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What Coronavirus Means for the Possibility of a Carbon-Free Economy

In the days following Barack Obama’s election as president, incoming chief of staff Rahm Emmanuel made a bold declaration about how the administration would respond to the urgent financial crisis. “You never want a serious crisis to go to waste,” he said, citing a range of challenges, from climate to health care, that might be addressed as part of a response to the Great Recession.

Politicians and policymakers are just beginning to understand how much pain the coronavirus pandemic will inflict, and it goes without saying that policy experts of all stripes universally agree that protecting human life should be the first priority. Even still, leaders are already jockeying about how to keep the crisis from “going to waste.” One area that many are targeting is climate change.

The key climate question raised by this response to coronavirus is whether the trillions of dollars countries will spend to stimulate their economies will help reduce emissions or drive them up. Policy experts say governments may prefer to invest in fossil-fuel-intensive industries because it feels like a safe option in the middle of a pandemic, but doubling down on fossil fuels risks worsening one crisis to deal with another.

“Everybody’s going to be putting safety first right now,” says Matthew McKinnon, an advisor to a group of countries especially vulnerable to climate change. “And whether or not safety first aligns with climate first is going to vary from place to place.”

“Historic opportunity”

The transition away from fossil fuels is happening, with or without coronavirus, but there are a lot of reasons why governments might want to use this moment to double down on measures to address climate change.

Analysis from the International Energy Agency (IEA) describes the moment as a “historic opportunity” for officials to advance clean energy. As governments flood the economy with cash, deep investment in renewable projects would put people to work in the short term and, in the longer term, create decarbonized energy systems better able to compete in the 21st century. “We should not allow today’s crisis to compromise our efforts to tackle the world’s inescapable challenge,” wrote IEA Executive Director Fatih Birol in a web post.

Still, getting government officials to prioritize climate may prove difficult in the face of several headwinds. For one, oil prices have declined precipitously in recent weeks as coronavirus has driven demand for crude lower and Saudi Arabia and Russia ramped up production as part of a fierce price war. Cheap fossil fuels leave governments less likely to look to renewables.

On the other hand, low oil prices offer a great opportunity to eliminate the billions of dollars in government subsidies that support oil and gas, the IEA says, as consumers are less likely to feel the effects.

The big players

The economic response to the coronavirus will play out over months and perhaps years, but we nonetheless see the topic of a “green stimulus” already popping up in capitals across the globe.

Officials in China have promised a massive stimulus to restart the country’s economy, and observers expect that they will largely focus on infrastructure. Some of those projects may be carbon-intensive, but others could ultimately reduce emissions. Expanding electric vehicle infrastructure and transitioning from coal-powered heating to gas-powered heating are among the areas where the country could spend billions, says David Sandalow, an expert on China’s energy and climate policy who serves as a fellow at Columbia University’s Center on Global Energy Policy.

Top officials at the European Commission, the European Union’s executive body, have remained steadfast about the European Green Deal, the program intended to eliminate the bloc’s carbon footprint by 2050, even as some member states have complained about its cost in the face of coronavirus. But that program, which has a price tag that tops $1 trillion, actually creates a “green stimulus” of its own, providing billions to places in Europe that are struggling economically. Many key climate advocates have argued that a Green Deal will serve as the framework for an economic recovery.

Across the Atlantic, Washington D.C. may seem like the least likely place to look for stimulus measures focused on addressing climate change, but the conversation is simmering beneath the headlines. Renewable energy groups with support on both sides of the aisle are asking for relief, given the hit they’ve taken from falling power demand. A group of Senators is pushing to pair any bailout of the airline industry with policies to reduce the industry’s carbon footprint. And progressive lawmakers are pointing to the economic downturn, which has far-reaching implications across society, as an ideal opportunity to implement a Green New Deal.

Of course, any legislation called a Green New Deal will be difficult to pass in this Congress, or realistically any future Congress. But many of the components could easily fit as part of a bigger stimulus package. “If you agree on the size and Democrats and Republicans give each other something,” says Reed Hundt, president of the Coalition for Green Capital, who served on the Obama transition team, “you’ll get it done.”

That’s a lesson from the 2009 stimulus bill that passed under Obama. That measure contained some $90 billion to fund clean energy, supporting some 100,000 projects, while catalyzing the private sector, to spend over $100 billion in addition, according to the Obama White House.

Those figures fall short of what the U.S. will likely need to spend to transition its economy away from fossil fuels, and indeed both Democratic presidential candidates Joe Biden and Bernie Sanders have called called for trillions in their climate plans. Still, the framework of using economic stimulus to address climate change may be even more relevant now that it was ten years ago.

By Justin Worland March 24, 2020

Source: What Coronavirus Means for the Possibility of a Carbon-Free Economy

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As Wealthy Depart For Second Homes, Class Tensions Come To Surface In Coronavirus Crisis

Topline: As New York City’s coronavirus cases exploded in recent weeks, residents fleeing to second homes have come under intense scrutiny and push-back, prompting officials in multiple states to create highway checkpoints screening for New Yorkers and a national travel advisory for the entire Tri-state area, highlighting the dramatic roles class and wealth will play in the pandemic.

  • With over 56,000 coronavirus cases in New York, privileged New Yorkers with secondary homes are fleeing the City with massive effect on vacation home communities: the population of Southampton has gone from 60,000 a few weeks ago to 100,000 and rental prices in Hudson Valley rocketed from $4,000 to $18,000 per month—posing a threat to small-town hospitals that are ill-equipped to handle caring for high numbers of coronavirus patients.
  • In wealthy New England island communities like Nantucket, Martha’s Vineyard and Block Island that are heavy with secondary homes and short on hospital infrastructure, officials are going so far as to cancel all hotel, Airbnb and VRBO reservations while stationing state troopers and the National Guard to maintain flow on islands and, in the case of Rhode Island, instating 14 day mandatory quarantine on all people traveling to stay in the state from New York, New Jersey or Connecticut.
  • As outrage has grown at the privileged fleeing the city while middle and working classes remain confined in New York City apartments, there’s been social media clapback at ostentatious displays of wealth in isolation: Geffen Records and Dreamworks Billionaire David Geffen ultimately deleted his Instagram of his $570 million megayacht captioned: “Sunset last night..isolated in the Grenadines avoiding the virus. I’m hoping everybody is staying safe” after it sparked outrage on social media.
  • New York City’s poorer boroughs are hit hardest by coronavirus: Brooklyn and Queens, where median income is  $56,015 and $64,987, respectively, remain the epicenter of COVID-19, compared to Manhattan with average income of $82,459, which has been less permeated by the virus and is home to many of Manhattan’s wealthiest enclaves—and those most likely to have residents with second homes elsewhere.
  • On Saturday, President Trump said he was considering quarantining parts of New York, New Jersey and Connecticut, then, backed down and issued a domestic travel advisory for the tristate area that discourages residents of these states from non-essential domestic travel after “very intensive discussions” at the White House on Saturday night, said Dr. Anthony Fauci on CNN today: “The better way to do this would be an advisory as opposed to a very strict quarantine, and the President agreed.”
  • “Due to our very limited health care infrastructure, please do not visit us now,” reads a travel advisory from Lake Superior’s Cook County in Michigan, exemplifying vacation towns’ plea to travelers and second home owners across the country to stay away.

