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Sensemaker: Vanishing trillions

Sensemaker: Vanishing trillions

What just happened

Long stories short

  • Floods in Assam, India, killed at least 45 people and displaced more than 4.7 million others over the past week.
  • Moscow threatened to retaliate “to protect its national interests” after Lithuania barred the movement of sanctioned goods across its territory to the Russian Baltic enclave of Kaliningrad. 
  • A fisherman on the Mekong river in Cambodia landed the biggest freshwater fish ever caught, a 300kg stingray.

Key stat: 30 – years since a rail strike as big as the one that has brought much of the UK to a standstill today. With further action planned for Thursday and Saturday, only about 4,500 of the usual 20,000 daily services are expected to run after the National Union of Rail, Maritime and Transport Workers walked out over demands that their pay match rising inflation.

Vanishing trillions

Inflation isn’t only affecting workers. It’s also affecting capital. There is a mesmerising, ongoing crash in the value of the world’s biggest technology companies. Since the start of the year:

  • the share prices of Apple, Google’s parent company Alphabet, and Microsoft have fallen by around 26 per cent;
  • Facebook’s parent company Meta has seen its share price collapse by 52 per cent; 
  • Tesla, whose share price movements are best understood as those of a tech company, has lost 46 per cent of its value; and
  • Amazon’s shares are down 38 per cent. 

These declines represent a collective loss worth trillions of dollars. They are the result of overvaluations during the market peak in late 2021 when interest rates were low, as were fears of runaway inflation, and money was cheap. Now that prices are rising rapidly and central banks are raising interest rates – weighing on expectations of the companies’ future profits. 

How those companies fare will depend on their scale.

Tech states. The giants (see above) will weather the storm. Their dominance in some of the world’s most lucrative markets – social media, smartphones, e-commerce and online search – will see them through a period of fast inflation and rising rates. In fact, some of these companies are boosting hiring and raising salaries.

Contenders. The rest of the tech sector – not so much. Companies like Uber and Peloton were prioritising growth – fuelled by cheap money – over profits. Peloton’s share price has collapsed by 71 per cent since the start of the year; Uber’s has halved. Their chief executives aren’t hiring people and are slowing pay rises. 

Minnows. Moving further down the scale, start-ups are cutting jobs as venture capital firms freeze their investments. European venture capital funding has halved between the first and second quarter of this year. Start-ups are pausing their efforts to raise money. Some are accepting lower valuations, and most are changing their focus to turning a profit rather than breakneck growth.

The big, in summary, will get bigger and the small will get smaller.

Recession risk. This all matters to people who are losing jobs – 21,000 US tech workers have been laid off so far this year, according to Crunchbase – and to the wider economy. Experts think the collapse in tech stocks won’t cause a recession like the dot-com bust in 2000. Instead, they think the US Federal Reserve’s attempts to control a nearly four-decade high inflation rate, and the rate hikes from other central banks that will follow, will tip major economies into recession.

Then again, stock market stories always change based on the horizon you take. Even with the current crash, the tech market has nearly doubled in value over the past five years.


CAPITAL ECONOMY, BUSINESS AND FINANCE

Cruise to nowhere
Global Dream II was to be one of the world’s biggest cruise ships. It’s now just a lower hull, sitting in a German shipyard, waiting to be scrapped. Dream Cruises, the Asian company that commissioned it, collapsed as the pandemic destroyed the sector. The shipyard, MV Werften, was declared insolvent. Its administrators can’t find a buyer for the hull, so they’re looking to sell it for scrap.


CULTURE soCIETY, IDENTITY AND BELONGING

Japan same-sex marriage
As the Group of Seven meets this weekend in Bavaria, Japan is maintaining its position as the only G7 nation not to have legalised same-sex marriage. An Osaka district court ruled the current same-sex marriage ban is not unconstitutional. A 2021 ruling in Sapporo found the ban did breach equality rights, and some metropolitan districts – like Tokyo – do allow partnership agreements. But they have little to say about parental rights, asset-sharing or property ownership. The Osaka ruling is a significant setback for activists who are now unlikely to get the policy change they sought from the current conservative government. Prime minister Fumio Kishida said the issue “relates to the very foundation of what a family means in Japan” and that must be considered “extremely carefully”. 


TECHNOLOGY AI, SCIENCE AND NEW THINGS

Porn mind reader
Chinese scientists say they’ve developed a device that can detect when a man is watching porn by “reading” his mind. The researchers at Jiao Tong University in Beijing showed a group of men graphic images, which are illegal in China, then sent their brainwave patterns to an artificial program. They used a helmet-like device that can be worn by Beijing’s arm of porn censors to improve the efficiency of AI-only systems. A study in China’s Journal of Electronic Measurements and Instrumentation found that having learned to recognise the incriminating patterns from human subjects, AI-powered systems could identify them with an accuracy rate of about 80 per cent. 


The 100-year life health, education AND GOVERNMENT

Vaccines 4 kids
The Centers for Disease Control and Prevention, which decides who in the US is safe to receive vaccines, expanded the nation’s Covid vaccination campaign to children as young as six months. The Centers’ advisory panel said the vaccine can protect young children from hospitalisation, death, and long-term complications that are still not clearly understood. Roughly 18 million children are eligible for this new drive, for which so far only the Moderna and Pfizer mRNA vaccines have been approved. The AP says about 480 of more than a million Covid deaths in the US have been of children under 5. 


Our planet CLIMATE AND geopolitics

Russia oils China
Russia has become China’s biggest oil supplier, displacing Saudi Arabia. Its exports of oil to China rose by 55 per cent from a year earlier, reaching a record level in May of 8.4 million tonnes. After the US and UK announced their intention to ban Russian oil imports in response to the country’s invasion of Ukraine, it began offering heavy discounts on its oil, which China’s state-owned energy companies have been snapping up. A few weeks before the invasion, China and Russia declared that their friendship had no limits. And so it has proved. Short of shipping arms to Russia, Beijing could do Moscow no greater service than buy its energy as Europe tries to give it up.

Thanks for reading. Please share this around and tell us what we’ve missed. News tips and story ideas are welcome. Email them to sensemaker@tortoisemedia.com.

Paul Caruana Galizia
@pcaruanagalizia

With additional reporting by Phoebe Davis.

Photographs Getty Images


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