Mysterious Russian Oil Fleet

 

The western world tried to deprive Russia of profit from it’s oil exports, but Russia has found a way around that. They have a growing fleet that is continuing to transport oil. This is significant because the sanctions imposed by countries aren’t effective in cutting of or curbing Russian oil export. This means Russia has no reason to stop the war in Ukraine because they are still profiting. What’s even more concerning is that there isn’t much public knowledge about the tankers Russia is using for oil transport. This raises many safety and security concerns. 

Another impact of this Russian fleet, is that it has split the oil market into two, those that get their oil from Russia and those that don’t . This is significant since Russia is the second largest exporter of crude oil. Hence why gas prices increased as a result of the Russian invasion on Ukraine. 

https://www.cnn.com/2023/03/01/business/russia-oil-shadow-fleet/index.html?utm_term=1677718902022353b62d4264e&utm_source=cnn_Nightcap+-+03.01.2023&utm_medium=email&bt_ee=Hvh6rqT2U0nRbbHk%2FvSp1nsUqACxFPwFsvyBm9FELasnc3sFqflW%2B1YvcbA6r5cE&bt_ts=1677718902024

Stocks Drop, Send Wall Street to Its Worst Week of the Year

 Stocks are continuing to drop through February as reports are showing that everything is continuing to climb more than expected like spending by households, and inflation to the job market. With rates climbing it can be helpful because it drives down inflation but at the same time it can run the risk of a recession because these factors slow the economy. Cost for food, and energy has been reported almost 5% higher since January and is predicted to continue to rise even more. Shoppers are buying less expensive items overall and reports are saying that every month prices will continue to rise with the possibility of a recession. 

This is a shocking article to read because the general consensus is that the market is doing really well and we are finally getting back to prices before covid. In class on Friday we were just discussing how shipping container costs have finally gone down. 

https://www.usnews.com/news/business/articles/2023-02-24/asia-stocks-mixed-after-wall-st-breaks-losing-streak

Biden is Betting on Government Aid to Change Corporate Behavior

   The Biden administration plans on using around $40 billion in order to aid domestic production of semiconductors in Arizona. This policy is meant to turn manufacturing away from China and to begin beefing up our own manufacturing industry. This policy by the Biden administration will work in cohesion with the CHIPS act of 2022. This semiconductors are extremely valuable to the tech industry so not only will domestic production of semiconductors decrease our imports of semiconductors, the US will probably export many as well. So, obviously, a semiconductor factory would be a win-win. This policy is aimed to assist firms in bringing semiconductor manufacturing onto our own soil. However, it's not a free ride, the companies must still do their own part. The aid is just aid, meant to get companies onto their own feet. It's quite perfect timing since we just talked about industrial policy in class and on homework. This (as well as the CHIPS act) is a perfect example of how the US is using industrial policy today in order to aid the economy. Sure there could be tradeoffs for this government aid. In a perfect world, government intervention would just reduce efficiency. However, we don't live in a perfect world and industrial policies like these will help our economy stay strong especially in light of potential future conflicts.

Source: Biden Is Betting on Government Aid to Change Corporate Behavior    -New York Times

Treasury Secretary Janet Yellen Visits Ukraine in Show of U.S.'s Economic Support

 On Monday, February 27, U.S. Treasury Secretary and former Chairwomen of the Federal Reserve Janet Yellen made a surprise visit to Ukraine to show the United States' continued aid of the country shorty after the one-year anniversary of Russia's invasion. During her press conference, Yellen Announced a $9.9 billion civilian aid package for Ukraine as it enters the second year of war with Russia. Yellen also noted that sanctions continue to be critical in countering Russia's "military industrial complex", bust also acknowledged Russia's ability to purchase goods, such as microchips, through neutral countries have allow it to work around current U.S. and NATO sanctions. 

Many feel that the sanctions placed on Russia are not harsh enough, and that efforts spear headed by the U.S. to place price caps on Russian oil and fuel products are less effective than initially thought. Observers also identified that if the U.S. and NATO are going to sanction Russia, they must target those funding the war effort. "There are Russian companies, oligarchs, and organizations contributing to the Russian war effort that the U.S. hasn't sanctioned yet", according to Mykola Murskyj, director of government affairs at Razom for Ukraine. 

https://www.npr.org/2023/02/27/1159719607/janet-yellen-ukraine-us-aid

Chinese Arms Could Revive Russia's Failing War

With Russia's lack of success in its invasion of Ukraine, they are turning to other countries such as China to help aid them. The two have had strong relations with each other as Russia has supplied on average $2 billion worth of arms each year between 2001 and 2010, and $7 billion in 2017. 

