lot of jobs being lost. Most of them are estimated to be in the Wealth Management and Asset Management divisions. According to U.S. News, 58% of millennials do their own financial research, and robo-advisors make that research accessible, opening new doors to investors of modest means and giving them access to markets and guidance that would not be available through traditional channels. The millennials are less likely to believe that a professional could somehow beat the market or

Foundation 2011 2008 2009 2010 2011

Minimum Investment, $ 5000 0 100000 10000 1500

Advisory Fee, %* 0.25 0.15 0.89 0.5 0.75

protect them in volatile times. The beauty of the roboadviser is that it doesn’t care, it’s open for business 24/7. For now, this type of service is not suitable for anyone with complex financial affairs who needs help with things such as trusts, estate planning or complicated retirement decisions. But the robot revolution is likely to become increasingly sophisticated and transform the way we manage our money within the next few decades. Unaffordable to the masses, wealth managers, will be substituted by instantly tailored investment portfolios on our smartphones, suited according to our circumstances and taking into account tax affairs, debts and financial planning. The question now isn’t whether robo-advisors will survive in the next decade, but under what conditions will this happen. Roboadvice changes are already taking place in the UK and in the US and it’s a question of time until it becomes commonplace for the rest of the world. High street banks are carefully monitoring developments, seeking the opportunity of using robo-advice to re-enter the lower end of the investment advice market. Workers in this area may not be driven out of work entirely, but they surely will have to learn to partner up with their “artificially intelligent peers”.

Assets under management ($m) 2000 1400 1000 240 n/a

Investors served 17400 65000 2500 1700 n/a

Table 1 - Sources: Goldman Sachs; company reports *Based on investments of $100k

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Ignoring Richard and Ricardo “Least Bad” and “Second Best”

Afonso Borges I have been fortunate to participate in this magazine, as well as in the NICud project from day one. Most of this club’s activities are indeed closed to the outside community- a condition that has yielded us some undeserved criticism-, but this magazine allows us to extend our work outside of these thirty members.

to think about this: “What should be in front of my U=?”. Of course there will be constraints, but neither as abundant nor as binding as you would expect. What’s more, and if my own experience can be extended, these constraints are never the ones you had anticipated, so you might as well leave them out of the problem, at least for now.

In this issue, as well as in the previous three, we have looked at our world in all its variety and complications and sought to make some sense of the chaos. This exercise proved challenging and even ungrateful at times, but never cumbersome. The feedback we have received, as well as the past experience made each edition better than the previous one. As I write this article for the last issue I will take part in, I look forward to reading next semester’s, which, I am positive, will be immensely better. In this final opportunity, it would not be fair to reflect upon where we came from and where we are and not extend that thought to where we are going.

This idea is equally valid at any point, but I understand it might resonate the most with my classmates graduating this year. If that’s you, congratulations on achieving your degree. You have done an outstanding job at solving problem sets, and hopefully you have learned many other things throughout the way

Again and again, we have learned how to maximize utility subject to some conditions. This framework, in all its simplicity and despite the simplistic assumptions it often entails, is of great relevance to help us figure out where to go next. Hold your yawn and curb you boredom: I will not ask you to write down any Lagrangian equations. All I want you to do is

Co-heading NICud is the thing I am the most proud of having done during my undergrad. While the success of the club is best measured as the sum of individual accomplishments for which each one is accountable and responsible, I take immense satisfaction from having grown this network and brought this group of people together. I am humble enough to recognize the limitations of my contribution, and yet I celebrate each member’s accomplishments as if they were my own.

from the best universities around Europe. In just three years, our members have worked for pretty much all the biggest players in the Financial Industry. It was never easy, but we have done it. Whatever you choose to do, in your own journey, do never settle for the “second best”, regardless of what Richard Lipsey, or anyone else for that matter, might say. Your diploma does not entitle you to anything, but as we have proved and will continue to confirm, it does not say you are worse than anyone either, so the responsibility of getting your “first best” falls upon yourself. As you debate on “Where now?”, do not wonder “What am I good at?”, much less “What am I least bad at?” –sorry David Ricardo. The pages of your next chapter must be solved for what you want.

