Dying Rainforest, Teenage Engineering and the Root of US-China Trade Wars
Last week, I had shared a few stories on yield curve inversion, and how it could possibly serve as a leading indicator of recession (at least for the US economy). More happened on that front, and despite Fed’s cut rates, the yield curve remained inverted. Here is a story, on how the trade war between US and China is deepening the inversion further (with a helpful animation showing the inversion over a period of time). In few months, we should know whether yield curve inversion is a reliable indicator of recession — but certainly a parameter worth learning about.
Apart from that, here are a few other interesting stories that came out last week:
Continuing on the topic of economy, yet another development that happened was the weakening of the renminbi against the dollar. In general, an undervalued currency promotes exports, while it raises the costs of the imports. Given that China is predominantly an export economy, weakening the currency is a counterbalancing act against the tariffs imposed by the US. The root of this currency war lies in the (rather unhealthy) symbiotic relationships these two countries share. Simply put, China’s continued growth depends on exports, most of which head out to the US. But US is a net consumer, and not a saver, and the continued consumption is also sponsored by China. It does so by ‘loaning’ out its accumulated dollars (from years of exports) back to the US, to enable Americans to buy more of China’s goods. I found that the best commentator to learn the basics on this topic is James Fallows. This one year old piece by Fallows is a good article to understand the intricacies of this relationship. Elsewhere he has written, “In effect, every person in the (rich) United States has over the past 10 years or so borrowed about $4000 from someone in the (poor) People’s Republic of China. Like so many imbalances in economy, this one won’t go on indefinitely, and therefore won’t”.
Amazon rainforest is dying. Unregulated deforestation and weak governmental intervention is speeding its ruin. Two very important commentaries came around the same time on this topic: this one (‘scientists warn that we may be close to a “tipping point” — a degree of deforestation at which the Amazon basin will no longer be able to generate its own rainfall by recycling moisture’) and this one (‘Because 70-80% of logging in the Amazon is illegal, the destruction has soared to record levels. Since he (Brazilian President Bolsonaro) took office in January, trees have been disappearing at a rate of over two Manhattans a week.’). If you have to read on any one topic this week, then I recommend reading these two stories.
Two Swedish startups that I am learning more about: Klarna and Teenage Engineering. This week, with a valuation of $5.5 billion, Klarna became the most valuable European fintech startup. Klarna provides credit support that people can pay later, even in staggered instalments over a period of months. The Stockholm based startup is essentially a bank for the new-age. Teenage Engineering, another Stockholm based startup, is in the news for making a nifty, calculator-sized professional synthesiser. It costs only $60, and here’s a cool video showing how it works. But why is Sweden a hotspot for startups? A slightly old piece describing the mix of making it harder for monopolies to dominate, push for intrapreneurship within big companies, the rise of the internet, existence of a dependable social security net (including free healthcare) all contributing to it.
A quote I came across last week:
“Destroying rainforest for economic gain is like burning a Renaissance painting to cook a meal”
— E. O. Wilson