Kweichow Moutai becomes the first 1000-yuan stock in China

The iconic baijiu produced by Kweichow Moutai.
(Photo credit to Kweichow Moutai’s official website)

After exceeding 1,000 yuan ($145) per share, Kweichow Moutai, the Chinese liquor giant’s share became the most expensive stock in China’s A-share market on June 27, 2019, aided by ever-growing demand.

While investors and analysts were not surprised by the strong performance of Moutai. Analysts from both Bloomberg and China International Capital Corp. Ltd. were optimistic about the continuous growth of Moutai’s share and raised their expected price of the stock.

A last-year forecast from Bloomberg predicted that Moutai’s share would hit the 1,000-yuan mark in 2019. Moreover, Tingzhi Xing, an analyst of China International Capital Corp. Ltd., also forecasted that 1,250 yuan would be the target price within 12 months.

Kweichow Moutai is a distillery from Moutai town in southwestern China’s Guizhou province. Moutai is famous for its iconic premium baijiu, a sorghum-based liquor, and it is usually used to serve at business meetings and official banquets. In 1972, Moutai was used to entertain President Richard Nixon on his historic visit to China.

President Richard Nixon and Prime Minister Enlai Zhou were tasting Moutai at the reception dinner in 1972. (Photo credit to news.ifeng.com)

Just as the western world’s obsession with premium wines, Chinese consumers are fond of baijiu. Thus, the consumption of high-quality baijiu in China is vast and still growing. As a representative of high-end baijiu, Moutai creates considerable profits.

According to the data cited by China Daily, an official Chinese English-language newspaper, the total revenue was 75 billion yuan, and its net profit was 34 billion yuan in 2018. Both its total revenue and net profit increased 23% over the previous year. Furthermore, the sales of Moutai rose 14% over 2018 to 100 billion yuan in total, and its net profit achieved by 45 billion yuan.

Another report released by China’s Guizhou province shows that the overall GDP of Guizhou province is 1.48 trillion yuan, and Moutai’s value now attained 1.24 trillion yuan in 2018. It means that the value of Moutai dominates nearly 85% of provincial GDP.

(Photo credit to Bloomberg)

Besides being the most valuable stock in China’s A-share market, Kweichow Moutai also surpassed Diageo in 2017 and became the most valuable liquor company in the world, according to Refinitiv, a financial technology and data company based in London. Diageo is a British multinational drinks company and the owner of Johnnie Walker.

Due to the generous profits and ever-increasing demands of Moutai, analysts foresaw that the price of Moutai’s share would keep going in the future. “I can’t see any growth cap on the company in the long run, unless the Chinese don’t drink one day,” fund manager Dai Ming told WARC, the global specialist information company, in a marketing report. “The liquor culture is deep-rooted in China, and when you do business here, you drink. It’s a product with demand outstripping supply, so growth is quite visible.”

The Repercussions of Trump’s Fed Tweets

Over the last three years, President Trump has become quite infamous for a variety of things: his combover, the spray tans and his “build the wall” mentality. He’s also notoriously known for loving Twitter. Trump has garnered quite a reputation on this social platform, seeing as he’s the most Twitter-active president the U.S. has ever had. 

President Trump’s tweets are, for the most part, immature, poorly informed and aggressive. However, to our country’s dismay, these 140 character-long posts have garnered the ability to impact the U.S. economy and the central banking system. Recently, Trump’s public criticism of the Federal Reserve on Twitter has cast doubt on the independence of the Fed from President Trump.

The tweets

Chairman of the Federal Reserve, Jerome Powell, is currently keeping interest rates much higher than President Trump feels is appropriate. Trump feels as though the Fed’s current monetary policy is pushing up the dollar and as a result, causing the U.S. to be less competitive on a global scale. 

Jeremy Powell, Chairmen of the Fed.

To voice his disapproval and frustration with the Fed’s recent decisions, Trump has essentially begun to cyberbully the Fed via Twitter. Shocking, no? In these string of tweets, Trump has accused the Fed of having no guts, sense or vision. He even deemed Powell a “terrible communicator!”. In the tweet pictured below, we see that Trump has gone so far as to suggest that the Fed raising interest rates is insensitive to other current events.

