The World Health Organisation says it needs urgent safe passage to send supplies as people are ‘dying unnecessarily from a lack of water and medical care’.
President Biden and other world leaders have called on Egypt to open the border known as the Rafah crossing as tonnes of aid piles up.
Sam Fenwick discusses this and more business news from around the world with Tony Nash, chief economist at Complete Intelligence, in Texas, and Rachel Cartland, author, writer and expert on Hong Kong.
With CI Markets Free, our goal is to democratize financial insights. We believe that everyone should have access to powerful forecasting tools, enabling them to make informed decisions that align with their financial goals.
Transcript
BBC
Ask our guests today who join us from Hong Kong and Houston, Texas. Good evening to Tony Nash, CEO of Complete Intelligence. It’s an AI forecasting firm, so you should be quite well-placed to talk to us about chips and AI.
Tony Nash
Absolutely, yes. Thank you for having me.
BBC
It’s always good to have you on the show, Tony. Thank you for joining us. I want to just come to Tony Nash on this. As we say, Joe Biden arriving in the region on Wednesday had planned meetings with Jordanian which have now been canceled, also had a meeting with President Abbas of the Palestinian Authority and President CC of Egypt, all of which have been postponed according to the White House. What do you think Mr. Biden will want to achieve from this visit now?
Tony Nash
I think the biggest thing that Biden wants to achieve is the release of American hostages. And if that’s all that can be coordinated, then that’s a major win. It looks very good for the domestic population in the US, and it brings American citizens free and clear from this conflict. I really think that that’s the main priority for Biden’s visit at this moment.
BBC
Okay, thank you, Tony Nash. Let’s bring in Tony Nash. He’s the CEO of Complete Intelligence, and it’s an AI forecasting firm. He’s based in Houston in Texas. As we said, this policy has been in place 12 months. Do you think it has done anything more than just annoy chip makers in the United States?
Tony Nash
NVIDIA says that they comply with the laws that are in place, and they’ve already said that any announcement they made today really won’t have a meaningful hit on their business.
BBC
Although their shares nose-dived, and lots of other chip companies did the same.
Tony Nash
Yeah, they did. There was an estimate that it would hit about $100 billion for their business. It’s really unclear, but they’re a regulated company, they have to comply with what are called ITAR regulations, which is International Technology Regulations that the US government puts out. The real issue here is, will NVIDIA chips be used for Chinese military applications? That’s really what the US government is worried about. And so there are a thousand ways to circumvent the regulation, ship into a third country, all these sorts of things. So it’s not as if the chips won’t get into China. There have been ways to circumvent these regulations for hundreds of years. So they’ll find a way to get them. The real question is, will they get them at the scale that they want them?
BBC
We talked about this time, 12 months ago, we were having the conversations about why this policy had been brought in. And it seemed to be, prior to this, it had been about keeping China and the technology 20 years behind the advancements of the US. And now the policy had changed and they wanted to stop all advancements completely, just cut them off. It doesn’t sound like it’s working from what you’ve said.
Tony Nash
I don’t think anybody expects China’s advancements to stop completely, but I think having the state-of-the-art technology shipped into China to be placed in Chinese military equipment when China has been threatening Taiwan, they’ve been making other threats, the US has been threatening China, these sorts of things, of course, you want to hamper your adversary as much as you can. I think this is just normal technology regulation, export controls. Whoever has the leading edge technology wants to control the leading edge technology. Will China continue to develop its chips? Yeah, absolutely. Are they behind what NVIDIA is producing? Yes, they are. Will it take them a few years to catch up? Yeah, it’ll take them 5-10 years to catch up. But I think over time, China will definitely catch up with where the US is. It’s just going to take some time.
BBC
Now, apparently, NVIDIA was selling an A-800 and an H-800 type of chip, and they were able to do that because it went around the original ban, and then now those have been banned. Will it be that these chip companies will just make a chip that isn’t covered by the ban, and then the government will change the goalpost again?
Tony Nash
Well, that’s the way it works, right? That’s how regulatory arbitrage works. So NVIDIA will look to the letter of the law and conform a chip to match the letter of the law. And then if the trade regulators in the US want them to change, they’ll change. These types of regulations change pretty regularly, and technology companies have to adjust their output according to what the regulators say. This sounds extreme. It’s actually not extreme because there are ITAR regulations, technology export control regulations in most countries. It’s just because it applies to AI-specific chips that it’s really getting this level of attention.
BBC
Let’s talk to Tony Nash first. What do you make of this plan? Do you think it could rival the Panama Canal?
Tony Nash
Yeah, absolutely. I think it’s a great plan. I live in Texas, which is on the US border with Mexico. I think this railway plan is fantastic. There is already a lot of electronics manufacturing moving from Asia to Mexico to service the US. I think three years ago is the first year in 20 years that the US imported more televisions from Mexico than from China. So televisions are pretty straightforward to assemble now. And so more and more sophisticated electronics is moving to Mexico. What your guest said about obviously transiting things across Mexico, but also manufacturing things in Mexico, I think that’s very much on the table, especially as we see more trade regionalization and manufacturing regionalization.
BBC
Is that because of what we’re calling nearshoring, this thing that occurred during the pandemic?
Tony Nash
That’s right. Exactly. Similar. So the risks of having a majority of your manufacturing concentrated, I think Northeast Asia makes 35, 40 % of the world’s manufacturing goods. And so during the pandemic, we saw all the supply chains lengthened because they were bottlenecks. Whereas if we had had those, whether they’re in, say, Eastern Europe or for Europe or Mexico for the US or something like that, I think it reduces a lot of that transit risk for a lot of people. And I think East Asia is probably facing some reinvestment over the next, say, 10 years because that nearshoring or regionalization is a real… It’s definitely on the horizon.
BBC
What was interesting, Tony, is that Benjamin there was talking about investors from the US being interested in building that original rail line a century ago.
Tony Nash
Yes, and obviously, the US was very instrumental in building the Panama Canal as well. The US is very interested in developing Mexico and developing Central America. It doesn’t surprise me that that was the case 120 years ago. It doesn’t surprise me that that’s the case today.
BBC
Tony, there were concerns or have been concerns about what’s known as debt trap diplomacy, that if you borrow money off China, then they will somehow have you over a barrel. Has that come… That still a worry for the US, do you think?
Tony Nash
For the US? Not necessarily, but certainly for African countries. I remember speaking with African representatives probably six or seven years ago, talking to me about how can they restructure their debt for the Belt and Road. The really strange part about the Belt and Road is it’s fully financed in US dollars. We have a time right now where the US dollar is appreciating. Not only is that debt at a relatively high rate, I wouldn’t say it’s sky high, but a relatively high rate, but you have it in a currency that’s appreciating against most emerging market currencies. It’s very difficult for companies to pay back or countries to pay back. I think one of the things about Belt and Road that really isn’t covered that much is the Belt and Road peaked in 2017 and 2018. The funding that you have going into the Belt and Road today is about a fifth of what you had in 2017 and 2018. Construction projects like the transport construction projects that you highlighted, those things all happened in 2013 through 2018, really. The largest portion of investment coming out of Belt and Road right now today in 2023 is for mining. It’s not construction, it’s investment.
Tony Nash
When you look at what’s tabulated as Belt and Road investment, it’s really Chinese money going into mining worldwide.
BBC
Just gives us time at the end of the show to ask our two guests who’ve joined us today, Rachel Cartland and Tony Nash. What are your side hustles? Rachel, you tell me what you’re earning money from.
Rachel Cartland
What’s your side hustle? I’m retired. My husband is constantly reminding me that I’m busy all the time, but with nothing that brings in a dollar, although I have endless voluntary commitments, which are great things to do. I think it’s what they call a portfolio, isn’t it? -bits and pieces of things –
BBC
Absolutely.
Rachel Cartland
-rather than a side hustle.
BBC
-it sounds very satisfying. Tony Nash, do you have time for a side hustle when you’re doing your AI forecasting?
Tony Nash
I make time, Sam. I have to make time. So I run an AI company during the day. On the weekends, I have my own coffee roastery called Nerve Roaster, and I sell coffee as my side hustle because it’s what I love.
BBC
You love drinking coffee?
Tony Nash
Sorry?
BBC
You love drinking coffee?
Tony Nash
I love roasting coffee, so I sell roasted beans.
BBC
Fantastic. I had no idea, Tony. You are a man of many talents. Thank you very much for joining us on Business Matters. And thank you also to Rachel Cartland, author, writer, and expert on Hong Kong. That was Business Matters. Thank you so much for listening. My name was Sam Fenwick. The producer today was Hannah Malane. I’ll be back the same time tomorrow. Don’t join me if you can.
Biden’s Saudi trip ended up being a disappointment and there really is no immediate spare capacity, which is a surprise to no one.
What does the appreciated USD mean? We’ve already seen a fall in Sri Lanka and other places which we’ve talked about for weeks, but where is that going and when will that end?
We also talked about the FOMC expectations. What will the Fed do, especially given CPI PPI data? We have to also keep in mind that we have an election coming up in November, so it’s really hard for the Fed to keep the heat on.
Key themes:
Biden’s Saudi Arabia trip 🛢️
USD🚀 rocket ship and fallout
FOMC expectations (CPI/PPI)
What’s ahead for next week?
This is the 26th episode of The Week Ahead, where experts talk about the week that just happened and what will most likely happen in the coming week.
0:00 Start 0:49 Key themes for the episode 1:55 Biden’s trip to Saudi Arabia 3:23 PR game and disastrous foreign policies 5:00 The US President looks like he has no power? 6:17 US can be a marginal price setter for oil, but… 7:34 what happens to crude prices? 10:08 Why is USD pushing higher? 11:22 What’s happening in the Euro Dollar and why? 13:51 FOMC 19:00 What happened to the gasoline prices? 20:07 When will Yellen give up on the 2% inflation? 23:45 What’s for the week ahead?
