#35 Daily Financial News Round Up - Dec 5,2021
What news caught my attention?
The central-bank technocrats in Brazil opened up the market for a competitive market which spurred a fintech revolution. Despite high-interest rates, fintech companies like Nubank attract more than 40 million customers, reflecting the need to revolutionise the country's financial services industry.
Fiscal space is the amount of debt a nation can take on without getting into a pickle. Specifically, fiscal space is the borrowing space that countries can use to tap into government bond markets if a situation arises. Bond investors perceive modest yields on government debt as low levels of risk. Bond yields traditionally measured the perceived risk in the markets as investors buying/selling debt helped establish the yields. However, central-bank intervention distorted this relationship in recent times due to stimulation efforts. Now, we need a new measure of gauging sovereign risk.
An academic-based index created by the University of Chicago called the CRSP drives the largest mutual fund Vanguard Total Stock Market Index Fund, which has a $1.3 trillion value AUM. This fund accounts for 10% of all assets in US stock mutual funds and ETFs in the market. The academics and Wall Street are well aware of this index, while the general public is largely unaware of its existence. CRSP is short for the Center for Research in Security Prices, and this index consists of 4,000 stocks that includes everything from microcap to blue-chip giants and is more reflective of the entire market. In contrast, the comparable DJIA tracks 30 big-name stocks, S&P 500 follows the performance of 500 large companies, and the Nasdaq includes 3,500 smaller stocks. For this reason, CRSP helps gauge the stock market better than the above discussed three indices.
My Takeaways:
Competition improves consumer welfare as it fosters innovation.
The prominence of fiscal space changes with the strength of the currency. The strength of a currency depends on the political power of a nation backing that currency.