One of Europe’s riskiest bond bets is a sign of how much investors are confident in the central bank’s ability to recover from the pandemic smoothly.
Italian benchmark yields are near a six-month low and the government is so short of liquidity that it canceled last week’s loan auction. With the number of outstanding positions in bond futures since March, the market is beginning to look like a crowded trade.
This is the latest evidence of the bullish momentum that is prevailing across European markets. Italy is one of the region’s most indebted nations, yet has seen unprecedented stimulus from the European Central Bank to dent lending costs that are reducing volatility and driving investors into the highest-yielding corners of the market. .
“The PEPP expansion could be important in that regard,” said Christoph Rieger, head of fixed-rate strategy at Commerzbank AG, referring to the ECB’s pandemic bond-buying program, which is due to end in March, but which many investors Now the bet will go on for a long time.
Against this background, Rieger expects Italy’s 10-year yield premium to fall to 75 basis points from its German counterpart – the security sector paradigm – currently around 100 basis points.
Meanwhile, Italian stocks are on a tear after a blockbuster earnings season in Europe, and the ECB recently changed its forward guidance to signal a longer period of ultra-lax policy, adding fuel to the rally.
Last week, the number of outstanding Italian 10-year bond futures contracts rose nearly 60,000 to more than 360,000. The increase as the underlying securities increased, indicating that investors are adding rather than consolidating their positions.
Giles Gail, still head of European rates strategy at NatWest Markets Plc, is starting to consider what might happen if everyone rushes to exit at the same time.
“It will be perverse, but possible in this market,” he said. For now, he also expects the Italian-German bond to expand by 75 basis points in the coming months.
Meanwhile, Rohan Khanna, a strategist at UBS AG, points to the risk of Snap elections, which he says are “highly likely” in the first quarter of 2022, if Mario Draghi decides to run for president, Although the probability of that is low. But for now, it all seems like a distant possibility.
On Wednesday, Italy paid less than the ECB’s own deposit rate to borrow for the first time in 12 months. This is an anomaly that highlights the scale of distortion in the region’s currency markets as well as the bullish trend of traders.
“An ECB that is in volume-control mode, prolonging its QE program with a clear commitment to financial stability, is clearly supportive of sovereign spreads,” Gayle said.
It is widely believed that the Covid-19 pandemic and the reactions to it by governments and businesses accelerated an already-strong trend toward increasing economic inequality in the U.S. People on the political left think this and people on the political right do too, a heartwarming exception to the political polarization of our age.
This belief is also based on some actual evidence. Thanks to big increases in the prices of stocks and other assets after the initial shock of the pandemic, the nation’s billionaires have in fact added many billions to their net worths, while lots of affluent homeowners and 401(k)-holders have added hundreds of thousands.
So yes it’s possible, maybe even likely, that when the dust settles and all the relevant data are available, we will conclude that economic inequality worsened over the course of the pandemic. But I wouldn’t be sure of it. Pandemics are one of the “Four Horsemen” of economic equalization described by historian Walter Scheidel in his acclaimed 2017 book, “The Great Leveler: Violence and the History of Inequality from the Stone Age to the Twenty-First Century” (the other three being war, revolution and state collapse).
Scheidel did have more devastating diseases in mind than what Covid-19 has proved to be so far, but as of January, Nobel-prize-winning economist Angus Deaton found that economic inequality among countries had decreased during the pandemic, although this didn’t hold on a population-weighted basis because the economy of India, the largest country in the bottom half of the world’s income distribution (it’s “lower middle-income,” according to the World Bank), had suffered greatly even before this year’s rise of the Delta variant.
Within the US, the very real forces pushing toward more inequality have been counteracted by an unprecedented outpouring of government aid, while trends boosting wages in the lower part of the distribution that were apparent before the pandemic seem to be accelerating now. The numbers available so far, while preliminary and in some cases a bit contradictory, aren’t really telling a story of exploding inequality.
Perhaps the simplest of these numbers, from the distributional financial accounts that the Federal Reserve began releasing quarterly in 2019, is the wealth share of the bottom 50 per cent of the wealth distribution. It bottomed out in the second quarter of 2011 at a barely-there 0.4 per cent of US household wealth and has been rising most quarters since, reaching 2 per cent in the first quarter of this year for the first time since just before the Great Recession started in December 2007.
This measure, which I’ve written about before, has its limitations. The Fed estimates wealth by combining household-level data on assets and liabilities from its triennial Survey of Consumer Finances, most recently conducted in 2019, with aggregate numbers from its quarterly Financial Accounts of the United States, and lumps the entire bottom half of the wealth distribution together because it doesn’t have enough information to do otherwise. It is able to slice things more finely within the top half, where the top 1 per cent gained wealth share since the end of 2019 while those between them and the 50th percentile lost ground.
So yes it looks like wealth inequality increased during the pandemic within the top half, and most of the bottom half’s gains came from those just above it in the wealth distribution rather than the very richest. The bottom half did enjoy a bigger percentage wealth gain than the top 1 per cent —30.3 per cent versus 20.7 per cent since the end of 2019 — although because it had so little wealth to start with, that amounted to just $609 billion in new wealth versus $7.1 trillion for the 1 per cent. Still, the total wealth of the bottom 50 per cent in the first quarter of this year amounted to 6.3 per cent of that of the top 1 per cent, up from 5.8 per cent at the end of 2019 and the highest such percentage since 2007. In that sense, at least, inequality between the top and bottom decreased.
That sense may not be enough for most people who are concerned about inequality, but improved conditions for the less-well-off are worth celebrating in any case, and it’s not just the Federal Reserve that’s detecting signs of them. Researchers at the Urban Institute estimated last month that, thanks to big job gains and the benefits included in the American Rescue Plan approved in March and earlier pandemic-aid legislation, the share of Americans below the poverty line would fall to 7.7 per cent this year from what they estimated using the same methodology to have been 13.9 per cent in 2018.
These estimates use what’s called the Supplemental Poverty Measure, a decade-old metric that attempts to better incorporate all the resources available to poor families, and the Urban Institute’s number for 2018 is a bit higher than the 12.8 per cent SPM rate estimated by the Census Bureau and the 12.7 per cent estimated by Columbia University’s Center on Poverty and Social Policy based on Census data. Measuring poverty is complicated, especially over time. But the trend does seem to be headed in the right direction.Because the expected drop in poverty in 2021 owes so much to federal aid, some of it could prove temporary. But gains for the lower part of the income distribution are also coming from the private sector in the form of higher wages.
