China G.D.P. Growth at Slowest Pace Since 2009, Data Shows

            This article written by Neil Gough of the New York Times is about the uncertainty of the Chinese economy and the recent drop in GDP.  The article states that the Chinese economy grew at 6.8% in the fourth quarter, which is the lowest quarterly expansion since the global financial crisis in 2009.  Investors are trying to determine if the drop in Chinas GDP will spread and affect the rest of the world financially because it is the world’s second largest economy.  Li-Gang Liu, the chief economist for greater China at the Australia and New Zealand Banking Groups, predicted that there are no signs of growth and that we will see another two years of a slowdown.  One reason for the recent crash is that China’s export base in lower-end manufacturing has slowed down. Lower wages in Southeast Asia and South Asia are destroying the competitiveness of Chinese factories.  Another reason is that a slump in housing construction is decreasing the consumption of building materials.  The economy is showing no signs of rising and investors worry about the future of China’s economic health.  The Chinese stock market is plunging, but some say that the fluctuating stock market does not play a major factor in the health of the economy and they are unrelated.  The future health of the Chinese economy is uncertain, but investors are hopeful that we still start to see a rise in China’s GDP in the couple of years.

http://www.nytimes.com/2016/01/19/business/international/china-gdp-economy.html?ref=economy

These numbers terrify GM, Ford and the other automakers

        Before technology came into play everyone would get really excited to get their Driver’s License. However, now a days everyone is more excited to get a new phone or a new electronic device. The number of young people who drive in this day on age are very few compared to those years ago. In the article by Rick Newman he mentions how the decrease in drivers is affecting the automobile companies, such as GM and Ford. These companies are concerned because the less drivers there are in the streets the less cars they will sell. Another factor that plays a role in the sales of cars in the young people groups is that many do not have money to pay for a car since they have debt and student loans. Even though their numbers on sales are not completely decreasing because of the older group still driving, they are making future plans. They are also trying to adapt to new things such as renting cars rather than selling them.

         Newman also mentions in his article how GM invested in the company Lyft, which is a transportation method that is cheaper than a taxi and more convenient. Ford is also investing in the self-drive car since it would be convenient for people since many do not know how to drive. We also have to keep in mind that many people live in the city which means that they have different methods of transportation and do not necessarily have to buy a car. I think it is great that these two companies are trying to find new ways in which they adapt their company because if not they would begin to loose profit and eventually have to shut down.

  

 Here is the link and it has a quick video: http://finance.yahoo.com/news/these-numbers-terrify-gm--ford-and-the-other-automakers-160157091.html#

Baltic Dry Index (BDI) record low. What does it mean?

If the Baltic Dry Index is declining, by definition, the cost of shipping raw materials is declining. 

This is important because when there is a higher demand for raw materials, the price for shipping tends to get pushed upwards. This means that what we are seeing right now with record low shipping prices, means that the demand for raw materials is lower. 

Many economists and investors look to the BDI to speculate about the future. If producers are not ordering as much raw material, then they are not going to be producing as much product in the coming months and years. When the BDI is contracting, it seems to coincide with the contraction of the entire worldwide economy. 

This is pretty bewildering considering the BDI is at a record low of 363. It is said that this index is difficult to manipulate since it measures raw material and is therefore not affected by stimulus and other tactics of monetary policy. 

However, the correlation of a falling BDI to a falling economy is not as clear cut as it may seem. Could it be that there is simply an over supply of shipping vessels? The shipping vessels take a long time to build and perhaps some shipping companies were too optimistic. It is possible then, that the 'collapse' of the BDI is a localized issue of shipping companies producing too many ships rather than the worldwide economy drastically contracting and a much smaller need for raw materials. 

This possibility could mean even more economic growth in the future (especially for exporting goods) because international shipping will be cheaper. In other words, if some shipping company owners regret purchasing too many ships, this could actually be good for the worldwide economy. 

http://shipandbunker.com/news/world/730934-dry-bulk-worst-crisis-in-living-memory-continues-as-baltic-dry-index-falls-further-to-363

http://www.bloomberg.com/quote/BDIY:IND

Are minimum wage hikes to blame for falling profits?