Background: Coronavirus cases in the United States have skyrocketed to 124,000, with deaths doubling from 1,000 to 2,046 in two days. Since those with COVID-19 can be asymptomatic for days, their presence in remote communities may be deadly, as they can spread the virus and wreak havoc on rural hospitals. The clash between wealthy and poor, also creates state-versus-state hostility, as federal support is limited and essential to states overcoming coronavirus.

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8 Ways Coronavirus Will Drastically Alter Boomer Retirements

Eventually, the economy and the stock market will recover and COVID-19, the disease caused by the novel coronavirus, will be contained. Yet the current pandemic and its economic consequences could devastate the retirement prospects of some Baby Boomers, while permanently changing the attitudes of many more.

 “This is going to leave a real imprint on the minds of people who are near or in retirement,’’ says Joseph Coughlin, director of the Massachusetts Institute of Technology AgeLab. “It’s a personal health 9/11 for much of the country.”

Consider this:  After years of hearing how 60 is the new 40, boomers are now being told that those as “young” as 60 have weaker immune systems and face greater risk from the novel coronavirus, particular if they have certain other health problems that increase with age. In China, those 80 and older with COVID-19 suffered a 14.8% death rate, while those 70 to 79 had an 8% death rate, compared to a 2.3% mortality rate for all age groups.

Of course the Baby Boomers—the 72 million still living Americans born between 1946 and 1964—are a diverse group. The majority are still working and plan to stay in the labor force longer, assuming the tanking economy permits it. About a fifth of boomers provide eldercare, either in person or remotely, to a parent or other family member. That means that even if they themselves are relatively healthy, they’re on the front lines worrying about the high vulnerability of the very old and frail. Some have no choice but to worry helplessly from afar. With the largest cluster of COVID-19 deaths in the U.S. so far occurring at a nursing home in Kirkland, Washington, the Trump Administration has directed nursing homes to keep all non-medical visitors out, except in “end of life” situations, and even in those cases clergy and relatives (after passing a respiratory infection screening) must wear face masks.  Some assisted living facilities are barring visitors too. (Read more on how coronavirus is changing care for the frail elderly here.)

Much will depend, of course, on how severe and prolonged the pandemic is; how long the bear market that began March 11th lasts; and how deep a recession is caused by the shutdowns and social isolation steps needed to slow the virus’ spread. Here are eight likely longer term effects on Boomers’ retirements. (For current survival advice, read Rational Panic: Coronavirus Plan For Retirees.)

1. Younger Boomers Will Fall Farther Behind

A new study from the Center for Retirement Research (CRR) at Boston College shows that as of 2016, even after seven years of a bull market, late boomers (those born in 1960 or later) had accumulated a lot less in 401(k) and IRA wealth than older boomers had at the same age. That’s despite the fact that fewer late boomers are covered by traditional defined benefit pensions, meaning they need to accumulate more, not less, to achieve the same level of retirement security. Late Boomers were on track to save more, the study found, but got slammed by the Great Recession and layoffs in their 40s. Some dropped out of the labor force. Others settled for lower paying jobs without 401(k)s. Alarmingly, for late Boomers in the middle wealth quartile, 401(k) participation was actually lower in 2016 than before the Great Recession.

The CRR researchers noted they were waiting for results from the Federal Reserve’s 2019 Survey of Consumer Finances to see how lasting the damage to late Boomers, and members of Gen X behind them, had been. Now, even if the news from that triennial survey is good, it might be just a bittersweet historical footnote—-particularly for any late Boomers who lose their jobs in a coronavirus recession.

2. Working Longer Will Get Harder

You’ve probably heard this factoid: an average of 10,000 boomers turn 65—the traditional retirement age—each day. But the Pew Research Center calculated last July that the Baby Boomer labor force has been shrinking by an average of only 5,900 per day since 2010. That’s because while some chose to retire early or were forced out of the labor force early, on average, the Boomers are working longer than the previous two generations did. In 2018, 29% of folks aged 65 to 72 (that is, the oldest Boomers) were working or looking for work. When the Silent Generation and the Greatest Generation were that age, Pew figures, only 21% and 19%, respectively, were in the labor force.

Even more dramatic has been the growth in older workers who say they expect to work past 65—even though they don’t all end up doing so. In a 2016 Employee Benefit Research Institute survey, 54% of workers aged 55 and older said they expected to retire at 66 or older or never. Twenty years earlier, only 19% of older workers answered that way.

Yet while lots of Boomers want (or need) to keep working, this harsh fact hasn’t changed in recent decades: when those 50 and older do lose their jobs (say, in the Great Recession or the coronavirus recession), it takes them longer to find new jobs than it does younger workers. Moreover, just one in 10 match their old pay. Some give up and retire earlier than they planned. Those who claim Social Security early to make ends meet end up with lower monthly benefits and less overall from Social Security than those who claim later.

3. Panic Will Doom Some Boomers’ Wealth

The current market dive is scary, for sure. The stomach churning volatility that’s typical of a bear market has been so severe this time that the drops have triggered multiple automatic trading halts. Eventually, the bear market will end, but not all Boomers will be there to ride the recovery. During the 2008 market crash, about 5% of those 55 or older dumped all the stock in their 401(k)s and then missed the 2009 rebound, a 2011 study of 425,000 workers’ 401(ks) showed.

The problem with “going to cash” in a crash is that you lock in your losses. Maybe your plan is to jump right back in after the market bottoms? Good luck with that. When markets do turn back up, they do so quickly.  As financial planner Kristin McKenna explains here, six of the 10 best daily gains in the S&P 500 between January 2000 and December 2019 occurred within two weeks of the worst 10 days. Had you missed all of those 10 best days, your average annualized total return on the S&P 500 for those two decades would have been 2.44% compared to 6.06% had you stayed fully invested and ridden the roller coaster down and back up.

4. The Cash Bucket Strategy Will Gain New Fans

The current bear market should give a permanent boost to a strategy that was already gaining favor—one designed to allow retirees to live well while the market tanks and to conquer the “sequence of return” risk in retirement. The problem is this: even if the stock market averages a healthy return over the 30 or so years you spend in retirement, you’re more likely to run out of money if it has its bad years early in your retirement. (That’s assuming you’re planning to draw 4% out of your portfolio each year, a common rule of thumb.)

There are multiple ways to deal with sequence of return risk, but arguably the simplest way is with a cash bucket. For example, someone nearing or in retirement could keep three to five years’ worth of money for necessary expenses (over and above what Social Security and any pensions provide) in cash or cash equivalents—say, laddered CDs, or Treasury Bonds. The idea is to have enough cash that you won’t panic and can wait for the market to recover before you sell stocks to refill you cash bucket.

