Within the Gloom, A Travel Boom?


New York City scenes

As the U.S. stock markets race to new highs, there has been increasing chatter about a forthcoming correction. Economic chaos reigns in Europe with constant debates about austerity and bailouts, and China seems destined to slow further as its credit-fueled investment boom ends. Commodity markets have tumbled, threatening the economies of Australia, South Africa, and Brazil, to name a few. In short, the economic horizon is cloudy – at best. There is increasing fear in many industries – including hospitality and travel – that we may be in another “bubble,” with the inevitable “burst” around the corner.

Given this fact, what should one do? Cut back on investments in fear of correction so many seem to feel is inevitable? Slow plans for future expansion? Double down and try to maximize business while it is here to be had?

While it’s very easy to focus on this short-term potential gloom, I think it’s also quite risky to do so. Underneath the headlines lie the makings of an unprecedented global consumption boom. With Energizer-bunny consistency, the emerging market middle class continues to grow…and grow…and grow.


The chart above illustrates the global flip-flop that has taken place since 1980, when three out of every four consumers in the world were based in the developed world. By 2025, it’s likely that three out of every four consumers will be based in what we today call the emerging world – with enormous implications for everything from food to fuel to healthcare – and, of course, to travel. Stop and think about this fact: the source markets of the majority of business 30 years ago will be the source markets of the minority of our business in just 10 years.

Think the airports you travel through today are crowded? Think again. The forthcoming boom in tourism and leisure travel is likely to pressure the entire hospitality system as those with newfound income indulge in vacations and global travel for the first time. High on the list of many emerging market consumers are the tourist destinations in the United States and Europe. Many young couples from countries such as China and India dream of being able to afford a honeymoon in Paris. The hope of seeing the United States is a still an unfulfilled vision for many of these young couples.

Economists debate things such as whether China and India will grow at 3% or 8%: the reality is that for most businesses in the hospitality sector, the answer to this debate is irrelevant. There is no debate as to whether the middle classes in these developing countries will continue to expand– it’s just a question of pace. Consider the following chart that explores the top five originating countries of 2014 tourist arrivals into the United States.


It’s worth highlighting that while China has risen to the #5 position, its annual growth rate at 28% far exceeds virtually all other originating countries. Interestingly, the second fastest growing originating country for tourist arrivals in the United States is Brazil, another so-called emerging market, at 11%. Perhaps a reflection of demographic dynamics, Japan’s tourist arrivals are now falling. It’s also important to note the relative size of the growing economies versus the size of the stabile economies. China’s population, for instance, is ~20x that of the United Kingdom. The impact of rapid growth from huge populations is a double-whammy that seems likely to generate an unprecedented consumption boom.

John Kenneth Galbraith has noted, “There are two kinds of forecasters. Those who don’t know and those who don’t know they don’t know.” I’ll leave it to you to decide which I may be, but in the midst of all this gloom, I see a forthcoming travel boom.


Originally published in April 2015 as part of the Bonotel Brief, available at http://www.bonotel.com/brief/BonotelBrief_2015-04.pdf




The “Art” of Spotting Bubbles


The last two weeks marked a major milestone in the world of art. Between May 5 and May 15, a record $2.7 billion of art was sold at Christie’s, Sotheby’s, and Phillips during a Spring auction bonanza that included sales of Impressionist and contemporary art (Click HERE). In dollars terms, the sales represent a 23% increase over last year’s Spring auction period.

Picasso's Les Femmes d'Alger

Pablo Picasso's Les Femmes d'Alger


Pablo Picasso’s painting Les Femmes d’Alger was the star of the season, selling for $179.4 million (Click HERE for a video of the actual auction). Alberto Giacometti’s bronze statue of a pointing man sold for $141.3 million. At one point last week when bidding for Francis Bacon’s Seated Woman crossed $25 million, a pregnant auction house assistant fainted, adding to the drama at the Phillips auction (click HERE). The mood over the two weeks was urgent and frenetic.


Francis Bacon's Seated Woman


So What? Christie’s themed its latest auction “Looking Forward to the Past,” but now that the auction is complete, what does it say about the future?   As you might imagine, some commentators have used the opportunity of record-setting prices to suggest it’s time to sell assets (click HERE). Others have warned against using anecdotal evidence about the ultra-wealthy to extrapolate market sentiment (click HERE).

There are good reasons for rising art prices. The rapid growth of duty-avoiding freeports (click HERE) has reduced the transaction costs relating to art as an investment by allowing investors to buy, store, and sell their holdings without ever interacting with tax authorities.  Further, the boom in billionaires globally is generating new demand (click HERE). And let’s be honest, there’s really only one Les Femmes d’Alger (Version "O"), right?  These are genuinely unique assets.

