What the Market Telling Us about the Korean Peninsula Conflict

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A rogue state testing hydrogen bomb sent a missile over the territory of a neighboring country. The American president promised “fire and fury” if threats continue. Sounds a lot like the plot of a Hollywood thriller, right? Tthe Market, however, doesn’t seem to think the world is heading for to conflict and chaos. International investors are relaxed about the potential crisis on the Korean peninsula, and the market stays undisturbed. According to the recent data collected by the Economist, economic indicators including the yield on Treasury bonds and the MSCI World equity index fell, while the Gold price rose in the recent month. However, these movements are not big. In fact, the South Korean stock market, which should be most sensitive to the risk war, is doing better in comparison to the start of the year.

Let us consider the terrible possibility of a conflict on the Korean Peninsula. In addition to the tragic humanitarian loss, the global economy will also suffer. Capital Economics points out that South Korea produces 40% of the world’s liquid-crystal displays and 17% of its semiconductors. If Japan was the target of missile strikes from North Korea, as it might be, the disruption would be even greater for that Japan is the world’s third largest economy.

So how can we justify the market’s insensitivity to this delicate political situation? Some propose that the market is simply not very good at assessing political risk. A recent example would be when the European market failed to foresee the result of Brexit. The vast majority of polls and markets had “remain” with a solid lead. It was only when the polls shifted towards “leave” in early June 2016 did the market moved in the same direction. Still, never once did “leave” come close to taking the lead.

Another explanation is that investors have learned in recent decades that geopolitical events tend to have only very short-term impacts on the markets. In comparison to political risks (e.g. the result of a presidential election), economic growth and corporate profits are far more important factors to consider for the investors. The reality is, no one can run enough analysis to properly assess and predict the situation with North Korea based on polls or past data.  Nevertheless, the market has made a decision that for now, they do not believe a serious incident will happen on the Korean peninsula. So let us all hope that the “wisdom of crowds” wins this time.

 

Big companies have Brazil addicted to junk food and its a problem

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A recent investigative report by the New York Times highlighted Brazil’s addiction to junk food and the problem it has created. Companies like Nestlé and Coca-Cola among others have seen decreased profits in wealthy countries have since moved to poorer countries spread out in Latin America, Asia, and Africa. More so, these companies have brought their products directly to consumers by hiring local workers to take and deliver orders by foot. In doing so Brazil is now facing an obesity problem and much larger problems in productivity and job security as a result.

Employees of companies such as Nestlé travel across the country taking and delivering over 800 products. Customers have until the end of the month to pay for their purchase and often find themselves overindulging as a result. While the company does highlight its many healthy products the Times article did note that many end up resorting to foods high in fats and processed ingredients while offering little to no health value despite being advertised otherwise.

The report highlighted the drastic change In the health of the Brazilian people. In 1980, 7% of Brazil was considered obese. That number has since doubled to over 18%. This is directly attributed to the availability of packaged foods. From 2011 to 2016, packaged food sales grew by 25 percent worldwide compared to only 10 in the U.S. Even scarier is the sales of soft drinks which in Latin America have doubled and have since overtaken the North American region in sales.

The problem is much larger than just obesity. Companies such as Nestlé have provided thousands of men and women with jobs that pay very well. What the Brazilian government could not do, Nestlé has. The Times article chronicled a woman who with this job was able to purchase a refrigerator, television, and stove with her earnings and has since elected to save money for a new home.

With so many people becoming obese and being diagnosed with concurrent ailments such as diabetes it doesn’t help that the Brazilian healthcare system is ‘broken.’

In a report by Al Jazeera just before the onset of the Rio Olympics it was reported that federal government experienced a budget shortfall. Hospitals in the area were literally turning people away because they could not service any more patients. Some hospitals lacked basic medical supplies such as saline. Public funds were also misappropriated with $12 million USD going to a social organization contracted to support local hospitals.

Not only are hospitals suffering, but so are farmers. Fields once strewn with vegetables and fruit that comprise a healthy diet have since been replaced by soybeans, corn, and sugar. These ingredients make up the bulk of ingredients that make up processed foods.

The website WITS tracks trade statistics for countries. In 2010, soy beans were the third most exported good by Brazil. Raw cane sugar followed suit in fourth place. Both exports had a U.S. value of $11 and $9 million respectively.

Flash forward to 2015 and soy beans in particular have overtaken the top spot as the most exported product in Brazil. In five years time what was once an $11 million dollar industry has since ballooned to nearly $21 million. Cane sugar stayed in the same spot with a loss of around $3 million.

The country of Brazil is in a very tough spot. While such large corporations have certainly hurt the health of its people as well as the productivity of the country, thousands are benefiting in ways they could not previously. It will be interesting to see where Brazil goes from here.

Sources:

http://wits.worldbank.org/CountryProfile/en/Country/BRA/Year/2010/Summarytext

http://wits.worldbank.org/CountrySnapshot/en/BRA/textview

http://www.aljazeera.com/indepth/features/2016/02/brazil-broken-healthcare-system-160204075525812.html

How Big Business Got Brazil Hooked on Junk Food – The New York …

 

 

 

 

 

The Economic Impact of Repealing DACA

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On Sept. 5th, the Trump administration announced the repeal of DACA. As a part of the announcement Attorney General Jeff Sessions claimed that DACA has had a negative impact on the American economy, that is not correct. Rather, repealing DACA would hurt the economy.

Repealing this Executive order will not only lead to almost 800,000 undocumented immigrants who came to the united states as kids not being able to work legally and being at risk for deportation, but it will also have a negative impact on the size and growth of United States economy.

First, the actual act of repealing the excretive order will be expensive. The Cato Institute estimates that it will cost the federal government at least $60 billion over the next ten years to execute the repeal of DACA.

By rescinding DACA, the GDP would both shrink in size and growth. A Center for American Progress study estimates that the repeal of DACA would cause US GDP would shrink by $433 Billion over 10 years. The Cato Institute estimates that in that same time frame US economic growth would be reduced by $280 Billion. Both these studies show a dramatic negative impact on the American Economy.

The GDP would not be the only thing to suffer. A CAP study approximates that the contributions to entitlement would drop by $24.6 Billion.

DACA recipients are a key working age population, the average age of a DACA recipient is 22. As the overall American population ages and there are more people dependent on Medicare and social security we will need more people to pay into these programs. By eliminating DACA we are also eliminating a group that

helps keeps entitlements funded.

In general, the United States needs immigration in order to keep our

population pyramid in check. DACA has helped increased that vital working age population to help hold up our increasing top-heavy pyramid.

DACA will not only have a negative impact on national economy, but some states with large populations of DACA recipients will face even greater economic consequence.

California, the state with largest number of DACA recipients, would face an estimated $11.3 Billion annual GDP loss. Texas would also face approximately a $6.1 Billion GDP loss per year.