Italy's Slump Reflects Trouble both at Home and Abroad

The Italian economy has again been doing less than stellar. Partly due to the fact that they cannot agree on a government for more than about two years, but also due to the deep connections between Italy's economy and that of Germany. The most recent government's budget failed to meet the requirements set forth by the EU, and increased enmity towards Brussels ended up causing government borrowing costs to rise.

Both the internal and external problems tend to have the same result, delayed spending, a decrease in investment, and shaky household confidence in the economy. With a public debt currently representing 132% of the GDP, all Italy can do, according to The Economist, is convince Brussels that more spending is necessary to help the economy grow.

https://www.economist.com/finance-and-economics/2019/02/02/italys-slump-reflects-trouble-both-at-home-and-abroad

Schultz Medicare for All

Former Starbucks CEO Howard Schultz has recently been raising rumors of running for President.  One point that he has repeatedly raised is that the "Medicare for All" proposal that some members of the progressive wing of the Democratic party want to enact.  Schultz stated that the proposal is unaffordable and that the Affordable Care Act is a good starting point but tweaks have to be made to bring premiums under control.

https://www.cnn.com/2019/01/29/politics/howard-schultz-medicare-for-all-cnntv/index.html

AI a.k.a Authoritarian Intelligence

In the People’s Republic of China artificial intelligence is allowing the communist party to stay in total control of its population. For China, AI might be the solution to effectively ruling a country made up of almost 20% of the world’s population. As President Xi Jinping intends to spend 150 billion dollars in high-tech to gain global leadership by 2030. 

In China Big Data and artificial intelligence are behind insane police surveillance. National-ID checkpoints by trains, shopping malls, mosques etc. can prevent anyone from entering or using a service. These IDs contain your personal information, bank information, legal history, family planning and more. When trying to get on a train, you could be denied, because AI has determined from data on your personal ID that you might be a human rights activist or that you haven't paid your parking fines. Artificial intelligence allows the Chinese regime to know what is going on at the lowest levels and across society. Instead of allowing citizens to demonstrate Xi uses the national IDs to prevent potential troublemakers from ever making it to the capital. Instead he hears about concerns and disturbances from daily social media briefings. China has also been working on a Social Credit System, which is based on their system of national IDs but is supposed to take it even further by giving or subtracting points for every single good or wrong act you do. Basically, China is trying to create a systems of incentives and punishment to slowly control people’s behavior. 

Additionally, China is also focusing on applied research in AI technologies to improve its military. To develop unmanned weapons systems and swarm technology, whereby hundreds of individual unmanned drones attack together. 

As AI is increasingly becoming a part of China’s authoritarian regime, the country appears to be more centralized than ever. Leaving little hope for its citizens to change the political system. 

https://www.technologyreview.com/s/611815/who-needs-democracy-when-you-have-data/

U.S. Job Gains Show Employers Shrugged Off Government Shutdown

Despite the government shutdown, the United States job market remained unfazed. Throughout the month-long shut-down U.S. firm continued to hire new employees. Over the month of January 304,000 jobs were added to the economy beating the estimates. While the Fed decided to not raise interests rates fears of an economic slow down were worsened, but the recent jobs report gives an optimistic view of the economic outlook.

“This jobs report is showing no evidence of an economy slowing, certainly not falling into recession. It’s still a tight labor market. Employers are still actively looking for jobs, and with wages ticking up, it looks like workers are getting some more bargaining power” Michelle Meyer, chief United States economist for Bank of America Merrill Lynch.

Furthermore, last month was the 100th consecutive month that the U.S. has seen job growth. So far the job market has weathered the trade war and government shutdown. It has remained strong and resilient and shows no signs of weakness.

