Too Small to Fail? - EconVue Spotlight December 2020

Optimism has taken wing and risk markets have been ebullient. Yet walking thru the streets of Chicago, the destruction caused by COVID19 is plain to see. Felled by simultaneous political and economic blows, store after store has been cleared out, windows boarded up, plastered with for 'For Lease' signs. Retail vacancy rates in the US rose from 9% to 20% from Q1 to Q2 and are doubtless higher now. Jobless numbers are ticking up and an estimated one out of three adults in the US lives in a household facing eviction or foreclosure. A third to a quarter of the children in this wealthiest of countries now experience food insecurity up nearly 500% since the pandemic began. This recovery is clearly two-tracked. 

Now that winter is upon us, things could get worse. COVID is reemerging and even optimists don't think that the vaccine will be widely available until spring.  Qi-jun Hong, a senior research scientist at Brown University has developed an open source COVID model that has performed better than most. His current forecast is not comforting: 200,000 new cases per day in the US and 350,000 total deaths by year end.  That is just five weeks from now. The most affected state? Illinois. We have the highest incidence in absolute numbers, exceeding Florida, California and Texas, with far larger populations. Dr Hong agrees with many scientists that COVID cannot be contained without lockdowns, but we are seeing the opposite of that now with holiday travel.

Will the vaccine be effective, and arrive in time to alleviate economic distress as markets seem to believe? I attended the APEC meetings last week, and one of the panels (listed below) describes the logistical, economic, and psychological barriers to rapid distribution of vaccines within diverse populations. The conclusion: it is too soon to be euphoric.

We are at another juncture that is less visible. There is no doubt that the relationship between the US and China, non-existent just 40 years ago, is critical to world prosperity. While politicians and diplomats continue to parry, technology marches on. The People's Bank of China has put enormous efforts into creating a central bank digital currency that is itself a vaccine against financial contagion. You can listen to Mu Changchun, the director of the Digital Currency Institute at the PBOC respond to questions about the e-CNY at the University of Michigan / SFO Fed conference last  week. Mu said that it is not a challenge to the reserve currency status of the USD but aimed at domestic Chinese consumers. China's banks are under pressure, and consumption is lags other large countries. It would also allow rapid direct distribution of cash, and prevent any possibility of bank runs. 

What are the other gray rhinos out there? I've been following reports of a trucker strike this weekend, but it seems that will be postponed by the organizers due to the spike in Covid. Trucking is the largest profession in the US, and the backbone of our economy-especially for our large cities. A strike could wreak havoc. I've also included a listicle of the biggest cyber threats below. 

So to end with some good news about a family-owned business.  Following on to our October newsletter which discussed the ultra-low temperatures needed for the Pfizer vaccine, and in response to reader questions, here is a story about a Cincinnati-based company that is having trouble keeping up with the demand for its speciality freezers. 

I hope that the holiday will give you a bit of extra time to listen to some of the videos I've selected below. As always, we welcome your comments and suggestions, and hope you will follow us on Twitter and support us on Patreon. If you would like to contribute to EconVue, please contact Managing Editor Ying Zhan: ying@econvue.com

Videos

Director-General, Digital Currency Institute, People’s Bank of China
Central Bank of the Future: Building a Financial System for a More Inclusive Economy
November 16–18, 2020. 

Institute of International Monetary Research 2020 Conference: ‘The Return of Inflation?
Tim Congdon, Michael Bordo, Mickey Levy, Charles Goodhart, Manaj Pradhan, and Juan Castañeda, University of Buckingham
October, 28th 2020

Post Election Financial Markets Webinar  
University of South Florida and Cumberland Advisors

APEC CEO DIALOGUES 2020 - Spotlight Session
“The Economic Value of Modernizing Our Health System" 

Research from EconVue Friends & Experts

November 25, 2020 
‘Second Wave’ Should Not Derail the Economic Recovery 
Michael Lewis

Overreactions by some governors may force a short contraction near year-end; followed by a big spring rebound -- still reaching a new GDP peak by 21Q3,  Just as at the start of the outbreak, the economy will be only as strong as the government allows it to be.

To receive a copy of Mike's most recent US data roundup, please email fmi@freemarket.com

November 2020 / the Policy Planning Staff, Office of the Secretary of State
The Elements of the China Challenge

A thoughtful, comprehensive, wide-ranging look at the challenge presented by the PRC to the United States and the current world order, and a prescription for the US response. - Dr. R. Evan Ellis

Just released by the State Department, this document outlines US policy towards China in the same way that George Kennan's Long Telegram defined US policy towards the Soviet Union. A must read for all China hands. 

