Hello all, welcome to the latest issue of Markets and Macros by TradingQnA.
Set up your defence before you go on the offensive
In cricket, batters take a few balls to settle down before they start getting aggressive. Getting comfortable on the pitch early on is key to a good score.
The same analogy applies to personal finance as well. When planning their personal finances, most people jump straight to the investing part, but that’s like trying to hit a six from the first ball (Surya Kumar Yadav’s first ball in international cricket was a six, but you aren’t SKY).
Before you go on the offensive, you need to have your defence right. That means, you have to get health and life insurance before you start investing, and I’m speaking from experience.
There has been a delay in this edition of the newsletter. A dysfunctional gallbladder is to blame. I had to spend a week in unbearable pain followed by cutting-edge (read expensive but very convenient) surgery. Thankfully, I had health insurance, otherwise, I would’ve had to pay the bill from my pocket.
Most young people do not feel the need of getting health and life insurance because they feel they’re invincible, courtesy of youthful stupidity (don’t worry, we’ve all been there).
But please listen to me:
Get a life insurance (term insurance) if you have dependents.
Most of us are just one serious health issue away from financial ruin. So, get a health insurance policy.
Once you have that sorted, you can plan your investments without worrying. Otherwise, your investments will become your insurance.
If you need more convincing to get yourself insured, check this out.
Many people start investing with the wrong expectations, wanting to strike riches quickly. Most people assume that playing defence with your money means you’re a loser or timid and that you need to take risks to make money.
Playing defense with your money doesn’t mean you can’t build wealth. It means you’re taking a calculated approach to your investing decisions.
I came across an interesting read on why it is important to play defensive in your journey to building wealth.
A Desi take on macroeconomics
Do you feel macroeconomic textbooks are dry and boring?
You are not alone. Most of us are in the same boat.
I recently came across Alex M Thomas, an assistant professor of economics at Azim Premji University, Bangalore, and had the fortune of reading his book and talking to him for our Zerodha Educate podcast.
Apart from making macroeconomics more relatable, Alex introduces an alternative approach to understanding macroeconomics, which questions the dominant (marginalist) approach. This alternate approach is inspired by the works of the old masters like Adam Smith, David Ricardo, Karl Marx, John Maynard Keynes, and Piero Sraffa. You can watch the episode below, or if you want to read the episode transcript, you can do it here.
What’s happening with the US Economy?
Something interesting is going on with the US economy. It’s the best and the worst of times simultaneously. Everyone is looking at the same set of numbers and coming to opposite conclusions. Key economic metrics are pointing in all different directions.
“Are we headed for recession? I’m less worried today about an imminent downturn than I was a few months ago, particularly as labor-market numbers have come in better than expected month after month. I don’t think the risk of recession is gone, though. There are too many unknowns. The path of Russia’s war on Ukraine, for instance, or a possible default on U.S. debt (accidental or otherwise).
I’m less worried about inflation than I once was, too — at least, I think it’s unlikely price growth will accelerate in the months ahead. But inflation has been pretty “sticky,” and recent data revisions have shown it to be higher than initially estimated.”
A plausible explanation for this economy is that the pandemic and subsequent recovery were so unusual that the normal rules of economics don’t apply.
“The stimulus checks, unemployment money and child tax credit payments — plus the fact that many people stayed home for much of the pandemic — gave Americans unprecedented savings. That cushion helped people deal with rising prices. As their savings dwindled, people have been going back to work and scaling back spending. Workers ages 25 to 54 are now basically fully back in the labor force. On top of that, infrastructure spending is a boost to industries such as construction that might have otherwise seen a slump from the Fed’s high rates.”
Venture fundraising has hit a 9-year low
For a decade or so, investors including pension funds, university endowments and family offices poured cash into venture funds believing that they could outperform other asset classes over time. The slowdown that hit startups last year has now caught up with the investors.
Fundraising by venture-capital firms has hit a 9-year low in the 4th quarter of 2022.
VC firms raised $20.6 billion in new funds in the 4th quarter. That’s a 65% YoY drop and the lowest 4th quarter amount since 2013. They raised less than half of what they did in the preceding 3 months. It’s the first time that fundraising volumes decreased from the 3rd to 4th quarter since 2009.
Source: Wall Street Journal
Does Bitcoin have a future? Central Bank Digital Currencies have a moment.
This article discusses the future of cryptocurrencies. It talks about the trend of central banks working on CBDCs and how we could target money laundering and criminal ecosystems in a not-so-distant digital future.
What you can learn from popular investing fads
IF YOU KICK AROUND Wall Street for long enough, you’ll witness all kinds of investment fads—special purpose acquisition companies, cryptocurrencies, meme stocks, to name just a few. Each bubble differs, but the eventual comeuppance always feels brutally familiar.
But there aren’t just fads among investments. There are also fads among investment concepts. But while naïve investors tend to get caught up in investment bubbles, it’s the brainy types who fall in love with investment concepts, which they then promote with a religious zealot’s fervor.