It’s important to note that in November of 2017, Trump himself nominated Powell to the position of Chairman of the Federal Reserve. Powell’s decisions that don’t properly mirror Trumps desires has caused Trump to publicly say, “Where did I find this guy Jerome?!”

As we know, the Federal Reserve operates independently from the President. This lack of control clearly has frustrated Trump’s and his dreams for an expansionary monetary policy. Like most rational adults, Trump has used Twitter as his emotional outlet. However, these exclamatory and bitter tweets are almost indirectly granting the President with a sense of command over the Federal. 

The repercussions and findings

Economists from the London Business School and Duke University have come forward to report that Trump’s tweets have had a “statistically significant and negative effect on markets.” As a result, investors are now anticipating that central bank to give in to these political pressures and consequently, lower interest rates. A study performed by the National Bureau of Economic Research (NBER) has discovered these findings. 

Economists and scholars have come to this conclusion by closely analyzing the shift in Fed funds future contracts, over both short and longer terms, in conjunction with their reaction to Trump’s tweets about Powell and the Fed. (The Fed funds futures are defined as the financial contracts that indicate what the market’s opinion of where the federal funds rate will be at the time of the contracts expiration)

CNBC explains that within the Funds Market, traders essentially bet on or predict where the Fed’s benchmark overnight lending rate will end up. Policy makers and economists have watched closely for changes in how the markets view where interest rates are heading. They have found that the 30-some-odd tweets about the Fed have lowered the Fed funds futures contract by 10 basis points. 

Basis points are a common unit that are used in relation to interest rates and other types of financial percentages. 1 BPS is equivalent to .01%, 10 bps means .10% and so forth. Economists have noted that Trump’s tweets have knocked the Fed funds future by 10 bps, or as we now know, .1%. If we look at this not in the context of the Fed funds rate, this appears to be a pretty miniscule percentage. However, the Fed generally adjusts its rate by 25 bps and currently, the target fed funds rate is somewhere between 1.75% and 2%. So in reality, this .1% is a pretty substantial percentage. 

The study done by the NBER infers that because of these findings, economists are reporting that the impact of these tweets will cause the Fed to give into external political pressure, which will thus tarnish the central bank’s autonomy. While Trump can not directly influence the Fed, his publicized pressure is indirectly changing market expectations of the Fed which in turn, can most likely influence their next move. 

Why it matters

So why does this matter? The Central Bank is not a government agency and in turn, they operate autonomously from the President. It’s rights and privileges are guaranteed by the law. However, these findings show that the market expectations can and have a high chance of influencing the decisions of banks. When it comes to calculating monetary policy, the Fed may end up looking at market expectations to help decide on policy.

Additionally, these reports and predictions create a perceived lack of independence between politics and the Fed. Potential investors might feel as though this political influence and perceived interference in our central banking system might make investing in our economy too unpredictable and risky. This might in turn cause them to invest their money in foreign markets, therefore detrimentally impacting the U.S. economy. 

Sources

  1. https://www.bloomberg.com/news/articles/2019-09-23/trump-s-fed-tweets-shown-to-have-significant-effect-on-trading
  2. https://www.cnbc.com/2019/09/23/fed-rates-markets-bet-that-trumps-twitter-attacks-will-move-rates.html
  3. https://www.cnbc.com/2019/09/24/trumps-tweets-on-the-fed-and-tariffs-also-are-impacting-gold-prices.html
  4. https://www.cnn.com/2019/09/24/business/trump-fed-independence-twitter/index.html
  5. https://www.reuters.com/article/us-usa-fed-trump-tweets/trumps-tweets-threaten-feds-independence-push-rate-expectations-lower-study-idUSKBN1W82II
  6. https://www.forbes.com/sites/simonconstable/2019/09/23/trumps-tweets-shows-how-the-fed-lost-its-credibility-with-investors/#f31db7871ae1

Bezos breaks corporate responsibility pledge

Jeff Bezos
Photo courtesy Associated Press

By Sarah Montgomery

Last month, almost 200 major corporations signed a pledge to prioritize their workers, customers, suppliers, and communities over shareholders. Jeff Bezos is already defecting. 