5. Cruises Will Fall Off Boomers’ Bucket Lists

In January, AARP released a survey of Boomers’ 2020 travel plans showing they expected to spend an average of $7,800 on four to five trips this year, with 51% planning at least one international adventure, and 23% calling their planned foreign travel a “bucket list” trip. Moreover, a full third of Boomers’ planned international trips involved staying on a cruise ship; 61% of those who chose a cruise said they did so because it was “hassle-free”.

Assuming their portfolios recover while they’re still in the travelling mood (travel declines past 75 or 80) it’s hard to believe that retirees will permanently forsake bucket list trips. But it’s easy to imagine that the image of passengers trapped on a ship for weeks as the coronavirus spreads among them, might permanently reduce the number planning to hit the high seas. Yes, the cruise industry, which has suspended operation from U.S. ports until at least mid-April— has recovered from previous health scares. (The World Health Organization notes there have been more than 100 reported disease outbreaks on cruises over the past 30 years, including recent norovirus and influenza outbreaks.) This time could be different.

6. Time With Family Will Be Even More Important

One item that pops up at the top of many retirement wish lists is spending more time with family and friends; it’s the leading reason people say they were “pulled” into retirement rather than being pushed there by ill health, layoffs or age discrimination. In the AARP travel survey, multi-generational family trips and family reunions, combined, were the top reason Boomers were planning either domestic or international travel.

Being closer to family also turns up in surveys as the leading reason people move in retirement. It’s not hard to imagine the pandemic and related air travel fears will motivate even more Boomers to move nearer to adult children.

7. Aging At Home Will Be Even More Compelling

Even more than cruise ship horrors, the spread of coronavirus through that Washington nursing home and the nursing home visitor ban is likely to be imprinted on Boomers’ minds—and the minds’ of their own now adult children. The vast majority of Boomers already say they want to age in place “where their marriage and mortgage and memories are,’’ notes the AgeLab’s Coughlin. But, he observes, that determination hasn’t been tested yet, since the oldest of them turn 74 this year, while the average age for entering assisted living facilities is 83 or 84.

The desire to age in place—and the reality that not everyone can—predates the Boomers.  A new CRR study, using data from the University of Michigan Health & Retirement Study which has tracked about 20,000 Americans 50 and older since 1992, finds 53% of homeowners stay in the house they owned at 50 for the rest of their lives. Another 17% move once, around the time of their retirement, and then stay put. The other 30%? According to the CCR analysis, 14% move frequently after 50 because of job problems and 16% move in their 80s when health problems force them into a rental, assisted living or a nursing home.

A new generation of connected health technology could help even more people stay in their own homes—or at least delay the age at which they move, Coughlin figures. He sees everything from internet-linked pill reminder systems that dispense medication to sensors that allow remote caregivers to check whether an elder is up and moving about. As Coughlin, a Forbes contributor, writes, the internet-of-things will be not only around us, but in us, as Mom has a smart glucose sensor under her skin transmitting and adjusting her insulin levels.

8. Care Facilities And Senior Housing Will Change

Over the past four years more than 550 nursing homes have closed, bowing to rising costs, reimbursement pressures—and crucially, shrinking demand from older folks, who as noted above, want to age at home. Nursing homes aren’t likely to disappear as a last resort. But they will need to change, Coughlin predicts—for example, employing contagious disease experts and using antimicrobial surfaces.

Meanwhile, senior housing and assisted living developments, now designed to encourage congregation and socialization, might be built in the future with more spread out units and an eye towards limiting contagions.

“Until two weeks ago, every article was about the perils of social isolation (for the elderly). Now we’re changing it to (promoting) self-isolation,’’ Coughlin observes. “This is an inflection point in our medical model of how to age well.”

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I’m the Washington D.C. bureau chief for Forbes and have worked in the bureau for more than two decades. I’ve spent much of that time reporting about taxes — tax policy, tax planning, tax shelters and tax evasion. These days, I also edit the personal finance coverage in Forbes magazine and coordinate outside tax, retirement and personal finance contributors to Forbes.com. You can email me at jnovack@forbes.com and follow me on Twitter @janetnovack

Source: 8 Ways Coronavirus Will Drastically Alter Boomer Retirements

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Barron’s Wealth and Asset Management Associate Publisher Jack Otter on a new study that more than 50% of workers over age 60 are postponing retirement.

5 Ways To Help Your Favorite Restaurant Survive The Coronavirus Crisis

All across the restaurant world, owners are rushing to reassure patrons that they’re taking steps to combat the coronavirus.

Your inbox is probably filling up with emails from individual restaurants and restaurant chains, pledging to be vigilant.

“We know it’s starting to feel a little uncertain out there,” Chicago restaurant owner Rick Bayless said in an email to his customers on Thursday.

“Just know that we’re in here, continuing to deliver generous-spirited hospitality to everyone who walks through our doors.”

But fears are growing that a drop in business will harm or even kill restaurants whose margins are already thin.

Some restaurants are already announcing temporary closings. The crisis has been especially difficult in Seattle, where the virus struck early. Other places are cutting back on hours and staff.

There are things you can do, however, to make sure that your favorite place stays open. Here’s a list.

                       

1) Go out and eat. The restaurant industry has been galvanized into taking steps to make their dining rooms, restrooms and kitchens the cleanest that they’ve ever been.

We know that the coronavirus spreads in two ways: from surface contact, and from airborne transmission.

At least when it comes to surface contact, you can be pretty sure that your place is wiping down as much as it can.

Likewise, smaller crowds mean less chance that you’ll catch an infection that way, even though there are no guarantees.

Of course, some states are banning assemblies of larger groups, which might affect whether your favorite is open.

But, if you are comfortable leaving the house, and they are welcoming customers, go have a good meal.

2) Honor reservations. The worst thing you can do right now is book a table and then change your mind and not show up. It’s always a bad idea but in this environment, it will really play havoc with their staff and inventory planning.

Likewise, it’s truly bad form to make multiple reservations, and then choose from one at the last minute. You’ll simply make a number of places unhappy.

“Don’t ‘ghost,’” Bayless said in his email to customers. “We kindly ask that if you choose not to join us for your reservation, please inform us in advance. It’s OK!”

3) Opt for carryout or delivery. On its Instagram account Friday, Saba in New Orleans launched a curbside delivery service.

Many other restaurants have offered them, or have pick up areas where you can dash in, get your food and leave.

It’s a better deal for restaurants if you collect carry out yourself, rather than use a delivery app. That helps the restaurant — and you — avoid delivery charges.

But if you don’t feel like driving over, delivery is your back up choice. Be sure to tip your delivery person.

4) Buy gift cards and merchandise. Restaurants collect gift card revenue as soon as the card is purchased, then mark it as redeemed once the user applies it to a bill.

If you are in a position to buy a gift card and sit on it for a while, you will be helping your local favorite get through a tough time.

Likewise, merchandise can be big profits for restaurants. They make money on t-shirts, cookbooks, mugs, water bottles, and the like. They’re walking advertisements, too, and they show that you’re lending your favorite place a hand.

