#10 Daily Financial News Round Up - Nov 10,2021
Market Snapshot
The market downtrend continues. Dow Jones is down by 0.66%, S&P500 is down by 0.82%, and Nasdaq Composite is down by 1.66%.
How’s crypto-market?
Bitcoin is also down by 2.97%. The top three traded cryptocurrencies in the last 24 hours are Shiba Inu, XRP and Loopring. It’s all red in the cyryptomarkets except for Solana and Chainlink. Solana is up by 0.45%, while Chainlink is up by 0.35%.
What news caught my attention?
Consumer prices are up by 6.2% compared to a year ago. This rise in prices is the fastest 12-month growth since 1990. It is also the fifth straight month of inflation of over 5%. Weeks of inflation of concern seem to be turning true. Should we, the normal consumers worry about inflation? WE SHOULD! Why? When inflation is high, the bang we get for our buck goes down. For example, the number of grocery items you bought last year will now cost a lot more - 6.2% higher. This means less value for our money. Why are we seeing these higher prices? It is a combination of various factors:
Higher demand for products —- Econ 101 states that higher demand results in higher prices.
Stimulus checks --- COVID relief stimulus checks put money in almost everyone's pockets. Working from home or restricted to homes due to the pandemic, this extra money induced people to consumer more. More consumption implies more purchases. More purchases results in increased demand. This again takes us back to increased demand.
Refer to point 1.
Shortage of workers —- a combination of pandemic + 'great resignation' + lack of childcare is leading to a shortage of workers. Companies are unable to meet the higher demand due to a lack of workers. To attract workers, companies are offering higher wages. These higher wages will result in companies raising prices to meet the incrased wage demands.
Finally, supply chain issues — resulting in delays which in turn result in unmet demand. Please again refer to point 1.
To recap what happened so far - Elon Musk conducted a Twitter poll asking his followers if he should sell 10% of his shares ahead of the proposed billionaire's tax. He would abide by his Twitter if his followers voted YES on it. Musk's followers voted yes, but Musk did not follow through. He sold only less than 1% of his shares. But, there is a bigger story here. The markets consider it a signal of bad news if insiders of a company offer to sell their shares. Markets are right to interpret the offer this way. There is ample empirical evidence and academic research to back this interpretation. But, considering that Musk is this real life Tony Stark, a visionary, his followers and I thought that the probability of something sinister brewing in the background is unlikely. WE ARE WRONG! Shortly before the Twitter poll, Musk's brother sold some of his shares. Also, Michael Burry (the Doctor played by Christian Bale in the movie "The Big Short") noted that Musk is selling his shares to cover his personal debts. I guess Musk is no different than any other big establishment's executive.
My Takeaways:
Inflation is COMING! (like the winter is coming, get it ;)).
It is a hard pill for the tech industry to swallow, but their companies, it’s founders and executives are no different than the prior big companies that they were trying to differentiate themselves from! Financial research teaches us that history always repeats itself. Always. Only the form is different.