šŸŽ™ļø Crony Capitalism

[5 minutes to read] Plus: A top-down look of markets starting 2024

By Matthew Gutierrez and Shawn Oā€™Malley

Weā€™re not the first to say it to you, but still, welcome to 2024, folks! šŸŽˆ 

If you didnā€™t know, itā€™s a leap year, meaning this yearā€™s calendar has 366 days instead of 365.

As we plan trips for 2024, we looked at some recent travel findings from Pew Research. Sweden has the highest percentage of its population (nearly everyone) that has traveled abroad, while 95% of India hasnā€™t.

šŸ’­ And how ā€œcloseā€ people feel to others worldwide varies widely, too, with 79% of Italian respondents saying they feel close to people around the globe ā€” that figure is reportedly 35% in the U.S.

See our Chart(s) of the Day below for more.

ā€” Matthew & Shawn

Hereā€™s todayā€™s rundown:

Today, we'll discuss the three biggest stories in markets:

  • A top-down look at markets for 2024

  • Adani stocks recover after short-seller report

  • How to build tech hubs in the American heartland

All this, and more, in just 5 minutes to read.

POP QUIZ

One place has something particularly unique to look forward to this year ā€” which country, with one of the largest populations worldwide, is getting a new capital city in 2024? (The answer is at the bottom of this email!)

CHART(S) OF THE DAY

IN THE NEWS

šŸ‘€ A ā€œTop-Downā€ Look at Markets for 2024

Searching New Horizons GIF by Barbara Pozzi

Gif by Barbara_Pozzi on Giphy

Even staunch stock-pickers who zoom in on companiesā€™ fundamentals acknowledge that nothing happens in a vacuum. Too much of a big-picture focus isnā€™t actionable, but none is equally problematic.

For a ā€œtop-downā€ perspective on markets in 2024, we turned to Martin Tiller ā€” a long-time financial writer for Nasdaq.

Starting with the obvious: ā€œThe world is a mess, with four major conflicts or flashpoints already threatening stabilityā€¦The Russian invasion of Ukraine is ongoing, as is Israelā€™s response to terrorist attacks by Hamas.ā€

  • Add to that Houthi rebelsā€™ attacks on shipping in the Red Sea and a pending election in Taiwan that has prompted Chinese officials to warn they will respond with force if a pro-Taiwanese independence leader is elected.

  • An election year in the U.S. has made the country ā€œbitterly divided,ā€ arguably enabling conflict worldwide as some perceive the U.S. to be unwilling or hesitant to intervene significantly in foreign affairs.

Donā€™t forget the Fed: Meanwhile, investors expect as many as six or seven rate cuts from the Federal Reserve, beginning as soon as March.

That outlook remains plausible only because of widespread views that inflation is in check and either a) a soft landing is on the horizon or b) a recession is looming ā€” in both cases, rate cuts from their current levels would be appropriate.

  • However, ā€œnormalā€ interest rates down from current levels would still be higher than what businesses and governments have become accustomed to since 2008, barring a sizable recession that drives interest rates back to zero.

  • So, even moderately lower interest rates could still prove problematic and costly for many businesses.

Why it matters:

U.S. politics, the four flashpoints/conflicts mentioned above, falling interest rates, and AI, too, are likely to be the biggest stories driving markets in 2024, according to Tiller.

  • He likes utilities and industrial companies on rate cuts. Any interest rates below current levels would be a ā€œboon, a bounce-back, if only as a regression to the meanā€ for stocks in these sectors.

Tiller concludes, ā€œOverallā€¦it looks like (2024 will be) a year that favors a more active investing style. There are significant global risks that need to be monitored in a general sense; even when it comes to sectors and individual stock investing, itā€™ll be a year of big changes to conditions and prospects.ā€

  • ā€œThat means that picking stocks right now for holding the entire year is a bit of a foolā€™s errand, and agility will be rewarded more than patience.ā€

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šŸ˜… Adani Stocks Recover some Losses from Hindenburg Report

Generated by DALL-E, by ChatGPT

Not that Hindenburg ^ but another Hindenburg, the short-selling research firm, did make major headlines in 2023.

One of their biggest targets for exposing alleged fraud? Indian billionaire Gautam Adani.

  • His portfolio of publicly traded companies took a big hit after Hindenburg Researchā€™s report dropped nearly a year ago, wiping out nearly $150 billion in market capitalization across Adaniā€™s businesses.

  • The PR debacle had political implications, too, given Adaniā€™s reportedly close relationship with Indiaā€™s Prime Minister, Narendra Modi.

  • Some called it evidence of ā€œcrony capitalismā€ and a ā€œwake-up callā€ for Indiaā€™s government.

No good, very bad year: For most of 2023, Adaniā€™s 10 companies trading on stock exchanges had about half the collective market value compared to before Hindenburgā€™s report.

  • However, in November, things started to change. Adaniā€™s companies posted gains of roughly 36% on average since November 24th, closing a terrible year with some positive momentum.

The catalyst? A decision not to further its investigation into Adaniā€™s businesses by Indiaā€™s Securities and Exchange Board.

  • Itā€™s not a clean bill of health, but regulators havenā€™t exactly validated the allegations, either.

Why it matters:

The Adani story is probably not over yet, and it has gripped the financial worldā€™s attention, with a single research firm on the opposite side of the planet wiping out a chunk of the formerly third-richest man in the worldā€™s fortune.