5) Tip your server. I’ve seen people asking on social media whether they can send tips directly to their favorite servers, to offset the money they’re losing by the drop in patronage.

That’s a lovely idea, but the situation can be a little complicated. First, you have to know your server well enough to have their email or cellphone number.

Second, servers are supposed to declare tips as income, and pay the appropriate taxes.

If you send the money through an app like Venmo or PayPal, there will be a record of the transaction, and the server might get in trouble if they don’t later report it, and the IRS catches them.

That’s why some servers prefer to be tipped in cash.

Also, you need to look up your state’s tipped wage law, if it has one. A number of states require restaurants to cover the shortfall between tips and the minimum hourly wage, usually for employees that are working 30 hours or more per week.

If their hours get cut, they could lose out, even if you try to make up the difference.

Before you do this, make sure it’s on the up-and-up. And also, be considerate of your server’s pride if you make them an gratuity offer.

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Shocking opportunities of the Coronavirus and Global Recession for restaurant owners and entrepreneurs… *DISCLAIMER* I’m not a medical professional or economist so for most accurate advice please refer to the CDC and WHO This video is filmed March 2 2020. Around the world, the Coronavirus has made Chinese restaurants ghost towns and affected millions of small businesses. With all this fear and panic happening, it has been reported that some Chinese restaurants are seeing as high as 70% sales drop. Some are forced to lay off workers and close down. Although Chinese restaurants are feeling the brunt of this, know that a virus knows NO BORDERS and sees NO SKIN COLOUR. The business ramifications will leak onto other restaurants as people continue to be fearful of going out to eat and gather. But as one person sees all the NEGATIVES of this, there is another who sees THE POSITIVES OF THIS. As a business owner, I see the opportunities in all the fear and panic from this pandemic and global recession. Cause as Warren Buffet says, when everyone is fearful, you should be greedy. It is the prime time to use the fear as your advantage as things are cheaper and in favour of the growing trend to food delivery. Life is all about how to react to problems. It is up to you how you react to this global phenomenon. Just know that riches are made in recessions. So if you are a restaurant owner, restaurateur, food entrepreneur, small business owner, want to open a restaurant, want to start a business, then now is the time. *Note: no way am I belittling the drastic and devastating effect both the coronavirus and recession has done and can do to people’s livelihood and the lives taken. RESOURCES: Secret Restaurant Success Club Facebook Group: http://bit.ly/Restaurantsuccessclub 7 Day FREE Email Training on How To Start a Restaurant: http://bit.ly/restaurantemailtraining How To Start A Restaurant With 0 experience: http://bit.ly/ULTRESTAURANT ABOUT WILSON LEE: I am an award-winning Top 30 Under 30 business strategist, digital marketer, and Brick and Mortar development expert helping business owners and entrepreneurs create explosive Food and Beverage businesses. My experience cultivating and operating multi-million dollar businesses such as founding and growing an international Dessert Chain (https://720sweets.com/) with locations from North America to Asia, I have discovered the key to achieving unattainable success. It is now my mission to share this knowledge with others who have solid business concepts but can’t seem to break through. If you’d like to learn more about how I can help you achieve the same results, then make sure to connect with me: https://wilsonklee.com/ FOLLOW ME ON: Instagram: https://www.instagram.com/wilsonklee/ Facebook: https://www.facebook.com/WilsonKingLee/ #wilsonklee #restaurantowner #restaurantmanagement

India Rupee Slips Past 20 To Dirham In Coronavirus Fallout

Dubai: India rupee has slipped below 20 to the dirham. Right now, it is at 20.07. The lowest it has reached was 20.22 to the dirham, which was on October 9, 2018.

The pressure is likely to continue until the country’s central bank decides what to do to counter the virus impact on the country’s economy. “The Reserve Bank of India has mentioned it is closely monitoring the global as well as domestic situation regarding the impact of the coronavirus,” said Anthony Jos, Executive Director at Joyalukkas Exchange.

“The rupee was already stressed and volatile because of the coronavirus situation and sell-offs by investors in risky assets. There was sustained foreign fund outflow with investors seeing safe havens in US Treasuries.”

Should NRIs wait another day?

Market sources reckon that the Indian Government or the central bank need to outline a set of measures – immediately – to reassure investors that growth will not get derailed by the coronavirus. As for non-resident Indians, the only question before them is whether to remit now or wait hoping the currency could dip lower.

Adeeb Ahamed, Managing Director at Lulu Financial Group, said: “The rupee plunge has come in a dramatic way and is at 73.50 against the dollar, which translates to 20.01 against dirham.

“However, we feel the rupee (low) is overdone and that further falls will be limited, with Reserve Bank of India’s intervention very much expected. It might not go below 72.20 to the dollar in the near future, even if there is intervention or a reversal.

The Indian stock markets are sliding and the currency plummeting in a way beyond control. As of now, the central bank has not intervened since the intensity of the fall is beyond one’s imagination.

– Adeeb Ahamed of Lulu Financial Group

What can India’s central bank do?

The Reserve Bank of India chief has spoken about market intervention to get the economy and stock markets back on track. The easy and immediate way would be to effect an immediate rate cut, which is what the US has done, and followed by central banks in the UAE, Saudi Arabia and Bahrain.

Currently, India’s key bank rate is at 5.15 per cent.

“We’re ready for a response should the situation warrant,” said Shaktikanta Das, the RBI Governor. “And going forward, in the near future, I do expect some discussion through video conference or telephone conference among the central banks of the large economies, including India.”

RBI Governor Shaktikanta Das
File picture of Shaktikanta Das, the RBI Governor. Stock markets were expecting a more robust response from the central bank in trying to contain the coronavirus impact on the Indian economy.

The markets may have been expecting a more robust action from the governor, and not just hints. It could explain why the key stock market index, Sensex, dropped in early trading on Wednesday.

Much the same seems to have happened in the US, where “US equities tanked 3 per cent following a surprise 50-basis-point cut from the Federal Reserve,” said Ipek Ozkardeskaya, Senior Analyst at Swissquote Bank, in a note. “It appears that the move rather frustrated investors who were expecting a more creative, or impactful action than a simple rate cut, which they thought wouldn’t remedy to disrupted supply chain problems.

“We have a real issue here: investors are expecting central bankers to become the heroes that they are not meant to be.

“Meanwhile, G7 ministers’ pledge to give the necessary support to fight back the coronavirus shock on the economy didn’t charm investors either.”

Gold treads higher

The lack of keenness to the many announcements can be seen in the renewed investor interest in gold, which on Wednesday was in the $1,640 an ounce plus range.

By:

Source: India rupee slips past 20 to dirham in coronavirus fallout

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Coronavirus Could Be The End Of China As A Global Manufacturing Hub

The new coronavirus Covid-19 will end up being the final curtain on China’s nearly 30 year role as the world’s leading manufacturer.

“Using China as a hub…that model died this week, I think,” says Vladimir Signorelli, head of Bretton Woods Research, a macro investment research firm.

