Do it yourself

Continuing from yesterday (View from the Mars – 3)

In my view, the following issues may, inter alia, play an important role in shaping the contours of the new world order that may evolve in the next decade or so.

·         China presently is finding it hard to gain acceptance as a major global leader. One of the reasons is lack of democracy, which is still a major consideration for the western developed world. Besides, it is also regarded as an irresponsible power by the extant major global powers. Recently, the spread of Covid-19 virus from Wuhan laboratory, causing a global pandemic, has materially tarnished the image of China. In particular, the mistrust between the US and China have increased manifolds after the outbreak of pandemic, resulting in a Sino-US cold war. This cold war that may last for many years, or may be decades, may be a key determinant of the new world order. Important to note that Russia, which was a key WWII opponent of China, and key OPEC members – Iran & Saudi Arabia, and erstwhile strategic partner of the US – Pakistan, are overtly standing on the Chinese side in this cold war.

·         The vulnerabilities of the US and Europe have been exposed by the coronavirus. Post 9/11 incident, we saw dramatic changes in the concept of internal security in the US and many other countries. The suspects were shot dead without much provocation, disregarding all concerns for human rights and liberties. The culprits were chased and killed in foreign jurisdictions often disregarding sovereignty of these foreign lands. The diplomats, politicians and prominent personalities arriving in the US and the UK were strip searched and denied entry with impunity.

We may see further rise in xenophobic tendencies of the developed western countries. Another major impact could be a concerted effort to reverse the course of demography, especially in European countries that are turning old at an alarming rate. This could be achieved by substantial incentives for procreating aggressively or changes in the immigration policies to encourage young professionals from developing countries to settle there.

·         The global supply chain presently relies heavily on China for components as well as manufacturing services. Many developed countries get their fiscal gaps filled by China in lieu of using Chinese manufacturing services and allowing China access to their markets. The new world order may see a massive shift in this trend. Countries may seek to limit their fiscal deficits and seek diversification of their supply chains. This could present many opportunities & threats to the emerging economies like India.

·         The dominance of USD as the world's only reserve currency could face serious challenges from more neutral digital currencies, especially as a medium of exchange.

·         The ideas like free trade, personal liberties, etc. may face serious challenges from the rising tendencies of governments world over, which are eager to exercise enhanced surveillance and control over personal conduct and data.

·         The business models, valuation models, risk assessment techniques, commercial contracts etc. may need to be redefined to build in probability of frequent disruptions and conflicts.

·         The business and official ‘foreign travel’ may become ‘avoidable unless necessary’, due to rising scrutiny and excessive VISA restrictions.

·         The business continuity planning may become a mainstream subject for all businesses, not just for the mission critical processes and financial services.

·         A strong wave of debt defaults/waiver may hit the global financial system. Handling of this tsunami and subsequent recapitalization of the lenders will be a key challenge for the governments and central banks. Inappropriate handling of this challenge may eventually lead to shortage of growth capital and thus rise in cost of capital.

Where does India stand in this transition and what are the opportunities and threats?

I shall share my thoughts on this next week.

Also read

View from the Mars

View from the Mars - 2

View from the Mars - 3

Trade war cannot quick-fix

The master failing the first test

Reportedly, Israel and Hezbollah (Lebanon) have successfully negotiated a 60 days ceasefire to the latest round of hostilities which started with Israeli forces invading Lebanon on the 1^st October 2024. The deal involves withdrawal of Israeli troops from Lebanon and deployment of a UN peacekeeping mission and establishment of a US led international monitoring group.

This is an important development in global geopolitics. The Hezbollah group was overtly supported by the Iranian government. Israeli invasion into Lebanon had evoked a direct military response from Iran; threatening a much wider escalation of a hitherto localized Israel-Palestine conflict. The ceasefire deal, which has been welcomed by Iran, diminishes the probability of an immediate wider escalation of the Israel-Palestine conflict. However, since the deal does not cover the ongoing Israeli attacks in Gaza Strip, it does not offer any durable mitigation of the threat.