It’s hard to know what to make of the 2020 data, which may be skewed by low response rates to government surveys and big job losses among low-wage workers. But the high wage growth before the pandemic and so far this year seems to be for real, and all the anecdotal evidence from the job market points to it continuing. In previous economic expansions the wage gains at the bottom of the scale came only after years of job growth; this time it seems to be the norm from the get-go.
A full picture of the pandemic’s impact on income and wealth inequality will have to wait on more data. The most recent income-distribution numbers available are from 2019 in the case of Census Bureau survey data and 2018 for tax statistics from the Internal Revenue Service. The Census Bureau’s estimate of the Gini coefficient, a measure of how equally incomes are distributed that comes out to one if one person gets all the money and zero if everyone earns the same amount, has been rising at a somewhat slower pace in the 2000s than in the 1980s and 1990s. It even fell slightly in 2018 and 2019, although it seems too early to make much of that.Such broad measures of inequality have taken something of a backseat in recent years to the statistics on income and wealth at the very top compiled from tax data by economists Thomas Piketty, Emmanuel Saez, Gabriel Zucman and others. Saez and Zucman’s most recent updates of the US data (and revisions in response to critiques from other economists), show a decade-long plateau in the share of income going to the top 0.1 per cent and a more recent halt in wealth-share gains.
Given what we know from other sources it seems pretty likely that the income and wealth shares of the top 0.1 per cent rose in 2020, and given that I don’t have a great explanation for why inequality was declining — or at least somewhat on hold — before the pandemic, I’m not going to make any confident predictions here about what it will do after.
One thing that is clear from the above chart is that inequality can decline, and decline by a lot. Amid the great equalization of the mid-20th century, economist Simon Kuznets (another Nobel winner) wrote an influential paper in 1955 speculating that it might be in the nature of economic modernization and industrialization for inequality to at first increase and then decline. After decades of rising inequality in the US and other rich countries, such examinations are now more likely to conclude that a growing gap between rich and poor is an inevitable trait of capitalist economies (Piketty’s “Capital in the Twenty-First Century”) or human society in general in the absence of calamity (Scheidel’s book). They may be right! But again, I wouldn’t be sure of it.
A deep pool of debt with below-zero returns is increasingly betting on European bonds. In a matter of weeks, German 10-year bond yields fell to the most in July from flirting with zero for the first time in two years, going back to minus 0.46% since the start of 2020. That fall – which has propelled bond prices – has helped push negative-yield debt volumes in Europe to a near six-month high of 7.5 trillion euros ($8.9 trillion).
Traders were alerted by the inflation bet, which initially raised borrowing costs, but lost heights after major central banks insisted on continued support. At the same time, the spread of Covid-19 variants stoked demand for the safest government loans, reviving a business that dominated global markets last year amid the pandemic.
Strategists at HSBC Holdings plc and ABN AMRO Bank NV never shied away from their call for benchmark bond yields at minus 0.50% by the end of 2021, which has been in effect since the first half of last year. That will erase a large portion of this year’s 54-basis point trough-to-peak advance.
The European Central Bank said last month that current inflation is driven by temporary factors, and any change in stance would depend on hitting the new 2% inflation target.
HSBC’s forecast was “based on the assumption that there will be no rate hikes before the end of 2023,” said strategist Chris Atfield. “It is mostly market priced now, helped by the new ECB forward guidance.”
Money markets have quickly cut back on policy tightening after the ECB revised guidance on interest rates, saying it would not react immediately if price hikes exceed that target for a “transient” period.
According to swap contracts, in July, traders wiped out 20 basis points more from rate-increasing bets. This is the biggest decrease in nearly two years, and they suggest they expect the ECB deposit rate to be below zero in five years.
HSBC’s Attfield said that “the new forward guidance criteria for rate hikes since 2008 will not have been met at any point,” highlighting the challenging task facing the ECB as it seeks to open up record monetary stimulus.
The euro area pulled out of recession in the second quarter, and headline inflation climbed to 2.2% last month. According to Mayva Cousin of Businesshala Economics, while rising pressures could push the annual CPI rate to more than 3% in the coming months, the increase will prove to be temporary and inflation is expected to decline sharply in early 2022.
According to a Businesshala survey, strategists see the German 10-year yield as low as minus 0.14% by the end of the year, down from minus 0.035% nearly a month ago. ABN AMRO strategist Flortje Merten sees a drop to minus 0.5%, given the balance between rate expectations and the state of the euro-regional economy.
“Further rate hikes and more optimistic sentiment would be two opposing factors and could keep Bund yields around these low levels,” Merton said.
The Bank of England will meet with investors on Thursday to discuss the possibility of a split vote on bond purchases, given recent sharp remarks by some members of the Monetary Policy Committee.
European sovereign supplies should remain moderate at around 17.5 billion euros, according to Commerzbank, with auctions in Germany, Austria, France and Spain.
Historically, people give the government their money, instead of spending it, with the promise of being paid back, with interest. Now, governments are essentially getting paid to borrow money, as people become increasingly desperate for a safe haven for their wealth. The cycle becomes self fulfilling as negative rates raise further concerns about the economy.
“Bonds are supposed to pay the owner of capital something to pry the money out of their hands. But no … ” said co-founder of DataTrek, Nicholas Colas. Central banks often lower interest rates to grow the money supply in the economy, fuel demand and provide growth momentum. Other key drivers for monetary policy easing are weakening domestic outlooks, falling annual growth rates, low inflation and weakening business and consumer confidence. And in Europe’s case, make up for the lack of a coordinated fiscal response.
Another reason for negative yielding debt worldwide could be that institutional investors, like pension funds, are forced to keep buying bonds because of liquidity requirements. PIMCO’s global economic advisor Joachin Fels said there are also secular factors like demographics and technology that drive rates lower.
“Rising life expectancy increases desired saving while new technologies are capital-saving and are becoming cheaper – and thus reduce ex ante demand for investment. The resulting savings glut tends to push the “natural” rate of interest lower and lower,” said Fels.
