Stalled out job growth, warning of slowdown, not recession

In February, the amount of payrolls added to the system was around 20,000, compared to 311,000 jobs in January. This slow job growth month was about 160,000 jobs less than economists forecast. According to many economists this is more the residual of a slow growth month, not a signal of a recession. Two main points were the government shutdown and a teacher strike which pulled some data down with it. After the jobs report, the futures market dipped but they were already lower because of the weak Chinese export data. The ironic part about all this, is the 18.6% growth in housing starts in February which happened to be the fastest pace in 8 months. The article speaks further on how the word recession is the wrong way to look at the first quarter of 2019. Inevitably the first quarter tends to be a bit slower growth than most, so this is not a large alarm.

I thought this article was interesting as it feels that so many people are referring to our economy moving toward a recession, but this article has a different view on it. Good read.


Link to the article:
https://www.cnbc.com/2019/03/08/stalled-job-growth-could-be-warning-of-slowdown-but-no-signal-of-recession.html

Elizabeth Warren pushed to break up big tech companies

In February, Elizabeth Warren, a presidential candidate for the 2020 election, made a public statement that she has a plan to break up some of the largest tech companies. Companies she mentioned were Amazon and Google, although she did not mention Apple, her campaign would still target the company. She states that these companies have too much power and influence over our economy, society, and democracy. She then goes on to mention how they have "used our private information for profit, and tilted the playing field against everyone else".

What are your thoughts? There's a price that consumers pay when they use free services like Facebook, and that's our data. There is a tradeoff for things that are free sometimes. In regards to her proposal on breaking up the tech companies, I believe that this is not necessary. It's one word. Competition. It's social Darwinism. Google was once a startup. Apple was once a startup. Amazon was once a startup. Every company has to start somewhere. We live in a society where consumers have the pleasure to chose what products and services they wish to use, and for a lot of people, they like Amazon and Google. Private companies are allowed to do what they would like, as long as it is within reason and under the law. For politicians to come in and disrupt the market is ignorant, in my opinion, and that is the inner capitalism in me speaking. I'm a big proponent for free markets and laissez-faire. However, what are your thoughts on her statements?



https://www.cnbc.com/2019/03/08/elizabeth-warren-pushes-to-break-up-companies-like-amazon-and-facebook.html

Asia's Travel Boom Is in Trouble as a Pilot Shortage Worsens

An unprecedented travel boom in Asia has spawned new budget carriers and millions of first-time fliers but a shortage of pilots is threatening to choke that demand. Global traffic is set to double in the next two decades with the biggest increase expected in the Asia- Pacific region. Boeing Co. forecasts that the region needs 16,930 new planes and about 261,000 pilots before 20137. This means that the current number of pilots needs to double during that period in order to keep up with demand.

This fits perfectly with what we discussed in class today about the history of Japans economic system. Japan had a massive labor force that was focused on agriculture and was entirely inefficient. Based on the Lewis two sector model there was a huge gap of inefficient workers that were weeded out and needed to find a new place to go. We mentioned in class today that China is going through something very similar. It is becoming harder and harder to attract people inland without increasing wages to be more competitive. China has had the luxury of an incredibly large supply of labor and the labor force is finally realizing they can demand higher wages. This is going to be interesting because wages will go up and China will fire more people in order to maintain efficiency. These workers and future generations should look to becoming proficiently trained in aviation. If there really is a drastic need for more pilots to support demand then it should be easy for workers to focus on more skilled positions like aviation because other easier opportunities wont be as readily available like it was in the past. 

https://www.bloomberg.com/news/articles/2019-02-26/asia-s-travel-boom-in-trouble-as-pilot-shortage-worsens

Trump's Other 'National Emergency': Sanctions That Kill Venezuelans

While people have felt comfortable voicing their complaints with almost every action done by President Trump, critiques of his sanctions against Venezuela have gone practically unnoticed. Just about every executive order he has made in regards to the country cite how it is a "national emergency" and that Venezuela poses an "extraordinary threat" to the United States.

The reason that these actions should receive more coverage in the media is because they are killing people. Venezuela is already in an incredibly vulnerable position and the mountain of economic sanctions keep them from being able to solve or address any of their internal issues, which leads to more problems, which leads to more sanctions, which leads to more of the same. Economic sanctions damage the economy and it's not sending a huge message to Venezuela's political elite -- instead it kills off vulnerable and marginalized populations. Effects include lower employment and income as well as decreased access to necessities. The sanctions also keep the government from being able to restructure Venezuela's debt or take steps to fix the hyperinflation.

It is unlikely Trump is especially concerned with peaceful resolutions in the region, especially after the decision to recognize Juan Guaido over Maduro as president back in January. It will be interesting to see how the issues in Venezuela finally come to a head and how the world will choose to react. It's going to be a very long and difficult path to recovery for the country no matter what, so we can only hope they are shown some compassion.

https://www.thenation.com/article/venezuela-sanctions-emergency/

Fed's Powell says 'no rush' to hike rates in 'solid' but slowing economy

The Federal Reserve is in “no rush to make a judgment” about further changes to interest rates, Fed Chairman Jerome Powell told U.S. lawmakers on Tuesday as he spelled out the central bank’s approach to an economy that is likely slowing.In two hours of testimony to the Senate Banking Committee, Powell elaborated on the “conflicting signals” the Fed has tried to decipher in recent weeks, including disappointing data on retail sales and other aspects of the economy that contrast with steady hiring, wage growth, and ongoing low unemployment.If anything, Powell’s comments solidified a Fed policy shift last month in which it indicated it would pause a three-year cycle of rate hikes, which had been projected to run well into 2020, until the inflation or growth dynamics change.The flow of new workers into the labor force, for example, has surprised the central bank and means “there is more room to grow,” Powell said.