TN: Hi, everybody, and welcome to The Week Ahead. I’m Tony Nash. I want to thank Albert and Sam for joining us to take a look at The Week Ahead. Before we get started, please, please like and subscribe on this channel and please comment, ask us questions, let us know additional information you think we should have. We get back to every single one of those and we want to make sure that you guys are happy with what we’re talking about today.
So today there’s a lot that’s happened over the past week and even over the weekend that we want to get into. We’ve got three topics here, but there’s going to be a lot of overlap in these. So I’m just going to introduce these and then we’re going to have a pretty open discussion.
The first is Biden’s Saudi trip, ended up being kind of a disappointment and there really is no immediate spare capacity, which is kind of a surprise to no one, but it happened and we’ll cover it. Next is the US dollar, and what does the appreciated US dollar mean? We’ve already seen a fall in Sri Lanka and other places which we’ve talked about for weeks, but where is that going and when will that end? Next is FOMC expectations. What will the Fed do? Especially given CPI PPI data? And we have to also keep in mind that we have an election coming up in November, so it’s really hard for the Fed to keep the heat on when we have an election coming in November or that would be a normal election year.
So Albert and Sam, thank you so much for taking your Sunday afternoon to talk through to us. Let’s first get into Biden’s trip. Albert, can you give us a little bit of a kind of geopolitical backdrop for us? Help us understand what were the expectations and what actually happened?
AM: Well, I mean, the expectations were that Biden goes into the Saudi Arabians in the Middle East and cuts a deal for them to increase production and capacity and name your whatever little policy that they’re talking about. The reality was Biden wanted to get away from the PPI number and the CPI. They’re just atrocious. So he decided it’s a normal thing that politicians leave and go overseas so they don’t have to deal with it.
So he went over to Saudi Arabia meets MBS, which was already a problem considering the comments that he had for the election. But his goal for upping production by the Middle East and OPEC, it was a fantasy. It was nothing more than a PR gimmick in my opinion, that the Fed has been playing in futures and crushing the price of oil. So it was one of these, look here, this is what I’m doing on the grand stage and oil prices are falling, but in reality they weren’t really connected.
TN: So were there really expectations in the administration that there would be additional immediate capacity? Do they really think that that would be on the table?
AM: I don’t think so to be honest with you, Tony. Like I said, this is a PR game that they’re playing now specifically because, like you mentioned, elections are coming up and their intent is to save the Democratic majority in the Senate. The House is lost, but the Senate is what they’re eyeing up. So in my opinion, this is all PR games.
TN: Okay. But the PR game that is really hard for me to understand is the President, regardless of who it is, okay. The President going to a place that is an ally. Saudi Arabia is pretty much an ally to the US. And coming away with nothing. One would think that the Secretary of State and the Nat Sec guys, other guys would have gone in first to make sure that we could announce something positive and nothing happened.
So it seems to me that there is foreign policy disaster after foreign policy disaster with this administration. I don’t want to be putting my own view on it, but is it that, too?
AM: Of course, we’ve had just multiple disasters and foreign policy. But even from the Saudi Arabian perspective, who’s their biggest client? At the moment, it’s China. Why do they have to listen to Biden, who’s made the Biden administration has made unbelievable mistakes in foreign policy and actually risk their security more than anything else. He’s taking the foot off of the Iranians. The Saudis have to deal with that. The Russians are in their own little world of adventures, but there’s no real stability in the Middle East, and the United States under Biden doesn’t really show that there is anyone stepping up to the plate.
TN: Right. And that’s kind of a leadership issue. Whether or not the US is their main customer, the US has been their main advocate in the Middle East and around the world. Or one of their main advocates. Right.
AM: Yeah.
TN: So that’s the big loss that I see is you have a president going in, not getting an agreement with a huge entourage for agreements that should have been done before they arrived, and it just makes them look like they have no power. Sam, is that how you read it?
SR: Yeah. There’s two things that I think the US. Generally gave to Saudi Arabia, and that was global clout and weapons, right? Yes. And the second part is probably very important to the Saudis going forward because there’s only so many places that manufacture weapons that are decent, and that’s the US, to a certain degree, Russia, China and basically Turkey. So you can kind of buy weapons from those places. Guess what? That was a tool that really wasn’t flexed at all.
And if you’re going to flex policy power, that probably should have been flexed a little bit. And honestly, it doesn’t appear to have been at all. So I would say to Albert’s point exactly, we’re not the largest customer when it comes to oil by a mile. Right, that’s just true. But we are the largest supplier for their national defense.
TN: Here’s the thing that I don’t understand is, with US production, we can be the marginal price setter for global oil prices, but we pull that card off of the table by disabling our domestic manufacturers. Is that a fair thing to say?
SR: Well, I would say that that’s the muscle that we’re kind of flexing right now, right? To a certain extent
TN: Okay, tell me more about that. How are we flexing that?
SR: Well, we’re flexing it. I’m not saying it’s good flex. Right. We’re flexing it by not doing anything. So we are basically the ones holding up global price of oil. OPEC honestly has pumped exactly what they said they would pump with a little variability, and they don’t have much marginal capacity.
The marginal capacity was passed to fracking a long time ago. This is not a shocking revelation. So when you’re the global incremental supply that can flip on in a relatively fast manner and you say, we are not going to do that, period, and we’re not going to in any way supplement the regulatory overhangs and the capital overhangs, and guess what? You’re going to end up with a global shortage of oil and distillates, etc.
TN: Right. So what happens to crude prices with the Saudis saying, okay, maybe capacity in 2027? What do we see in the short term with crude prices? I mean, with a recession looming, supposedly, whether that’s real or not remains to be seen. Right. And we had a good retail sales figure on Friday, pretty strong.
So what do we see happen with crude prices in the short term? Is there upward pressure on crude prices or are we kind of in this range?
AM: I think we’re in this range of 90 to 115. Just simply because of the reality. I want to differentiate pre election versus post election. Right. Pre election, we’re definitely in a range of 90 to 115. The Feds not going to let the price of oil gets to the point where people are paying six, $7 a gallon to the tank. So that’s first and foremost.
After that, hands up. Who knows what’s going to happen then? Because Europe’s going through an energy crisis with gas. The price of oil is probably going to go up just because the green deals that the Biden administration are intent on passing are going to ramp up right at the election and just afterwards. So after the election, I could see 130, 140.
TN: Okay. Sam, any near term change in crude prices because of this? No?
SR: Well, near term, Albert’s point, $90 a barrel seems to be kind of the low here. I don’t think we’re going to go much lower. And that’s a combination of DXY at 108, which DXY at 108 is atypical to oil remaining elevated.
So if you begin to have a dollar breaking into the back half the year, that’s kind of the post election story. I think Albert would back me up on that part. You begin to see that breaking. Guess what? The scaling, that makes 130, 140 is relatively reasonable. But you call it 90 to 115. Absolutely not a problem here. And you probably creep back towards the upper end of that 150 because you’ve seen two things.
You’ve seen gasoline prices come down, which means demand is going to remain resilient, if not pick up on the margins. And guess what? That flows downhill. So I would say oil prices, gasoline prices, they look good right now. I saw a free handle on gasoline close to my house. That’s not going to last. That’s not going to beat the system.
TN: Right. Okay. So, Sam, you mentioned the dollar at 108. We hit 109 last week. Why is the dollar pushing higher, guys?
AM: I can tell you why. I’ve been adamant about this. Yellen tell the European counterparts that she was going to drive the dollar up to 110 and above. She’s done this in 2013 before. There’s nothing new under the sun. It’s part of her playbook. She knows what she’s doing. She can even go up another 10%. Now, what that does to emerging markets? Oh, God help them at the moment. But still, the dollar is the most effective tool in their eyes for inflation busting, at least short term.
TN: So how far are we going?
AM: I think we go up to 112 to 115.
TN: Okay, over what time horizon? The next month? The next three months?
AM: Yeah, I think it’s in the next month. I think they want to get this over and done with so they can pivot starting September. Stop the rate hikes. And on top of that, this is something for Sam that could talk about the Fed is I think that Powell probably loses the majority of votes in the Fed for Fed members come October.
TN: Okay, hold on, hold on, hold on. I want to talk about that. But let’s finish up with the dollar first. Okay? This is good. Okay, so with the dollar, help me understand what’s happening in the Euro dollar markets right now. Okay. We’ve seen the Euro dollar fall as the dollar rises. What’s actually happening there, and why.
SR: Not me?
AM: Okay.
TN: Yes.
AM: I’ve been adamant about this. Also, as global trade slows down, the need and use of Euro dollars becomes less so. And a lot of people sit there mistake that as the dollar is dying and gold is coming back and whatever name your crypto, that’s supposed to be the next reserve currency. But that’s just the reality of the moment, is they are purposely trying to kill demand. When you kill demand, the Euro dollar starts to fall because there’s less need of it. That’s just the most simple basic explanation that I can give you at the moment.
TN: Okay, so, Sam, that is non US demand in US dollars, right?
SR: Yeah. Dollar denominated non US debt.
TN: Okay. And so the largest portion of the euro dollar market. Is that still in Europe?
SR: No, it still flows through Europe. Right, okay. But it’s a much larger market than simply Europe.
TN: Okay. It tells me outside of the US, there’s a slow down generally. Is that fair to say?
SR: Yeah.
TN: And we’ve talked about this before. Europe has big problems. We saw China’s numbers last week, which are obviously overreported anyway, so Japan is having problems. So all the major markets are having issues. So the Euro dollar is just a proxy for what’s actually happening, those markets through trade and through the demand for actually US dollar currency spent outside of the US.
SR: Correct.
AM: Yes. Very simplistic terms, yes, that’s exactly right.
TN: Good. Anything else for the viewers here? Like, anything else that you guys want to add on Euro dollars just so they can pay attention to things?
