Alchanati Campbell & Associates
Success, economic measures, emerging market growth, the current economy and the science behind the rate hike.
#dearmoon. On Monday, September 17th, those who watched the SpaceX special event left the real world for little and entered a world more akin to an Arthur C. Clark novel, as Elon Musk announced that Yusaku Maezawa would be the first private citizen to fly around the moon in what felt like the intro to a sci-fi movie. The Japanese entrepreneur and billionaire entered the stage to introduce himself, and explain his mission. Maezawa has purchased all of the available seats on the BFR spaceship to fly himself and several world renown artists around the moon. Maezawa has named this endeavor, “Dear Moon” and hopes that sending these artists around the moon will inspire them to create artwork with the goal of world peace. Maezawa has paid an undisclosed amount that will help fund the creation of the Big Falcon Rocket or BFR. While this mission is not set to take place until 2023, effects will be felt through the aerospace industry immediately. Companies like SpaceX, Blue Origin, and Boeing are in a race to gain an advantage in the emerging market of space tourism and the completion of the BFR would set SpaceX far ahead of their completion.
Success only by luck..? “You don’t know whether you’re going to be born rich or poor, male or female, infirm or able-bodied, in the US or Afghanistan. All you know is that you get to take one ball out of 5.8 billion balls. And that’s you,”(Warren Buffett). This is called the “Ovarian Lottery”. It might seem reasonable that the Ovarian Lottery determines most of your success in life, but hard work might produce the same result. When you work hard you typically get better results than you would with less effort. Luck matters more in an absolute sense (against a world of people) and hard work matters more in a relative sense (against a group of similar people). Absolute success is luck and relative success is choices and habits.
Important economic measures to know.
The secret behind emerging market growth. 18 emerging economies stand out the most. China, Hong Kong, Indonesia, Malaysia, Singapore, South Korea, and Thailand all have per capita GDP growth of at least 3.5% annually over 1965-2016. Azerbaijan, Belarus, Cambodia, Ethiopia, India, Kazakhstan, Laos, Myanmar, Turkmenistan, Uzbekistan, and Vietnam all have per capita GDP growth of at least 5% for the last 20 years. The secret that enables certain economies to achieve more stable and robust growth is:
Record low unemployment + low wages = the current economy. The unemployment rate has dropped to a nearly two-decade low. Wages remain flat, with raises getting eaten up by inflation. This is caused by low business dynamism and diminished worker power. An indicator to help explain the persistence of low wages in an environment of low unemployment is sluggish productivity. Productivity growth is low relative to historical standards.
How the FED increases interest rates. On September 26, the Federal Reserve's Federal Open Market Committee, or FOMC, is set to meet and another interest rate hike is widely expected. But what does a rate hike actually mean? In a rate hike, the Federal Reserve pulls extra capital out of the economy. The FED does this by selling US Treasury Bonds to banks. Banks lose capital in this transaction. This leaves the banks with less capital to produce loans. To make it harder for consumers to acquire loans, the banks increase interest rates on loans. This disincentives consumers from acquiring loans which additionally disincentives consumers from spending. With less spending in the economy, unemployment rates go up, production decreases, and with less capital for investment the stock market drops. Here’s a link to learn more about quantitative easing.
RIPPLE. If you don’t know much about cryptocurrency, the two coins that you have probably heard of are bitcoin, and the coin that is always talked about on the news, Ripple (XRP). Well Ripple just pulled off something that no one expected would ever occur: they just overtook Ethereum for the 2nd highest market cap coin in crypto. A bit of background on Ripple before we go further into why this is such a big deal. (I am going to give an outside view of this coin as I have strong opinions against it) Ripple is a cryptocurrency that is used as a transfer of value, boasting the capability of “instant and direct transfer of money between two parties”. Not to go that far into the tech, this sounds like a great idea… the capability to instantly transfer a ‘currency’ to anyone, anywhere in the world, for minimal fees. Ripple also has the ability to handle over 50,000 transactions a second. Now to the large issue that I have with this coin: there is no capability to mine this coin, but the corporation behind Ripple chose a random number, 100B, and literally just created that many coins. The only thing stopping them from ‘printing’ more coins, is their promise that they won’t. Now here is the kicker, the team currently holds around 60% of the coin, which is around 60 billion ripple. At the current price, now up ~50% in the last 24 hours to $0.57, that makes the team worth a whopping $34 billion. In a new-and-upcoming industry which is constantly toting decentralization, why is the #2 market cap coin, a completely centralized project? Now, what did ripple pull off? Well, they just revealed that their pilot program was a success and led to bringing 12 large banks on board creating a new XRP-based payment solution, xRapid. Which banks in question, well only one has been announced, and its PNC bank and they will be using this payment solution to speed up, and reduce the costs of overseas transactions, solely for their US clientele. My personal opinion on Ripple? - I dislike Ripple and feel that serious manipulation could occur with the team holding such a large amount. I find it to be too large of a risk, even in the world of crypto, to fit into my already extremely risky crypto portfolio.
The Alchanati Campbell and Associates Team
WHAT'S UP FRIDAY? is a weekly newsletter that will give you a summary of "What's up?" on Wall Street, in the US and around the World written by The Alchanati Campbell and Associates Team. What makes us unique is we focus on long-term knowledge; knowledge that will still be useful to you 10 years from now.