AYA Analytica financial health memo May 2018
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The modern world's most powerful nations, America and China, stumble into a Thucydides trap.
America and China, the modern world's most powerful nations may stumble into a Thucydides trap that Harvard professor and political scientist Graham Allison suggests in his recent book on Sino-U.S. relations.
Through the lens of an ancient Greek military chief and historian, the Thucydides trap refers to the notion that significant shifts in the relative strength of major powers can be a primary cause of bilateral conflict.
Financial market observers and economic media commentators may characterize superficial frictions and flashpoints as the root cause of both bilateral animosity and hostility.
However, the real cause of bilateral conflict, or an open Sino-American trade war, might reflect the fear and frustration of political leaders Trump and Xi on both sides.
Allison thus emphasizes that if a Sino-U.S. war is not inevitable, an open trade conflict is likely to emerge as a negative disequilibrium outcome in the medium run.
In recent times, the TIME magazine points out the 5 major myths that investors seem to misconstrue as new trends and inflection points in the U.S. stock market.
Investor worries and concerns arise from volatile asset price gyrations, pervasive tech stock slumps, inflationary price pressures, faster Fed interest rate hikes and their overall adverse impact on real GDP economic output and employment, and a pervasive regime switch of investor favor from stocks to bonds and other alternative investment vehicles such as credit default swaps (CDS) and other financial derivatives.
TIME demystifies these common myths and puzzles from a fundamental perspective.
The Federal Reserve accelerates the current interest rate hike at the neutral threshold that helps contain inflation when the U.S. economy operates near full employment.
Fiscal stimulus effectuates in the form of both Trump tax cuts and infrastructure expenditures.
It takes time for these fiscal measures to drive positive progress in real macro covariates such as real GDP economic output, capital investment, employment, and technological innovation.
These economic insights shine fresh light on the current Sino-U.S. bilateral trade relations and financial market conditions in the broader context of significant shifts in the relative strength of these major powers.
The Federal Reserve proposes softening the Volcker rule that prevents banks from placing risky bets on securities with deposit finance.
The Federal Reserve proposes softening the Volcker rule that prevents banks from placing risky bets on securities with deposit finance.
As part of the post-crisis Dodd-Frank regulation, the Volcker rule restricts banks from applying proprietary models to trade for their own profits or placing high equity stakes in hedge funds, mutual funds, and private equity funds.
Under the new proposal, banks with trading assets and liabilities of $1 billion to $10 billion would be subject to less stringent Volcker-rule compliance requirements with bespoke specifications.
Below the $1 billion asset threshold, financial institutions would not have to demonstrate compliance with the new Volcker rule.
In terms of public disclosure, trading desks would not have to report absolute daily net gains and losses below $25 million within a 90-day window.
This deregulatory rollback provides fresh momentum for most bank stocks.
As a result, most banks experience hefty stock price appreciation in recent times.
President Trump introduces $50 billion tariffs on Chinese products and new limits on Chinese high-tech investments in America.
President Trump introduces $50 billion tariffs on Chinese products and new limits on Chinese high-tech investments in America.
This new round of duties and tariffs arises as a major macro surprise less than a fortnight after Treasury Secretary Steve Mnuchin says the Sino-U.S. trade war is on hold.
China has already committed to significantly increasing its purchases of U.S. goods and services in order to reduce their trade imbalance.
Nevertheless, the Trump team aims to achieve a hefty $200 billion reduction in bilateral trade deficit.
In addition to the Sino-U.S. trade war, President Trump announces 25% steel tariffs and 10% aluminum tariffs on Canada, Europe, and Mexico.
The Trump administration seems to consider this deliberate trade tactic part of the political path toward the median voter with better midterm election results.
Many U.S. large public corporations spend their tax cuts on new dividend payout and share buyback.
Many U.S. large public corporations spend their hefty tax cuts on new dividend payout and share buyback but not on new job creation and R&D innovation.
These corporations channel $1 trillion onshore and offshore cash stockpiles into both dividend and share buyback programs.
For instance, Apple expects to spend $100 billion cash on share repurchases from mid-2018 to early-2020.
In the medium term, Cisco spends $25 billion on share buyback, and Wells Fargo plans another $22 billion share purchases.
Google also expects to spend about $9 billion on dividend payout and share buyback in order to boost its near-term stock price prospects.
Pepsi, AbbVie, and Amgen collectively spend about $35 billion on share repurchases for better shareholder value maximization.
Visa and eBay plan to initiate similar dividend and share buyback programs over the next couple of years.
Overall, these public corporations seem to view Trump tax cuts are temporary cash windfalls but not permanent cash gains.
These firms thus initiate medium-term cash dividends and share repurchases for immediate shareholder gratification.
In this light, it is less clear whether Trump tax cuts serve as permanent income boosts that can help revive real economic output, employment, capital investment, or R&D innovation etc.
Dodd-Frank rollback raises the asset threshold for systemic financial institutions from $50 billion to $250 billion.
Dodd-Frank rollback raises the asset threshold for systemically important financial institutions (SIFIs) from $50 billion to $250 billion.
This legislative change exempts several banks from annual stress tests and living wills that the Obama administration designed as a safety valve to prevent another major financial calamity.
As a result, this structural regime switch will provide smaller financial institutions with primary relief from the strict rules and regulations that apply to most Wall Street banks.
President Trump affirms his clear intention to sign this bill into law.
As a result, the Dodd-Frank rollback is likely to benefit non-systemic financial institutions, community banks, and other small lenders.
However, Congress expresses the consensus view that most banks should be subject to substantially higher equity capital requirements to safeguard against extreme losses in rare times of financial stress.
As financial intermediary capital covaries with both aggregate credit supply and household debt fluctuations, these ebbs and flows cause real business cycles and financial market gyrations.
Sticky prices and interest rates can persist over the interim period, and transitional dynamism manifests in real macro movements such as real GDP economic growth, employment, capital investment, industrial production, and bank balance sheet expansion.
Treasury Secretary Steve Mnuchin indicates that the Trump team puts the trade war with China on hold.
Treasury Secretary Steve Mnuchin indicates that the Trump administration now puts the trade war with China on hold.
This interim suspension of U.S. tariff threats should offer investors relief over open trade war concerns.
The Sino-U.S. trade ceasefire affirms the essential need for both sides of trade negotiators to set up a new framework in order to address bilateral trade imbalances in the future.
As a result, the major U.S. stock market indices such as Dow Jones, NYSE, NASDAQ, and AMEX, and S&P 500 reap hefty gains in recent times.
However, the U.S. still expects to confirm its near-term plan of imposing steel and aluminum tariffs on the European Union.
News sources suggest that the Trump team may consider imposing another round of $50 billion to $200 billion tariffs on Chinese goods and services.
