Matein Khalid


If it quacks like a duck and walks like a duck, it probably is a duck.

So, when the S&P 500 falls 16% from Jan and Nasdaq is down 25% from its peak, the stock market definitely quacks as if a US recession is imminent. For instance, the 1.4% dip in Q1 US GDP was due to a 300 point hit in government spending triggered by the end of pandemic era fiscal support programs. Yet it is a safe bet to conclude that slower economic growth will be the inevitable outcome of the Fed’s monetary tightening this summer.

I was alarmed to hear one of the world’s pre-eminent hedge fund managers answer my question about a neutral Fed funds rate in this macro milieu at a briefing at the Four Seasons DIFC. The hedge fund maestro said that 6% was the neutral Fed funds rate but there was no way the US central bank would ever push up the borrowing rate so high since that would mean a protracted bloodbath in the bond market, a deep global recession, and a politically impossible $1 trillion rise in Uncle Sam’s debt service cost. His assessment was that the Fed would countenance a 3% inflation in its dual mandate and thus his advice was to position portfolios for inflation-proof assets, which is exactly my own view.

Yet it is entirely possible that Chairman Powell will have a Volcker moment thrust on him by the bond market or even a Lehman moment imposed on him when the leveraged black swans on Wall Street begin to emerge from the glass-walled boardroom aeries of Wall Street and offshoreistan. Fredrick Nietzsche said it best “gaze not into the abyss, lest the abyss gaze back”. Is the abyss of the money souk gazing back at us now? I say yes. So I would keep my duration in the bond market as short as possible and avoid leveraged bond portfolios like the plague.

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I am also inclined to say Marhaba for floating rate bonds from the handful of corporate/sovereign credits I trust in a world that faces a Darwinian shakeout in the debt casino. I also believe that the parabolic rise in the US dollar since March 2021 is unsustainable and the Fed/US Treasury will be forced to engineer a new Plaza Accord that would finally dethrone King Dollar.

The yen and the Deutsche mark were the perfect anti-dollar assets after Jim Baker’s Plaza deal. Who will be the beneficiaries of the next G7 conclave to change the rules of the global money game? My faith and money are in commodity currencies, though I will not touch the Russian rouble as long as the Putin regime rules the roost in the Kremlin.

In global equities, I scan the word for fortress balance sheets, a Graham & Dodd value DNA, div growth, and, yes $70 billion shares buyback programs. Even then, I prefer to use CBOE options to pocket yummy premiums at lower than market strike prices rather than buy assets outright now as it is painful to catch a falling knife/chainsaw.

Recessions are natural components of the business cycle. Powell will hit the brakes to decelerate the car but not so hard that it flips over. Yet what if he fails? What then?

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The wicked witch of Wall Street waved her ursine broomstick over the global financial market in mid-November and all hell broke loose on the US equity indices. The Nasdaq was slammed by 18% at its recent 13,350 low and has broken its 200-day moving average and dozens of its high multiple components are down 30, 40, and even 50% from their highs.

The S&P 500 index has lost 8% since its early January high and small caps, recent IPOs, and cryptocurrencies have been crushed in the risk of tsunami, thanks to Putin’s Ukraine Anschluss and a dismal 7.5% Jan annualized CPI. Angst in the stock market has swung from greed to fear now that the Volatility index has spiked to 29 and Brent crude traded at 95 this morning in Singapore.

Sergei Lavrov’s comments do not convince me that a diplomatic rapprochement to the Ukraine crisis is imminent. In fact, a lifetime of reading Tolstoy, Dostoevsky, Pasternak, and Gogol has only convinced me that the arc of Russian history does not tilt towards justice, that the demons of war invariably strangles the angels of peace.

Yet it is undeniable that the stock market now offers an incredibly bullish risk/reward calculus in selected companies, sectors, and industries with both growth and pricing power. Even the S&P 500 index now trades at a 19.4X multiple and is no longer hostage to the narrow breadth of its FAANG+MSFT mega-cap generals, unlike last summer.