     In economics, there is a constant need to find a balance between maximizing the benefits of an action and minimizing the costs. For Walmart, and many retailers alike, they face similar tradeoffs when it comes to paying their employers. According to the CNN money article "Are minimum wage hikes to blame for falling profits?" author Patrick Gillespie explores the company's blame for the recently falling profits. Recently, Walmart has been noted to have increased the wages for the workers to $9/hr this year and possibly up to $10/hr next year. On one hand, this might seem like a hugely positive factor for the minimum wage laborers, yet for Walmart, these wage increases will result in an extra $1.2 billion this year and $1.5 billion the next. With such a tight labor market in the current economy, where there is "more pressure on minimum wage employers to raise wages," Walmart has obviously felt the pressure in order to stay in line with companies like Dunkin and Starbucks which have done the same. Clearly, with more funds going towards wages, there are less to help improve and innovate the company (possibly a reason for falling profits).
   On the other hand, the article mentions that the raise in wages may keep the workers placated, but in the end they result in shortened hours or loss of jobs. This idea makes sense because as a firm's production costs increase, it is harder to pay for the same amount of labor. This controversial idea was brought up by Jess Levin, a spokesperson for the United Food and Commercial Workers Intl Union, who claimed that "Walmart should be ashamed" of these actions. With less workers, the company may not be as efficient as it previously was, hence, another cause of falling profits.
   In the end, analysts believe that Walmart's claims are generally accurate because there are always opportunity costs when dealing with the minimum wage.

http://money.cnn.com/2015/10/15/investing/corporate-america-profits-fall-blame-minimum-wage/index.html

Inflation: Hollywood's fluffer

Economics looks at humans and assumes they are rational. This is an inherently flawed assumption. One of the many pieces of evidence which leads to this conclusion is the "money illusion." This is the concept that people are happier if they feel like they are making more money, even though inflation may cause these perceived gains to amount to nothing. For example this newest Star Wars, it was the highest grossing film in the franchise's history. However when adjusted for inflation, this most recent Star Wars has only made about half the profits of its original 1977 counterpart. However after Disney's purchase of LucasArts at a whopping price of $4 billion, Disney needs a huge success. When consumers have the perception that something is successful that gives the product a certain prestige, indicating that the movie is of a higher quality and increases the likelihood of attendance. "People want to see a winner." This is a misperception of success driven by inflation that has been driven by Hollywood and the Federal Reserve.

This is a couple which doesn't get covered in the tabloids. But they've been coexisting since Hollywood was conceived. At the relationship's foundation, the concept that inflation is good, to some degree at least. There was a study which indicated that two-thirds of participants were happier with a raise of 5% with 4% inflation as opposed to a 2% raise with no inflation. So nominal revenue is secondary if the individual, at least, perceives that they are better off. That is a tool that Hollywood continues to employ. The list of the highest grossing films of all time is riddled with inflation. Nominally the most successful film of all time is still Gone with the Wind, however, it's not even on the top 50 as a direct result of inflation. Though there is an importance to inflation beyond record-breaking films.

When there is inflation during economically prosperous times people are more willing to borrow, spend, and risk money. In addition, inflation makes debt burdens (commonly associated with developing million dollar movies) a little more bearable. Which are ideal conditions to make films in. While when the economy is a little weaker inflation helps ease the burden of wages on employers. So haveing a little inflation helps everyone, but Hollywood is one of the most evident examples. Inflation helps the "money illusion" which in turn makes blockbuster movies appear to be more successful than may be necessarily true. However when a move is record breaking it makes it more appealing, which drives more consumers to purchase tickets.

http://www.nytimes.com/2016/01/12/upshot/star-wars-and-how-a-force-helps-the-federal-reserve.html?ref=economy&_r=0

"The Marriages of Power Couples Reinforce Income Inequality"

Income inequality is increasingly becoming attributed to the idea of “power couples”. The article explains that, for example, investment bankers marry other investment bankers rather than a high school sweetheart, or a lawyer will marry another lawyer, or a prestigious client, instead of a secretary. The number of power couples is also increasing which is building income inequality in America. What impact does this have? Of all the causes of income inequality, power couples may prove one of the most significant factors. In addition, it may be the most difficult to overcome.

The achievement gap between children from rich and poor families is higher today than it was 25 years ago. Power couples are also self-reinforcing due to higher income and educational inequality, which adds incentives to search for a quality marriage match. In spite of all of this, there could be a benefit to society. Since money and talent becomes clustered in powerful families, many business creators and innovators will receive their initial boosts early on in life, such as training and higher education. This may enhance their eventual productivity. The economic downside to this phenomenon is that as it becomes increasingly difficult for individuals to “marry up”, families not well connected may feel disengaged, and the significant, family-based advantages for some children may discourage others from putting in effort. How can we lift up those that are disadvantaged? The article states that universal preschool, further experiments with charter schools, and higher subsidies or tax credits may help.

What do you think about the concept of “power couples”? Are they beneficial to our society due to increased productivity or are they contributing to a highly divided nation? What are some other ways that we could assist those who come from families that are not considered “power couples”?