Article: U.S. Job Gains Show Employers Shrugged Off Government Shutdown

Trump Optimistic on Trade Deal With China, but May Keep Tariffs Anyway

This article discussed President Trump’s potential trade deal with the President of China, Xi Jinping. The Chinese delegation visited this past Thursday and Mr. Xi is scheduled to come next month to discuss the agreement himself. Trump believes China’s President is willing to have Beijing purchase more products as well as open more of its market to American companies. This was emphasized in the letter Mr. Xi sent to Trump, with promises of buying American agricultural products. The main product of discussion was soybeans, and according to China’s Vice Premier and Beijing’s trade negotiator Liu He, Mr. Xi “was committed to buying five million tons of soybeans.”

Within 90-days, the trade truce will end and bring an increase of 25% on Chinese import tariffs. The article brought to light that with this heavy pact on the two nations shoulders, economic growth and profits are being affected negatively on both sides. The article stated the reason for the U.S. wanting China to buy large amounts of American goods and services is to help decrease the American trade deficit along with helping change the fact that to do business in China, they require American companies to impart trade secrets. There appears to be desire for ending the trade war as prices increase on Chinese imports, and tariffs trouble American companies and manufacturers. However, China also appears to be disinclined to negotiate “technology transfer and subsidies of state-owned enterprises.”

Although this deal appears to be something with promise, we do have to take into consideration what Robert Lighthizer, President Trumps chief trade negotiator, has to say on the matter. He believes that because the two leaders had not even come to an agreement over a draft framework for the deal they seek to accomplish in the period before March 1^st, along with there being no discussion on American tariffs on Chinese goods, that maybe it is too early to celebrate the deal despite the “main achievement” that the talks were even taking place. He also believes that the main issue lies with making sure that the Chinese commitment is guaranteed and that there need to be mechanisms to make certain of this. Also, the article mentioned the American Farm Bureaus economist’s knowledge that the U.S. exports 35 million tons of soybeans to China yearly, so offering to buy 5 million more, does not seem as impressive as before. I am curious as to what the true trade deal will look like after Mr. Xi visits next month, but until then we will just have to wait.

https://www.nytimes.com/2019/01/31/business/trump-china-trade-tariffs.html

"Government Shutdown Cost U.S. Economy $11 Billion, C.B.O. Says"

In this article by Alan Rappeport and Binyamin Appelbaum from The New York Times, they describe the more insidious effects of the longest shutdown in the U.S. government’s history. The government shutdown has been to cost the U.S. economy $11 billion with a quarter of the total permanently lost. The Congressional Budget Office (CBO) released these estimates along with the statement that the economy will suffer from “more indirect negative effects.” More specifically, businesses were unable to receive federal permits and licenses required for any improvements or investments, thus postponing any future growth that might have occurred otherwise. The notion that we will regain the economic loss as workers receive their back pay (if applicable) will most likely be negated by the nosedive in younger generations’ consumer confidence, thus having an even further negative effect on the U.S. economy. While the actual indices for consumer confidence are relatively high compared to previous years, the fears and insecurities of affected federal workers throughout this article are ubiquitous.

The fear of ever-looming shutdowns is two-pronged: there is a fear of it happening soon and the fear of it lasting for even longer next time. Due to these concerns, many federal workers affected reported to be planning on reducing their spending below pre-shutdown levels. Many are postponing major and minor purchases from eating at fast food restaurants to buying homes. This decline in consumer confidence is bound to have lasting generational cultural effects, even if the economic growth eventually returns to an expected value.

Source: https://www.nytimes.com/2019/01/28/us/politics/shutdown-cost-us-economy-11-billion-cbo-says.html