The seven-year high in crude oil prices is nirvana for both the Seven Sisters and the Permian Basin shale oil drillers like Devon, Oxy, and EOG. The geopolitics and mining economics of the green energy/EV revolution also leads me to Dr. Copper and thus Freeport McMoRan. The steeper yield curve amid accelerating loan growth is a compelling argument for US regional banks, especially those that are takeover bait in the Sunbelt states.

The world is desperately short of inflation hedges and geopolitical hedges, which lead me to believe that a commodity supercycle is an embryonic theme despite a stronger US dollar and the Conradian heart of darkness in vast swathes of the emerging markets constellation. Lagging commodities that benefit from Tsar Putin’s antics? Auric and Argentum.

Given the horror show on Wall Street, it is nice to see Brazil up 19% in 2022 on its tracker EWZ, while the Morgan Stanley EM index is in the doghouse. The case for Brazil was anchored by the 7% rise in the real and the Sao Paulo Bovespa’s value-centric sectors. In any case, Brazil’s bear market long preceded the bloodbath on Wall Street and thus created a number of bombed-out value beauties.

It is ironic that Brazil’s stock market only popped 20% after the central bank in Brasilia raised its benchmark Salic rate by 800 basis points in response to an inflation surge in a country whose hyper-inflationary past I personally experienced on a memorable trip to Rio de Janeiro in the 1990s.

So will the endgame of the Fed rate hikes in 2022 be a major bull-run in the US stock market? Time will tell.

The Covid-19 pandemic has afflicted India with its biggest economic shock since the oil crises of the 1970s. The Indian economy, among the world’s fastest growth emerging markets four years ago, contracted by a ghastly 24% in Q2 2020 and could even end the year shrinking by 7%, among its worst performances since the Great Depression when my Daddy was born in Calcutta and my friend Andy Hoptoun’s great grandfather Lord Linlithgow was the viceroy for the King Emperor George V.

It is tragic that the pandemic hit India at a time when its financial sector faced a credit malaise, social unrest had erupted in Delhi and UP and the economic reform momentum had stalled.

India’s draconian lockdown has amplified social cleavages in a vast, complex society of 1.4 billion people which had managed to raise almost 300 million human beings out of extreme poverty in the preceding decade. This economic fall from grace gives India’s pandemic experience a tragic, even Sophoclean, dimension. India’s lockdown resulted in an estimated 150 million job losses, trauma and megadeath for its untold millions of urban poor and the collapse of several hundred thousand small businesses in an economy unsettled by the NBFC/PSU banking crisis, botched rupee demonetization program and the introduction of GST.

India’s Covid cases are now 8 million, second only to the United States. Its fiscal stimulus has not been sufficient to address its tragic public health, social and economic dilemmas. The March 24 lockdown triggered a 45-50% collapse in private consumption, investment, construction and manufacturing output.

India’s public finance black hole, gutted by four consecutive years of decelerating GDP, has been exacerbated by the national and state lockdowns. This could lead to a potential sovereign, bank, state and corporate credit risk rating downgrade even as the economy emerges from the lockdown. Any sustainable improvement in discretionary consumption or public finance is hostage to the containment of the coronavirus curve – which has not happened as I write.

Hopefully Finance Minister Nirmala Sitharaman’s new $10 billion fiscal stimulus scheme will ameliorate India’s socio-economic trauma, though most global economists feel the BJP government’s policy response on the fiscal front is too little and too late. The RBI’s projection that Indian GDP will contract by a staggering 9.5% in the current March to April financial year is itself a de facto indictment of the government’s inadequate policy response.

This is a time for a dramatic fiscal stimulus, not symbolic packages and cosmetic reform. Prime Minister Narendra Modi needs to channel the ghost of American President Franklin D. Roosevelt, whose New Deal was based on his conviction that “the only thing we have to fear is fear itself.” A $10 billion fiscal stimulus will provide a pathetic 0.4% boost to the Indian GDP, nowhere near sufficient to address the national economic trauma.