Meanwhile, the Trump team demands China to commit to reducing the $335 billion trade deficit by at least $200 billion, but both sides cite no dollar figure in the recent truce.
After these trade talks in Washington, China has agreed to significantly increase its purchases of American goods and services in order to reduce the Chinese trade surplus with America.
On balance, the fundamental issue revolves around how America induces China to comply with rigorous laws and regulations on intellectual property protection.
America faces income inequality, political polarization, and dysfunctional governance.
Has America become a democratic land of crumbling infrastructure, galloping income inequality, bitter political polarization, and dysfunctional governance?
Several key measures of American public engagement, satisfaction, and confidence are near historic low rates.
These key measures include voter turnout, general knowledge of socioeconomic public policy issues, and individual respect for basic government institutions.
U.S. infrastructure needs a comprehensive upgrade as income inequality soars in America.
After some adjustment for PCE core inflation, the middle-class wages have been nearly frozen over the past 4 decades in America, whereas, the top 1% upper-class income triples over the same time frame.
Family stock ownership concentration exacerbates this economic inequality in comparison to OECD standards.
The government bails out banks and millions of Americans lose their homes and jobs in the recent decade right after the U.S. subprime mortgage crisis from 2008 to 2009.
The gradual economic recovery produces pecuniary fruits exclusively for the rich.
In stark contrast, the bottom 99% population experiences an income uptick of less than half of 1%.
Only the present American democracy that discards its basic mission of holding the social community together would produce these inadvertent results and consequences.
In a positive light, however, there are more socioeconomic opportunities available nowadays for women, non-whites, and other minorities.
Technological advances and miracles happen in U.S. laboratories, world-class universities, and tech startups that specialize in robotic automation, medical diagnosis and treatment, big data analysis and visualization, or artificial intelligence etc.
Despite this positive progress, the U.S. meritocratic class continues to master the old trick of passing socioeconomic advantages and privileges to the next generation.
The resultant hereditary elite income and wealth concentration harms social mobility to the harsh detriment of many minorities and immigrants in America.
Greater social mobility requires a reasonable reversal of fortune via progressive capital taxation, non-exclusive education, universal healthcare, diverse employment, social security, and less crony capitalism (such as family ownership concentration).
Net neutrality rules continue to revolve around the Trump administration's current IT agenda of 5G telecom transformation.
Net neutrality rules may continue to revolve around the Trump administration's current IT agenda of 5G telecom transformation.
The Republican Senate passes the Federal Communication Commission's (FCC) net neutrality rules and regulations that gain stream in recent times.
These rules and regulations help ensure that all Internet traffic receive equal treatment on a level playing field as tech titans cannot acquire unfair competitive advantages.
Net neutrality arises as an obscure policy debate and now has become a mainstream socioeconomic issue in America.
Regardless of their political identification, most consumers support this notion of net neutrality to prevent cable providers and wireless carriers from charging higher prices.
This populist support means that even if the Senate's resolution ultimate halts in the House of Representatives or on President Trump's desk, the government still has to reinstate these net neutrality rules and regulations.
If the government strategically moves away from net neutrality, price discrimination would empower telecom companies to charge higher prices on the more popular segments of the Internet.
For telecom companies such as AT&T, Verizon, and Comcast etc, the potential increase in total sales revenue can help enhance 5G network coverage throughout the country (especially in some suburban and rural areas).
Incoming New York Fed President John Williams suggests that it is about time to end forward guidance.
Incoming New York Fed President John Williams suggests that it is about time to end forward guidance in order to stop holding the financial market's hand.
As the current president and chief research director of San Francisco Federal Reserve Bank, Williams expects U.S. inflation to rise to the central bank's 2% target in mid-2018.
This inflation expectation resonates with the consensus that most FOMC members share in the recent central bank forum.
The inflation rate can stay above the 2% target for another couple of years even as the Federal Reserve continues the current interest rate hike toward late-2019.
Also, Williams shares and echoes Fed Chair Jerome Powell's recent open statement that the Federal Reserve should complete the current course of forward guidance.
In fact, economic media commentators and stock market investors should focus on economic data such as real GDP economic growth, employment, wage growth, capital investment, and industrial production etc.
It is futile for financial market observers to read into the FOMC minutes, narratives, and word choices etc for key clues about the U.S. macro economy.
These FOMC minutes and linguistic analytics can be informative to some extent, whereas, only real economic data drive monetary policy decisions.
OPEC countries have cut the global glut of oil production in order to boost the oil price in recent years.
OPEC countries have cut the global glut of oil production in recent years while the resultant oil price has surged from $30 to $78 per barrel from 2015 to 2018.
Also, President Trump has withdrawn America from the multilateral Iran nuclear deal and thus revives draconian economic sanctions on Iran.
Saudi Arabia may deliberately boost short-term oil prices in order to support the Aramco IPO in 2019.
These major geopolitical events may sustain the recent oil price increase in the medium term.
Several economic news sources such as The Economist, Forbes, CNBC, Bloomberg, Reuters, and so on suggest that the new target oil price is $80 per barrel in the next 18 months.
Many market observers suggest that the geopolitical concerns seem to outweigh demand-supply adjustments in relative importance at least over the short-to-medium run.
U.S. inflation expectations gravitate toward the 2% target inflation rate.
A further interest rate hike may be plausible such that the neutral interest rate helps contain inflationary pressures near full employment.
These financial market developments have important monetary policy implications for U.S. corporations, financial intermediaries, consumers, producers, and stock market investors etc.
Top money managers George Soros and Warren Buffett reveal their current stock and bond positions.
Top money managers George Soros and Warren Buffett reveal their new stock and bond bets in their recent corporate disclosures as of mid-2018.
George Soros's hedge fund buys $35 million Tesla bonds and large blocks of stocks in Amazon, Netflix, and Google while the hedge fund unloads its equity stakes in Twitter.
The billionaire's investment fund Soros Fund Management acquires $35 billion convertible bonds in the electric automaker Tesla in early-2018.
These convertible bonds can transform into common equity shares and so give investors the ability to choose between stock price gains or steady coupon yields due in March 2019.
Soros also buys 51,200 shares in Amazon, 148,500 shares in Netflix, and 20,800 shares in Google, and then unloads 34,100 shares in Twitter as of mid-2018.
Warren Buffett increases his stock bets on Apple and Teva Pharma, and then unloads shares in IBM in early-2018.
On balance, these stock and bond positions tilt toward the major U.S. platform orchestrators such as Apple, Amazon, Google, and Netflix.
Tesla shows promise in the marketable production of electric cars in America, Europe, and some parts of Asia.
Under Elon Musk's charismatic leadership, Tesla gradually approaches the inflection point where its electric car usage grows exponentially to reach a critical mass worldwide.
Moreover, Teva Pharma provides many medical solutions in the form of both generic medicines and specialty medicines.
