Month: September 2021

Biden just announced that all Federal employees are required to be vaccinated. What does this mean to the US and especially the private sector? Tony Nash joins the BBC Business Matters for a discussion on this. Also discussed are the BRICS and how they are catching up to the world’s major economies and will the environment be a big priority in the next US election?

 

This podcast was published on September 10, 2021 and the original source can be found at https://www.bbc.co.uk/programmes/w172xvqj8vfxhr5.

 

BBC Business Matters Description:

US President, Joe Biden, has announced that all federal workers have to be vaccinated against Covid-19. He’s also instructing the Department of Labor to draft a rule mandating that all businesses with 100 or more employees require their workers to get vaccinated or face weekly testing. And as the BRICS leaders meet, is the loose alliance of Brazil, Russia, India, China and South Africa working? We hear from Professor Miles Kahler, a Senior Fellow at the Council on Foreign Relations in Washington DC. Facebook has been accused of breaking UK equality law in the way it handles job adverts. The campaign group Global Witness said the social network failed to prevent discriminatory targeting of ads, and its algorithm was biased in choosing who would see them, as Naomi Hirst from the organisation explains. Also in the programme, we find out why the issue of climate change has become such a dominant theme in the upcoming German federal elections. And the American car giant, Ford will stop production in India; we get analysis from Nikhil Chawla, a business journalist and proud Ford owner based in Delhi. We’re joined throughout the programme by Jyoti Malhotra, National & Strategic Affairs Editor at The Print; she’s with us from New Delhi. And Tony Nash, co-founder and Chief Economist at Complete Intelligence, is with us from Houston, Texas. (Photo of President Joe Biden by Kevin Dietsch/Getty Images).

 

Show Notes

 

FW: It’s good to hear you, Tony. Back last summer, when the vaccine was a fantasy, we didn’t know how far they were getting and how fast they were working. I remember an astute commentator on this show saying it answers the question, should the federal government get involved in forcing people to have it, if and when it becomes available said, “no way, no way, because it’ll polarize opinion. Leave it to business.” Is the President going too far with this?

 

TN: I do think he is. I think forcing this through the private sector as an enforcement vehicle is polarizing, will say that much. I think this will drive a political wedge, like very few other things, and I think it’s somewhat intentional. I’ll say I don’t necessarily believe that public health is the guideline. I’m looking right now at COVID figures for Texas, and the fatality rate is something like 40% lower than it was during the cycle we had in Q1 in February.

 

So I think people are looking at the data we’re accustomed to COVID, and we’re accustomed to these data, and I think he sounded quite a lot like he was lecturing and talking down to people. And the folks that have not been vaccinated wouldn’t really appreciate that. So it’s politically polarizing. There will be more States rights issues that come out of this than I think he had intended.

 

FW: Okay, that’s an interesting thing that we’ll be watching. Is it not the case or there are those who may disbelieve the figures, the assertion being that 97% or so of those in hospital with COVID have not been vaccinated, and that would suggest that the president’s got the message exactly right. These 80 million, whatever their reasons, they are the most vulnerable.

 

TN: So, I haven’t seen those data divided at the state level, and those data differ dramatically from what we see out of Israel, which is one of the only governments that’s got very transparent data on who is vaccinated, at what stage they’re vaccinated and so on. So the data from Israel tell us very differently than 97%. So whether I’m vaccinated or not isn’t necessarily a part of this discussion. I think what really matters is we have to look at data, and the American system is one where if you look at American health care, if you look at American public health, for the most part in our history, individuals have been able to decide on the course of their own treatment and what has happened with American government that’s happened under Trump. This is happening under Biden. This has happened at some state levels where governments are telling people how they have to manage health care, and it’s not left up to them. So, again, this is translated by a number of Americans, not as a public health policy. iIt’s translated as an individual and States rights policy. So we’ve already had a number of governors, Oklahoma, Georgia, Missouri, other places, Florida and Texas will come out soon, basically saying this will not be enforced in my state and this is a state rights issue.

 

FW: Very interesting. Let’s go a very quick one if you would have both of you about the corporate side. Seems to me we discussed this a bit on the show, Tony, that in America, a company has immense power to tell its employees and fire them. We talked to one instance about CNN firing three employees who haven’t had the jab. Is that something that the President can count on?

 

TN: Can you count on companies to do that? Yeah. I think you’ll have plenty of companies who will not do it. So it will likely come the Federal through OSHA, which is a health and safety Department in the US government, and they’ll issue mandates. The question is around enforcement mechanisms. I think the main problem with this is the forcing it on smaller companies. The expectation is that it would be on bigger companies, but it’s companies down to 100 staff. And you’ve got a lot of very independent, very willful heads of smaller companies who will outright refuse to do this. I think larger kind of corporate America folks, no problem. They’ll get it done

 

FW.  From a US perspective. Tony, thanks, Joy. From a US perspective, is this a kind disaster for Ford, or is he just a really hard nose business decision that has been made by Jim Farley and 2 billion for Ford? It’s affordable. Yeah.