AM: Not really. It’s a very good just simplistic, basic understanding of Euro dollars. I mean, we can get into the whole mechanics of your dollars, but it’s so big it’ll take up an entire episode.
TN: Okay, good. Very good.
SR: Very into the weeds very quickly.
TN: Good.
AM: Yeah.
TN: So if anybody’s watching has questions about Euro dollars, let us know. We’ll get Sam and Albert in on this and help them answer the questions. All right?
Okay. Finally, FOMC, okay. We saw CPI hit to the high side. We saw PPI hit to the high side last week. A lot of talk about 100 basis point hike. Sam had a newsletter out that said could be 100, could be 75. And Albert obviously thinks that there’s going to be a pivot in September. So Sam, do you want to kick this one off?
SR: Yeah, sure. I do want to point out that I said there’s a difference between should and will in the newspaper, and the notion was, should the Fed go 100 now? Will they? Probably, unless the University of Michigan survey comes in light. And it came in light. So you’re 75 basis points now. It’s that simple.
TN: Okay.
SR: Very straightforward. The Fed probably wanted to have flexibility for 100, but when they tied themselves to something so stupid as the University of Michigan survey and it falls I mean…
AM: You know what, Sam, the funny thing is that you say that is, that is exactly what they look at, for making their policy decisions. The only thing they look at.
TN: University Of Michigan.
SR: I know they look at it. The problem was they said it out loud. Like, you don’t say that out loud. That’s the mysterious parts of it. It’s a survey of a very small subsection that is basically never been tied to reality at all across any time frame whatsoever. And like yeah..
TN: It’s like making policy based on Atlanta GDP now. Right. It’s like a lot of these things are proxies of small survey sizes of whatever.
SR: Error terms that interact with each other, yes.
TN: Right. I think a lot of people who watch markets see these indexes, like the University of Michigan index come out and they think that it means something, but it kind of does, but it kind of doesn’t. And so I always recommend people, you have to understand these indexes. You have to understand what these releases mean. You have to understand the methodology. If you’re going to make investment decisions based upon these things, you have to understand what they are.
And as you dig down beneath these things like University of Michigan was put out what 30 years ago initially. The methodology hasn’t changed much since then. So if you imagine the technology and the capabilities 30 years ago and they carried that forward, it’s pretty light. It’s pretty light. A lot of these things are pretty light.
AM: Yeah, but they want it like that though Tony. They don’t want to update their stuff because they don’t want transparency. Seriously.
TN: It’s true.
AM: If you want to massage the numbers, you go with what you know, what you know is flawed and that’s what you go with.
TN: Right.
AM: I had a quick question for Sam. Like I said, I think that they’re going to pivot in September after 75 basis point rate hike now and whatever CPI coming in in August. But I don’t think this is the right decision for them to pivot this early because they’re expecting demand to come down and I see no demand coming down anywhere at the moment. So what happens if they sit there and try to pivot for September, October, November, election time and then January, December comes along and demand is sky high again? What does that do to inflation for 2023?
SR: I think it’s complicated, right? Because it’s kind of the goods versus services problem going into the back of the year. Right. We’ll have plenty of goods, print, crap on store shelves and Target for toys and whatnot because that part of the supply chain is solved.
What’s going to be persistent on the CPI price is going to be shelter, which we all know is six months lagged and is going to be a problem for the rest of the year. And there’s nothing they can do about that because their methodology is, again, stupid. So there’s nothing they can do on the prints from here out.
They’re going to have prints that are sitting at 30 basis points plus just because of shelter and it’s weight in core, that’s going to be a big problem for them on the CPI front. So if they pivot, they’re basically going to have to say that, you know, look at headline, it absolutely plummeted. Gasoline.
TN: Will we get a core rating, x Energy, Food and shelter? Will we start quoting that?
SR: Yeah. That’s what I started looking at for the exact reason of trying to find a pivot. Because eventually that will be the metric that they are forced to go to if they want to pivot. It’ll be SuperCore and guess what you call it supercore.
SuperCore doesn’t look that great right now, but it could look pretty interesting if you begin to have gasoline coming down 40% month over month with what the next one is going to say or 25% month over month. So you’re going to continue to have some volatility on the headline CPI front, which is basically what the Fed is going to have to look at in order to pivot.
TN: Okay, so can I ask what happened with gasoline prices? We still have 94% or whatever utilization. Crude prices haven’t come down that much. So why have we seen a 30% fall in gasoline prices over the past three to four weeks?
SR: Recession fears?
AM: Yeah.
TN: That’s it. Okay.
AM: Yeah, pretty much exactly. It’s just the narrative of recessions coming and trying to kill demand based on that. It’s just like I said, PR games, nothing more.
SR: The one thing that I want to point out that I think is really important to kind of consider for Albert’s point of a pivot is equities tend to move in a six month precursor. And what you’ve seen since July 1 is an absolute rip in home builders and a relative squashing of utilities.
And if people were betting on a longer recession in a longer Fed cycle, XLU would be the buy and homebuilders would be the short. And that has simply not been the case so far.
TN: Very interesting, Sam Rines.
AM: When do you think that Yellen this is for both of you, when do you think that Yellen gives up on the 2% inflation number and says 4% is the goldilocks level?
TN: Sam Rines you first. It’s a great question.
SR: I don’t think they go 4%, but I think they say, and they’ve begun to do this, if you go back over the last six months of speeches that 2 to 2.5 is fine.
AM: Still it’s going to be higher.
SR: They’re creeping it up. Right. I don’t think it’ll be 4%. I think between two and 3% is a reasonable target, blah, blah, blah, given and they’ll go into things like because of the way that we measure CPI, 2 to 3%, blah, blah, blah. There’ll be some.
AM: Fun times.
TN: I think if they did that, Albert, I think it would be after the election.
AM: Oh, of course. They’re not doing anything that’s going to trip up Operation Save the Democratic Senate, you know what I mean? They’re just not going to do that. Right?
TN: Yeah. I think people are already really upset about inflation. Companies are starting to report or expected report numbers down, their earnings down, and so it’s hurting everybody.
AM: Yeah, but everything they’re doing is just going to make inflation worse in 2023. But it’s going to come back with a vengeance because unemployment is still unemployment is going to start ticking up, because…
TN: It’s not an election year. Nobody cares because it’s not an election year.
AM: Stimulus checks will flow again. It’ll be fun.
SR: The one thing, again this goes to Albert’s point on, will a potential September pivot be a mistake? Pepsi’s report this week showed a 1% organic volume growth and 12% pricing. They put 12% pricing and consumers and had volumes creep up 1%. Guess what? If companies can get away with that, they are going to all day long, and they will in fact, make a fortune on the back side of this.
AM: Of course.
SR: Paying attention to that demand destruction has not crept through yet. If you can push that kind of price and not have volumes fall, guess what?
TN: Well, the biggest thing, of course, and this is a no brainer, but prices are not going back to where they were. They are not going back to where they were. This is not a temporary inflation thing. And it may have started that way, but the way we responded to it was completely wrong. And it just baked in these supply side things that flowed all the way through to the retail side.
AM: Wage inflation alone. Wage inflation alone.
TN: Yeah. But I think we’re going to see more on the, say, low, medium side of wages. I think in order to keep up with a 12% price hike in Pepsi, you’re going to have to see more action on the wage side.
SR: Granted, that was mostly free online. That was mostly salty snacks. And it might have had something to do honestly, it might have had something to do with more frequent gasoline stops. You buy more chips. But I wouldn’t read too much into that. Right. I do think that their ability to push price is pretty good.
TN: Great.
SR: Yes. To your point, it’s a step function in pricing and therefore it’s a step function in inflation. Great. Okay, guys, 60 seconds. What do you see for the week ahead? Albert, go.
AM: Commodities. Rebounding commodities. I’m long wheat. I think there’s problematic globally for wheat. I want to see wheat prices start to track back up, to be honest with you. Same thing with oil.
TN: So soft and energy.
AM: Yeah.
TN: Okay. Sam?
SR: Yeah. Watching the inflation trade, honestly, and I think it’s very similar to Albert’s point on oil. And wheat, I’ll be watching the relative sector distribution pretty closely here, looking for those like XLU versus the housing guys versus some of the other trades to see what people actually putting money to work are really thinking, not just by them.
TN: Very good, guys, thank you so much. Thank you so much for taking your Monday afternoon. Thanks, everybody, for watching our late week ahead. And guys, thanks. Have a great week ahead.
The full episode was posted at https://www.channelnewsasia.com. It may be removed after a few weeks. This video segment is owned by CNA.
Show Notes
CNA: Welcome back to Asia First. Wall Street took a hit overnight amid concerns that a rise in Omicron cases would stall growth and add to inflationary pressures. Experts say supply chains and corporate profits could be dealt another blow as the possibility of increased restrictions is back on the table.
The Dow and the Nasdaq tumbled 1.2 percent. The S&P 500 closed 1.1 lower, with financials and materials among the biggest decliners. Also weighing on sentiment, Goldman Sachs has lowered its US growth forecast for next year. This after Senator Joe Manchin said over the weekend he would oppose President Biden’s 1.75 trillion dollar spending bill.
Let’s bring in Tony Nash. Now, he’s founder and CEO of Complete Intelligence, joining us from Houston, Texas. Lots to talk about today, Tony. So let’s start with Omicron. How much do you think potential measures are going to dent economic growth given the spread of the highly transmissible variant coinciding with the end of the era of cheap money?
TN: Yeah, it’s a good question. I think it really depends on where in the US you are. I’m in Texas and in in certain parts of the country you could barely tell that there’s a pandemic. There aren’t restrictions at all here, in Florida and other places. And also, we had our surge a couple months ago. So we’re on the downside of that surge now.
In the north, where you have kind of seasonal viruses, they’re on the up upward motion of the surge and so there’s a lot of sensitivity in northern states like New York, Boston, or Massachusetts, Washington DC, Michigan those sorts of places. So I think what you’re seeing is a kind of seasonal sensitivity because of Omicron and people getting nervous and so you know, again it really all depends where you are in the US.