Asia is emerging as the epicenter for investor worries over global growth and the spread of coronavirus variants. While their peers in the U.S. and Europe remain near record highs, Asian stocks have fallen back in recent months amid slowing Chinese economic growth and a glacial rollout of vaccines. The trend accelerated Friday with the benchmark MSCI Asia Pacific Index briefly erasing year-to-date gains for the second time in as many months.
“Asia was seen as the poster child in pandemic response last year, but this year the slow vaccination rollout in most countries combined with the arrival of the delta variant means another lost year,” said Mark Matthews, head of Asia research with Bank Julius Baer & Co. in Singapore. “I suspect Asia will continue to lag as long as vaccination rollouts remain at their relatively sluggish levels and high daily new Covid counts prevent them from lifting mobility restrictions.”
The growing jitters in the region comes as investor concerns shift from runaway inflation to an early withdrawal of stimulus by central banks. China’s authorities signaled earlier this week they may soon unleash more support for the economy, suggesting the world’s fastest-pandemic recovery may be weaker than it appears.
A fresh regulatory crackdown on Chinese tech stocks this week has also impacted investor sentiment in the region. The Hang Seng China Enterprises Index fell briefly into a technical bear market Friday, led by weakness in the sector.
While Asia bore the brunt of the retreat in global equities, havens in other asset classes from Treasuries to the yen have rallied, and the rotation toward economically-sensitive cyclical stocks from their high-priced growth counterparts continued to unwind.
“It’s a sign of how challenging the reopening process is,” Marvin Loh, State Street senior global market strategist, said in an interview with Bloomberg TV. “What the PBOC is going through as well as these variants that keep popping up around the world shows it’s going to be an uneven process. Maybe a normalization tightening policy is not necessarily going to be as fluid.”
Covid 19 remains a key challenge. In Japan, Tokyo has declared a renewed state of emergency to combat the resurgent virus, banning spectators from the Olympics and pushing the Nikkei 225 Stock Average toward a correction. South Korea is intensifying social distancing measures in Seoul while Indonesia is battling a virus resurgence that has crippled its health system.
“Asian equities are being particularly impacted by the rebound in coronavirus cases in the region, fears about the impact of that on regional growth and concern that we may now have seen the best of the rebound globally,” said Shane Oliver, head of investment strategy with AMP Capital Investors in Sydney. “Asian shares may have led the way on this but coronavirus concerns may also weigh on global shares generally.”
For the APAC region, recent trade deals will likely invigorate and deepen economic integration over the coming few years. In late 2020, China, Japan, South Korea, Australia, New Zealand and 10 Association of Southeast Asian Nations (ASEAN) members signed the Regional Comprehensive Economic Partnership (RCEP) agreement after eight years of negotiation.
When fully implemented in 2022, RCEP will represent the world’s biggest trading bloc, covering about 30% of global GDP and trade. In addition, China concluded a Comprehensive Agreement on Investment (CAI) with the EU on the last day of 2020. The EU is China’s second-largest trading partner and the CAI will cover broad market access, including to key sectors such as alternative energy vehicles and medical services.
Although these trade deals will not have an immediate economic impact, in the medium term the treaties should cement Asia as the world’s most dynamic economic bloc embracing free trade, investment and globalization. They should also help to counter the disruptive geopolitical tensions and encourage the post-pandemic economic recovery in Asia.
East Asian and ASEAN countries generally rely on manufacturing and trade (and then gradually upgrade to industry and commerce), and incrementally building on high-tech industry and financial industry for growth, countries in the Middle East depend more on engineering to overcome climate difficulties for economic growth and the production of commodities, principally Sweet crude oil.
As oil prices spike to a nearly three-year high, a bitter disagreement between international oil producers has shattered hopes for a deal to increase oil production this year—thereby threatening to further hike up rising oil and gas prices as a broad economic reopening looks to ramp up travel demand.
Following two days of fraught discussions last week, the group of oil producers known as OPEC+ called off an afternoon meeting Monday and set no date to meet again, effectively suspending a planned agreement to raise output by 2 million barrels per day from August to December
Two unnamed sources told Reuters the failed negotiations mean the expected production hikes this year will no longer occur.
The price of U.S. oil benchmark West Texas Intermediate—at about $75.31 a barrel—jumped 1.3% Monday after the news and has climbed 5% over the past week’s disagreement, while the price of the United Kingdom’s Brent Crude ticked up 1.1% and 4%, respectively.
The United Arab Emirates, which has invested heavily in its oil production capacity, refused to move forward with the deal because it would also extend oil production cuts through late 2022.
Though the UAE wants to raise its output unconditionally, Saudi Arabian oil producers, who supported the agreement, argued the extended output cuts are necessary to prevent excess oil supply that could tank prices.
The production increase was meant to help curb rising oil prices and buy producers time while they assess the risk of rapidly spreading variants in countries like India once again hurting demand and shuttering economies.
60%. That’s how much the price of WTI oil has surged this year alone, while the price of Brent Crude has climbed about 50%.
Oil prices crashed last year but recouped all their pandemic losses by March, and they’ve surged roughly 20% higher since. After cutting production by about 10 million barrels per day last year, oil producers are still supplying about 5.8 million fewer barrels per day than before the pandemic. Most recently, OPEC+ in early June agreed to increase oil output by 450,000 barrels per day starting this month.
Despite the easing of lockdowns and an accelerating vaccine rollout, producers have been careful to ramp up supply after excess inventories drove prices down to negative territory for the first time in history last spring. That happened after an all-out price war erupted between oil-producing giants Russia and Saudi Arabia in March 2020—just as travel demand began to plummet during the coronavirus outbreak.
Costly-to-maintain storage tanks soon filled up with no buyers, and the price of one American oil futures contract plunged below zero in April 2020. OPEC and its allies agreed to cut production in order to stabilize prices amid the turmoil, but according to the International Energy Agency, those inventories are still being worked off to this day.
I’m a reporter at Forbes focusing on markets and finance. I graduated from the University of North Carolina at Chapel Hill, where I double-majored in business journalism and economics while working for UNC’s Kenan-Flagler Business School as a marketing and communications assistant. Before Forbes, I spent a summer reporting on the L.A. private sector for Los Angeles Business Journal and wrote about publicly traded North Carolina companies for NC Business News Wire. Reach out at firstname.lastname@example.org. And follow me on Twitter @Jon_Ponciano
Delta fears are growing, central banks face challenges and the shape of the U.K. and Europe post-Brexit continues to form. Here’s what’s moving markets.