https://www.reuters.com/article/us-usa-fed-powell/feds-powell-says-no-rush-to-hike-rates-in-solid-but-slowing-economy-idUSKCN1QF1UB

Mexican economic plan aims to cut migration to the US

The president of Mexico, Andrés Manuel López Obrador, has introduced a new initiative with the goal of incentivizing Mexican citizens to remain in the country and not feel the need to go to the United States. He calls it the "zona libre" which runs along the entire US-Mexico border with a width of 25 kilometers. The free zones will have their sales tax reduced from 16% to 8%, their income tax cut from 30% to 20%, minimum wage doubled to 176.20 pesos, and fuel prices equivalent to the US. The goal of all these measures is to spur economic growth so that Mexicans as well as other foreign nationals from countries such as  Honduras and Venezuela do not feel as compelled to cross the border. The president also hopes that with this economic boost, US companies may look to Mexican firms as an investment option. Some see this project as a great step to reducing imports and keep talent on the Mexican side of the border. Business owners and policy experts have expressed their concern about businesses being able to sustain such a raise wage hike. Ultimately, this could be seen as a benefit to the US as well since it will reduce migration. I personally think that this has a lot of potential and hope that it brings economic prosperity to regions that have needed it for a long time.

Source:
https://www.bbc.com/news/business-47119459

Wages Fall For The First Time In Three Years

In January 2019, the United States saw a drop in personal income for the first time since November 2015. Following 1 percent of growth in December, consumers have cut back on purchases such as cars and recreational goods. This decline in income and spending further supports some analysts' claims that the economy will continue to slow down in the first quarter of 2019.

Moving forward, I am interested to see what happens with wages for the rest of the year. Even though the decline was less than one percent, when added into the mix with already slow growth and low consumption it looks as if the US economy might finally be slowing down. Also, as the fed looks to slowly continue to raise interest rates, the slow growth or decline in wages could help them as it will further lower consumption.

https://www.cnbc.com/2019/03/01/personal-income-consumer-spending-december-2018.html

Amazon’s Hard Bargain Extends Far Beyond New York

Since 2010 Amazon has leveraged its huge impact on local economies to influence regional politics.  When Texas tried to make Amazon pay $270 million  in back taxes they left the state for 2 years till all the tax charges were waived.  Amazon has used similar tactics in Seattle, South Carolina, and New York to avoid local and state taxation.  Through the sheer size of its financial impact Amazon can leverage its position for greater tax credits and benefits.  When New York tried to work with Amazon to create new jobs and locations in the state the company didn't hire any local employees or lobbyists but instead brought outsiders to create the deal.  So far Amazon has leveraged its position for more than $2.4 billion in taxpayer subsidies.  Amazon employees a huge number of lobbyists to fight against any attempts by localities to impose sales taxes or remove the tax breaks the company receives and has been effective so far in imposing its will on regulators. 


https://www.nytimes.com/2019/03/03/technology/amazon-new-york-politics-jobs.html

Shell May Face Charges in Netherlands Tied to Nigerian Oil Deal

The Dutch Government is preparing to prosecute Royal Dutch Shell over corruption charges. This case comes from a $1.3 billion oil exploration deal off the Nigerian coast in 2011. Shell is already on trial for corruption regarding this deal in Italy, but now the Netherlands are also investigating the company. The Dutch prosecutor's office declared that "we concluded there are prosecutable offenses" but have not made it clear what actions will be taken.

If the Netherlands decides to prosecute Shell its operations in Nigeria will be threatened and under serious scrutiny. The case underway in Milan, Italy is concerning bribery charges Shell paid to the Nigerian government for exploration and drilling rights. The Dutch prosecution team will likely be investigating the same matter.

Shell denies any wrongdoing and claims that all payments were made legally and that the company is not responsible for what the government did with the funds afterward.













https://www.nytimes.com/2019/03/01/business/shell-netherlands-nigeria-charges.html

The 10 Year Anniversary of the Bull Market is Coming

In March of 2009, the US economy was in the midst of the great recession. At this time the government had just reported that over 650,000 jobs were lost in the prior month. The Dow and S&P 500 were also each down more than 50% from their peaks in October 2007.

For the last ten years investors have fared quite well due in part to steady economic growth and a surge in corporate profits. In fact the two previously mentioned indexes are up 300% since March 2009. Now that this bull market is approaching its ten year anniversary some are wondering how much longer the surge could last. According to the article earnings are expected to slow partly due to the fading effect of corporate tax cuts. Cause for concern can also be derived from economic weakness in Italy and Germany, along with the worries that come from Brexit and the slowing growth of China. These factors could certainly harm the earnings of huge multinational corporations.The article also notes that even though the Fed has already signaled it will probably not raise interest rates this year, the US economy may start to slow due to the lag of prior rate hikes. Randy Swan, the CEO of Swan Global Investments believes that the Fed's previous rate hikes may have already been enough to cause a slow in the economy and markets.