Bezos is the owner of Amazon, which owns several other companies, notably Whole Foods. This is important because recently Whole Foods announced that, coming Jan. 1, employees working 20-30 hours per week will lose the company health plan. This is contradictory to the pledge. 

Whole Foods told Business Insider that the decision was made in order to improve efficiency within the company. They also claim that they are providing their affected workforce with resources to find alternative healthcare or to explore positions that are healthcare-eligible. 

The Business Roundtable, a large corporate lobbying organization, wanted this pledge to serve as a new approach to the “purpose of the corporation.” The goal was to get rid of the prevailing idea that the maximization of shareholder value is what businesses should strive for. This concept, propagated by conservative economist Milton Friedman, has been the commonplace corporate ideology since the 1970’s. Though this pledge is a welcome change, it is important to know that there is no mechanism in place for supervision or enforcement—nothing is committing these CEOs to the pledge other than their word. 

The pledge from Business Roundtable

Many economists doubted that companies would hold true to the pledge in the first place. Nell Minow pointed to the lack of substance in the pledge and its inherent contradiction to capitalism, amongst other reasons, as to why she does not trust these CEOs. Some pointed out that corporations have a responsibility to pay taxes, which many have avoided— also under the guise of helping their employees, but in reality done in the interest of lining their own pockets. Jack Kelly, Senior Contributor at Forbes, writes “signing the agreement to be better was the perfect public relations stunt to earn kudos for their supposed new ‘woke’ view.” 

Stanley Litow, an expert on corporate social responsibility, argues that corporations do not need to neglect the needs of shareholders in order to produce good behavior. After all, shareholders do not want to be part of an abusive company that will inevitably be burned by regulators. 

This shareholder-first mentality has been so pervasive in the corporate culture for so long that it seems like an essential component. “No one is quite sure how to rebalance corporate priorities so that greater shareholder value is seen as a byproduct of socially responsible behavior rather than the primary goal,” LA Times journalist Michael Hiltzik writes

Other high-profile CEOs include Tim Cook of Apple and Ginni Rometty of IBM, amongst dozens of other influential business leaders. Only time will tell if they follow Bezos’s path.

The BOOming Business of Halloween

Looking around my living room, my heart floods with excitement as I regard my sparkly pumpkins, fall floral arrangements, and witchy decorations. I typically consider myself a conservative spender, but when it comes to All Hallows Eve, my body finds itself possessed by the demon of retail.

Source: Women’s Day
https://www.womansday.com/home/decorating/g1902/painted-pumpkins-ideas/?slide=18

And I’m not the only one. When I was young, my family had shallow pockets, yet my mother splurged on Disneyland tickets and expensive costumes every Halloween. My friends’ parents kept boxes upon boxes of Halloween decorations, adding to their collection every season from the likes of Micheals, Home Goods, Target, etc.

Buckets of funds are poured into products with hair-raising price tags, seasonal shops like Costume Castle reaping enormous benefits. Do I spend on multiple new costumes every year? Yes. Do I feel bad? Absolutely not. Why? It’s fueling the economy like B Positive fuels a vampire.

Spooktacular Spending in 2019

According to the National Retail Federation (NRF), Americans collectively are expected to spend about 8.8 billion dollars, simply on the spooky night in question. On average, each human (transparent ghouls excluded) will average $86.27 of Halloween spending, with 172 million people planning to participate in the festivities. In case you were wondering, that’s a haunting amount of consumers trick-or-treating themselves. 

The NRF also reported an interesting new trend. Social media has greatly affected consumer spending decisions. More and more people are looking to platforms such as Pinterest, Instagram, and Twitter for their next purchases. As individuals attempt to imitate celebrities, they tend to choose costumes with higher price tags. Gone are the days of homemade outfits that don’t offer impressive social media pictures. This is detrimental to our pockets, but beneficial for the Halloween business, with consumers predicted to spend $3.2 billion on costumes alone. 

Source: Harper’s Bazaar Arabia
https://www.harpersbazaararabia.com/people/the-a-list/the-best-celebrity-halloween-costumes

Broader Economic Effects (Ghoulish GDP)

Source: Lemon Tree Images

Like I said before, all of this spending is fueling the economy. Businesses like pumpkin patches and candy corporations are thriving, and many seasonal employees have an institution to work for. In 2018, spending records reached an all time high, and this year the robust numbers remain unchanged. This is extremely positive, because Consumer spending is the largest contributor to the nation’s GDP, driving the economy as a whole. 

