Have We Reached the Turning Point? EconVue Spotlight

As this Memorial Day weekend without parades comes quietly to an end, there is definitely a feeling in the air that we have reached the turning point, a change that is different than an inflection point. At a turning point, velocity is zero and the change in direction is sudden. Inflection points are more gradual in nature, tracing an S-shaped reversal in curvature. I see the virus as a hirsute red ball thrown up into the air- eventually, it will come back down to earth after reaching its highest point, which is just about now. The ball reaches greatest velocity at the end of its journey, pulled by gravity rather than pushed by the external force that first gave it upward momentum. Hopefully as it stops, as all pandemics do, the ball doesn't get dropped by policymakers. In fact today the Wall Street Journal is reporting that the worst might be over; travel bookings and mortgage applications are coming back. 

Perhaps I am cynical or merely Midwestern, but I don't believe that this pandemic is going to change human behavior long term, as witness the countless social media videos of large crowds in the US enjoying their first summer holiday. I agree totally with my fellow Chicago Financial Forum member Jim Bianco that COVID-19 is merely an accelerant of changes that were already in the works. Desinocization is definitely one of these trends. There will also be a few surprises and unintended consequences - mostly positive - included in the references listed below. 

Although it might be relatively quiet here, it is definitely not tranquil elsewhere in the world. India and China are engaging militarily along their disputed border while the Chinese media says nothing at all. On Friday Hong Kong was shocked by a directive from Beijing effectively shaving 27 years off of "One Country Two Systems". A very sharp global recession is underway and unemployment could get sticky. We are facing a17-year cicada invasion, there are locusts in Africa, and it is supposed to be a very active hurricane season. Despite all of this and more, it is likely that nothing else has the potential of Covid-19 to change the lives of almost every person on earth, short of a massive cyberattack or a sun-blocking volcanic explosion. 

How does the world look climbing out of this steep decline? Last week I moderated a panel for the CFA Society of New York, a guided tour of the world's economies with a focus on China. Geopolitical analyst Andrew Bishop of Signum Global Advisors in DC and economist Professor Xu Chenggang of the Cheung Kong Graduate School of Business in Hong Kong are definitely worth a listen. Professor Xu forecast that the burden of COVID-19 will fall disproportionately on the poor such as migrant workers in China, leading to civil unrest.  

As an observer I attended scores of webinars and Zoom meetings over the last few weeks, and looking back, the one that I found most illuminating was sponsored by Northwestern University,  A Dialogue with Frontline Clinical and Public Health Experts on COVID-19. It was a rare opportunity to hear directly from Chinese practitioners in dialogue with US medical experts who have treated the disease.  The Chinese doctors said a number of surprising things: in their experience there is no such thing as an asymptomatic carrier, there are only patients who are pre-symptomatic for a couple of days before they become ill. They believe that the virus is weakening and therefore are not too concerned about a second wave, contrary to discussions in the US. I really hope they are right and that they keep working together with their US colleagues to find effective treatments. 

Please enjoy more links below from both EconVue experts and other sources you might have missed:

EconVue Friends & Experts

Coronavirus in the US: Use Facts, Not Fear, To Inform on the Path to Reopening the Economy
Edward Pinto 5/3/2020 American Enterprise Institute

One of the leading analysts of the US housing market says that things might not be as negative as they seem. 
 
A V Shape Recovery, in Some Sectors
Michael Lewis

Despite the pessimism that has overtaken the Fed, FMI does see clear indications of a V-shaped recovery… in some areas. Perhaps the most noticeable will be the auto sector. (Full report available to EconVue readers)

COVID-19: Shaping a Sicker, Poorer, More Violent, and Unstable Western Hemisphere
R. Evan Ellis

Dr. Ellis argues that the impact of the crisis on the region is likely to be far more severe, and play out over a longer time, than generally anticipated, with adverse, mutually reinforcing effects in public health, the economies of the region, diminished partner resources for governance, plus expanded crime and violence, and a return to public protests.    

The Official Unemployment Numbers Are Technically Fake News
Robert Shapiro 

April’s 14.7 percent unemployment rate, announced by the Labor Department last Friday, is awful by any standard. The official tally shows that unemployment increased by 15,938,000 people last month—to 23,078,000 overall—resulting in the highest jobless rate since the Great Depression. 

“All Eyes on Asia”: The Geopolitical State of Affairs in Northeast Asia Amidst the COVID-19 Pandemic
Eleanor Shiori Otsuka Hughes 

Dr. Sheila Smith, Senior Fellow for Japan Studies at the Council on Foreign Relations; and Dr. Stephen Noerper, Senior Director at The Korea Society, outline how these two democratic nations have tackled the coronavirus pandemic as well as regional implications.

Health Tech to the Rescue: Combatting COVID-19 with Virtual Care and Predictive Analytics
David W. Johnson 

With stunning swiftness, COVID-19 knocked America’s healthcare delivery system to its knees. A month into the crisis, normal hospital operations were in upheaval. Avoiding in-person care has become the norm and the volume of admissions, surgeries and ER visits has plummeted. 
 
Unintended Consequences

Many Americans Used Part of Their Coronavirus Stimulus Check to Trade Stocks
Maggie Fitzgerald 5/21/20 CNBC

That's correct, US retail investors poured into stocks, and at all income levels--including first-time investors. Based upon bank account transfers from 2.5 million people who received checks, terrific realtime data from Envestnet I Yodlee.
   