It will be interesting to see if these signs are signaling that the economy will slow or even contract in growth soon. Do you think signals the article mentions are indicators of a slowing economy, or are their even other metrics that you prefer to keep an eye on?

Source: https://www.cnn.com/2019/03/03/investing/stocks-week-ahead-bull-market/index.html

70% Stock Market Crash to strike March 1st

Economists and investors are warning about a disastrous stock market crash. David Stockman, former budget director for the Reagan White House, claims that an economic collapse is right around the corner. Scott Minerd, who is the Chairman of Investments and Global Chief Investment Officer of Guggenheim Partners, states and warns individuals that: "The markets are potentially on a collision course for disaster..... once we reach a peak we'll probably see a 40% retracement in equities."

Other Statements were made regarding the stock market. Saying that our economy is the strongest it has been in 40 years and its "unsustainable" and bound to crash, "we can predict a market loss on the order of 60%" (Hussman), and Ted Bauman claiming that a 70% collpase isn't just moving, but it's already here. Bauman has correctly predicted the financial crashes of 1999 and 2007 and he is already preparing for an upcoming financial crash.

What do you think? Is Bauman right? Should we sell tomorrow? What should we do to prepare?

https://banyanhill.com/exclusives/70-stock-market-crash-to-strike-august-1-economist-warns/?z=1000790

Modi's economic repercussions

Narendra Modi, India's new prime minister, has, since coming into office, made some interesting economic decisions. The article below describes them well, but only in its last paragraph does it elucidate the most interesting decision: Modi's intention to "discontinue, revise or delay some official data that does not flatter [the economy]."
It is understood that a full information economy is most helpful for a market's successful operation, and Modi's decision has made it more difficult for people to gather that information. Without said information, it will be difficult in the future for individuals and firms to make educated decisions about how to act.
Additionally, on the world stage, only limited information will be available to other states, leading to a skewed understanding of India's economic situation.
The other interesting part of the article is that despite Modi's promises of radical change, he seems to be following the preceding UPA policies at least for the most part.

Article: https://www.economist.com/finance-and-economics/2019/02/28/narendra-modis-most-distinctive-economic-policies-were-his-worst

Will Meng Wanzhou chief executive of Huawei be extradited to the US?

Huawei is a Chinese multinational company that manufactures telecommunication equipment and consumer electronics. Currently, the US is accusing Huawei of 23 different charges, including sanction-breaking business with Iran and Syria of Huawei's American subsidiaries, stealing technology from T-mobile to test smartphone durability, obstructing justice, and committing wire fraud. In response Meng Wanzhou was arrested in Canada on December 1st 2018 after a US request. And Canada decided on Friday that the extradition case will continue in court, where she will appear on March 6th. Although, no commitment on extradition has been made yet, the whole case is already causing tensions in US-China-Canada relations. After her arrest China responded by detaining two Canadians, and giving a third Canadian the death penalty after overturning his old sentence. China has also been demanding the US to withdraw the arrest warrant and extradition request, and Huawei announced it will no longer be using US components to make its smartphones. Wether Mang Wanzou will actually be extradited to the US on Wednesday is questionable, because even if the judge rules for it, there will be many ways to appeal and extradition cases can drag on for over a decade.

https://www.bbc.com/news/world-us-canada-47423398

Mexico eyes fresh US targets to pressure Trump over steel tariffs

On Friday the Mexican government, in response to the tariffs the Trump administration placed on steel and aluminum, stated that they would place duties on new U.S. products. As one of the United States largest trading partners, Mexico believes the 25% tariff on imported steel and 10% on aluminum is hurting trade relations between the two countries and therefore need to be withdrawn. The Mexican Deputy Economy Minister, Luz Maria de la Mora, believes that the tariffs created $2.7 billion in damage and will thus be attempting to target this value by “bring[ing] in some new ones and tak[ing] some others out” of American goods, if the tariffs are not repealed. The article stated that even if the value of goods stays the same, by bringing in new products, U.S. businesses would be more likely to lobby Washington in opposition to the tariffs. As de la Mora continues to believe that United States needs to see Mexico as a partner and ally, we will have to watch whether they are able to instigate duties and swap out products in an attempt to end the tariffs imposed by the United States.  

https://www.reuters.com/article/us-usa-trade-mexico/mexico-eyes-fresh-us-targets-to-pressure-trump-over-steel-tariffs-idUSKCN1QI5LV

Bad economic news is bad for the stock market again with the Fed already on hold

Now that the Federal Reserve is on hold, this will end up having major effects in the stock market. The Federal Reserve minutes released last Wednesday indicate the Fed will stop increasing interest rates and stop shrinking its balance sheet. The slowdown of business spending, and data shows that manufacturing activities are at their slowest pace in the past 17 months. The bad economic news used to cause speculation that the Federal Reserve would stop raising interest rates, but now that this appears clear bad news is just as bad for the stock market. The data also found a 1.2 percent unexpected drop in consumer spending, which should have been high due to the holiday season. If this negative data continues in the future, there could be increased fears of a recession. The Fed watches how the trade war with China unfolds, which contributes to why they are holding off on the rate hikes. The slowdown in manufacturing and consumer spending  will have a negative effect on GDP and inflation, overall slowing down our economy. The government shut down only made things worse for our economy, by not letting the government sources release economic data on schedule but hopefully scheduled data releases will return to normal after this shutdown is over.

