Market movement this week
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Is gold becoming RED U+2753
Identity crisis – Gold was always an investor’s resort in bearish markets, a “safe haven” at the time of high market volatility. True to its nature, gold prices went up during Jan – Mar ‘22, rising from $1780/oz in Jan to $2000+ by March-end when worldwide, equities were falling.
This trend has reversed and gold prices are falling like everybody else and are now trading around $1800. Why has gold forgotten its role and falling in line with equities? One word answer – INTEREST RATES
Putting pieces together – Gold doesn’t earn any interest. It has an inverse relationship with equities BUT when int rates are low. US Fed has been raising rates to control inflation. This has caused investors to move money out of gold ETFs into interest-bearing bonds.
Bottom line – Rate hiking cycle is going to roll for sometime and even central bankers are doing the trial and error process to tackle the growth vs. inflation battle. Any sign of reversal in yields could be the right time to buy gold again. Till then bonds may be the new “safe haven”.
Sequoia brings funding cheer U+1F911
Wait is over – Sequoia Capital finally announced its $2.85 billion fund for Indian ($2 bn) and Southeast Asian startups ($0.85 bn), largest India-focused corpus by any VC firm ever! This comes following last month’s meeting when Sequoia cautioned its founders to prioritise profits and cost-cutting over hypergrowth.
Choppy 2022 – Talks about this fund was doin rounds in early 2022 but the VC was mired with controversies around its portfolio cos – BharatPe, Trell, Singapore-based Zilingo and Algo Legal.
Sigh of relief – This announcement is a much-needed support for the struggling Indian founders who are already cornered by the current bearish sentiments, global tech crash, and funding slowdown. Sequoia has invested in 36 of India’s 102 unicorns including the famed Zomato, Freshworks, Meesho and Byju’s. Globally, the VC is well known as an early backer to Google, Apple and WhatsApp.
Bottom line – Including the new fund, Sequoia will be deploying a mammoth $8 billion into India – far ahead of its rivals. Sequoia can remain involved across company lifecycles and get killing returns, of course, provided no more controversies pls!
Crypto – Rat Poison U+2620
Winter came soon: Rat Poison – that’s how Mr. Buffet, describes Cryptos.
This year, cryptos have been in news a lot like last year, albeit for all the wrong reasons. Bitcoin which traded above $60k, 6 months ago; is now close to $20k. Ethereum went from $4,800ish to $1,100ish. The total Mcap of all cryptocurrencies, “which topped $3 trillion is now below $1 trillion. Spot trading volumes have halved during March-May compared to the year-ago period. Crypto exchanges have started laying off people. Coinbase and BlockFi (another crypto lender) are laying off 1/5th of their staff.
You knew it – All speculative assets are volatile. Their price goes up and you make money. But their prices often go down at the same speed and you lose some or most money; that’s how gambling works. So, you should ideally put money that you can afford to lose. That way, if the bubble does burst, you won’t be left with nothing.
Deeper problem – When you add leverage. This is the story of Celsius Network. It is in the business of taking deposits to make loans to crypto speculators, and now when crypto prices have crashed, it has frozen withdrawals similar to the Binance exchange and talking to restructuring lawyers. You jolly well know why a crypto lender would block redemptions unless it didn’t have enough funds to honour them?
Bottom line – Cryptocurrencies have had 12 years to prove themselves as a currency and they still remain an unpredictable asset with almost no role in normal economic activity. You never know who’s swimming naked until the tide goes out.
Inflation hitting skies, literally U+1F680
What happened – Get ready to shell out crazy money for your flight tickets after Spice Jet and Indigo hiked fares across the board by 10%-15%. Stocks got a hammering and so will our wallets.
Brakes applied – State-backed oil marketing companies (aka HPCL, BPCL, IOCL) hiked Aviation Turbine Fuel (ATF) prices by a whopping 18% this week. ATF accounts for almost 50% of an airline’s cost. ATF is derived out of oil which is at a yearly high due to the war. Pent-up demand has further jacked up demand for ATF. A weakening rupee caused a further dent to the airliners as payments for lease rentals are made in $$.
Grounded again – Air travel had barely reached close to pre-Covid levels but looks demand is already hit. Back to the roads now.
If you can’t beat them, be like them U+00A9
What happened – All social media cos after struggling to beat TikTok now wants to be like the cool new kid on the block and hop on to the short video form.
“For you” algo – Meta is planning to overhaul its social networking app. You shall soon find FB’s feed algo will recommend posts from total strangers. This is a significant pivot from “meaningful social interactions” focus which gave priority to friends and family content earlier.
Insta is already showing such feeds.
YouTube also boasts of a 1.5 billion monthly active user base for its new short video product, Shorts, closest competitor to TikTok so far.
Twitter – In the 1st town hall meeting with Twitter employees, Elon Musk categorically stated that Twitter should become more like TikTok to grow and hit a billion followers.
Bottom line – Companies are getting really innovative with how they use these multiple formats on the platform. What is interesting to see how soon they can all hit the road to monetisation!
What else made news?
U+1F3AE Squid Game – Game is returning for a second season after Netflix gave the green light to a “Squid”-themed reality show with a record $4.5m cash prize
|U+1F4B9 Hike after hike – 75 bps hike announced by Fed. Expected to be followed by another similar hike as per Mr. Powell|
U+1F6F8 Droning: Amazon to launch its much-hyped drone delivery service in California later this year
|U+1F4F1 5G – Govt gives nod to Dept of Telecomm for 5G spectrum auction by end July|
What Tavaga Tribe has been up to this week?
Reading: It Doesn’t Have to Be Crazy at Work by Jason Fried – this book tends to break the prevailing notion that long hours, aggressive hustle, and “whatever it takes” are required to run a successful business
Listening: Entrepreneurs on Fire by John Lee Dumas. An award-winning podcast which hosts interviews with some of the most successful entrepreneurs.
Meme of the week
Key insights from our Research Team
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Disclaimer: This write-up is solely for educational purposes. This in no way should be construed as a buy/sell recommendation. Please consult your investment advisor before investing.
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