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What I think I learned last week #46

The US government ran its largest budget deficit in six years during the fiscal year that ended last month. This is unusual because normally budget deficits decline during an economic expansion as tax receipts climb and social benefit spending declines.

The deficit totaled $779 billion in the fiscal year that ended September 30, up 17% from $666 billion in fiscal 2017 and is headed towards a trillion dollar deficit for the current fiscal year.

To put this in context, the US budget deficit of $779 billion was 3.9% of GDP.

If you have been following the recent Italian crisis, you already know that the Italian budget that has caused such a problem calls for a budget deficit of merely 2.4% of GDP in 2019.

These US budget deficits are from the same person who as a candidate promised to eliminate $19 trillion of debt in eight years. He might have confused “eliminate” with “escalate.” Admittedly, confusion about words seems unlikely because as he once told us: “I’m very highly educated. I know words, I know the best words.”

 

Otherwise, the US economy is humming along. US employers had more than seven million unfilled jobs for the first time on record this summer, as the Labor Department reported that there were 7.136 million job openings in the US on the last business day of August. Coincidentally, I think that was the same number of French people officially on vacation on the last business day of August too.

More evidence of how good the US is right now: The US was named the world’s most competitive economy for the first time since the financial crisis a decade ago. In its Global Competitiveness Report 2018, the World Economic Forum stated that “The United States is the closest economy to the frontier, the ideal state, where a country would obtain the perfect score on every component of the index.”

 

France was #17. Maybe the lack of skilled workers hurt the country’s competitiveness? According to a report by the Bpifrance public investment bank, nine out of 10 mid-sized companies are facing recruitment difficulties. Of course, it might be easier to recruit workers if the official government job centers did not require applicants to submit to The Voice-style interview competitions.

Or maybe it is the pending potato shortage that is holding up the French economy. Yes, the land of the French Fry is having potato shortages due to the summer drought.

 

China, #28 in competitiveness, reported its slowest quarterly growth in almost a decade, with GDP increasing 6.5% year-on-year in third quarter. Coincidentally, the government’s full year growth target is….wait for it….you guessed it….6.5%. Amazing how accurate the Chinese government is at predicting the economic statistics that they release.

Chinese stocks surged following the GDP report as the central bank governor and banking and securities regulators all issued statements telling investors to keep their composure, which I guess means “buy” in Mandarin. Chinese stocks then followed this up with the biggest one-day gain in almost three years on Monday, October 22.

 

This might be the worst news I have seen in years: Climate change could reduce the amount of barley grown in the world, making beer more expensive.  As bad as this news is for me, I know of one US Supreme Court Justice who would be devastated.

Uber, however, is happy. Wall Street banks are valuing the company at $120 billion for an IPO that could take place next year. This is double the valuation achieved in a fundraising round two months ago. In fact, Uber is so happy that they are developing a new short-term staffing business called Uber Works.

China is happy, too, as the US declined to officially call them a currency manipulator. But there is always next time!

 

No happiness at IBM where Big Blue is very blue indeed. On a poor earnings report, IBM shares suffered their biggest drop in five years and the stock returned to levels last seen in early 2016.

To alleviate their stock pain, maybe IBM should move to Canada, where recreational marijuana became legal last week. In anticipation of legal pot, there are more than 120 marijuana companies listed on Canadian stock exchanges.

 

No stars for Michelin as the shares look “tired” with the shares having their biggest drop in eight years after cutting forecasts and saying sales would slow.

European auto shares crashed last week. In addition to Michelin, Daimler issued a profit warning, its second in four months, sending shares to their lowest level since  July 2013. The EURO STOXX Automobiles & Parts group now is lagging the broader STOXX 600 by 15% year-to-date.

 

5G is finally coming! After much talk, we now see some indication that 5G plans are moving ahead as telecom equipment provider Ericsson beat estimates due to sales of its next generation 5G telecom gear in North America. Additionally, Samsung purchased Spanish network data analysis company Zhilabs which it hopes will give it a bigger share in the next generation 5G telecommunications networks.

 

You know what else is coming? Higher prices on consumer goods. Consumer giant Procter & Gamble, the maker of everyday household goods like Tide laundry detergent, Crest toothpaste and Charmin toilet paper, said it was planning to push up prices on a range of home, oral and personal care products in the US by between 5% and 10%.

 

And that is what I think I learned last week.