As the tides recede, the water moves away from the shore, making the ocean floor visible and exposed. We also come across such ebb currents in our lives!
This week, let's look at how markets, cryptocurrency, and job opportunities are facing the falling tides.
Post the pandemic, many advanced economies have witnessed an unusual employment trend, wherein the jobs are in plenty but workers are not willing to get back to work.
In the USA, the unemployed to vacancy ratio has been falling since the pandemic. In April 2020, there were 5 unemployed people for every job opening. In Oct 2021, with the surge in the number of vacancies, the ratio came down to 0.7.
The vacancies and resignations are the highest among low-skill occupations, and employment in these jobs remains below pre-2020 levels. A probable trigger could be the pandemic that changed the workers’ preferences.
The worrisome part is the continued slow employment recovery amidst sustained labor demand could deter economic growth while fueling wage increases. This might further spike in inflation and inequality.
- Lately, besides income support programs, the passive income from the unusually high returns of the equity markets allowed workers to be picky, slowing job acceptances
- Mismatch in jobs due to losses of jobs in hard-hit industries like hospitality struggle to transition to the available vacancies in other industries
- School closures along with the scarcity of childcare services had put an extra burden on mothers of young children, pushing many to leave the workforce
For a lot of companies, human resources is one of the major investments. An under-resourced firm or one with high attrition rates might affect productivity and competitiveness.
Important for the investors to look at the employee-related quantified numbers, identify if there is a problem, the possible impact, and the company’s corrective actions.
With crypto’s value soaring in recent times, many new investors have gotten eager to get in on the action. However, cryptocurrency is unknown territory for the newbies and due to the lack of security in blockchain technology, investors become vulnerable to scams.
Adding to that, its unregulated status also does not provide much for a legal course of action.
Cryptocurrency crime had a record-breaking year in 2021, with scammers taking USD 14 billion worth of crypto- that's nearly twice the USD 7.8 billion taken in 2020, according to blockchain data firm Chainalysis.
Anonymous identities, lack of KYC protocols and a decentralised platform making it difficult to differentiate between a good actor and a bad actor on these platforms.
- Fake it till you make it: Many fake altcoins came up which have no blockchain technology and were just breathing off the success of bitcoin
- Rug pull: Creating digital collectibles for games and if enough people drive up the price, the original scammers sell their holdings and disappear
- Phishing scams: Spam messages on crypto balances might lead to ransomware attacks like wallet wipeouts or mint crypto without the users' consent
For passive investors, who are new in the space, it's prudent to understand the risks involved and keep crypto not exceeding a low single-digit proportion of their portfolios. Also, one should not invest in it at the expense of saving for emergencies or paying off debt.
Adopt some best practices and be attentive towards common red flags that are similar to classic money-wiring scams and credit card frauds.
Globally, both public and private markets have benefitted from the high liquidity regimes by the Central banks to deal with the pandemic. During the recent low-interest rates scenario, USD 28 trillion of the total USD 42 trillion worth of global bonds saw negative yields.
This pushed investors to seek growth through equities and find higher real returns, which further pumped up the valuations of equity markets.
With soaring inflation, Central banks are tightening up the liquidity and raising the interest rates. The Bank of England took the lead, with a 0.25% interest rate hike. A Fed rate hike is expected in March and RBI may be acting soon!
Consequently, the investors have become cautious and hence the volatility in the markets. Turns out to be testing times for the companies as to how they will retain the investors' trust and money.
- Companies with high borrowings might have to bear the high-interest costs and take a cut on the profits
- Sectors like real estate and consumer durables, where the credit-driven purchase is common might face a hit in demand from consumers
- Loss-making new-age tech firms, which had distant growth prospects built-in, might become less attractive
The companies that used the recent investment inflows to lay the foundation for surviving the next economic cycle will be ready to face the upcoming challenges. Investing in technology and infra, building market leadership, and expanding margins- good two years that the low-interest rates gave them to build upon!
Eventually, it's about constructing a sustainable business model that gets stronger with time and market cycles!
The startup space in India has exploded recently, with the number of unicorns rapidly increasing each year. To understand the best practices of investing in these high growth potential avenues, watch our Co-founder, Sahil, break down the fundamentals.
Hey, the adventurous ebbs and flows- bring it on!