The Economy Is in a State of "Dramatic Structural Upheaval" 💥 💣 👀
Dear Investors,
In this week's update, we get a thorough economic update and delve into the current status of both venture capital and endowment investments.
UBS Publishes Global Wealth Report
UBS published their annual wealth report, citing that the “economy is experiencing a period of astonishing economic alteration. The sweeping changes of the fourth industrial revolution represent the most dramatic structural upheaval in two hundred and fifty years.”
Here are some of the key takeaways:
Global Wealth Decline: The 2023 Credit Suisse Global Wealth Report marks the first global wealth decline since 2008, with net private wealth dropping by USD 11.3 trillion (–2.4%) to USD 454.4 trillion. Wealth per adult also decreased by USD 3,198 (–3.6%) to USD 84,718 per adult by end-2022.
Factors and Effects: Much of the decline is attributed to the appreciation of the US dollar against other currencies. Holding exchange rates constant at 2021 levels reveals a 3.4% increase in total wealth and 2.2% increase in wealth per adult, still the slowest since 2008. Real wealth loss of –2.6% occurs when considering inflation.
Asset Contributions: In 2022, financial assets drove wealth declines, while non-financial assets, particularly real estate, remained resilient. A shift in contributions may happen in 2023 if house prices drop due to higher interest rates.
Regional Impact: Wealth losses concentrated in wealthier regions like North America and Europe, with losses of USD 10.9 trillion. Asia Pacific lost USD 2.1 trillion, while Latin America experienced a USD 2.4 trillion increase due to currency appreciation.
Country Variations: Leading loss countries in 2022 were the United States, Japan, China, Canada, and Australia. Notable wealth increases were seen in Russia, Mexico, India, and Brazil.
Demographic Insights: In the USA and Canada, Generation X and Millennials fared relatively well despite the overall wealth reduction. Non-Hispanic Caucasians saw a decrease, while African-Americans were less affected. Hispanics achieved 9.5% growth due to housing asset holdings.
Wealth Inequalities: Aggregate wealth decline coincided with a decrease in wealth inequality, with the global top 1% holding 44.5% of wealth. The number of USD millionaires fell by 3.5 million to 59.4 million, while global median wealth rose by 3%.
Future Projection: Projections anticipate a 38% rise in global wealth by 2027, reaching USD 629 trillion. Middle-income countries will drive growth, with an estimated wealth per adult of USD 110,270, 86 million millionaires, and 372,000 ultra-high-net-worth individuals.
Full report available here → UBS REPORT 2023.
Venture Firms Still Writing Small Checks Despite $271 Billion in ‘Dry Powder’
According to a recently published report by Carta, there was a slight increase in venture funding activity during Q2. Startups collectively secured over $15.4 billion in funding in the second quarter of 2023, reflecting a 26% rise from Q1. Similar positive trends were seen in aspects like early-stage valuations and late-stage deal counts, rebounding from notable declines in previous quarters.
Despite these recent improvements, the venture market still lags behind the thriving times of 2021. Although there was a substantial quarterly increase in capital raised during Q2, it remains down by 58% in comparison to the previous year. Moreover, indications persist that the fundraising landscape remains challenging. For instance, nearly 20% of all funding rounds in Q2 were “down rounds,” marking the second-highest quarterly figure in the past five years.
While it might take some time before activity reaches the record-setting pace of recent years, it's evident that the overall venture market found a stable point in the first half of 2023.
Zooming out, the median Series A funding on Carta for this year has averaged $7 million with a $40 million pre-money valuation, which are commendable figures. However, contrasting with the first half of 2022, the numbers were even higher: an average of $11 million raised per round with a $48 million pre-money valuation and a total of 1,127 rounds raised, indicating a 71% increase compared to this year.
University Endowments Mint Billions in Golden Era of Venture Capital
Prominent university endowments are celebrating unprecedented investment gains, driven by substantial returns from venture-capital investments and surging stock markets. Notable examples include the University of Minnesota, which achieved a 49.2% gain, Brown University with over 50%, Duke University at 55.9%, and Washington University in St. Louis with a record-breaking 65% return, growing its managed endowment pool to $15.3 billion. However, the sustainability of these gains remains uncertain due to concerns over potentially overheated startup valuations and market instability. These successes are in tandem with global stock markets, as evidenced by the MSCI All Country World Index and the S&P 500 with returns of approximately 40% and 41% respectively.
What I’m Reading This Week 📚
Notes on Complexity by Neil Theise
"Notes on Complexity" is a concise exploration of Complexity Theory, revealing how complex systems, from atoms to ecosystems, exhibit self-organization and unpredictability, creating a universe that's more than the sum of its parts. Neil Theise, a physician, scientist, and philosopher, delves into the connections between various phenomena, such as ant colonies and economic bubbles, offering insights into the intricate nature of our world and inviting readers to rethink their perceptions and find wonder in the everyday.
This Week By the Numbers 📈
The July consumer price index (CPI) climbed by 3.2% compared to the previous year, indicating that inflation's influence on the U.S. economy might be diminishing. The Bureau of Labor Statistics revealed that prices grew by 0.2% for the month, aligning with Dow Jones estimates. Though slightly under the projected 3.3% annual increase, this marked a rise from June and the first upward shift in over a year.
