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EconVue Spotlight

Dear R. Hunter,

I normally feel after reading, reviewing, and discussing the events of
the previous week that I'm able to discern a direction or constructive
theme . Today however, every corner of the world seems mired in some
degree of turmoil, and markets are reacting. There is so much noise that
it is difficult to decide what is causing this new volatility. Is it
China, the Fed, the Mueller investigation, Yellow Jackets, or technology
run amuck?

All asset classes--from the newest, such as cryptocurrencies, to the
oldest, including real property, are being affected in sometimes
non-intuitive ways. Last January, at Michael Lewis

https://econvue.com/experts/michael-lewis

's annual forecast luncheon here in Chicago, I correctly forecast
increased turmoil in the Middle East. On that basis, I incorrectly
predicted year-end 2018 oil higher at $72.

In fact, prices have gone the other way. Just like everything else, oil
is a global game now and US producers matter. For the first time in
history, this month the US became a net exporter of oil. EconVue expert
Karim Pakravan

https://econvue.com/experts/karim-pakravan

analyzes the geopolitical causes of the energy market rout in his
excellent report below.

Economists everywhere are reevaluating . Instead of the "it's the
economy stupid" era that President Clinton kicked off with his defeat of
George H.W. Bush, this time politics is roiling economics. I was struck
by this quote from Council on Foreign Relations president Richard Haass

https://www.cfr.org/expert/richard-n-haass

:

In an instant Europe has gone from being the most stable region in the
world to anything but. Paris is burning, the Merkel era is ending, Italy
is playing a dangerous game of chicken with the EU, Russia is carving up
Ukraine, and the UK is consumed by Brexit. History is resuming.

History is indeed back, and synchronized global growth is switching
gears to beneath-trend growth, as British economist Timothy Congdon
writes in his report below. He also sees Europe as the center of
concern, in spite of the high-level pyrotechnics of the US-China
relationship.

At the Council on Foreign Relations last week, I attended a meeting

https://apc01.safelinks.protection.outlook.com/?url=https%3A%2F%2Fwww.cfr.org%2Fevent%2Fmaking-global-financial-system-work-all&data=02%7C01%7C%7C199a98c5d4c94a8054a208d65e01516d%7C84df9e7fe9f640afb435aaaaaaaaaaaa%7C1%7C0%7C636799757106334745&sdata=Iu5HmbhoLOHbHxiDU%2BLacXeYlxlhAzGi3pmEw%2B9HsrM%3D&reserved=0

that featured former central bankers Raghuram Rajan, Jacob Frenkel,
Tharman Shanmugaratnam and Jean-Claude Trichet, who have just issued a
report

https://apc01.safelinks.protection.outlook.com/?url=https%3A%2F%2Fus.boell.org%2Fsites%2Fdefault%2Ffiles%2F10-3-18_report_of_the_g20_eminent_persons_group_on_global_financial_governance.pdf&data=02%7C01%7C%7C199a98c5d4c94a8054a208d65e01516d%7C84df9e7fe9f640afb435aaaaaaaaaaaa%7C1%7C0%7C636799757106334745&sdata=lY2JLyf9KPvkOfsll1bGWclPI%2FyFjZuoeas6hUcKFMk%3D&reserved=0

to the G20 about persistent weaknesses and needed reforms to the global
financial system. They are concerned about inadequate coordination
between financial players post-2008, and the possibility that only
another crisis could bring needed change.

One factor this eminent group however failed to highlight is the role of
technology. The Inequality Paradox

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by Douglas McWilliams of Cebr

http://www.cebr.com

is a new book about the root causes of the current malaise. He says that
inequality is not just caused by the rich per Piketty, but by technology
and globalization, even as global poverty levels have fallen. Technology
has created concentrated wealth in new places and globalization has
created lopsided benefits with unexpected political consequences.

At Mike Lewis's next luncheon, I am going to be much less certain about
my predictions. Back to China, I can say with certainty that the world's
two most powerful leaders, Donald Trump and Xi Jinping, will face
challenges not just from their political rivals, but from jittery
economies. And that central bankers are just as flummoxed as we are.

RESEARCH BY ECONVUE EXPERTS

The Oil Market Rout

https://econvue.com/pulse/oil-market-rout-0

Karim Pakravan

https://econvue.com/experts/karim-pakravan

The rout in oil markets continued in November, the markets worst month
in 10 years. While a softening of demand (in particular from China) has
been a factor, the main issues have been geo-political.

Beneath-Trend Growth for World Economy in Early 2019

https://econvue.com/pulse/beneath-trend-growth-world-economy-early-2019

Tim Congdon

https://econvue.com/users/tim-congdon

Forecasts for 2019 are now coalescing. The typical view is that the
first half of the year will be more difficult for the world economy than
2017 and 2018, with beneath-trend growth likely. As has been anticipated
in these notes for some time, the Eurozone is the focus of concern.

Data Round Up: November Jobs, Wage Gains Will Cement Fed's December Rate
Hike Decision

https://www.econvue.com/reports/michael-lewis/data-round-november-jobs-wage-gains-will-cement-feds-december-rate-hike

Michael Lewis

https://www.econvue.com/experts/michael-lewis

A mixed bag: payroll job gains slightly below trend, unemployment
stable, but wages continue to trend up. This is more than enough to
cement the Fed's decision to hike rates again at their meeting in two
weeks.

Taiwan's Struggle for Partners and Survival

https://www.econvue.com/pulse/taiwan%E2%80%99s-struggle-partners-and-survival

R. Evan Ellis

https://www.econvue.com/experts/r-evan-ellis

Dr. Ellis' report on his recent trip to Taiwan where he had the chance
to interact with academics, officials, and students regarding Taiwan's
relationships in Latin America and the Caribbean and its associated
struggle for diplomatic and existential survival.

Whither the Dollar-The Chinese Challenge

https://econvue.com/pulse/whither-dollar-chinese-challenge-0

Karim Pakravan

https://econvue.com/experts/karim-pakravan

Is the dollar's position as the preeminent global vehicle currency under
attack? Does the rise of China as a global power threaten the dollar's
position? Would a normalization of the dollar's global position be
beneficial to the global economy, including the United State? These are
some of the questions that have become more relevant, especially since a
number of analysts and academic economists have argued that the
indiscriminate application of sanctions, tariffs and other punitive
actions by the Trump administration have roiled the global financial
system and opened the door for a search for alternatives for the dollar.

The Future of Latin America and the Caribbean in the Context of the Rise
of China

https://www.econvue.com/pulse/future-latin-america-and-caribbean-context-rise-china

R.. Evan Ellis

https://www.econvue.com/experts/r-evan-ellis

This report examines, in detail, how the growth of China, with its power
and role in the global economy, is likely to transform Latin America and
the Caribbean through economic, political, and other forms of engagement
with the region.

Cautiously optimistic on the upcoming G20 Xi-Trump meeting

https://econvue.com/pulse/cautiously-optimistic-upcoming-g20-xi-trump-meeting

Xi Sun

https://econvue.com/experts/xi-sun

Has the "new Cold War" between the People's Republic of China and the
United States of America began? Pessimists argue that the tough speech
on China made by US Vice-President Mike Pence at the Hudson Institute on
October 4, 2018 was the dangerous sign.

STORIES IN OUR SPOTLIGHT

Global

Internet giants pose existential threat to banks: BIS chief

https://www.reuters.com/article/us-bis-bigdata-idUSKBN1O31PL?utm_campaign=trueAnthem:+Trending+Content&utm_content=5c06adec04d30128051c4c26&utm_medium=trueAnthem&utm_source=twitter

Marc Jones 12/4/2018 Reuters

Internet and ‘big data' giants like Amazon and China's Alibaba pose an
existential threat to traditional banks, said the head of the Bank for
International Settlements, Agustín Carstens.

Taking the Pulse of Dr. Copper for 2019

https://www.cmegroup.com/education/featured-reports/taking-the-pulse-of-dr-copper-for-2019.html

Erik Norland 11/29/2018 CME Group

Copper prices are often said to reflect the health of the global economy
because of the metal's use in every major facet of industry, hence the
moniker "Dr. Copper." Here's a look at copper's demand-and-supply
conditions as we enter the last year of the decade.

Can the euro rival the dollar ?

https://www.cer.eu/insights/can-euro-rival-dollar

Adam Tooze, Christian Odendahl 12/4/2018 Centre for European Reform

The international role of the US dollar is deeply entrenched. To change
that, Europe – and Germany in particular – would need to rethink some
core economic policies.

https://www.cer.eu/insights/can-euro-rival-dollar

The UNCTAD Handbook of Statistics 2018

http://stats.unctad.org/handbook/

United Nations 12/2018

The bible of global trade statistics.

has spawned a mass exodus of 3 M people to neighboring countries

https://twitter.com/Laurie_Garrett/status/1070354812296925189

Laurie Garrett 12/5/2018 Twitter

This is frightening. Risk of disease associated with people fleeing from
Venezuela who have not been vaccinated could have global consequences.
Who will act?

MiFID II has shrunk fixed income research market, research indicates

https://www.ipe.com/news/asset-managers/mifid-ii-has-shrunk-fixed-income-research-market-research-shows/www.ipe.com/news/asset-managers/mifid-ii-has-shrunk-fixed-income-research-market-research-indicates/10028138.fullarticle

Susanna Rust 11/26/2018 IPE

Unintended consequences of E.U. legislation: MiFID II has shrunk fixed
income research market, research indicates

Fed

Does the Yield Curve Really Forecast Recession?

https://files.stlouisfed.org/research/publications/economic-synopses/2018/11/30/does-the-yield-curve-really-forecast-recession.pdf

David Andolfatto and Andrew Spewak 11/30/2018 Federal Reserve Bank of
St. Louis

With so many treasuries owned by foreigners do yields purely reflect the
US economy?

The Case for Pausing the Interest-Rate Climb

https://www.wsj.com/articles/the-case-for-pausing-the-interest-rate-climb-1543362181

Jason Furman 11/27/2018 Wall Street Journal

Support for a Fed pause is non-partisan.

Grim Stock Signals Piling Up as Wall Street Mulls Recession Odds

https://www.bloomberg.com/news/articles/2018-11-25/grim-stock-signals-piling-up-as-wall-street-mulls-recession-odds?srnd=premium

Elena Popina and Vildana Hajric 11/25/2018 Bloomberg

Which means the Fed can't predict recessions either.

Ominous omen? A look at how Fed tightening episodes usually end

https://www.ft.com/content/32399296-ef05-11e8-8180-9cf212677a57

11/25/2018 Financial Times

Everyone is blaming trade for the market slump, but it is the end of the
Fed's CARRY TRADE via low interest rates that is actually to blame.

https://twitter.com/rcwhalen/status/1070335997282607104

Christopher Whalen 12/5/2018 Twitter

I completely agree. But is it also worries about the new Congress and
Friday's unemployment figures and Brexit and oil prices and the strong$
and EM debt and robotrading and a world of other uncertainties?

U.S.

Housing Can't Be Both Affordable and a Good Investment

https://www.citylab.com/perspective/2018/11/housing-cant-both-be-a-good-investment-and-be-affordable/574813/

Daniel Hertz 11/19/2018 City Lab

At the height of a cycle it is neither. At the bottom of a cycle it is
both.

Ten Best and Worst Metro Areas to Be a First Time Homebuyer

http://www.aei.org/feature/best-and-worst-metro-areas-to-be-a-first-time-homebuyer/#bestcities

12/2018 AEI

A new study ranks the affordability of 50 metropolitan regions in the US
for first-time homebuyers by using the ratio of home prices to incomes,
with Pittsburgh being the most affordable and San Jose the least.

