Good morning 👋
It’s Wednesday, August 7 and I’m back from hiatus with your succinct yet insightful weekly briefing 🚀
"Talent without effort is wasted talent. And while effort is the one thing you can control in your life, applying that effort intelligently is next on the list."
Mark Cuban
🏁 Quick Quips
Here’s a recap of last week’s headlines
📉 Dow, Nasdaq, and S&P 500 See Sharp Declines on Recession Worries (Reuters)
Global stock markets experienced a significant downturn, driven by concerns over a slowing US economy after a weaker-than-expected jobs report revealed a slowdown in hiring and a rise in unemployment to its highest level in nearly three years. This data triggered the "Sahm Rule," a historically accurate recession indicator. The US, contributing nearly a quarter of global GDP, significantly influences global markets, leading to a 2.6% drop in the Dow Jones Industrial Average, a 3.4% decline in the Nasdaq Composite, and a 3.0% fall in the S&P 500. Japan's Nikkei 225 fell over 12%, its largest single-day percentage drop since 1987, while major European indices dropped around 3%. The "Magnificent Seven" tech stocks lost over $650 billion in market value, with Nvidia tumbling 6.4% and Apple dropping 4.8%. Bitcoin also fell by over 10%. This market reaction underscores fears of a US recession, compounded by concerns over the Federal Reserve's interest rate policies. In addition to the equities sell-off, US Treasury yields tumbled as investors sought safe-haven assets, and the Cboe Volatility Index spiked to levels not seen since early 2020. The financial landscape remains volatile as analysts caution against premature optimism, highlighting the broader implications for global markets.
🇮🇷🇮🇱 Middle East on Edge as Israel and Iran-Backed Proxies Exchange Blows (FT)
Iran has vowed to avenge the assassination of senior Hamas leader Ismail Haniyeh in Tehran, reportedly ordering a direct attack on Israel. Israeli Prime Minister Benjamin Netanyahu, while not claiming responsibility for Haniyeh’s death, stated that Israel had dealt “crushing blows” to Iran-backed proxies. This development, coupled with the recent killing of senior Hezbollah commander Fuad Shukr in Beirut, raises the risk of broader conflict in the Middle East. Despite fears of an all-out war, some analysts suggest that these targeted strikes may deescalate tensions by avoiding broader conflicts. Amid this volatile backdrop, the Iranian-backed Hezbollah launched a drone attack on northern Israel, wounding two Israeli troops. However, sustained violence could disrupt oil supplies, increase risk premiums, and lead to financial market volatility. This incident underscores the fragile state of the region, where the interplay of geopolitical manœuvres and retaliatory actions continues to shape the landscape.
🇹🇼🇩🇪 TSMC's $10.8 Billion European Expansion: New Dresden Plant to Bolster Regional Chip Supply (Nikkei)
Taiwan Semiconductor Manufacturing Co. (TSMC) will break ground next month in Dresden, Germany, for its first European plant, European Semiconductor Manufacturing Corp (ESMC). Chairman and CEO C.C. Wei will lead a delegation on August 20, including equipment and material suppliers, clients, and government officials. The Dresden plant, set to commence operations by late 2027, represents a significant step in TSMC's global expansion strategy. Major chipmaking clients like Infineon, Robert Bosch, and NXP Semiconductors NV, each holding a 10% stake, are key investors in this €10 billion ($10.8 billion) venture, addressing the EU's demand for localized automotive and industrial chips. TSMC has appointed Christian Koitzsch, an industry veteran and former Bosch senior vice president, as the plant manager. The site, located near Bosch’s Dresden plant and Infineon’s €5 billion facility, is expected to begin production in 2026. TSMC's move aligns with the EU Chips Act's goal of enhancing regional semiconductor capabilities, supported by a €3.5 billion German government subsidy. Initially focusing on 28/22nm planar CMOS and 16/12nm FinFET technologies, the plant will create 2,000 high-tech jobs. This strategic investment underscores TSMC's commitment to becoming a global semiconductor leader, potentially intensifying competition with firms like Intel Foundry Services, which faces its own challenges in the region.
♻️ High-Integrity Carbon Credits: Only 3.6% of Market Meets New Standards (Bloomberg)
A third of all carbon credits have failed to qualify for the ‘high integrity’ label set by the Integrity Council for the Voluntary Carbon Market (ICVCM), creating fresh challenges for the offsets market. The ICVCM's Core Carbon Principle (CCP) standards, introduced to enhance market transparency, disqualified 236 million unretired credits linked to renewable energy projects, making up 32% of the market. The primary reason for this failure is the inability of these projects to meet the 'additionality' criteria, which assess whether a project would have proceeded without the financial incentive provided by carbon credits. This shortfall undermines the argument that these projects lead to genuine emission reductions. The disqualification could further depress renewable offset prices, which dropped 69% last year to an average of $3.88 per metric ton. Currently, only 27 million unretired credits, or 3.6% of the market, meet the CCP standards. The ICVCM continues to assess new methodologies, with broader implications for the credibility and effectiveness of voluntary carbon markets in supporting emissions reductions. Market participants should note the heightened risks and potential for further price declines as the sector adjusts to these rigorous standards.
