Enhanced Investor Weekly Macro (7/17/17)

By Adam Wood, Harvard.

As mentioned last week, earnings season propelled the two of the three major indexes to close the week at record highs. Here are the figures behind the indexes:

S&P 500 set an intraday record of 2,463.54 before closing at 2,459.27 - a record close. The Dow Jones Industrials Average also set an intraday record of 21,681.53 and closed at 21,637.74 - another record close. The Nasdaq was also up 38 points on Friday as it closed at a healthy 6,312.47.

I’m including the chart above to help illustrate where the market is currently, how pre- cipitous the price action has been, where it could be headed, and why.

I’ve received some emails lately inquiring as to when the “pullback” is forecasted to begin. My answer is relatively simple: Continue to follow the key economic indicators. Outside of the tech stocks, which has risen over 20% this year, the industrials have con- tinued to rally based solely off of the market expectations, which are predicated off of tax cuts and infrastructure investments. The P/E Ratios continue to grow at an unsus- tainable rate, and this is where basic economic indicators are relevant.

Regardless of the big banks, all of which beat market analysts forecasts, what is more pressing right now are home prices, unemployment, and sector growth. I would place interest rates as a “topic of interest” for which I will go further in-depth next week, along with a trade surplus data comparative analysis. Fed Chair Janet Yellen was in- credibly dovish this week and for good reason, inflation is lagging.

A synopsis of the dovish tone struck by Yellen coupled with reasonable data in Produc- er Price Inflation, Consumer Price Index, and overall sales shot the market to all-time highs. Here’s why this matters:

  1. 1)  Home prices are on the rise.

  2. 2)  Sectors are growing, but wages aren’t.

  3. 3)  Unemployment is down, and still has “slack” to go lower.

Yellen testified to both the US Senate and Congress this week, noting, “The Fed con- tinues to expect that the evolution of the economy will warrant gradual increases in the federal funds rate over time.” Additionally, Yellen noted, however, that the federal funds rate "would not have to rise all that much further" to reach a neutral level. This resulted in a drop in the USD and bonds, while gold rallied as investors poured in as the opportunity cost of not holding gold becomes an appropriate argument.

But before we delve into the gold conversation - home price charts, sector growth, and the unemployment rate.

The Enhanced Investor Weekly Macro 2

The Enhanced Investor Weekly Macro July 16, 2017

The most important takeaway from the chart above is the break in the trend-line at the 225 Index Value. Not only has the housing market recovered, it’s broken previous highs. This is illustrated below, as growth in housing continues to prove constant in specific quarters and year over year.

Lastly, sector growth and the unemployment rate. While non-agriculture employment continues to dilate (see below last month @ 222,000 jobs), the unemployment rate is a 4.5% and has slack to 3.8%. A 3.8% unemployment rate is, essentially “full employ- ment” and that is where the market will either A) Top or B) Assume a parabolic bubble phase.

The sectors still primed for growth are, construction, education, healthcare, and utili- ties. Why? Construction and Utilities will both add jobs once an infrastructure bill is passed at the end of Q3. Education will follow in Q4 and Q1 of 2018 and Healthcare will continue to grow as the United States most profitable sector (outside of Financial Services). Subsequently, where sector growth ensues, so shall the unemployment rate declivity.

The hope is that relative pay will rise as unemployment continues to drop. Thus far, this has not been the case and, as such, will continue to be monitored.

This Week

The upcoming week sees two of the globe’s largest central banks meeting on monetary policy. The ECB (European Central Bank), and the BoJ (Bank of Japan), are not ex- pected to make any interest rate changes until the fall, which is why I’m leaving this section short. What’s more important to focus on is both Japan (export data) and Chi- na’s (GDP for Q2) trade data which is set to be released on Thursday (Japan) and Mon- day (China) respectively.

Outside of the minimal international data, U.S. Housing Data (new home sales and building permits) will be released on Wednesday. It’s imperative to continue watching these key figures along with the jobless claims.

For the week of 7/10/17 by Adam Wood, Harvard


ENHANCED INVESTOR WEEKLY WRAP & UPDATE

Hey Everyone,

Due to the 4th of July holiday, this week was relatively quiet, until Friday. For that very reason, I’m including talks that occurred yesterday as well at the G20 Summit that will have implications going forward for the market.