The ratings agencies will downgrade India’s debt in any case since the combined fiscal budget deficit is projected to be a horrific 13% as state tax revenues collapse. While the Finance Minister’s commitment to fiscal prudence is laudable, India’s immediate sword of Damocles is deflation, not a resurgence in inflation.

India also needs to embrace privatization of state enterprises – okay, as an ex-Wall Street banker, I know the polite term in Bharat Mata is “divestment.” It is too much to hope for a geopolitical rapprochement with Pakistan and an end to the surreal confrontation in Ladakh/Askai Chin with China. South Asia definitely needs a peace dividend and a rupture from the communal demons that have poisoned its history since the fateful August 1947 Partition.

I feel inspired by Mahatma Gandhi’s observation “an eye for an eye only leaves everyone blind.”

(Disclaimer: The opinions expressed in this article are the personal opinions of the author. The facts and figures in the article do not reflect the views of The Public India.)

Read more from Matein Khalid
Bullish case for Singapore property and CapitaLand shares on SGX
From Russia – with all my love!

I believe it is now time to bottom fish in Singapore property developers and selected REIT’s on SGX. Why?
One, Singapore benefits from US supply chain re-configurations away from China and Hong Kong’s pro-democracy political unrest. Two, Singapore is the world’s best governed, least corrupt, most technologically advanced city state that has attracted the crème de la crème of the world’s multinational corporations and knowledge worker executives. Three, Singapore is Asia’s pre-eminent offshore tech hub as attested by the local foot print of Alibaba, Tencent, Huawei, ByteDance, Samsung and Fujitsu.

Four, Singapore home prices are still undervalued at $1500 a square foot, one third prices in Hong Kong. Suburban home prices in Singapore rose 3.4% in Q3 2020, clear evidence of Chinese and Indian buyers. Five, Singapore’s Anglo-Saxon legal code makes it an irresistible magnet for citizens of the third world’s Richistans, including the wealthiest citizens of my own Land of the Pure. Though our ex-head honcho prefers to invest his billions in Mayfair. Too bad PMLN stands for the Panama Money Laundering Network.

Six, Singapore has given citizenship to thousands of highly skilled Asian expats and has thus attracted the best brains/capital and biggest offshore next eggs from the world. Seven, Singapore is not just the epicenter of the Asia dollar money market but a global financial center in its own right, comparable to New York and London. In my opinion, history will remember Lee Kwon Yew as post-war Asia’s greatest visionary statesman, a sentiment with which I am sure the ghost of Sir Stamford Raffles will surely agree la!

CapitaLand is Singapore’s pre-eminent property developer and now trades on SGX at S$2.71 as I write, just above its March lows of 2.57. I find the developer’s dividend yield of 4.4% hugely attractive in a world where Chairman Powell has guaranteed us a near zero Fed Funds rate even if US CPI rises above 2% until 2024. Temasek own 51% in this property colossus, whose other strategic shareholders include the world’s smart money investors such as Norway’s sovereign wealth fund, managed by Norges Bank in Oslo and BlackRock, the world’s largest fund manager. At current levels CapitaLand trades at a Cinderella valuation of 0.6 times book value, response to the COVID pandemic that I believe is excessively pessimistic.

Asia is going to be the macro winner in 2021 in terms of property prices, economic growth and COVID-19 virus infections/death toll. There is clear evidence of recovery in Singapore residential, retail, office and industrial property prices and Chinese service PMI’s are a stellar 54.8. CapitaLand is also well ahead of the curve in digitalisation and flex-space offerings and a resilient residential housing portfolio. True, hospitality will be the Achilles heel of all property developers yet this is amply reflected in the stock’s current discounted valuation metrics and we have seen the worst of retail rental rebates.

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Udemy is now Silicon Valley’s Top E-Learning Platform
From Russia – with all my love!