Teva Pharma sells and manufactures generic medicines in numerous dosage forms such as tablets, capsules, injections, and ointments etc.
Its specialty medicines focus on the core therapeutic areas of central nervous system (CNS) as well as respiratory medicines for the medical treatment of asthma and chronic obstructive pulmonary disease.
Because Soros and Buffett unload shares in Twitter and IBM, these unforeseen fire sales suggest that most tech firms should make productive uses of its patents, trademarks, and copyrights etc, whereas, these intellectual properties may or may not be long-term competitive moats for sustainable shareholder wealth creation.
Transforming intellectual techniques into practical uses and applications remains the fundamental key to unlocking long-term sustainable value and competitive advantage.
CBS and its special committee of independent directors have decided to sue the Redstone controlling shareholders.
CBS and its special committee of independent directors have decided to sue the Redstone controlling shareholders because these directors might have breached their fiduciary duties.
This breach can cause irreparable harm since the Redstone controlling shareholders who own 79% of CBS equity states have indicated a clear intention to force a merger of CBS and Viacom.
This prospective merger may not serve the best interests of CBS's minority shareholders who own the residual 21% equity stakes.
CBS's independent directors propose to issue a stock dividend of voting shares to all the minority shareholders.
This issuance would dilute the voting power of the Redstone controlling shareholders from 79% to about 17% but would not dilute the economic ownership interests of any CBS shareholders.
In fact, this special dividend is permissible under CBS's corporate charter for its directors and controlling shareholders to honor their fiduciary duties of care, loyalty, and good faith.
Alternatively, the Redstone controlling shareholders might go nuclear by voting out the special committee of independent directors instantly by written consent with short shareholder notice.
This coup attempt would allow the Redstone controlling shareholders to replace the board with their close friends who would then approve the CBS-Viacom merger plan.
On balance, this complex and thorny issue shines fresh light on whether the current corporate governance regime should enhance independent directorship with greater voting power.
The Trump administration weighs the pros and cons of a potential mega merger between AT&T and Time Warner.
The Trump administration weighs the pros and cons of a potential mega merger between AT&T and Time Warner.
Recent stock prices show favorable trends for both AT&T and Time Warner in light of this prospective vertical integration.
U.C. Berkeley industrial economist Carl Shapiro defends the Justice Department's lawsuit against AT&T and Time Warner due to antitrust concerns.
Shapiro suggests that this $85 billion mega merger would raise prices by about $286 per year for pay TV consumers.
This structural change poses an imminent threat to the current market development of online video content curation.
Moreover, this deal would spur AT&T with its cross-equity ownership of DirecTV to charge its pay TV rivals more for Time Warner video content.
The latter prediction applies specifically to the Turner family of news and sports shows.
AT&T would face the incentive to negotiate contracts with other cable and satellite TV providers such as Comcast to constrain content curation to more cost-effective online video services.
This vertical integration would inadvertently encourage anticompetitive behaviors to the detriment of pay TV consumers.
In contrast, Chicago chair professor Dennis Carlton opposes the Shapiro antitrust thesis.
Carlton points out that pay TV consumers can enjoy net benefits in close association with this deal.
When AT&T merges with Time Warner, this merger would save consumers money because this vertical integration of a pay TV provider and a movie and TV giant would create a more efficient company.
Carlton highlights the Achilles heel in the Shapiro antitrust thesis: Shapiro underestimates how many people would leave pay TV altogether, and overestimates how many people would leave their pay TV provider if they lose access to the Turner family channels of movies and TV shows.
On cross-examination, however, government attorney Craig Conrath seeks unsuccessfully to push Carlton to concede that Comcast's prior vertical acquisition of NBCU content subsidiary leads to more expensive movies and TV shows.
Whether the $85 billion mega merger can prove to bear fruits for pay TV consumers remains an open and controversial mystery.
The Trump administration has to weigh the pros and cons of this vertical merger between AT&T and Time Warner.
President Trump seeks to honor his campaign promise of lower U.S. medical costs by forcing higher big-pharma prices in foreign countries.
President Trump seeks to honor his campaign promise of lower U.S. medical costs by forcing higher big-pharma prices in foreign countries such as Canada, Britain, France, Germany, Japan, and Korea.
As of early-2018, the typical American spends more than $1,100 on prescription drugs per year.
It is true that many Americans take pills on a regular basis, but what sets the U.S. apart from most other OECD countries relates to high drug prices.
President Trump now attempts to induce large pharmaceutical companies such as Merck, Johnson & Johnson, Pfizer, Amgen, and GSK etc to increase their medicine prices abroad.
This strategic move would create economic incentives for these companies to cut drug prices in America.
In light of the high health insurance and medical costs in America, the Trump administration either has to foster competition among biotech firms and pharmaceutical companies, or the administration induces them to voluntarily reduce medicine prices.
President Trump sometimes retorts with the deliberate hyperbole that drugmakers can often *get away with murder* in what they charge the government for medication.
As the American population enjoys longer human longevity with better medical technology, lower medicine prices seem to have become a necessary evil for big pharma.
President Trump withdraws America from the Iran nuclear agreement and revives economic sanctions on Iran for better negotiations.
President Trump withdraws America from the Iran nuclear agreement and revives economic sanctions on Iran for better negotiations as Britain, France, and Germany regret the U.S. decision.
To the horror of European partners (but the delight of middle-east allies such as Israel), President Trump pulls America out of the Iran nuclear deal that several European countries have advocated since 2015.
The Trump administration acts on a whimsical hunch that if Iran is subject to economic pain, this country may break-and-abandon all kinds of hostile activities from nuclear development to tacit support for terrorism in middle-east proxy wars.
U.S. crude oil prices surge by at least 3% to the historic high threshold about $78-$80 in 3.5 years as stock analysts and economic media commentators target the new range of oil prices between $85 and $95 in mid-2019.
Iran thus emerges as a major energy threat as the Trump administration introduces draconian economic sanctions on the quasi-nuclear nation.
In response, Saudi Arabia affirms that it would work with other producers to lessen the adverse impact of any shortage in oil supplies.
This latter strategic move helps enhance the price prospects of the Aramco IPO that may take place between early-2019 and mid-2020.
Warren Buffett shares his fresh economic insights and value investment strategies at the Berkshire Hathaway shareholder forum.
Warren Buffett shares his fresh economic insights and value investment strategies at the Berkshire Hathaway shareholder forum in May 2018 despite the new GAAP accounting rule that has led to a $1.14 billion net loss for the Buffett-Munger stock portfolio.
Berkshire reports a $1.14 billion net loss in 2018Q1 or its first net loss since 2009 primarily due to an esoteric GAAP accounting rule that Buffett considers a nightmare.
The firm also reports an operating profit of 48.7% year-over-year.
The new rule suggests that the net change in fair-value investment gains and losses must be shown in all net income figures.
