EconVue Spotlight

This holiday weekend I will be brief, in hopes that you will have time to read the outstanding and consequential longer reports below. The BIS Annual Report on the global economy, and BP’s Energy Outlook have just been released. The BP report has a chapter on China's energy consumption, which last year increased only 1.3%. A new study by the Chinese Academy of Social Sciences says that China has almost reached peak demand. For a big picture, iconoclastic view, San Francisco-based RethinkX’s report on the future of transportation and the disruptions it will cause is breathtaking --oil at $10-$20 a barrel? 

On Saturday, India begun an ambitious new tax regime. The new GST eliminates a plethora of local taxes. If Modi is able to accomplish this successfully in tandem with the 2016 demonitization, he will become India’s greatest economic reformer. Geopolitics could intrude. Border "skirmishes" between Pakistan and India, India and China -all three nuclear powers- are becoming more serious every day. 

As President Trump prepares to speak with President Xi on Sunday night, fears are rising that trade issues will be surfacing once again. Just as Trump’s travel ban ignited legal responses, steel tariffs will unleash a similar battle. Great item in Axios about a meeting on trade last week at the White House, also cited below. 

Finally, EconVue expert Michael Lewis has written about the barriers to financial deregulation, and Karen Petrou of Federal Financial Analytics agrees that at least some of Trump’s agenda will be realized. Next week we will have a special report on cryptocurrencies and the technological limits to their scalability. 

STORIES IN OUR SPOTLIGHT

World

BIS 87th Annual Report
Bank for International Settlements 6/25/2017

The BIS cites forthcoming research on the interrelationship of consumption and debt which is important to understanding the resilience of US and Chinese consumers. Specifically, a 1% point increase in the household debt-to-GDP ratio is associated with growth that is 0.1% point lower in the long run...Cash flows from lenders to borrowers reach their maximum before new borrowing peaks. They turn negative before the end of a credit boom, since the positive cash flow from new borrowing is increasingly offset by the negative cash flow from rising debt service. 

BP Energy Outlook
Spencer Dale, BP Chief Economist 2017 

Essential reading, as is its companion publication, The BP Energy Economics Statistical Review.The Energy Outlook sets out a base case which outlines the 'most likely' path for global energy markets until 2035, based on assumptions and judgments about future changes in policy, technology and the economy. The Outlook also develops alternative cases to explore key uncertainties.  

Rethinking Transportation
RethinkX 2017

TheTaaS (Transportation as a Service) disruption will have enormous implications across the transportation and oil industries, decimating entire portions of their value chains, causing oil demand and prices to plummet, and destroying trillions of dollars in investor value — but also creating trillions of dollars in new business opportunities, consumer surplus and GDP growth.

Russia GDP Up 3.1% in May. Strong Result as Recovery Gather Pace
BenAris 6/21/2017 Twitter 

Russian GDP up more than 8% in less than 2 years, in spite of falling/ stagnant oil prices. How was this stunning reversal achieved?

A Quick Guide to Indian GST Rates in 2017
The Economics Times 6/29/2017

Gold taxed at 3%, ketchup at 12%, shampoo at 28%.

Working for Indo-Pak dialogue to resolve Kashmir: UN chief
Press Trust of India 6/22/2017 Kashmir Monitor

An underreported conflict between two nuclear nations is escalating, and China is in the mix.

Work, Wages, and Monetary Policy
Bank for International Settlements 6/20/2017

Bank of England economist Andrew Haldane’s recent speech is pointing the way to a more hawkish monetary policy for the UK, which given the atmosphere of uncertainty there makes one wonder about the possibility of policy error, especially now that the BOE governor Mark Carney seems to be following along. The UK is currently the developed world's worst performing economy. 

U.S.

Two opposing views on markets by two esteemed economists:

In Long Run, There’s No Such Thing As An Einstein Investor
Robert J. Shiller 6/23/2017 NY Times

Robert Schiller says no way to predict a casino.

An Index-Fund Evangelist is Straying From His Gospel
James B. Stewart 6/22/2017 NY Times

Princeton Economist Burton Malkiel would disagree with Schiller

1 Big Thing…Exclusive: Trump Plots Trade War
Mike Allen 6/30/2017 Axios.com

With the political world distracted by President Trump's media wars, one of the most consequential and contentious internal debates of his presidency unfolded during a tense meeting Monday in the Roosevelt Room of the White House.

China

Little Chinese Autoparts Maker is Behind the Huge Takata Takeover
Yu Nakamura 6/29/2017 Nikkei Asian Review

Richard McGregor (via Twitter): amazing and telling - tiny Ningbo company barely a decade old snaps up auto parts giant.

Peak of China's Energy Consumption Has Arrived (Chinese)
Xinhua News Agency 6/27/2017

The Chinese Academy of Social Sciences says that China has reached peak energy consumption. Enormous consequences. Large scale urbanization related housing and infrastructure construction will be completed and demand for steel, non-ferrous metal, construction material and transportation related energy will decrease as well.

China Asks Banks to Assess Credit Risks Linked to Firms Active in Overseas Deals
Wu Hongyuran, Guo Nan and Leng Cheng 6/22/2017 Caixin Global

Be careful what you wish for.

Game Changer: MSCI to Add Chinese A-shares to EM Index
Allen Cheng 6/21/2017 Institutional Investor

Mostly symbolic, $19B annual increase versus China’s total $11T market cap. This equals just one month's forex outflow and should not affect the RMB exchange rate. 

The Power of Ideas: The Rising Influence of Thinkers and Think Tanks in China
Cheng Li 6/5/2017 The Brookings Institute

China invented think tanks, so this is not surprising. 

ECONVUE RESEARCH

New Regulations to Slow Sharply, Some Rollback Likely
Michael Lewis

Unfortunately, economic benefits from these initial actions will be modest. To date, Trump has only cancelled regulations that had not yet gone into effect. While their future costs will not materialize, there will be no cost reductions. In fact, regulated firms had already spent money and/or changed procedures to comply with the new rules. Reversing those steps may add some costs. 

Karen Petrou of Federal Financial Analytics responds to Michael Lewis’s report: I agree with its overall conclusions about the nuanced approach that should be taken to the “Trump bump” for financial regulation…In part, this is because I think Trump appointees will make substantive changes to key structural, capital, liquidity, and resolution rules over time…In general, I think there will be legislative change going beyond community banks once the Senate gets into this quagmire.  Although a final bill will be hard to craft, it’s more than possible absent another big-bank scandal, crisis, or Congressional preoccupation.  

FMI July 2017 Economic & Investment Outlook
Michael Lewis

FMI bottom line: Real GDP picking up: +2.5% trend thru 2018; lulls in inflation & long bonds to be short-lived.

China's "Belt and Road Initiative" and Its Implications for Australia
Saul Eslake

The ‘Belt and Road Initiative’ is of considerable potential interest to Australia, from a number of perspectives, including opportunities for Australian businesses arising from infrastructure and other projects in countries which are formally on the ‘Belt’ or the ‘Road’, and Chinese involvement in infrastructure projects in Australia which may complement various aspects of the ‘Belt and Road’ initiative.

Truth and Payments
Collin Canright

The FinTech revolution is not lost. Its outlines may be obscured by the fog of events, but, as this week's links show, it's still moving forward.