Recurrent revenues from investment properties, the blow out performance of industrial/logistics assets, an impressive back-end development pipeline, China residential sales market is on fire and China represents 42% of assets under management. All 528 units of the flagship La Botanica unit in Xi’an and 194 units in Parc Botanic Chengdu were sold out at pre-pandemic prices within days of their launch. This is a very dramatic contrast to the Dubai market, with its free fall in rents, expat exodus, tens of thousands of empty apartment/villas, banking credit crunch and a vicious six-year-old bear market death spiral that has gutted home prices by 50 to 60% since 2014.

CapitaLand will sell 4,000 units in 2H 2020 and its retail portfolio in Singapore, Malaysia, China and Japan is seeing higher footfalls and tenant sales. The launch of eCapitaMall and the online food ordering business Capita3Eats are both huge winners. The role out of the Bridge+ flexspace offering in Singapore, China and India is another strategic winner.

The draconian fall in the shares reflect the 70% fall in 1H earnings after the pandemic devastated retail and hospitality markets across Asia. As a lifelong disciple of George Soros, the man who survived Himmler’s SS death squads in wartime Budapest and broke the Bank of England in 1992, I too believe that the big money is made when things go from God awful to just plain awful. So I expect the shares to rise 15% to 3.12 for a total return of 20% in the next twelve months. The Sing dollar need not be hedged if it is bought at 1.40 or better as I love the Asian Swissie at those level.

Udemy has beaten Coursera to emerge as the most spectacular continuous growth e-learning/teaching platform franchise in Silicon Valley and its projected IPO in early 2021 on NASDAQ will be a milestone event, given its global brand resonance among the millennial/Gen-Z denizens of the Digital Age. After all, Udemy now boasts 55 million students in 190 countries, 150,000+ courses, 57,000 instructors teaching in 75 languages. In essence, Udemy’s open platform leverages and monetizes the ultimate unused assets – each human being’s brain power, specialized skills, professional training, academic, musical and artistic training and cultural heritage.

Udemy meets the Valley’s classic definition of a platform company, which invariably commands the highest valuation on Wall Street. One, Udemy has created a global, scalable managed market place between learners and teachers in every conceivable subject from learning to play the Piano or to code in Python software, from Tarot card reading to Cisco’s latest terabit router products specs. Two, Udemy has user generated content in 75 languages, thus creating an invaluable, exponential growth, global database at virtually no cost. It is no surprise that Udemy commands the same phenomenal digital network effects as a Google, a Facebook, or an Airbnb once did on the internet.

Udemy’s strategic and financial destiny is controlled by some of the most legendary venture capital firms in Silicon Valley. These include Norwest Ventures, Insight Partners, Naspers Ventures (the South African money alchemist who turned a $30 million stake in China’s Tencent and India’s Flipkart into a staggering $60 billion value), Learn Capital (the most respected edutech VC in Silicon Valley) and Japanese media conglomerate Benesse who invested $50 million in Udemy. It is significant that none of the VC’s have diluted their stakes in the recent financing round, an indication that they expect a highly successful IPO in 2021. The recruitment of veteran CFO David Oppenheimer, who has taken three companies public on NASDAQ is also a signal that the Udemy IPO meets the imprimatur of Wall Street’s buy side institutional investors.

I have been stunned by the sheer scale of Udemy’s international footprint, user generated content and client engagement, the reason I decided to lead an investor syndicate in its pre-IPO shares at a valuation just above $3 billion. Udemy has raised guidance in 2Q and 3Q 2020 as the pandemic was a steroid shot for its revenue growth and I can easily envisage 2020 revenues above the $460 million revenue guidance. Therefore, it is entirely rational for Wall Street bulge bracket investment banks to value Udemy at 10 to 12 times its 2021 revenue guidance of $600 million. This means an IPO offer price of $6 to $6.5 billion and a market cap of $8 to $10 billion after listing on NASDAQ since Udemy’s brand name has a global mass market resonance for the Robinhood generation. So hopefully we expect to earn a 3X return in the next twelve months on Udemy’s private market valuation now.