If the outgoing president Biden could pursue Ukrainian president Zelensky to also negotiate a similar ceasefire deal with Russia, it would be considered a great parting gift for the president-elect Trump.

From the economics viewpoint, presence of the UN peacekeepers on the ground and direct involvement of the US in the region may temporarily help in restoring normalcy in the Red Sea marine traffic, thus normalizing the global trade to a certain extent; and the volatility in oil prices may also subside. A restrained approach from both sides would provide a durable solution.

This is definitely good news for India. An uncertain and volatile oil price environment, higher logistic cost due to disruption in the Red Sea, and a conflict involving Israel (supported by the US) and Iran (supported by Russia and China) are investors and policymakers’ nightmares.

Another thing that may be of immense interest to the Indian investors presently is Scott Bessent’s (Trump’s designated treasury secretary) views on USD and US treasury yields. As a hedge fund manager, Scott has preferred a weaker USD strategy, against raising tariff barriers, for the US manufacturing renaissance. Scott believes “tariffs are inflationary and in turn would strengthen USD. On the other hand, a weaker USD would make US manufacturing competitive. A weak dollar and plentiful, cheap energy could power a boom. A stronger USD should emerge only at a later stage if the US reshoring effort is successful”.

It may not be great news for the global hedge fund managers who are overwhelmingly long USD. As per the recent survey, presently, long USD is the most crowded trade globally.

If Scott sticks to his extant views, we may see USD weakening, US yields falling and US energy production & exports rising in 2025. This trifecta may delight Indian markets and our emerging market peers.

One question that begs the answer is “against what USD will weaken?” The US Fed is not keen to cut rates materially from the current levels. EUR cannot afford any strength, especially when German and French economies are tethering. Both China and Japan have shown no inclination to leave their currencies to the market forces. Strength in emerging currencies, including INR, is like a tiny insect bite for an elephant like USD; makes no difference. A peaceful middle east and Europe and cheap energy may take much of the shine out of gold.

I would be pleased to hear the views of readers on what would USD weaken against, if it does?

President elect of the US, Donald Trump has already designated key members of his team. Based on his election agenda, speeches and rhetoric and personal views of his designated team members, market participants are speculating about the likely policy framework of Trump 2.0 administration, and its implications for the global trade and markets.

The year 2024 is proving to be one of the worst years for political soothsayers. After a debacle in the Indian general elections last summer, psephologists have failed in the US presidential elections. The challenger Donald Trump emerged a winner, gaining popular votes to occupy the White House for four years with a clear majority in the US Congress and Senate. This kind of decisive mandate has been a rarity in US politics in the past four decades. Most of the media, political commentators, psephologists, and other experts completely failed to read the peoples’ mind and anticipated a victory for Kamala Harris.

For many weeks, global markets have been behaving in a very desynchronized manner. Non-congruence is conspicuous even in the behavior of the same investor/trader operating in different market segments, e.g., equities, bonds, commodities, currencies, cryptocurrencies, etc.

For example, until a month ago an investor with a balanced 50:50 debt-equity asset allocation invested in bonds as if a soft landing was imminent leading to a series of policy rate cuts over the 12-15 months. The same investor invested in equities believing that earnings growth would surpass the estimates and stocks of top technology companies would continue with their dream run. The investor was content investing in USD assets assuming green greenback would strengthen and at the same time he was buying bitcoins expecting the demise of the extant monetary system by independent crypto or digital currencies.

Last week in the US, equities reached their all-time high levels as if all is well in political, geopolitical, climate, economic, and financial spheres. It felt that the Fed was about to begin a sharp rate cycle, earnings growth had rebounded, Sino-US relations had normalized, the Gaza ceasefire had been announced, and El Nino had ended. However, across the street, the bond market was selling off as if prices were going out of control forcing the Fed to push the rate cuts to 2025. Back street, the bullion market announced that a recession was imminent. Across the Ocean, crude prices were rising as if a war was imminent with Iran threatening to escalate. In dark streets, crypto traders were laughing at conventional investors/traders rushing to bullion markets to hedge against recessionary weakness in USD.