Source: https://www.cnbc.com/2019/02/21/bad-bunch-of-economic-data-is-not-good-news-for-stocks-with-the-fed-already-on-hold.html

Fed's Powell: 'Muted' inflation gives room for wages to rise

Jerome Powell, the current Federal Reserve Chairman, recently commented on the general rise in U.S. productivity/decrease in unemployment in 2018 that resulted in wage growth sans inflation. This relationship lends itself to the Fed’s current course of action in halting interest rate increases for the time being. Based on this information, Vice Chairman Richard Clarida also suggested that any current models in use that predict an inflation height should be discounted, and the Fed should wait until June to make any rate alterations. The article also details the ways in which labor force participation and increased opportunities are key to further improvement.

It’s interesting to hear that inflation remains below its expected level and that investors are predicting that the Fed’s next move will include a reduction in interest rates. The push to fill even more jobs and further increase wages is certainly an encouraging thought during this markedly uncertain time.

https://www.reuters.com/article/us-usa-fed-powell/feds-powell-muted-inflation-gives-room-for-wages-to-rise-idUSKCN1QI39Y

'US Appeals Court Rejects DOJ AT&T - Time Warner Anti Trust Challenge'

"Appeals court unanimously affirms trial judge ruling last year that allowed merger." - In Brent Kendall's article in the WSJ, the AT&T - Time Warner merger is back on track again. The merger is estimated to be around $80MM, and the overturned decision is one of the biggest losses for the DOJ's anti trust division in nearly a "generation." For some brief background, in November 2017, the Department of Justice filed a lawsuit and challenged the case that claimed the "vertical merger" combined two companies that didn't compete "head - to - head." Spectators wonder if this ruling by the appeals court will affect the probability that the government will intervene in the proposed T-Mobile - Sprint horizontal merger that is currently under review.

Relating to class, this is an interesting and relevant example of the role of the government in the market economy. Under the notion of competitive markets, mergers often times lead to higher government scrutiny in order to avoid monopolies and protect the interests of the consumers and prevent price gouging. Interestingly, this merger is supposed to yield significant consumer benefits for a 'prolonged period of time', as stated by AT&T's counsel. Perhaps synergies between the two companies will lower transaction costs and improve efficiency to benefit consumers. Depending on the administration, I am curious to see how this decision by the appeals court implicates further regulation and government intervention in the M&A space in years to come.

Link:https://www.wsj.com/articles/u-s-appeals-court-rejects-justice-department-antitrust-challenge-to-at-t-time-warner-deal-11551194524

US Consumer Cofidence Rebounds in February

After a rally in the stock market and an end to the government shutdown, consumers are starting to feel more confident. According to CNBC, consumer confidence index has risen to 131.4 from 121.7 in January.

There were many worries after the shutdown ended with a lot of volatility in the stock market, which reflected high interest rates. There was also a lot of tension with the issues surrounding trade talks with China. But the stock market has seemed to have rebounded towards the end of February and in turn has increased the overall consumer confidence. This is a very good sign with a lot of tension between the Fed and President Trump starting to arise within the media. It will be interesting to see if the consumer confidence continues to increase or if it will decrease with the pending decisions coming from the Fed.


Source: https://www.cnbc.com/2019/02/26/consumer-sentiment-hits-131point4-in-february-vs-124-expected.html

Jerome Powell Affirms Fed’s Patient Approach to Interest-Rate Changes

This week the Fed chairman, Jerome Powell addressed congress. One topic that was discussed is the Fed's decision to  stop interest rates hikes and wait for more data. Powell stated he believed this is the correct move because of recent slow down in global growth and turbulence in financial markets. Rates are near what the Fed would consider neutral, so he thinks it is smart to wait for more data to confirm the economies strength before raising rates further. The fed will be patient with any policy changes. The overall economy appears to be healthy but it is facing headwinds from abroad, which is why it is important for the fed to be patient.

The Fed also is discussing ending the shrinking of its balance sheet through QT. They have indicated that they are close to being finished. The Feds goal is to only have treasury's left on its balance sheet.

Powell also discusses how unemployment is not as low as the Fed predicted due to higher participation rates. this is an overall good sign and signals the economy has more room to grow. However, this also means that the baby boomers are working later into their lives most likely due to them having not been able to save for retirement.

Powell also touched on the current level of debt for the US government. He believes that the Gov needs to be more fiscally responsible and better manage its debt level. The current path is unsustainable and the government needs to make changes to balance the debt. I agree with Powell here and think the country needs to work to balance the budget. This can be accomplished through raising taxes or cutting spending. I believe some combination of both is the best solution

https://www.wsj.com/articles/jerome-powell-affirms-feds-patient-approach-to-future-interest-rate-changes-11551192300

Fed's Clarida Says U.S. Economy in a Good Place

With full employment, inflation near the 2% goal and no immediate threat of it rising; the Federal Reserve Vice Chair, Richard Clarida, says the US economy is in a good place. However, there are some pending risks on our economy. The economic growth slowdown that is occurring in Asia and Europe could negatively affect our economy and is resulting in a fragile global economy. The Fed is going to continue to be patient while looking at data reports and wants to do whatever it can to support the economy. Clarida also said that he will take signals from the financial markets into consideration when determining monetary policies but he will not be tied to them. Lastly, Clarida brushed off that the US has a flat yield curve saying that there are many factors that are pushing long-run rates down, despite this being a signal for a recession.