If there is one thing these three years of NICud’s existence has proved is that we, undergraduate students at NovaSBE, can compete directly with students 47

WhereBrian we are Chesky going toâ&#x20AC;Ś 48

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Turning Local Profiling Airbnb’s Brian Chesky

Diego Tremitera The Context While being on exchange, I was directly exposed to the concept of sharing economy. “What’s that?” you might be asking yourself. Forbes described it: “In what is called collaborative consumption, owners rent out something they are not using, such as a car, house or bicycle to a stranger using peerto-peer services”. The theory behind a sharing economy exists at least from the late 1970’s, but the real catalyst was the access to the Internet and creation of smartphones. We might assume that the current sharing economy was unleashed with Apple’s introduction of the App store. Companies such as TaskRabbit quickly exploited the availability of managing workforce through sophisticated logistics and communication software (which came with the apps) and grew to become first movers in the sharing business. Putting aside many critics that were made to this economic model, from Bloomberg to the Harvard Business Review, the sharing economy has empowered many unutilized goods that people have, generating incremental sources of revenue to, at least, try to cover their cost. As of today, the two global ambassadors of the sharing economy are Uber and Airbnb, the fast-moving, asset-light and disruptive start-ups that everyone has heard about in the last year or two. The Profile Let me introduce you to Brian Chesky, CEO and co-founder of

Airbnb, the world largest provider of accommodation, estimated to be worth somewhere around $25B, matching more or less Hilton’s valuation and already above Marriot’s $21.75B. As often happens with brilliant ideas, Airbnb was born as a consequence of a last resource scenario. After Brian and Joe Gebbia, co-founder and Chief Product Officer, run out of money to pay their rent in San Francisco, they thought of renting air mattresses to people who where attending a design trade show in the city and were looking for a place to sleep. Three people joined them during the weekend and that experience led to the creation, with the addition of their engineer friend Nathan Blecharczyk, of Airbedandbreakfast.com in August 2008. Fast-forward eight years and after 60M guests used the platform, Airbnb has almost 2,000 employees in 21 different offices around the world. As of today, it gives clients lodging in 34,000 different cities. Brian Chesky is far from the Harvard educated kind of businessman, with an outstanding curriculum of achievements from a young age. “Often, the thing about experts is that they are experts of the past” tends to be his response when questioned about his legitimacy on being a CEO when his pre-Airbnb leadership experience consisted merely in captaining a hockey team and being selected for the commencement speak at his

graduation. He’s rather the San Francisco kind of entrepreneur, who pursued success with creativity and resourcefulness. Airbnb was actually, for a certain period of time, a cereal company, who produced cereals (Obama O’s and Cap’n McCain’s) during the 2008 elections to finance its

ideas. When Forbes asked about his management style, Brian answered: “If you think about it, Airbnb is like a giant ship and, as CEO, I’m the captain of the ship. But I really have two jobs: The first job is, I have to worry about everything below the waterline, anything that can sink the ship. Beyond that,” he continues, “I have to focus on two to three areas that I’m deeply passionate about, that aren’t below the waterline but that I focus on because I can add unique value”. This kind of knowledge derives strictly from his best asset: his genuine and constant level of curiosity. During his entire journey as an entrepreneur, he walked long distances to seek for advices and counseling from a broad range of individuals. He’s sat down with the former director of the CIA George Tenet, Mark Zuckerberg, Amazon’s Jeff Bezos, Disney’s Bob Iger and Warren Buffett, amongst others, from 49

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whom he collected supreme advices that would lead him to develop his own management style. The legacy Stories like Brian’s are the ones that are changing the path of becoming a CEO. In the previous decades, one had to work in a company for a long period of time, building trust and delivering outstanding results to be handed over the wheel of the company. Nowadays, it seems that one can jump from an anime series watching but full of ideas kind of student to managing a unicorn literally overnight. This mindset follows the idea of learning by trial and error, something that Brian really relies on. Complementing that, he focuses on going directly to the source, which means that instead of trying to know everything about a certain subject, one should select

his or her key people and focus on what they say. “If you pick the right source, you can fastforward”, he emphasizes. And every time he gets something out those sources, he quickly communicates that wisdom to his team, spreading efficiency tips and cultural adjustments. Astonishing stories such as Brian’s journey are full of setbacks. When a host’s home got vandalized back in 2011, Airbnb faced global critic on the way it dealt with the subject of which Brian assumes total responsibility. The company is also constantly under fire in cities such as San Francisco or New York, where its operation are being restricted (ironically, since Chesky grew up in New York and his company is headquartered in San Francisco). But his relentless vision of a world in which travelling favors the neighborhood experience instead

of formatted hotels constantly pushes Airbnb forward. He learned not to pursue consensus decisions in periods of stress, since they would always be half way successful. “Usually in a crisis you have to go left or right”, he says. The company estimates that for every dollar spent on accommodation, travelers spend two or three dollars on local businesses. In San Francisco, 1,500 people relied on renting their house on Airbnb to be able to save it. Chesky’s quest is much more than just accommodation. Brian, Joe and Nathan are changing the way we travel and what we look for when visiting a different city. Airbnb isn’t just disrupting a business, but it is giving a local taste to a globalized world.