Foxconn backtracks over promised factory jobs at $10bn Wisconsin site

To prove that he could revive manufacturing in the United States, President Trump welcomed the $10 billion dollar invest by the manufacturing giant Foxconn. First announced in 2017, the company has now backtracked over its promise to bring manufacturing jobs to Wisconsin. The investment will be considerably less, and will consist of mostly engineers and researchers. The initial deal relied on a $4.8 billion dollar subsidy with the intent that they would manufacture LCD TV screens, employing thousands of blue-collar workers. The plans are being mostly scrapped as Foxconn may have realized that their idea may have been overzealous.
The cost of manufacturing in the US, regardless of the state, is much more costly than some of its overseas competitiors. Louis Woo, the special assistant to the chief executive offer said, "In terms of TV, we have no place in the US...We can’t compete.” This example highlights a problem that has become more present in the past decade. Companies are forced to use cheaper labor outside of the US. Many opponents of the subsidy saw this as a corporate giveaway and feel justified with that belief, especially with the deal being scaled back significantly.

https://www.theguardian.com/technology/2019/jan/30/foxconn-wisconsin-factory-plans-reconsidering-latest

VanEck Bitcoin ETF Proposal

Over the past year, several companies, including VanEck, have proposed a Bitcoin ETF to the SEC. VanEck created the first ever international equity fund in 1955 and is now pushing to publish the first Bitcoin ETF. Bitcoin was created in 2009 after the financial crisis and is a type of digital currency in which a record of transactions is maintained and new units of currency are generated by the computational solution of mathematical problems, and which operates independently of a central bank. 

Bitcoin is the best performing asset class in the last 10 years, and many well-established institutions are entering this market space behind the scenes. They are waiting for the ETF approval, proper regulation from the SEC and CFTC and proper custodianship, however, when this pans out, will institutional and retail investors flee to this market? 

Let's face it, the US economy is due for a correction within the next two years or so. When this recession occurs, will we see people place their money elsewhere? Traditionally, when the stock market has a correction, people tend to deploy their capital into other asset classes, such as gold or real estate. However, Bitcoin has little to no correlation to the traditional equities market, 0.1 to be exact. 

Throughout 2018, Bitcoin and the crypto market has been in a bear market. In the past, Bitcoin has had four, ~80% pullbacks, from reaching all-time highs, and still continues to get back to the all-time high level. People often say Bitcoin is dead, however, in my opinion, it is not. It is only starting to rally. It has been around for 10 years, and it has reached the $20,000 per Bitcoin level, just with retail money. Imagine when institutional money, endowment fund money, sovereign wealth funds, and pensions funds deploy capital into the market. My hypothesis is that Bitcoin will reach $140,000 per Bitcoin by 2023, and if you'd like to see the model that I built to back my hypothesis, I'd be happy to share. 


Please let me know your thoughts and opinions on the Bitcoin ETF approval, and how this may impact the US and global economy.





https://www.coindesk.com/cboe-re-files-vaneck-solidx-bitcoin-etf-proposal

Warren stakes out 2020 ground with wealth-tax proposal

     Senator Elizabeth Warren is proposing that an establishment of a “2% tax on net worth between $50 million and $1 billion, and a 3% tax above $1 billion” the revenue from which she would direct to help with wealth inequality. She explains that this tax could help increase revenue, estimated at $2.75trillion, which in turn could help, as she would direct it, give more equal opportunity for everyone else in America. She asserts that this extra money could help decrease the costs of healthcare and help with student loans.

    

     This new wealth tax would help address the fact that many people with high net worth are able to avoid paying high amounts of tax by using loopholes. Given US income inequality, not everyone is given the same opportunities. Those who don’t have high incomes or high net worth might not be able to afford to get a college education leading to more uneducated people affecting productivity in our economy. Middle-income families are already taxed on their wealth because it comes out as property taxes they have to pay for their homes, where the rich have a smaller percent of financial assets in real estate subject to property taxes. Senator Warren’s new proposed wealth tax would make sure that both the high- and middle-income families would be treated more equally. However, they stated that other countries have tried to create a tax that will help with wealth inequality but found that it was hard to administer so the countries did not get the expected revenue.

    

     This wealth tax could be used to redistribute more money from the rich to the poor. More financial resources provided to the poor could help with more equal opportunities as well as a more educated workers and better community connections leading to more economic growth. However, this wealth tax is new, and it will be interesting to see if it works and if others will agree and support this wealth tax.  