Link: http://www.nytimes.com/2015/12/27/upshot/marriages-of-power-couples-reinforce-income-inequality.html?rref=collection%2Fcolumn%2FEconomic%20View&action=click&contentCollection=The%20Upshot&module=Collection&region=Marginalia&src=me&version=column&pgtype=article

Why $1.5 Billion Nevsky Capital Is Shutting Down: The Full Letter

Nevsky Capital is a big name in the hedge fund community and is deciding to call it quits after 15 years.  Nevsky has had Michael Jordan like numbers from investor Martin Taylor with annual returns  averaging over 18% .  Taylor is getting out while the market is still good and suspects that the future market may not be able to yield the same results or even close to the previous decade and a half.  He has various reasons why he thinks the market will change and be more difficult in the future.  1-Is that with markets of huge nations like China and India, it dilutes an investors ability to make accurate reads on what is really happening in the global economy.  2) Nationalism that makes countries less transparent about why they are making the economic decisions they are making. 3) Because of lack of transparency-its hard to be able to recognize price fluctuations in a timely fashion-today it is happening increasingly rapidly. 4) US are not fully prepared to handle the rise in capital cost, and the article goes on to list a few others.  I am curious what this ultimately means for other hedge fund managers and companies and if their outlook is similar.  If so how will these companies adapt to continue to reap value profits from investments?












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Retail Sales in US Decrease to end Weakest Year since 2009

An interesting article accompanied by a short video. It discusses changes in consumer preferences and is a recap of consumer spending behavior over 2015. The article does not venture into forecast for 2016, which would be interesting to read, since with a drop in sales, there definitely would be an increase in inventories and it would be interesting to see how retailers will sell them this year. One economist in the video points out at the fact that this change (drop) in retail sales is because of consumers wanting to save more, would that impact money flow this year or not is also something to look out for.

Here is the link to the article:
http://www.bloomberg.com/news/articles/2016-01-15/retail-sales-in-u-s-decrease-to-end-weakest-year-since-2009

This is also an interesting case study of numbers about retail sales forecast for 2016: http://www.tradingeconomics.com/united-states/retail-sales/forecast

U.S. Growth and Employment Data Tell Different Stories

The main emphasis of the article written by Nelson Schwartz of the New York Times is the lack of correlation between a surging employment/hiring and the overall declining economy. From a statistical standpoint in December of 2015; 300,000 new jobs were created, but the economy was growing by one percent or sometimes even less. To add on to a declining economy, you must also look at the declining oil prices and sinking stock markets. However with all the information given showing a slowing economy, Federal Reserve officials including Yellen believe the US economy is in an upswing. The rest of the article focuses on why the correlation between employment and economic growth might be changing due the changing nature of US economy as a whole. The “changing of nature,” is described as America becoming a predominantly services economy. Statistics to prove this theory is the fact that in 2015 employment is services (86% of American workforce) increased by 2.3 million. While on the other hand the manufacturing sector (9% of American workforce) only had 13,000 new jobs in 2015.  What this is doing is allowing the medium and smaller firms to feel confident to hire more as well as taking market share. The reason FED members and economic forecasters believe that American economy is heading in the right direction is because with the increase in hiring (In December alone employers increased payrolls by 292,000) gives incentives for more consumer spending by these hired individuals. There are theories that suggest GDP and economic growth correlate with employment, hiring, and wages; however some economists believe employment has a much less bearing on the status of the economy.  David Levy, a veteran independent economist states in the article, “People commonly use employment as a leading indicator, but it’s a lagging indicator.” It’s hard to forecast the economy so early in the first quarter so only time will tell.

http://www.nytimes.com/2016/01/18/business/economy/us-growth-and-employment-data-tell-different-stories.html?_r=0

How Australian Households became the most Indebted in the World

The article is about a study that computes consolidated household debt to GDP ratio, and compares the data across 20 countries.
Denmark had long held the position, which surprises me because I have always envisioned Denmark as being the perfect 'socialist,' economy with brilliant healthcare and education system.
The GDP to debt ratio, according to investopedia, implies the country's ability to pay back it's debt, by comparing production level with debts. (http://www.investopedia.com/terms/d/debtgdpratio.asp) However, why this particular ratio is relevant is confusing to me.
The article mentions that house prices have gone up significantly and continue to soar yet it also says that the future for new homeowners and investors is not bright, which is because of lower population growth rates and hence a situation of over supply might occur in turn hurting the prices.

Link to the article: http://www.theguardian.com/business/2016/jan/15/how-australian-households-became-the-most-indebted-in-the-world