While the holiday season is short-term, Halloween serves as a great little BOOm for the nation’s economy. So have a fangtastic celebration, and don’t feel guilty about all of those spooktacular splurges.

Source: https://llynstrong.com/event/happy-halloween/

Source:

Jordan, Thomas, et al. “Social Media Influencing near-Record Halloween Spending.” NRF, 25 Sept. 2019, nrf.com/media-center/press-releases/social-media-influencing-near-record-halloween-spending?utm_medium=Homepage%2BHero&utm_source=Website&utm_campaign=Halloween&utm_content=Release%2B9-25-2019.

Wage Stagnation May Tell Us Why We Sense an Impending Recession

How we feel about the value of our money plays a huge role in the growth of the economy and the wellbeing of our monetary future. Entire sections of the government, like the Federal Reserve, are dedicated to managing that public perception through a two-pronged approach of managing interest rates and informing the press of their opinions to placate public anxiety. People turn to experts like the federal reserve along with metrics such as GDP growth rates and stock values to determine the value of their money both now and in the future. These projections then inform how people will decide to spend their money now or attempt to save, which will lead to a contraction or expansion of the economy. 

While these metrics may seem like a holistic picture, their current numbers fail to rationalize the growing anxiety of an impending recession in the United States. While the economy has steadily been growing since the Great Recession, a Deloitte Global Millennial Survey states that 45% of millennials in the workforce believe that they will never achieve the financial status of their parents.

Where could this anxiety come from? 

Well, let’s look at wages.

Up to 80% of Americans live from paycheck to paycheck.  Because of that, wages are one of the more direct indicators of economic growth and wealth for a majority of the U.S. population. Wages themselves tend to grow with inflation and GDP. This stems from the concept that if more money is put into the economy, that money has the capacity to circulate through exchange. That has not been the case recently, however. 

Since the Great Recession in 2008, average wages have dropped significantly due to unemployment and an increasingly competitive job market for most sectors. In 2008, the sentiment was simply that everyone just wanted job, and so most people were willing to take jobs at lower pay. As the economy began to improve in the subsequent decade, average wages remained virtually the same. If we account for inflation, this means that the average worker was actually being paid less over the course of ten years. This is because the same amount of money must pay for the constantly growing costs of commodities such as housing, food, education, and medicine. This lack of growth is attributed to businesses holding off on increasing wages. Instead, they are apportioning more of its increasing revenues to shareholders.

While it may seem like a bad move on the companies, this actually is a common business practice due to the sticky wage theory: wages may be easy to rise, but are increasingly difficult to drop during a recession. However, this theory is becoming impractical for the era. As companies continue to keep wages low, when a recession ultimately does hit, they have no choice but to layoff workers rather than cut costs . These policies instead increase wealth inequality and leave working Americans vulnerable to financial struggle or even disaster.

The good news is that wages are beginning to rise. Some economists attribute this to a tightening job market as unemployment rates drop . Others say government policies such as increasing the minimum wage have forced companies to address this stagnation. Still, there is a lot work to be done as productivity continues to increase while wages fail to grow at the same rate . Policies such as the most recent tax cuts to companies have also failed to increase the spread of wealth (Forbes). Thus, many Americans are seeing increasing inflation due to a rising GDP yet consistent or underperforming wage growth, leading them to believe that their lives are getting more expensive but that they will ultimately be unable to afford it.

TikTok: The Beginning of China’s Digital Influence

Source: Wired

Although China has found major success in global hardware markets, they have yet left any major footprints in the digital space. Many anticipated that Chinese digital giants, such as Alibaba, Tencent, Baidu, and JD, would take over the tech world. Yet, their efforts have been disappointing and their results left many believing that China’s ability to crossover into the digital market would not occur. That is, until now.

In 2018, the most downloaded apps in the U.S. included Facebook, Instagram, YouTube, Snapchat, and unknowingly for many, TikTok. TikTok became one of the most downloaded apps in the App Store for Apple users, and the Google Play Store for Android users.

Source: TechCruch

What is TikTok?