Market Wrap

As I began last week - oil. Fresh on the heels of posting the worst first-half performance since 1998 last week, crude futures settled nearly 3% lower on Friday, as U.S. production concerns permeated throughout the market, following an uptick in output and a weekly rise in oil rigs. On Thursday, the EIA reported that crude levels in U.S. storage fell by 6.3 million barrels in the week ended June 30, but total domestic production also edged up by 88,000 barrels to 9.338 million barrels a day. That number is incredible given the amount already in storage. Additionally, the negative sentiment was further compounded, following data showing that OPEC exports rose in May for the second month in a row. OPEC exported 25.92 million barrels per day (bpd) in June, 450,000 bpd more than in May and 1.9 million bpd more than a year earlier. If the US continues this level of output, and war is avoided - I will turn bearish to $30 per barrel. Next, Federal Reserve members continued to view the recent slowdown in inflation as transitory (short-lived) and insisted that it would rise to the central bank’s target of 2% over the longer-term, according to the FOMC minutes released on Wednesday. On the topic of future rate hikes, the minutes revealed a few policymakers were uncomfortable with the current implied path of rate hikes amid the recent slowdown in inflation. 

Economists, however, largely expect the Fed to begin shrinking its balance sheet at its September meeting before raising rates again at its final meeting of the year in December. While this is widely anticipated, I would err on the side of pragmatism regarding this implied hike. The Jobs Data put forth by the Bureau of Labor and Statistics on Friday was 222,000. However, that figure is not adjusted for Seasonality. What is seasonality in this situation? Simple. Seasonality for employment data that happens to be produced in June and July do not differentiate which jobs are part-time, student employment, summertime labor roles in construction, or full-time. Therefore, notwithstanding the incredible run over the forecast, this data has hidden variables. The same scenario occurs during the winter months in preparation for the holiday/retail-season. Which brings us to the final note this week; Gold. The strong jobs report on Friday, reduce demand for gold, which fell to four-month lows amid growing expectations that the Federal Reserve will keep to its plan to increase interest rates at least once more this year. In a rising interest rate environment, investor appetite for gold weakens as the opportunity cost of holding the precious metal increases relative to other interest-bearing assets such as bonds. There are several ways to play gold in this environment. The first is to play economic data, such as interest rate decisions (as usual less anomalies like March), Jobs reports, and other key economic indicators, e.g. Consumer Confidence, PMI, CPI. Another way is via volatility which arises from geopolitical events. War, missiles flying from North Korea, terroristic attacks on major cities - people flock to gold. Even if the events are ephemeral, the probability of making money is statistically significant in these scenarios.

This Week

Global financial markets will focus on Federal Reserve Chair Janet Yellen's testimony to both houses of Congress in the coming week, as they continue to mull the possible end of monetary stimulus from central banks around the globe. Investors will also keep an eye out on a few U.S. economic reports, with Friday's inflation data in the spotlight, for further clues on the timing of the next Fed rate hike.

In the U.K., market participants will be looking ahead to the monthly jobs report for further hints on the strength of the economy and the likelihood of the Bank of England raising interest rates this year. Elsewhere, China is to release monthly trade and inflation data amid recent signs of cooling in the world's second-largest economy. Also, traders will be awaiting a rate announcement from the Bank of Canada, with markets leaning toward expecting the first rate hike in nearly seven years.

1. Fed Chair Janet Yellen Testifies

Federal Reserve Chair Janet Yellen is scheduled to deliver her semi-annual monetary policy analysis on the economy before Senate and House committees in Washington DC. Yellen will go before the Senate Banking Committee at 10:00AM ET on Wednesday and the same time on Thursday, in front the House Financial Services Committee. Her comments will be monitored closely for any new insight on the timing of the next U.S. rate hike and clues on how the central bank plans to pare back its massive balance sheet. This usually impacts both the market indexes and gold, so be prepared. The latest minutes from the Federal Open Market Committee's policy discussions showed a lack of consensus among policymakers over the outlook for inflation and how it could impact on the future pace of interest rate increases. Several officials also wanted to announce a start to the process of reducing the Fed's large portfolio of Treasury bonds and mortgage-backed securities by the end of August, but others preferred to wait until later in the year. The Fed hiked rates at its June meeting and stuck to its forecast for one more rate hike this year, but the subdued inflation outlook has since raised doubts over whether the U.S. central bank will be able to stick to its planned tightening path. Futures traders are pricing in around a 10% chance of a hike at the Fed's September meeting, with the odds of a December increase was seen at roughly 40%.