Concern about the more contagious Delta coronavirus variant is growing and those fears helped fuel a rise in Moderna shares to a record high after the drugmaker said its vaccine produces protective antibodies against the strain. The medicine was approved for restricted emergency use in India, where little more than 4% of the population is so far fully vaccinated. The variant is rippling through emerging markets, with more curbs in Indonesia and warnings of a potentially “catastrophic” wave in Kenya. A widening gap in vaccination rates in the U.S. also shows the risks faces to certain regions.
The major challenge for central banks is going to be how to wean the global economy off the unprecedented support they have deployed to deal with the disruption Covid-19 has caused. U.S. and European confidence data is soaring, underlining the rebound the economy is experiencing, while China’s central bank has also struck a more positive tone. Some more data points will arrive for policymakers to mull over on Wednesday, led by U.K. GDP and European inflation numbers.
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Paris is JPMorgan’s new trading center in the European Union post-Brexit as the U.S. banking giant inaugurated a new headquarters in the French capital. It is a victory for France in the ongoing race with other European countries to lure business from London after the referendum to leave the EU. It comes as the U.K. government unveiled a system of overseeing subsidies to companies, promising “more agile” decisions. And the U.K. is expecting to reach a truce in the so-called “sausage wars’’ with the EU over post-Brexit trading rules in Northern Ireland.
OPEC and its allies have delayed preliminary talks for a day to create more time to find a compromise on oil-output increases. It comes with crude oil prices on track for the best half of a year since 2009. Surging commodity prices are creating all sorts of headaches for policy makers, from rising inflation expectations that could move the hand of central bankers to a higher cost in shifting to more sustainable energy sources. This has initially led to a surge in profit for commodity trading houses but will end up hitting consumers down the road through higher prices.
Asian stocks mostly rose following a record close in the U.S. on signs that vaccines can protect against the delta variant of the coronavirus. European and U.S. stock futures are steady. The earnings calendar is relatively thin but watch for the reaction to two long-running takeover sagas moving toward a conclusion.
EssilorLuxottica, the eyewear giant, decided to go ahead with the acquisition of smaller peer GrandVision and the board of France’s Suez has backed its takeover by rival Veolia. And the Organization for Economic Cooperation and Development meets in Paris to finalize plans to overhaul the global minimum corporate tax.
What We’ve Been Reading
This is what’s caught our eye over the past 24 hours.
And finally, here’s what Cormac Mullen is interested in this morning
With just one more day of trading in the first half of 2021 to go, global stocks are on track for their second-best performance since 1998. If the MSCI AC World Index’s gain of about 12% through June 29 holds, it would be beaten only by a 15% rise in 2019. The global stock benchmark closed at a record on June 28, and has risen almost 90% since its pandemic low in March 2020.
As we begin the second half, investor focus will soon switch to the upcoming earnings season. The second quarter could well mark peak earnings growth so comments on the outlook will be key for stock performance as will the impact of rising costs on margins. Outside of that, the same themes that dominated the first half will monopolize the second, and whether we get an equally strong next six months will likely depend on the path of other asset classes most notably bonds.
A financial crisis is any of a broad variety of situations in which some financial assets suddenly lose a large part of their nominal value. In the 19th and early 20th centuries, many financial crises were associated with banking panics, and many recessions coincided with these panics. Other situations that are often called financial crises include stock market crashes and the bursting of other financial bubbles, currency crises, and sovereign defaults. Financial crises directly result in a loss of paper wealth but do not necessarily result in significant changes in the real economy (e.g. the crisis resulting from the famous tulip mania bubble in the 17th century).
Many economists have offered theories about how financial crises develop and how they could be prevented. There is no consensus, however, and financial crises continue to occur from time to time. Negative GDP growth lasting two or more quarters is called a recession. An especially prolonged or severe recession may be called a depression, while a long period of slow but not necessarily negative growth is sometimes called economic stagnation.
Some economists argue that many recessions have been caused in large part by financial crises. One important example is the Great Depression, which was preceded in many countries by bank runs and stock market crashes. The subprime mortgage crisis and the bursting of other real estate bubbles around the world also led to recession in the U.S. and a number of other countries in late 2008 and 2009.
Some economists argue that financial crises are caused by recessions instead of the other way around, and that even where a financial crisis is the initial shock that sets off a recession, other factors may be more important in prolonging the recession. In particular, Milton Friedman and Anna Schwartzargued that the initial economic decline associated with the crash of 1929 and the bank panics of the 1930s would not have turned into a prolonged depression if it had not been reinforced by monetary policy mistakes on the part of the Federal Reserve,a position supported by Ben Bernanke.
70% of GDP growth in the global economy between now and 2030 will be driven by the machines, according to PwC. This is a near $7 trillion dollar contribution to U.S. GDP based around the combined production from artificial intelligence, machine learning, robotics, and embedded devices. This is the rise of a new machine economy.
For those not familiar with the machine economy, it’s where the smart, connected, autonomous, and economically independent machines or devices carry out the necessary activities of production, distribution, and operations with little or no human intervention. The development of this economy is how Industry 4.0 becomes a reality.
Visionary leaders will implement new technologies and combine them with capital investments in ways that help them grow, expand, diversify, and actually improve lives. These machine economy leaders will operate in a new intelligent systems world in thousands of companies that will drive new economic models globally.
Sounds good so far, but all of that autonomous machinery isn’t going to build and operate itself.
Not enough people to do the work
While most people would agree that manufacturing is an important part of our economy, they aren’t recommending their children pursue that line of work. It’s expected that 4.6 million manufacturing jobs created between now and 2028 will go unfilled. Key drivers for this change include the fact that 10,000 baby boomers retire every day without people to replace them.
The workforce is quickly losing the second-largest age group, and millennials (the largest group) have so far not been attracted to manufacturing jobs at large. Instead they tend to be drawn toward technology, engineering, finance. The underlying issue may be one of perception, as the future of manufacturing will in fact include a much higher degree of technology, engineering, and finance in order to function.
Different skills are needed
Manufacturing jobs are changing. The number of purely manual, repetitive tasks are shrinking as technology advances to handle those jobs with robots and automation. Fifty percent of manufacturers have already adopted some form of automation, and now they need people with critical thinking, programming, and digital skills. Tomorrow’s jobs have titles such as Digital Twin Engineer, Robot Teaming Coordinator, Drone Data Coordinator, Smart Scheduler, Factory Manager, Safety Supervisor, and so on.
