This Time Might be Different: EconVue Spotlight

posted by Lyric Hughes Hale on August 18, 2018 - 12:00am

Over the years, I have been fortunate to attend many global economic gatherings, from Davos to the G7, APEC to the IMF/World Bank meetings, and Jackson Hole, which takes place this week and will focus on Changing Market Structure & Implications for Monetary Policy . However, the meeting I have probably enjoyed most of all happened in a more rustic setting, in the back beyond of Maine earlier this month. I am speaking of course of Camp Kotok, run for many years by David Kotok, founder of Cumberland Advisors. 

A gathering of sixty or so economists, financial journalists, and asset managers, it is a 4-day fishing trip with benefits . Everyone is asked to contribute a minimum of six bottles of wine-you can do the math.  The setting, and blessed lack of Internet connectivity, allow for a lot of conversation on topics large and small-small being the size of the three fish I caught, which were delicious. The Chatham House Rule applies at Camp Kotok, but what did I learn from my fellow participants? 

Most were optimistic, but worried about the lack of wage growth, student debt, and housing prices in a higher interest rate environment. China is a key concern, and we had a debate about whether a trade deal was in the offing. Not many are into cryptocurrencies, but understand that Fintech is unstoppable.

In terms of shop talk, I got tips for my upcoming podcast series from true professionals. For those of us who sell independent research, recent EU mandated rules have made us rethink our business models. Mfid II was created to protect investors, but could have the perverse effect of giving their advisors less access to contrarian or specialist points of view.

In addition to an interview at Camp Kotok with Dr Judith Monroe of the CDC Foundation, several key articles might merit your attention and are listed below.  The Department of Defense document on China’s military and security challenge, Adam Tooze’s new book and interpretation of the long lasting effects of the Global Financial Crisis, and Adam Segal in Foreign Affairs on the Chinese Web are all must reads.

Our EconVue experts weigh in as well, as many of us are asking if this time is really different. As Christina Romer and George Romer wrote late last year Sometimes Are Different.  The subtext:  How long can these halcyon good times last? We will be looking for signals from Jackson Hole next weekend.  I will be watching for the discussion of  large firms and their influence on pricing power, labor costs and productivity.

Enjoy the rest of the summer!


The Yield Curve: It Really Is Different This Time
Michael Lewis

This time is different. That sentence raises a red flag, justifiably, in almost any context. However, there are some instances when things really are different. FMI believes that is the case now with the narrow-to-inverting yield curve(s). It does not mean what it used to, quite probably.

Will US-China Trade War Reshape Global Value Chains?
Xi Sun 

China says the United States has waged a trade war, while America’s intelligence agency is now terming it as a China-led cold war. Nevertheless, the trade brouhaha continues. Trumponomics ceases to be rhetoric anymore, and Xinomics is candidly reciprocal. In fact, neither country is striving for autarky, nor is the situation as grim as it was in the 1930s. Yet the present scenario is destined to reach alarming proportions, as its spillover effect has begun to deter the global value chains (GVCs) that perennially define the geo-economic architecture of international business today.

Belts & Suspenders: Major Healthcare Transactions Position Companies for Whatever Comes Next
David W. Johnson 

Americans prefer clean revolutions with clear-cut winners and losers. Unfortunately, there’s enormous uncertainty about the pace, scale, and distribution of U.S. healthcare’s revolutionary transformation. In response, established health companies are getting bigger to withstand competitive pressures, gain capabilities and reconfigure business models.

US Smart to Assist Latin America With Democratic Governance
R. Evan Ellis 

Dr. Ellis' latest article on making the case for US policymakers to use "democratic governance" as an orienting strategic concept for engagement with Latin America.



Looking back at the economic crash of 2008    
Fareed Zakaria 8/10/2018 New York Times        

Excellent review of Adam Tooze’s new book Crashed which highlights Europe’s role in the Great Financial Crisis. In 2006, European banks generated a third of America’s riskiest privately issued mortgage-backed securities. By 2007, two-thirds of commercial paper issued was sponsored by a European financial entity. Not enough on significant changes in technology over the past ten years, but great on the interplay between the crisis and ensuing global political changes.

The Financial Crisis cost every American $70,000, Fed study says 
Jeanna Smialek 8/13/2018 Bloomberg     

So if we are having below trend growth over this past decade, why are we worried about overheating? Here is the original San Francisco Fed letter  The Financial Crisis at Ten: Will We Ever Recover?  (Regis Barnichon, Christian Matthes, and Alexander Ziegenbein)

Monetary policy: Some fairly recent should and must reads 
8/17/2018 Bradford DeLong Blog

More than a weekend’s reading...but even a glance at this list and DeLong’s comments will gives one a sense of unease about the high level of disagreement on inputs to Fed policy such as employment, wages, and inflation. 