2. U.S. Inflation Data

The Commerce Department will publish June inflation figures at 8:30AM on Friday. Market analysts expect consumer prices to ease up .1% while core inflation is forecast to increase .2%. On a yearly base, core CPI is projected to climb 1.7%. Core prices are viewed by the Federal Reserve as a better gauge of longer-term inflationary pressure because they exclude the volatile food and energy categories. The central bank usually tries to aim for 2% core inflation or less. Rising inflation would be a catalyst to push the Fed toward raising interest rates. However, with what we’ve seen of late, inflation isn’t reaching that target the Fed has set as their benchmark. Translation - no more rate hikes this year. At the same time Friday, the Commerce Department will publish data on June retail sales. The consensus forecast is that the report will show retail sales rose .1% last month. Core sales are forecast to inch up .2% Rising retail sales over time correlate with stronger economic growth, while weaker sales signal a declining economy. Consumer spending accounts for as much as 70% of U.S. economic growth. Besides the inflation and retail sales reports, this week's calendar also features U.S. data on producer prices, industrial production, and Michigan’s consumer sentiment. This week also kicks-off Q2 earnings so watch these banks and the ETF (FAS). Major U.S. bank, JPMorgan Chase (NYSE:JPM) is reporting Friday, and many are projecting a run over $100.

3. U.K. Employment Report

The U.K. Office for National Statistics will publish the monthly jobs report at 0830GMT (4:30AM ET) on Wednesday. The claimant count change is expected to rise by 10,400 in May, with the jobless rate holding steady at 4.6% Wage growth including bonuses is forecast to rise 1.8%. Market participants will also pay close attention to comments from Bank of England Chief Economist Andy Haldane and BOE Deputy Governor Ben Broadbent, who are both scheduled to speak Tuesday morning.

There has been a significant shift in rhetoric toward higher interest rates from BOE policymakers during the past two weeks, despite the uncertainty of Britain starting to negotiate its way out of the European Union. They are prompted by a surge in inflation caused in large part from a plunge in sterling after the Brexit vote.

4. China Trade Figures

China is to release June trade figures at around 0300GMT on Thursday. The report is expected to show that the country’s trade surplus widened to $42.4 billion last month from a surplus of $40.8 billion in May. Exports are forecast to have climbed 9% in June from a year earlier, following a jump of 8.7% a month ago, while imports are expected to rise 13.2%, after increasing 14.8% in May. Additionally, on Monday, China will publish data on June consumer and producer price inflation. The reports are expected to show that consumer prices rose 1.5% last month, while producer prices are forecast to increase by 5.4%. Analysts expect China's economy to cool in coming months after a strong first quarter, with recent factory activity data also indicating a gradual slowdown is underway. This has been noted and expected for months.

5. Bank of Canada Rate Decision

The Bank of Canada's latest interest rate decision is due at 10:00AM ET (1400GMT) on Wednesday, with most experts expecting the central bank to raise its benchmark rate by 25 basis points to .75% Speculation that the BOC was preparing to raise its key interest rate ramped up earlier this month after Governor Stephen Poloz said that low-interest rates appeared to have done their job.

The G20 Summit: US-Sino Trade Relations in the Balance

Bruno S. Sergi, Ph.D.
Harvard University & University of Messina
Adam Christopher Wood
Harvard University

As the G20 Summit begins today in Hamburg, Germany the international trade and finance community prepares to synthesize, and act swiftly upon, any new mention of tariffs on imported steel and other mass-produced products. Specifically for review purposes, trade restrictions do not benefit any nation, producing what’s known as a negative-sum game, and quite often harm the very workers within the labor force they’re designed to protect. Additionally, while the lower quintile suffers the most economic injustice, the divergent metric of exploitation has been apparent throughout the history of industrialized nations, whereas the CEOs, and policymakers profit from the hardships of the proletariat. The isolationist narrative began last Friday when US President, Donald Trump, Vice President, Mike Pence, and Commerce Secretary, Wilbur Ross eschewed the majority of the assembled cabinet (22-3 opposing the trade restriction proposal) to engage in trade restriction dialogue. Notwithstanding the Trump administration’s recent abysmal approval ratings, the global economy, specifically China, continues to grow at a moderate pace with a gradation tightening in most monetary policy aspects. However, what many fail to see is the correlation between the foundational elements of the United States and China’s economic rise and by comparative analysis the deduction of continued growth, or pullback. The fact is that these economies began much like one another. The question is will China supersede America sooner than projected? To answer that question in the most basic of terms, we need some historical references, and with the history, we hope to yield context. The comparative analysis begins over 150 years ago. For nearly forty (40) years, from 1865 through 1905, American business owners, such as Cornelius Vanderbilt, Andrew Carnegie, and John D. Rockefeller laid the foundation for what would translate into modern-day economic and operational processes throughout the country. These cornerstone enterprises gained substantial market share in prime areas of infrastructure, e.g. transportation, energy, and construction, even though the factories of these business magnates were highly contested due to dire working conditions and low pay. Since 1978, China too has laid the foundation for economic expansion and investment. And much like America’s foundation of forty years (40) before it became a hegemonic power following WWI, next year will mark the Asian powerhouse's fortieth year of economic improvement and market gains. But what could possibly be next? As US and Chinese GDP appears to be on a collision course for convergence (see chart below) within the next few years, any restrictions imposed by the United States could expedite the precipitous nature of the intersection.