The shifts in productivity are happening so quickly, humans can’t keep up with them
An unskilled position can be filled relatively quickly as the prerequisite qualifications are limited. It typically takes months to fill a skilled position, and in most cases much longer for an individual to develop the requisite skills before they even think to apply. One alternative is to lower requirements in terms of education, skill, and experience in order to get someone new in the position, but then companies have to absorb the entire expense of training them.
Meanwhile there is increased pressure to utilize existing people’s and teams’ times and skills as much as possible, which can lead to burnout. This is a tenuous cycle that needs to be fortified by making sure our workforce has the skills training they need, when and where they need it.
In order to thrive in the machine economy, we need to invest significantly in people as well as in infrastructure. Focusing purely on infrastructure might lead to short-term and maybe mid-term profits, but ultimately it is not sustainable, and everyone loses. One can’t simply say, “We couldn’t fill the positions,” while there are people who need work.
Level-up our workforce
The human capacity to learn is basically limitless when individuals are motivated and have access to something to learn. There are several ways to tap into that capacity. First, we need to capture the knowledge and experience of the employees we have, so that those relevant skills can be passed on to the next wave of workers. We also need to ensure relevant training is available for people at every level of the company so that new people get up to speed and tenured employees don’t get left behind.
While some technologies need to be learned on the job, there is a level of foundational skill to understand in the machine economy, in addition to the technical and vocational skills required within a given field. An investment in, and possibly partnerships with, local schools could be a wise move for many companies. Lastly, while college is a great path for many people, it’s not the only form of higher education. Investments in vocational training and apprenticeship programs will be critical for our society to thrive in the machine economy.
Just as workers need to rethink and develop new skills, employers need to rethink and develop new ways of nurturing and attracting talent. To fully realize the promise of the machine economy, it is incumbent upon us to ensure people have access to the training and the tools they need in order to not only be successful but thrive. After all, what’s the point of all this technology if it doesn’t make life better for everyone?
With more than 25 years of experience driving digital innovation and growth at technology companies, Kevin Dallas is responsible for all aspects of the Wind River business globally. He joined Wind River from Microsoft, where he most recently served as the corporate vice president for cloud and AI business development. At Microsoft, he led a team creating partnerships that enable the digital transformation of customers and partners across a range of industries including: connected/autonomous vehicles, industrial IoT, discrete manufacturing, retail, financial services, media and entertainment, and healthcare.
Prior to joining Microsoft in 1996, he held roles at NVIDIA Corporation and National Semiconductor (now Texas Instruments Inc.) in the U.S., Europe, and the Middle East in roles that included microprocessor design, systems engineering, product management, and end-to-end business leadership. He currently serves as a director on the board of Align Technology, Inc. He holds a B.S.c. degree in electrical and electronic engineering from Staffordshire University, Stoke-on-Trent, Staffordshire, England.
Digital economy refers to an economy that is based on digital computing technologies, although we increasingly perceive this as conducting business through markets based on the internet and the World Wide Web. The digital economy is also referred to as the Internet Economy, New Economy, or Web Economy.
Increasingly, the digital economy is intertwined with the traditional economy, making a clear delineation harder. It results from billions of everyday online connections among people, businesses, devices, data, and processes. It is based on the interconnectedness of people, organizations, and machines that results from the Internet, mobile technology and the internet of things (IoT).
Digital economy is underpinned by the spread of Information and Communication Technologies (ICT) across all business sectors to enhance its productivity.Digital transformation of the economy is undermining conventional notions about how businesses are structured, how consumers obtain services, informations and goods and how states need to adapt to these new regulatory challenges.
Intensification of the global competition for human resources
Digital platforms rely on ‘deep learning‘ to scale up their algorithm’s capacity. The human-powered content labeling industry is constantly growing as companies seek to harness data for AI training. These practices have raised concerns concerning the low-income revenue and health-related issues of these independent workers. For instance, digital companies such as Facebook or YouTube use ‘content monitor’-contractors who work as outside monitors hired by a professional services company subcontractor- to monitor social media to remove any inappropriate content.
Thus, the job consists of watching and listening to disturbing posts that can be violent or sexual. In January 2020, through its subcontractor services society, Facebook and YouTube have asked the ‘content moderators’ to sign a PTSD (Posttraumatic Stress Disorder) disclosure after alleged cases of mental disorders witnessed on workers.
OECD (2014-09-16). “The digital economy, new business models and key features”. Addressing the Tax Challenges of the Digital Economy. OECD/G20 Base Erosion and Profit Shifting Project. Paris: OECD Publishing. pp. 69–97. doi:10.1787/9789264218789-7-en. ISBN9789264218772.
China’s economy had a great 12 months, leading the globe out of the Covid-19 era. Yet the last year has damaged something equally important: Beijing’s soft power.
Beijing’s handling of questions about what happened in Wuhan—and why officials were so slow to warn the world about a coming pandemic—boggles the mind. If China’s handling of the initial outbreak was indeed the “decisive victory” that it claims, why overreact to Australia’s call for a probe?
Harvard Kennedy School students might one day take classes recounting how China’s leaders squandered the Donald Trump era. As the U.S. president was undermining alliances, upending supply chains, losing allies, and playing down the pandemic, Beijing had a once-in-a-lifetime opportunity to increase the country’s influence at Washington’s expense.
And now, many in Beijing appear to understand the extent to which they blew it. Earlier this month, Xi Jinping urged the Communist Party to cultivate a “trustworthy, lovable and respectable” image globally. It’s the clearest indication yet that the “wolf warrior” ethos espoused in recent times by Chinese diplomats was too Trump-like for comfort—and backfiring.
The remedy here is obvious: being the reliable economic engine leaders from the East to West desire.
The Trump administration’s policies had a vaguely developing-nation thrust—favoring a weaker currency, banning companies, tariffs of the kind that might’ve worked in 1985, assaulting government institutions. They shook faith in America’s ability to anchor global finance. The last four years saw a bull market in chatter about replacing the dollar as reserve currency and the centrality of U.S. Treasury debt.