China’s economy is getting hit much harder by the coronavirus outbreak than markets currently recognize. Wall Street appeared to be the last to realize this last week. The S&P 500 fell over 8%, the worst performing market of all the big coronavirus infected nations. Even Italy, which has over a thousand cases now, did better last week than the U.S.

China On Hold

On January 23, Beijing ordered the extension of the Lunar New Year holiday, postponing a return to work. The coronavirus was spreading fast in the epicenter province of Hubei and the last thing China wanted was for that to be repeated elsewhere. Travel restrictions and quarantines of nearly 60 million people drove business activity to a standstill.

The most frightening aspect of this crisis is not the short-term economic damage it is causing, but the potential long-lasting disruption to supply chains, Shehzad H. Qazi, the managing director of China Beige Book, wrote in Barron’s on Friday.

Chinese auto manufacturers and chemical plants have reported more closures than other sectors, Qazi wrote. IT workers have not returned to most firms as of last week. Shipping and logistics companies have reported higher closure rates than the national average. “The ripple effects of this severe disruption will be felt through the global auto parts, electronics, and pharmaceutical supply chains for months to come,” he wrote.

That China is losing its prowess as the only game in town for whatever widget one wants to make was already under way. It was moving at a panda bear’s pace, though, and mostly because companies were doing what they always do – search the world with the lowest costs of production. Maybe that meant labor costs. Maybe it meant regulations of some kind or another. They were already doing that as China moves up the ladder in terms of wages and environmental regulations.

Under President Trump, that slow moving panda moved a little faster. Companies didn’t like the uncertainty of tariffs. They sourced elsewhere. Their China partners moved to Vietnam, Bangladesh and throughout southeast Asia.

Enter the mysterious coronavirus, believed to have come from a species of bat in Wuhan, and anyone who wanted to wait out Trump is now forced to reconsider their decade long dependence on China.

Retail pharmacies in parts of Europe reported that couldn’t get surgical masks because they’re all made in China. Can’t Albania make these things for you? Seems their labor costs are even lower than China’s, and they are closer.

The coronavirus is China’s swan song. There is no way it can be the low-cost, world manufacturer anymore. Those days are coming to an end. If Trump wins re-election, it will only speed up this process as companies will fear what happens if the phase two trade deal fails.

Picking a new country, or countries, is not easy. No country has the logistic set up like China has. Few big countries have the tax rates that China has. Brazil surely doesn’t. India does. But it has terrible logistics.

Then came the newly signed U.S. Mexico Canada Agreement, signed by Trump into law last year. Mexico is the biggest beneficiary.

It’s Mexico’s Turn?

Yes. It is Mexico’s turn.

Mexico and the U.S. get a long. They are neighbors. Their president Andres Manuel Lopez Obrador wants to oversee a blue collar boom in his country. Trump would like to see that too, especially if it means less Central Americans coming into the U.S. and depressing wages for American blue collar workers.

According to 160 executives who participated in Foley & Lardner LLP’s 2020 International Trade and Trends in Mexico survey, released on February 25, respondents from the manufacturing, automotive and technology sectors said they intended to move business to Mexico from other countries – and they plan on doing so within the next one to five years.

“Our survey shows that a large majority of executives are moving or have moved portions of their operations from another country to Mexico,” says Christopher Swift, Foley partner and litigator in the firm’s Government Enforcement Defense & Investigations Practice.

Swift says the move is due to the trade war and the passing of the USMCA.

The phase one China trade deal is a positive, but the coronavirus – while likely temporary — shows how an over-reliance on China is bad for business.

There will be fallout, likely in the form of foreign direct investment being redirected south of the Rio Grande.

“Our estimates of possible FDI to be redirected to Mexico from the U.S., China and Europe range from $12 billion to $19 billion a year,” says Sebastian Miralles, managing partner at Tempest Capital in Mexico City.

“After a ramp-up period, the multiplier effect of manufacturing FDI on GDP could lead Mexico to grow at a rate of 4.7% per year,” he says.

Mexico is the best positioned to take advantage of the long term geopolitical rift between the U.S. and China. It is the only low cost border country with a free trade deal with the United States, so there you have it.

Thanks to over 25 years of Nafta, Mexico has become a top exporter and producer of trucks, cars, electronics, televisions, and computers. Shipping a container from Mexico to New York takes five days. It takes 40 days from Shanghai.

They manufacture complex items like airplane engines and micro semiconductors. Mexico is the rank the 8th country in terms of engineering degrees.

Multinational companies are all there. General Electric is there. Boeing is there. Kia is there.

The trade war is yet to be decided, but the damage that has already been done will not be undone. Room for a new key commercial ally is open.

– from “The U.S.-China Divorce: Rise of the Mexican Decade”, by Tempest Capital.

Safety remains a top issue for foreign businesses in Mexico who have to worry about kidnappings, drug cartels, and personal protection rackets. If Mexico was half as safe as China, it would be a boon for the economy. If it was as safe, Mexico would be the best country in Latin America.

“The repercussions of the trade war are already being felt in Mexico,” says Miralles.

Mexico replaced China as the U.S. leading trading partner. China overtook Mexico only for a short while.

According to Foley’s 19 page survey report, more than half of the companies that responded have manufacturing outside of the U.S. and 80% who do make in Mexico also have manufacturing elsewhere. Forty-one percent of those operating in Mexico are also in China.

When respondents were asked about whether global trade tensions were causing them to move operations from another country to Mexico, two-thirds said they already had or were planning to do so within a few years. A quarter of those surveyed had already moved operations from another country to Mexico on account of the trade war.

For those considering moving operations, 80% said they will do so within the next two years. They are “doubling down on Mexico”, according to Foley’s report.

Of the companies that recently moved their supply chain, or are planning to do so, some 64% of them said they are moving it to Mexico.

Follow me on Twitter or LinkedIn.

I’ve spent 20 years as a reporter for the best in the business, including as a Brazil-based staffer for WSJ. Since 2011, I focus on business and investing in the big emerging markets exclusively for Forbes. My work has appeared in The Boston Globe, The Nation, Salon and USA Today. Occasional BBC guest. Former holder of the FINRA Series 7 and 66. Doesn’t follow the herd.

Source: Coronavirus Could Be The End Of China As A Global Manufacturing Hub

Subscribe to our YouTube channel for free here: https://sc.mp/subscribe-youtube China’s manufacturing industry has been hit hard by the coronavirus epidemic. Many factories are unable to resume production because of a shortage of workers, disrupted supply chains and sluggish demand, leaving manufacturers facing huge losses in sales as they struggle to ramp up production. Follow us on: Website: https://scmp.com Facebook: https://facebook.com/scmp Twitter: https://twitter.com/scmpnews Instagram: https://instagram.com/scmpnews Linkedin: https://www.linkedin.com/company/sout…

 

North Korea’s Coronavirus Quarantine: More Effective Than Sanctions

North Korea’s leadership has declared prevention of the spread of coronavirus a matter of “national survival” and moved rapidly to close its borders to halt the spread of the virus. Indeed, coronavirus could prove an existential threat to North Korea, given the manifest vulnerabilities of the country’s public health system to transmission of infectious diseases. But, is North Korea more endangered by self-imposed quarantine measures or by integration with the outside world?