Back home, last week equity indices reached their all-time high. Nifty Small Cap 100 gained over 7%. Commodity stocks rallied as if a bullish commodities cycle was imminent. Ignoring RBI's concerns over prices and credit, bond prices corrected only marginally. No one bothered to care about political manifestoes which are promising fiscal profligacy of gigantic proportion. USDINR appreciated marginally ruling out any pressure on the current account and balance of payment due to the sharp spike in energy & gold prices (two major imports of India) and FPI flow reversal due to the narrowing yield differential between India and developed market yields. People are also rushing to buy Silver (up 10% last week) to make some quick gains.

One of the largest asset management companies is running equities weight close to the lowest permissible in their balanced fund. It has also restricted flows to their smallcap fund. The top fund manager at this AMC is one of the most respectable names in the industry. Considering that the Smallcap index was up 7% last week against the 0.8% rise in Nifty, it seems, no one is listening to his sane advice.

We have all heard the story of an elephant and six blind men. It goes like this.

Once upon a time, there lived six blind men in a village. One day the villagers told them, "Hey, there is an elephant in the village today."

They had no idea what an elephant is. They decided, "Even though we would not be able to see it, let us go and feel it anyway." All of them went where the elephant was. Every one of them touched the elephant.

"Hey, the elephant is a pillar," said the first man who touched his leg.

"Oh, no! it is like a rope," said the second man who touched the tail.

"Oh, no! it is like a thick branch of a tree," said the third man who touched the trunk of the elephant.

"It is like a big hand fan" said the fourth man who touched the ear of the elephant.

"It is like a huge wall," said the fifth man who touched the belly of the elephant.

"It is like a solid pipe," Said the sixth man who touched the elephant's tusk.

They began to argue about the elephant and every one of them insisted that he was right. A wise man was passing by and he saw this. He stopped and asked them, "What is the matter?" They said, "We cannot agree on what the elephant is like." Each one of them told what he thought the elephant was like. The wise man calmly explained to them, "All of you are right. The reason every one of you is telling it differently is because each one of you touched a different part of the elephant. So, the elephant has all those features that you all said."

"Oh!" everyone said. There was no more fight. They felt happy that they were all right.

The story's moral is that there may be some truth to what someone says. Sometimes we can see that truth and sometimes not because they may have different perspectives which we may not agree to.

But I am witnessing a different phenomenon. No six blindfolded men are feeling different parts of an elephant this time. It is only one person who sees different parts of an elephant with open eyes and is not able to tell that it is an elephant.

I have been tracking the news flow and experts’ opinions regarding the developments in global commodities markets for the past couple of years. Of course, I am a novice in matters of global economics, trade, and finance; but the commodities markets are particularly something I could never understand.

From my elementary understanding of economics and human behavior, I understand that aging demography, deeper & wider penetration of dematerialization & digitalization in human lives, rising awareness about climate change, and deteriorating growth potential of the developed economies, and perhaps China also, definitely do not augur well for the commodities’ demand in the long term (10-15yrs). However, the opinion of experts is overwhelmingly in favor of a bull market in commodities in the short term (2-5yrs).

The key arguments presented by experts in favor of a bull market in commodities could be summarized as follows:

(a)   Energy prices have corrected back to the pre-covid period. European power prices, US gas prices, natural gas prices, coal prices, and crude oil prices are back to more “normal” levels. The latest inventory, consumption, and production forecasts for 2024 and 2025 are indicating further easing in energy prices over the next couple of years. Energy being one of the major costs in the production of commodities, lower energy costs and adequate supply is a bullish argument for commodities.

(b)   Focus on the use of clean energy, particularly for mobility and electricity production, is changing the demand mix for metals. The demand for metals like copper, aluminum, lithium etc. is rising much faster than the supply. The stockpiles are diminishing fast.