For the upcoming Christmas break, flights are packed. Americans are traveling again. These sorts of things are happening. So, of course, there’s always a risk that people will do a hard lockdown like DC has put in some new measures today. But other places are seeing the virus as endemic and just kind of trying to move on with it. So, I think it could go either way but I don’t necessarily think we’ll have sustained negative impact. We could have short-term negative impact.
CNA: What about the risk from Fed moves and do you think the projected three rate hikes next year are going to be enough to contain inflation given the potential for Omicron to cause these price pressures to spike?
TN: Sure. You know, I do think that the Fed will pursue the tightening, meaning of its balance sheet pretty quickly. I think the rate hikes they’ll probably do one and wait and see and then they’ll proceed with the others later.
I think we can’t forget that 2022 is a midterm election year in the US and the Fed, you know, they they try to stay nonpartisan sometimes. But you know, there’s going to be a lot of pressure for them to make sure that the economy continues growing at an acceptable pace and kind of pushes down against inflation, So they’re in a tricky spot so they can’t just go out of the gate with three rises. They have to take one. See how the market digests it. Continue to build up expectations for the later rate rises then proceed based on how the expectations are set in.
CNA: What would that mean for the flows into markets given how Biden administrations Build Back Better Plan is also facing a setback? We could see a narrower bill than the 1.75 trillion on the social and climate front. What then do you think the market drivers are going to be if both the central bank and the government are curtailing that stimulus?
TN: Right. You know it is possible. Like I said earlier, kind of travel those sorts of things are coming back. I think Americans are just dying to get back to something that’s a little more regular, a little less constricted.
You know we do see things like food, entertainment, travel these sorts of things moving. Temporarily, we do see things like technology dialing back. But you know as we get into Q1 or Q2, we think that stuff will come back and be interesting again. So. But not necessarily as much of the work from home activities. People here are gradually getting back into the office.
So you know what we will see say for US equity markets is because tapering and interest rates we will likely see a stronger Dollar and that stronger Dollar will attract more money from the rest of the world as well. So both domestic growth, although it’ll be a bit tepid in ’22 will help to continue to push markets marginally.
We’re not going to see massive growth like we saw in ’21. But the the strengthening US dollar will draw up liquidity from other parts of the world, too.
CNA: Just very quickly if you can, Tony. What do you think the outlook for energy demand and oil prices is going to be like given how some countries are already reverting back to containment measures?
TN: Yeah. Oil is tricky. In the near term, I think oil is a little bit tricky for the next few months. I think the outlook is better as we get say to the end of Q1 and into Q2. But for now, we’re not expecting a dramatic upturn in crude prices like we’ve seen in gas prices in Europe and other places.
CNA: Okay, we’ll leave it there for today and keep an eye on those commodities. Thanks very much for sharing your insights with us. Tony Nash of Complete Intelligence.
This is the most recent guesting of our CEO and founder Tony Nash in CNA’s Asia First, where he shares his expertise on inflation and the US economy. Will consumers continue to spend to help the economy? What’s his view on Biden’s call to boost oil supply to ease prices? Where does he think the US dollar is headed and how will that impact Asian currencies?
The full episode was posted at https://www.channelnewsasia.com. It may be removed after a few weeks. This video segment is owned by CNA.
Show Notes
CNA: What’s still ahead here in Asia First. We’ll check if US companies continue to charm investors with some big earnings in focus. Plus, to give us a stake on markets inflation and the US economy, we’ll be joined by Tony Nash from Complete Intelligence.
US stocks closed in the red overnight as lingering inflation concerns continue to dog investors. The Dow ended lower by six tenths of one percent, dragged down by a four point seven percent. Drop in visa the S&O 500 slipped 0.2 percent. And the NASDAQ fell by 0.3 percent.
Now after the bell, we also had some US tech earnings. NVIDIA shares rose after it beats on the top and bottom lines. The ship maker saw its revenue jump 50 percent on year on strong gaming and data center sales. Cisco shares tumbled and extended trade after missing on revenue expectations before the quarter. The computer networking company also issued a weaker than expected guidance.
For more on the broader markets and economy. We’re joined by Tony Nash is founder and CEO of Complete Intelligence speaking to us from Houston, Texas. So Tony as we heard their inflation fears seem to be back despite better expected earnings but CEO’s are starting to warn of more pain when it comes to supply chains. And that could put a damper on in that could lift inflation. Do you think the US consumers will continue to spend despite all this and will that help the recovery of the US in the next year?
TN: Yeah, I think the real issue here is that inflation is rising faster than wages. And what we’re seeing with oil prices. These oil prices are not terrible given kind of historical prices but it’s oil prices within the context of everything else. Obviously, the supply constraints really are pushing up prices of food and other activities as well as say goods that are imported for say the holiday purchases that Americans will make.
So Americans have absorbed a lot of those price rises to date. They’ll continue to absorb some but I think they’re almost at their limit in terms of what they can tolerate without getting upset.
CNA: Yeah, Do you think there’s a disconnect here when it comes to energy because Biden administration is hoping to boost supply to ease that oil price pressure but OPEC and its allies expect surplus into the next year. So, do you think they’re looking at it differently? And who has it right here and where oil prices headed?
TN: Yeah, I think part of the issue in the US with crude oil is the Biden administration restrictions on pipelines and on the supply side in the US. So, Joe Biden is asking other countries Russia, Saudi Arabia, other OPEC members to supply more oil yet he’s restricting the supply domestic supply in the US. So, I think what’s happening with those other suppliers they have customers who are buying their crude oil. They don’t necessarily want to have to produce more because they want slightly higher prices. They don’t want things too high but they want slightly higher prices and so they’re pushing back on on Joe Biden and saying look you really need to look at your own domestic supply. You really need to look at at those issues yourself before we start to open up our own market.
So you know, the current administration is trying to have it both ways. They’re trying to restrict supply within the US. They’re trying to bring in more supply from overseas. Americans see this and they understand kind of the incongruent nature of that argument from the administration.
CNA: I want to get your thoughts on the US dollar, Tony. Because that hit a 16-month high amid his expectations of more aggressive policy from the Federal Reserve. Where do you think the US dollar is headed and how will that impact us here in Asia, especially Asian currencies?
TN: Sure, it’s a great question. We saw a lot of action with the US dollar yesterday. The dollar index as you said reached highs for in the last say 18 months, two years. And that is on Fed action but one thing to consider is we’re looking at potentially changing the Fed chairman later this year.
So, if the current Fed chairman is exited. There is an expectation of a more dovish Fed chair coming in that’s one possibility. I think people are really trying to… While there is upward pressure on the dollar. People are trying not to get too far too much behind it because there could be a more double dovish Fed chair coming in. So, we think the dollar is overshot just a little bit in the short term.
We don’t expect it to continue rallying at its current pace. We expect say the Euro has fallen quite a bit and depreciated quite a bit in the last say three weeks. It’s going to appreciate just a bit a couple cents over the next month or so. Asian currencies, we think the CNY will stay strong. We think CNY will remain strong through say March, April as they start a devaluation cycle to help exporters. We think the Singapore dollar is going to stay in the same range that it’s in about now. We don’t see much policy change in Singapore and we think with a stable dollar at these levels. We think the same dollar will stay at about the same exchange rate of Scott now.
CNA: All right. We’ll keep our eyes on those currency exchanges and who becomes the next Federal Reserve Chairman. Tony Nash thanks for joining us. Tony Nash there founder and CEO of Complete Intelligence joining us from Houston, Texas.
Geopolitics experts Albert Marko and Nick Glinsman are back on QuickHit for a discussion on the Federal Reserve, the ECB, and central banks. What are they thinking right now?
Albert Marko advises financial firms and some high net worth individuals on how politics works in D.C.. He worked with congressional members and their staff for the past 15 to 20 years. In his words, Albert basically is a tour guide for them to figure out how to invest their money.
Nick Glinsman is the co-founder and CIO of EVO Capital LLC. He does a lot of writing and some portfolio management. He was a macro portfolio manager in one of the big micro funds in London for quite a few years. Prior to that, Nick was with Salomon Brothers. Now, he concentrates on providing key intel, both economics and politics on a global level to finance managers and politicos.
📊 Forward-looking companies become more profitable with Complete Intelligence. The only fully automated and globally integrated AI platform for smarter cost and revenue planning. Book a demo here.
This QuickHit episode was recorded on July 29, 2021.
The views and opinions expressed in this The Fed & ECB Playbooks: What are they thinking right now? (Part 1) QuickHit episode are those of the guest and do not necessarily reflect the official policy or position of Complete Intelligence. Any contents provided by our guest are of their opinion and are not intended to malign any political party, religion, ethnic group, club, organization, company, individual or anyone or anything.
Show Notes
TN: Today we’re talking about central banks and given where we are in “the cycle”, whatever that means at this point, post or late Covid, we’ve had waves of support coming from finance ministries and treasuries and central banks around the world. Central banks seem to be in a very weird position right now. So I’d really love to understand your point of view particularly what the Fed and the ECB thinking about right now and what are some of the biggest dilemmas they have? Nick, if you want to go first and frame that out a little bit and then Albert, will obviously go to you.
NG: Well, given how long I’ve been doing this, I’m more of a traditional, black coated central bank watcher. And I would say a couple of key comments to make right now is I think they’ve lost their independence to a large extent. Harder for the ECB to lose its independence. But with the commission, you have that loss.
I also think that we are, defective monetary financing. And again, I’ll go back to the ECB, who literally for the last month, for everything that was issued in Europe and this reluctance by the Fed to, even they admit talking about talking about tapering, but this reluctance to even consider a pullback on the mortgage-backed securities. The jest, pretty much the same, and it’s very clear with a lot of the actions that I’m in, my interpretation is, one, they’re working in cahoots with the political arm.