There are no guarantees in life or the capital markets but, as someone who lives life in the second derivative, I can extrapolate myriad trends that enable me to be uber bullish about Udemy’s continued viral growth. These include telecommuting, Zoom, the accelerated digitalization of education and corporate training programs, EM youth demographics, smartphone penetration rates and government initiatives to retrain hundreds of millions of jobless youth.

Udemy has also developed a world class scalable corporate franchise, led by enterprise icons like Cisco Systems, Adidas,, Volkswagen and Lyft. Udemy’s 7,600 corporate clients now contribute almost 40% of global revenues and will be a profit ballast in the next decade. I see no reason why Udemy cannot equal and surpass Byju’s private market valuation of $11.2 billion sometime in late 2021.

In the long run investors will value Udemy for its colossal intellectual capital, its user generated library of real time data created and uploaded by its instructors. I can easily envisage a world where a Udemy platform hosts 400 million students and a million instructors worldwide. This would mean an exponential growth in revenues, cash flow, profits and ultimately market cap.

I had gone gaga on the Amazon, Google, Alibaba and Facebook IPOs in my media columns in various GCC publications because I was convinced that the biggest risk in the financial markets was not investing in scalable global platform franchises. History has amply vindicated my conviction in the past two decades. While I do not view Udemy with Panglosian optimism, I am convinced that this will be the first Decocorn in its $200 billion e-learning and corporate training addressable market. That much, at least, is certain.

Everyone belongs to two countries – the country of their birth and the country of their imagination. A place and time that their soul simply cannot let go. In my case, that country is Russia and that place is St. Petersburg sometime in the late nineteenth century. My love affair with Russia started when I won the first prize in a children’s art contest organized by the Soviet consulate in Karachi. The first prize was six books of Russian fairy tales – which I devoured every night even as I trembled in fear for a nocturnal visit by the witch Baba Yaga. The ten-year-old Matt had a political DNA even then. I could sketch Lenin’s face because of his high cheek bones and bald scalp very easily as I knew his silhouette from my stamp collection. So, I painted Lenin in an art competition with the caption “Sovietski-Pakistani bhai bhai” in Urdu. Naturally, I won. This picture won me my first public accolade in life. Then there was the 1972 summer Olympics in Munich, the world remembers the Munich Olympics for the massacre of 11 Israeli athletes by Black September terrorists at Fürstenfeldbruck airfield. I remember Munich because Pakistan beat India 2 – 1 in the field hockey semifinals (but then lost the gold to West Germany, thanks to Herr Wolfgang Baumgart) as well as an elfin teenage girl who bewitched me named Olga Korbut who won four gymnastics gold medals for the USSR.

I faithfully watched the serial War and Peace on television with my aunts and cousin sisters while the love scenes between Natasha and Prince Andrei Volkonsky bored me stiff, but I was absolutely fascinated with the battle scenes at Borodino and the sight of Napoleon pacing in the Kremlin while Moscow burnt, waiting for a message from Tsar Alexander that never came. So, I entered the secret world of imperial Russia as a teenager, glittering balls in St. Petersburg palaces, the crowning and murders of successive Romanov emperors, the grandeur of an empire symbolized by the double headed eagle that extended from Finland in the west to Manchuria in the east. Comrade Brezhnev’s USSR was taboo on my family’s summer vacation spots which ranged from Dubai to Cyprus to London. So I traveled to Russia, via Gogol, Chekhov, Pushkin, Dostoevsky, Count Tolstoy and above all, Boris Pasternak.

I begged my parents to take me to the movie Dr. Zhivago at Bambino cinema in Karachi, even though ostensibly it was for adults only. I had zero interest in the romantic scenes between Omer Shariff and Julie Christie. My fascination was with the great battles between Trotsky’s Reds and the Kolchak’s Whites during the 1917 Bolshevik revolution, arguably the seminal geopolitical disaster of the 20th century. Even though I knew nothing about politics then, I just fell in love with this strange country and its eerie winter landscapes, so vast and unfathomable, so different from my arid Karachi and Dubai habitat. My late mother, an artist, loved Pasternak and the movie Dr. Zhivago. On the marble headstone of her grave in Islamabad, my father and I decided to etch the first words from Lara’s theme song in the movie – “somewhere my love, there is a song to sing”. I miss my Mom viscerally since she died in September 2018 but am comforted with the thought that Pasternak’s poetry of love accompanies her through eternity.

