Countries continue to seek Alternative to U.S. Dollar

 As more countries around the world look to lower their dependence on the United States financially, more and more countries have started to stop using the U.S. dollar in trade and overall. Places are looking to become more independent economically as there is major concern about a possible war with the U.S. with China and Russia, and the U.S. economy hasn't been on a very great track ever since the beginning of the [pandemic which leaves many countries worried. While this decrease in dollar usage is happening it certainly isn't being completely dropped as it is estimated that around three-fifths of exchange, reserves are in U.S. dollars.

One of the most notable events that have happened recently regarding the lack of usage of the U.S. dollar is Saudi Arabia's statement on oil. They have begun to look into new forms of payment for their oil outside of the U.S. dollar, something that hasn't been done in nearly half a century up till now. Saudi Arabia is one of the major capitals in the world for oil, making their possible departure from the dollar a huge deal economically for the U.S. Along with Saudi Arabia places like India, Singapore, and Brazil have been in talks individually to switch their usage of the U.S. dollar to a currency founded in their respective countries. 

While the problem of the U.S. dollar being eliminated from other places around the world has been an issue for some years now it has never been taken to the extremes it has as of 2023. Ever since the Woods agreement of 1944 the U.S. dollar has been the leading currency by a landslide. This could all change as countries continue to reform and change which could be detrimental to the U.S. economy as a whole.

Article:https://elements.visualcapitalist.com/de-dollarization-more-countries-seek-alternatives-to-the-u-s-dollar/

Russian Economy is Seeing Labor Shortage Being Intensified by War

 Russia is starting to see a labor shortage in many sectors as Putin has decided to call hundreds of thousands of people into war effort. Last year alone saw an increase of 400,000 service members and that happened on top of an already high unemployment rate. The Kremlin has already requested another 400,000 recruits to raise their military from 1.15 million people to 1.5 million. 

Russia is also seeing that many draft age citizens are fleeing the country in order to avoid the war. Predictions are saying that the working-age population may see a 6.5 percent decrease in the next decade. While the Russian military may be gaining strength their overall economy outside it is weakening tremendously. 

-https://www.bloomberg.com/news/articles/2023-03-29/putin-s-war-is-intensifying-labor-shortages-in-russia-s-economy?leadSource=uverify%20wall   

Is the economy at risk of a recession?

Through much of 2022, investors braced for the potential onset of a recession in response to focused efforts by the Federal Reserve (Fed) to slow economic growth and curb inflation. While the economy slowed significantly, a recession has, to this point, been avoided.

As measured by Gross Domestic Product (GDP) growth, the economy in 2021 grew at an annualized rate of 5.9%, the fastest rate of growth in a calendar year since 1984. The economy slowed significantly in 2022, with GDP increasing at an average rate of just 2.1%. After being in negative territory in the first two quarters of 2022, the economy bounced back modestly in the second half of the year. Consumer spending and corporate profit growth proved resilient in a more challenging environment.

If the economy does go into a recession this year (2023), they don't think it will be severe.

https://www.usbank.com/investing/financial-perspectives/market-news/economic-recovery-status.html 

Stop Worrying About Disney Layoffs

Disney, like many other big companies right now, is starting its pruning process. It has been reported that the company has disbanded its metaverse strategies unit, a roughly 50-person task force and is expected to abolish more than 7,000 other jobs in the next few months. Along with job cuts, the CEO, who is only on a two-year deal, is attempting to also shave roughly $3 billion on what it spends on produced and licensed content outside of live sports programming. 

The underlying expectation of this article is that Disney is working its way toward increasing its stock. As well as resuming the semi-annual dividend distributions that it suspended at the onset of the pandemic three years ago. It was take a few years, and the turn around will not be quick, but its current decisions to lay workers off should not worry its stockholders. 

Link: https://www.fool.com/investing/2023/03/28/stop-worrying-about-disney-layoffs/ 

Goldman Sachs Reduces GDP Forecast due to Stress on Small Banks

 This past Wednesday Goldman Sachs lowered its forecast for 2023 economic growth. The main cause of this change in expectations was said to be a reduction in lending from both small and medium sized banks due to instability in the overall financial system. The firm lowered its forecast to 1.2%, a decrease of 0.3 point, expecting banks to attempt to keep more liquidity in preparation for withdrawals. These tighter lending standards will likely affect aggregate demand causing GDP growth to be lower than initially projected.

The firm noted that banks with less than $250 billion in assets account for significant portions of all lending, specifically 50% of commercial and industrial lending and 80% of commercial real estate lending. The analysts now expected that small banks that have a low share of FDIC covered deposits will reduce lending by 40% and other small banks will reduce lending by 15% causing total bank lending to decrease by 2.5%. The effects of this tightening of lending is expected to have the same impact on growth as an interest rate increase of 25 to 50 points.

Source - https://www.cnbc.com/2023/03/15/goldman-sachs-cuts-gdp-forecast-because-of-stress-on-small-banks.html

 

NCAA tournament games expected to have $15 million impact on Louisville

    This weekend's NCAA men's basketball tournament games at the KFC Yum! Center are expected to have a $15 million impact on Louisville's economy, according to Louisville Tourism. At least 20,000 people are expected to attend the three games, supporting local bars, restaurants, shops, attractions and hotels while they're there. An economic boost that is much needed for an area that doesn’t get a lot of it. “The ripple effect is tremendous," Davis said. "That 15 million dollars is only the direct economic impact. There's a whole indirect impact that we at Louisville tourism don't typically report on. It's just profound what it does, especially right now for downtown, it's an amazing boost for downtown." 