TikTok is a video sharing platform that started with short music videos but has now expanded to include content that relates to cooking, travel, fashion, and so on. Videos on TikTok can be no longer than 15 seconds, but in those 15 seconds, content creators can add music and special effects through the use of the app’s simple tools. Because of TikTok’s easy-to-use functions, virtually anyone can become a content creator on TikTok. However, the most popular TikTok videos that have crossed over into Instagram and YouTube are high on entertainment value and set trends that many other creators on TikTok follow.

Although TikTok comes from China, it is not owned by one of the Chinese tech giants. Despite massive investments in video platforms, Chinese tech giants, such as Alibaba, Tencent, and Baidu, were never able to dominate this area of the digital realm. TikTok, known in China as Douyin, was launched in 2016 by ByteDance, a Beijing-based tech company traditionally focused on news. Its news app, Toutiao, uses advanced AI algorithms that learn user preferences, then provides customized news feeds. ByteDance uses the same algorithms to provide relevant video feeds to TikTok users.

By the start of 2017, Douyin had become China’s most popular mobile video app. In November of the same year, ByteDance spent $1 billion to acquire a competing video sharing site called Musical.ly. While Musical.ly was also founded in China, most of its users were based in the U.S. The combined global reach of TikTok and Musical.ly created a powerful combination that has generated China’s footprint in the digital market and a hopeful outlook on China’s digital future.

Source: Facebook

Competition Looms

By the end of 2018, TikTok had more than half a billion active users, around 40% of them outside of China. Therefore, it is no surprise that Chinese tech giants have been closely studying TikTok’s successful approach of simple design, active promotion, and its utilization of trends in order to succeed in global markets.

Tencent is already trying to enter the short-video streaming industry by investing in Kuaishou, TikTok’s main local competitor, and reportedly giving out subsidies to promote its own platform Weishi. Those in the U.S. are also taking note, with Facebook quietly launching a TikTok competitor app called Lasso in November 2018. 

Source: Android Police

Lasso has been downloaded by an estimated 70,000 U.S. users since launching in November 2018. This pales in comparison to TikTok’s 39.6 million U.S. users that downloaded the app in the same time frame. Although U.S. users make up a large portion of TikTok’s downloads, there is an undeniable presence TikTok has among the teens of the world with 500 million active users worldwide.

Source: Oberlo

The Trajectory of TikTok

It is clear that TikTok’s growth is unheard of in the Chinese digital market and in the global space. However, ByteDance, the company behind TikTok, cannot become complacent with TikTok’s current place in the market, especially if it wants TikTok to build its position as the first globally successful “made in China” app.

The implications of TikTok’s success spans beyond materialistic accomplishments. It shows the global market that China has the ability to become major players in the digital realm, even without the backing of one of its tech giants. Therefore, combining large investments with TikTok’s successful strategic approach may lead to a “made in China” app market that competes with its global hardware markets.

Sources

U.S. Electric​ cars are becoming cheaper – but with new threats and challenges

Considering buying an electric car? Now might be a good time. The sales of electric vehicles (EV) are increasing both globally and nationwide – and the prices are going down year by year. 

Globally, the market for electric vehicles has grown rapidly over the years. In California, even while sales of cars have fallen in the state through the first half of 2019, sales of electric cars have soared from 3.3 percent of the market in 2018 to 5.6 percent in 2019.

There are a steady increase and a spike in the import price of electric motors, which are essential for plug-in hybrid electric vehicles. According to the observatory of economic complexity, the top exporters of Electric Motors are China ($12.9B), and the top importers are the United States ($9.6B). With the ongoing trade war between China and the United States, the import price of electric motors would likely go up for a while, adding to the producer price index (PPI) of electric cars made in the U.S. 

Import Price Index (Harmonized System): Electric motors and generators (excludes generating sets)

However, the median electric car in the U.S. is getting cheaper. Monopolizing the U.S. electric car industry, Tesla could release cheaper median EV models due to the maturity of the technology and the shrinking of EV battery prices. 

The decreasing battery price in the U.S. reflects a larger picture in the global battery market. The leading factors? Cobalt and lithium, two major components of the electric car battery – are becoming cheaper and cheaper.

Lithium experienced dramatic price movements, rapid demand growth, and supply deficit for refined products in recent years. However, prices are expected to fall in 2019 and after.