When excluding volatile food and energy prices, the core CPI also rose by 0.2% for the month, in line with estimates. This resulted in a 12-month rate of 4.7%, the lowest since October 2021, slightly below the anticipated 4.8% as per Dow Jones consensus.
Yields continue to rise as since Fitch downgraded U.S. debt and inflation expectations persist.
Top Stories 🗞️
Coinbase Officially Launches Base Blockchain in Milestone for a Public Company
Coinbase (COIN), the large publicly traded U.S. crypto exchange, said its new Base blockchain has gone live, heralding the start of a new era of public companies running their own distributed networks. Coinbase CEO Brian Armstrong wrote in a "secret master plan" in 2016 that the fourth phase of the company's development would come from "decentralized apps," or dapps, designed to reach one billion people. The company held a direct listing of its shares on Nasdaq in April 2021. "Historically, the aperture of what people can do with crypto has been relatively limited, mostly speculation," Pollak said. "In order for Coinbase and crypto and this work that we're doing to have the impact that we all want, we need to move from the place where this is speculation to a place where this is integrated into every part of someone's day-to-day existence." In connection with the Base launch, Coinbase announced plans for an "Onchain Summer" promotion with corporate partners, including Coca-Cola (KO), to show off the new project's capabilities.
FTX's Bankman-Fried headed for jail over alleged witness tampering
Sam Bankman-Fried is heading to jail after a U.S judge on Friday revoked his bail, finding probable cause that the indicted founder of the bankrupt FTX cryptocurrency exchange tampered with witnesses at least twice. U.S. District Judge Lewis Kaplan's decision to jail the 31-year-old former billionaire ahead of his Oct. 2 fraud trial over FTX's November 2022 collapse came after prosecutors said he had "crossed a line" by sharing private writings by former romantic partner Caroline Ellison with a New York Times reporter. "He has already - without violating any other bail condition save that he not commit another crime - gone up to the line over and over again," Kaplan, who is known for his no-nonsense demeanor in the courtroom, said in a hearing in Manhattan federal court. The judge rejected a defense request to delay Bankman-Fried's detention pending appeal of the decision.
Argentina raises interest rate, devalues peso after shock primary election
Argentina's central bank will raise the benchmark interest rate to 118% from 97% previously, an official source said Monday, adding the country's currency will be devalued to 350 pesos per dollar in the aftermath of a shock primary election. Sunday's primary vote, seen as a reliable bellwether for the upcoming presidential elections, propelled ultra-right libertarian outsider Javier Milei, who wants to axe the central bank and dollarize the economy, to first place with some 30% of the vote. The official peso plunged nearly 18% on Monday morning to just over 350 pesos per dollar and the source said the exchange would be fixed at this rate until the October presidential vote. Latin America's third-biggest economy is battling a severe economic crisis with sky-high inflation and dwindling central bank reserves.
India makes first crude oil payment to UAE in Indian rupees
India and the United Arab Emirates have started settling bilateral trade in their local currencies with India's top refiner making payment in rupees for purchase of a million barrels of oil from the Middle Eastern nation, the Indian government said on Monday. Indian Oil Corp (IOC.NS) made payment to Abu Dhabi National Oil Company (ADNOC), according to a statement issued by Indian embassy in UAE. The transaction comes after one involving the sale of 25 kg gold from a UAE gold exporter to a buyer in India at about 128.4 million rupees ($1.54 million). India in July signed an agreement with the UAE allowing it to settle trade in rupees instead of dollars, boosting India's efforts to cut transaction costs by eliminating dollar conversions. Bilateral trade between India and UAE was $84.5 billion in 2022/23.
Coinbase Accelerates International Expansion with Official Launch in Canada
Through its partnership with Peoples Trust Company, part of Peoples Group, Coinbase is now providing access to Interac e-Transfers® * to 100% of Canadian Coinbase users, making it secure and simpler than ever to move money in and out of your account. This will make cryptocurrencies more accessible to millions of Canadians. Interac availability was the most requested feature by Canadian users, and today’s news demonstrates Coinbase’s plan to build a platform that is for Canadians, by Canadians. Depositing funds to Coinbase using Interac is free and almost instant. In the last month, over 50% of deposits have been made through Interac e-transfer. Starting today, Canadian Coinbase users can also maximize the full potential of crypto with the best of Coinbase through membership with Coinbase One. Free for all users for 30 days, Canadians now have access to zero trading fees, boosted staking rewards, priority 24/7 support, and more.
Thank you for reading this week’s edition of the Myth of Money.🚀
Until next week,
Tatiana Koffman
About the Author: Tatiana Koffman
Hi there and thanks for reading! If you stumble upon my newsletter, you will notice that I write about money, economics, and technology. I hold a JD/MBA and spent my career in Capital Markets working across Mergers & Acquisitions, Derivatives, Venture Capital, and Cryptocurrencies. I write to make financial topics more accessible and create equal opportunity for the next generation of investors. I have personally invested in 20+ companies and funds (👉 my portfolio).