China is enjoying a burst of good press for its gross domestic product trends. Not just for the pace of GDP, but the way Xi’s team appears to be seeking a more balanced and sustainable mix of growth sources. Though some pundits were disappointed by news that industrial production rose just 6.6% in May on a two-year average basis, it essentially gets Asia’s biggest back to where it was pre-Covid-19.
Fixed-asset investment—in, say, property and land—expanded 4.2% on the same basis in the five months to May. Retail sales, meantime, is up a less impressive 4.5%, which is roughly half what we saw in 2019.
China is getting there, slowly but surely. Far from disappointing, though, data suggest Xi’s party learned valuable lessons from the myriad boom/bust cycles that put China in global headlines since 2008. That was the year the “Lehman shock” devastated world markets and threatened to interrupt China’s meteoric rise.
Instead, Beijing bent economic reality to its benefit. Yet the untold trillions of dollars of stimulus that then-President Hu Jintao’s team threw at the economy caused as many long-term headaches as short-term gains. It financed an unproductive infrastructure boom—one prioritizing the quantity of growth over quality—that fueled bubbles. It generated a moral-hazard dynamic that encouraged greater risk and leverage.
Unfortunately, Xi’s government doubled down on the approach in 2015, when Shanghai stocks went into freefall. The impulse then, as in the 2008-2009 period, was to throw even more cash at the problem—treating the symptoms, not the underlying ailments.
The ways in which Team Xi restored calm—bailouts, loosening leverage and reserve requirement protocols, halting initial public offerings and suspending trading in thousands of companies—did little to build a more nimble and transparent system. The message to punters was, no worries, the Communist Party and People’s Bank of China have your backs. Always.
Yet things appear to be changing. In 2020, while the U.S., Europe and Japan went wild with new stimulus schemes, Beijing took a targeted and minimalist approach. Japan alone threw $2.2 trillion, 40% of GDP, at its cratering economy. The Federal Reserve went on an asset-buying tear.
The PBOC, by sharp contrast, resisted the urge to go the quantitative easing route. That is helping Xi in his quest to deleverage the economy. It’s a very difficult balancing act, of course. The will-they-or-won’t-they-default drama unfolding at China Huarong Asset Management demonstrates the risks of hitting the stimulus brakes too hard.
The good news is that so far China seems to be pursuing a stable and lasting 2021 recovery, not the overwhelming force of previous efforts. And that’s just what the world needs. A 6% growth rate year after year will win China more soft-power points than the GDP extremes. So will China accelerating its transition from exports to an innovation-and-services-based power.
It’s grand that President Joe Biden rapidly raised America’s vaccination game. That means the two biggest economies are recovering simultaneously, reinforcing each other.
China’s revival could have an even bigger impact. Look at how China’s growth in recent months is lifting so many boats in Asia. In May alone, Japan enjoyed a 23.6% surge in shipments to China. Mainland demand for everything from motor vehicles to semiconductor machinery to paper products is helping Japan recover from its worst downturn in decades. South Korea, too.
The best thing Xi can do to boost China’s soft power is to lean into this recovery, and provide the stability that the rest of the globe needs. Xi should let China’s GDP power do the talking for him.
I am a Tokyo-based journalist, former columnist for Barron’s and Bloomberg and author of “Japanization: What the World Can Learn from Japan’s Lost Decades.” My journalism awards include the 2010 Society of American Business Editors and Writers prize for commentary.
State-owned enterprises accounted for over 60% of China’s market capitalization in 2019 and generated 40% of China’s GDP of US$15.66trillion in 2020, with domestic and foreign private businesses and investment accounting for the remaining 60%. As of the end of 2019, the total assets of all China’s SOEs, including those operating in the financial sector, reached US$78.08trillion. Ninety-one (91) of these SOEs belong to the 2020 Fortune Global 500 companies.
The crackdown on monopolies by tech giants and internet companies follows with recent calls by the Politburo against monopolistic practices by commercial retail giants like Alibaba. Comparisons have been made with similar probes into Amazon in the United States.
I had a budget on the day I looked up when my favorite outdoor venue would again open for concerts.Yes, I had a financial plan in place when I saw the words “Tame Impala rescheduled” and felt a memory flash of standing in a crowd listening to that same band, on that same stage.
Yes, though I have a financial accountability coach, I lost consciousness and came to 90 seconds later with a two-Tame-Impala-ticket-sized hole in my budget. Yes, I am concerned.
After this year of no — no festivals, no plays, no shopping in stores without concern for a deadly virus — “no you can’t” is slowly transforming, with 60 percent of adults in the US now having at least one dose of the vaccine, to “yes you can.” Many of us, regardless of disposable income levels, will and will and will, budgets be damned, if we don’t prepare for the powerful emotions about to swoop through our experience-deprived brains.
Our minds, it turns out, are not spreadsheets. That’s the idea behind behavioral economics, the fairly new field that studies how humans operate around this invention we call money. Unlike previous thinking from the field of economics, our decisions don’t come from formulas, but a mishmash of the feelings, reactions, and mental shortcuts whittled by evolution to keep us alive in the wild, within small tribes, without consideration for targeted Instagram ads for peep-toe espadrilles.
Behavioral economics has identified more than 100 ways people of all financial backgrounds fail to think straight when it comes to money. And as the pandemic shifts in the US, our thinking is about to get much blurrier. Our minds, it turns out, are not spreadsheets
One reigning factor that stands out as a determinant of how we behave is where we fall on the spectrum of cold state to hot state. Ever been hangry? That’s a hot state. Seen a thirst trap? Hot state. It’s when emotions like fear or exhaustion take over.
“What has been building up for a year and what is about to be released is an enormous amount of pressure,” said Brooke Struck, research director at the Decision Lab, a behavioral design think tank. “We are all about to enter a massive hot state, more or less at the same time.”
Hot states aren’t necessarily a bad thing. They can be, as Struck describes them, some of the richest experiences we have. They’re intense and powerful, and they exacerbate other biases. They reduce us to something less like adults and more like toddlers.
“If you think you can talk yourself out of a hot state,” said Struck, “you don’t understand a hot state.”
In Daniel Kahneman’s Thinking, Fast and Slow, he describes our cold, higher thinking as slow thinking, and the hot thinking I did (or didn’t do) before buying those tickets as fast thinking. They’re not discrete, explains Struck, but a wrestling match inside our brains.