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Global news and Market moves
💵 Berkshire Hathaway owns more U.S. Treasury bills than the Federal Reserve.
🤖 Google monopolised search through illegal deals, federal judge rules.
🇬🇧 UK PM Keir Starmer holds emergency meeting to end far-right violence across Britain.
🇹🇼 Taiwan's premier and new government pushes $100bn economic reform.
💻 Lenovo to integrate AI into all PCs by 2027 Nikkei reports.
🇧🇩 Bangladesh’s leader resigned and fled the country amid mass anti-government protests.
📊 Intel shares slump 26% as turnaround struggle deepens, biggest-ever drop in 50 years.
🇨🇳 China rolls out $42bn stimulus package to boost domestic demand.
🇵🇭 Philippines’ Carlos Yulo scoops historic 2nd Olympic gold.
🔒 US and Russia have made their biggest prisoner swap in post-Soviet history.
🏅 Novak Djokovic completes golden slam, wins historic Olympic gold medal.
🚙 Uber partners with Chinese Tesla rival BYD, to put its drivers into 100000 EVs.
🇮🇷 Iran inaugurates its new president, Masoud Pezeshkian.
🇺🇸 Vice President Kamala Harris officially became the Democratic nominee for president.
⚠️ US, UK and France ask their citizens to leave Lebanon as war fears loom.
💰 Philippines and U.S. strengthen military ties: $500m boost to counter China.
❄️ World’s largest iceberg, A23a, trapped spinning on the spot near Antarctica.
➡️ Forecast and Hindsight 👀
Did foresight meet hindsight?
📈 Growing reliance on private sector investment— The World Bank Group’s Private Sector Investment Lab launched a new platform to catalyse private sector capital and accelerate sustainable development. It aims to boost guarantee volumes to $20 billion by 2030. It includes three product families: credit guarantees, political risk insurance, and trade finance guarantees.
The third plenary session of the 20th Central Committee of the Communist Party of China (CPC) emphasised the importance of the private economy, aiming to stimulate private investment vitality in key areas and guide high-quality development.
The African Development Bank stresses the need for increased private sector involvement in climate finance, with less than 3% of adaptation activities in Africa financed by the private sector between 2019 and 2022.
The UK Chancellor announced a new national wealth fund to attract billions in private sector investment for UK growth, targeting green and high-growth industries with £7.3 billion in state funding.
👉 Market reactions to the news cycle— The bull market surged in the first half of the year, surpassing experts' expectations and reaching new highs. As mid-2024 approaches, the stock market outlook remains bullish, supported by a resilient economy and strong corporate earnings.
Interest rate forecasts have shifted, with fewer cuts expected than initially anticipated, affecting market dynamics.
Wall Street predicts steady earnings growth until at least 2026. Even excluding megacap tech stocks, the earnings outlook is positive.
Favourable investment themes, including AI, drive stock growth, along with dividend growth.
Dividend growth is also promising, with projections of a 6-6.5% rise in cash payouts this year.
Small-cap stocks are expected to perform well in the second half of 2024, especially with potential interest rate cuts.
🏭 Industrial competition in Southeast Asia— Southeast Asia has attracted more FDI than China for the first time in a decade, driven by rising manufacturing costs and tariffs in China. Southeast Asia has attracted significant FDI in EV manufacturing ($14 billion), EV battery manufacturing ($26 billion), and semiconductor manufacturing ($38 billion). The region's data centre sector is dominated by Malaysia, Thailand, and Indonesia.
According to a report by Angsana Council, Bain & Company, and DBS Bank, FDI in Southeast Asia will likely continue to outpace China over the next decade.
In 2023, FDI in Southeast Asia’s top six economies (SEA-6) reached $206 billion, compared to China’s $43 billion.
Between 2018 and 2022, FDI in SEA-6 grew by 37%, while China’s FDI grew by 10%.
Singapore leads in FDI per capita among SEA-6, while Indonesia and the Philippines have the highest growth rates.
What to look out for this coming week?
📢 China’s inflation data
🇪🇺 EU Digital Markets Act implementation
🇮🇩 Indonesia’s CCS/CCUS regulations
📊 The Week in Numbers
Rising Threat of Counterfeit Medicines 🚨
Counterfeit medicines are on the rise, as shown by data from the Pharmaceutical Security Institute. In 2021, nearly 6,000 pharmaceutical crime incidents were recorded, marking a 38% increase from the previous year and the highest figure in 20 years.
Many counterfeit medicines remain undetected due to competing priorities, lack of funding, or inadequate regulatory structures.
🌍 Impact on Low- and Middle-Income Countries
The World Health Organization (WHO) reports that about 10% of medical products in low- and middle-income countries are substandard or falsified, with sub-Saharan Africa seeing rates as high as 19-50%. The actual number of counterfeit pharmaceuticals is likely much higher due to underreporting.