Link: https://thehill.com/policy/finance/427075-warren-courts-progressives-with-wealth-tax-proposal

Plain-Spoken Fed Chairman Sometimes Leaves Markets Confused

All through last year The Fed and Jerome Powell made it very clear that they would be raising rates.
The message was consistently that the Fed expect to continue to raise rates through 2019. The plan is not as clear as it once was due to the high volatility that has been seen in financial markets over the past several months. Powell has stated previously that the Fed is more concerned with economic data the how the financial markets are doing. However, the financial markets care a lot about what he has to say.

The last time the Fed raised the stock market dropped 8% because markets were surprised that the Fed raised rates. This is just one recent example in how disconnected markets and the Fed have been at times. During, the meeting after Powell change his tone saying that the fed will watch markets and slow rates raises down due to fear of slower growth.

Powell has also change the Feds policy and will now talk after every Fed meeting. I think Powell has made it clear that he wants to address the issue of creating confusion. It seems the his goal is to ensure markets and the Fed are on the same page.

https://www.wsj.com/articles/plain-spoken-fed-chairman-sometimes-leaves-markets-confused-11548757801

Government Shutdown is Over, So Where is the Economic Data?

According to New York Times, the government shutdown is officially over. Unfortunately, a lot of the economic data will have to wait. This comes at a very poor time as many analysts and policy makers were just starting to grow concerned about the economic expansion finally ending after a decade. With so much uncertainty surrounding the economy, the Fed are going to be paying very close attention these next couple weeks to the data that is coming out in order to make the best decisions regarding the interest rates and other related matters.

As a result of the government shutdown, the economy lost close to $11 billion, most of which should be should be recovered as more federal workers return to their jobs. Although some data still has yet to be released following the shutdown, the Bureau of Labor Statistics were still able to collect and release inflation rates, unemployment and hiring estimates like usual. Other pieces of data that require a number of different indicators, such as GDP, cannot be released until the rest of the data has been found. Analysts still do not know how the government plans to get back on schedule regarding the releasing of quarterly data, but the answer will probably vary. Luckily, many economists have stated that the government shutdown was lifted before more serious damage could have been done.

Overall, this seems to be a very uneasy time for the Fed and the government. With the economy seeming to be on its way to a downturn, this data is very important to figure out how to deal with the interest rates, and other ways the Fed could help prevent the upcoming recession, which is looking to be inevitable. It will be interesting to see what happens within the economy the next few weeks to see if more data is released regarding both the economy and the Fed.

Source: https://www.nytimes.com/2019/01/28/business/economy/economy-government-shutdown.html

German Ifo Business Confidence Lowest In Nearly 3 Years Amid Rising Worries

Link: http://www.rttnews.com/story.aspx?Id=2972715

While many rumors spread about a possible upcoming recession in the US, Germany is experiencing warning signs of its own. In the above article, the author discusses how certain economic indicators have dropped more quickly than anticipated in Germany. Their Business Climate Index fell to its lowest level (99.1) since 2016 and many are stating that this is the first time business expectations have turned pessimistic since 2012. This is also the first time that the German economy has shrunk since 2015 and is falling at a rapid rate.

There are many factors putting pressure on the German economy; one of the largest being Brexit. The result of Brexit will most likely determine how long Germany stays in this downturn. As of right now, The Economy Ministry is expecting the German economy to pick up fairly quickly again and grow in 2019 as the construction industry sees large growth and tax cuts are put in place to increase consumer spending.

With much of the news focused on the US at the moment, it is interesting to see what is going on in other countries and how other economies are holding up. The German economy is very important for the EU and it is concerning that they might be going into a recession. I think it will be very interesting to see the effects of Brexit as well as a possible US recession on other economies.