Lithium’s price is expected to fall in 2019 and after.

The cobalt industry also experienced a huge price surge in 2017 due to the growing sales of electric cars. It hit a 10-year peak of more than $40 a pound in April 2018 and fell back to $13 a pound in March in 2019. And its price is expected to continue to drop.

Cobalt’s price is expected to continue to drop.

According to Henry Sanderson from Financial Times, the dramatic rise in prices in 2017 was driven in part by stockpiling in China. This year, much of that inventory has come on to the market, pushing down prices. 

With the continuous slide of prices for these raw materials, it is possible that the suppliers may cut their supply until the prices go up to their expected level. But in the short-term, the shrinking cost battery will further push down the electric car price tags. 

However, considering China’s grip on the lithium needed for batteries – a single Chinese company has “effective control over nearly half the current global production of lithium” –  the trade war could greatly hurt American batteries and the electric car industry. Same for the cobalt. China was the world’s leading producer of refined cobalt and a leading supplier of cobalt imports to the United States. Unless Tesla comes up with new technology to reduce cobalt usage in its car battery, the U.S.-China tension will not help the U.S. electric car industry. 

Meanwhile, China seems to be benefiting more from the price drop of cobalt and lithium. Because China, not Tesla, is driving the electric-car revolution globally.

Since the beginning of the EV project in the early 21st century, the Chinese government has been backing up the industry by spending billions of dollars to subsidize manufacturing of electric vehicles and batteries and encouraging consumption. By 2015, electric vehicle sales in China had surpassed U.S. levels. In 2018, Chinese sales topped 1.1 million cars, more than 55% of all electric vehicles sold in the world.

Moreover, China has been aiming at the American market and challenging Tesla by introducing Chinese electric cars to the U.S. So far they have been largely successful until yesterday when Nio, a Shanghai-based Tesla-challenger, faced consecutive huge losses under the government-backed bursting bubble

To help the industry stand on its own and avoid a bubble, China has gradually scaled back subsidies since 2017 and is phasing out the subsidy program by the end of 2020. While it seems to lead to a hard time for Nio, it is unknown how much impact this decision will have on the overall Chinese EV industry.

Another potential backfire resides in resource and sustainability. The huge market for electric cars fuels the expanding demand for these raw materials – and the market (so does the demand) seems to be expanding exponentially. However, there is a limited amount of minerals on earth. Especially for cobalt, most of which came from Congo, exhaustion is predictable under such avaricious exploitation. Additionally, the illegal use of child labor, the contaminated environment, and the threatened human rights for Congolese add to the complexity of the issue. If the unlimited desire exceeds the limited amount of resources someday, we will likely face another mineral resource crisis.







Reference:

“After US$5 Billion in Losses, China’s Tesla Fights to Survive.” South China Morning Post, 23 Sept. 2019, https://www.scmp.com/tech/big-tech/article/3029968/after-us5-billion-losses-chinas-tesla-challenger-nio-fights-survive.

Clemente, Jude. “Trade War With China Exposes U.S. Mineral Import Problem.” Forbes, Forbes Magazine, 11 July 2018, https://www.forbes.com/sites/judeclemente/2018/07/11/trade-war-with-china-exposes-u-s-mineral-import-problem/#be6c9cb21044.

“Cobalt.” OEC, https://oec.world/en/profile/hs92/8105/.

“Cobalt.” Cobalt | 2019 | Data | Chart | Calendar | Forecast | News, https://tradingeconomics.com/commodity/cobalt.

Coren, Michael J. “The Median Electric Car in the US Is Getting Cheaper.” Quartz, Quartz, 6 Sept. 2019, https://qz.com/1695602/the-average-electric-vehicle-is-getting-cheaper-in-the-us/#targetText=The median electric car in the US is getting cheaper&targetText=Data analyzed by research house,price of $38,990 before incentives.

Evarts, Eric C. “Electric Car Sales Boom in California, as Plug-in Hybrids and Small Cars Sputter.” Green Car Reports, 4 Sept. 2019, https://www.greencarreports.com/news/1124891_electric-car-sales-boom-in-california-as-plug-in-hybrids-and-small-cars-sputter.