“That’s where humanity lives. We’re all struggling with these two things at the same time, all the time,” he said. “So when you see those tickets, what comes to mind is this extremely vivid, positive memory of having been in that place and having that experience … you just have this overwhelming desire of I want.”
The tsunami of want that’s about to crash over us as the country reopens is going to be, as Struck says, very dangerous for our budgets. The hot states will strike intensely, perhaps set off by songs, smells, or the sight of a cafe where you used to meet up for lunch with the friends you haven’t hugged in a year. He talks about it as though we’re all about to get very drunk, and the only thing we can do is make sure we put away the sharp objects ahead of time.
A drunk person, for example, isn’t known to carefully consider the future repercussions of their actions. Similarly, hot states exacerbate our present bias, which makes us overvalue what we have now and devalue what that stranger known as us in the future will have, a trait familiar to anyone with vacation credit card debt.
If you think this doesn’t apply to you and you’ll be fine, that could be your restraint bias talking, the bias that makes you overestimate your ability to resist impulsive behavior. If you think that because you’ve been so good, perhaps by spending an entire year wearing your mask and forgoing public displays of Bon Jovi karaoke, you deserve to be a little bad now, that’s moral licensing. It’s the bias that serves as a little devil on your shoulder, convincing you you’re still doing good, even if you sin just a bit.
You might want to watch out for the bandwagon effect, where you jump into the Roaring Reopening spending just because all the cool kids are doing it, in your real friend group and in the groups you just watch on your social media feeds. Worse, there won’t be a designated financial driver among us, because though our experiences have varied widely, with many Americans continuing to work in public during lockdown, chances are that nearly everyone you know will have some kind of wild emotions about the opportunity to gather in a bar booth, enjoy a funny movie in a sea of IRL laughter, or dance in a laser-light crowd of fellow humans.
(Though of course, there will be some who are so traumatized by the last year that they’ll hold on to everything they have, the same way Nana saves the used Glad Press’n Seal bits because of how she was shaped by the Great Depression.) But we can work with these biases, says Amanda Clayman, financial therapist and host of Financial Therapy. We just have to understand them first. “With awareness comes an opportunity for self-agency,” she says.
Biases didn’t evolve to trip us up. They originally came about to help us. “Just the idea of a cognitive ‘bias,’ I think it’s a bit pejorative. It’s a shortcut. And when we call it a bias, it’s just us identifying where we consistently run into problems,” Clayman told me. “I think we should have as much affection and humor for these cognitive biases as we can.”
One of these mental shortcuts we can admire like a bumbling toddler is our availability bias: the illusion that the more we see something, the more likely it is to occur, and the less we see something, the scarcer it is. The scarcer we sense something is, the higher we value it.
“Our sense of availability has been really reset. You acted as if a concert ticket is completely scarce because your availability heuristic has been reset around when something is going to be an option,” said Clayman. “Our entire sense of what is available when and what is normal has been skewed by this experience.”
You know who has studied your biases? Marketers. And they know exactly where to poke them. Clayman adds that capitalist society trains us from an early age to think that if we have a negative feeling, we can find a product to fix it. We’re all going to be tempted to “solve” the trauma of the last year, as if a wild night at Target on the credit card could cheer us right up after living through a plague that’s killed more than 3 million people and continues to rage in many parts of the world.
She says that what we’ll really need is human connection, safe spaces to talk about what we’ve gone through, and the uncomfortable experience of sitting with our feelings. Without processing the emotions of the last year, we’ll just try to shovel fun, novelty, and pleasure into the pit, and the expense is going to add up before we realize it’s not working.
Natasha Knox, a certified financial planner and chair of business development for the Financial Therapy Association, says to listen for the moral licensing words, “I deserve it because …” It might be because you’ve been through so much or you’ve worked so hard.
“This sort of permission-giving has truth to it. It is true, collectively we have been through a lot and many people do work really hard,” said Knox. “You’re not wrong. You do deserve it. But then there’s future you. What does that person deserve?”
In order to reconnect and enjoy a bit more freedom while also protecting your future self, start setting aside some cash now that is, as Knox describes it, “safe to spend” without putting yourself in financial danger. Then create some cooling space between you and spending. Unsubscribe from all those sale emails. Turn off one-click pay. Don’t save your credit card in your web browser. Try to wait 24 hours before buying something unplanned. Most importantly, keep close the deeper reasons you don’t want to go financially wild (whatever that means to you) over the next few months, in addition to simply not causing yourself more stress and chaos.
“It really does have to boil down to that first, because if we’re just denying ourselves for no reason, that’s not sustainable and it usually doesn’t work,” said Knox. “The bigger why has to be front and center. Because it’s hard, and it’s been a terrible year.”
She recommends finding a photo that represents something you’re working toward getting a year to a few years out and making that your phone’s home screen or otherwise keeping it close. “When something has been as dramatic as this year, the longer-term picture gets a little fuzzy,” Knox said, “So we have to bring that back into focus.”
Like biases, spending itself is not a bad thing. I’m happy to support the venue, the band, and even, if they open in time, Scott and Cindi, the owners of the nearby private campground, whom I’ve been worried about because I watched their business grow for so many years. This is an inextricable truth: Our spending is part of what will alleviate the Covid-19-inflicted financial suffering of our fellow humans. Consumer spending constitutes about 70 percent of the GDP, after all. So I’ll spend, but, knowing what I know now, I’ll spend as slowly as I can, at places I care about, tentatively finding ways to enjoy the new normal, and without causing another crisis for myself.
Paulette Perhach writes about creativity, finances, tech, psychology, and anything else that inspires awe for places like the New York Times, Elle, and Glamour. She posts regularly at WelcomeToTheWritersLife.com.
Financial therapy merges finance with emotional support to help people cope with financial stress. Financial advisors must often provide therapy to clients in order to help them make logical monetary decisions and deal with any financial issues they might be facing.
Breaking Down Financial Therapy
Money plays a large role in a person’s overall well-being, and the stresses of managing money and dealing with financial pitfalls can take a huge toll on one’s emotional health. If left uncontrolled, this emotional burden can spread into other areas of a person’s life. Just as with any other form of therapy that addresses other aspects of a person’s life, financial therapy provides support and advice geared specifically toward the financial realm and the stresses that go along with it. The end goal is to get a person’s finances in order and provide the necessary advice to keep them in order.