Now Russia is relying on the support of China to aid them, as they have suffered significant losses of over 9,400 pieces of equipment including more than 1,500 tanks. Russia requested aid from China since the beginning of the war, but China has only sent non-lethal aid. It is believed that China could potentially step in and aid Russia with lethal arms such as attack drones and ammunition. 

If China decides to intervene, it could significantly impact the war and potentially prolong it. Additionally, this would significantly impact China's trade relations with many European countries and the United States. The European Union's Foreign-Policy Chief, Josep Borrell, has warned that providing lethal aid would cross a "red line". China's top diplomat Wang Yi, stated that China "will not provide arms to Russia." However, it is known that China regularly sends arms to countries at war. It will be interesting to see how China will proceed in the coming months as the war prolongs. 

Source: Chinese Arms Could Revive Russia's Failing War

U.S. falls to #25 in Annual Global Economic Freedom Index

 The annual global economic freedom index measures the economies of 184 nations around the world by looking at their current situation and policies during the measuring time. This measurement took place between July 1, 2021, to June 30, 2022. Once everything was measured it was released on March 1st that the U.S. ranks 25th on the list. This is a drop of 5 spots from the previous year and the lowest the country has been in twenty years. In terms of the U.S. overall economic freedom score, the one that put them at 25th, it is actually the lowest it has ever been since the start of the index at 70.6.

The main cause of this drop to 25th was due to what was "mounting deficit and debt burdens" according to the index itself. We can see this activity in our economy as interest is currently rising at record rates and many are still experiencing the financial negative effects of the pandemic even still today. These index numbers will most likely continue to drop as it is estimated that the U.S. will have around 19 trillion dollars in added debt over the next 10 years.

The overall average score of the index has decreased this year as well to 59.3 compared to the 60.0 it was last year. This score is the lowest average the index has ever had following the same trend as the U.S. which I'm sure has had a major part in this decrease. Singapore is currently first on the index being known as the current most economically free country in the world with Switzerland in second.

Article- https://www.msn.com/en-us/money/markets/were-no-25-us-slips-again-in-annual-global-economic-freedom-index-amid-mounting-deficit-and-debt-burdens/ar-AA185MCz

The U.S. Supreme Court Questions The Legality of Biden's Student-Loan Plan

The US Supreme Court has signaled its skepticism regarding the legality of President Biden's proposed student loan forgiveness plan. The court's conservative majority raised concerns about the plan during a recent hearing, suggesting that it may be an overreach of "executive emergency powers". Specifically, it potentially violates the Heros Act, which allows the secretary to waive debts in times of national emergency. The Biden administration is using the Heros Act to justify the student-loan program. The Biden administration has proposed forgiving up to $20,000 in federal student loan debt, arguing that it is necessary to provide relief to struggling borrowers due to COVID-19. The plan would cost $400 billion over a 30 year span. Additionally. the secretary of education found that a significant number of individuals would default on their student loans without relief. However, opponents of the plan argue that it is too large and Congress should be the one to decide on such matters. I think we all would love to have our student debt reduced, however there will always be drawbacks. Do you guys think the potential negative consequences outweigh the benefits of this program? 

Article: https://finance.yahoo.com/news/supreme-court-signals-skeptical-bidens-183600240.html

Ford Layoffs

An article that I found is about how Ford anticipates cutting jobs in order to have stronger production with electrical vehicles. This article states that, “intends to cut 3,800 jobs in Europe over the next three years to adopt a ‘leaner’ structure as it focuses on electric vehicle production.”. With this drastic change of layoff, these will happen in areas such as Germany, UK and other European countries that hold Ford production. Ford is trying to change their production systems because it was stated in the article that their fourth-quarter production was very low therefore they want to make a change to strengthen their production. Overall, this change in production and layoffs will impact Ford and the employees. Ford could have a great turnout with this system of layoffs and production or it could make them fall into another low production quarter. All in all, this is a big discussion that is happening in Ford that can impact a lot of people. 

Article:

https://www.cnbc.com/2023/02/14/ford-to-eliminate-3800-engineering-administration-jobs-in-europe.html 

Australia Recession Risk Rises as RBA Seen Hiking More Than Fed

     There is now a one in three chance that there will be a recession in Australia in the coming 12 months. The updated probability came after a jump in inflation that has pushed the Reserve Bank of Australia (RBA) to continue hiking rates for longer than expected. Traders in Australia are now pricing in four more interest rate hikes, while the Federal Reserve is expecting only three more hikes. In comparison to the Federal Reserve, RBA started its tightening two months after the Fed and moved less aggressively because it thought once the supply chain was fixed so would the economy. Not only did the RBA start two months later than the Fed, but they also downshifted to 25bps increases in October while the Fed was still increasing by 75bps. Another reason the RBA moved less aggressively is that the job market was so strong, and they didn't want to weaken the market, but now they need to start acting aggressively while the job market is becoming weak. 