(c)   Commodity producers, mostly emerging economies, are getting stronger in global strategic balance. The expansion of BRICS to include more commodity producers in the emerging market alliance is just one instance. These economies are now in a much better position in determining the terms of trade, which are dominated by the financialized developed world in the extant global order.

(d)   The geopolitical conditions are worsening. Presently, two fronts (Palestine and Ukraine) are witnessing open war. The fear is that more fronts could open in the next couple of years as the political stands are hardening and no one is showing signs of backing out. Wars have been traditionally bullish arguments for commodities as demand for war equipment and reconstruction work need more metals and building materials.

(e)   There is not much consensus on this point, but a strong view is that USD as a global currency may have peaked and could potentially see a steady decline over the next many years. The share of global trade invoiced in USD terms and USD reserves of global central bankers have witnessed a consistent decline in recent years. Moreover, the cross-border flow of funds from the US has witnessed a sharp rise in 2023. Unsustainable US public debt has led to a downgrade of the US sovereign rating outlook. Besides, the trade conflict with China has led to a conspicuous shift of technological advantage from the US to China. These trends may consolidate the position of commodity-producing emerging economies enabling them to seek favorable terms of trade.

(f) Bloomberg Commodity Index is presently at the same level it was in November 1995.

I have avoided investment in commodity producers for a few years now. I think more study of trends in the commodities market, and a review of investment strategy is due.

 One of the major trends in the post global financial crisis (GFC) world is the weakening of the United States of America’s (USA) clout as an undisputed global economic and strategic leader. In the past 15 years, the US administration has consistently failed in achieving its economic, financial, technological, and strategic objectives.

The economic performance of the US has been below par in the past decade. The handling of the pandemic has been highly questionable. Both monetary and fiscal policies have not yielded the stated objectives of price stability (inflation has been persistently high and rates have become growth restrictive) and financial stability (many regional banks have failed, delinquencies are rising and capital adequacy & reserves of banks have deteriorated, particularly in the past couple of years). Fiscal profligacy has benefited the rich much more than the poor.

The efforts to restrict the benefits of advanced technological innovations flowing to China through tariff and non-tariff means have mostly failed. In fact, these efforts have led to a greater focus on China to successfully develop indigenous technology, forge new alliances, and diversify its market and vendors. The Sino-Arab technoscientific alliance is one prominent example.

The exit of the US forces from Afghanistan and the installation of the Taliban government; failure to prevent Russian invasion in Ukraine and protracted (21st months) conflict there; continued ISIS aggression in Syria and alienation of Turkey; virtual failure to reign Iran’s nuclear ambitions; and now escalation of hostilities between Israel and Palestine are only some recent examples of the strategic failures of the US.

To make things worse, the demography of the US started to worsen. In 2022, the US population grew a meager 0.4% and is estimated to shrink in 2023. Whereas the number of homeless and jobless may be rising.

Consistent deterioration in the quality of political leadership; sharp rise in income and wealth inequalities leading to a conspicuous rise in domestic unrest and violence; unmindful fiscal profligacy; the emergence of an alliance of nations having quasi, pseudo, and non-democratic regimes led by key adversaries China, Russia & Iran and including key allies like Saudi Arabia is seriously undermining the US supremacy.

The education and skill standards of the average US youth are deteriorating fast, raising the reliance on immigrant workers for jobs requiring high skills. The political rhetoric, even from the likes of Vivek Ramaswamy who himself comes from a family of immigrants, further explains the goal incongruence in the US policy.

In my view, it might be a matter of years, not decades, when the fabled “US Consumer” diminishes. The average American household becomes spendthrift; the social security system collapses and fiscal profligacy is forced to reverse the course. An entire global ecosystem that is based mostly on the indulgent US consumer could potentially come down crashing. Also, while most money managers and businesses in India are talking about the “China+1” opportunity, I have not heard anyone talking about “China is number 1” in new technologies including 7G, 8G, AI, smart chips etc.

As an investor, I would like to build these probabilities into my strategy. I am keen to filter my investments for the US consumer and technology dependence.

