Cautious optimism recommended ⚠
Marauding markets in a muddling economy, China's real estate problem, America's sluggishness in CBDC research, and life lessons from Lee Kuan Yew. This is Issue #021 of Forward.
Even with the Indian Premier League having restarted, this number is the talk of the town in the subcontinent, as the country’s BSE Sensex broad market index crossed the 60,000 mark, 35 years after it was first published.
Here are some of the many landmarks the index has seen over the years.
Markets around the world are on a collective bull run of unprecedented levels, one that shows little sign of abating even as investors wait for the inevitable correction.
It’s not like the markers aren’t all there, and we’ll be covering a few of them in this week’s issue — China’s crumbling real estate sector, the Fed’s planned tapering of bond buying, and the dollar’s shaky stand against the strengthening push for decentralised money.
There’s also the fact that even as our indices scale new heights, so do some other figures — like global debt.
Cautious optimism recommended.
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China’s shaky house of cards 🃏
China is in transition.
After decades of explosive development with the help of a selectively capitalist agenda, the Chinese government is aggressively applying the brakes to rein in yawning wealth inequalities and unsustainable expansion. Just as it began addressing inequality by going after billionaires and big tech, the real estate sector’s debt-ridden chickens came home to roost.
Yes, we’re talking about Evergrande.
If you’re not up to speed with what is going on with China’s embattled real-estate developer, we highly recommend reading this thread by Sahil Bloom:
While there is talk that the real estate developer’s current cash crunch and inability to pay off looming debt could lead to a global financial crisis like the one triggered by the collapse of Lehman Brothers in 2008, the markets seem to be paying little heed. At least for the moment.
The reason? Lehman Brothers possessed financial assets whose values were rapidly plummeting. Evergrande holds billions worth of land.
This, combined with Beijing’s tight hold over lending and business in the nation, may see this situation reigned in before it becomes a global crisis.
As to how the nation’s attempts at ‘common prosperity’ are going, that’s another story.
The trouble with tapering… 📉
Before the Sensex’s new high began dominating the headlines, financial portals in India and abroad were busy discussing an upcoming ‘taper tantrum’ in hushed tones. A bond buying spree by the US Federal Reserve to stabilise a post-COVID economy lead to a favourable borrowing environment with near-zero interest rates, which helped global investors borrow on the cheap and invest in assets worldwide. A tapering of the buying, as hinted by the Fed recently, could lead to these investors needing to liquidate the purchased assets to make repayments. A sudden outflow of cash from global markets as a result of such a tapering measure (referred to as a ‘taper tantrum’) is likely to cause instability in the world’s markets.
If the numbers on the charts are any indication though, no one told the markets.
Or rather, it is precisely that this planned tapering has been disclosed by the Fed well ahead of time — unlike the case in 2013 when the last tantrum happened — that is letting the market breathe easy… for the time being.
Cautious optimism recommended.
Has the dollar missed the bus? 🚌
El Salvador, and more recently Ukraine, have legalized Bitcoin. India, Kenya, and other developing economies have built rapid money transfer mechanisms. China and many other countries are well into trialing Central Bank Digital Currencies (CBDCs).
Surprisingly, the US is nowhere in the picture in any of these.
In fact, according to PwC’s inaugural global index tracking CBDC projects from research to development and production, the US ranks a measly 18th.
As currencies like Bitcoin gain acceptance and Decentralized Finance (DeFi) gathers steam worldwide, the US Dollar itself is slowly losing its soft power over the world, as explained by former Google engineer Vijay Boyapati:
“Nowhere does history indulge in repetitions so often or so uniformly as in Wall Street. When you read contemporary accounts of booms or panics the one thing that strikes you most forcibly is how little either stock speculation or stock speculators to-day differ from yesterday. The game does not change and neither does human nature.”
— Edwin Lefèvre, Reminiscences of a Stock Operator
Stuff we loved this week 👍
The rift between finance firms and the people they wanted to reach was growing really wide — until it was bridged by influencers.
This glorious breakdown of the Prisoner’s Dilemma, game theory, and their impact on the decisions individuals and corporations make every day.
Current events (and the contents of this issue of Forward) don’t paint the US in great light. But is this really the beginning of the end? Read History has Begun for a fresh perspective.
Food for thought 💡
Between DeFI and Decentralized Autonomous Organizations (DAOs), what are the chances that you’ll one day work not for a company, but a protocol?
We know you have questions. Here are the answers.
The future of finance certainly looks interesting doesn’t it? To ensure you don’t miss the bus, here’s some golden content on how you could potentially invest for that future and reap the benefits:
Much of Singapore’s financial success is attributed to Lee Kuan Yew’s able leadership. In uncertain times like this, we felt it best to wrap up this issue of Forward with 12 things to learn from Singapore’s founding father.
If you think this newsletter made your Sunday morning a little better, please spread the love and send it to your friends. We’ll see you again in two weeks.
Until next time,
Your friends at NEO