    Problems could arise in the housing market as well in Australia. In the USA, most home buyers take out a 30-year mortgage to help protect them from changing interest rates. In Australia, most home buyers take out a variable rate mortgage which floats with the RBA rates. This could lead to issues with defaults and other problems, especially with unemployment on the rise. With the higher interest rates, people will be less likely to purchase new homes, further impacting the housing market. 

    Australia does have a slight economic impact on the rest of the world and could cause a ricochet effect of economic issues if they plunge into recession.

https://finance.yahoo.com/news/australia-recession-risk-rises-rba-180000084.html

Economic Uncertainty On Tap for the Week

A mix of economic reports this week is unlikely to provide any clarity on the strength of the economy, or the stickiness of inflation. Last week, Wall Street experienced its worst performance of the year as it became evident that inflation was persisting more than expected, which could result in the Federal Reserve keeping interest rates higher for longer. This week, a variety of economic reports will provide insight into the state of the economy, including reports on the housing market, manufacturing and services sectors, auto sales, and consumer confidence. The economy is currently experiencing uncertainty, with factors such as economic growth, job growth, and inflation fluctuating. However, the economy is holding up better than expected, especially the job market (adding up 517,000 jobs in January). The article also notes that pending home sales for January are expected to have a modest gain, but affordability challenges may persist, resulting in a less active spring season for homebuyers. The Institute of Supply Management’s manufacturing index is expected to show a slight contraction in January, and the services sector index is expected to show growth but slightly below the rate of December. Auto sales for February may show a dip but to around the 15 million annual level. The article concludes that the data from this week's reports may provide insight into the state of the economy and may materially alter the trend of continued interest rate hikes, slowing inflation, and a resilient labor market.

https://www.usnews.com/news/economy/articles/2023-02-27/uncertainty-over-inflation-and-economic-slowdown-likely-to-continue-this-week

Why are Koreans getting unhappier despite economic prosperity?

 Since the 1950s, South Korea has seen rapid economic growth. In 1953, the GDP per capita of South Korea was $67 and in 2021 it was just north of 35,168. However, despite this growth and continuing prosperity, many South Korean citizens have a rather grim outlook on the future. 

The article in The Korean Times offers a couple of interviews with very different types of people from South Korea. All of the interviewees describe feelings of anxiety and hopelessness. These somber feelings of the interviewed individuals are also reflected in data. South Korea scored a 5.9/10 on OECD life satisfaction scale is below the average 6.7/10.

The author of the article offers a few reasons why South Koreans are feeling grim about the future. One main concern is a lack of a social safety net. Many countries have strong institutions in place to take care of their elderly citizens post-retirement. Many Koreans citied the fact that the current safety net makes them skeptical about the idea of being able to take care of themselves and their families when they retire. 

Another concern of Korean citizens is intense competition and comparison with others. Several people have said that for too long, the country has prioritized economic growth. Many of the older citizens often measure their success only in economic terms, but this is likely due to the fact that growing up, they often experienced intense poverty. The prior generation was forced by circumstance to work long, hard hours and jobs. Many people today however, would like to live in a society with a better work-life balance. 

Many say they would like to see the country shift its policy focuses away from economic growth and more towards the support of the people. 

https://www.koreatimes.co.kr/www/biz/2023/02/488_345943.html

US Spending Surge

 US Spending Surge

US consumer spending rose in January due to an increase in wages and salaries. The increase of 1.8% was the highest since March 2021 and outperformed the predicted 1.3% increase. Spending was likely caused by seasonal fluctuations at the start of the year and a cost of living adjustment for more than 65 million Social Security beneficiaries, which increased income. Purchases of long-lasting manufactured goods, such as motor vehicles, household furnishings, and equipment, increased as well as spending on dining out and recreation. The personal consumption expenditures (PCE) price index rose by 0.6% in January, the largest increase since June 2022, and the PCE price index increased by 5.4% in the 12 months t. The Fed has raised its policy rate by 450 basis points since last March from near zero to a 4.5%. Financial markets are expecting another increase in June. Personal income increased by 0.6%, the majority of which is a result of strong wage growth. Consumers increased their savings while spending, as the saving rate increased to 4.7%, the highest in a year. The Fed is expected to deliver two additional rate increases of 25 basis points in March and May.

https://www.aljazeera.com/economy/2023/2/24/us-consumer-spending-surges-in-january-inflation-heats-up