North Korea’s situation has dramatically changed from the famine of the 1990s, when its isolation and stovepiped distribution channels led to an absolute food shortage and hundreds of thousands of fatalities. At that time, citizen dependency on the public distribution system magnified the rate of fatalities, forcing average citizens to turn to self-help rather than government-reliance. Today, North Koreans rely on internal markets that in turn benefit from dependence on international supply chains, so quarantines may entail more risk than benefit to average North Koreans, and eventually to the regime.

International sanctions are designed to impose economic isolation on North Korea through the U.S.-led “maximum pressure” campaign, which punishes North Korea’s flouting of UN Security Council resolutions on its nuclear and missile development. Sanctions deny North Korea access to international trade in sensitive goods and raise the cost of North Korean procurement of energy resources and other goods. Yet U.S.-led sanctions may prove much less effective than the unanticipated consequences of a self-imposed quarantine for North Korea’s supply chain.

The quarantine will likely fail to stop the spread of coronavirus into North Korea, if it hasn’t already. Swine flu from China has infected North Korean boar stocks and leaked into South Korea for months across the demilitarized zone dividing the two countries. There is a low likelihood that January flight cancelations were put in place early or effectively enough to prevent Chinese tourist or North Koreans returning from overseas from bringing the coronavirus into the country.

North Korea’s newfound vulnerabilities–whether in the public health sector or in the country’s susceptibility to international sanctions pressures–result from connections of North Korea to the international community rather than from isolation. The real question is whether the leadership can manage North Korea’s economic integration and its unintended political consequences.

In response to past crises like SARS and Ebola, North Korea has utilized quarantine measures to reduce exposure to international public health threats, but those diseases did not pose a near or direct threat to North Korea. In the event that coronavirus spreads to North Korea, there will be a disproportionately high number of fatalities, and North Korea will be forced to make international appeals for assistance in the form of protective masks and advanced medical detection equipment. At moments of vulnerability, North Korean leadership has shown temporary flexibility and accepted help from the outside. But once the crisis fades, temporary concessions to the outside world are quickly reversed.

Both the inability to-date of sanctions to reverse North Korea’s nuclear program and the likely inability of North Korea’s leadership to isolate itself from the negative public health effects of coronavirus feed into an ongoing debate: is it better to promote North Korea’s isolation or integration to achieve peace and denuclearization?

This debate has served as a periodic source of division between Moon administration pro-engagement advocates and Washington-based sanctions hawks. Pro-Moon engagers believe engagement will promote North Korea’s integration and give the leadership something to lose, hopefully curbing radical and destructive North Korean behavior. Washington-based sanctions supporters see them as a means of punishing, isolating, and forcing the North Korean leadership to make a choice between prosperity and denuclearization.

All too often, this debate occurs without sufficient attention to or understanding of the unintended consequences of sanctions, or the North Korean leadership’s ability to blunt the effects of externally imposed isolation or coopt the impact of greater interdependence or integration. Framing the debate in those terms assumes that external actors have the power to shape North Korea’s choices. Factors within North Korea that influence its leadership’s impulse to maintain control over the population are more likely to impact North Korea’s future course than external circumstances designed to force North Korean policy choices.

All too often, this debate occurs without sufficient attention to or understanding of the unintended consequences of sanctions, or the North Korean leadership’s ability to blunt the effects of externally imposed isolation or coopt the impact of greater interdependence or integration. Framing the debate in those terms assumes that external actors have the power to shape North Korea’s choices. Factors within North Korea that influence its leadership’s impulse to maintain control over the population are more likely to impact North Korea’s future course than external circumstances designed to force North Korean policy choices.

If the North Korean regime is primarily focused on controlling the pace of internal change, external parties should evaluate sanctions and engagement measures based on whether they reduce or enhance the ability of the regime to control the pace of change inside North Korea. Sanctions properly applied using this metric will serve as a scalpel that applies pressure to specific constituencies within North Korea’s elite, rather than as a sledgehammer that crushes North Korea. Inducements should wean the North Korean people from political loyalty to North Korea’s rulers, not provide the leadership with tools to enhance control over the lives of the people.

Coronavirus will likely be far more effective than sanctions in inducing internal changes in North Korea. North Korea’s leadership has imposed quarantine measures in an attempt to regain control over the situation, but the quarantine’s inevitable failure will ultimately diminish the regime’s control at the same time that a failure to control the virus could undermine the regime’s legitimacy. Plus, because a virus does not discriminate by nationality, it cannot be blamed for having a “hostile policy.” Unlike the most carefully assembled sanctions regime, viruses can exploit the preexisting failed conditions of a public health system that itself is a manifestation of North Korea’s failed regime.

Scott Snyder is Senior Fellow for Korea Studies at the Council on Foreign Relations and author of South Korea at the Crossroads: Autonomy and Alliance in an Era of Rival Powers.

I am senior fellow for Korea studies and director of the program on U.S.-Korea Policy at the Council on Foreign Relations (CFR). I focus on South Korea’s efforts to contribute on the international stage; its potential influence and contributions as a middle power in East Asia; and the peninsular, regional, and global implications of North Korean instability. I also serve on the advisory council of the National Committee on North Korea and Global Resource Services. Prior to joining CFR, I was a senior associate in the international relations program of The Asia Foundation, where I founded and directed the Center for U.S.-Korea Policy and served as The Asia Foundation’s representative in Korea.

Source: North Korea’s Coronavirus Quarantine: More Effective Than Sanctions

북한 “코로나 격리기간 30일… 바이러스 3주 후 나타날 수 있어” North Korea is reportedly imposing a 30-day quarantine on people who’ve traveled to other countries. Still, for now, North Korea has not reported a single case of the coronavirus. Oh Jung-hee reports. Closing the border, suspending tours… and a strict quarantine of 30 days. These are the steps North Korea is taking to fight off a coronavirus outbreak. Speaking to Reuters on Wednesday, North Korea’s ambassador to UN organizations in Geneva, Han Tae-song, said the regime is putting its nationals and foreign travelers who’ve visited other countries into a 30-day quarantine. That’s double the virus’ 14-day incubation period. He explained… that scientific studies show the virus can break out even three weeks after infection… and preventing the virus is much cheaper than trying to cure it. He added… the North has seen no confirmed cases yet. According to the World Health Organization, North Korea has reported it checked nearly 7,300 people entering the country for a six-week period through February 9th. 141 travelers with fevers were tested, but all turned out to be negative. The WHO also says it’s not dealing with any coronavirus cases in North Korea. But it’s offering the North the necessary testing supplies and protective equipment like goggles, gloves, masks and gowns. Meanwhile, North Korean and WHO officials were due to meet in Geneva on Wednesday. But results of the meeting are not yet known. Oh Jung-hee, Arirang News. #COVID19 #coronavirus #NorthKorea

Why Your Index Fund Is Built To Survive The Coronavirus Outbreak

With The market already down more than 10%, the coronavirus-triggered plunge may turn into one of the fastest bear markets to hit U.S. stocks ever. But, believe it or not, a passive investment in the S&P 500 may be the best way to ride out and ultimately profit from the storm.