 Last year, while discussing this subject, I mentioned, “it is a debate that will continue for many more years and no one will remain unaffected by it. Almost everyone who transacts in money or is part of the global economic system will need to deal with it at some point in time.”

I note that the debate is intensifying, widening, and deepening. Moreover, it is becoming more balanced with many conventional money managers, regulators, bankers, and administrators coming in support of digital currencies as an alternative to fiat currencies.

A few days ago, Larry Fink, the Chief Executive Officer of BlackRock, one of the most influential financial firms globally, commented in a TV interview that under the current circumstances “Crypto will play a role as flight to quality”. He was reported to have said, “Bitcoin is a hedge against the devaluation of your currency”. This comment is in total contrast to his comments in 2017 when he had emphatically condemned the idea of cryptocurrencies, saying “Crypto is an index of money laundering”.

Last month, a leading German Bank (Bank) reportedly entered into a partnership with Swiss trading firm Taurus to offer custody services for institutional clients' cryptocurrencies and tokenized assets. In 2018, Deutsche Bank's chief investment strategist Ulrich Stephan criticized crypto for being "too volatile and not regulated enough." Standard Chartered (A leading British Bank) also made a bold forecast predicting that “Bitcoin prices will climb to $100,000 by the end of 2024.”

Earlier this summer, Hong Kong’s Securities and Future Commission proposed guidelines to enable Chinese users to invest in Bitcoin and some other large-cap cryptocurrencies on registered platforms. This is in total contrast to the stance of the mainland Chinese authorities.

In the meantime, several smaller African and Latin American countries, like the Central African Republic, Uganda, Zimbabwe, El Salvadore, Paraguay, Venezuela, etc. have continued to adopt cryptocurrencies in their monetary system, some even declaring bitcoin as legal tender. Last year, even Ukraine created a ministry of digital transformation with an aim to become one of the foremost authorities on crypto. (see here)  Cryptocurrencies are now legal in many countries/regions like the EU, US, Mexico, Brazil, Israel, etc.

There are speculations that the ardent crypto hater Warren Buffet may also be having a slight change of heart in recent months. In an apparent change of traditional policy, Berkshire Hathway has invested as much as US$600 in two fintech firms - PayTM of India and StoneCo of Brazil. This has led to market speculation that the firm may change its long-held stance on digital assets including crypto.

India’s regulatory thought process on crypto has also travelled a long way in the past five years. The Reserve Bank of India started with a blanket ban on the sale or purchase of cryptocurrency for entities regulated by RBI (all scheduled commercial banks and NBFCs) in 2018. The RBI governor “equated crypto trading with gambling”. The ban was declared untenable by the Supreme Court. Presently, the legal position on dealings in crypto in India is ambiguous. It is neither explicitly unlawful nor a regulated asset. However, last week RBI governor reiterated his stance on the cryptocurrency ban, saying there has been no change in the central bank’s position.

No surprise that Bitcoin has weathered all the pessimism and sharply outperformed gold and equities in the past five years. Since October 2018, Bitcoin has gained over 400%, as compared to ~63% for gold (in USD terms) and ~47% for S&P500.

Continuing from yesterday (see here).

I am convinced that the current global monetary and fiscal conditions will have an enduring impact on the global financial system, trade, businesses, and markets. We may feel comfortable with the resilient performance of the Indian economy and markets in the past couple of years, but it would not harm if we factor in the global conditions and trends in our investment strategy. In particular, household investors with relatively smaller portfolios need to exercise due precautions to protect their portfolios from a negative shock.

I have negligible knowledge of global economics, financial systems, and markets. I therefore usually approach these larger issues with common sense and my elementary understanding of the basic concepts of economics. History, of course, always provides some useful support.