I thought that Clarida’s optimism for the US economy was refreshing; however, I am not sure how long the economy will stay in good standings. With Asia and Europe’s economies slowing, it will certainly have a negative effect for the US and I am not sure we are fully prepared for that. It will be interesting to see how this all plays out and when we will finally go into a much overdue recession.

Link: https://www.reuters.com/article/us-usa-fed-clarida/feds-clarida-says-us-economy-in-a-good-place-idUSKCN1QE2PQ

U.S. Is a Rich Country With Symptoms of a Developing Nation

Here is an interesting opinion piece on how the US exhibits traits of a developing economy. The article reports several economic outcomes that we have not specifically addressed in class, but are important nonetheless.

Yellen says Trump has a "lack of economic understanding"

The previous chairwoman of the Federal Reserve Janet Yellen was recently interviewed by the Marketplace and questioned President Trumps basic economic understanding and overall understanding of monetary policy. Trump recently made comments about the Fed having an "exchange rate objective" which, Yellen explains, shows his lack of understanding.

During his 2016 campaign President Trump said that Yellen should be ashamed of her work as the Fed chair, but now he criticizes Jerome Powell for raising interest rates and thinks that is to blame for market slow down at the end of 2018. Janet Yellen is very nervous that President Trump will undermine the importance of the Fed and cause confidence in the Fed to drop drastically which could be very bad.

It is very interesting that President Trump is criticizing the Fed considering he considers economic growth to be one of, if not the most important part of his job. You'd think they would work together to achieve that. I hope I do not see Trump continue to undermine the Fed as they are extremely important to the economy, especially as we approach what people think will be a slow down.


https://www.cnbc.com/2019/02/25/janet-yellen-says-trump-has-a-lack-of-understanding-of-fed-policies-and-the-economy.html

Trump Delays a Tariff Deadline, Citing Progress in China Trade Talks

https://www.nytimes.com/2019/02/24/us/politics/us-china-trade-truce.html

There has not been an official agreement between China and the States as of yet, but Trump is delaying the tariff deadline. The meeting will take place elsewhere in the near future. The impact of the tariff would definitely affect many industries that require materials and manufactured goods, hence this could give some time for firms to be prepared for the price fluctuations.

However most are skeptical of the tariff being cancelled, because the agenda of China and the States are bound to clash. The communist party of China is fortifying their authorities by imposing policies that are very much socialistic. It is not only economic but towards the internet, foreign policies, etc. They have been undercutting the American workers and the restrictions towards foreign firms were strengthened recently. What Trump wants is to catch up to the Chinese economy, by adjusting the currency values. Hopefully the treatment becomes more equal towards foreign companies in China, but if Trump uses tariff as leverage, American imports and its consumers might get hurt. Also his black & white approach towards trade deficit may bring more loss than gains. Tariffs would help to tip the scale towards America, and hopefully the agreement is met with minimum amount of clashing ideas.

Italy Suffers Recession Alone

Article link: https://www.bloomberg.com/news/articles/2019-02-22/italy-suffers-recession-alone-in-economic-political-isolation


In my previous blog, I discussed the narrow miss Germany had with a recession. Italy, on the other hand, was not as lucky. In fact, Italy was the only country in the EU to have two straight quarters of contraction. As the economy of each nation in the EU tend to fluctuate with one another, Italy's lone recession signals a self-inflicted problem.

Economic turmoil isn't the only difficulty Italy is facing. Italy is also facing political challenges as tensions with France have grown and some nations have shown distaste towards their budget. This could cause further economic headwinds for Italy as political actions could be taken.

Although growth in the EU has declined overall, Italy is predicted to remain behind the other 18 nations, growing only 0.2%, This is most likely attributed to Italy's debt, high unemployment, and domestic policies.

No Recession this Year

According to fund manager Janus Henderson the risk for a recession in 2019 is small. However, he believes that global growth will be very low. This slowdown can be seen in some of the global growth numbers that are already coming out.  Europe which has been growing slowly is expected to grow at only 1.3% in 2019, which is a decrease in previous estimates. China's growth also slowed dramatically in the second half of 2018 and there have been no signs of a turnaround.

In the USA the fed had stated that they are holding interest rates steady for the time being. this is a change from their early statements. Indicating that they might be seeing some softness in the economy as well. The fed will release the minutes form their meeting on Wednesday and the markets will be monitoring them closely.

https://www.cnbc.com/2019/02/18/no-recession-but-global-growth-will-slow-down-janus-henderson-says.html

world economy

The long running trade war between usa and china as well as UK leaving Brexit has made consumers and business doubt the future of the economy. These two parts are major reasons why world growth will be very low in this coming year. The macro economic indicators though seem to show a soft landing not a huge recession like some feared at the end of 2018.




https://www.cnbc.com/2019/02/18/no-recession-but-global-growth-will-slow-down-janus-henderson-says.html

Bill Gates in favor of raising the capital gains tax

With budget deficits running high in the US and the national debt reaching a staggering $22 million last week, the outspoken billionaire Bill Gates has recommended looking towards capital gains to get the wealthy to pay higher taxes. Increase of tax burdens on the rich has become a fascinating debate in recent times, with proposals ranging from Congresswoman Alexandria Ocasio-Cortez' (D-NY) call for a top marginal tax rate of 70%, to Senator Elizabeth Warren's (D-MA) 2% wealth tax plan, to Senator Bernie Sanders (I-VT) vocal support of raising the estate tax. Gates' proposal for the capital gains tax hence joins the rest in what will likely be a hot topic in the next election cycle.

