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Are markets becoming immune to disruptive geopolitics?
There’s no escaping the intricate link between economics and geopolitics. Today, that link has become a crucial factor in investment decision-making, and who better to speak to that than Margaret Franklin, CEO of CFA Institute, a global organization of investment professionals? Franklin sat down with GZERO’s Tony Maciulis at a Global Stage event for the IMF-World Bank spring meetings this week.
Economists once predicted that sovereign debt would overwhelm global markets. But now, having been through the pandemic, the advent of AI, and wars in the Middle East and Ukraine, “there's almost a level of immunity,” she says, “to the dramatic nature of it until something really cataclysmic happens.”
And then? “The response, generally speaking, has been pretty positive,” Franklin says, with central bank intervention saving markets and building resilience.
In much the same way, the World Bank is trying to boost investor confidence by making changes that leverage private sector capital for public sector goals by better evaluating what level of risk the private sector will accept.
Individual investors should do the same, Franklin advises. “Really evaluate your risk profile … making sure you diversify,” she says, noting that fixed-income offerings have become more attractive. Younger investors, meanwhile, need to be cautious with getting their information on social media, she adds.
For more of our 2024 IMF/World Bank Spring Meetings coverage, visit Global Stage.
Hard numbers: Sydney stabbing, Pricey Pakistan, US Steel deal, Costco gold rush
6: Australia is reeling from one of the country’s deadliest mass killings after six shoppers were stabbed to death at a mall in Sydney on Saturday. The attack left several others injured, including a baby who is in intensive care. The assailant, who was shot dead by police, was known to authorities and had been diagnosed with a mental illness as a teenager.
25: Pakistan has the highest cost of living in Asia, according to a report from the Asian Development Bank, and it’s only set to grow with a crushing 25% inflation rate. Authorities have hiked interest rates to 22% to try to alleviate the problem, but Pakistan’s economy will likely require further support from the International Monetary Fund.
14.9 billion: Shareholders in US Steel overwhelmingly voted to approve an offer from Nippon Steel to acquire the company at about $55 a share — but don’t expect the deal to close anytime soon. US President Joe Biden has expressed opposition to the deal, which could cost him crucial support from steelworkers in upper Midwestern swing states like Michigan, Pennsylvania, and Wisconsin.
200 million: Wholesaler Costco is estimated to be selling over $200 million worth in one-ounce gold barsevery month, according to an analysis by Wells Fargo. Those who made their purchases in the fall, when Costco was selling the bars for around $2,000 each have earned a nice bit of profit, as gold has surged to over $2,300 an ounce since March.Secret sauce of the boom: immigration
The riddle of recovery: Is the economy broken, or is it booming? And is there a secret accelerant no elected official wants to talk about?
Turns out, how folks perceive the economy is often tied more closely to how they vote than to reality. Donald Trump's supporters argue the economy is a disaster of debt and inflation, made worse by an immigration nightmare playing out at the borders. To prove their case, they wander into the Cherry Orchard of Convenient Stats and pick a few choice numbers to make their case.
- US debt has passed $34 trillion and will exceed the dangerous 99% debt-to-GDP ratio.
- Between 60%-78% of US households are living paycheck to paycheck, depending on the survey.
- Credit card debt has hit record levels, with 50% of consumers unable to pay off their monthly bills.
- Food prices are going up even as inflation is down, rising over 2.2% from last year, according to the Consumer Price Index.
- Big layoffs are hitting the tech, financial, retail, media, and energy sectors.
- Home affordability: Most people with an average income can no longer afford a home, which in most cities now requires an income of over $100,000.
The harvest from that side looks rotten. But walk over to the Joe Biden side of the Cherry Orchard of Convenient Stats, and things look pretty darn good:
- Post-pandemic, the US has been the fastest-growing economy in the G7.
- Job growth is shattering expectations with over 353,000 jobs in January, and unemployment is under 4%.
- Inflation has fallen to 3.2% from over 9% two years ago.
- Real wage growth is way up.
- The stock market is on a bull run.
Overall, it’s a pretty tasty harvest, if that’s all you pick.
Still, Gallup’s famed Economic Confidence Index – though ticking up a bit last month – is shockingly negative, revealing most Americans think things are bad. So consumers are doing boom-like things, like spending, while perceiving bust-like things – and complaining.
Plenty has been written about the lens of partisanship distorting economic reality: People believe the economy is bad, just not for THEM! “It’s now a well-established fact that partisan orientation affects expressed views about the economy,” economist Paul Krugman wrote in the New York Times. “Democrats are more positive when a Democrat holds the White House; Republicans are more positive when the president is a Republican … but the partisan effect on sentiment is two and a half times as large for Republicans as it is for Democrats.” Krugman argues that this so-called “asymmetric amplification” accounts for 30% of the “gap between economic sentiment and economic fundamentals.”