So treasury in the US, commission in Europe. Bank of England is a slight exception about to happen, but we can cover that later. So that’s clearly going on. And I think now Albert might do a lot of work together and I think this Albert came out with a comment a while back saying Yellen wants six trillion dollars fiscal. And the excuse that was given, aside from the political bias, was the Treasury market needs it.
And interesting enough, we saw the change to the Repos yesterday. This was after criticism by a committee that was published in the F.T. yesterday. And even Bill Dudley’s commented on Today suggesting that a lot more work needs to be done to ensure that the normal functioning of the plumbing behind the form of safe assets.
So it’s clear to me that things are being worked on in a politically coordinated way that impacts monetary policy. Now, I think they’ve got themselves into an economic or policy black hole. I think the mind set, and it’s been like this since probably ’08, which is they’re not prepared to accept the economic cycle anymore.
So back to one of my previous appearances on on your pod, the Fed not doing anything? Yeah, it seems to me that that’s an acceptable process, regardless of inflation is way above their forecast. And forecasting that’s a whole ‘nother bad area for the… Fed’s forecasts are terribly wrong. The ECB’s forecasts have been wrong for, you know, since time immemorial.
The ECB is more dangerous because they have a bias that keeps them on their policy’s wreck.
TN: So first on forecasts, if any central bankers are watching, I can help you with that. Second, when you say they don’t believe in the business cycle anymore, do you mean the central banks or do you mean the political folks?
NG: The central banks and government. I mean, funnily enough, I’m reading a biography on Jim Baker right now. And when you look at Reagan, when he came in and Volcker, economic data was pretty bad back at the beginning of the 80s. That. No way, no politician is prepared to accept that anymore. To be honest, I think the central bankers are prepared to accept that anymore. Any of the people leading the central banks being political appointees, of course.
TN: So this is kind of beyond a Keynesian point of view, because even Keynesians believed in a business cycle, right?
NG: It’s a traditional Keynesian point of view. The modern day, neo Keynesian, yes, you’re right. Way beyond what they’re thinking.
TN: There’s a lot of detail in that, and I think we could spend an hour talking about every third thing you said there. So I really do appreciate that. Albert. Can you tell us both Fed and ECB, what are they thinking about right now? What are the trade offs? What are the fears they have?
AM: We’ll start with the ECB. The ECB is not even a junior player right now in the central bank world. I know people want to look at the EU and say, oh, it’s a massive trading bloc, so and so. But the fact is, that it’s completely insolvent. Besides the Germans and maybe the French in some sectors, there’s nothing else in Europe that’s even worth looking at at the moment.
As for the ECB’s standpoint, you know, they’re still powerless. I mean, the Federal Reserve makes all the policy. They first will talk to the Anglosphere banks that are on the dollar standard basically. I mean, the Pound and the Australian dollar and whatnot. They’re just Euro Dollar tentacles. But, for the ECB, they’re frustrated right now because they see that the Euro keeps going up and their export driving market is just taking a battering at the moment. But they can’t do anything because the Fed goes and buys Euros on the open market to drop the price of the Dollar to promote the equities in the United States. And that’s just happening right now.
When it comes to the Fed, we have to look at what is the Fed, right? Normally what everyone is taught in school is that they are an independent entity that looks over the market and so on and so forth. Right. But these guys are political appointees. These guys have money and donors. They play with both political parties. Right now, the Democrats have complete control of the Federal Reserve. And everyone wants to look at Jerome Powell as the Fed chair, but I’ve said this multiple times on Twitter, the real Fed chair is Larry Fink. He’s got Powell’s portfolio under management of BlackRock. He’s the one making all the moves on the market, with the market makers and coordinating things behind the scenes. He’s the guy to look at, not Jerome Powell.
I mean, have anyone even watched Jerome Powell’s speech yesterday? It was appalling. He was overly dovish. That’s the script that he was written. He’s not the smart guy in this playing field, in this battleground.
TN: He needs a media training, actually. I think.
AM: He’s being set up to be scapegoated for a crash. He’s just no one to show. He’s a Trump appointee. So next time there’s a crash, whether it’s one week from now or one month from now, it’s going to be pointed on him that, you know, he’s the Fed chair. Look at the Fed chair. Don’t look at everything else that the political guys have made and policies in the past four or five years that have absolutely just decimated the real economy.
TN: This time reminds me, and I’m not a huge historian of the Fed, but it really reminds me of the of the Nixon era Fed where Nixon and his Fed chair had differences and they were known, and then the Fed chair ended up capitulating to do whatever Nixon wanted to get back in his good graces. Does that sound about right?
AM: No, that’s a perfect example. I mean, this idea that’s floated around by economists that economics and politics are separate entities is absolute fantasy. And it just it doesn’t exist in the real world.
NG: Just to pop in on this one because actually there is a new book out which I started three days at Camp David. Because it’s coming up to 50 years since that decision of the gold standard. Now, it’s just interesting you brought it up, because if you think of one of the rationales for coming off the gold standard, there’s several, but one that struck me as I was reading actually the review, the back cover show Percy.
This enables the government to stop printing in terms of fiscal, fiscal, fiscal. That’s what it did in effect. First of all, that’s one of the biggest arguments against people who argue for a return to the gold standard because that would decimate things or cryptos being in a limited supply of crypto as the new reserve currency because the gain that would be pulling against the elastic and you wouldn’t get, the economy would just boom. Right.
So that’s where I think it’s just huge, you know. I’ve always said that actually what we have is what we’re going to ultimately see is exactly the same cost that came with Lyndon Johnson paying for the Vietnam War, Covid. And then the Great Society, which is Joe Biden’s what I call social infrastructure and green ghost plan. So. Going back to that, Nixon was paying part of the price for all of that. With Volcke right. So I actually sit there thinking, well. There are similarities right now, and we’re seeing effectively a central bank and the Treasury, wherever you want to look, untethered from what used to be, well before I started in this business, to be part of the discipline. But even when they came off the gold standard, there was discipline. As you referred earlier, to, traditional Keynesians believed in the economic cycle of boom, bust. You know, boom, you tap the brakes a little bit, take the punch all the way. That’s gone.
That is to me what’s gone on recently, I don’t know whether you would say since the 08 or more recently is the equivalent of that ’73 meeting where they came off the gold standard. People just said no more cycles. Tapping the brakes and now the central banks are in a hole and politicized, they’re not independent because there are no.
AM: Yeah, yeah, that that’s real quick, Tony. That’s exactly right. I mean, even like, you know, I was on Twitter saying we’re going to go to 4400. We’re going to go to 4400 and people are like “No way. We’re in a bear market. This thing’s going back down 37, whatever charts and whatever Bollinger bands they want to look at. But the fact is because of the politics has a necessity to pump the market and then crash it to pass more stimulus packages. The only way was to go up to 4400 plus, right.
TN: Right. OK, now, with all of that in mind, Nick, you did a piece recently about the Fed and housing and some of the trade offs that they’re looking out looking at with regard to the housing market. Now, housing is an issue in Australia. It’s an issue in the UK. It’s an issue in the US and other places. Can you walk us through a little bit of your kind of reasoning and what you were thinking about with regard to the Fed and housing?
Tech war in Australia, Trump’s impeachment hearing, companies moving to cheaper areas, volatility in the market, and online dating — these are some of the topics in the recent guesting of Tony Nash at BBC’s Business Matters. From Texas, he joins Rahul Tandon in UK and Michelle Jamrisko in Singapore.
What will happen to Australian businesses if Google left? Will Biden be involved in China deals? How will Trump’s impeachment hearings will bring about? How will this move to rural places evolve overtime, for example Californian companies moving to Texas? How will the stocks market play out with too much volatility with increasing number of retail investors? And will online scrabble be the new way of dating?
The President of Microsoft, Brad Smith, says Australia’s proposals that tech giants pay for news appearing on their services, strengthen democracy by supporting a free press. We hear more from Rebecca Klar, a tech journalist from The Hill. As the second cricket test match in this series between India and England starts this weekend, the BBC’s Rahul Tandon reports that more Indian players are now coming from smaller towns than bigger cities, and how that reflects a broader economic change taking place in the country. It’s an interesting time for dating services with the pandemic throwing the world of romance into disarray; our reporter Deborah Weitzmann has been to meet some people looking for love in the time of Covid. And we’re joined throughout the programme by Michelle Jamrisko, Blomberg’s senior Asia economy reporter who is based in Singapore and economist, Tony Nash from Complete Intelligence; he’s based in Houston.
Show Notes
RT: Will there be some sort of compromise? Because Australia, and many of the businesses in Australia, particularly small and medium sized ones, would struggle if Google suddenly left?
TN: They would. How much of a compromise there would be? I’m not sure, and I think about like GDP in Europe, that wasn’t a real huge compromise. We start to see these nation states starting to act like nation states again. We’ve seen India push back on Twitter over the past. Right? And we’re starting to see countries push back on tech giants because they’re sovereign nations.
RT: What will we see countries getting together in a unified way to push back on the tech giants because there are two very powerful sides there?
TN: I hope they do, because they rule their own countries. And it’s up to a company to learn how to operate within a geography rather than the other way around.
RT: Do you think President Biden will want to get involved in this particular issue?
TN: I don’t think so. It’s interesting when you look at, like China has their way with tech companies all day long. They cultivate their own giants and they do whatever they want with Western companies. I don’t really think Biden will get involved or want to get involved, to be honest. I think it has a lot to do with whoever is closer to the campaign and whoever is closest to the Oval Office. But I think he would want to stay out of it.
RT: Do you think minds will be changed amongst those Republicans, 17 of them are going to have to vote to impeach President Trump? That looks unlikely, doesn’t it?
TN: Well, like Joe Biden, I really don’t know of anybody who’s watched it.