This requirement produces some wild and capricious gyrations in the GAAP bottom-line.
Berkshire owns $170 billion tradable stocks, and the market values of these stock positions can easily fluctuate by $10 billion or more within each quarter.
Including gyrations of such magnitude in net income swamps the more important numbers that better describe Berkshire Hathaway's true operating performance.
Buffett thus pierces the GAAP veil for Berkshire investors to better assess the fundamental intrinsic value of each stock position.
Buffett continues his active interest in small-to-mid-cap profitable value stocks that invest conservatively in both capital equipment and balance sheet expansion.
Commerce Secretary Wilbur Ross suggests that 5G remains a U.S. top technology priority in light of the Sprint-T-Mobile telecom merger.
Commerce Secretary Wilbur Ross suggests that 5G is a U.S. top technology priority in light of the telecom merger plan between Sprint and T-Mobile and President Trump's recent ban on the Broadcom-Qualcomm merger.
Ross highlights the strategic importance of 5G wireless communication as part of the national economic security agenda.
The recent telecom merger between T-Mobile and Sprint can help propel AT&T and Verizon into more active pursuit of 5G communication technology.
This $26.5 billion all-stock merger caps 4 years of on-and-off talks between the next largest U.S. wireless carriers behind AT&T and Verizon.
U.S. regulatory agencies are likely to grill these firms on how they plan to price wireless service packages.
Both wireless carriers expect to invest at least $40 billion over the next 3 years to upgrade their wireless networks to accommodate 5G.
The joint company would encompass about 120 million subscribers within the current wireless networks of T-Mobile and Sprint.
Network effects and externalities can spill over to benefit the next marginal consumers who can then enjoy the fruits of healthy competition between T-Mobile-Sprint and AT&T and Verizon.
The Federal Communications Commission plans new auctions of high broadband spectrum to speed up the launch of next-generation 5G networks.
Sprint and T-Mobile propose a major merger in order to better compete with AT&T and Verizon.
Sprint and T-Mobile initiate a major merger plan in order to better compete with AT&T and Verizon.
This mega merger is worth $26.5 billion and involves an all-stock deal that exchanges 9.75 Sprint shares for each T-Mobile share.
The joint company retains the T-Mobile name, keeps its CEO John Legere, and encompasses about 120 million subscribers.
This mega merger carries about $146 billion enterprise valuation with debt in comparison to $313 billion Verizon enterprise value and $334 billion AT&T enterprise value.
The latter telecom titans invest in substantial fiber-optic, wireless telecom, telephone, can cable television operations.
Joining forces would allow the company to build out a 5G wireless network in direct competition with AT&T and Verizon.
This new merger clears the cloudy practices that may harm consumer benefits in the previous M&A attempt back in 2014.
T-Mobile and Sprint suggest that times have changed a great deal since 2014 because several companies such as Comcast now enter the mobile business.
Also, the White House advocates that 5G wireless networks are crucial for national economic security reasons.
Many stock analysts now consider this mega merger to take place with a 50%+ chance of regulatory approval.
What are the primary pros and cons of free trade or fair trade in the current Sino-American quagmire?
What are the primary pros and cons of free trade in the current Sino-American quagmire?
Free trade means allowing goods and services to move as freely as possible across different countries.
As countries develop over time, they start swapping goods and services across national borders.
As transport improves in speed and quality, these countries can start buying and selling goods and services abroad.
When governments struggle to raise domestic taxes, it is easier to implement the fair trade policy of levying heavy duties on foreign imports.
Most economists eventually gain the upper hand because keeping these trade barriers as low as possible proves to be a sensible economic policy.
In accordance with the law of comparative advantage, free trade allows countries and corporations to specialize in intermediate production, service provision, or new tech innovation.
Also, free trade expands the size of the economic pie and thus shifts scare resources from the less productive firms to the productive ones.
However, not everyone becomes better off.
Some receive a smaller slice of the pie because product market concentration and dominance can exacerbate economic inequality.
Moreover, free trade helps enhance the political discourse of peace and cooperation.
It is important for the government to improve affordable residential real estate and labor mobility in order to counterbalance the exogenous shocks from fair trade barriers.
America and China play the game of chicken over trade and technology.
America and China play the game of chicken over trade and technology, whereas, most market observers and economic media commentators expect the Trump team to help avert a long and open Sino-U.S. trade war.
The current Sino-American trade war may erect trade barriers such as tariffs, quotas, and even embargoes on both sides at the expense of global citizens who would then face higher costs and prices.
In recent times, America imposes tariffs on $60 billion Chinese imports in addition to its steel and aluminum tariffs on western allies such as Canada, Europe, and Mexico.
National Economic Council chief adviser and former CNBC economic media host Larry Kudlow expresses cautious optimism toward the next trade negotiations with the Chinese delegation.
The Trump administration also initiates an executive order to bar U.S. government agencies from buying 5G products and services from Chinese telecom equipment providers such as HuaWei and ZTE.
This executive order further restricts private government contractors from buying foreign telecom products and services in relation to 5G national economic security concerns.
These restrictions help deter unforeseen contingencies that might arise from both Chinese espionage and disruption.
Credit supply growth drives business cycle fluctuations and often sows the seeds of their own subsequent destruction.
Credit supply expansions drive business cycle fluctuations and often sow the seeds of their own subsequent destruction.
The global financial crisis from 2008 to 2009 suggests that we can predict a major slowdown in real economic activity by tracking incremental household debt accumulation.
In America and 30+ other countries, changes in household debt-to-GDP ratios between 2002 and 2007 correlate significantly with increases in unemployment from 2007 to 2010.
From this empirical perspective, credit supply expansions, rather than permanent income or technology shocks, serve as a major driver of real business cycles over time.
Most models attribute macroeconomic fluctuations to real factors such as exogenous productivity shocks.
In contrast, financial intermediaries can play a pivotal role in credit supply growth, household leverage, employment, and asset valuation.
Credit supply expansions affect the real macroeconomy by boosting household demand, rather than the productive capacity of firms.
In fact, credit booms tend to precede higher inflation and employment in retail and construction (but not in the tradable or export-driven business sector).
The economy slowly adjusts to the precipitous decline in consumer expenditures due to high household leverage when credit supply slows down in most major financial crises.
Even when short-term interest rates fall to zero, savers cannot spend enough to make up for the shortfall in aggregate demand.
Also, employment cannot readily gravitate from the non-tradable sector to the tradable sector.
Moreover, nominal rigidities, sluggish price adjustments, financial sector disruptions, and legacy distortions render post-credit-boom recessions more severe.
What triggers credit supply growth involves a key influx of capital in the financial system.
In this light, both monetary and fiscal stimulus can have a major impact on the real economy via credit supply growth, household debt, stock and bond prices, and real business cycles.
Overall, financial stability serves as a key precondition for better bond and stock valuation.