Ukraine finds stepping up mobilization is not so easy

     Now that a year has passed since the invasion of Ukraine, the country is frantically looking for an increase in troops as they anticipate needed to mobilize more troops in the coming months.  This has been a tough task for the country as they move further away from legitimate means of drafting soldiers.  There have been several reports of people unable to participate in war being called to participate.  The example given in the article is a man with no hands who then shared his discontent on Facebook.  As the military became more desperate, they began stationing recruiters in city centers and malls to pressure more people into signing up for the draft.  However, as more people are called to war, more people are finding ways to avoid being on the frontlines.  Exemptions are made for married men with three or more children or single-parent homes, students can defer participation, and certain professions are able to avoid being deployed by working pro-bono towards military efforts in surveillance, intelligence, engineering, and similar fields.  Many have resorted to faking marriages with multiple children or paying a few thousand dollars to be smuggled across the border.  Several lawyers are working to support those who cannot be asked to participate in the military (such as the disabled), and other lawyers are working to protect the rights of those who were forced to sign up by intimidating and vigilant recruiters.

    Given the information above, we cannot expect the war in the Ukraine to end soon.  We also can expect more lives will be taken and conditions will worsen for the soldiers.  The military can expect backlash for their intimidation and illegitimate tactics for recruiting soldiers.  Europe will suffer further as the oil prices will remain high.  Ukraine has been asking for more resources for months now, and the pressure for NATO to send more artillery and ammunition will only grow.  This will continue to cause prices to rise across the globe, and unfortunately, we cannot expect an end in sight.

https://www.economist.com/europe/2023/02/26/ukraine-finds-stepping-up-mobilisation-is-not-so-easy 

How a Ukrainian dog food company survived and thrived during a year of war

     On the first anniversary of the Russian-Ukrainian war, journalist Patricia Cohen traveled to Lviv and Prylbychi to write a story for The New York Times on a positive externality that was caused by the war. This is the Ukrainian pet food company Kormotech, which not only survived the war but thrived.

    When the war first started, Kormotech shut down due to several factors. One was that they could not get the imports needed into the country and their exports out. The second was that many of their factory workers went to fight in the war, so they didn't have the workforce needed to maintain operations. There also was one of the biggest issues of all is that Kormotech's biggest export market was Belarus, which is a well-known ally of Putin.

    Despite these factors working against the company,  Kormotech was able to overcome the odds. Last year, the majority of Ukranie's small family-owned businesses like Kormotech had to shut down permanently due to the war. One of the biggest factors that aided them was that after the pandemic and the issues that arose in having to leave their factories and having no inventory as a backup so this time they were prepared. They had two months of inventory and they were able to sell this to countries such as the U.S. This gave them time to reorganize and prepare another facility to be used for production. They found a company that had never made pet products before and taught them what to do. Over time, they were able to get back to full capacity and were able to give over a thousand jobs to Ukrainian civilians who could not fight in the war as well as provide income and taxes when Ukraine needed them most.

    Throughout all of these hardships, Kormotech persevered and despite all of the hardship that Ukraine is experiencing right now, it felt good to find an article that showed how people were able to make it out of the dark that is the war and flourish in the harshest of conditions.

https://www.nytimes.com/2023/02/23/business/economy/ukraine-company-kormotech.html

The US economy may be inching closer to the cliff edge given these 4 troubling signs, Larry Summers says

    In this article, Larry Summers believes that the U.S. economy is close to entering a massive recession. He believes that the positive economic news that we have been receiving is misleading Americans into being too optimistic about the economic outlook for 2023. 

    He claims that our economy is way too tough to read and that there may be good news regarding a growth in stock prices or high consumption rate over the last month. He also mentions that inflation is a huge contributor to future issues and that the negatives outweigh the positives. 

    He notes that inventories relative to sales has increased and he also thinks companies are overstaffed while consumers seem to continue spending regardless of the massive price increases we have seen. Summers fears our economy can have a Wile E. Coyote moment where the economy is moving along and then all of a sudden, the economy crashes very sharply. 

    More rationale for Summers' pessimist approach comes from the efforts from central banks as the hike in rates has failed to bring inflation down as prices are continuing to surge at a ridiculously high rate. He thinks that if the U.S. gets aggressive with another hike, then we can see a Wile E. Coyote moment with the markets. He also thinks that if no interest rate hikes are made, then inflation will continue to outrun the speed of the economy. 

    I agree with Summers as I do think that our economy is in a lose-lose situation. The effect of all of the money we printed during covid has been huge as we as a nation are all over leveraged. We have a huge debt crisis and the continued irresponsibility of all actors in the economy has doomed us. The fact that the FED can have an unlimited budget is disturbing and has cost us today. Overall, I think that we will see a continued drop in the markets as inflation will continue to rise while consumers will eventually realize they cannot spend like they have.

LINK: https://markets.businessinsider.com/news/stocks/us-economy-outlook-troubling-signs-larry-summers-recession-2023-2