As coronavirus spreads, the problems at these companies will worsen and cyclical sectors that track closely with global gross domestic product growth will also suffer. This morning, the industrial and materials sectors went into the red, posting negative returns for the past 12 months. They joined energy, down 30% over the year, as the only sectors to lose money. The S&P 500 is still ahead 7% year-over-year.

Here’s the good news: Your index fund already predicted all of this.

Even before the coronavirus became a global crisis, the S&P 500 was under-weighted in the types of stocks that were most vulnerable to the outbreak and it was heavily over-weighted in the software, internet, online retail and social media companies that are likely to either weather the storm, or thrive.


The Coronavirus Plunge

Coronavirus caused the quickest 10% market correction since the 2008 financial crisis.

                           

Almost a quarter of the S&P 500 index is comprised of the ten biggest companies in America by market capitalization: Microsoft, Apple, Amazon, Facebook, Berkshire Hathaway, Alphabet (Google), JPMorgan Chase, Johnson & Johnson, Visa and Wal-Mart.

These companies have pristine balance sheets and strong long-term growth prospects to manage through the outbreak. Some may also see increased sales as people stockpile food and health safety products, or benefit from people staying at home. About half of the overall S&P 500 is in information technology, healthcare and communications stocks —all unlikely to see major long-term disruptions due to the outbreak.

On the other hand, the types of businesses that are in free-fall, such as energy and retail, hardly make a dent as a weighting in the S&P 500. For instance, the entire energy sector entered 2020 at about the same weight as Apple alone. Thus energy’s 20% plunge over the past month is causing relatively minor pain. Retailers like Macy’s, Gap and Nordstrom that may struggle further are also minor weightings, in addition to small-sized drillers like Cimarex Energy, Helmerich & Payne, Cabot Oil & Gas and Devon Energy.

While holders of the S&P have sidestepped the worst stock implosions since the outbreak, they’re also big holders of potential beneficiaries.

Johnson & Johnson, United Health Group and Procter & Gamble are about 1% index weightings and they could see an uptick in sales as people all the world prepare for the virus’s spread. If more people begin to work from home, companies like Microsoft will benefit as demand spikes for its suite of cloud products including email and remote working services. Wireless carriers like Verizon and cell tower giants SBA Communications and American Tower will benefit from rising smartphone and internet activity.

Any surge in online sales will help ecommerce companies like Amazon and logistics warehouse operator Prologis as well as another S&P 500 member Equinix, one of the largest data center real estate investment trusts. Streaming services like Netflix and internet giants like Google and Facebook will also see a boost in eyeballs from masses of homebound Americans.

You guessed it. Each of these companies has high weightings in the S&P 500.


Your Index Fund Picks Winners

The biggest weights in the S&P 500 are also the largest and most successful companies in America.

                        

The index is well-prepared for the coronavirus because it is designed to track changes in the economy, which may actually be accelerated by the outbreak. The S&P 500 weights companies by market capitalization, meaning it increases exposure to companies with improving business prospects and rising stock prices, and it decreases exposures to those with worsening fates.

Already, people have been avoiding department stores and brick and mortar retailers, and driving more efficient vehicles, cutting back on oil and gas consumption. Movie theaters are being made obsolete by streaming media services. By design, the S&P has done a near-perfect job keeping up with these changing economic trends and consumer habits.

Investors, meanwhile, have spent the past decade bidding up the stock values of cash-generating software and internet companies, and have been abandoning stocks in companies with heavy debts and large pension obligations, or those exposed to economic cycles. Here again, the S&P 500’s algorithm has been trimming holdings in burdensome industrial companies and auto manufacturers. Information technology, the most heavily weighted in the index has fallen about 5% over the past month, but is still up 23%-plus over the past year.

In 2007, at the outset of the financial crisis, Berkshire Hathaway’s Warren Buffett famously predicted an ordinary investor in an S&P 500 index fund would beat just about any hedge fund on Wall Street. Buffett offered a $1 million bet—payable to charity—to anyone who thought they could pick hedge funds that would beat the index over the ensuing decade.

A hedge fund investor named Ted Seides took up Buffett’s wager. It wasn’t even close. Seides conceded a loss in 2015, waving a white flag of defeat before the decade was over. The S&P returned 8.5% annually over that ten-year stretch, while the average hedge fund failed to deliver half that return.

The reality is as follows: Market corrections like the current one are frightening. But sometimes, the smartest play is also the easiest. With an investment in the S&P 500, the house is on your side.

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I’m a staff writer at Forbes, where I cover finance and investing. My beat includes hedge funds, private equity, fintech, mutual funds, M&A and banks. I’m a graduate of Middlebury College and the Columbia University Graduate School of Journalism, and I’ve worked at TheStreet and Businessweek. Before becoming a financial scribe, I was a part of the fateful 2008 analyst class at Lehman Brothers. Email thoughts and tips to agara@forbes.com. Follow me on Twitter at @antoinegara

Source: Why Your Index Fund Is Built To Survive The Coronavirus Outbreak

Multistreaming with https://restream.io/?ref=JQjEP Snoop Dogg is worth $124M, but doesn’t have a will

Last Week Confirms It. Goodbye, Recession – Hello, Bull Market

 

It is time to get excited, optimistic and bullish. Last week put the final nails in the “Oh, woe is me” recession coffin. RIP.

Last week’s good news supported and confirmed recent anti-negative and pro-positive improvements. Here is the wonderful list:

Earnings reports are driving a shift to the positive

Compare these two headlines from The Wall Street Journal:

  • October 9: “U.S. Earnings Flash a Worrying Signal”
  • November 2: “Earnings Tide Lifts Most Stocks – Investors are getting a more positive picture of American corporations’ health than that painted by analysts in buildup to earnings season”
Today In: Money

The cause? Earnings reports continue to be positive on balance, with most of the September quarter-end earnings reports now in. The 336 S&P 500 companies reporting September results so far (from October 15 through November 1) represent 67% of the 500 companies and 75% of the $27T market capitalization. (Many of the remaining 164 companies will report October or November quarter-end results later.)

While reports of companies beating expectations are widespread, a good way to view investors’ complete evaluation is by examining stock performance. Below is a graph of the one-month returns (including dividend income) for all of the 336 reporting companies. I have broken out the so-called “safe” stocks (REITs and utilities) because they have been beneficiaries of both reduced interest rates and bearish thinking – therefore, expect them to underperform.

Clearly, Wall Street views this earnings report season as favorable. Additionally, the need and desire for “safe” stocks has given way to the pursuit of growth.

The Federal Reserve cuts and quits

Finally! While rates remain abnormally low (meaning there is music to be faced in the future), at least the game of will-they-or-won’t-they looks over for now. That is helpful because businesses, consumers and investors now can make decisions based on a stable rate environment.