Aibnb’s office in San Francisco

Brian Chesky, Nathan Blecharczyk and Joe Gebbia

Number of Listings (Million) 1.4 1.2 1 0.8 0.6 0.4 0.2 50

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Where we Elon are Musk going toâ&#x20AC;Ś 51

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Elon Musk The man from the future

Joana Martins and Manuel de Oliveira The Man Elon Reeve Musk. The Man from the Future. The next Steve Jobs. The Real-life Tony Stark. Business magnate, engineer, inventor and investor with an estimated net worth of $14.4B, according to Forbes. Feeling excited? We are. “A lot of my motivation comes from me personally looking at things that don’t work well and feeling a bit sad about how it would manifest in the future,” he says to The Telegraph. “And if that would result in an unhappy future, then it makes me unhappy. And so I want to fix it.” In 1989, Elon Musk left his native South Africa at age 17 to avoid being conscripted into the army. “I don’t have an issue with serving in the army per se, but […] suppressing black people just didn’t seem like a really good way to spend time”, says Musk. He graduated in 1995 with bachelor’s degrees in both economics and physics from University of Pennsylvania, and then moved to Stanford University, to pursue a PhD in applied physics and material sciences, which he quit after only two days. Known by his visionary ideas and companies, Musk came into millions at the age of 27, when he sold his first company, Zip2, an 52

online-m edia services company, to Compaq for $341M in 1999. Musk describes himself as an “engineer and entrepreneur who builds and operates companies to solve environmental, social and economic challenges.” He is now leading on three different fronts: electric cars, renewable energy, and space exploration. Follow us in a journey through this serial entrepreneur’s major Past, Present, and Future successes and allow yourself to be inspired by them. The Past

Starting in 1995, the 24 year old Stanford dropout burst onto the Internet scene and dedicated four years to Zip2, a company Musk founded with his brother Kimbal Musk and $28,000 provided by their father. Zip2 helped develop, host, and maintain customer websites for media companies specifically, powering nearly 200 websites, including its flagship arrangement with The New York Times local directory site New York Today. Zip2 also assisted media companies and their local merchants in the development of online services for targeted consumers. Despite his efforts to become CEO, Musk was not allowed to do so by his board members and Zip2 would end up being acquired by Compaq in February 1999 by the largest amount ever

paid for an internet company up to that point, $341M, of which 7.1% would belong to Elon Musk.

At the age of 27, merely a month after the sale of Zip2, Musk used 10 of his recently acquired $22M to co-found X.com. The online financial services and e-mail payment company merged with Confinity Inc. one year later. The merger’s main focus was the transfer service and the company was officially renamed to PayPal in 2001. In 2002, PayPal Holdings, Inc. had its IPO and became a wholly owned subsidiary of eBay, who paid $1.5B for it, of which Musk received $175.5M, as he was the company’s largest shareholder. From this point onwards Elon Musk would no longer be involved with PayPal. This merger would not, however, become permanent and, as of July 18, 2015, PayPal became an independent company. Nowadays, PayPal is listed on NASDAQ with a market cap of $46.96B and serves 179M active customers, in more than 200 markets, allowing customers to get paid in more than 100 currencies, withdraw funds to their bank accounts in 57 currencies, and hold balances in their PayPal accounts in 26 currencies. It generated $9.24B in revenues in 2015 with a Total Payment Volume of $282B.

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The Present

Coming right off of his PayPal success, 31 year old Musk founded Space Exploration Technologies Corporation (SpaceX) in 2002, which is an American aerospace manufacturer and space transport services company with the goal of creating the technologies to reduce space transportation costs and enable the colonization of Mars. “Did you hear the joke about the man who made a small fortune in the space industry?” He subtly pauses before delivering the punchline: “He started with a large one.” This is a joke made by Elon Musk himself during a 2013 interview for TED Talks, referring to SpaceX (and his own) failures, which almost lead him to bankruptcy. In fact, SpaceX’s early years were composed by failure after failure, with its first three Falcon 1 launches, in 2006, 2007, and 2008, all failing and causing Musk to lose nearly all his wealth. However, on September 28, 2008, the Falcon 1 succeeded in reaching orbit on its fourth attempt, becoming the first privately funded, liquid-fuelled rocket to do so, which would launch the company to a successful future. Since 2009, SpaceX accomplished 24 flights, 2 of which have managed to land in perfect conditions, which is one of the most relevant short term goals for the company. In May 2012, SpaceX’s Dragon spacecraft

attached to the International Space Station, exchanged cargo payloads, and returned safely to Earth, much like in the 2015’s movie The Martian. Nowadays, SpaceX has ongoing collaborations with many other giants in space exploration, mainly NASA, and in January 2015, it raised $1B in funding from Google and Fidelity, establishing the company’s valuation at approximately $12B. Elon Musk is still CTO and CEO of SpaceX. In April 2009, Michael S. Malone revealed, while interviewing Elon Musk, that the two had a bet that SpaceX would put a man on Mars by “2020 or 2025”. Musk has continued to reiterate this rough timeframe since. This countdown clock expires on 1 January 2026, at 00:00 UTC. No pressure, Elon.