Gates argues that if we want to see the top 1 percent paying a larger chunk of the taxes as in a progressive system, the goal should be to raise the capital gains tax which is at 20% right now. By ending the divide between capitals gains income and ordinary income, i.e. that former being taxed at the rate of the latter, the tax system will not just become simpler but also raise greater amounts to help lower the budget deficit. This will happen because as of now, tax liabilities tend to get shifted to the capital gains column by hedge funds. While this is an interesting take on taxing the rich, it can be argued (in an overgeneralized manner) that this will only discourage savings and investments in the US. However, it might just garner support for equalizing the rates of income and capital gains taxes, and not just simplifying the tax system but also getting more taxes from those at the top. In any case, the debate on these various tax proposals in the coming months is certainly something that needs to be followed.

Article link: https://www.bloomberg.com/news/articles/2019-02-17/gates-says-capital-gain-taxes-best-way-to-tap-big-fortunes

Jack Ewing, a writer for the New York Times, describes the impact of the American China trade war on the German economy.  The 4th quarter seems to show the first impacts of  Trumps trade tariffs.  Growing near the slowest rate in the EU only just beating out Italy.  With completely stagnant growth in the 4th quarter Germany the economic data coming out of German steel manufacturing was bad news for all of Europe. As the largest economy in Europe, Germany has historically picked up the slack of the struggling nations in the union, however as they are adversely affected by tariffs placed on Chinese goods. German auto manufacturers saw a noticeable demand drop in the Chinese market.  The numbers for quarter 4 were just barley above the threshold to classify the economy as in recession but the base of the German economy is very sound.  There has been little impact on investing and unemployment rates which remain some of the lowest in the EU. Part of the fear in the German market is the uncertainty in the future effect and actions taken by either side in Trumps trade war with China. 

https://www.nytimes.com/2019/02/14/business/germany-economy.html

Poland Is Europe's Growth Champion. Can This Continue?

An article written by Marcin Piatkowski discuss Poland's economic and social success and how over the past 30 years, they have not been receiving the attention they deserve. The author argues the Polish economy has been key to the European success story. This has not always been the case and in 1989, Poles earned less than citizens in Gabon, Ukraine, and Suriname. But since that year, the country has increased its GDP per capita by almost 150%. Looking at 2018, the average level of income in Poland exceeded two-thirds of those in the Eurozone.

Despite having almost no natural resources, Poland was able to grow and flourish through egalitarian, well-educated and socially mobile population. Poland caught up to the robust democratic West and has transitioned through many different governments since 1990. The country adopted economic policies for building infrastructure, foreign debt restructuring, and an increased focus in education and open privatization process. After abandoning planned economic practices from the end of WWII, high-quality policy makers like finance ministers and central bankers led the economic revival. Poland's investment in infrastructure such as broadband and adoption of the market system has contributed to their success.

Poland might have issues continuing their success given their aging population and low level of innovation. Furthermore, the EU is key to their success and without the union, Poland risks reverting to dark periods of economic history.

https://www.theglobalist.com/poland-economy-gdp-european-union/

China considering measures to adjust lending rates for companies: central bank official

China is considering measures to drive adjustments in financial institutions’ lending rates for companies to improve credit flow into the economy.The head of the People’s Bank of China’s monetary policy department, said that despite rising expectations of a central bank interest rate cut, it is “more urgent” to allow financial markets, rather than the PBOC, to determine lending rates.Chinese authorities have struggled to increase lending to try to boost China’s slowing economy, which has been hit by weak domestic demand and the trade war with the United States. But they have shied away from aggressive easing, including benchmark interest rate cuts, amid concern that doing so could put pressure on China’s yuan.In 2018, China’s economy grew 6.6 percent, its slowest pace in 28 years, weighed down by weak investment and faltering consumer confidence. Growth is expected to slow further to 6.3 percent this year.

https://www.reuters.com/article/us-china-economy-lending/china-considering-measures-to-adjust-lending-rates-for-companies-central-bank-official-idUSKCN1Q305W

Amazon Hasn't Paid Any Federal Income Tax in 2017 or 2018

Amazon hasn't paid any income tax within the last two years, even though they have received federal tax credits in the past two years. Not only is Amazon the third-most valuable company in the world, but they also earned an estimate of $10 Billion dollars last year. Amazon is clearly a successful company and its earnings, despite losing $241 million in 2014, has topped their losses. However, some of Amazon's earnings have come from outside the U.S, where they paid little to no taxes. The U.S. tax code does allow companies that have lost money to reduce future taxable income, but Amazon's most recent financial statement says that they have $1.4 billion left in tax credit to offset any tax bill that they might have in the future. They are planning to add more job opportunities to offset for not paying taxes.