RT: I read something that said this had more viewers than the first impeachment trial. But from what you’re saying, it’s not exactly something that’s bringing in the ratings figures.
TN: I’m a political nerd. I talk to people all the time. I honestly don’t know of anybody who’s watching it. So what you say is possible, but it’s just not what I see. Do I think they change minds? Look, Trump is out of office like somebody pining over like losing a football game or something. This guy is out of office. They need to just let him go. That’s the way most of the people who I speak to feel. Every politician is competitive. Every politician uses rhetoric to win. And what Trump said was no different from what many, many Republicans and Democrats have said over the last four, eight, 12, 16 years. So I think this is just a clown show and it’s not going to result in anything.
RT: Michelle raised an interesting question, that is this about preventing what happened, making sure it doesn’t happen again or is a little bit about this preventing from Donald Trump running again?
TN: It’s more the latter than the former. If we look at the Supreme Court justice discussions over the last two years, especially during the cabinet hearings, there were protests in government buildings in the capital all over the place, people being violent.
RT: But this was different and they’re very different.
TN: But I don’t understand how it was different because though this was different because there was so much ruckus made about it and people wanted to make an issue of it. But if you look at the protests and the violence around the Kavanaugh hearings and you set them side by side with what happened on January 6th, there is very, very little difference aside from the Capitol Police letting people into the Capitol building, which they did.
And it’s on footage. People also let protesters into various government buildings during the Capitol hearings. So, again, this is completely about Donald Trump. Democrats are obsessed with Donald Trump and they just need to let it go. The guy’s not even in office anymore, so they just need to let it go.
RT: It’s not going to be let go for a while. And it’s going to be a conversation that we will be continuing here on business matters over the next few days as that impeachment trial continues. And Tony, China says to the U.S. confrontation will be disastrous. President Biden says he will work with China when it benefits the American people and he will have to work with China on some issues when he particularly his ideas on climate change.
TN: We will live in an integrated world. I actually think Xi Jinping would talk a a tougher game on climate change than Biden would. He certainly has at the World Economic Forum for several years. The question is what they actually do about it.
I actually worked for the Chinese government for a couple of years and the Central Economic Planning Agency. So I understand in a very detailed matter how the Chinese government actually works. And this discussion is just preliminary. It doesn’t mean anything. OK, we’ll know in six or nine or 18 months what the real policies are.
My concerns are with, we really have to look at the people on the National Security Council in the US and their relationships with China.How many paid speeches have they had in China that those are the biggest issues that we need to look at with regard to China policy today from the U.S. perspective.
RT: That trend in India where we’re seeing the growth of what’s called Taiwan tier two, often, these much smaller towns. Is that something that you’re seeing in Texas at all or is it still very much focused around Houston, Dallas, Austin, economic growth?
TN: First on India. The tier two and three cities is something I would forecast when I was with The Economist back in those days. We did work on this 10, 15 years ago. And it’s amazing to see it happen. You go outside of cities like Chandigarh and you see what used to be fields. That is all some suburban cities. It’s really incredible to see that is in Texas.
What we’ve seen since COVID is more people are moving to semi-rural areas or buying bigger plots of land further out. And it’s some people from Texas, but it’s a lot of people from outside of Texas. Some of us, including myself, get a little bit defensive about Texas, if you can imagine.
RT: One interesting thing I think that we are seeing as well is maybe COVID will accelerate this. But this was always going to happen, that we will see businesses moving to cheaper areas. We see that in the States, don’t we? With some movement from California towards Texas?
TN: Yes, but you also see this in places like I was hearing about a technology company that in Taiwan, so the companies are based in Taipei, for example, and the workers wanted to move outside of the city since they couldn’t come into town, into the office. So they moved to small towns around Taiwan where their family was. The company actually indexed their pay based upon the cost of living to those country towns. Right. So and I think what you’ll start seeing as you see the diffusion of employment, companies will start looking at their costs and say, “look, these people aren’t paying for an apartment in Manhattan, they’re living in Iowa.” So we need to really understand where people are living. That company in Taiwan was using mobile phone records to understand where those individuals were so they can index their pay. I think you’ll see more and more of that. It’s not that people won’t be able to live. It’s just that they won’t make the salary from Manhattan while living in, say, rural Texas.
RT: I think we’re seeing that in many parts of the world with that sort of story you described. The taking place in and companies looking at and what’s happening with employees if they move to what you could describe as cheaper areas.
We had Carrie Lee here, there being a little bit cautious about what’s happening with many of these companies are going public. There is a lot of cash around from stimulus in the U.S. Interest rates are very low. Do you see this continuing?
TN: We’re very late in the investment cycle and we’ve moved from a company being valued on its earnings or future potential to a speculator’s market. And a lot of what we’re seeing in markets today are stocks that pop for one day by 50 percent and then they lose that 50 percent the next day. We just saw that with a big pot stock, a big marijuana stock over the past 24 hours here in the U.S. And people are trying to to squeeze out as much gain as they can in markets. So this this market is very long in the tooth. I just don’t see this lasting much longer because we are in such a speculative market right now.
RT: Do you not think that when stimulus begins to to slow down in many parts of the world, some of that frothiness in the markets may disappear?
TN: There’s a concept of stock, meaning how much money is in the market. And then there’s a concept of flow, meaning how much money is moving into the market. And because a lot of the investment climate right now is focused on flow. So how much money is coming in stimulus? How much money is coming in support from other mechanisms? Not necessarily a reallocation of the money that’s already in the market.
One of the big triggers potentially could be a possible disappointment with the the package coming out of the U.S. Congress. If it’s not what people have been promised, then there’s a possibility that those marginal investors who’ve been pumping stocks up by 50 percent per day could be squeezed out of the market. And then we see that flow start or grind to a trickle. And then the action really slows down and then we start to see a correction. No one wants to call a top. I don’t necessarily think this is it. I have no idea. But it is that stock and flow discussion that really worries me.
RT: The thought of dating is always absolutely petrified me. I was always happy my mom would have arranged my marriage and to Indian way somehow there were not many takers. Unfortunately, if you had to go back in the dating scene, would playing Scrabble online be your idea of romance?
TN: No. No, not at all, sorry, it just doesn’t cut it.
RT: No?
TN: We would find way. Look, I have two 19 year old kids. They get out, they’ve been social. Their friends are dating. I know it’s impacted some parts of the world in a very difficult way, but it hasn’t necessarily impacted my kids and their friends. I certainly wouldn’t settle for online scrabble. Who is the researcher at the university in London who snuck out for a hookup? I think we would sneak out outside a curfew to get things done if needed.
RT: OK. All right. Thank you, Tony. We’re getting a very different image of you now. Tony, stop sneaking out, please. No breaking curfew for you. That’s it for business matters.
Tony Nash joins Rahul Tandon at the BBC Business Matters podcast and they discussed Joe Biden’s economic plans like the $15 minimum wage and stimulus packages. They also discussed the Covid vaccine supply chain and why some countries are getting them last. Also, what’s the future of Netflix, and lastly, what is Trump’s legacy?
US president-elect Biden sets covid-19 stimulus package as early priority for presidency. As Janet Yellan begins her confirmation hearing as treasury secretary we look ahead at the incoming administration’s economic plans – and we look back at President Donald Trumps four years in office, as he prepares to move out of the White House. Also in the programme amid concerns that people living in poorer countries may have to wait months or years to access a coronavirus vaccine, we find out more from Mesfin Teklu Tessema, head of the health unit at the International Rescue Committee. Plus, Netflix reveal blockbuster results; is it one firm that’s been able to capitalise from the pandemic?
Show Notes
RT: We heard from Joe Biden there before using the word “healing.” Is that going to be what he has to do to heal American society because it’s so divided at the moment?
TN: That’s required. Healing takes place on both sides. A lot of the talk on the Democrat side has been about Republicans retreating rather than Democrats calming down the venom they’ve had toward Trump over the last four years. Healing requires Democrats to dial down their attacks on Republicans as much as Republicans accommodating the new administration. It really is, something that I hope the new administration can tell their own party to to stop the vicious attacks come to you.
RT: Big problems need big solutions. Have you been impressed by what you’ve heard from the Biden administration and Janet Yellen so far?
TN: Really, all I’m hearing is that they’re going to throw money at the problem, which is fine. It’s been months. Americans needed more money from D.C. since July. But I’m not seeing much more sophisticated solution than throwing money at the problem. It’s a start. But I don’t know that we necessarily have a direction.
RT: What sort of what sort of policies would you like to see being put into place by to help?
TN: Policies like this 15 dollar minimum wage, if you’re in New York or San Francisco, great. That’s fantastic. Those are expensive cities. But if you’re in Texas where I live, it doesn’t make sense. It’s great that people get a $15 minimum wage, but we just don’t have the cost of living that New York or San Francisco have. Those types of ideas are fine, but we need more detail around indexing that cost of living or indexing that minimum wage by cost of living.
This is why things like minimum wage has typically been left up to the states. The federal minimum wage is incredibly low because those decisions are usually left out to the states. I feel like we have a lot of promises for more money. And again, that’s great. Americans need that really bad.
I run a small company. The PPP has been long overdue. The House of Representatives held that up for six months. We need it and we’re just finishing our application today. But it’s not enough and it’s not in time.
My biggest worry is corruption. Will that money end up in the hands of people who don’t really need it? Will they end up in the hands of politically well-connected organizations or individuals? We saw that last time around with the PPP.
RT: But there are things that can be put in place to stop that. And there is no doubt that many Americans would need that money. That money needs to be spent on infrastructure.
This is a huge problem, isn’t it? We heard from Fatima in that piece there talking about how a health worker in South Africa may well be inoculated after a healthy person in Germany. That cannot be right. Why have we not been able to put an effective system in place here?
TN: There are two issues here. The first that I find incredibly frustrating is these firms have received huge subsidies to develop these vaccines. They’re effectively already paid for billions of dollars. For these companies getting non-profit prices for this, it’s just unconscionable and it’s just unbelievable.