🚔 Contributing Factors and Recent Efforts
Online Pharmacies: Increase in fake or defective pharmaceuticals.
Operation SHIELD: Europol's initiative targeting counterfeit and misused medicines across 30 countries, supported by multiple international agencies.
🕵🏻♂️ SHIELD IV Findings
Organised Crime: Highly lucrative for criminal groups.
Public Health Impact: Significant costs and severe health risks.
Social Media: Advertising of doping substances to non-professional athletes.
🔎 Specific Cases of Counterfeit Medicine Seizures
Greece: Dismantling of a network trafficking counterfeit botox and vitamin acid preparations.
Italy: Seizure of a rural underground lab producing doping substances.
🌐 Global Reach and Economic Impact
The counterfeit drug trade affects both developing and developed nations, leading to economic loss and increased morbidity and mortality. WHO estimates that 10.5% of medications worldwide are subpar or fake.
💸 Economic and Health Consequences
Financial Impact: Up to $200 billion.
Public Health: 1 million deaths annually, with significant mortality in Africa due to fraudulent antimalarial drugs.
🌍 Regional Focus: Sub-Saharan Africa
Antimalarial Medicines: 267,000 deaths per year linked to falsified products.
Antibiotics for Pneumonia: Up to 169,271 deaths annually.
Economic Toll: $12 million to $44.7 million annually for malaria treatment.
🚀 Recommendations and Initiatives
African Union: African Medicines Regulatory Harmonization initiative to improve access to safe medicines.
UNODC Recommendations: Revise legislation to prevent smuggling, money laundering, and corruption.
👉 While trust in the medical field remains high, the prevalence of counterfeit medicines poses a significant threat. Counterfeit drugs not only undermine public health but also erode trust in healthcare systems, ultimately affecting global life expectancy.
🎨 Artful Revelations
Here are some of my picks for the week
📚 Exploring books:
Poor Charlie's Almanack: The Essential Wit and Wisdom of Charles T. Munger by Charles T. Munger
"Poor Charlie's Almanack: The Essential Wit and Wisdom of Charles T. Munger" offers an insightful journey into the mind of one of the sharpest investors and thinkers of our era. Curated by Peter D. Kaufman, this collection of Charles T. Munger's speeches, lectures, and insights transcends finance to explore human behaviour, decision-making, and the relentless pursuit of wisdom.
At its core, the book advocates for a multidisciplinary approach to understanding the world. Munger emphasises the importance of mental models—frameworks for organising and processing information—culled from diverse fields such as psychology, economics, biology, and history. His insistence on acquiring a latticework of mental models underscores a fundamental tenet: true knowledge and sound decision-making stem from integrating insights across various disciplines.
One of the book’s most compelling aspects is Munger's critique of human cognitive biases. He unflinchingly dissects how our mental shortcuts and irrational tendencies often lead us astray. His advocacy for rigorous self-discipline and continuous learning is both practical and profound, urging readers to confront and mitigate their inherent biases.
Moreover, Munger's aphorisms are both enlightening and disarming in their simplicity. Pithy yet profound, statements such as “Invert, always invert” encourage readers to approach problems from multiple angles, revealing insights that might otherwise remain obscured. This approach, akin to thinking backwards to solve problems, reflects Munger's unique blend of intellectual rigor and practical wisdom.
The book's relevance extends beyond finance and investment. Munger's principles of clear thinking, lifelong learning, and ethical behavior resonate with professionals across industries. His emphasis on cultivating a broad base of knowledge and avoiding the pitfalls of overconfidence and hubris is particularly pertinent in today’s complex and interconnected world.
🖼️ Exploring the gallery:
"On the Terrace at Sèvres with Fantin-Latour" by Marie Bracquemond, painted in 1880, stands as a testament to the Impressionist era's nuanced exploration of light and social interaction. Bracquemond, often overshadowed by her male counterparts, brings a deft touch to this composition, demonstrating her unique ability to capture the subtleties of human presence and natural ambiance.
Technically, the painting showcases her skilful manipulation of light and shadow, a hallmark of Impressionism. The dappled light filtering through the foliage creates a play of highlights and muted tones across the figures and terrace, emphasising the transient quality of the moment. Her brushwork is loose yet precise, allowing for a sense of movement and life within the scene. The juxtaposition of cool and warm hues further enhances the spatial dynamics and depth, guiding the viewer’s eye through the composition.
Bracquemond’s attention to the delicate expressions and postures of her subjects adds to the painting a quiet narrative, inviting viewers to ponder the nature of their conversation and the atmosphere of camaraderie.
💭 Brainwaves and Whimsy.
“Your emotional state is not your identity, it is an experience.”
Worthiness isn’t something to acquire, but rather to remember.
My two most recent flights involved lugging around my carry-on across the tarmac and up and down numerous flights of stairs. I guess a workout plan was included in my ticket purchase.
Thanks for being here. I'll see you next week with the newest issue of Brevity Margin!
Wishing you a productive week filled with pockets of laughter.
Abigail