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The modern world's most powerful nations, America and China, stumble into a Thucydides trap.
America and China, the modern world's most powerful nations may stumble into a Thucydides trap that Harvard professor and political scientist Graham Allison suggests in his recent book on Sino-U.S. relations.
Through the lens of an ancient Greek military chief and historian, the Thucydides trap refers to the notion that significant shifts in the relative strength of major powers can be a primary cause of bilateral conflict.
Financial market observers and economic media commentators may characterize superficial frictions and flashpoints as the root cause of both bilateral animosity and hostility.
However, the real cause of bilateral conflict, or an open Sino-American trade war, might reflect the fear and frustration of political leaders Trump and Xi on both sides.
Allison thus emphasizes that if a Sino-U.S. war is not inevitable, an open trade conflict is likely to emerge as a negative disequilibrium outcome in the medium run.
In recent times, the TIME magazine points out the 5 major myths that investors seem to misconstrue as new trends and inflection points in the U.S. stock market.
Investor worries and concerns arise from volatile asset price gyrations, pervasive tech stock slumps, inflationary price pressures, faster Fed interest rate hikes and their overall adverse impact on real GDP economic output and employment, and a pervasive regime switch of investor favor from stocks to bonds and other alternative investment vehicles such as credit default swaps (CDS) and other financial derivatives.
TIME demystifies these common myths and puzzles from a fundamental perspective.
The Federal Reserve accelerates the current interest rate hike at the neutral threshold that helps contain inflation when the U.S. economy operates near full employment.
Fiscal stimulus effectuates in the form of both Trump tax cuts and infrastructure expenditures.
It takes time for these fiscal measures to drive positive progress in real macro covariates such as real GDP economic output, capital investment, employment, and technological innovation.
These economic insights shine fresh light on the current Sino-U.S. bilateral trade relations and financial market conditions in the broader context of significant shifts in the relative strength of these major powers.
The Federal Reserve proposes softening the Volcker rule that prevents banks from placing risky bets on securities with deposit finance.
The Federal Reserve proposes softening the Volcker rule that prevents banks from placing risky bets on securities with deposit finance.
As part of the post-crisis Dodd-Frank regulation, the Volcker rule restricts banks from applying proprietary models to trade for their own profits or placing high equity stakes in hedge funds, mutual funds, and private equity funds.
Under the new proposal, banks with trading assets and liabilities of $1 billion to $10 billion would be subject to less stringent Volcker-rule compliance requirements with bespoke specifications.
Below the $1 billion asset threshold, financial institutions would not have to demonstrate compliance with the new Volcker rule.
In terms of public disclosure, trading desks would not have to report absolute daily net gains and losses below $25 million within a 90-day window.
This deregulatory rollback provides fresh momentum for most bank stocks.
As a result, most banks experience hefty stock price appreciation in recent times.
President Trump introduces $50 billion tariffs on Chinese products and new limits on Chinese high-tech investments in America.
President Trump introduces $50 billion tariffs on Chinese products and new limits on Chinese high-tech investments in America.
This new round of duties and tariffs arises as a major macro surprise less than a fortnight after Treasury Secretary Steve Mnuchin says the Sino-U.S. trade war is on hold.
China has already committed to significantly increasing its purchases of U.S. goods and services in order to reduce their trade imbalance.
Nevertheless, the Trump team aims to achieve a hefty $200 billion reduction in bilateral trade deficit.
In addition to the Sino-U.S. trade war, President Trump announces 25% steel tariffs and 10% aluminum tariffs on Canada, Europe, and Mexico.
The Trump administration seems to consider this deliberate trade tactic part of the political path toward the median voter with better midterm election results.
Many U.S. large public corporations spend their tax cuts on new dividend payout and share buyback.
Many U.S. large public corporations spend their hefty tax cuts on new dividend payout and share buyback but not on new job creation and R&D innovation.
These corporations channel $1 trillion onshore and offshore cash stockpiles into both dividend and share buyback programs.
For instance, Apple expects to spend $100 billion cash on share repurchases from mid-2018 to early-2020.
In the medium term, Cisco spends $25 billion on share buyback, and Wells Fargo plans another $22 billion share purchases.
Google also expects to spend about $9 billion on dividend payout and share buyback in order to boost its near-term stock price prospects.
Pepsi, AbbVie, and Amgen collectively spend about $35 billion on share repurchases for better shareholder value maximization.
Visa and eBay plan to initiate similar dividend and share buyback programs over the next couple of years.
Overall, these public corporations seem to view Trump tax cuts are temporary cash windfalls but not permanent cash gains.
These firms thus initiate medium-term cash dividends and share repurchases for immediate shareholder gratification.
In this light, it is less clear whether Trump tax cuts serve as permanent income boosts that can help revive real economic output, employment, capital investment, or R&D innovation etc.
Dodd-Frank rollback raises the asset threshold for systemic financial institutions from $50 billion to $250 billion.
Dodd-Frank rollback raises the asset threshold for systemically important financial institutions (SIFIs) from $50 billion to $250 billion.
This legislative change exempts several banks from annual stress tests and living wills that the Obama administration designed as a safety valve to prevent another major financial calamity.
As a result, this structural regime switch will provide smaller financial institutions with primary relief from the strict rules and regulations that apply to most Wall Street banks.
President Trump affirms his clear intention to sign this bill into law.
As a result, the Dodd-Frank rollback is likely to benefit non-systemic financial institutions, community banks, and other small lenders.
However, Congress expresses the consensus view that most banks should be subject to substantially higher equity capital requirements to safeguard against extreme losses in rare times of financial stress.
As financial intermediary capital covaries with both aggregate credit supply and household debt fluctuations, these ebbs and flows cause real business cycles and financial market gyrations.
Sticky prices and interest rates can persist over the interim period, and transitional dynamism manifests in real macro movements such as real GDP economic growth, employment, capital investment, industrial production, and bank balance sheet expansion.
Treasury Secretary Steve Mnuchin indicates that the Trump team puts the trade war with China on hold.
Treasury Secretary Steve Mnuchin indicates that the Trump administration now puts the trade war with China on hold.
This interim suspension of U.S. tariff threats should offer investors relief over open trade war concerns.
The Sino-U.S. trade ceasefire affirms the essential need for both sides of trade negotiators to set up a new framework in order to address bilateral trade imbalances in the future.
As a result, the major U.S. stock market indices such as Dow Jones, NYSE, NASDAQ, and AMEX, and S&P 500 reap hefty gains in recent times.
However, the U.S. still expects to confirm its near-term plan of imposing steel and aluminum tariffs on the European Union.
News sources suggest that the Trump team may consider imposing another round of $50 billion to $200 billion tariffs on Chinese goods and services.
Meanwhile, the Trump team demands China to commit to reducing the $335 billion trade deficit by at least $200 billion, but both sides cite no dollar figure in the recent truce.