Incidentally, if we’re to discuss any major movements within the scope of international trade, it would be prudent to identify China’s share of the international steel market, for which it has been no stranger to controversy in recent years. The surfeit of steel inundated throughout the market has prompted an all too familiar rhetoric from those simply unwilling or worse, incompetent when it comes to matters of international trade, most notably the Trump Administration. Is it possible that Jack Ma of Alibaba could step into this type of infrastructure and trade much like the titans of US capitalism during the late-nineteenth century? The G20 Summit will provide key economic indicators as it accounts for 80% of the global output in GDP. Will the Chinese steel, coal, and transportation sectors form an alliance with Germany and enter into a trade war with the United States? Will Chinese corporations begin to face scrutiny for continuing to pay skilled laborers 30% less than American factory workers were paid even in the most abdominal conditions in 1896? Or will pragmatism surface during this G20 Summit and quell the recent stir of uncertainty? Of course, we’d advocate for the latter, as it is advantageous for all nations to keep international markets free from restrictions and open for business. However, only time will tell if the robust global equities market, increasing price-to-earnings ratios, and healthy domestic and international sales can continue on their parabolic trajectory in a global trade relationship that seems to change its missive daily

ENHANCED INVESTOR WEEKLY WRAP & UPDATE

Happy 4th of July Weekend Everyone,

I hope you’re all having fun and staying safe. Nothing but a steady wave of economics for this guy, but let me know if you’ve got any questions on the report, or in general.

Here is this week’s Market Wrap:

A hot topic, as always, oil. Thanks to the unrelenting pumping from the United States throughout the winter (highly irregular), oil prices posted worst first-half performance

since 1998 and despite settling higher for the seventh session in a row on Friday, oil prices have suffered greatly as it has posted it worst first half-yearly performance since 1998, falling 14% as traders continued to sell as they express concern about oversupply in the market, despite Opec and its allies’ efforts to tackle the supply and demand im- balance in the industry.

The rally in oil prices in the latter part of June culminated with an unexpected dip in the number of active U.S. drilling rigs after Baker Hughes reported that its U.S. rig count fell by 2 to a total of 756, ending a trend that has seen the number of U.S. rigs increase for six-straight months.

Before the recent rally crude prices had dipped into bear market territory, on the back of data showing that Nigeria and Libya, countries exempt from the Opec production cuts, are set to ramp up crude production, adding to the glut in supply.

Next, the Nasdaq posted its best first half-yearly performance since 2009 despite end- ing Friday’s session in negative territory. The Nasdaq has outperformed both the S&P 500 & the Dow Jones Industrials year-to-date, surging 14% and posting its largest first- half gains since 2009.

The tech-heavy index has had to contend with a recent slump in technology stocks, which fell more than 2% over the past month but failed to dent overall optimism, as the tech sector has added about 15% in 2017.

Last, but surely not least, gold suffered its first monthly loss for the year. After that rate hike a lot of investors expectations that central banks would begin to tighten monetary policy pushed global bond yields higher, effectively decreasing demand for non-interest bearing gold, resulting in the precious metal’s first monthly loss for the year.

Gold’s losses, however, were limited, by a slump in the dollar, as the greenback fell to a fourth-straight month of losses despite Fed chair Janet Yellen on Wednesday, reiterating the need to raise rates “very gradually”. To be clear, an aggressive monetary policy coupled with a strong dollar does not help our (the US) economy. Sure, we can travel to other countries with more to spend, but outside of that the losses far outweigh the gains.

This Week

 

Okay, let’s begin with the three Economic Stooges. Trump, Pence, and Wilbur Ross have all voted enter into a trade war imposing tariffs of up to 20%on a whole host of

products from Japan, Germany, Canada, Mexico, the UK, and China. The vote was 22- 3, but since one of those votes is Trump’s... You see where this is going? First the re- moval from the Paris Climate Accord, which was an incredible economic stimulus for us and now this nonsense. Let me be clear: A protectionist trade policy is detrimental to a nation’s economy. Trump is and has been out of his depth, but should this policy be implemented, America’s economic dominance will come to an abrupt halt.

Global financial markets will focus on minutes of the Federal Reserve’s latest policy meeting in the week ahead, as investors look for more hints on the timing of the next U.S. rate hike and clues on how the central bank plans to pare back its balance sheet. Market players will also keep an eye on key U.S. economic data, with Friday's monthly Jobs Report in the spotlight.