McDonald's and KFC warn of shortages and price hikes if there's no Brexit deal

https://www.cnn.com/2019/01/28/business/brexit-impact-food-prices/index.html


In consequences of Brexit, the companies in the food industry are anticipating significant problems that would negatively affect their supply chains.
The terms of Brexit will be valid after 60 days, and the British government still has not devised plans to regulate their economy. Two sides are still arguing on whether Britain should do a hard or soft Brexit, and if there is no specific agreement on what should be done until the terms take effect.
The biggest concern of these companies are basically the shortage of employees and the import costs that are estimated to rise. This would affect not just the UK farmers but everybody, because we need food to survive. The overall cost will increase and the consumers would have to pay more for food. Companies are saying they are stockpiling the supplies as much as they could, but there is a limit to how much one could accumulate them for so long. The storage cost will also be a painful loss to the companies.
Considering that quite a lot of the British people did not even know what EU was, and what kind of benefits England was gaining from being in the union, Brexit may conjure many more problems. Partiality towards immigrants is of course, a valid reason to vote yes for Brexit. There are more reasons why, but it seems that the whole event was rushed and irrationally done. If the British government cannot come up with an amending policy, the citizens would be the ones that may be paying the price for their irresponsible decisions.
There were definitely downsides of being in the EU. The gains that Britain earned by being a member of the EU were significant as well. Hence their plan must be made before due date. Otherwise people would have to lose more than they thought.

Slow Growth Plagues the World Economy

In a recent New York Times article, Neil Irwin examines the state of the world economy and the rut it has found its way into. Throughout 2018, it appeared as if the global economy was finally recovered from the financial crisis that occurred in 2008 and making positive gains. However, indicators from around the world have made it clear that the issues that have started to plague the economy are not going anywhere anytime soon. It is becoming apparent that low growth and low inflation are becoming the new economic norm around the world. The contributing factors to this are things such as an aging workforce, a large international savings glut, and shortage of demand. Irwin goes on to explain how in the future, low growth means the economy can easier slip into a recession, and low-interest rates will make it harder for the financial sector to pull the economy out of it.

In fact, things have slowed down so much that following the Federal Reserves most recent rise in interest rates, former Chair Janet Yellen said its very possible that the end of the cycle could be near, and that could be the last raise in interest rates we see before we shift towards another recession. The article goes on to explain that the current world economy could not handle a negative shock, as there is not enough growth providing a cushion to absorb one. Irwin also notes that the United States is in a particularly vulnerable spot, given the trade wars and the government shutdown that has recently occurred.

Moving forward, I am concerned about an oncoming downturn in the economy given its stagnant pattern. I am interested to see how the United States responds to the current state of the economy and how other large economies such as China make decisions moving forward as the decade-long pattern of low growth is here to stay.

https://www.nytimes.com/2019/01/27/upshot/world-economy-low-growth-low-interest-deflation.html

Global shipping rates slump

https://www.reuters.com/article/us-shipping-economy/global-shipping-rates-slump-in-latest-sign-of-economic-slowdown-idUSKCN1PJ0BQ


Many are worried where the global economy is heading with the current slowdown of trade and growth seen throughout world. The Baltic Dry Index, a shipping cost measurement tool for items such as iron ore and coal, has fallen by 47% since mid-2018. Additionally, the Harpex Shipping Index, a container rate tracker, has dropped around 30% since June of 2018.

These numbers may seem frightening, however, how do they compare to measurements for the rest of the economy? If these decreases fall in line with what we believe we should have observed, then perhaps this slump is attributed to the downward fall of a business cycle. After all, the global economy as a whole has had impressive growth over the years, perhaps it is catching up with itself.

That is not to say, however, that recent trade wars are not attributable to this fall. These conflicts certainly play a role in the performance of shipping rates. With that said, if these trade wars were not to have happened, would we still be seeing a similar decline in rates? Perhaps things are inflated slightly due to these conflicts, and once they are resolved, we may notice a sizable change.