Tesla Motors, named after electrical engineer and physicist Nikola Tesla, was founded in 2003 as an automobile company dedicated to developing electric vehicles. Co-founder Elon Musk, who was 32 at the time, was also one of the first investors, putting up $37M into the project. “Failure is an option here. If things are not failing, you are not innovating enough.” said Musk in an interview with Fast Company , in February 2005, and in fact, despite being created in 2003, it would not be until the first quarter of 2013 that Tesla posted profits for the first time in its

history. Tesla had its IPO in June 2010 and managed to raise $226M, being the first American car maker to go public since the Ford Motor Company had its IPO in 1956. It currently has 3 models released, the Tesla Roader, the Tesla Model S, which won “2013 Motor Trend Car of the Year”, and the Model X. As for future plans, Tesla announced a new car, the Tesla Model 3, and said that it is prepared to build charging stations around the US so that drivers can drive across the country for free. Its fourth model, Tesla Model 3, was unveiled in March 2016, and only a week after its unveiling event, global reservations totalled over 325,000 units, which represents nearly 300% of its total car sales (Tesla Motors has sold almost 125,000 electric cars worldwide) since delivery of its first Tesla Roadster in 2008. Tesla currently has a market cap of over $32B and Elon Musk remains its CEO.

Not one to stand still, at the age of 34, Elon decided it was time to keep developing society even further and, along with his cousins Lyndon and Peter Rive, co-founded SolarCity on July 4, 2006. Created as a complement to Musk’s Tesla Motors venture to help stop Global Warming and create a sustainable future, SolarCity designs, finances and 53

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installs solar power systems, as well as provides products, services and technologies such as Solar Leasing, Commercial Solar, Electric Vehicle Chargers, Energy efficiency evaluations, Energy Storage and Installation technology. SolarCity’s goal was to become the Walmart of solar-panel installations. Currently, with a market cap of $2.8B, SolarCity is considered America’s #1 solar solutions provider, having over 13,000 employees in over 75 operation centres, serving customers in 19 states. Founder and Chairman Elon Musk remains the largest shareholder. The Future

The general idea of human and cargo transportation through evacuated tubes dates back more than a century. However, it took 42 year old Elon Musk to add a few elements that might make the idea economically viable. Musk first mentioned his idea, along with the name Hyperloop, in July 2012. Later that year, a joint group of Tesla and SpaceX engineers produced a preliminary design document containing the outline of the original Hyperloop concept which was made public in August 2013. The alpha design was proposed to use a partial vacuum to reduce aerodynamic drag, which it is theorized would allow for highspeed travel with relatively low power, with other features like air-bearing skis and an inlet 54

compressor to reduce air drag. Not only would this idea be economically feasible, as the total cost of an Hyperloop connecting Los Angeles to San Francisco would be around $6B, but it would also revolutionize long distance travelling, as it would be able to complete this same route of 560 km in an expected journey time of 35 minutes, meaning that passengers would travel at an average speed of 970 km/h, with a top speed of 1,200 km/h. It would take just half the time it takes a plane to complete the same journey! Hyperloop technology has been explicitly open-sourced by Musk and SpaceX, with a Hyperloop Pod Competition being sponsored by SpaceX, in which a number of students and non-student teams are participating to design and build a prototype pod, to be tested by summer 2016.

It would not take long until Elon Musk surprised us all again. “That’s my lesson for taking vacation: vacation will kill you.” At 44 years of age, the business magnate announced yet another innovative project: OpenAI. OpenAI was announced in December 2015 as a non-profit artificial intelligence (AI) research company, co-founded by Elon Musk, along with Y Combinator’s Sam Altman. It aims to develop artificial general intelligence in a way that is safe and beneficial to

Humanity. Most employees and board members are motivated by the concerns expressed by scientists such as Stephen Hawking and Stuart Russel, who believe that, if advanced AI someday gains the ability to redesign itself at an ever-increasing rate, an unstoppable “intelligence explosion” could lead to Human’s extinction. OpenAI is supported by over $1B in commitments (of which only a tiny fraction is expected to be spent in the first few years) and, by making AI available to everyone, it hopes to be able to “counteract large corporations who may gain too much power by owning super-intelligence systems devoted to profits, as well as governments which may use AI to gain power and even oppress their citizenry".

Although crowned “2007 Entrepreneur of the Year” by Inc. magazine, Musk feels that his personal ambitions have not yet been fulfilled. We hope he keeps feeling that way for a long time! Elon Musk might not be “The Man from the Future”, but he sure is the one doing his best to get us there.

- Winston Churchill