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What To Make Of Wednesday’s Global Market Sell-Off

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The stock market witnessed a vicious sell-off yesterday. The Dow Jones Industrial Average [DJI] plunged 832 points, with technology stocks at the forefront of this correction.

The Invesco QQQ ETF [QQQ] fell 4.4% while the Technology Select Sector SPDR ETF [XLK] declined 4.9%. The sell-off was similar to the one witnessed earlier this year in February.

However, Jamie Cox from Harris Financial Group is not too concerned. Cox stated, “This was way different than February and March. In February, everything got shellacked. Even banks didn’t get hit that bad today. It wasn’t what you’d expect in a full-blown washout sell-out. To me, that was the most important piece, that this is not going to herald something worse.”

What drove the sell-off

This year has been a rather bumpy ride for investors. Markets have been impacted by escalating trade wars between the United States and China and rising oil prices. Recently, there have been concerns over the upcoming earnings season.

But the primary driver for yesterday’s slump were concerns over the rising FED rates. The 10-year U.S. Treasury yield is close to the 10-year high of 3.2%. Investors are right to skeptical about a rise in interest rates as higher rates tend to restrain economic growth.

FAANG stocks routed

The FAANG stocks, Wall Street winners for several years, lost close to a combined $180B in market value. FAANG is an acronym for internet giants Facebook [FB], Apple [AAPL], Amazon [AMZN], Netflix [NLFX] and Google [GOOG].

Joe Saluzzi from Themis Trading stated, “A lot of the high flyers are the ones that have gotten beat up. The FAANG stocks, the Amazons of the world, they are up ridiculous. Those are momentum-type trades. A little air coming out is a healthy thing as long as fundamentals haven’t changed. I don’t have a problem with that type of sell-off.”

Sell-off picks up speed, impacts global markets

The sell-off was not limited to the United States market alone. According to this Wall Street Journal report, the Stoxx Europe 600 fell 1.8% in early trade while the mayhem in China continued with stocks falling 6%.

Indices in Japan, South Korea, and India were also down in early market trading. Analyst Paras Anand from Fidelity International stated, “The sharp selloff in the U.S. has likely caught no one by surprise. If anything, market participants have been wondering how, in the face of tighter money, a tighter labor market and rising oil prices, the U.S. has continued to be so resilient.”

Earnings season important

The upcoming earnings season is critical for the health of the stock market. Investors are wary about inflation impacting corporate earnings, driven by higher input costs. In case companies can outperform market estimates, we might be in for another short-term bull run that will take indices to record highs by the end of 2018.

Entrepreneurs

DATA: Are VC Investors Cutting Down On Checks?!

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According to a recent survey, venture capitalists are worried there’s too much money moving around the private markets.

For Q3, the Silicon Valley Venture Capitalist Confidence Index—a quarterly University of San Francisco undertaking for the past 15 years—scored 3.58 on a 5 point scale (5 indicates high confidence, 1 low).

“But 3.58 is still high….ish…no?”

Well. Not really. You’ve gotta look at how it’s trending.

So how’s it trending?

Global Venture Capital Financing by Stage: 2010 - 2018

Some non-report, index data from 2010-2018.

This quarter’s index measurement dropped from Q2’s index reading of 3.76—and below the nearly 16-year average of 3.70.

That said, it’s better than Q4 of last year where investor confidence market the lowest index reading since Q1 of 2009, right around Recession time.

And with all the tech IPO activity this year—including BOTCHED ones like WeWork and not-so-good ones like Uber—investor confidence could be dipping even further. Especially with, what appears to be, IPO fatigue in the public markets.

And that may not play out well for valuations.

OK, so what’s the deal?

A couple of factors.

According to the researchers, investors are catching stank face over the—quote— “lofty valuations due to a continuing enormous supply of capital being made available to new ventures as more mega funds ($500M or more) are being established.”

ROUGHLY TRANSLATED: Mega investors—like WeWork sugar daddy SoftBank—are frustrated with poor returns.

So what are the VCs saying? 

Well, the VCs chipped in with their two cents, in jargon, of course.

Menlo Ventures Partner Venky Ganesan says private markets have been fueled “by the availability of cheap capital and the surge of new entrants to private investing.”

AllegisCyber’s Bob Ackerman said something similarly jargon-y, adding there’s “too much capital chasing too much undifferentiated innovation with unrealistic return expectations.”