Meanwhile, comments from Bank of England Governor Mark Carney will be in focus, following his unexpected shift in rhetoric towards higher interest rates last week. I see this to be an attempt to gain leverage in negotiations with the EU relative to trade con- ditions. We shall see if this tactic works.

Elsewhere, traders will be looking to employment data from Canada amid fresh speculation the Bank of Canada could raise interest rates as soon as this month.

A monetary policy announcement from the Reserve Bank of Australia will also be in focus.

1. Federal Reserve FOMC Meeting Minutes

The Federal Reserve will release the MoM of its most recent policy meeting on Wednesday at 2:00PM ET.

The Fed raised interest rates as widely expected following its meeting on June 14 and maintained plans to go ahead with another rate hike by year-end. The central bank also provided greater detail about how it plans to reduce its massive $4.5 trillion balance sheet.

Despite the Fed's relatively hawkish message, market players remained doubtful over the central bank's ability to raise rates as much as it would like in the coming months due to softening inflation. They will not raise again this year.

Futures traders are pricing in about a 20% chance of a hike at the Fed's September meeting, and odds of a December increase was seen at around 50%.

The Fed has never raised rates with projections under 75%.

2. U.S. Non-farm Payrolls Report

The U.S. Labor Department will release its June confirm payrolls report (Jobs Report) at 8:30AM ET on Friday.

The forecast is that the data will show jobs growth of 180,000 this month, following an increase of 138,000 in May. The unemployment rate is forecast to hold steady at 4.3% while average hourly earnings are expected to rise .4% after gaining 0.2% a month ear- lier.

Besides the monthly jobs report, this week's holiday-shortened calendar also features U.S. data on manufacturing and service-sector growth, auto sales, factory orders as well as monthly trade figures. Keep a close eye on the trade figures going forward.

Markets in the U.S. will remain closed on Tuesday for Independence Day.

3. BOE Governor Carney Speaks

Bank of England Governor Mark Carney is due to speak at the Financial Stability Board, in Frankfurt, Germany at 8:00AM ET Monday. Carney is due to speak again at the G20 Meetings in Hamburg, Germany on Friday - Wilbur Ross has canceled his trip.

His comments will be monitored closely for any new insight on policy and the timing of when the BOE will next raise interest rates.
There has been a significant shift in rhetoric toward higher interest rates from BOE pol- icymakers during the past two weeks, with a hike by December now 70% priced in. That is fairly conclusive as to where the UK monetary policy is heading, however, it’s always prudent to be pragmatic.

Besides the BOE, traders will focus their attention on reports regarding activity in the manufacturing, construction and services sector for further indications on the continued effect that the Brexit decision is having on the economy.

4. Canadian Employment Data

Canada is to release June employment figures at 8:30AM ET Friday.

The data is expected to show that the economy gained only 15,000 last month, follow- ing an increase of 54,500 in May, while the unemployment rate is forecast to remain unchanged at 6.6% In addition to the jobs report, Canada is to publish monthly trade figures, new building permits and a closely-watched manufacturing survey.

Expectations of a rate hike at the Bank of Canada's July 12 meeting mounted after Governor Stephen Poloz reiterated last week that his 2015 cuts appeared to have done their job and they follow the Federal Reserve any chance they can get.

5. Reserve Bank of Australia Policy Meeting

The RBA's latest interest rate decision is due on Tuesday at 0430GMT.
Most economists expect the central bank to keep rates unchanged at the current record- low of 1.5% for the tenth straight meeting and maintain its neutral policy stance, as it balances the risk of rising household debt against subdued inflation and wages growth. The same issue occurred back in 2009, so be cautious in FOREX down under.

Besides the RBA, data on retail sales and the trade balance should also capture some attention.

The following has been requested by the Washington Post for publication and should be seen sometime next week, or the subsequent week. 

Is China’s Belt and Road Soft-Power Becoming a Robust Economic Power Instead?

-Bruno S. Sergi, Ph.D. - Harvard University & University of Messina

Adam Christopher Wood - Harvard University

The U.S. exit from the Paris Climate Agreement cemented the end of Pax Americana. The subsequent reaction from the international community teetered between disappointment and outrage. However, even before Donald Trump assumed the office of President of the United States, Chinese President Xi Jinping's directive at the World Economic Forum in January this year in Davos, Switzerland, was clear: China was ready to lead the international system if the U.S. would not.

This pronounced message denoted that Beijing was not only in a position to overtake the United States in both hard and soft power but willing to accept the responsibility should America’s leadership continue on a tenuous path of diplomacy. What’s peculiar here is that Washington, D.C. should be more concerned about losing their absolute advantage relative to global influence. And while some members of that very same bureaucracy feel that the current issues surrounding the Trump Adminis- tration are simply transitory in nature, the data is beginning to outstrip the exemplarity rhetoric.