 

TN: I think it’s just a business decision. I think Americans obviously want to expand overseas, but in markets where the difficult people understand. So I just think it’s seen as a business decision.

 

FW: And that moved to China. That Jose said that is the business decision.

 

TN: It is. Yeah. And for got some catching up to do with General Motors there as well. So I think that’s the bigger priority.

 

FW: Tony, react to that if you would, because there’s a suggestion and I might be taking this too far from what Jody was saying. But when we had the professor talking about these constant ideas of reforming the multilateral system and redefining a multipolar world, it sounds what Jet is suggesting is actually this is all a bit hypocritical because it’s going to be mono, polo or unipolar. It’s just going to be China, that’s all.

 

TN: Well, I think that’s possible. But I also think that if we look at the three most active participants in BRICS, Russia, India, China, they’re strategic competitors. Yes, they’re rising fast, but their strategic competitors and they’re neighbors. So I think BRICS is a really interesting organization, kind of to ensure that they don’t become competitors or aggressive competitors too quickly to be able to cooperate in finance, cooperate and kind of cross border things. Other social programs, investment, that sort of thing. I think I remember when BRICS was announced, and I think it was kind of a neat thing to have, but there wasn’t an understanding of how important these economies would actually be. Now that they’re there, of course, as Jose mentioned, Brazil in South Africa just haven’t kept up in terms of relevance and importance. But the Russia, India, China part of BRICS really has, it really has. And I think it’s necessary to keep the kind of temperature low between those countries. I think there’s a lot of friction between the or potential friction between those countries.

 

FW: So just to pick up on that. From a DC perspective, does the State Department watch a BRIC summit and think the three primarily, China, Russia, India, these are countries need to be following closely in what they do in their internal relationship because we have to watch them all for different reasons.

 

TN: Will the State Department watch the brick summit. I think they would. I am not sure what they would do with it, because I think the US has opportunities to apply diplomatic carrots and sticks in different ways outside of multilateral, because it’s one of the leading economies and one of the leading powers. It has opportunities outside of multilateral environments to do that. So what we have with BRICS is some countries that were, I guess, economically considered kind of small countries 15 years ago when it was formed. Now they’re actually big countries, and so they needed the multilateral environment in those days to get things done.

 

Now, they don’t necessarily need the multilateral environment as much. They can do more on their own. I would argue that any one of those top three BRICS countries potentially has more diplomatic ability than many countries in Europe. Whereas 1520 years ago, you couldn’t say that. So it’s really the countries themselves are a lot more powerful than they were. So I think it could potentially be an important organization to keep them somewhat aligned.

 

FW: Equipped Tony to you. Cop 26, just coming up in November. I guess that’s a full year ahead of the next midterms in the US. Would the environment play at all in the campaign?

 

TN: I think it will. I think it will be marginal. I think things like COVID and some social issues and the business cycle, to be honest, will be bigger issues than the environment. But of course, it’ll hit certain cities and certain demographics, but I don’t think it will be a major issue.

 

FW: Well, thank you both. It’s great having you with us. We’re off for now. Bye bye.

US markets continue their bullish trend. BFM 89.9 asks Tony Nash if this is due to better than expected corporate earnings in the coming quarters or the Fed monetary policy. Also discussed are the OPEC+ oil production and how oil will be affected by hurricane Ida, and what’s the status of supply chain specially around semiconductors?

 

This podcast first appeared and originally published at https://www.bfm.my/podcast/morning-run/market-watch/blame-the-hot-money on September 2, 2021.

 

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Show Notes

 

WSN: We speak to Tony Nash, CEO of Complete Intelligence. Now, US markets, I think it’s a bit of a choppy day, but still, nonetheless, the trend is bullish one. And what is that based on, though, is it expectations of stronger corporate earnings this quarter or just driven by ample liquidity flooding financial markets?

 

TN: I think more the latter than the former. We saw really good corporate earnings in the previous quarter, but in the current quarter, we’re hearing more rumblings of trouble with earnings. And that’s part of the base effect in the previous quarters, in 2020, companies had cut a lot of costs late in the year, so they’re reaping the benefits now. We’re starting to see the base effects come in where they had already cut a lot of those expenses in Q3 of 2020. So now we’ll see that going forward, we won’t see as much kind of profitability.

 

So what’s the baked into the market right now? It’s the Fed, it’s stimulus. It’s an expectation of a $3 trillion fiscal stimulus bill. So if we start to hear that this $3 trillion fiscal infrastructure bill won’t happen, we’ll see some disappointment if we see the jobs numbers on Friday come in disappointing, we’ll see some dampened momentum. And if we hear any more talk about tapering, which I don’t think we will for at least six months. But if we do, we’ll see some downward pressure in the market.

 

So all of those things are possible. But in the meantime, the Fed is injecting $120 billion into the market every month to keep everyone happy. And markets seem to be taking it well.

 

WSN: And I want to stay on corporate earnings, because I just wonder whether the recent inflationary pressures on the economy will be reflected in perhaps lower margins for corporate’s incoming quarters.