Despite the allure of such seductive rationalizations, healthy skepticism combined with a careful monitoring of the art market points one to the conclusion that it’s unlikely to be different this time. Record art prices, as manifestations of hubris and overconfidence, should be as disturbing to policymakers and investors as they are exciting to Sotheby’s, Christie’s and Phillips.

By “looking back to the future,” what is clear is that record art prices are often associated with market tops (click HERE for a piece I wrote in 2011). It’s not surprising to me that the most knowledgeable collectors are selling, not buying. Consider the fact that Steven Cohen and Steve Wynn, two of the most active art market participants over the past decade, were both selling last week. Wynn was quoted as saying “I think $179 million is a price you sell a picture at, but not the price you buy it at” (Click HERE).

I also think it is not prudent to dismiss the behavior of the ultra-wealthy as just about them. Rather, it’s precisely because these buyers are corporate leaders that their bidding behavior is so insightful. If Macau was still booming, might Wynn have expressed a different sentiment? Or if stock market valuations were less “full,” might Steve Cohen have been a buyer rather than a seller?

Art is also very cyclical, given that prized pieces only come to market relatively rarely. In this regard, the re-emergence of guarantees for sellers is concerning (click HERE) as it pulls supply into the present faster than would naturally be generated by death, divorce, and debt. These are the same dynamics that haunted Sotheby’s in 2008 when they found themselves guaranteeing high prices in a falling market (click HERE). In fact, I’ve long believed that Sotheby’s stock price is a wonderful leading indicator of (over)confidence (click HERE for an article I wrote or HERE for a piece written by The Atlantic).

But Sotheby’s stock price is not hitting new highs. Does this mean we are not in bubble territory? While I believe it is too early to tell (I’d love to see a couple of busted auctions after these record prices!), I am also paying attention to the competitive dynamics between Sotheby’s and Christie’s. Christie’s seems to be taking share and the involvement of activist Dan Loeb and a new CEO at Sotheby’s may have diminished its usefulness as a bubble indicator. In fact, I was stunned to hear the sober-minded and responsible commentary from Sotheby’s new CEO Tad Smith last week indicating that he was not going to engage in a guarantee competition. “We will not roll dice in the auction room with shareholders’ money,” Smith noted.

But one thing remains clear: art markets are flashing a caution sign and given their track record, I believe it’s better at this point for investors to focus on risk of loss rather than on opportunity to gain. Paying $179 million for a painting is a sign of greed, not fear… and as noted by Warren Buffett, it’s better to be fearful when others are greedy and greedy when others are fearful.


Breaking the Monotony of Counting Profits


I remain firmly convinced that Canada's economic vulnerability is as high as ever.  As noted in an article I wrote for the PBS Newshour titled "Why Canada's Economy is Headed Off the Cliff" (Click HERE), there is a toxic combination of elevated housing prices, extraordinarily high household debt, a booming private mortgage market, and a weak outlook for jobs.  The residents of Alberta added to the list of my concerns earlier this month when they took to the polls.  By voting the conservative party out of office, they put in power a government that promised higher corporate taxes and a re-evaluation of royalty rates on the natural resource sector.  Given that Alberta accounted for somewhere ~90% of all job growth in Canada last year, these political dynamics only exacerbate my concerns.

The most convincing evidence that the Canadian housing boom cannot continue, however, was eagerly presented to me in a taxi ride from Toronto's airport to my hotel.  Unsolicited, the driver asked if I were in town to buy real estate.  Unable to resist, I said "No, but should I be buying now?" to which I received a long sermon about how he had been making more money in real estate than driving the cab.  Eager to demonstrate my gratefulness for such an auspicious cab ride complete with investment tips, I started taking notes.  I was glad I did, because he soon came up with the best line I've heard in a long time, one that epitomizes the spirit of hubris, overconfidence, and invincibility capturing most bullish Canadian condo buyers: "I only drive this cab to break the monotony of counting my profits."

While the global economy continues to feel fragile, I sense a rising complacency among the professional investment community.  I am particularly struck by the deflationary pressures that seem so regularly dismissed by commentators.  As I've stated previously, I firmly believe that the increasing use of robots and automation will only intensify this dynamic.   Let's also not forget that in a time of insufficient aggregate demand, productivity gains (i.e. getting more output with fewer inputs) can be very counterproductive.  Add on top of this list a slowing China and a struggling Europe... With markets prices as they are, it seems prudent to exercise caution at this stage.  Better to miss gains than capture losses.

I'll continue to comment on developments I find interesting and noteworthy.  In addition to posting my thoughts on my website every Wednesday, I have also begun posting them to LinkedIn, Facebook, and Twitter.  Listed below are links to my most recent comments.  As always, I'd welcome feedback!


