What happens when the newsletter editor changes the format?📰
Issue 039 -- WTF is going on with the Economy?!
Photo by Luca Onniboni on Unsplash
Hey and welcome to issue #039 of WTF is going on with the Economy?! Abroaden’s weekly economics newsletter for people living & working abroad. As the subject suggests, we’re adjusting our format a bit, with more changes planned. We actually have some big and exciting changes coming up really soon (which you’ll be the first to hear about). Keep watching this space and thank you for being the awesome subscriber that you are!
What we're watching📷
Super Mario Prime Minister 🇮🇹 💶
Last month, Italy's government collapsed, leaving the Eurozone's 3rd-largest economy mostly rudderless. When former Prime Minister Giuseppe Conte couldn't put a ruling coalition back together, Italy's President asked Mario Draghi to try to form a new one.
Mario Draghi is the European Central Bank's former president. During his tenure, he successfully navigated the common currency through the bloc's worst crisis (to date).
Italy's economy, as you probably know, has long had major structural issues. Should he be successful in becoming PM, Mr. Draghi will need to implement economic reforms to help the country recover from the pandemic. Given his experience at the ECB, the markets welcomed these developments.
The end of the GameStop saga👾
Last week, we (and practically everyone else) wrote about GameStop. To no one's surprise but the people who invested in the company, the bubble burst, sending the share price falling.
In the end, retail investors wound up being the biggest losers. At the same time, institutions came out unscathed. There's nothing new under the sun. However, the 'herd' moved onto other targets almost immediately, setting their sights on silver. Does the movement have any legs? Or will it just peter out like so many fads before it?
Tesla's bitcoin play🚗
Yesterday, news broke that electric car manufacturer Tesla purchased 1.5 billion USD worth of bitcoin. Additionally, Tesla founder and eccentric billionaire Elon Musk stated that the company might accept the cryptocurrency for purchases. This story has our attention for a couple of reasons.
For one, taking volatile cryptocurrency as payment makes little business sense, at least for large purchases, since there are enormous risks in doing so. After all, if bitcoin's value drops between the time you receive it and the time you have to convert it into dollars or euros to pay a bill, you take a huge loss.
More pointedly, the move looks like a classic pump and dump play. First, both Tesla and Mr. Musk own a lot of bitcoins. If the exchange rate goes up, they profit handsomely.
Second, and maybe more sinister, they need bitcoin's price to go up from an accounting point of view. As it turns out, under general accounting rules, cryptocurrencies get treated differently than stocks or other investments. If Tesla's bitcoins drop in value, they have to report it as a loss, even if they don't actually sell them.
Since Tesla is a public company, they have to release quarterly financial statements. Investors use this information to value their share price. If there's a loss, then the shares won't be worth as much in the future, lowering their current value.
Therefore, both Musk and Tesla have a deep financial interest in getting Bitcoin to go up. Let's see if the regulators call them out on this play.
The US Dollar is making some moves.💸
For those of you dependent on the exchange rate for your daily living, you've probably noticed the US dollar's been quite busy. Here's why:
It's looking likely that the US will get a large stimulus package in the next few weeks. This cash injection should boost growth, making the country an attractive place for investment;
US treasury yields -- that is, the interest rate you get for lending the government money -- are at their highest in nearly a year. Investors like this because they're getting a better return from what they consider an ultra-safe investment. This higher interest rate attracts investors from all over the world, driving up the price of dollars.
The US vaccine campaign is going better than in other major economies, which boosts the dollar and weakens other currencies like the euro.
It remains to be seen if the dollar will continue to climb and, if it does, how far it will go. Exchange rates are notoriously unpredictable so keep that in mind if you depend on them for your income.
Edit: shortly after publishing the USD lost some ground against other currencies. In short, a combination of the bitcoin play (see above), a fresh delay in US stimulus, and a push into bonds due to a lack of stimulus dropped the dollar. Again, predicting or even reporting the FX rate is a futile exercise.
Oil prices rebounding🛢️📈
Yesterday, oil prices recovered to what they were just a year ago. If you'll remember, oil went negative last spring. Commodity prices like crude oil tell us a lot about the economy's immediate future since they drive manufacturing and transport. With prices recovering to pre-pandemic levels, we're taking it as an optimistic sign for 2021.
Those of you worried about what oil's "comeback" means for the green economy shouldn't don't sweat it. ESG investing and other environmentally-friendly economic trends were rising before 2020. Those currents are only growing and will likely become unstoppable in the coming years.
I told you I was Greek-y. 🇬🇷
Last week, we mentioned Croatia and Finland's initiatives to attract digital nomads and expat workers, respectively. Never one to miss out, Greece also recently launched a "digital nomad" visa.
The Hellenic program focuses on bringing these remote workers to the numerous Greek islands, diversifying local economies over-reliant on tourism. In addition to the fast track to island-living, "digital nomads" (although technically remote workers in this case) get a 50% tax break on their income for their first seven years in the country.
We like this because:
It will make living and working abroad easier.
Other countries will likely follow.
It gives us a clear pathway to spending our days in the sun and evenings getting fat on pitas.
This video on Digital Nomads in Thailand 🇹🇭️🤳
Earlier this week, we saw this short clip on digital nomads in Thailand on France 24.
Some takeaways:
For anyone who has spent more than a couple of weeks backpacking around Southeast Asia, nothing in this video will surprise you
Will the French drive this movement? If so, we can expect the quality of wines in coworkings to go up dramatically.
This story going on a large television channel during the pandemic while talking about remote work will probably get more attention than it would've just two years ago.
Like all prudent digital nomads, they'll need digital investment advice #ContentMarketing
If we want to see international remote working go more mainstream (and get better legal recognition), we'll need to see more reports like these.
Thanks again for reading! What do you think of the new format? Let us know by replying or commenting!