Remittances to Mexico Continue to Flow from Nogales and Elsewhere 
Genesis Lara, 5/8/20 Nogales International

As the Mexican economy sinks, remittances from the US haven't been stopped by COVID-19. A 20% depreciation in the peso since February makes those dollars go further. 

LA traffic deaths surge back to pre-coronavirus levels 
Laura Nelson 5/14/20 L.A.Times

Less traffic, but a 30% increase in speed means traffic fatalities are rising sharply.  During last month's lull organ donors were scarce. 

US-China

Premature Victory Lap? Meng Wanzhou poses ahead of momentous court decision
Jason Proctor 5/25/20 CBC News

The Huawei executive posed on the courthouse steps in Vancouver over the weekend.  A decision will be reached this Wednesday and could have far-reaching effects on US-China relations.

From ‘Respect’ to ‘Sick and Twisted’: How Coronavirus Hit U.S.-China Ties
Chris Buckley and Steven Lee Myers 5/15/2020 New York Times

China has hit back at American criticism over its handling of the coronavirus pandemic with an outpouring of vitriol as acrid as anything seen in decades.
 
China announces new raft of US imports eligible for trade war tariff waivers amid rising superpower tensions
Finbarr Bermingham and Frank Tang South China Post 5/12/2020

China risks being left out of new global economic order, Beijing’s former trade chief Long Yongtu warns.

Holding the Chinese Communist Party Accountable for Its Response to the COVID-19 Outbreak
Olivia Enos 5/12/2020 the Heritage Foundation

The international community is now interested in taking measures to hold the CCP accountable. The U.S. government should lead the way in pressing for a level-headed, apolitical investigation into the CCP’s mishandling of COVID-19. It should also consider levying sanctions on individuals and entities responsible for the cover-up.

Around the World

Cost of vaccinating billions against Covid-19 put at more than $20bn
Michael Peel 5/3/2020 Financial Times

The cost of not vaccinating--if an effective vaccine is found- is obviously a lot more than $20B. 

How China Is Losing Europe
Andreas Kluth 5/7/2020 Bloomberg

Responding to Covid-19 in Africa: Using Data to Find Balance
Prevent Epidemics 5/5/2020

Africa is the least prepared continent to fight COVID-19. Here is what is being done to create a data-driven approach.

Will the Pandemic Weaken Russia’s ‘Deep State’—or Make It Stronger Still?
Stephen Sestanovich 5/11/2020 Council on Foreign Relations

As Putin tries to manage Russia’s coronavirus outbreak, the national security bureaucracy faces challenges and opportunities of its own.

German judge warns EU over ‘very difficult to resolve’ legal crisis
Guy Chazan and Sam Fleming Financial Times 5/13/2020

It would be a surprising outcome, in a continuously surprising world, if a legal crisis in Germany and not a financial or debt crisis in the weaker member states leads to the unravelling of the EU. Merkle and Macron are trying to keep the EU together by creating a debt union.

Government’s handling of Covid-19 is a very British disaster
Ambrose Evans-Pritchard The Telegraph 5/12/2020

The purported trade-off between lives and jobs – always a false choice – has instead spared neither. It is the worst of both.
By the way, am I the only one who doesn't care that an advisor of Boris Johnson took a drive to visit his family? The British press is engaged in distracted frenzy that is incomprehensible to outsiders.
 
What We Don’t Know About Coronavirus Origins Might Kill Us
Jason Gale, Robert Langreth, and John Lauerman 5/10/2020 Bloomberg

Humility is refreshing, if bracing. There is still so much we don't know about Covid-19, which makes economic policymaking and planning hugely difficult. 

Supply Chains

The United States Needs to Reshape Global Supply Chains
Aaron Friedberg 5/8/2020 Foreign Policy

Coronavirus and Farmworkers: Is the Food Supply at Risk?
Amelia Cheatham 4/29/2020 Council on Foreign Relations

The United States is unlikely to run out of food, experts say, but the coronavirus has thrown supply chains off-balance. If domestic supply chains aren't working, shifting global supply chains in a recession is going to be even harder.

Apple shifting some AirPods to Vietnam - report
Brandy Betz 5/8/2020 Seeking Alpha

Supply chain diversification began with the 3/11 tsunami in Japan, and intensified due to increased labor costs in China and US-China trade tensions. Covid-19 has intensified an already-existing trend.  

India Pledges Easy Access to Land for Factories Leaving China
Shruti Srivastava 5/4/2020 Bloomberg

Will land be enough of an incentive to shift supply chains to India?
 
Pandemic’s Impact on China-Japan Ties
Devin Stewart 4/29/2020 Analyzing War

Another Covid casualty: Sino-Japanese relations. Prime Minister Abe has offered to pay moving expenses for Japanese manufacturers to leave China and return onshore. 
 
Fighting the invisible enemy
Stephen Hutcheon and Alex Palmer 4/27/2020 ABC Australia

'Quite terrifying': Australian scientists recall first sightings of the coronavirus

How the coronavirus pandemic has trapped China’s Belt and Road Initiative between a rock and a hard place
Brian Klain 4/20/2020 South China Morning Post

China deviated from its usual policy by joining other nations in agreeing to a debt moratorium for countries in economic distress. Someday soon they might have to consider a debt jubilee.  
 
Next month, EconVue will be doing a live webinar on sustainable investing featuring analyst David Maywald who is based in Sydney. If you have an interest in ESG, please email Managing Editor Ying Zhan and we will be happy to send you an invitation. We warmly welcome similar suggestions and submissions from our readers.