Crony Capitalism

By Matthew Gutierrez and Shawn O'Malley · January 02, 2024

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We’re not the first to say it to you, but still, welcome to 2024, folks! 🎈

If you didn’t know, it’s a leap year, meaning this year’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 hasn’t.

💭 And how “close” people feel to others worldwide varies widely, too, with 79% of Italian respondents saying they feel close to people around the globe — that figure is reportedly 35% in the U.S.

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

— Matthew & Shawn

Here’s today’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 — 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

 A “Top-Down” Look at Markets for 2024

Even staunch stock-pickers who zoom in on companies’ fundamentals acknowledge that nothing happens in a vacuum. Too much of a big-picture focus isn’t actionable, but none is equally problematic.

For a “top-down” perspective on markets in 2024, we turned to Martin Tiller — a long-time financial writer for Nasdaq.

Starting with the obvious: “The world is a mess, with four major conflicts or flashpoints already threatening stability…The Russian invasion of Ukraine is ongoing, as is Israel’s response to terrorist attacks by Hamas.”

• Add to that Houthi rebels’ 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 “bitterly divided,” arguably enabling conflict worldwide as some perceive the U.S. to be unwilling or hesitant to intervene significantly in foreign affairs.

Don’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 — in both cases, rate cuts from their current levels would be appropriate.

• However, “normal” 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 “boon, a bounce-back, if only as a regression to the mean” for stocks in these sectors.

Tiller concludes, “Overall…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, it’ll be a year of big changes to conditions and prospects.”

• “That means that picking stocks right now for holding the entire year is a bit of a fool’s errand, and agility will be rewarded more than patience.”

Read more

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😅 Adani Stocks Recover some Losses from Hindenburg Report

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 Research’s report dropped nearly a year ago, wiping out nearly $150 billion in market capitalization across Adani’s businesses.
• The PR debacle had political implications, too, given Adani’s reportedly close relationship with India’s Prime Minister, Narendra Modi.
• Some called it evidence of “crony capitalism” and a “wake-up call” for India’s government.

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

• However, in November, things started to change. Adani’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 Adani’s businesses by India’s Securities and Exchange Board.

• It’s not a clean bill of health, but regulators haven’t exactly validated the allegations, either.

Why it matters:

The Adani story is probably not over yet, and it has gripped the financial world’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 world’s fortune.

• As John Reed puts it, an editor at the FT, “I think the Hindenburg report raised really fundamental questions about investing in India, whether you could trust the corporate governance at listed companies…and I think it raised broader questions about the integrity of India’s institutions.”

Damage control: After Hindenburg’s report cast doubt over Adani’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 investors’ concerns.

• And Adani claims the noise hasn’t disrupted his conglomerate’s operating businesses. The FT reports that the group saw “earnings (grow) by 47%…in the first six months of India’s financial year.”
• Adani’s year-end recovery corresponds with a broader rally in India’s stock market. The country’s benchmark Nifty 50 index moved 20% higher in 2023.

Read more

MORE HEADLINES

🔎 24 things to look forward to in 2024.

📈 Bitcoin tops $45,000 for the first time since April 2022 as rally continues.

 🚗 BYD inches closer to overtaking Tesla as the world’s largest EV company.

🗺️ U.S. property taxes breakdown by state.

 🍔 Why Suze Orman never goes out to eat.

🕹️ 2024 will be a breakout year for delivery drones.

👨⚖️ Israel’s Supreme Court strikes down key parts of polarizing judicial overhaul.

🏙️ Building Tech Hubs in the American Heartland

Move over, Bay Area, Austin, and Miami. Could new tech hubs come via…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 country’s center of manufacturing, home to more than half of America’s private-sector manufacturing employment: 6.5 million of the country’s 12.8 million manufacturing workers. 

• The Heartland’s economic output in 2022 was $16.5 trillion, which would be the world’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 doesn’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, they’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 — 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 there’s an easy, local talent pipeline. That’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.

Why it matters:

The Heartland won’t become the Bay Area overnight. 

It’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. 

Read more

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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)

• U.S.
• International

On Friday, we asked: What are your New Year’s Eve plans?

— One reader told us, “If 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!”

— Said another, “I 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 NYE’s at home with family. Happy New Years to you and the team!”

— And on team Bar or Restaurant: “So much to celebrate! 12 months of health and increased wealth! Why stay home? That’s for 1/2/24! ”

TRIVIA ANSWER

While construction began in 2019 for a new capital, Indonesia is expected to switch its capital city from Jakarta to “Nusantara” in 2024. Making the switch won’t be easy, though.

SEE YOU NEXT TIME!

That's it for today on We Study Markets!

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