Hello all, welcome to the latest issue of Markets and Macros by TradingQnA.
An elusive recession
Recently I read an interesting article titled Why recession is always 6 months away.
It says that the next economic downturn has become the most anticipated recession in recent U.S. history but it keeps getting postponed.
Strong hiring and consumer spending are evidence that the pandemic and the unprecedented policy measures that followed are interfering with the Fed’s campaign to tame inflation.
For the Fed, the labour market’s strength is a conundrum. Recession calls keep getting delayed because companies keep hiring and holding on to workers rather than letting them go.
517,000 jobs were added in January which shocked economists who were anticipating a slowdown, and pushed the unemployment rate down to 3.4%, a 53-year low.
Even in February 311,000 jobs were added in February meaning January’s job growth wasn’t a one-off blip and can be a sign of an economy that’s accelerating.
On the steep hikes by fed, see graph below, Kristin Forbes, a professor at MIT and former member of the Bank of England’s monetary policy committee says:
If you front-load hikes, it makes it harder to tell whether you need to wait a little longer to see the effects, or whether the economy is just more resilient.
Source: Wall Street Journal
According to public opinion, the U.S. is seemingly in a semi-permanent recession:
Source: Axios
In reality, the economy is hot, unemployment is at record lows and there's no sign of a downturn any time soon. A recession may be inevitable eventually, but economists' forecasts for when it might arrive keep on getting pushed back.
Interestingly the Fed Chair recently said:
The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated.
Taking care of our oceans
The world has finally reached an agreement to protect the oceans. The High Seas Treaty aims to turn 30% of the seas into protected areas by 2030. It will put limits on fishing, the routes of shipping lanes and exploration activities like deep sea mining.
This is an important means to achieve the 30-by-30 target of the COP 15 Biodiversity Summit. The target aims to bring 30% of Earth’s land seas under the Protected Area Network by the Year 2030.
Why is it important?
It's been a while since the last time humanity signed an agreement to protect the oceans. The UN Convention on the Law of the Sea, 1982 established what we know as the high seas - international waters where all countries have a right to fish, ship and conduct research - but as things stand just 1.2% of these waters are protected as of now.
As a result marine life outside the protected areas is threatened by climate change, overfishing and shipping traffic.
Source: BBC
Moving out of China?
I came across an article on the supply chain exodus from China to India and Vietnam happening at a faster rate than anticipated.
In this context, let’s take a look at what’s happening with Apple for instance:
China's stringent Covid-19 restrictions and intensified US-China tech rivalry have rattled Apple's supply chain over the last three years. Cracks have started to appear in the sophisticated supply chain that took the US tech giant decades to build, as companies from Taiwan's Foxconn Technology Group to China's Goertek and Luxshare increase their investments in India and Vietnam, two of the largest beneficiaries of a realignment in the global supply chain.
Another interesting development is that Foxconn will be building a new 300-acre facility in Bengaluru, as a part of an ongoing effort to pivot away from China. It is worth noting that Foxxcon already has a manufacturing facility in Chennai which is encountering problems in quality control, infrastructure, tariffs and bureaucracy.
What is working for India?
It is low cost, has a sizable English-speaking population and a decent domestic market.
We have signed or are negotiating bilateral trade deals with the UAE, Australia, the UK and the EU. The Make in India strategy is trying to replicate the success of east Asian countries by creating a globally competitive manufacturing ecosystem.
We are also trying to boost domestic manufacturing, investments and exports via our Production Linked Incentive Schemes for various Industries.
What are the challenges?
Even though it seems we are trying, Alan Beattie, writing for Financial Times, outlines the challenges that India faces.
India has already had a decade of opportunity to scoop up the industrial production leaving China. It has performed poorly, and its trade and investment policy is regressing towards unhelpful Indian traditions of protectionism and import substitution.
Arvind Subramanian, former chief economic adviser to the Government of India, points out that
Well before the Trump-Biden trade conflict with Beijing, rising Chinese costs and wages were pricing out labour intensive manufacturing and creating opportunities for other countries.
In the decade or so since the global financial crisis, China gave up about $150bn of global market share in labour intensive goods, of which India attracted no more than 10%. Unlike fellow lower middle income countries Vietnam and Bangladesh, and even upper middle income Turkey, whose export-oriented electronics and garment industries have expanded hugely, the share of manufacturing in the Indian economy actually declined over that period.
Source: Financial Times
There is a lot that needs to be done for ease of business. India’s deficits in physical and social infrastructure pose a major challenge.
India’s own dependence on China is significant. Over one-fourth of the value added in Indian exports is contributed by China alone. This was not the case at the turn of the century. India’s reliance on China has increased manifold over the past two decades.
Source: Mint
Your brain could be your enemy when it comes to money
Many think that good financial habits are simple — crunch some numbers, create a budget and stick to it. Well, if being good with money was that easy, we’d all be good with money. Many of our financial struggles have more to do with psychology and behaviour. Several cognitive biases prevent us from making smart financial moves.
This article covers some of the common biases that prevent you from making optimal use of your money. You must read it and see if you suffer from some of these biases too, at least you will become aware and can develop strategies to counter some of them and do better with your money.
Beyond money, if you want to understand how your brain develops over your lifespan, a new study offers some clues.
The great Indian pump and dump
SEBI recently published two reports on how YouTube is being used to trap investors and manipulate stock prices.This is something that we at Zerodha have been discussing internally for a while.
Finshots has written about how pump and dump operations work and what are some red flags you should look out for else you might become a victim of this too.
Silicon Valley Bank explained
By now you would have heard something about Silicon Valley Bank’s implosion. In short it is a case of asset liability mismatch, mismanagement and greed. SVB was the 16th largest bank in the USA. To put things in perspective, it is as big as HDFC Bank.
This article gives a detailed explanation of what went wrong. For a much simpler explanation you can read this.
Listen
Why does the Indian electorate not prioritise growth? A meta-framework for policy analysis: