Alchanati Campbell & Associates
Fed Minutes and Market Sentiment. Inflation and inflation expectations are quite low. There is much support in lowering interest rates, where cuts could help the US economy ‘power through’ recent signs of economic weakness. But lowering interest rates more may take away ammo that the Feds might need later. If there were a really big shock, we could expect interest rates to go down to zero. The goal is to use this unconventional monetary policy, cut rates, bypass the recession, and then raise the policy rate back up. We may be seeing a flatter yield curve as a norm with long treasuries becoming a favorite hedge. We will most likely see another rate cut before the end of the year, meaning, interest rates will lower again, the cost of borrowing will decrease, and everything pegged to interest rates like bank account savings rates, credit card APR, and mortgage rates will decrease as well. We should be cognizant of the upcoming earnings season, with lower expectations of positive earnings growth. Housing has been a drag on GDP for 6 straight quarters but it appears it will be positive this quarter. New home sales, housing starts, and permits are all up double digits year over year. Lastly, we should realize that if a recession does occur, it will be the most anticipated recession of all time.
Poker and Hedge Funds. There is a correlation between skill in poker and skill in hedge fund management. Hedge fund managers who have won at least one poker tournament significantly outperform managers who have no wins. Skilled poker players are better at hedge fund management and fund managers experience an economically significant increase in net inflows after winning in a poker tournament. Poker is a game of luck and strategy. “The Perfect Bet” by Adam Kucharski is a great book to learn about probability and the ‘smart way’ to gamble in blackjack, poker, other card games, trading, and horse racing. One tip out of the many tips given is: [In poker] bet if your cards show very low or very high numbers and check otherwise. Bluff only with your worst hands. Bluffing won’t persuade someone with a decent hand to fold, and it’s not worth betting on the off chance that your mediocre hand will come out on top. The best option is to check and hope for the best!
The Art of Thinking. There is no real structure that you are forced to operate within unless your life depends on it. You can create your own rules if you build the right supporting systems. Our environment controls far more of our behavior than we realize. Creating better habits and opportunities begins with deliberately shaping your surroundings. The real purpose of life is to create a story in which you can constantly define what it means to be better tomorrow than you are today. That’s what we are programmed for. Happiness, productivity, presence, and fulfillment all find their roots in your ability to proactively control where you direct your mental energy. Take control of your attention. You don’t have to be an expert scientist, artist or psychologist, but you should know the fundamentals in all of the major disciplines if you want to optimize your thinking. Over a long enough timeline, if you seek to reduce uncertainty, you can optimize your exposure to luck. Success is often random, but that doesn’t mean it can't be designed.
How the Trade War could End Up. The trade war will end with both the Chinese and American people less prosperous than they would otherwise have been. President Trump’s objectives are to raise economic growth and create jobs by boosting investments. China’s long-run goal is to become a modernized and prosperous economy’ by the mid-twenty-first century. The trade war started when the US imposed tariffs on steel and aluminum imports in March 2018. So far, the US has imposed duties on more than half of its imports of Chinese goods and China has retaliated with tariffs on more than 70% of its imports if US goods. A trade war is costly for both parties. While the US will impose a larger cost on China in the initial years, it will suffer an impact on growth. We are currently seeing positive trade talks from this week and positive sentiment for the talks to come in the upcoming weeks, where we may see a resolution to this almost two-year global disruptor.
Largest Offshore Banking Country. When you think of offshore banking, most people consider the Caymans, Luxembourg, and Switzerland as the main sites. Well, all three of these countries fail in comparison to the largest of the offshore banking countries. Offshore banking refers to a location off-coast from one's domestic country, which offers tax advantages, and other favorable attributes one couldn’t get in their own country. As of 2014, the United States is considered to be the largest offshore banking country, to those not actively living here, due to the refusal to sign the common reporting standard, which means our government does not actively report foreign holdings. This has effectively made the United States the largest tax haven in the world, for foreign capital.
US Stats. By total area, the United States is the third-largest country in the world behind Russia and Canada and has the third-largest population at 328 million people, after China (1.39 Billion) and India (1.37 Billion). Despite not having the largest landmass or population, the U.S has the largest GDP at $20.5 trillion, followed by China with $13.6 trillion. This gap is expected to close as over the next four years with estimates that U.S GDP will be worth around $24 trillion in 2024 and China at $21 trillion. Even with the largest GDP, the U.S ranks 9th in GDP per capita at $59,895 with Luxembourg at 1st with $105,712 per capita. International trade has consumed the news over the last two years due to a trade deficit with China. The U.S ranks second place in annual exports worth $1.54 trillion in 2017, with China exporting $2.26 trillion. The same year China led the world in imports at $2.34 trillion with the U.S at second with $1.35 trillion. It should be noted that despite an ongoing trade war with China the United States’ trade deficit has increased to a post-recession high of $621 billion. Japan leads the world in public debt with a debt to GDP ratio of 234.9% while the U.S ranks 13th with a ratio of 106.2%. This debt is in large part due to military spending where the U.S has a massive lead. In 2018, the U.S spent $649 billion on its military, with China in second spending $250 billion, the following 6 countries only spent a fraction of that, spending between $50 and $65 billion. Outside of these dollar amounts, several other rankings offer some insight into the overall country compared to the world stage. The KOF index looks at social, political and economic indicators to gauge how globalized a country is. Switzerland was ranked the most globalized country scoring 91.17 points out of 100, the U.S ranked 23rd and scored 82 points. The U.S ranked 9th in infrastructure, with Singapore in first. The Economic Freedom Index examines indicators like government spending, property rights laws, judicial effectiveness, tax burden, business freedom, and other similar aspects to rank how "Economically Free" a nation is. The U.S ranked 12th place with Hong Kong coming in first (current circumstances notwithstanding). In 1990 the U.S was ranked 1st in both education and healthcare but now ranks 27th, although its university system is ranked 1st in the world. Compared to the rest of the world’s leading countries, the United States has a low tax burden that averages 25.5% compared with several European nations whose tax burdens are around 45%. Finally, an important but often overlooked indicator is corruption, the U.S had constantly ranked 16th place but recently dropped to 22nd in corruption. Denmark ranks as the least corrupt country. These statistics should offer some context and background as we continue to discuss future economic news. It should be noted that these numbers are the latest reported for all parties and most come from 2018 or 2017.
The Alchanati Campbell and Associates Team
WHAT'S UP FRIDAY? is a weekly newsletter that will give you a summary of "What's up?" on Wall Street, in the US and around the World written by The Alchanati Campbell and Associates Team. What makes us unique is we focus on long-term knowledge; knowledge that will still be useful to you 10 years from now.