After these trade talks in Washington, China has agreed to significantly increase its purchases of American goods and services in order to reduce the Chinese trade surplus with America.
On balance, the fundamental issue revolves around how America induces China to comply with rigorous laws and regulations on intellectual property protection.
America faces income inequality, political polarization, and dysfunctional governance.
Has America become a democratic land of crumbling infrastructure, galloping income inequality, bitter political polarization, and dysfunctional governance?
Several key measures of American public engagement, satisfaction, and confidence are near historic low rates.
These key measures include voter turnout, general knowledge of socioeconomic public policy issues, and individual respect for basic government institutions.
U.S. infrastructure needs a comprehensive upgrade as income inequality soars in America.
After some adjustment for PCE core inflation, the middle-class wages have been nearly frozen over the past 4 decades in America, whereas, the top 1% upper-class income triples over the same time frame.
Family stock ownership concentration exacerbates this economic inequality in comparison to OECD standards.
The government bails out banks and millions of Americans lose their homes and jobs in the recent decade right after the U.S. subprime mortgage crisis from 2008 to 2009.
The gradual economic recovery produces pecuniary fruits exclusively for the rich.
In stark contrast, the bottom 99% population experiences an income uptick of less than half of 1%.
Only the present American democracy that discards its basic mission of holding the social community together would produce these inadvertent results and consequences.
In a positive light, however, there are more socioeconomic opportunities available nowadays for women, non-whites, and other minorities.
Technological advances and miracles happen in U.S. laboratories, world-class universities, and tech startups that specialize in robotic automation, medical diagnosis and treatment, big data analysis and visualization, or artificial intelligence etc.
Despite this positive progress, the U.S. meritocratic class continues to master the old trick of passing socioeconomic advantages and privileges to the next generation.
The resultant hereditary elite income and wealth concentration harms social mobility to the harsh detriment of many minorities and immigrants in America.
Greater social mobility requires a reasonable reversal of fortune via progressive capital taxation, non-exclusive education, universal healthcare, diverse employment, social security, and less crony capitalism (such as family ownership concentration).
Net neutrality rules continue to revolve around the Trump administration's current IT agenda of 5G telecom transformation.
Net neutrality rules may continue to revolve around the Trump administration's current IT agenda of 5G telecom transformation.
The Republican Senate passes the Federal Communication Commission's (FCC) net neutrality rules and regulations that gain stream in recent times.
These rules and regulations help ensure that all Internet traffic receive equal treatment on a level playing field as tech titans cannot acquire unfair competitive advantages.
Net neutrality arises as an obscure policy debate and now has become a mainstream socioeconomic issue in America.
Regardless of their political identification, most consumers support this notion of net neutrality to prevent cable providers and wireless carriers from charging higher prices.
This populist support means that even if the Senate's resolution ultimate halts in the House of Representatives or on President Trump's desk, the government still has to reinstate these net neutrality rules and regulations.
If the government strategically moves away from net neutrality, price discrimination would empower telecom companies to charge higher prices on the more popular segments of the Internet.
For telecom companies such as AT&T, Verizon, and Comcast etc, the potential increase in total sales revenue can help enhance 5G network coverage throughout the country (especially in some suburban and rural areas).
Incoming New York Fed President John Williams suggests that it is about time to end forward guidance.
Incoming New York Fed President John Williams suggests that it is about time to end forward guidance in order to stop holding the financial market's hand.
As the current president and chief research director of San Francisco Federal Reserve Bank, Williams expects U.S. inflation to rise to the central bank's 2% target in mid-2018.
This inflation expectation resonates with the consensus that most FOMC members share in the recent central bank forum.
The inflation rate can stay above the 2% target for another couple of years even as the Federal Reserve continues the current interest rate hike toward late-2019.
Also, Williams shares and echoes Fed Chair Jerome Powell's recent open statement that the Federal Reserve should complete the current course of forward guidance.
In fact, economic media commentators and stock market investors should focus on economic data such as real GDP economic growth, employment, wage growth, capital investment, and industrial production etc.
It is futile for financial market observers to read into the FOMC minutes, narratives, and word choices etc for key clues about the U.S. macro economy.
These FOMC minutes and linguistic analytics can be informative to some extent, whereas, only real economic data drive monetary policy decisions.
OPEC countries have cut the global glut of oil production in order to boost the oil price in recent years.
OPEC countries have cut the global glut of oil production in recent years while the resultant oil price has surged from $30 to $78 per barrel from 2015 to 2018.
Also, President Trump has withdrawn America from the multilateral Iran nuclear deal and thus revives draconian economic sanctions on Iran.
Saudi Arabia may deliberately boost short-term oil prices in order to support the Aramco IPO in 2019.
These major geopolitical events may sustain the recent oil price increase in the medium term.
Several economic news sources such as The Economist, Forbes, CNBC, Bloomberg, Reuters, and so on suggest that the new target oil price is $80 per barrel in the next 18 months.
Many market observers suggest that the geopolitical concerns seem to outweigh demand-supply adjustments in relative importance at least over the short-to-medium run.
U.S. inflation expectations gravitate toward the 2% target inflation rate.
A further interest rate hike may be plausible such that the neutral interest rate helps contain inflationary pressures near full employment.
These financial market developments have important monetary policy implications for U.S. corporations, financial intermediaries, consumers, producers, and stock market investors etc.
Top money managers George Soros and Warren Buffett reveal their current stock and bond positions.
Top money managers George Soros and Warren Buffett reveal their new stock and bond bets in their recent corporate disclosures as of mid-2018.
George Soros's hedge fund buys $35 million Tesla bonds and large blocks of stocks in Amazon, Netflix, and Google while the hedge fund unloads its equity stakes in Twitter.
The billionaire's investment fund Soros Fund Management acquires $35 billion convertible bonds in the electric automaker Tesla in early-2018.
These convertible bonds can transform into common equity shares and so give investors the ability to choose between stock price gains or steady coupon yields due in March 2019.
Soros also buys 51,200 shares in Amazon, 148,500 shares in Netflix, and 20,800 shares in Google, and then unloads 34,100 shares in Twitter as of mid-2018.
Warren Buffett increases his stock bets on Apple and Teva Pharma, and then unloads shares in IBM in early-2018.
On balance, these stock and bond positions tilt toward the major U.S. platform orchestrators such as Apple, Amazon, Google, and Netflix.
Tesla shows promise in the marketable production of electric cars in America, Europe, and some parts of Asia.
Under Elon Musk's charismatic leadership, Tesla gradually approaches the inflection point where its electric car usage grows exponentially to reach a critical mass worldwide.
Moreover, Teva Pharma provides many medical solutions in the form of both generic medicines and specialty medicines.