The economy is booming, but Americans still aren't moving

https://www.axios.com/americans-not-moving-economy-booming-mobility-acea1512-0f7d-45e2-a8b1-dd8ea02ea1bb.html

Stef W. Kight 12/2/2018 Axios

Millennials, scarred by witnessing the housing crisis, just aren't
buying homes or moving far from their parents.

The Recent Rise in Health Care Inflation

https://www.chicagofed.org/publications/chicago-fed-letter/2018/407#.XAgLGFPpe0k.twitter

Diane Alexander 12/2018 Federal Reserve Bank of Chicago

This title is misleading. It is actually about the relative lack of
price increases on a historical basis.

Consequences of Routine Work Schedule Instability for Worker Health and
Wellbeing

https://www.bradford-delong.com/2018/12/eg-this-may-well-be-the-most-interesting-working-paper-we-released-last-month-daniel-schneider-and-kristen-harknett-_.html

Brad DeLong 12/2/2018 Bradford DeLong Blog

Precarity in work schedules matters more to health and happiness than
slightly higher wages. The divide between salaried and unsalaried
workers is usually unseen by economists and others who themselves are
the beneficiaries of paid stable employment.

Has bail reform been a success? Check the crime numbers, then
decide

https://www.nj.com/opinion/index.ssf/2018/12/has_bail_reform_been_a_success_check_the_crime_num.html

Star-Ledger Editorial Board 12/4/2018 nj.com

Counterintuitive way to lower crime rates: drop cash requirements for
bail.

Insuring Against Drop in Chinese Students

https://www.insidehighered.com/news/2018/11/29/university-illinois-insures-itself-against-possible-drop-chinese-enrollments

Ellie Bothwell 11/29/2018 Inside Higher Education

Pretty amazing use of insurance, and a measure of the dependence of US
universities-even public institutions-on Chinese student enrollment.

China

Huawei CFO arrested, expect trade talks to continue as US-China tech
strains intensify

https://nb.sinocism.com/p/huawei-cfo-arrested-expect-trade

Bill Bishop 12/6/2018 Sinocism (unlocked subscriber content, click on
"let me read it first")

Today Larry Kudlow said that President Trump was unaware of the Huawei
arrest at the time of his meeting with Xi Jinping in Argentina.

Trade agreements and communist party committees with Christopher Balding

http://chinatechinvestor.libsyn.com/06-trade-agreements-and-communist-party-committees-with-christopher-balding

China Tech Investor 12/6/2018 Podcast

Hosts Elliott Zaagman and James Hull debate the G20, how Trump likes his
steak, party committees, and look at the cash burn at four watchlist
companies. They are also discuss the Trump-Xi G20 meeting and party
committees in Chinese companies.

One Belt, One Road, One Big Mistake

https://foreignpolicy.com/2018/12/06/bri-china-belt-road-initiative-blunder/

Tanner Greer 12/6/2018 Foreign Policy

Trump Says China Will Curtail Fentanyl. The U.S. Has Heard That Before.

https://www.nytimes.com/2018/12/03/business/fentanyl-china-trump.html

Sui-Lee Wee 12/3/2018 New York Times

China vows to stem the supply of the powerful opioid fentanyl flowing
into the United States. It pledges to target exports of fentanyl-related
substances bound for the United States that are prohibited there, while
sharing information with American law-enforcement authorities.

ING is forecasting 9-10 trillion in stimulus in 2019-2020. I'll just
say: I've seen Chinese banks use bigger numbers

https://twitter.com/BaldingsWorld/status/1068372613364277249

@BaldingsWord 11/29/2018 Twitter

That's 9-10 trillion CNY not USD but still a big number. China stimulus
program will mostly be infrastructure projects. I agree- this is a major
climate story. Growth without regards to longer term costs.