The proliferation of China’s Belt and Road project has now seen sixty countries express interest in collaborating with President Jinping on the initiative and for good reason. President Jinping’s initia- tive is seemingly more concerned with capital investment than his Twitter feed, has entered into strategic economic cooperation with the formidable surrounding nations of India, Pakistan, Russia just to name a few. The bilateral agreements reach into the core of western Europe. Through these com- prehensive agreements in finance and trade, China has the potential to achieve the coveted position of the world's number one economic power simply by executing a robust, yet sound policy - soft, not hard power.

While the United States is growing impatient for the Trump Administration to produce the highly touted infrastructure plan he presumptuously ranted about for nearly eighteen months, the Interconti- nental Belt and Road project has accumulated tens of billions of dollars in funding via the Silk Road Fund and the Asian Infrastructure Investment Bank (AIIB), while witnessing a myriad of support see- ing over 200 private companies in energy, utilities, and high-speed-rail.

To date, the Silk Road Fund, in conjunction with the AIIB, has committed $40 billion in finance. This staggering amount of cash inflows is dedicated solely for the use of infrastructure projects
and serves as a multilateral intergovernmental institution focused on supporting its economic inter- linkages while promoting transparency, openness, and sustainability, all while stimulating economic growth. And this is where it gets interesting - we’ve yet to identify the money multiplier. Additionally, all of this economic power will undoubtedly yield political power. Accruing first will be hard power, but that’s not what’s concerning. Soft power, a rare commodity for which the United States has had an absolute advantage since 1918 is what matters.

The framework of the Silk Road Fund follows a sound policy, which could yield a positive-sum game for the public good through financing support via economic trade cooperation and connectivity. The Silk Road Fund aims to establish new infrastructure projects, develop clean and green energy devel- opment, utilize finite resources while simultaneously coupled with a forward-looking agenda.

Statistically, soft-power yields tremendous cooperation and unity throughout the international com- munity and is quantified annually through the Institute of Government (Monocle), Elcano’s Global Presence Report, and Portland’s The Soft Power 30. And while traditional hard-power gauge’s a coun- try’s influence on their military assets, GDP, and overall population, the inherent nature for which soft-power operates is much more comprehensive as it encourages joint action across nations, seeks to quantify social inclusion, human rights, and perhaps the generator of all that this globe depends on - economic growth.

Donald Trump promised a $1 trillion dollar infrastructure plan dedicated to repairing and replacing the nation's weathered bridges, roads, and dilapidated buildings. The stock market rallied - hard. Wall Street bought the snake oil that would have provided these benefits of a noteworthy money multiplier of $4 to $5 trillion, but for only one country - the U.S. China's Belt and Road initiative is not only economically inclusive, but it's also culturally cognizant. When it comes to economics and foreign policy, Trump isn’t even close to playing the correct game.

Make no mistake; traditional hard-power is still incredibly popular. For some nation’s, this one in- cluded, hard-power has provided the very foundation for which we bear the freedom to write, re- search, and breathe. The corrosive tweets stoking the fires throughout the American landscape is slowly draining the soft-power capital which has accrued over the past century. Enter the future of soft-power Economics between the United States and China. Where the prospective for positive and transparent public policy, media, and, most importantly, the consideration for people of all nations to have an equal opportunity to embark on a more inclusive and convergent economic trend becomes a reality.

 

ENHANCED INVESTOR WEEKLY WRAP & UPDATE

Good Afternoon Everyone,

The following provides an overview of the international economics during the past week, as well as the upcoming events. The section labeled: The Future of Economics and Government: US-Sino Soft Power - The Preamble is going to be a follow-up to the Chinese article released last Sunday. The article gained national attention for which over 30 million unique page views were realized across China in five days. Feel free to provide any feedback or questions should you wish to learn more.

Okay now, here we go: Market Wrap-Up

Honestly, what more can I say about Amazon except that I hope it buys out Clean Plates in 9 to 12 months. A week after announcing its $13.7 billion deal for Whole Foods, Amazon announced the launch of Prime Wardrobe, its new fashion platform.

Prime Wardrobe allows customers to order items like shoes, clothes or accessories at no upfront charge, paying only for the items they decide to keep.

At Friday’s close, shares of Amazon is up more than 30% over the past year. No one is selling this anymore.

Next, despite expectations of an interest rate hike later this year, gold managed to pick up a weekly gain, as investor demand for safe havens returned, after geopolitical ten- sions resurfaced. I am not “buying” another interest rate hike this year as many econo- mists believe that the Fed has already moved too quickly and the laws of the Phillips Curve are antiquated. No one should have an issue going Old Turkey in gold right now, but if you’re day trading 3x’s - sit tight.