“Expanding Electric-Vehicle Adoption despite Early Growing Pains.” McKinsey & Company, https://www.mckinsey.com/industries/automotive-and-assembly/our-insights/expanding-electric-vehicle-adoption-despite-early-growing-pains#targetText=What is the Electric Vehicle,plug-in hybrid EVs).

“Import Price Index (Harmonized System): Electric Motors and Generators (Excludes Generating Sets).” FRED, 13 Sept. 2019, https://fred.stlouisfed.org/series/IP8501.

“Lithium.” Lithium | 2019 | Data | Chart | Calendar | Forecast | News, https://tradingeconomics.com/commodity/lithium.

“US EV Sales Surpass 2% In 2018 – 9 EV Sales Charts.” CleanTechnica, 13 Jan. 2019, https://cleantechnica.com/2019/01/12/us-ev-sales-surpass-2-for-2018-8-more-sales-charts/.

Unpacking the Consumer Price Index

According to my notes, the Consumer Price Index is “how expensive things are.” In accordance with this definition, I picture the CPI as an endless itemized price list of every item ever sold. Clearly, this is not an accurate picture of the CPI, which indicates that my definition needs some work. The Bureau of Labor Statistics defines the Consumer Price Index as “a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.” In other words, the CPI is a measure that tells us both the magnitude and direction of price changes. 

How does it do this? Well, instead of keeping an index of the exact dollar value of every item in the market, it measures the change from its old price to its current price. The CPI is a culmination of price comparisons; it looks at what goods used to cost and tells us whether that same good costs more, less, or the same amount.

The CPI also can tell us just how much prices are changing. Below is one version of the U.S. Bureau of Labor Statics’ CPI chart.

The larger the bars on the chart, the greater the change in price. As we can see, the energy bar is far larger than the other categories and also grows in the opposite direction. This tells us that while the prices of other goods are increasing, the price of energy has dropped dramatically. 

This type of market shift can tell us a lot about the economy. Is energy getting cheaper because there is an abundance of supply? Is energy getting cheaper because advances in technology? Is energy getting cheaper because the cost of production of energy is getting cheaper? Well, to put it bluntly, the CPI doesn’t know and doesn’t care. However, these important questions, all of which carry massive implications about the health and trends of the economy, wouldn’t be getting asked if it weren’t for the data presented by the CPI. By measuring changes in prices, the CPI becomes a valuable trailing economic indicator and allows economists to predict future market changes.  

 The CPI is a crucial tool for economists to both hypothesize about the future of the economy and recognize important trends that have already begun (inflation is the best example of this). Without the CPI, economists would have no streamlined way of knowing how much or in what way prices change. So yes, at its core, the CPI is a measure of “how expensive things are.” But at the end of the day, it is a hell of a lot more helpful than just a running list of numbers. 

Googling for the Next Recession

One of the many ways that scholars and economists try and predict the state of the economy is through what is known as an economic indicator. Recently it has been discovered that popular search engines such as Google have been able to predict economic trends in times of a nearing recession. But if America’s searches on Google are close to any sign of the state of the economy, then a recession is not as near as we may believe.

The future trends of the economy can be measured through a type of economic indicator known as a leading indicator. A research company by the name of DataTrek followed American Google searches for words such as “coupon” and “unemployment” leading up to the Great Recession. Google searches for the word “coupon” began to increase by more than 5% starting in 2005. Then there began to see a spike in the search from the term in which it rose to 45% in 2008 which was the start of the Recession. The peak of “coupon” being searched was 2011 when searches were 200% above where they were in 2005.

(Source: Google)

Searches for the term “coupon” is a result of consumers looking to spend less on items or to not even spent at all. DataTrek has found that as of June 2019 searches for this word were 7% lower since the previous summer. Other phrases tend to have an insight into the concern and curiosity of the American consumer.

According to the Washington Post, August of 2019 marked the first time that the numbers for people searching “Recession” + {current year} exceeded the numbers that were seen during the Great Recession. The likely cause for this immediate spike in searches could be linked to the Dow Jones falling more than 800 points in August and with an inverted yield curve showing troubling signs.

While this can be rather helpful in trying to find new ways to predict the direction of the American economy, there are many flaws with using this as a measure to accurately depict what is going on because each time someone is searching any of these words.