China's young tech giants behind explosion in country's R&D

https://asia.nikkei.com/Business/Business-Trends/China-s-young-tech-giants-behind-explosion-in-country-s-R-D

Jada Nagumo 11/26/2018 Nikkei Asian Review

Chinese R&D rising quickly, Japan led by carmakers. Amazon tops the list
with $20B in annual R&D. ⁦

FinTech

Brave New World That Hath Such Risks in It: Giant Tech Firms and
Systemic Danger

http://www.fedfin.com/images/stories/press_center/speeches/Karen%20Petrou%20Remarks-PRMIA-2018%20Financial%20Services%20Regulatory%20Forum-November%2028%202018.pdf

Karen Petrou 11/28/2018 Federal Financial Analytics

FedFin's managing partner Karen Petrou advised clients about emerging
risk in the "big tech" sector and what global central bankers think must
be done about it. This will be a big focus of our 2019 analytics given
how quickly the market is changing and the risks that come with it.

Unpacking Bitcoin's Social Contract: A Skeptic's Guide to Bitcoin

https://medium.com/@hasufly/bitcoins-social-contract-1f8b05ee24a9?sk=27e8cf65d45c46ffae1466ce2ac31b48

Hasu 12/3/2018 Medium

Part of the reason cryptocurrencies are so difficult to grasp is that
they are equal parts reward/money, technology and social contract. The
social contract is what is most often omitted from discussions. Useful
piece.

https://medium.com/@hasufly/bitcoins-social-contract-1f8b05ee24a9?sk=27e8cf65d45c46ffae1466ce2ac31b48

Workshop on digital currency economics and policy

http://52.76.234.106/events/abfer-events/specialty-conference/125:digitalcurrency2018

Asian Bureau of Finance and Economic Research 12/2018

Browsing thru these presentations my take is that economists & central
bankers underweight technology. Flight was impossible-before technology
made it possible. Centralization was the only choice before
decentralized tech-which they don't understand.

The Trade Of The Decade: Betting On Bitcoin

https://www.forbes.com/sites/katinastefanova/2018/11/28/the-trade-of-the-decade-betting-on-bitcoin/#79c58afa458a

Katina Stefanova 11/28/2018 Forbes

In a highly leveraged world, is Bitcoin's key advantage that it can't be
leveraged? Arguments for including cryptocurrencies in investor
portfolios.

Illinois

Even pension loopholes are protected? Then amend the Illinois
Constitution

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Chicago Tribume 12/5/2018

Only in Illinois could someone retire from a $56,000 job with a $158,000
pension and have the high Court deem it a constitutional right. Amend
the Constitution. @

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StatehouseChick

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Repeal Day: Illinois' sobbering alcohol taxes, regulations, a reminder
of prohibition

https://apc01.safelinks.protection.outlook.com/?url=http%3A%2F%2Fcontent.davidhaleweb.com%2Facton%2Fct%2F3037%2Fe-0469-1812%2FBct%2Fl-tst%2Fl-tst%3A8%2Fct34_2%2F1%3Fsid%3DTV2%253AbipYhfqgV&data=02%7C01%7C%7C70b684c6be49474215be08d65ded5713%7C84df9e7fe9f640afb435aaaaaaaaaaaa%7C1%7C0%7C636799671315429395&sdata=ch5dTgVXH32c4g7EOKFZVhFxRj3%2Beu1YcjCIy0D6QNg%3D&reserved=0

Vincent Caruso 12/5/2018 Illinois Policy

With the ratification of the 21st Amendment, 1933 marked the end of
Prohibition in the United States. The Land of Lincoln, however, has
continued to serve a cocktail of prohibitive regulations on alcoholic
beverages.

The Day They Came for the Governor

http://www.chicagomag.com/Chicago-Magazine/December-2018/The-Day-They-Came-for-Rod-Blagojevich/

Daniel Cain and Patrick Murphy 12/6/2018 Chicago Magazine

Ten years ago this month, Rod Blagojevich was arrested in one of the
state's most famous corruption cases. Now, for the first time, the two
lead FBI investigators tell the inside story.

Lyric Hughes Hale

Editor-in-Chief

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