Disappearing Outrage

My last class of the semester was designed to inspire my students to stand up for what they believe.  In this short piece, I summarize the class discussion.  Ultimately, I wonder if today's youth are too comfortable and therefore unwilling to bear personal risks to make the world a better place.  My question for the Class of 2015: "What Do You REALLY Care About?"  Click HERE to read my note.


Happy In An Igloo

The study of happiness points to several interesting findings.  To increase your odds of professional happiness, it's probably best to be self-employed in an igloo with a collection of equally-happy peers and colleagues nearby.  You'll also want to hibernate, as sleep and happiness tend to correlate.  Click HERE to read my thoughts.


Anatomy of an #Engaging Presentation

While speaking at an event in Frankfurt last month, I decided to experiment with the use of social media during my presentation.  I was able to engage an audience both within and outside of the room as well as to spur additional conversations.  The experience was energizing and has changed how I present to large groups.  Click HERE for my summary of what transpired.


Gluten Free Bubble to Burst

I'm often asked about bubble dynamics in non-financial assets and I'm usually reluctant to pass judgment....but the Gluten-Free craze seemed too obvious to not address.  My comments were picked up and run by the PBS Newshour (click HERE) as well as Fortune (Click HERE)  Click HERE for the LinkedIn post.


6373 Gallons Consumed...in 1 day!

Given increasing focus on water scarcity, I took it upon myself to track the amount of water that I consumed in one day.  What I found was shocking.  My direct and "virtual" consumption of water exceeded 6300 gallons in what I believe was an ordinary day.  To ready how I got to this enormous number, click HERE.


Long Live Coal?!

Everyone seems to believe that coal is going away.  I'm not convinced.  Coal is likely to shrink as a percentage of total global energy consumption, but let's not fool ourselves -- it's not dead.  As a cheap, reliable, and efficient fuel for electricity consumption, we should focus on cleaning it up rather than on eliminating it.  Click HERE for more.


Egyptian Castles in the Sand...

The Egyptian government recently announced it was going to build a new capital city not far from Cairo at a cost of US $45billion.  Hubris?  Overconfidence?  In this comment, I try to contextualize the phenomenon of modern-day pyramid building by looking to other grand construction projects.  Click HERE to read my note.


The Four "Agreements"

I recently contributed the closing chapter to "A Force for Good: How Enlightened Finance Can Restore Faith in Capitalism."  The book's contributors include Jack Bogle, Robert Shiller, Charley Ellis, Sheila Bair, and many other Wall Street luminaries.  It's a worthwhile read for anyone interested in the future of finance.  Click HERE for an excerpt and short video interview I did with the book's editor, John Taft, or click HERE to buy the book on Amazon.com.

Class of 2015: What Do You Really Care About?


As the Business Ethics class I teach at Yale concluded this semester, I asked my students to watch the 2012 Wellesley High School graduation speech delivered by David McCullough, Jr. titled “You’re Not Special” (click HERE). I did so to remind them that purpose and impact should be more important than mantel-filling accomplishments. I wanted them to help homeless veterans not to buff up their Rhodes or Fulbright applications but instead to help homeless veterans.


My last class featured legendary Yale administrator Sam Chauncey (click HERE) discussing the lack of outrage among today’s youth. It’s worth noting his experience includes helping steer the university through the turbulent 1960s; Sam was also instrumental in bringing coeducation to Yale. Today’s students, noted Sam, seem “comfortable” and lack the passion for causes that typified earlier eras. Students don’t appear to be willing to risk personal harm. I turned to the class…surely some students were willing to take on personal risk to further causes, weren’t they?

Rather than push back upon Sam’s suggestion, the class instead sought to explain it. Here are two statements that caught my attention:

“There’s no military draft in the United States today so while we are upset about Iraq…it’s not as personal and doesn’t touch us…”

“Sure I care about fossil fuel usage and trying to save the environment, but I don’t feel empowered to change others’ actions.”

A friend of mine sat in the back of the classroom and passively listened. After about 45 minutes of debate, I asked him to share his story…

Wael (click HERE) began with a bit of background; he was Egyptian, had attended school in Cairo, and had worked in Dubai for Google. He took a leave of absence from work to return home. While in Egypt, he used social media to organize protests against torture, corruption, unemployment and injustice. He was captured by Egyptian police and held in prison for 11 days, eventually let go, he stated, because of “rising pressure from Amnesty International and Google and the US government.” Upon his release, he returned to Tahrir Square and increased his efforts. “I was prepared to die for the cause.” Shortly thereafter, the Egyptian regime that had been in power for decades fell.


