So, here are a couple of Monday thoughts.
Brain Drain is Happening In South Africa – Short Sell It
Everyone knows about Elon Musk – he’s one of the most famous entrepreneurs in the US. But, were you aware that he’s South African? Musk however, is not the only major entrepreneur of South African descent in America. Energy drink entrepreneurs Rodney Sacks and Hilton Schlossberg are also South African. Other notables are Roelof Botha, a partner at Sequoia Capital, entertainer Trevor Noah and Paul Maritz, CEO Of VMWare.
A lot of the reason South Africa emigres are in the US is due to high crime, corruption and aggressive racism in their native South Africa. And it’s no surprise, prosperity is difficult if personal safety can’t be assured and people hate you for the color of your skin. South Africa will have challenges with long term economic decline if it can’t fix it’s internal crime and racial conflict issues.
A good way to profit from this might be to short ETFs with heavy exposure to South African government securities or the South African economy.
Are Commercial Banks At Risk Of Becoming Dinosaurs?
The long term economic dominance of commercial banks is becoming increasingly less clear.
The crypto space is tremendously vibrant, in comparison to the rather moribund and rule bound commercial banking sector. I read Satoshi Nakamoto’s original white paper a while back and was frankly impressed with Nakamotos conceptualization of the blockchain. While the technical aspects of blockchain construction are beyond the scope of the this posting, what they basically allow is peer to peer financial transactions. In theory, this eliminates the need for third parties (e.g. banks) to move money. This means its safer, cheaper and easier to move money with a blockchain.
Also, lending & economic activity is increasingly vibrant in the crypto space. Companies like BlockFi, Nexo, and Celsius are all offering interest rates of at least 5%, This is compared to the average of .06% commercial banks offer on savings accounts. That’s a ratio of 83:1. Granted, cryptocurrency and cryptolending are unregulated, so it’s riskier, but even if regulation does halve the value of the crypto interest rates, you’re still looking at 40:1 ratio. If this keeps up, capital will continue to flow into the crypto space.
The dominance of crypto relative to traditional commercial banks is also shown in new business formation. New commercial bank formation has declined dramatically in the US (clicky) – with less than one new commercial bank starting per year. In contrast, Crunchbase reports there have been 837 new cryptocurrency start ups since 2017 (here).
The cryptocurrency space is extremely volatile, but one possible way to make money in this part of the economy would be to screen the various cryptolenders and see which ones might merit some investing/lending capital. If you want to do this, here is a list of five red flags of fraud.
To get you started, here is a list of some of the crypto lending companies:
Nakamoto’s original whitepaper is here.
For more great stuff from the Dinks, read these:
Image source (south africa), Jasonst, via Flickr.
Image source (dinosaur), Yosuke Shimizu, via Flickr.