Teva Pharma sells and manufactures generic medicines in numerous dosage forms such as tablets, capsules, injections, and ointments etc.
Its specialty medicines focus on the core therapeutic areas of central nervous system (CNS) as well as respiratory medicines for the medical treatment of asthma and chronic obstructive pulmonary disease.
Because Soros and Buffett unload shares in Twitter and IBM, these unforeseen fire sales suggest that most tech firms should make productive uses of its patents, trademarks, and copyrights etc, whereas, these intellectual properties may or may not be long-term competitive moats for sustainable shareholder wealth creation.
Transforming intellectual techniques into practical uses and applications remains the fundamental key to unlocking long-term sustainable value and competitive advantage.
CBS and its special committee of independent directors have decided to sue the Redstone controlling shareholders.
CBS and its special committee of independent directors have decided to sue the Redstone controlling shareholders because these directors might have breached their fiduciary duties.
This breach can cause irreparable harm since the Redstone controlling shareholders who own 79% of CBS equity states have indicated a clear intention to force a merger of CBS and Viacom.
This prospective merger may not serve the best interests of CBS's minority shareholders who own the residual 21% equity stakes.
CBS's independent directors propose to issue a stock dividend of voting shares to all the minority shareholders.
This issuance would dilute the voting power of the Redstone controlling shareholders from 79% to about 17% but would not dilute the economic ownership interests of any CBS shareholders.
In fact, this special dividend is permissible under CBS's corporate charter for its directors and controlling shareholders to honor their fiduciary duties of care, loyalty, and good faith.
Alternatively, the Redstone controlling shareholders might go nuclear by voting out the special committee of independent directors instantly by written consent with short shareholder notice.
This coup attempt would allow the Redstone controlling shareholders to replace the board with their close friends who would then approve the CBS-Viacom merger plan.
On balance, this complex and thorny issue shines fresh light on whether the current corporate governance regime should enhance independent directorship with greater voting power.
The Trump administration weighs the pros and cons of a potential mega merger between AT&T and Time Warner.
The Trump administration weighs the pros and cons of a potential mega merger between AT&T and Time Warner.
Recent stock prices show favorable trends for both AT&T and Time Warner in light of this prospective vertical integration.
U.C. Berkeley industrial economist Carl Shapiro defends the Justice Department's lawsuit against AT&T and Time Warner due to antitrust concerns.
Shapiro suggests that this $85 billion mega merger would raise prices by about $286 per year for pay TV consumers.
This structural change poses an imminent threat to the current market development of online video content curation.
Moreover, this deal would spur AT&T with its cross-equity ownership of DirecTV to charge its pay TV rivals more for Time Warner video content.
The latter prediction applies specifically to the Turner family of news and sports shows.
AT&T would face the incentive to negotiate contracts with other cable and satellite TV providers such as Comcast to constrain content curation to more cost-effective online video services.
This vertical integration would inadvertently encourage anticompetitive behaviors to the detriment of pay TV consumers.
In contrast, Chicago chair professor Dennis Carlton opposes the Shapiro antitrust thesis.
Carlton points out that pay TV consumers can enjoy net benefits in close association with this deal.
When AT&T merges with Time Warner, this merger would save consumers money because this vertical integration of a pay TV provider and a movie and TV giant would create a more efficient company.
Carlton highlights the Achilles heel in the Shapiro antitrust thesis: Shapiro underestimates how many people would leave pay TV altogether, and overestimates how many people would leave their pay TV provider if they lose access to the Turner family channels of movies and TV shows.
On cross-examination, however, government attorney Craig Conrath seeks unsuccessfully to push Carlton to concede that Comcast's prior vertical acquisition of NBCU content subsidiary leads to more expensive movies and TV shows.
Whether the $85 billion mega merger can prove to bear fruits for pay TV consumers remains an open and controversial mystery.
The Trump administration has to weigh the pros and cons of this vertical merger between AT&T and Time Warner.
President Trump seeks to honor his campaign promise of lower U.S. medical costs by forcing higher big-pharma prices in foreign countries.
President Trump seeks to honor his campaign promise of lower U.S. medical costs by forcing higher big-pharma prices in foreign countries such as Canada, Britain, France, Germany, Japan, and Korea.
As of early-2018, the typical American spends more than $1,100 on prescription drugs per year.
It is true that many Americans take pills on a regular basis, but what sets the U.S. apart from most other OECD countries relates to high drug prices.
President Trump now attempts to induce large pharmaceutical companies such as Merck, Johnson & Johnson, Pfizer, Amgen, and GSK etc to increase their medicine prices abroad.
This strategic move would create economic incentives for these companies to cut drug prices in America.
In light of the high health insurance and medical costs in America, the Trump administration either has to foster competition among biotech firms and pharmaceutical companies, or the administration induces them to voluntarily reduce medicine prices.
President Trump sometimes retorts with the deliberate hyperbole that drugmakers can often *get away with murder* in what they charge the government for medication.
As the American population enjoys longer human longevity with better medical technology, lower medicine prices seem to have become a necessary evil for big pharma.
President Trump withdraws America from the Iran nuclear agreement and revives economic sanctions on Iran for better negotiations.
President Trump withdraws America from the Iran nuclear agreement and revives economic sanctions on Iran for better negotiations as Britain, France, and Germany regret the U.S. decision.
To the horror of European partners (but the delight of middle-east allies such as Israel), President Trump pulls America out of the Iran nuclear deal that several European countries have advocated since 2015.
The Trump administration acts on a whimsical hunch that if Iran is subject to economic pain, this country may break-and-abandon all kinds of hostile activities from nuclear development to tacit support for terrorism in middle-east proxy wars.
U.S. crude oil prices surge by at least 3% to the historic high threshold about $78-$80 in 3.5 years as stock analysts and economic media commentators target the new range of oil prices between $85 and $95 in mid-2019.
Iran thus emerges as a major energy threat as the Trump administration introduces draconian economic sanctions on the quasi-nuclear nation.
In response, Saudi Arabia affirms that it would work with other producers to lessen the adverse impact of any shortage in oil supplies.
This latter strategic move helps enhance the price prospects of the Aramco IPO that may take place between early-2019 and mid-2020.
Warren Buffett shares his fresh economic insights and value investment strategies at the Berkshire Hathaway shareholder forum.
Warren Buffett shares his fresh economic insights and value investment strategies at the Berkshire Hathaway shareholder forum in May 2018 despite the new GAAP accounting rule that has led to a $1.14 billion net loss for the Buffett-Munger stock portfolio.
Berkshire reports a $1.14 billion net loss in 2018Q1 or its first net loss since 2009 primarily due to an esoteric GAAP accounting rule that Buffett considers a nightmare.
The firm also reports an operating profit of 48.7% year-over-year.
The new rule suggests that the net change in fair-value investment gains and losses must be shown in all net income figures.