Even though they still have money for tax credits and have not paid income tax in the last two years, they are avoiding paying taxes. Should Amazon be held to the same standard as any other U.S citizen when it comes to paying taxes? Are they subject to tax evasion? Any other U.S citizen would be, why not Amazon?

https://www.cnn.com/2019/02/15/tech/amazon-federal-income-tax/index.html

Fed Gov. Brainard sees 'downside risks' increasing, says balance sheet runoff should end this year

Federal Reserve Governor Leal Brainard said on Thursday that she is growing more concerned about economic growth, particularly the impact that the global slowdown will have on the United States. The same morning, she said she will be watching the developments in the retail industry because the sales came up well short of market expectations. Overall, the downside risks have definitely increased relative to the outlook for continued growth. The Fed said in January that it would be patient in continuing interest rate hikes. Brainard says she is comfortable waiting and learning as more data comes in about the economy. She did indicate that the Fed should be nearing the end of the program to reduce bond holdings on its balance sheet which once stood at 4.5 trillion and is now around 4 trillion. In her own view she believes that the balance sheet normalization process should come to and end later this year.

I have a few questions about the Fed and their intended policies. The Fed pre-great recession had a less than 1 trillion on their balance sheet (Federalreserve.gov). If it has taken 10 years to roll off 500 billion then I hardly expect they can roll off at an increased rate by the end of the year. I may not understand exactly how the roll off works but removing 3 trillion in bad bonds by the end of the year sounds impossible, so it will be interesting to see how the market responds. At the same time, the Fed is being cautious about hiking rates. I believe that accelerated rate hikes and accelerated roll offs would spook investors about how solid our domestic market is but may be necessary to prevent future failures. I don't believe that the Fed can sustain a massive bailout as of right now and if a huge recession all of the sudden came into our lives the Fed wouldn't be able to help really. I doubt there will be a great collapse like in 2008 where we will need this, I just think that a continuous push for economic growth may over extend the Untied States and the Fed wont be there to bail the economy out again. 

https://www.cnbc.com/2019/02/14/fed-gov-brainard-downside-risks-have-definitely-increased-on-the-economy.html

China's Top Problem Isn't The Trade War

China's top long-term economic problem is probably not what you have seen dominate social media recently. It is not the ongoing trade war with the United States. It is the rapid rise of housing prices. Soaring new home prices are lining landlords pockets, while young people's dreams of forming a family are deteriorating. The average price of new homes in China has increased for 44 straight months. These increased prices are making homes just too expensive for the average citizen of China. This in turn hurts the country's long-term growth prospects. In fact it hurts much more than the current trade war. The article states that unlike the trade war, housing affordability constraints could be here to stay. The author notes that the middle-income trap and the Lewis point could be factors impacting this issue. It also is noted that this is a product of deliberate land policies that favor rich landholders over the average citizen. China has done this by creating "ghost cities". These are cities full of vacant buildings and apartments that are too expensive for the average worker. They are merely viable because landlords expect to sell them one day at higher prices. Meanwhile this creates a housing shortage that subsequently pushes prices up in the rest of the housing market. This is bad news for young families looking to start a family. Could this explain the drop of marriage rates by 30% the past five years? Low marriage rates are not good for China's long-term economic growth. This could lead to lower birth rates and a shrinking labor force. Not something China wishes for as it tries to compete with labor-rich countries. Soaring new home prices are a grave concern for China going forward. If they hope to continue to grow economically, it is imperative that they fix this problem.

https://www.forbes.com/sites/panosmourdoukoutas/2019/02/17/chinas-top-problem-isnt-the-trade-war/#6f137479ecfc

China and U.S. to Continue Trade Talks Next Week

The trade war with China continues with both sides trying to reach an agreement before the March 2 deadline. If the deadline is not met Trump has threatened to raise tariffs an additional 15 percent. Though if a deal seems imminent Trump would be willing to extend the deadline. Trump claims that the talks are going well and has emphasized that the deal will cover the "theft" and "unfairness" that is present in China's trade policy. One of the Trump administration's main focuses is restricting the Chinese government from investing large sums of funds into "advanced manufacturing sectors" that rival American companies. This point is important to both China and the U.S. as both see it as a matter of national security. China's involvement with high tech industries seem to remain an issue and will be an enormous barrier moving forward in the trade talks.



Article: China and U.S. to Continue Trade Talks Next Week

A Bold New Plan to Tackle Climate Change

The problem of climate change has long been a tricky issue. Partly because it is an economic issue, security issue, equity issue, and many more, but also because the industries that stand to lose from the rise of more environmentally friendly activities have extremely powerful lobbies.
This article from The Economist details the rise of an equity-based response to climate change. Admittedly, the plan is currently in its early stages and is vague on cost and nature, but the equity approach to climate change seems to have at least some merit. The idea of decreasing economic inequality while at the same time reducing the carbon dependence of the state may sound good to some of the masses that could attain jobs in the growing "green energy" sector, but does that discount the coal workers and the coal lobby? Certainly the wealthy coal industry wouldn't have much of an incentive to cooperate, and this approach of mobilizing a group of people who are more passionate and better funded than those in the carbon energy industry seems far fetched.
Additionally, an appeal to the masses might serve to alienate those who work relatively low-paying jobs for coal or natural gas producers. As well as being incredibly expensive, convincing people to get behind it en masse is a task equally as daunting as creating a functioning piece of legislation.

https://www.economist.com/finance-and-economics/2019/02/07/a-bold-new-plan-to-tackle-climate-change-ignores-economic-orthodoxy

JP Morgan rolls out the First US banked-backed Cryptocurrency

On Thursday, February 14th, JP Morgan Chase announced that they are launching the first US bank-backed cryptocurrency. The product will be known as the "JPM Coin", which is a digital token that will be used to instantly settle transactions between clients and its wholesale payments business. JP Morgan currently moves roughly $6 trillion around the world each day for corporations. In the current financial system, it costs a lot of money and takes a great deal of time to send wires, especially cross-border. Western Union, widely known for its cross-border wire payments, currently charges around 15% of the total transaction in fees and takes several days to receive the payment. This is absurd.