I usually study the historical behavior of economies and markets to anticipate the likely actions and reactions of the current set of market participants and policymakers. It is my strong belief that the reaction of investors and fund managers in their 30s or early 40s, who have never experienced borrowing costs in high single or double-digit; policymakers who have not governed through prolonged periods of war, human misery, uncertainty, lack of information, and are not particularly committed to ethics, ideologies, and standards seen during crisis during would react the same way as their predecessors acted/reacted during 1920-1940; 1950-1960, 1970-1980, and even 1990s.

I may be wrong here, but I believe that the policymakers today are governed by the principle of SoS (Save our Souls first). Their natural tendency is to protract the inevitable decision (kick the can) as long as possible rather than make hard decisions that provide sustainable solutions. Similarly, the market participants are also influenced by their inexperience. To me, this implies that the global policymakers and market participants are not adequately prepared to face a material event (credit, geopolitical, natural); and may panic easily and excessively if such an event were to occur. We have seen glimpses of such panic during the outbreak of the Covid-19 pandemic in the year 2020.

Considering that the present global economic, financial, and geopolitical conditions are much more fragile as compared to the summer of 2020, the contagion will spread much faster, wider, and deeper. Therefore, hiding under the shelter of the assumption that India shall mostly remain immune to the impending global crisis may not be a good idea for smaller investors for the simple fact that their capital is much more precious (much higher marginal utility) as compared to the larger or institutional investors.

With this background, I may now share my views about the five points I mentioned yesterday:

1.    Whether the Fed is done with hiking: In my view, this question is not important as of now. A 25bps hike in the next meeting would not make much of a difference, as the previous hikes are still permeating through the financial system. The lending rates may continue to rise even if the Fed does not hike any further.

2.    Will the rates stay higher for longer: In my view, yes. I believe higher rates are arguably the most effective method to bring down the indebtedness of the US government. The federal bond prices have already fallen by 25-40% in the past year, from their recent highs. A 2% rise in yields would shave off another 20 to 30% in bond values. In the meantime, the Fed is creating leverage (through QT) to buy back bonds at half the face value. Large corporations with tons of cash parked in treasuries, hedge funds with leverage positions in treasuries, and the US trade partners with a surplus (China, etc.) would bear much of the losses. Pension funds etc. which hold most securities till maturity may not suffer much. Savers may enjoy higher rates offered by the fresh issuances. Since most new issuances would be at a much higher coupon rate, these may automatically enforce fiscal discipline over the next 2-3 years.

In the interim, however, we may see severe pain in the financial markets as the excesses of the past two decades are obliterated.

3.    Hard landing or soft landing: In my view, it would most likely be a growth recession – a prolonged phase of low or no real growth, as the US economy adjusts to a normalized monetary and fiscal policy mechanism and the USD is freed of onerous responsibility of being the only global reserve currency.

4.    Impact of higher rates on USD: In my view, the normalized interest rates would eventually result in a much less volatile and stronger USD.

5.    Impact of a softer US economy on the global economy: A softer US economy now would be bad news for the global economy and therefore markets. However, over the medium term, a fiscally disciplined US economy (with higher domestic saving rates, positive current account balance, and refurbished infrastructure) could provide strong support to the global economy, especially the emerging economies, much in the same way it did in the 1950s and 1990s.

How do I build this in my investment strategy…will share as I figure it out.

Post the latest meeting of the US Federal Open Market Committee (FOMC), the market narrative is primarily focused on the following five points –

(i)      Whether the Fed is done hiking rates or it may hike once more in 2023.

A larger section of market participants believes that the Fed may hike another 25bps by the end of 2023 and then pause for 6-9 months before cutting the rates from 4Q2024. Another section is however of the view that the economic conditions are too tight to tolerate another hike. This section believes that the hiking cycle of the Fed may well be over and we may see rate cuts from 2Q2024 itself.

(ii)     Whether the treasury yields and other lending rates in the US economy will stay “higher for longer”, as forecast by the US Fed, or we shall see a faster decline, as the economic conditions deteriorate.

The higher rates have already started to reflect a slowdown in the US housing market. The rate of bankruptcy filings has also reportedly reached the 2008 levels. We have already witnessed one round of trouble in the regional banks, which was contained by the Fed support; but the fragility of smaller banks and pension funds remains pronounced.