November 9. 2020 / American Purpose
The Expansion of Corporate Responsibility
Robert Madsen, Curtis J. Milhaupt

Many corporations have widened their commitment to the social good. This is to be welcomed, but expectations require tempering with an awareness of what the corporate capacity for change actually is.
This article first appeared in American Purpose, the new magazine whose editorial board is chaired by Frances Fukuyama. 

November 12, 2020 
Stop Worrying About ACA Repeal (Part B): Concentrate on Game-Changing Interoperability & Transparency Regulations
David W. Johnson

New federal interoperability rules and pending price transparency rulesare game-changers. These new regulations liberate clinical, pricing and claim data frozen within fragmented, inaccessible silos. (Part A of the article can be found here.)

November 17, 2020 / OMFIF
Cull of Cummings, PM sidekick who built an empire
Brian Reading

Cummings resigned last week shortly after Prime Minister Boris Johnson’s press chief Lee Cain. The survival of the maverick rule-maker and rule-breaker was more surprising than his departure. He paid the inevitable price of becoming too big a story. 

November 19, 2020 / CNBC
Coronavirus surge is starting to put consumers on alert, market researcher Jim Bianco

Bianco believes a fresh round of coronavirus aid could have softened the blow. But he estimates it'll take more than two months for Congress and the White House to approve it.

Links

November 2020 / University of Melbourne
ECON-19 Inside the Corona Crash (podcast) 

ECON-19 goes inside the economic impacts of the COVID-19 pandemic. We'll speak with leading experts and economists from the University of Melbourne, to gain valuable insight into how this virus has caused what might be the biggest economic downturn since the Great Depression, and where we go from here.

November 2020 / NBER Working Paper
Why is All COVID-19 News Bad News?
Bruce SacerdoneRanjan SehgalMolly Cook

91% of stories by US major media outlets are negative in tone versus 54% for non-US major sources and 65% for scientific journals. The negativity of the US major media is notable even in areas with positive scientific developments including school re-openings and vaccine trials.

November 25, 2020 / Substack
What the Hell is Going on with CARES Act "Funds"
Nathan Tankus @Nathan Tankus

The Federal Reserve’s facilities have not been very utilized — whether because of unfavorable pricing and maturity offerings, lack of interest in going deeper into debt, or their very existence making borrowing from them unnecessary. So Mnuchin has now asked the Federal Reserve to “return the unused funds”. Bafflingly, Federal Reserve chairman Powell agreed.

November 23, 2020 / Peterson Institute for International Economics
Yiping Huang, Beijing University
Big Tech Credit in Chinese Finance

Bigtech credit refers to loans extended to SME's and individuals by Bigtech companies, taking advantage of Bigtech platforms and big data credit risk assessment. Presented as part of the Financial Statement series at PIIE; webinar can be accessed here.

November 22, 2020 / Financial Times
Xi's aim to double China's economy is a fantasy 
Michael Pettis

For China to double the size of its economy by 2035,  the Chinese economy must grow annually by just over 4.7 per cent on average for the next 15 years. It grew by 6.1 per cent last year, and by 6.7 per cent annually over the previous five years. In that context, 4.7 per cent a year seems quite manageable. But while the calculations may seem straightforward, there are economic and demographic constraints that are not.

November 22, 2020 / China Bamking News
China's Banking System Slams US for Trade Protectionism and Quantitive Easing, Says Negative Impacts "Hard to Imagine"

The senior-most official for China’s banking regulatory system has harshly rebuked the US for the adoption of protectionist measures and profligate stimulus policies that he says will have an extremely adverse impact on the global financial system.

November 17, 2020 / Barron's
China's Lopsided Economic Recovery Continues. Expect Widening Global Trade Gaps
Matthew Klein

China’s economy continues to rebound quickly from the coronavirus—but this is coming at the cost of worsening imbalances that threaten the country’s longer-term growth prospects.

November 19, 2020 / Caixin Global
Interbank Regulator Bars Bond Issuers From Buying Their Own Debit
Guo Yingzhe and Liang Hong

The real reason might be that this would prevent issuers from writing off these assets which rating agencies would see as a default

November 17, 2020 / Caixin
Exclusive: Tsinghua Unigroup Fails to Extend $197 Million Bond Payment
Wu Hongyuran, Zhang Erchi and Denise Jia

Where is a moral hazard when we need it? A series of bond payment defaults is worrying investors-how many more are in the pipeline?

February 28, 2020 / Booz Allen Hamilton
8 Cyber Threat Trends to Watch out for in 2021

This Cyber Threat Trends Outlook explores what we know about upcoming cybersecurity challenges, and provides guidance on how to prepare for them.