 

TN: Sure, companies are feeling pressure not just with raw materials and input factors, but also with salaries. Wage inflation in the US is pretty high right now. Companies are feeling it from all sides. So I think those margins are much thinner, both on those base effects I mentioned earlier. Also inflationary effects, both in terms of input goods and wages.

 

PS: And you say you paint a bit more cloudy picture for the US, but if you compare the US economy and financial markets versus Europe and China, they really have outperformed global peer strike. Could you explain it disparities there?

 

TN: When you look at China, I think it really has a lot to do with stimulus. China is really late to the game in terms of providing stimulus. They spent quite a long time in 2020 and 2021 deleveraging their economy. So getting rid of debt. Very procyclical. China was shrinking and they were delivering, which is maybe healthy for the balance sheet, but not necessarily the best thing to do to grow the economy.

 

In Europe, the ECB is really nervous with inflation. And so they may take more aggressive action against inflation instead of continuing to loosen to accelerate the economy. So the US is outperformed because nobody thinks the Fed is going to take aggressive action year, certainly. And probably not at least until Q two of 2022.

 

WSN: And how do you think the US dollar will react against the Euro and the yen in light of all these recent FED announcements on the timing of the tapering and also the rate hikes?

 

TN: We have the dollar continuing to weaken through, say, November. And we’re starting to see some expectations of dollar strength, not a lot of strength, but marginal dollar strength starting in, say, November. And that could be on, say, ECB deciding to continue to loosen. It could be on China. Adding stimulus. Currency is a relative game. As central banks get more active globally relative to the US, it could really help weaken their currencies on a relative basis.

 

PS: And let’s talk about oil because I want to get your views on yesterday’s OPEC+ meeting. They are sticking to next month’s  oil production increases. What impact will that have on prices in view? There also Hurricane Ida has also hit US or production?

 

TN: Yeah. Well, he can. It has fit some under sea production, but it’s really hit more refining capacity than really production. So the bigger issue in the US is around gasoline prices and refining, than it is around kind of supply of oil with OPEC+, it’s kind of a status quo. Let’s move ahead as we had expected, which is a really good sign. Look, oil is trading between what, 67 and $75 generally, and that’s kind of their happy. So as long as it stays in that zone, OPEC will continue to move ahead and stay within the agreement. If it goes higher, then they may accelerate the production. If it goes lower, they may pull back a little bit.

 

WSN: And let’s stay on supply side disruptions. Right. We talked about that just a few minutes ago. But do you think that there are still concerns over this, especially for things like semiconductors and certain commodities?

 

TN: Oh, yeah. Absolutely. So the supply chain issues, we hear a lot about Chinese ports and backups to Chinese ports and these sorts of things. But the Port in Long Beach in the US is backed up, hugely backed up. So the supply chain shocks are not only in China. US ports have their own issues. So when I hear, say, American companies complain about supply chain issues in China, that’s not the only factor. It’s US ports catching up. It’s US ports that are delayed and so on and so forth.

 

So I don’t think we’re done with this. In fact, it may get a little bit worse because the holiday season is coming up in a few months. And if we think supply chains are backed up now, they may get even worse going into, say, October and November, especially to import into the US.

 

PS: I mean, some are even saying that this could even go on to, quarter 1, ’22 or even the likes of semi cons.

 

TN: Oh, absolutely. Semiconductor supply chains are incredibly complex. So for them to get out of these issues, there are multiple layers of issues that have to be reconciled, and it could easily be Q1 ’22 by the time we’re out of this.

 

WSN: All right. Thank you for your time. There was Tony Nash. CEO of Complete Intelligence, giving us his views on where world markets are hitting. And I think the interesting point is that, look, the bullish trend is here to stay as long as the Feds just keep rates where they are. Plus, of course, there are expectations with regards to the US stimulus plan on the infrastructure bill. Right. Which I think is now going through the House. And apparently there’s something like 700 amendments that the Republicans want this document through the Max.

 

PS: I know, but I think they are optimistic. I hope to prove this call in October, but Tony does point relatively bleak picture for the short term. September. October is also seasonally weak in the US and also the stimulus packages or end or swim September. Very interesting. What he’s saying about the Fed is not likely to say much about tapering for the next six months as well.

 

WSN: Yeah.

I mean, if you look at where markets are right. The S&P 500 is up 20%. The Nasdaq are almost close to 19%. The Dow Jones is 16%. If I was a fund manager, I would do nothing. In fact, I might be tempted to lock in my games. Right. Because the year is almost coming to a close. Do I want to take on more risk for the potential return of two? 3%, maybe not. So we might be heading into quieter months for at least one or two, maybe towards year end, and then we might see some book closing.

 

But till now, maybe everyone’s just taking a bit of a breather. Look at markets, at what kind of corporate earnings will be coming out, and let’s see where the politicians are up to.

 

PS: And I wonder whether there’s an opportunity to reallocate to other markets in Europe where you see some value and even Southeast Asia as well in the midterm long term as well, for sure.

 

WSN: I’m sure Financiers already considering the Strategic allocation for 2022 Actually and rotating into markets that perhaps did not do as well this year. Stay tuned. BFM 89.9.