In other words: Too much money being thrown at ideas that aren’t new ideas but expect to be the next Facebook from standpoint of traction.

On one side of the spectrum, then you have guys like Kobe Bryant, whose $100M VC fund Bryant is straight CRUSHING IT, with 18 active deals and 10 exits.

Then there’s Trump…

Trading uncertainty is making people stay on the sidelines. Apparently, all the impeachment chatter isn’t helping either, according to the research.

USF’s Mark Cannice concluded his report—and brace yourself, there’s a whole heap of jargon coming—by saying this:

“With new sources and unprecedented amounts of capital being made available to new ventures” along with “evolving expectations of public markets for venture-backed firms in terms of paths to profitability, it could be argued that the venture industry is itself in the midst of a transformation.”

What the FUCK does that even mean?!

We’ll tell you what it means.

TRANSLATION: Venture capitalists are basically sick and tired of startups burning through cash without being profitable in the hope that a massive IPO will get said venture capitalists their 10x returns on the back of sucker public investors.

And said sucker public investors have caught on to the shiznit. In other, less pretentious words, the gig is up.

(See how we did that in three words vs. three lines? 🔥)

But that doesn’t mean there’s no money to be made…

2008 - 2017 Global Alternative Asset Indexed Returns

There are entrepreneurs out there who raise capital scale, just like there are VCs who don’t just invest to cash out at IPO. Or you can always go catch an alley oop with Kobe and get straight back into the gains game. That’s always an option…

‘Till next time, #WealthGANG…

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Money

INFOGRAPHIC: How To Invest Your Money (In 8 Simple Steps)

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Plenty of savers are making do with low rates of return on their deposits—almost eroding the value of their savings. Here’s a guide on how you should invest your money and gain some great returns off it.

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Money

Will Cloud Gaming Drive The Next Big Gaming Transition?

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The global gaming industry has always been a disruptive one. Nuclear physicist Edward Condon developed the first computer game in 1941 called Nim, one which pretty much saw the computer win 90% of the time.

The disruption didn’t fizzle out. Soon afterwards, the first programming guidelines were written for a chess game developed by Claude Shannon, while a decade later the US Department of Defense created a war game — STAGE.

This really set the stage for what was to come later video games. American investor Ralph Baer wasted no time and conceived the idea of playing video games on TV, and the world’s first gaming console was released. The rapid evolution of gaming consoles coupled with gaming design and the introduction of graphics cards have taken the global gaming industry by storm.

In the last decade, the evolution of smartphones opened up a totally new segment known as digital gaming. In 2016,  Activision Blizzard paid close to $6B to acquire King Digital- a digital gaming behemoth. Not one to trail far behind, the eSports segment, despite its nascency, proved to be a long-term revenue driver for top gaming firms.

Will cloud gaming be the next key driver in global games?

Now companies such as Microsoft [MSFT], Google [GOOG] and Electronic Arts [EA] aim to create a market for cloud gaming. So what exactly is cloud gaming? It’s similar to online streaming services such as Netflix [NFLX] and Amazon Prime [AMZN], but with games.

Cloud gaming will allow users to play games on their computer or mobile devices. A remote server will send players video feed and receive controller inputs. This now means that players no longer need to purchase gaming consoled to play the latest games. All you need is a stable internet connection.

Google’s cloud gaming project is called Project Stream and the company launched a beta test last month. Players required a Google Chrome browser and an internet connection of 25 Mbps or higher.

Microsoft which also manufactures the Xbox consoles announced its cloud gaming platform known as Project xCloud. It has confirmed several Xbox games for beta testing such as Halo, Minecraft, and Gears of War.

The tech giant is hoping for growing interest in cloud gaming to offset any declining sales in gaming consoles.

Following Google and Microsoft, top gaming publisher Electronic Arts has forayed into this space, with a project known as Project Atlas.

Will this move garner global attention?

The shift to cloud gaming is going to be as disruptive as any in the gaming space. Players can now subscribe and stream games online instead of spending over $300 for the latest gaming console. The cloud gaming space is expected to grow at a compound annual growth rate of 26% between 2017 and 2023.

While Netflix and Amazon have changed the consumption of entertainment via cord cutting, it is very likely that cloud gaming will soon be a hit among players in a few years time. Is this the end of the gaming console?

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