The other issue, though, is a positive issue. The supply chains are in place and there are abilities for companies to get vaccines, not just to South Africa. Some of the innovations that have happened around vaccine supply chains over the past few years have allowed people to monitor the temperature and the quality of those vaccines through the vaccine supply chain. There’s a company here in my town called Blue Maestro that actually has chipsets that flow with those vaccines themselves so that the people who are getting them don’t have to worry.
RT: Those changes are important, Tony, but still, people would be listening to this and thinking, why will some countries not get it till 2022 or is that just the nature of the world we live in?
TN: I can’t believe it’s the nature of the world we live in. It’s the nature of financing the scale of the build out to the vaccine. But again, these vaccine makers have already received billions of dollars, largely from Western countries, mostly from OECD countries, which is on some level one and the same. But Japan, Singapore, other places have given huge amounts of money. China have given huge amounts of money to vaccine makers. The money is there. The vaccines are paid for. So there should be more allocation to these countries. That’s without a doubt.
RT: Traditional TV for my kids, streaming is actually traditional TV. Do you have Netflix? What are you watching? Are you still watching?
TN: I do. My kids watch it a lot more than I do. What she said about the sports content on Netflix is a real issue for them. Hulu and Amazon have much better offerings there. Netflix is in a weird position where they don’t necessarily have the appeal that a Disney plus has, which has had stellar growth. But they don’t have things like live sports that some of the other guys do.
83% of their subscriber growth came from outside of the U.S. So it tells me that their market in the U.S. only has so much room to grow. There is a global opportunity, and that’s great. But until they can adjust their offerings to include some more compelling content, both for young and for people in their prime who want to watch sports, I think their opportunity is limited in the U.S.
RT: One thing that President Trump said when he was coming into power was he was going to shake up the existing political system. He suddenly done that, hasn’t he?
TN: He has and some of the things that sound obvious, like he’s the first president since the 1970s who has not started a new war, that’s a big deal. It really is a blow to the military industrial complex. And Americans appreciate that. Not starting new wars is a huge benefit for the world, but it’s also a huge benefit for Americans who send their kids overseas to fight these things.
RT: When people like you, economists look back at Donald Trump’s legacy, what’s it going to be in a few years time?
TN: He certainly didn’t fit in in D.C. He was somebody who really fit in more outside of D.C. and that’s what he promised. He brought back more hostages from overseas than any other U.S. president. And so those are the kind of things that really hit the heartland and really hit normal, average American citizens outside of the big major cities of New York and L.A. and D.C. and so on and so forth.
RT: Has he fundamentally changed American society?
TN: What Trump has done is forced people to show their true colors. It’s brought out the worst in people and it’s also brought out the best in people. What’s highlighted in media is often the worst part, but there have been a lot of very positive things that have happened in the U.S. over the last four years.
Breaking from the status quo and the bureaucracy in Washington and in government doesn’t really like that very much. But I think it’s been very positive. There are 74 million people in the U.S., more than half the voting population that actually appreciate Trump. So what the U.S. is fed and what international news media feed people about Trump being an idiot, being a buffoon and all this other stuff, half of the U.S. voting population doesn’t believe that.
Tony Nash joins Rahul Tandon at the BBC for Business Matters podcast where they examine how diversity of Hispanic groups in Florida, voted and how this influenced Trump’s winning of the state in this election.
Democratic challenger Joe Biden says it is clear he is winning enough states to take the US presidency, despite key results still outstanding. We get the latest from the BBC’s Michelle Fleury in Pennsylvania, one of the decisive states still counting votes. We examine how diversity of Hispanic groups in Florida, voted and how this influenced Trump’s winning of the state in this election. Will President Trump soften his stance towards China if he is re-elected? And how might relations with Sino-US relations change with Biden in the White House? We ask Stephen Vaughn, General Counsel for the Office of the United States Trade Representative under Donald Trump until 2019.
All this and more discussed with our guests throughout the show. Nicole Childers, executive producer of Marketplace Morning Report in Los Angles, Tony Nash, founder of Complete Intelligence, in Austin Texas and Samson Ellis, Bloomberg’s Taipei bureau chief.
Show Notes
RT: And you confused, Tony, from above, from the messages coming from from the Trump family, from some within the Republican Party, Mitch McConnell Lasalle’s Mitch McConnell says, look, this is part of American life. You get lawyered up and that’s how it works.
TN: I’m confused about things like your reporter who said that Republicans are claiming they’re irregularities without evidence, but she herself said in her report that they’re showing her photos of irregularities.
RT: So I suppose she wouldn’t be able to check. She wouldn’t be able to check what those photos are. But on the general point here of where we are at the moment, because this seems to be an election that may well be decided not by the public, but by the courts.
TN: Oh, it definitely will be. We’re not even close to finishing this up. This thing won’t be done on Friday. It won’t be done next week. We’ll be in the courts for weeks, if not months, because if you look at things like Wisconsin’s voter turnout, it was 89 percent of the voting population.
Turned out that’s a five and a half standard deviation event, which is like one in 100 million. OK, there is no likelihood that 89 percent of registered voters in Wisconsin turned out because unlike places like Australia, it’s not mandatory to vote in the U.S. And so you normally have 60 to 70 percent of a voter base turnout in a place like Wisconsin with 89 percent of people turned out of five and a half standard deviation event.
It’s just not normal. And so there’s…
RT: But not normal doesn’t mean that it’s not possible, does it, Nicole? Or is Tony right here? We do need to look at some of these figures and understand why there’s a different.
TN: Well, I’m sorry, but it’s statistically impossible for that to happen. A five and a half standard deviation event is statistically impossible to happen on an election day.
RT: Nicole, I really should have concentrated more in school, but on statistics. But here we go.
TN: These are the reasons that they’re looking at legal action and these are the reasons they’re looking at recounts.
RT: If you could come back on this point, because then we’re going to move on to Florida.
TN: We can be sure that Pennsylvania is going to the Supreme Court. There was a court action that went to the Supreme Court before the election, before Amy Meconium was on the Supreme Court. So now there is a clear Republican majority on the Supreme Court. So at the time, the Supreme Court said we’re going to leave this alone until after the election, unless there are grounds for the court to review it. And so this is why there’s plenty of photographic evidence you can look at all over Twitter. You can look all over. I’ve spoken to a number of very senior Republican Party officials today. Pennsylvania is definitely going to the Supreme Court and there may be other states as well. So we’re not even close to deciding this thing. And if these cases are at the Supreme Court, these state level safe harbor laws mean nothing.
RT: Let’s see what happens…
TN: If there are federal violations when these just don’t mean anything.
RT: Let’s see if there’s a long way to go. Clearly, as you both said in this story, we’re going to be continuing to cover it here on the BBC World Service.
An interesting discussion there on the Hispanic vote in Florida, There in Texas, where, of course, there is also a large Hispanic community. But it’s too easy to generalize in this election, isn’t it, because the Hispanic community is so diverse, it’s not one vote at all.
TN: I live in Texas, we have about 40 percent Latino or Hispanic population and about 40 percent Caucasian or white population. So it’s pretty even and the rest of the population is very diverse. So now this is a pretty deep red state.
And there was a huge move about, I think, three or 400 million dollars that came into Texas from Democrats out of state to try to turn Texas blue, which means turn out to be Democrat. And it utterly failed. There was not a single seat that turned to Democrat in the state of Texas that wasn’t already a Democrat.
RT: But that gap of victories is narrowing, isn’t it, in Texas?
TN: I don’t think so. I don’t think that’s happening, I think that’s more wishful thinking than anything. And I think when you see the amount of the Latino population that is voting Republican, it’s growing, actually.
And if you look in Florida, in Miami, you actually see a very large amount disproportionately Hispanic community that actually voted Republican. So the Republican Party is appealing to African-Americans and Latinos and Asians. In a way, if you look at the Indian population, meaning the Indian population in America, they’re generally very heavy supporters of Republicans under Trump, not before.
RT: That’s a global trend. I want to move to Nicole very quickly, but that is a global trend because we see it here in this country as well with a move towards a conservative candidate that’s often to do with economic success. And Tony, I’m sad to see you go, but thank you very much for your contributions. It’s a difficult subject that you’ve managed to make some sense of, I think, for us. So thanks very much for Tony for giving us some of your time on what’s been a very busy day for.
A returning guest joins us for another QuickHit talking about how the current market unknowns are affecting the economy, and what are these “unknowns” anyway? Independent trader Tracy Shuchart discusses with Tony Nash about the “buy-everything” market and why is it happening despite the worries and crashes of economies because of COVID. We’ve also looked at the crude oil market and whether it will recover or not and how? She also shares what she thinks about the regionalization and shifts in supply chain.
This QuickHit episode was recorded on August 14, 2020.
The views and opinions expressed in this QuickHit episode are those of the guests and do not necessarily reflect the official policy or position of Complete Intelligence. Any content provided by our guests are of their opinion and are not intended to malign any political party, religion, ethnic group, club, organization, company, individual or anyone or anything.
Show Notes
TN: It feels like the markets have taken a breather this week. Is that what you’re seeing and also what are we waiting for?
TS: You notice all this entire summer, actually, that it’s been a buy-everything market. Bonds are up, equities are up, gold’s up, crude oil’s up, across the board, everything was up. Commodities, equities, fixed income, and then just starting in August about a week, week and a half ago, we started seeing some of that error let out of those sales.
Equities are still grinding higher but gold futures reached 2,089 dollars, and then came off to 200 dollars really quickly. It has stalled out over the last couple of days.
Crude oil in general, this summer has been stuck in a range. So, I guess you could say OPEC did their job. They wanted to stabilize the oil market. They did that.