    The tournament ranks in the top 15 events this year for the city, according to a list from Louisville Tourism. As well as bringing a plethora of people in the area, the event also gives Louisville national media exposure. "When it's being aired on the Turner networks and them seeing Louisville in the background, it's huge," Davis said. "It's a signature event, much like the PGA Championship, much like, of course, the Kentucky Derby." 

Source: https://www.wlky.com/article/ncaa-tournament-louisville-economic-impact/43402709

Existing Home Sales Increased 14.5% In February

According to the National Association of Realtors (NAR), existing home sales have been on a 12 month decline prior to the 14.5% increase in February. Additionally, the reported annual rate of existing home sales for February was 4.58 million. This is down from the reported annual rate of 5.92 million for February 2022. The increase in demand can be attributed for falling mortgage rates and continued constraints on inventory. Freddie Mac reported the 30-year fixed mortgage rate fell to 6.60%, which is down from 6.73% the previous week. However, this is 4.16% higher compared to a year ago. Furthermore, February housing inventory sat at 980,000 units, up 15.3% from a year ago. Inventory remains historically low, at the current sales pace inventory would be expended within 2.6 months. Despite the large increase in overall sales in February, experts expect home prices to begin leveling off. 

Article: https://www.nar.realtor/newsroom/existing-home-sales-surged-14-5-in-february-ending-12-month-streak-of-declines

Kicking the Can Down the Road, Until the Road is Full of Cans

     Government budget deficits (the excess of spending over revenue) in industrial countries have been growing as a percent of GDP for the past 20 years. Large deficits emerged after the oil crisis in the mid-1970s and widened dramatically after 1980, largely the result of government overspending rather than meager tax receipts. Government expenditures in industrial countries rose from 28 percent of GDP in 1960 to 50 percent in 1994. These deficits have sharply increased the public debt (the accumulated burden of yearly budget deficits), which jumped to 70 percent of GDP in 1995 from 40 percent in 1980, weakening government finances and draining resources from the economy. Aging populations and sluggish economic growth add urgency to this worrisome trend. Governments now have little choice but to restructure their spending programs. 

    A short history lesson: During the nineteenth and early twentieth centuries, fiscal deficits and surpluses were small in the major industrial countries (Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States), and a chart of fiscal balances would show a fairly stable trend line. WW1 altered the picture radically, as its participants emptied national treasuries and borrowed against the future in a desperate struggle to survive. Shortly after, during WW2, the participants basically repeated the fiscal experience. The normal peacetime condition of near fiscal balance gave way in almost every industrial country to large and obdurate fiscal deficits. 

    Currently, as a planetary economy (world/global) the debt ratio is 350%. On a smaller scale, it would be similar to an individual having an income of 50,000 a year but owes 175,000 to the bank. Not a great situation, but it is manageable. However, this is what is happening today...the individual continues to consume MORE of their income so they have to borrow more money from the bank every year on top of the 175,000 they already owe. The individual is now growing that debt 3x faster than they are growing their income. By the way the economy is starting to slow and the individual is not getting the raises they once did (GDP). Also the interest rates used to be only 1-3% but now they have gone up to 5-7%. Now the interest that they owe is becoming a big chunk of their income! Not good. Lets just say that individual is head of household for their family...and that individual has lots of family. They have brothers and sisters, grandparents, distant cousins who all owe each other money. The individual owes them and the other family members owe the individual. If some of the distant cousins go belly up then no big deal, but if some of the matriarchs or patriarchs of the family go bankrupt then there is a ripple effect. 

This family is a representation of countries around the world. I beg the question, since we have never experienced a global financial collapse (came close in 2008, 2020) why do we assume it will never happen? 300 trillion, 400 trillion, 500 trillion, 600 trillion? How much farther can we kick the can down the road? Maybe once we get there the road will be full of cans. I hope we find other pathways around the deficits. 

    

META announces second wave of layoffs: 10,000 Jobs to cut off.

Meta, the parent company of Facebook, Instagram, and Whatsapp, has announced an additional 10,000 layoffs. Meta has already fired off 11,000 workers in the first round of layoffs, which occurred in November of last year. According to Mark Zuckerberg, these layoffs are a part of a "year of efficiency," and in addition to the 10,000 jobs being slashed, 5,000 additional vacant positions will also be eliminated.

Since their earnings were 4% lower than the previous year, Mark said it was solely the result of the revenue's sharp slowdown. He also cited an increase in interest rates in the United States, global geopolitical risk, and increased regulation as factors slowing meta's growth and revenue. He further stated that layoffs like these could occur in the future.

Managing the Banking Crisis and Cooling the Economy

 We know that the FED's biggest concern lately has been stubborn and high inflation rates. In the past few days, they've had to take on another obstacle, a trio of bank failures. The central bank announced the Bank Term Funding Program earlier this week, which provides one-year loans to banks and other financial institutions that offer up collateral like US Treasuries. This would allow banks with unrealized losses to swap out typically safe investments for a loan of up to one year worth the original value of the assets they're putting up as collateral.

This program is a form of monetary easing designed for emergency use when the Fed needs to prevent the next SBV from failing. There are risks, but the Fed believes the benefits outweigh these. This is also a clear example of the Fed acting as a lender of last resort. 

The Fed is still of course working on managing inflation, and they believe that the program will only cause a "very minor delay" in getting back to the target inflation rate of 2%. The central bank is expected to continue increasing interest rates. However, the Fed's rate hikes actually factored into the SVB collapse. The higher cost of borrowing hurt the sector's profits and ability to raise funds which in turn forced tech companies to draw down on their bank deposits so they could fund operations. Although, this was not the leading cause of the collapse. It is important that this crisis is managed first before the Fed gets back to handling inflation rates.

https://www.cnn.com/2023/03/15/economy/fed-priority-cooling-economy-financial-stability/index.html