Market Pulse
Thursday, December 14, 2023
Welcome to this week’s Market Pulse, your 5 minute update on key market news and events, with takeaways and insights from the Sidekick Investment Team.
Our stories this week:
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Adrian (Portfolio Manager), and the rest of the Sidekick team.
It’s important to note that the content of this Market Pulse is based on current public information which we consider to be reliable and accurate. It represents Sidekick’s view only and does not represent investment advice - investors should not take decisions to trade based on this information.
Investors can't shake off the persistent worry about inflation, and data released on Tuesday [1] underlines the challenge of getting it under control.
The core consumer price index, which excludes food and energy costs, increased by 0.3% last month, following a 0.2% uptick in October. Compared to a year ago, it rose by 4% for the second consecutive month. These figures met economist’s expectations but highlight the bumpy road to taming inflation, which is still double the Fed’s target of 2%. Economists favour the core metric as a more dependable gauge of the overall inflationary trend.
This latest inflation data is particularly interesting given yesterday’s Federal Reserve announcement to keep interest rates steady and its timetable for multiple cuts to come in 2024 and beyond.
Although inflation is coming down in most countries, if history is any guide, the key risk for the coming 12 months is that central banks will cut interest rates too soon.
In the 1970s, when faced with the OPEC oil shock [2], central banks quickly moved to lower interest rates, even as inflation was decreasing but still well above normal levels. This premature decision led to a surge in demand, causing inflation to rise again about a year later.
To counter this, central banks had to raise rates, but this time, they started from a higher level than before. This set off a troubling cycle of higher prices, increasing interest rates, and a persistent state of low growth known as stagflation.
Fast forward to today, and central banks are again walking a tightrope. If they lower rates too early, there's a risk of reigniting inflation, much like in the 1970s. On the other hand, keeping rates high for too long could lead to a more severe recession, as businesses, feeling the financial pinch, cut back on investments.
Navigating this delicate equilibrium carries substantial implications for the overall economy. However, we anticipate a more effective policy response from our central bankers this time, drawing on valuable lessons from the past.
Economists have long acknowledged the beauty premium - the influence of physical attractiveness on wages, even in professions where looks may not appear directly linked to job performance. The correlation between being good-looking and possessing self-confidence is noteworthy, as this trait is evidently appealing to employers [3]. Consequently, some statistics suggest that attractive individuals receive higher compensation than their counterparts for similar work [4].
One challenge with the beauty premium is that most of the evidence has been demonstrated in WEIRD (Western, Educated, Industrialised, Rich, and Democratic) countries, neglecting the role of cultural mechanisms in translating beauty into socio economic outcomes.
Therefore, Benjamin Kohler and Wladislaw Mill [5] delved into whether the beauty premium extends to other regions. They accomplished this by examining texts in various languages and employing machine learning programs to statistically analyse the correlation between expressions of beauty and good looks with expressions of success. A stronger correlation indicates a closer association between the concepts of 'beauty' and 'success' within a particular language.
Source: Kohler and Mill (2023)
The results confirm that the beauty premium is common in many languages. However, the size of this effect differs, as you can see in the chart. In English, the beauty premium is not as strong, and in German, it's quite small.
So, if you're worried about facing challenges for not looking conventionally attractive, you might find places like Romania, Thailand, or Vietnam more accepting.
The close relationship between gut health and our overall well-being, including mood, thinking, and mental health, is widely recognised [6]. We often use phrases like "gut-wrenching" or trusting our "gut instincts" because we intuitively sense this connection.
Now, with the impact of COVID and more scientific research supporting the link between our gut and brain [7] [8], people in Western countries are systematically becoming more aware of the importance of gut health.
For Asians, this is old news. Traditional medicine in this region has long emphasised the significance of gut health. Local diets often include fermented ingredients such as soy sauce, miso, and kimchi, providing abundant good bacteria for the gut. Probiotic drinks like Yakult are widely embraced as a popular daily routine.
But we are seeing more and more probiotic startups across the globe. These companies are leading the expansion into pre-biotic products focused on aiding the gut's ability to propagate good bacteria, and post-biotic supplements, which replicate the bioactive compounds produced by good bacteria in the gut.
Australia is the leader in pre/pro/post-biotic innovation, with one of the largest production capacities for precision bacteria fermentation globally. This has created an ecosystem for brand innovation and startups reflected in products like Meluka Australia's Raw Honey Probiotic Concentrate, priced at A$49 per 500ml—8 times the cost per ml compared to Yakult's top-end product.
The next breakthrough in gut research aims to give doctors practical tools for prescribing personalised probiotic plans that address individual health needs. Yakult's Central Institute for Microbiological Research leads this effort, partnering with Danone's Vitapole [9] through the Global Probiotics Council.
The recent rise in interest in GLP-1 inhibiting weight loss drugs like Wegovy / Ozemipc suggests that fundamental lifestyle change is a path for the dedicated few able to spend north of $1000 per month [10]. For mere mortals, focusing on boosting concentrations of individual bacteria species is arguably a more realistic and sustainable approach.
Please remember, investing should be viewed as longer term. Your capital is at risk — the value of investments can go up and down, and you may get back less than you put in.
[1] https://www.bls.gov/news.release/cpi.nr0.htm
[2] https://energyeducation.ca/encyclopedia/Oil_crisis_of_the_1970s
[3] https://www.nytimes.com/2006/04/06/business/worldbusiness/06iht-beauty.html
[5] Kohler, Benjamin and Mill, Wladislaw, Cultural Differences in the Beauty Premium (July 4, 2023). Available at SSRN: https://ssrn.com/abstract=4499770
[6] https://www.health.harvard.edu/diseases-and-conditions/the-gut-brain-connection
[7] https://pubmed.ncbi.nlm.nih.gov/26234407/
[8] https://pubmed.ncbi.nlm.nih.gov/28443383/
[10] https://slate.com/technology/2023/07/ozempic-costs-a-lot-it-doesnt-have-to.html