Independent workers and the modern labor market
Jay Shambaugh, Ryan Nunn, and Lauren Bauer 6/7/2018 Brookings Institute

The technological infrastructure behind the gig economy.

Walmart bounces back with best sales in more than a decade
Matthew Boyle 8/16/2018 Bloomberg

Even in the face of Amazon's dominance in ecommerce, bricks & mortar retail still has a place in our economy. But will this bounce derail in the second half of the year?

The Biggest Risks That Companies Will Face in the Second Half of 2018
Ryan Vlastelica, 8/17/2018 Marketwatch

Logistics costs are already rising, commodities are expected to be more expensive due to tariffs, and everyone is waiting for the other shoe to drop on wages. Can US corporates sustain profitability?


Judith Monroe from CDC Foundation & David Kotok explore Zika & other (video)
Camp Kotok 8/17/2018 Cumberland Advisors

The CDC Foundation is another example of a public-private partnership intended to fill gaps in global public health, especially in times of crisis. I continue to believe that the biggest and most devastating event we are underestimating is a global pandemic.

This chart shows what $63 trillion of world debt looks like
Jeff Desjardins 5/8/2018 World Economic Forum

Sovereign debt is a more manageable problem than private debt. Global government borrowing is less than 1x annual global GDP, which is about $80 trillion. Non-bank foreign corporate dollar-denominated debt is $11.2T according to Valentina Bruno at American University, and could be a more vulnerable point of stress as the dollar strengthens and interest rates rise.

Turkey matters, it doesn't matter (Twitter thread)
Josh Brown, Ritholtz Wealth Management @reformedbroker 8/10/2018

After reading both sides in this thread I think it depends on the reason for the Turkish crisis. Do the same conditions apply to other emerging markets? Does Turkey at 1% of global GDP matter?  Or by tradition will it be immune from default because it hosts a US military base?

Iran sanctions at the halfway point
Andrew Stanley, Sarah Ladislaw & Frank Verrastro 8/8/2018 CSIS

The 180-day wind down period to cut business ties with Iran ends Nov 4th, two days before midterm elections  in the US.

Mind the gap: Differing perspectives of men and women economists may affect policy outcomes
Ann Mari May, David Kucera, and Mary G. McGarvey 6/2018 International Monetary Fund

I'm not sure this isn't due to small sample size.


Military and security developments involving the People's Republic of China 2018
Department of Defense 5/16/2018

The real question in US-China relations is the relative importance of trade to defense. Reading this DOD report on China to Congress, I’d be overweight defense, which means more time to resolution. The US-Japan trade war lasted 10 years—and we were allies.

When China rules the Web
Adam Segal 8/14/2018 Foreign Affairs

Almost 20 years ago, I asked a dinner group at Davos the most surprising thing they could imagine about the future of the Internet. Dell CEO Michael Dell  said it would become predominantly Chinese, and he was right.

Navigating China's savings surplus
Joergen Oerstroem Moeller 8/10/2018 OMIFF

Is China running out of money for foreign expansion?

Should the US and China give up on a deal?
Derek Scissors 8/6/2018

NAFTA seems more likely to happen than a US-China trade deal before the mid-term elections.  The Chinese announced renewed negotiations would begin in late August, but will there be a real deal by the midterms?

Google employees demand more oversight of China search engine plan
Joseph Menn & Paresh Dave 08/16/18 Reuters

Google employees pushing back on the company's venture with the Chinese government to create a censored search engine.  This follows Google's internal backlash not too long ago to the discovery that the company was working with the Pentagon on drone targeting systems.

Why other countries are giving China a licence to print money
Stephen Chen 8/13/2018 South China Morning Post

China now prints money for a host of other countries along the Belt & Road and has "successfully won contracts for currency production projects in a number of countries including Thailand, Bangladesh, Sri Lanka, Malaysia, India, Brazil & Poland”. Yes, rupees are made in China.


Why the ICE/Bakkt news makes some crypto investors nervous 
Caitlin Long 8/10/2018 Laura Shin Podcast

Smart analysis of why the recent entry of Wall Street and the CME  into the crypto space could be depressing prices. Securitization of bitcoin, which can't really be securitized, has long-term market consequences & creates new systemic risks where none previously existed.

Coinbase says it was signing up 50,000 users a day  
Olga Kharif 8/14/2018 Bloomberg Video

By the end of last year, Coinbase, the cryptocurrency exchange, was  signing up 50,000 users a day. Point of comparison: Facebook signs up 500,000 new users each day, worldwide.

Central banks' responses to e-money  (Twitter thread) 
@TuurDemeester  8/10/2018   

Central banks around the world will have varying responses to cryptocurrencies. Policies will not be uniform.


Why Chicago is the best answer to Amazon's talent challenge
John Pletz 8/17/2018 Crain's Chicago Business

Are we just whistling Dixie here?