My students were stunned. Here was an ordinary looking person sitting among them, a mere “friend of Vikram’s visiting New Haven,” who had literally changed the world. In 2011, Time Magazine placed him at the top of their annual list of the 100 Most Influential People. At the time, he was 30 years old. Many students felt empowered, energized, and even motivated to care deeply and to change the status quo. Despite the excitement, I sensed reluctance.

My students were not looking deeply enough to be outraged. They lacked causes of personal meaning. I had also asked my students to watch another video—the 2005 Kenyon College commencement speech given by the late David Foster Wallace titled “This is Water” (click HERE).

In the speech, Wallace states “the most obvious, important realities are often the ones that are hardest to see” and uses seemingly mundane examples such as shopping for groceries and driving in traffic to illustrate the power of perspective. He powerfully articulates the need to acknowledge the “hard-wired default settings” that serve as the basis for most of our thinking and encourages empathy and breadth of possibility.

Later that day I had a chance to meet my students over dinner and I asked them to connect Wael’s story to the Wallace message. The speech, they admitted, had raised numerous topics of potential passionate outrage.

Why wasn’t there more outrage about economic inequality? One student noted the “ludicrous” compensation that today’s CEOs earn. But most in the room weren’t bothered by CEOs earning small fortunes every year – in fact, some likely aspired to be those well-compensated CEOs. Numerous other topics were raised, including climate change, racial injustice, and gender inequity.

But when I asked if anyone would risk their life, career, or family for a cause they believed in, only two hands went up… a Colombian student and a Chinese student, both of who had personally felt the impact of injustice.

So was Sam right? Have today’s students actually become too comfortable to be the revolutionary force they can, should, and need to be? Does one need to personally be a victim of injustice to passionately fight against it? Who will make the world a better place if not today’s youth?


Self Employed In An Igloo And Happy!


I had the most fascinating interaction I’ve had with an unknown person this week while boarding a flight from Calgary to Toronto. It was unexpected, confusing, and got me thinking. Here’s what happened:

As I was boarding my flight, the gate clerk smiled at me and said, “Have a nice flight, Mr. Happy-Face.” I immediately stopped, creating a traffic jam for the large crowd of Boarding Zone 2 passengers that were behind me. “Excuse me? Did you just call me Mr. Happy-Face?”

“Yup. Unlike most of the business people that board planes, you seem happy.”


This random interaction distracted me for the entire four-hour flight. Traveling across Canada at 35,000 feet, I couldn’t stop asking myself, was I a happy professional?

Later that evening, I decided to read a bit about happiness. Here’s what I found in my quick research. The usual (and well-discussed) markers of happiness are relative wealth, family relationships, a career, friends, health, freedom, and personal values (click HERE), but I wanted to dig deeper into professional happiness. Here are five findings worth mentioning:

First, the five happiest countries on the planet, according to the World Happiness Report 2015 (click HERE), are Switzerland, Iceland, Denmark, Norway, and Canada.   In addition to being far from the equator, these countries also have relatively small populations, are rich, and have lower-than-average inequality, low corruption, and possess strong social safety nets. In fact, island paradises like Mauritius and Jamaica rank 67th and 75th, respectively.

Second, self-employed people appear happier, despite working longer and more stressful hours for less money (click HERE), so much so that it might take as much as 2.5x the income to generate the same happiness in a traditional “job” (click HERE).  Might some companies instill “self-employment-like” happiness by providing greater autonomy and control to professionals? (Think Google).

Third, commuting significantly decreases happiness, increases the likelihood of divorce, and can literally make you sick and die (click HERE).  Research indicates that an extra hour of commuting time needs to be offset by a 40% bump in compensation to keep happiness constant (click HERE). Meanwhile, riding a bike to work meaningfully increases happiness.

Fourth, people who sleep more are happier (click HERE), less prone to obesity, high blood pressure, diabetes and a host of other ailments. For most of us, an extra 60-90 minutes of sleep per night would materially improve our happiness and health (click HERE). Interestingly, stressful careers tend to disrupt consistent sleep patterns.

And finally, happiness gaps between spouses increase the likelihood of separation. In a counter-intuitive finding, research finds that it is bad for a marriage to have one person happier than the other (click HERE).   What does this mean for a professional environment in which some are happy while others are miserable?


This does not necessarily mean the ideal setup is being a self-employed professional working from (and occasionally hibernating in) your own igloo in the Arctic circle (as part of a community of peers equally happy in their own igloos), although I definitely felt that way this Winter.  Perhaps that explains the gate attendant's suspicion of my happiness?  Regardless, the findings suggest both employers and employees should proactively think about happiness.



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