Lastly, oil prices fell for a fifth-straight week, after sentiment on oil took a downward turn despite Opec and its allies’ high compliance with the global deal to curb produc- tion. A monitoring committee made up of OPEC members and producers outside the group on Thursday said compliance to the deal reached 106% in May, the highest since the deal was first clinched late last year.

Unfortunately, due to the production output from the United States, oil prices are cur- rently in bear-market territory, down more than 20% since the start of the year.

This Week

Global financial markets will likely turn their attention to the European Central Bank's "Forum on Central Banking" in Portugal in the week ahead, with a panel discussion in- cluding the heads of the European, British, Japanese and Canadian central banks in the spotlight.

In addition, Wall Street is expected to pay close attention to comments from Fed Chair Janet Yellen, as they look for more hints on the timing of the next U.S. rate hike and clues on how the central bank plans to pare back its balance sheet.

Traders will also keep an eye out on a final reading of U.S. first-quarter economic growth for further evidence on the health of the world's biggest economy.

Meanwhile, investors will await monthly inflation data out of the EU to gauge the tim- ing of when the European Central Bank will start unwinding its massive asset purchase program. This will prove to be a massive undertaking (and skill) in accounting.

Elsewhere, market players will be looking ahead to monthly data on China's manufac- turing sector amid recent signs of cooling in the world's second largest economy. For someone who is directly involved with emerging market infrastructure, this data means something.

1. ECB's "Forum on Central Banking"

The 4th annual European Central Bank Forum on Central Banking is scheduled to take place in Sintra, Portugal from Monday to Wednesday. It will focus on investment and growth in advanced economies.

During two days of sessions and panels, approximately 150 central bank governors, academics, financial journalists and high-level financial market representatives will ex- change views on current policy issues and discuss the chosen topic from a longer-term perspective.

ECB President Mario Draghi and Former Federal Reserve Chair Ben Bernanke will open the Forum with dinner speeches on Monday. Draghi is due to speak again Tues- day morning.

The highlight of the summit is likely to be Wednesday's panel discussion including Draghi, Bank of England Governor Mark Carney, Bank of Japan Governor Haruhiko Kuroda and Bank of Canada Governor Stephen Poloz.

Market players will look for any clues on the timing of when the world's biggest central banks plan to start winding down their monetary stimulus and begin normalizing poli- cy.

2. Fed Chair Yellen Speaks

Yellen will speak about global economic issues at the British Academy's 2017 Presi- dent's Lecture in London at 1:00PM ET (1700GMT) on Tuesday. Audience questions are expected.

Her comments will be monitored closely for any new insight on policy and the timing of when the Fed will next raise interest rates. The Fed chair could be asked about the U.S. central bank's plan to start shrinking its massive balance sheet, which ballooned to $4.5 trillion in wake of the financial crisis.

Besides Yellen, a pair of Fed policymakers are due to make public appearances on Tuesday that may offer further insight into the debate among policymakers on the like- lihood of higher interest rates in the months ahead.

Philadelphia Fed President Patrick Harker is set to speak about the economic outlook and international trade at the European Economics & Financial Centre, in London, while Minneapolis Fed President Neel Kashkari will speak at a town hall event in Mi- chigan.

The Fed raised interest rates for the second time this year earlier in June and main- tained plans to go ahead with another rate hike by year-end. Despite the Fed's message, market players remained doubtful over the central bank's ability to raise rates as much as it would like in the coming months due to softening inflation.

Right now, there is only a 35% chance that the Fed will raise again this year. Stay tuned to the economic data!

3. U.S. 1st Quarter GDP - 3rd Estimate

The U.S. is to release final figures on Q1 economic growth at 8:30AM ET (1230GMT) Thursday. The data is expected to show that the economy expanded at a 1.2% annual rate in the first three months of 2017, unchanged from a preliminary estimate.

Besides the GDP report, this week's calendar also features U.S. data on durable goods, consumer confidence, pending home sales, jobless claims and consumption expendi- tures relative to inflation data the Fed's preferred metric for inflation.

One thing to watch is the deepening turmoil surrounding President Donald Trump's administration intensified doubts that he would be able to follow through on his cam- paign promises for tax cuts, deregulation and fiscal stimulus.

4. Euro Zone Flash Inflation Figures

The euro zone will publish flash inflation figures for June at 0900GMT (5:00AM ET) Friday.

The consensus forecast is that the report will show consumer prices rose 1.2%, slowing from a gain of 1.4% in May, while core prices are expected to increase 1% inching up from a rise of 0.9% in the prior month.