  • As John Reed puts it, an editor at the FT, ā€œI think the Hindenburg report raised really fundamental questions about investing in India, whether you could trust the corporate governance at listed companiesā€¦and I think it raised broader questions about the integrity of Indiaā€™s institutions.ā€

Damage control: After Hindenburgā€™s report cast doubt over Adaniā€™s corporate empire, the tycoon moved swiftly to restore faith in his name.

From paying off $2 billion of personal loans and welcoming a new investor, the U.S.-based GQG, which bought $1.9 billion worth of stock, to unveiling a partnership with the U.S. government lending over $550 million to an Adani-owned company working on a development project in Sri Lanka, much has happened to ease investorsā€™ concerns.

  • And Adani claims the noise hasnā€™t disrupted his conglomerateā€™s operating businesses. The FT reports that the group saw ā€œearnings (grow) by 47%ā€¦in the first six months of Indiaā€™s financial year.ā€

  • Adaniā€™s year-end recovery corresponds with a broader rally in Indiaā€™s stock market. The countryā€™s benchmark Nifty 50 index moved 20% higher in 2023.

MORE HEADLINES

šŸ”Ž 24 things to look forward to in 2024

šŸ“ˆ Bitcoin tops $45,000 for the first time since April 2022 as rally continues

šŸš— BYD inches closer to overtaking Tesla as the worldā€™s largest EV company

šŸ—ŗļø U.S. property taxes breakdown by state 

šŸ” Why Suze Orman never goes out to eat

šŸ•¹ļø 2024 will be a breakout year for delivery drones

šŸ‘Øā€āš–ļø Israelā€™s Supreme Court strikes down key parts of polarizing judicial overhaul

šŸ™ļø Building Tech Hubs in the American Heartland

Move over, Bay Area, Austin, and Miami. Could new tech hubs come viaā€¦Middle America?

For decades, cities in the Heartland have struggled to revive their manufacturing industries. But new technology offers hope. 

  • The gist: College towns can be anchors for regional tech firms.

  • The American Heartland is 20 inland states from Texas to Montana to Ohio and Nebraska.

  • A surge in venture capital, combined with federal and state funding, has given investors and economists renewed hope that the Heartland could make economic strides. 

From steel to semis: The Heartland remains the countryā€™s center of manufacturing, home to more than half of Americaā€™s private-sector manufacturing employment: 6.5 million of the countryā€™s 12.8 million manufacturing workers. 

  • The Heartlandā€™s economic output in 2022 was $16.5 trillion, which would be the worldā€™s third-largest economy. Think steel, lumber, auto, agriculture, etc.

  • But how can old steel and automobile cities transition into semiconductors, computing, and biotechnology industries?

Examples include: Boston, which went from textiles and shoes to high-tech industries, and Pittsburgh, which transitioned to robotics, software, and artificial intelligence from steel. 

It doesnā€™t stop there. Four leading Heartland college towns could offer a roadmap for other cities: Austin, Columbus, Ann Arbor, and Champaign-Urbana. 

  • In 1970, Austin, Ann Arbor, and Champaign Urbana were quite small. Today, Austin and Columbus are among the top high-tech hubs in the U.S. Although Ann Arbor and Champaign-Urbana have lagged behind, theyā€™re situated in the right area (college towns near a major city, Chicago).

Restoring the Heartland would benefit the entire country and further diversify tech from big cities on the coast ā€” while creating more high-paying jobs. 

  • Nashville, Birmingham, Louisville, Lincoln, and Ann Arbor could become booming tech hubs in the coming years.

  • Virtually every tech hub began near college towns because thereā€™s an easy, local talent pipeline. Thatā€™s especially true in Boston (MIT, Harvard), the Bay Area (Stanford, Cal), and Denver (University of Colorado). 

  • Michigan, Tennessee, Kentucky, Alabama, and Texas are leading the country in new investments in technologies like EVs and batteries.

From Bloomberg

Why it matters:

The Heartland wonā€™t become the Bay Area overnight. 

Itā€™s still a shell of its manufacturing peak from the middle of the 20th century. But the region has invested heavily in its major state universities, built tech startup ecosystems while keeping expenses low compared to San Francisco or New York, and already houses infrastructure from its manufacturing days. 

  • For decades, leaders have grappled with how to revitalize Rust Belt cities like Buffalo, Cleveland, and Detroit, which have struggled with economic and population declines.

  • Federal funding and increased investment venture capital could help the Heartland forge ahead, level the playing field with bigger cities, and help the U.S. diversify away from a few big tech hubs. 

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QUICK POLL

Are you more bullish on U.S. stocks or international stocks heading into 2024?

(If international, specify which markets in the comments)

Login or Subscribe to participate in polls.

On Friday, we asked: What are your New Yearā€™s Eve plans?

ā€” One reader told us, ā€œIf I don't stay home, I would only go to a friend or family member's home. No way I am getting caught out in the trap of commercial chaos. Happy 2024 everyone!ā€

ā€” Said another, ā€œI worked 27 years in the casino business in Las Vegas. Only once in those 27 years did I have NYE off. Now that I retired at 50, I am enjoying ALL NYEā€™s at home with family. Happy New Years to you and the team!ā€

ā€” And on team Bar or Restaurant: ā€œSo much to celebrate! 12 months of health and increased wealth! Why stay home? Thatā€™s for 1/2/24! šŸ„‚ā€

TRIVIA ANSWER

While construction began in 2019 for a new capital, Indonesia is expected to switch its capital city from Jakarta to ā€œNusantaraā€ in 2024. Making the switch wonā€™t be easy, though.

See you next time!

That's it for today on We Study Markets!

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