(iii)   Would the US economy witness a gradual bottoming out (soft landing) or will it contract quickly into recession (hard landing) as the higher rates permeate through the economy?

The US Fed has reduced its balance sheet by over US$940bn since April 2022, while the US public debt has increased by ~10% to US$33trn in this period. A recession may prompt the Fed to unleash another round of quantitative easing (QE) through balance sheet expansion; whereas a controlled slowdown may permit it to further contract its balance sheet (QT).

(iv)    How would the “higher for longer” rates impact the US dollar?

In recent quarters, we have witnessed a tendency to reduce the USD treasury holdings amongst some of the major holders of the US treasury, e.g., China, Japan, and Saudi Arab. Besides, the percentage of USD invoicing in global trade has also come down. Some central bankers have increased their holding of gold, and cryptocurrencies have also gained larger acceptance. The question therefore is whether we are likely to witness a prolonged phase of USD weakness.

(v)     How would a softer US economy or a US recession impact the overall global economy?

The growth rate in the Chinese economy has been slowing down for the past many quarters despite frequent attempts to stimulate growth. Despite showing promise, the Japanese economy has not been able to accelerate its growth. Most major European economies are struggling to avoid recession. Some emerging economies, like India and Indonesia etc., have shown resilience; but a slower US economy could potentially have a more severe impact on the overall global economy, as compared to the global financial crisis period (2009-2010) when growth in emerging economies like China and India sustained at much higher rates.

I am too small an insect to comment on these larger global issues. Nonetheless, I retain the right to assess the impact of outcomes on my tiny portfolio of investments. I shall be happy to share my naïve thoughts on these issues that I will take into consideration in the next couple of years…more on this tomorrow.

One of the several global trends that have been developing in the past decade, in particular, is the dissipation of the US dominance in the game of Lawn Tennis. The game that was dominated by US players for several decades does not have any commonly recognizable US players. The list of top 10 rank players in the ATP Men ranking has only two US names – Taylor Fritz (9) and Frances Tiafoe (10); while the rest eight are all European players. In women ranking also only two US names – Jessica Pegula (4) and Coco Gauff (7) – appear in the top 10 lists. Within Europe also, players from Eastern Europe are dominating the court, versus Germany, the UK, and France which had a significant presence in the game for decades.

It would be interesting to study if there is a correlation between losing dominance on the Tennis court and losing dominance on the mint streets (economic muscle) and battlefields (strategic power).

In the past decade, the US has ceded significant economic power to China. For example, consider the following three data points:

·         The share of Yuan in global cross-border payments is inching closer to 3%.

·         The share of the USD in global reserves has declined below 60% from a high of 72%, two decades ago.

·        China has become the largest trade partner of almost 75% of the countries globally, within two decades of its admission to WTO.

On the technology front also, the US has been steadily losing its edge over China in the past couple of decades. In 2020, China filed 2.5x more patents than the US and was granted 50% more patents than the US. In particular, China led the patents in the field of Biotechnology and Energy. (see here)

Maybe equity investors are taking cognizance of these trends and are de-rating the US stocks. The current risk premium for US equities is the lowest since 2004.

On an unrelated note, the pattern of rains in Rajasthan has been changing noticeably for the past decade or so. As per the IMD statistics, the normal level of average rainfall in western Rajasthan has increased by 32 percent since 2010, while in eastern Rajasthan, it has increased by 14 percent. There have been frequent instances of floods in Rajasthan over the past decade.

“A 2013 research by the Max Planck Institute tried to explain and define the effects of climate change in recent years with the help of high-resolution multimodality. The average level of rainfall in west Rajasthan will increase by 20-35 percent and east Rajasthan will increase by 5-20 percent in 2020-2049, compared with 1970-1999 data.” (see more details here)

If this trend sustains, we shall see some dramatic changes in the economy, demography, and ecology of the state. Real Estate enthusiasts might want to further explore this trend.