With the creation of the blockchain, the current financial system will have the opportunity to utilize this technology to better their infrastructure. This will allow corporations to send money cross-borders in a real-time settlement, and for a very small fraction of the price as well. Blockchain now puts SWIFT in a sticky situation because countries and institutions have been using SWIFT  to send wires across borders for quite some time now. SWIFT's biggest competitor could soon be digital currencies. It is unclear when the final product will be available, however, JP Morgan is currently running a trial with the JPM Coin.



https://www.cnbc.com/2019/02/13/jp-morgan-is-rolling-out-the-first-us-bank-backed-cryptocurrency-to-transform-payments--.html

IMF warns of global economic "storm" as growth undershoots

The International Monetary Fund (IMF) lowered their global economic growth forecast from 3.7% to 3.5%. Managing Director Christine Lagarde explained that there might be an economic storm coming due to the economy growing slower than they expected. She cited “four clouds”; trade tensions/tariff escalations, Federal Reserve financial tightening, and the uncertainty of the Brexit outcome along with the slowdown already adversely affected the Chinese economy. Due to the tariff war between China and US we are already also seeing an impact on the growth of the global economy. US-China “spat” is not only having an impact on trade but eroding confidence and being reflected in volatility in the markets. Additionally, increasing borrowing costs by governments, firms and households are adding to the concern.

Lagarde summed up, "When there are too many clouds, it takes one lightning (bolt) to start the storm,".

Source: https://economictimes.indiatimes.com/news/international/business/imf-warns-of-global-economic-storm-as-growth-undershoots/articleshow/67931691.cms

Visa, Mastercard mull increasing fees for processing transactions

The two biggest card networks are considering raising certain fees pertaining to transaction processing. One of the fees considering being changed is the interchange fee, the fee charged to merchants when consumers use a card at their business. Visa has said that these fees would only effect merchant banks such as JPMorgan, Bank of America, and Citigroup. The question then is whether or not this cost will be pushed on to the consumer. Logically, when fees are increased, companies then have to charge more for lost revenue. My question is if these fees are pushed on to everyday consumers, will it make people spend less money. The card companies have claimed that businesses that use their services get more business. Their justification for the fee increase is that they have increased their anti-fraud/ security measures significantly.

https://www.reuters.com/article/us-paymentprocessors-fees-idUSKCN1Q41ME

"U.S. Retail Sales Unexpectedly Show Steep Drop In December"

According to the Commerce Department, the newly released late economic data on retail sales in the U.S. showed a significant decrease in December 2018. Instead of increasing by 0.2% as predicted, overall sales unexpectedly declined by 1.2%. Eleven of the thirteen largest retail categories experienced a decline of 3.9%. Amongst various specified samples of industries all showing declines in sales, the auto industry was one of the few that did experience an increase of 1%. Along with these statistics, the Commerce Department also stated that the annual growth rate of retail sales dipped to 2.3% in December, coming down from 4.1% in the month prior. This is most likely due in part to the lengthy government shutdown that began in the latter portion of December. This drop in overall sales could also be an early indicator of the U.S. economy finally slowing down from previous periods’ successes. While this is not a huge cause for concern at the moment given the (hopefully) temporary effects of the shutdown, it’s definitely something to pay attention to in the near future.

   

https://www.rttnews.com/story.aspx?Id=2979275

https://www.latimes.com/business/la-fi-retail-sales-20190214-story.html

Trump Plans National Emergency to Build Border Wall as Senate Passes Spending Bill

This Thursday President Trump was signing a seven-part spending bill that would keep the government open till the end of September, but his mind was on other things. He announced that he would place the country in a state of national emergency in order to “stop the national security and humanitarian crisis at the border.”

The bills’ border security compromise only placed $1.375 billion for 55 miles of steel-post fencing, which is less than the $5.7 billion for 200 miles of steel or concrete that he had previously asked for. By declaring a state of national emergency, Trump’s main objective would be to gain funds that Congress had not granted for building the wall. There was quite a lot of controversy and opposition over this method from both parties, the article calling it “presidential overreach.” Many Democrats have begun to create legislation in the hopes of stopping the President from using money from other sources such as the disaster relief fund. Some also say that although the wall may be the President priority, perhaps declaring it as a national emergency is too much. Supporters say that it will “give him that flexibility that he wants and needs,” and since Mr. Trump could not get what he wanted before the shutdown, then this is just a way to get done what “needs to happen.” It was mentioned as well that this could lead to future presidents taking this approach to other prominent issues.

Mr. Trump sees this as the only way to get the border wall without another shutdown like the last one where 800,000 employees did not have paychecks. The article discussed two laws that would probably have a hand in justifying the President actions. One allows the secretary of the Army to construct developments “that are essential to the national defense,” while the second permits the secretary of defense, in support of the armed forces and in an emergency, to allow military construction projects. It will be an experience to see how Trump justifies using other funds and the aftereffects of his decision to put the country into a state of national emergency.

https://www.nytimes.com/2019/02/14/us/politics/trump-national-emergency-border.html