There is, however, a reality that should not be wiped aside: The post-pandemic recovery for some has not been post-pandemic recovery for all. “I think the old name for this was ‘K-shaped recovery,’ the idea that different parts of the country are experiencing vastly different conditions,” Robert Kahn, the global head of macrogeoeconomics at Eurasia Group, told me. “Rising numbers living paycheck to paycheck or getting squeezed by high debt. Conversely, many still cash flush from pandemic support/policies.”
The K-shaped recovery also means that while, say, the stock market is booming, there are painful layoffs in sectors across the economy, like tech, finance, media, and retail. When Nike is slashing $2 billion dollars, people start to notice.
Sure, some of this is a correction from over-hiring in recent years, and some might be the impact of AI, but combine that with debt levels, worries about commercial real estate, and layoffs, and you see this could be a ... Special-K kind of recovery. There is a lot of optimistic froth covering some big pain points.
But there is a deeply inconvenient political truth here: Things would be much worse for everyone without the single most controversial, politically radioactive issue: immigration.
Trump is making his entire campaign about immigration, and his fiery rhetoric about it – he recently called illegal immigrants “animals” – is now a staple. So he is not about to discuss the benefits of immigration.
Even in Canada, Prime Minister Justin Trudeau, who has presided over massive increases in immigration levels, is now saying temporary immigration – foreign workers and international students – needs to be brought “under control.” This week he admitted it has “grown at a rate far beyond what Canada has been able to absorb.” Okay…
The thing is, immigration likely saved the economy and continues to do so. “The US let in about 3 million additional people last year,” my colleague Jon Lieber, head of research at EG, told me. “That puts downward pressure on wages and is a source of new consumer spending. There are some economists who attribute the continuing strength of the American economy to this factor.”
To dig deeper – and what GZERO reader doesn’t like to dig deeper? – it’s worth checking out the analysis done by Ernie Tedeschi, the former chief economist for the White House Council of Economic Advisers. “Immigration since the pandemic has strongly bolstered US labor supply and employment,” Tedeschi wrote. “The US economy is 8.2% larger in inflation-adjusted terms than just before the pandemic. Of this, 1.6 percentage points – about a fifth of US post-2019 growth – can be accounted for directly by foreign-born workers.”
Well, that isn’t something you hear about very much on the campaign trail. Immigration is the super-charge factor of the economy? “Politically, this is pretty ironic,” says Lieber, “if the immigration crisis that is weighing on Biden’s approval rating is actually saving the US economy.”
Is it naïve to think that citizens could one day turn to their politicians to get the facts straight about the economy – or admit that some of the very things they are demonizing and running against are the things that are boosting the economy and saving their political hides?
That’s likely the biggest riddle of this recovery story.
– Evan Solomon, Publisher
Have the US and Canada managed a soft landing?
While that’s a lot of “ifs,” it’s better news than expected last year when many were predicting a rougher go of things and a decent chance of recession.
Stateside, economists are tilting more and more toward the US avoiding a recession of its own, which is also good news for Canada. Inflation is increasingly under control and the labor market is holding up. Plus the Fed is expected to cut interest rates this year, maybe even three times.
Annualized GDP growth estimates for the first quarter in the US are now up to 2.8% while estimates in Canada for growth are hovering around an unexpectedly robust 3.5%. Canadian inflation was 2.8% in February and 3.2% in the US.
Consumers and businesses are hoping for a cut in Canada, too, perhaps as soon as April 10, when the Bank releases its next rate decision. But if it doesn’t lower rates next week, it’s expected to get around to it before too long, perhaps by summer.
Could this be good news for President Joe Biden and Prime Minister Justin Trudeau? As Evan Solomon explained, reality and perception are often far apart when it comes to such matters, so it depends on whether the politicians can convince voters to give them credit for the turnarounds.Ian Explains: Will foreign policy decide the 2024 US election?
How much does foreign policy matter in a US presidential election? This year, more than usual.
When pollsters started asking Americans in 1948 what they viewed as the “most important problem” facing the country, foreign policy and international security dominated.
Looking ahead to the 2024 presidential election, Biden has managed to turn a Covid-ravaged economy around, with growth pegged at about three percent per quarter. Wages are going up, unemployment is at an all-time low and the stock market is coming on strongly. By every economic indicator, Biden should be surging. And yet, by every political indicator, he’s floundering.
Biden’s fate in November may hinge on whether he can convince a skeptical electorate that the economy is doing as well as it is...actually doing. But Americans’ views on the Ukraine war have shifted, with a plurality now saying the US is doing too much to help Ukraine. And half of US adults polled in February said that Israel has gone too far on its war with Gaza. Could Biden’s handling of these key foreign policy issues cost him the election in November?