Financial Therapy Reasoning
There are a range of reasons why a person would seek out or need financial therapy. In many cases, behavioral issues cause a person to adapt unhealthy financial routines, including unhealthy spending habits (such as gambling or compulsive shopping), overworking oneself to hoard money, completely avoiding financial issues that must be dealt with, or hiding finances from a partner. Often, bad saving, spending, or working habits are a symptom of other bad habits related to mental or physical health.
Financial Therapy vs. Other Types of Therapy
The most effective forms of financial therapy involve a collaboration between a person’s financial advisor and a licensed therapist or specialist. Both the financial advisor and the therapist have unique qualifications that the other does not possess. Because of this, it’s hard for one to provide complete financial therapy support, and trying to do so could potentially steer a person in the wrong direction and violate ethical codes. However, financial advisors often find themselves providing informal therapy to clients, and therapists often deal with emotional issues related to financial stress.
Financial advisors are well-versed on their clients’ specific situations and are able to advise on the best courses of action. They’re able to share their expertise in the hopes of alleviating the financial burdens their clients face. However, therapy is not a financial advisor’s area of expertise, and if a person requires real emotional support or needs help breaking bad habits, a licensed professional should be involved. The financial advisor tends to be more adept at providing advice on how best to move forward with financial issues, while the licensed professional can provide support that gets to the root of a deeper problem.
A wealth psychologist is a mental health professional who specializes in issues relating specifically to wealthy individuals. Issues can include feelings of guilt and raising children in a wealthy household.
Spiking inflation, disappointing jobs gains and shortages of labor and commodities have investors wringing their hands over the state of the economy and the seemingly growing risk of overheating, but according to Moody’s chief economist, Mark Zandi, there’s no cause for alarm.
In a research note published Tuesday, Zandi emphasizes that all those factors are temporary. “The recovery . . . may be uneven, given the considerable adjustments needed for the economy to fully reopen, but our outlook for a boom-like economy over the coming year has not changed materially,” he wrote.
The labor shortage and hiring difficulties will improve as students return to school and parents have more childcare options, he suggests, and he describes the evidence that federal supplemental $300 weekly unemployment benefits are keeping workers home as “thin.”
Zandi expects inflationary pressures to ease later this year once the economy returns to normal and businesses—especially those in the travel and leisure industry—get past the point where they are reversing their pandemic-era price cuts.
He suggested investor fears that stubborn inflation will force the Federal Reserve to hastily raise rates, thereby triggering a recession, are unlikely to materialize because of the significant slack still extant in the labor market.
Zandi also cites the ongoing semiconductor shortage as a major factor in the job losses and shortages in the auto manufacturing industry, but adds that he expects those pressures to abate by next year once surging demand and soaring prices for the chips prompt suppliers to boost production, thereby stabilizing the supply chain.
“Until the supply side of the economy wakes up and catches up with the fast-reviving demand side coming out of the pandemic, the economic statistics will undoubtedly hold more surprises—output and supply chains scrambled; labor, commodities and products in short supply; and price spikes,” Zandi wrote. “If history is a guide, when businesses can make a healthy profit, they will solve the problems,” he added. “Quickly.”
Zandi isn’t the only expert looking beyond the risk factors to a robust recovery. Despite raising their expectations for one measure of inflation by more than a percentage point to a peak of 3.5% this year, analysts from investment giant Goldman Sachs believe the factors that caused them to hike the target for core CPI inflation—soaring used-car prices, production delays in the auto industry and changes in health insurance payouts—are temporary.
Not to mention, their impact isn’t as large across other measures of inflation that weigh prices differently. That sentiment is also beginning to make its way to Wall Street: “The inflation debate is not over, but the majority of Wall Street believes it will be transitory,” OANDA senior market analyst Edward Moya wrote in a Tuesday note.
Just as telling as the wage data, the share of working-age Americans who are in fact working has declined in recent decades. The country now has the equivalent of a large group of bakeries that are not making baguettes but would do so if it were more lucrative — a pool of would-be workers, sitting on the sidelines of the labor market.
Corporate profits, on the other hand, have been rising rapidly and now make up a larger share of G.D.P. than in previous decades. As a result, most companies can afford to respond to a growing economy by raising wages and continuing to make profits, albeit perhaps not the unusually generous profits they have been enjoying.
But not everyone agrees. Larry Summers, an economist who served in the Clinton and Obama Administrations, wrote in a Monday op-ed in the Washington Post that while some of the recent inflation might normalize with time, “not everything we are seeing is likely to be temporary.”
Summers suggests that a handful of factors including demand that grows faster than supply, higher housing prices, inflation expectations and even higher minimum wages and more benefits for employees have the potential to push inflation even higher. Summer recommends that policymakers “explicitly [recognize] that overheating, and not excessive slack, is the predominant near-term risk for the economy.”
What We Don’t Know
When the Federal Reserve will move to tighten policy and raise interest rates. Atlanta Federal Reserve President Raphael Bostic told CNBC last week that given the 8 million jobs that have yet to be recovered, “I think we’ve got to have our policies in a very strongly accommodative situation or stance.” He added: “I don’t think we’re going to have answers on this until at least early fall, and it may take longer than that.”
One of the few ways to have a true labor shortage in a capitalist economy is for workers to be demanding wages so high that businesses cannot stay afloat while paying those wages. But there is a lot of evidence to suggest that the U.S. economy does not suffer from that problem.
If anything, wages today are historically low. They have been growing slowly for decades for every income group other than the affluent. As a share of gross domestic product, worker compensation is lower than at any point in the second half of the 20th century. Two main causes are corporate consolidation and shrinking labor unions, which together have given employers more workplace power and employees less of it.
I’m a breaking news reporter for Forbes focusing on economic policy and capital markets. I completed my master’s degree in business and economic reporting at New York University. Before becoming a journalist, I worked as a paralegal specializing in corporate compliance.
Froeb, Luke M. (2016). Managerial economics : a problem solving approach. McCann, Brian T.,, Shor, Mikhael,, Ward, Michael R. (Michael Robert), 1961- (Fourth ed.). Boston, MA. ISBN978-1-305-25933-1. OCLC900237955.
“…vulgar are the means of livelihood of all hired workmen whom we pay for mere manual labour, not for artistic skill; for in their case the very wage they receive is a pledge of their slavery.” – De Officiis