GDP growth is just fine

A good example of how negativity can take time to turn positive is the last week’s third quarter GDP growth report. Expectations had been for a seasonally adjusted, real (adjusted for inflation), annualized rate of 1.6%, down from 2% last quarter. Instead, it came in at 1.9%. That is good news, but most reports focused on the “continued slowing” instead of the desirable surprise.

Think of that report this way. For a quarter that had its problems, growth was still around 2%, in line with the average post-recession growth rate. Looking at a longer time period provides a good perspective for that 1.9% growth rate.

Employment and consumer spending are good

The recession pundits keep expecting these shoes to drop, but they do not. The problem is the factors leading up to reduced employment are absent. Following, so long as consumers are employed, they will spend. Therefore, in spite of that previous sharp drop in consumer confidence, consumer spending has remained strong and consumer confidence has improved.

The Wall Street Journal’s November 2 lead story (print edition) says it best: “Jobs, Consumers Buoy Economy, Defying Slowdown Across Globe.”

The bottom line

Last week offered an outstanding combination of good news that removes recession pessimism and reintroduces growth optimism for 2020. Stock ownership (excluding “safe” stocks) continues to look desirable.

Follow me on Twitter or LinkedIn.

During my 30-year career, I managed and consulted to multi-billion dollar funds. Using the “multi-manager” approach, I worked with leading investment managers. I now manage personal accounts and write about my analysis and decisions. … From my 50-year personal/professional investment experience, I developed the skills I use to find opportunities and avoid risks. Because markets are ever changing, I choose the strategies (safety, income, value and growth) that conditions warrant. … My one regular activity is to seek developments and trends being ignored or misinterpreted by investors. These are the situations that consistently produce higher return opportunities (or higher risk levels). … I am a CFA charterholder with an MBA from Stanford Graduate School of Business and a BS in Finance from San Diego State University. I am a former Washington DC CFA board member and currently serve on the AAUW Investment Advisers Committee and the City of Vista Investment Advisory Committee. … For more, please see my LinkedIn bio at http://www.linkedin.com/in/johntobeycfa

Source: Last Week Confirms It. Goodbye, Recession – Hello, Bull Market

292K subscribers
Traders Jon and Pete Najarian are joined by Sarat Sethi, managing partner at Douglas C. Lane & Associates, and Anastasia Amoroso, global investment strategist at J.P. Morgan Private Bank, to discuss calls on Netflix, Apple and Juniper Networks.

China Growth Nowhere Near Official Estimates, Says Morningstar

China’s third quarter growth rate has fallen to 6%, says Beijing. No it hasn’t. It’s more like 3%, says Morningstar’s China economics team led by Preston Caldwell in a report dated October 29.

While Donald Trump and his economic advisor Larry Kudlow try to convince Wall Street today that trade talks are going well and the two sides will still ink their so-called Phase 1 mini-deal this year, investors are noticing something awry in China. Companies are sourcing product elsewhere in modest, yet increasing numbers. China’s usual high fixed asset investment numbers are falling. Economic policy makers could be afraid of debt burdens and don’t want to overstimulate the economy. Growth is slowing. Industrial production is contracting.

To make matters worse, the full brunt of tariffs hasn’t quite been felt fully by China. The average incremental tariff rate increased to about 12% in the third quarter from about 9% in the second quarter. If Phase 1 talks result in no signed agreement anytime soon, Morningstar predicts it would send the average U.S. tariff rate on Chinese imports to over 20% by the first quarter of 2020.

The dollar/yuan exchange rate has helped offset some of the tariff costs. The yuan has weakened by about 5% since the end of the first quarter. For exporters, China is still cheap.

Today In: Money

The bulk of the third quarter decline was due to the consumer durables index component of the Morningstar proxy for measuring GDP. It contracted 4.1% from 3.8% growth in the second quarter. Morningstar analysts believe there is a chance that the locals may be temporarily pulling back on spending in anticipation for new government subsidies. Still, slowing durables consumption matches the trend in place since early 2017. And stimulus has been trickling in since.

Two of the other Morningstar proxy components that brought them to the 3% figure also saw a marked decline in the third quarter. Their power proxy index is now in line with the other index components after being a positive growth outlier for about two years.

But it appears the real drag that brought Morningstar’s number down to 3% is industrial production. Industrial profits are down 5.3% year over year versus August’s contraction of 2%.

“Neither a surprise nor a market mover,” says Brendan Ahern, CIO of KraneShares in New York. “U.S. tariffs are still exacting their toll on export-focused manufacturers.”

The industrial sector slowdown might also be understated, especially if China is over-estimating inflation, Morningstar report authors warned.

Meanwhile, China’s dependence on credit to sustain economic growth has so far thwarted Xi Jinping’s attempts to convince the provincial governments to deleverage. Debt growth remains above nominal GDP growth rates.

“We’re not surprised that China’s economy has failed to recover, given that credit growth stalled after a slight rebound in the first quarter,” Morningstar analysts wrote.

China-bound investors will be watching for solid Singles Day sales on November 11. If they disappoint, emerging market funds who are mostly overweight China could finally start shifting positions.

China’s A-shares have been outperforming the MSCI Emerging Markets Index all year. Only Russia, as measured by the VanEck Russia (RSX) exchange traded fund, is beating the CSI-300, an index tracking mainland China equities listed on Shanghai and Shenzhen exchanges.

Official consumer spending showed a mixed picture in the third quarter. Nominal retail sales grew 7.8% year over year in September versus a high of 9.8% growth back in June. Real retail sales fell only 30 basis points from August.

China’s National Bureau of Statistics’ household survey data suggests that most of the spending went towards education, entertainment, and “miscellaneous services.”

Morningstar said that their own sampling of alternative consumer sales data such as box office revenue, telecom revenue, and air passenger volume suggests tepid consumer services growth. China’s number crunchers are more upbeat on that and Morningstar’s team is not, which brings their forecast so much lower than official figures.

E-commerce giant Alibaba – the company behind Singles Day – announced this week that Taylor Swift will be performing at the Mercedes Benz Arena in Shanghai where the shopping spree will have their telethon-like tally of sales. If Swift can hype Singles Day shoppers to spend, the China consumer bull narrative will remain in tact. If she fails, and Singles Day ends up being mediocre, all bets are on for more stimulus in the months ahead out of Beijing.

Follow me on Twitter or LinkedIn.

Spent 20 years as a reporter for the best in the business, including as a Brazil-based staffer for WSJ. Since 2011, I focus on business and investing in the big emerging markets exclusively for Forbes. My work has appeared in The Boston Globe, The Nation, Salon and USA Today. Occasional BBC guest. Former holder of the FINRA Series 7 and 66. Doesn’t follow the herd.

Source: China Growth Nowhere Near Official Estimates, Says Morningstar

291K subscribers
China released third-quarter GDP figures on Friday showing the economy grew 6.0% from a year ago — the lowest in at least 27-1/2 years, according to Reuters records. CNBC’s Eunice Yoon reports.

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