One may simply be inclined to study what a recession is for a class, looking for a coupon before making the weekly trip to the supermarket or even finding themselves being autocorrected while misspelling the tv show “Succession” There are numerous possibilities as to why one would be inclined to search for “coupon” or “Recession” and not all are directly related to the actions of the economy.

In the same study from DataTrek, keywords related to television and entertainment were linked to signs of unemployment given that people had more free time and also limited money on spending for entertainment outside of their home.Economists across the country including JPMorgan Chase’s chief economist Bruce Kasman told Bloomberg, that he believes that chances are low for a nearing Recession. Within some time it will unravel if there is a Recession nearing and if the Google data can indicate the foreseeable future of the United States economy.

Additional Sources:https://www.bloomberg.com/news/articles/2019-01-24/google-searches-signal-u-s-consumption-intact-economist-says

Democratizing Wellness

Health is the new wealth, but the two are far from mutually exclusive. From clothing to food to hobby trends–wellness is something to aspire to and is correlated to status. Whether it is sporting the newest athleisure brand, the new diet fad that is organic, vegan, free of toxins, and packed with micro and macronutrients, or paying upwards of $30 per workout class–being healthy is elite. According to the Global Wellness Institute, wellness expenditures ($4.2 trillion) are now more than half as large as total global health expenditures ($7.3 trillion), and businesses are catching on. They have capitalized off of early trends, and the wellness industry has grown about 13% in a short two years from 2015-2017 (GWI).  

If you are familiar with basic economic principles and the rules of supply and demand, the increased popularity surrounding healthy foods sent prices flying high for everyone involved, thus making them more exclusive. Access to healthy food should be a basic right–instead, it is cheaper to get a full meal from a fast food stop than to have fresh vegetables at dinner. There is no shortage of food in the United States. 50% of produce in the United States is thrown away each year–some 60 million tons (or $160 billion) (The Atlantic). Yet 13% of the country’s population lives in a food-insecure household, meaning that they do not have full access or ability to purchase healthy foods (Medium.com). This leads to a large population experiencing malnutrition–whether that means hunger or obesity, it impacts more than just those directly involved. 

Although the obesity epidemic in the United States falls across all socioeconomic status’, there is a concentration of food insecurity in lower socioeconomic status. The high demand and limited access to healthy foods is a huge reason to blame for obesity and its correlation to lower socio-economic status. “More than 23 million Americans, including 6.5 million children, live in low-income urban and rural neighborhoods that are more than a mile from a supermarket. These communities are known as “food deserts” since they lack access to affordable, nutritious food. Lack of access is one reason why many children are not eating recommended levels of fruits, vegetables, and whole grains.”(Letsmove.gov). Low-income neighborhoods offered greater access to food sources that promote unhealthy eating. The distribution of fast-food outlets and convenience stores differ by the racial/ethnic characteristics of the neighborhood (NCBI). Rather than presenting these communities with nutritious and energizing food, they are presented with options that have an adverse effect. 

Food fuels you with energy to perform at one’s potential, but fast food does the opposite. It causes health issues–primarily obesity. Obesity is related to some of the leading causes of death, including heart disease, some cancers, stroke, and type 2 diabetes (PRB.org). Obesity is a grave public health threat, and accounts for 18 percent of deaths among Americans (Commonwealthfund.org). These health issues naturally lead to higher health care costs and create a cyclical trap where people are stuck in a cycle of poor eating because of the food they can access. 

Introducing poor eating habits from a young age teaches children and instills the pattern for the rest of their life. The cycle of poor eating habits and bad health negatively impacts them as well as communities at large. Without the ability to perform at one’s full potential, it can lead to reduced economic productivity. According to a study, obesity “costs the nation over $8 billion per year in lost productivity” (Yale.edu).
Despite the thriving U.S. weight-loss market (worth $66 billion in 2017), (Webwire.com) we need a long term sustainable option. The diet industry commodifies and glamorizes health and wellness when in reality it should simply be accessible to all. Health is not something that should be a fleeting trend, but the exclusivity factor in conjunction with our farming techniques, our country is headed into a serious health crisis. To have a prosperous next generation, it is important to invest in the health of all communities for a better future together.