I was in college in America in the 1980’s at the height of the Cold War, when President Reagan maligned the Soviet Union as the “evil empire” and the Red Army fought a brutal war of attrition in Afghanistan under the notorious Brezhnev doctrine. Hollywood propaganda brainwashed me into thinking Russian women were all heavyset Amazon babushkas from Tractor Factory Number Forty-Nine. Yet when I returned to Dubai from New York after a broken engagement, the lovesick Matt discovered that the Russian women he met here were some of the most beautiful, charming and educated ladies he had ever met in his adult life and several could even discuss Anna Karenina and Count Vronsky’s doomed love affair with me in minute detail. My parents were stunned to see their son adapt so well from his old life in Greenwich Village in Manhattan to the demi-monde of Deira and Rolla Road, Bur Dubai.

I also discovered the Russian financial markets in the 1990’s, like so many of my EM junkie friends at Wharton and J.P Morgan Chase. I was mesmerized by the awesome potential of post-Soviet Russia. Yet the 1990’s were a chronicle of economic horror stories for the rodina. The privatization and looting by the oligarchs in 1996, the speculative mania and ruble devaluation of August 1998, Yeltsin’s alcoholic fall from grace, the gruesome wars in Chechnya and the collapse in oil prices. I was horrified when a friend I knew was gunned down in Moscow in a contract killing ordered by a Chechen warlord in Grozny. Russia just seemed too dangerous a place for a man who had just fathered twins and who refused to visit his beloved Moscow surrounded by armed gorillas.

Vladimir Putin’s ascent to power in the Kremlin coincided with a spectacular tenfold rise in crude oil prices and a resurrection of my financial Russophilia. I made millions of dollars in trading profits for an Abu Dhabi sheik’s private office, where I was CIO and even convinced him to come to Moscow with me to go deal hunting in Russia’s restructuring gas sector. I finally even visited the St. Petersburg I had got to know so well from Russian literature in 2007. The Venice of the North bewitched me in real life as she once did in my imagination all those decades ago in my father’s house in Karachi and Jumeirah. All those familiar friends from century’s past were still intact – the Winter Palace, the Hermitage, Nevsky Prospekt, Kazan Cathedral, St. Isaac’s, the Church of The Spilt Blood (built on the exact spot where Tsar Alexander the 2nd’s carriage was gutted by an assassin’s bomb in March 1881), the Admiralty, Mariinsky Theatre (where I watched ballet in the same balcony that held Romanov grand dukes a century earlier), and Vasilyevsky Island (which I had first visited in spirit with Fyodor Dostoevsky’s Crime and Punishment).

I left a seminar hosted by a Russian investment bank at my hotel and walked with my wife, Farah, without a map to visit the famous Yusupov Palace on the Moika Canal where AC/DC Prince Felix and Grand Duke Dimitri Pavlovich murdered the monk Rasputin in December 1916. The Bolshevik Revolution was born in St. Petersburg and so was Vladimir Vladimirovich Putin.

Russia still haunts my imagination and pervades my professional life. My most respected contact in Silicon Valley is a Russia born partner in a venture capital firm in San Fran. I have great friends in Londongrad who specialize in Russian capital markets. Arif Ahmed, my old Grammarian chum from Karachi, an emerging markets maestro who once ran Habib Bank AG Zurich and HBL’s wealth management units, has just joined a Russian investment bank. I have promised my twins and my protégé Manju that our dream holiday will be to visit the St. Petersburg and Moscow I once knew when the Romanov Tsars and Tsaritsas lived in the Winter Palace. You see, its all about love – and somewhere my love, there is a song to sing.