Germany, France, Italy, and Spain will all produce their own CPI reports throughout the week.

Earlier this month, the ECB closed the door on more interest rate cuts, judging the bloc's economy to be rebounding, but said inflation looks to remain weak for years so it still needs to keep extraordinary stimulus in place.

5. Chinese Manufacturing Data

The China Federation of Logistics and Purchasing is to release data on June manufac- turing sector activity at 0100GMT on Friday, amid expectations for a modest decline to 51.0 from 51.2 in the preceding month.

Anything above 50.0 signals expansion, while readings below 50.0 indicate industry contraction.

Analysts expect China's economy to cool in coming months after a strong first quarter, with recent factory activity data also indicating a gradual slowdown is underway.

The Future of Economics and Government: US-Sino Soft Power - The Preamble
by Dr. Bruno Sergi Ph.D. & Adam Christopher Wood, Harvard University

Over thirty-million page views within five days of being published in China's Global Watch media outlet. That is what brings us here today. The foundation of the article, which consisted of over two (2) hours of recorded Q&A, was supposed to be a positive and normative analysis of the top two competing nations, carefully examining the com- paring, and contrasting, natures of economics, geopolitics, and social inclusion between the US and China. It was supposed to be about the benefits of new infrastructure in- vestment in the United States, India, China, and other emerging markets and scaled economies. Moreover, the article addressed a myriad of quantitative issues surrounding the antiquated nature of the Electoral College, the derisiveness within the US, and the challenges of two incredibly different nations that, to many, appear to be on a collision course for conflict. It was supposed to be a dossier coupled with a pragmatic outlook on how the abundance of soft power we have at our fingertips could mitigate the corro- sive nature for which the democratic system within the United States has been operat- ing upon since January 21, 2017, in attempts to stifle the spillover effect onto the rest of the world wherein our capital in soft-power could all but evaporate among our allies and our trade partners. In its original format, it was as comprehensive an article could hope to be; an astute synthesis of economics, government, international relations, sus- tainability, and law wrapped-up with the propriety any student of the world could ap- preciate. It answered questions. Questions that are relevant today.

So, what metamorphosis took place that superseded this seemingly ground-breaking article? The answer is simple: Hard-power was simply more popular than soft-power. Hard-power, or the exploitation of military strength as a means to coerce others in the international forum, was much more attractive than that of the diplomatic approach of soft-power. Dr. Joseph Nye, the “Diplomat of Diplomats,” explained the benefits in the utilization of the soft-power approach, as an integral part of exporting a nation’s for- eign policy and political values without coercion, payment, or threat of military use. Dr. Nye’s fundamental principles on soft-power resonate here at a cellular level.

Statistically, soft-power yields tremendous cooperation and unity throughout the in- ternational community and is quantified annually through the Institute of Government (Monocle), Elcano’s Global Presence Report, and Portland’s The Soft Power 30. And while traditional hard-power gauge’s a country’s influence on their military assets,

GDP, and overall population, the inherent nature for which soft-power operates is much more comprehensive as it encourages joint action across nations, seeks to quantify so- cial inclusion, human rights, and perhaps the generator of all that this globe depends on - economic growth.

Make no mistake; traditional hard-power is still incredibly popular. It is what sells arti- cles and prompts millions of clicks and ad buys. For some nation’s, this one included, hard-power has provided the very foundation for which we bear the freedom to write, research, and breath upon. Unfortunately, the childish and belligerent rhetoric from within certain United States governmental addresses today is not reflective of the ma- jority. The corrosive tweets stoking the fires throughout the American landscape is slowly draining the soft-power capital which has accrued over the past century. Enter the future of soft-power Economics between the United States and China. Where the prospective for positive and transparent public policy, media, and, most importantly, the consideration for people of all nations to have an equal opportunity to embark on a more inclusive and convergent economic trend becomes a reality; this is that forum. Welcome to the new Constitution; The Global Constitution of Economics and Govern- ment.

- Dr. Bruno Sergi, Ph.D. & Adam Christopher Wood

Dr. Albert Einstein once said:

Imagine two particles, measure the mass, stick them together - let them spring apart.

What happens?

To which his understudy replied, “Their positions and their velocities are related?” Dr. Einstein continued:

The Uncertainty Principle says that if we measure the position of one, we cannot measure the velocity... However, we can still measure the velocity of that second particle. Moreover, since they are both mathematically related, we can then determine the velocity of the first particle. So we would know both its position and velocity without having to measure them both.

This is simply an analogy of how we can creatively compare the economies and governments of the United States and China, as well as other countries. Let the positive and normative analysis begin.

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