It’s already clear that foreign policy will play an outsize role in this year’s election. So will immigration, which topped Gallup’s “most important problem” list in February and which is both a foreign policy issue and an economic one.
Catch GZERO World with Ian Bremmer every week at gzeromedia.com/gzeroworld or on US public television. Check local listings.
- Journalist Robin Wright explains why Biden’s foreign policy comes up short ›
- Israel-Hamas war: Biden's second foreign policy crisis ›
- Henry Kissinger: Towering (and polarizing) figure in US foreign policy dies at 100 ›
- Pioneering Black American leaders in US foreign policy ›
- Biden vs Trump foreign policy: Political scientist Stephen Walt weighs in - GZERO Media ›
- Why the US is sending aid to Ukraine, Israel, and Taiwan - GZERO Media ›
Ian Explains: Is the US economy good or bad?
What’s going on with the US economy? On Ian Explains, Ian Bremmer breaks down the confusing state of America’s financial health.
Trying to make sense of economic indicators right now can be an exercise in illogic: unemployment is down, but inflation is still stubbornly sticky. Interest rates are higher than they’ve been in two decades, but stock indexes are closing at record highs. Adding to confusion, the upcoming US presidential election means that the economy is front and center, but Democrats and Republicans have a partisan interest in making things seem worse or better than they actually are. So what’s really going on?
When you look at the world’s post-Covid recovery, America is an outlier. US GDP grew faster than any other advanced economy last year. Wages are rising faster than they have in years, inflation, while sticky, is nowhere near its 2022 highs, and unemployment has been under 4% for the longest stretch since the 1960s. So why do only 28% of US voters have a positive view of the economy right now? Some economists are calling this moment “vibe-cession,” warning the negative “vibes” could have a major impact on the presidential election in November.
Catch GZERO World with Ian Bremmer every week at gzeromedia.com/gzeroworld or on US public television. Check local listings.
Central bankers forecast clouds, with a chance of rate cuts
The millions of homeowners who have seen their mortgage payments double in recent years would no doubt concur with Mark Twain in his assessment of bankers – as the type of people who lend you an umbrella when the sun is shining and want it back as soon as it starts to rain.
Hopes for a break in the monetary policy clouds were frustrated this week as two North American central bankers said that interest rate cuts remain some way off.
Tiff Macklem, governor of the Bank of Canada, said yesterday that the bank’s governing council decided that rates will stay at 5%, at least until it meets again in April, as inflation of close to 3% means underlying pressures persist.
“We need to give higher interest rates more time to do their work,” he said.
The same day, Jerome Powell, chair of the Federal Reserve, told members of the House Financial Services Committee that the Fed is on a “good path” to achieving the desired “soft landing” of a growing economy with inflation back to its 2% target but that further progress is not assured.
The notes of caution come despite both US and Canadian economies avoiding recession. The US economy grew at an annualized rate of 3.2% last quarter. Even Canada’s anemic 1% growth rate suggests monetary policy is working to relieve price pressures, without choking demand.
Macklem said he is confident rates are high enough and that the discussion has now shifted to whether they need to stay at their current level.
Both central bankers characterized future progress as gradual and uneven, as wage growth remains in the 4-5% range.
But the unspoken pressure is political. A Liberal government in Canada will hand down a federal budget on April 16, less than a week after the next governing council decision. The budget date all but rules out the central bank's April meeting as a possibility for a rate cut, given the prospect of inflationary federal government spending.
In the US, it is an election year, which puts inevitable pressure on the Fed from politicians who will have to face angry voters. Powell said he acknowledged the risks of waiting too long to ease monetary policy and the damage that might cause the economy. But he said he did not want to ease credit conditions too soon and see inflation re-accelerate.
Investors expect an initial rate cut in June. Fed officials last year projected three quarter-point cuts this year, but Powell said the Fed would like to see more data to increase confidence that inflation is moving down to 2% before reducing the policy rate.
The benchmark rate has been held in the 5.25-5.5% rate since July.
For cash-strapped homeowners and consumers, the post-inflation rainbow can’t come quickly enough.
Watching workers
Businesses are starting to use artificial intelligence to watch their workers. One AI system, called Riley, is in use at 100 different U.S. stores, including Dairy Queen, Taco Bell, and Wendy’s fast-food establishments, according to a new report by Forbes.
Riley is an intelligence surveillance system that effectively surveils employees, evaluates their performance, and suggests feedback and bonuses based on its determinations. One Dairy Queen franchisee said Riley has led to a 3% boost in sales.
There are countless problems with technologies like this. Automated systems might hold workers to harder standards than might a human manager; plus, AI systems are often prone to bias based on the way they were trained. Increasingly, algorithms also govern the process to even get a job—especially lower-wage jobs.
The future of work is eerie: The next time you apply for a job, you might be judged by an unknowable computer program—and if you manage to impress that software, there’s more just like it watching you when you actually get to work.