Then this week we’ve seen some of the air come out of bonds. So I think, right now, it was kind of buy-everything. We had all this government stimulus, we had central bank stimulus and now we’re at the point where the government stimulus is out. The extra unemployment, PPP loans, there’s no more checks things like that. And then we have the election come up. The markets are waiting to see what’s going to happen.
TN: And RobinHood closed their api. So, we don’t know what the Robinhood traders are doing anymore.
TS: Yeah, so it just seems like there’s a lot of things that are unknown. If you look at the vix curve structure you see the kink in that November area. So, the markets are forward looking at that as an unknown. So, these next couple months might be either going to be flat until we find out or it’s going to get really volatile.
TN: Right, the one that really told me that we are in a pause is when gold turned around. When we started to see gold turning around and we’ve seen it paused where it is now, that’s really what showed me that things have changed or things have at least slowed down. And so, are we waiting for clarity around stimulus? Because I don’t think it’s earnings or anything like that that we’re looking for. It really does, as you said, kind of a stimulus-driven market. Is that really the next thing that we’re looking for?
TS: I think it’s a combination of things. Fed purchases have curtailed a tiny bit. We still have an unknown about what’s going to happen and congress just adjourned for recess without a decision. So, we won’t find out what a decision is really probably until September. That leaves a whole unknown, especially, when you’re talking about that extra unemployment.
The big thing is the election because we don’t know what the market’s going to do. If there’s a Biden win, that will only be a sector rotation in my opinion, because of what their agenda is. Everybody’s just very apprehensive right now. They are pulling back on, their involvement in the market being that there are a lot of big unknown factors out there right now.
TN: It’s really one of the only recessions where incomes have actually grown during the recession, which is weird. We’ve seen retail sales and industrial production in recent months come in and they’re actually okay. It seems like the breaks are put on that with stimulus stopped as well. The question really about being stagnant or rising? Or is there a possibility that we tip over and start to decline if stimulus isn’t forthcoming by the end of August or early September?
TS: That’s a possibility that we see a pullback in the markets absolutely. I don’t think you’re going to see anything, like we saw obviously back in February. But I could definitely see a market pull back just on people’s apprehensions of the unknown.
TN: As you mentioned OPEC and that crude oil has settled and it’s been horizontal for the past couple months. What would move that either way? Do you see airlines coming back online? Do you see major events happening that would really push the oil price up? Or do you think we’re just also in a waiting pattern there?
TS: We’re in a waiting pattern. But from what I’m seeing, the fundamentals are improving. Even though people don’t really want to see that. I look at driving patterns not only in the States but driving patterns in the world. I look at airlines and things of that nature and we are seeing a slight improvement. Everybody’s looking for a big crash in oil prices again but I don’t foresee that at this point. Unless, obviously, something fundamental changes, like the whole world goes on a lockdown again or some unforeseen event happens. But right now, the crude oil market looks pretty strong. We’re still over supply but we’re working off that oversupply. Especially going forward into 2021, when that supply really starts to be worked off, then we have a Capex problem. We’re gonna have a supply problem. I can forsee the oil prices even going higher into next year. But right now, I would say we’re stable to drift higher at to the end of the year. We are hitting that soft season. But again, I don’t see the oil market really pulling back that much at this point.
TN: Is the back-to-school factored into your expectation of rising oil prices or would that accelerate it?
TS: I believe that people will be apprehensive to send their kids on a school bus. So they’ll probably be driving them to school. That’s actually oil demand positive for me.
TN: Our view is to see oil grind higher into the end of the year. As of August 1st, that was our view as well. I’m also curious about your views on the dollar. Do you see any dramatic movements either way in the dollar or are we in the low 90s for the next few months?
TS: The market is so oversold at this point and everyone is so leaning bearish. I wouldn’t be surprised in he next couple of months if prices don’t go lower that people start to unwind those short trades and we could see not a huge spike in the dollar. But just a general unwind of that shortness.
TN: Great, okay, is there anything out there that you’re seeing that’s really interesting that we should know about? It’s late summer. People are tired. They’re not really all into work. Is there anything that you’re looking at that we’re not really paying attention to?
TS: The lumber market. I sent out a few tweets about that. I think that’s definitely something to watch because the housing market is doing better than anticipated. However, we don’t need things like extra ten twenty thousand dollars added on housing costs for new home builds. So, that’ll put a very big strain on the market and on home builders. So that’s definitely something to watch at this point.
TN: I noticed if you go to home depot, the lumber section is empty. That’s not where home builders go, but that’s what I see as a consumer is. It’s just empty. There look to be seriously obviously. There’s demand pulled but there really seems to be some sort of supply issue there as well.
TS: Yeah, there’s a supply issue. A lot of the mills have been closed like they’ve been closing for the last couple of years because the demand hasn’t really been that high, well at least in British Columbia. But with this new surge, I’m hearing that tons of mills are back up and running shifts 24/7 now. Even smaller mills that you used to do little to no business are back up and running. So, I think that looking forward October, November, we should see some more supplies.
TN: What we’ve seen since COVID from toilet paper to meat processing to lumber is real stress put on supply chains. And from your perspective as a portfolio manager and a trader, do times like this make you concerned about the stability of the U.S. economy or do these tests make you feel like the people participating in that economy are making their supply chains more resilient? Do you think people are actually investing to make those things more resilient or do you think they’re just getting through and they’ll forget about it within a few months?
TS: No, we are seeing some improvement on supply chains and moving forward. There are companies that are diversifying out of China. It’s in supply chains closer to the U.S., Mexico, Latin America. This particular incident, this COVID really made people rethink and reassess things and I think we are seeing changes. It’s not easy to move supply chains obviously, right? So, it’s just going to take some time but I definitely see in the markets where companies are changing.
Tony Nash joins the Asia First team again for another look at the US market pullback. What was the reason for that — is it the Biden’s VP candidate, the stimulus, or others? Also discussed were the market sentiments and what Nash thinks is lacking in the US economy right now. He also shared what Americans feel about COVID right now and what it means for businesses. Lastly, they discussed East Asia versus South Asia.
CNA: Tony Nash joins us now. He’s founder and CEO Complete Intelligence. He’s speaking to us from Houston, Texas, USA. Tony, we’re seeing this pullback in the markets overnight. I don’t know if it comes as a surprise to you. Is this the realization that the stimulus package might not be imminent. Is this who Biden has picked for a running mate or are there other factors at play here that have influenced the market?
TN: It’s really more about yields than anything. We’ve seen the impact of yields on precious metals. The impact on silver was most dramatic. But with equities, we saw a little bit of a pullback then. But we don’t necessarily feel like equities are in at a correction point at the moment. It might be some political news on Joe Biden’s VP candidate but I don’t necessarily see that being a disappointment. I don’t think there were huge expectations there.
There isn’t big COVID news in the U.S. There’s not necessarily major China news outside of the Alex Azar’s visit to Taiwan and the Hong Kong stuff, but there isn’t huge market impact on that. So really, it’s about yields and it’s about the expectation of stimulus.
CNA: Right, how much further downside do you see for the markets then?
TN: In the U.S., we think markets are fairly healthy assuming stimulus is coming. Now, U.S. legislators have gone for the rest of the summer. But there’s really nothing keeping Trump from issuing more stimulus like what he did over the weekend. I mean, there are things legally but he’s issued an executive order over the weekend to do that and it was a fair bit of stimulus coming down the pike.
What’s missing is stimulus for small and mid-sized businesses, which we had in May, June, but that really dried up at the end of July. So, we’ve seen almost 200,000 small businesses close in the U.S..
Really the question is, will there be more stimulus there in terms of cash flow to help the demand issues that small and medium-sized businesses are seeing in the U.S.? One of the key things that we’re finding, over the last week we’ve seen a lot of clarity come around whether American kids will go back to school at the end of August or in September. We’re seeing more and more school districts coming online saying yes they want kids back in school. Many of them in person some of them virtually but that helps American workers get back into the office as needed and where needed and gives them focus. So I would expect productivity to improve quite a lot in Q3 as parents and kids are back in school and many of them are back there physically.
CNA: But the case counts in the country. I mean, that certainly is weighing on sentiment is it not? And you know the idea that the country hasn’t quite got a hold on it, there is a possibility that they will have to start, stop the economy and it’s not as straightforward as going ahead with those lockdowns. When you do it a second, third time, that’s just going to have this permanent damage to the U.S. economy?
TN: Sure, that’s right. But I think the focus in the U.S. has really gone away from case counts. People are really looking at mortality. They’re really looking at clusters. They’re really looking at transmissibility. And so, I think in the U.S., the sentiment and the desire to close down. Generally, people are kind of over it. The fear of COVID is not as intense as it was two months ago. People realize that it’s a disease, it’s a virus. It comes and goes. The incidence rate and the death rate is actually fairly low.
The U.S. has done tens of millions of tests and so people are realizing that the high case counts are very related to the tests and this is going out through a lot of different mechanisms at the state level and the national level in the US. It’s not to say it’s gone. It’s not to say that we have zero cases. But a lot of countries in a lot of locations that say they have zero cases. I’m not necessarily sure that the testing is being done as thoroughly as it could be.
CNA: All right we’re also seeing that improvement of economic indicators in the Asian region, industrial output, some export figures look like they are on the uptrend in China for example. How much of this is going to be a divergent play east Asia versus south Asia for example?
TN: We really see east Asia lagging, although the Chinese data like the auto data that came in yesterday it looks okay. On year on year basis it looks pretty good. But I’m not necessarily convinced that that’s sustainable, given the demand issues that we saw in the first half of the year. There are ongoing worries that we’ll see issues in China’s economy and political issues in China with Hong Kong and other places.
We’re expecting east Asian markets to really not do well this month. We’ve expected kind of more than a one percent decline this month in east asian markets generally between say one and three percent based on the market in south Asia because they’re less China connected. We expect them to be flat to slightly down. So, this month generally we’re expecting a slight pullback in Asia but south Asia fares a bit better than east Asia, although it’s not that dramatic.