This requirement produces some wild and capricious gyrations in the GAAP bottom-line.
Berkshire owns $170 billion tradable stocks, and the market values of these stock positions can easily fluctuate by $10 billion or more within each quarter.
Including gyrations of such magnitude in net income swamps the more important numbers that better describe Berkshire Hathaway's true operating performance.
Buffett thus pierces the GAAP veil for Berkshire investors to better assess the fundamental intrinsic value of each stock position.
Buffett continues his active interest in small-to-mid-cap profitable value stocks that invest conservatively in both capital equipment and balance sheet expansion.
Commerce Secretary Wilbur Ross suggests that 5G remains a U.S. top technology priority in light of the Sprint-T-Mobile telecom merger.
Commerce Secretary Wilbur Ross suggests that 5G is a U.S. top technology priority in light of the telecom merger plan between Sprint and T-Mobile and President Trump's recent ban on the Broadcom-Qualcomm merger.
Ross highlights the strategic importance of 5G wireless communication as part of the national economic security agenda.
The recent telecom merger between T-Mobile and Sprint can help propel AT&T and Verizon into more active pursuit of 5G communication technology.
This $26.5 billion all-stock merger caps 4 years of on-and-off talks between the next largest U.S. wireless carriers behind AT&T and Verizon.
U.S. regulatory agencies are likely to grill these firms on how they plan to price wireless service packages.
Both wireless carriers expect to invest at least $40 billion over the next 3 years to upgrade their wireless networks to accommodate 5G.
The joint company would encompass about 120 million subscribers within the current wireless networks of T-Mobile and Sprint.
Network effects and externalities can spill over to benefit the next marginal consumers who can then enjoy the fruits of healthy competition between T-Mobile-Sprint and AT&T and Verizon.
The Federal Communications Commission plans new auctions of high broadband spectrum to speed up the launch of next-generation 5G networks.
Sprint and T-Mobile propose a major merger in order to better compete with AT&T and Verizon.
Sprint and T-Mobile initiate a major merger plan in order to better compete with AT&T and Verizon.
This mega merger is worth $26.5 billion and involves an all-stock deal that exchanges 9.75 Sprint shares for each T-Mobile share.
The joint company retains the T-Mobile name, keeps its CEO John Legere, and encompasses about 120 million subscribers.
This mega merger carries about $146 billion enterprise valuation with debt in comparison to $313 billion Verizon enterprise value and $334 billion AT&T enterprise value.
The latter telecom titans invest in substantial fiber-optic, wireless telecom, telephone, can cable television operations.
Joining forces would allow the company to build out a 5G wireless network in direct competition with AT&T and Verizon.
This new merger clears the cloudy practices that may harm consumer benefits in the previous M&A attempt back in 2014.
T-Mobile and Sprint suggest that times have changed a great deal since 2014 because several companies such as Comcast now enter the mobile business.
Also, the White House advocates that 5G wireless networks are crucial for national economic security reasons.
Many stock analysts now consider this mega merger to take place with a 50%+ chance of regulatory approval.
What are the primary pros and cons of free trade or fair trade in the current Sino-American quagmire?
What are the primary pros and cons of free trade in the current Sino-American quagmire?
Free trade means allowing goods and services to move as freely as possible across different countries.
As countries develop over time, they start swapping goods and services across national borders.
As transport improves in speed and quality, these countries can start buying and selling goods and services abroad.
When governments struggle to raise domestic taxes, it is easier to implement the fair trade policy of levying heavy duties on foreign imports.
Most economists eventually gain the upper hand because keeping these trade barriers as low as possible proves to be a sensible economic policy.
In accordance with the law of comparative advantage, free trade allows countries and corporations to specialize in intermediate production, service provision, or new tech innovation.
Also, free trade expands the size of the economic pie and thus shifts scare resources from the less productive firms to the productive ones.
However, not everyone becomes better off.
Some receive a smaller slice of the pie because product market concentration and dominance can exacerbate economic inequality.
Moreover, free trade helps enhance the political discourse of peace and cooperation.
It is important for the government to improve affordable residential real estate and labor mobility in order to counterbalance the exogenous shocks from fair trade barriers.
America and China play the game of chicken over trade and technology.
America and China play the game of chicken over trade and technology, whereas, most market observers and economic media commentators expect the Trump team to help avert a long and open Sino-U.S. trade war.
The current Sino-American trade war may erect trade barriers such as tariffs, quotas, and even embargoes on both sides at the expense of global citizens who would then face higher costs and prices.
In recent times, America imposes tariffs on $60 billion Chinese imports in addition to its steel and aluminum tariffs on western allies such as Canada, Europe, and Mexico.
National Economic Council chief adviser and former CNBC economic media host Larry Kudlow expresses cautious optimism toward the next trade negotiations with the Chinese delegation.
The Trump administration also initiates an executive order to bar U.S. government agencies from buying 5G products and services from Chinese telecom equipment providers such as HuaWei and ZTE.
This executive order further restricts private government contractors from buying foreign telecom products and services in relation to 5G national economic security concerns.
These restrictions help deter unforeseen contingencies that might arise from both Chinese espionage and disruption.
Credit supply growth drives business cycle fluctuations and often sows the seeds of their own subsequent destruction.
Credit supply expansions drive business cycle fluctuations and often sow the seeds of their own subsequent destruction.
The global financial crisis from 2008 to 2009 suggests that we can predict a major slowdown in real economic activity by tracking incremental household debt accumulation.
In America and 30+ other countries, changes in household debt-to-GDP ratios between 2002 and 2007 correlate significantly with increases in unemployment from 2007 to 2010.
From this empirical perspective, credit supply expansions, rather than permanent income or technology shocks, serve as a major driver of real business cycles over time.
Most models attribute macroeconomic fluctuations to real factors such as exogenous productivity shocks.
In contrast, financial intermediaries can play a pivotal role in credit supply growth, household leverage, employment, and asset valuation.
Credit supply expansions affect the real macroeconomy by boosting household demand, rather than the productive capacity of firms.
In fact, credit booms tend to precede higher inflation and employment in retail and construction (but not in the tradable or export-driven business sector).
The economy slowly adjusts to the precipitous decline in consumer expenditures due to high household leverage when credit supply slows down in most major financial crises.
Even when short-term interest rates fall to zero, savers cannot spend enough to make up for the shortfall in aggregate demand.
Also, employment cannot readily gravitate from the non-tradable sector to the tradable sector.
Moreover, nominal rigidities, sluggish price adjustments, financial sector disruptions, and legacy distortions render post-credit-boom recessions more severe.
What triggers credit supply growth involves a key influx of capital in the financial system.
In this light, both monetary and fiscal stimulus can have a major impact on the real economy via credit supply growth, household debt, stock and bond prices, and real business cycles.
Overall, financial stability serves as a key precondition for better bond and stock valuation.
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