How to avoid false charges

In some countries, people may find they could be falsely charged and asked to pay fines for something they do not do, for example, careless driving. Some people believe these false charges are caused by the evaluation system within the justice department, including the police system. In the justice department, if officers are evaluated based on many charges they place, then they have incentives to charge more people and the probability of mis-charging increases. People criticise the evaluation method because of this reason; however, if the department can generate additional incomes from the fines people pay, then the department itself has the incentives to continue this evaluation method.  This may give us one way to lower the probability of mis-charging that the government should not receive fines as a source of incomes, the fines people pay can be put into a fund that is separated from the main body of the government and has a specific use, for example, a charity fund for child health.

In addition, we should not take away the incentives of placing charges from the department of justice; otherwise, they will lose some incentives of bringing justice to our community. Of course, their job should be evaluated based on the safety and the fairness within the community. However, the safety and the fairness are difficult to be evaluated and the two measures are usually evaluated by the department of justice; then such evaluation could potentially be biased. Therefore, the measures which are objective and easy to be quantified should be used for evaluation. A balance between charge placing and the crime rate should be made, and charging place and crime rate are negatively correlated.

A good idea and its profitability

Many people have good ideas which they believe will help them to earn lots of money; however, not everyone is able to be a billionaire with his or her smart idea. The profitability of one’s idea depends on the barrier that the idea creates. Why could Bill Gates be the richest man in the world? Not only because he is smart and good at programming, also because his idea cannot be copied easily by others (not just because of the copyright) that most of people cannot persuade computer makers to install their softwares even when they have good software and creating such large program is not an achievable task for most people. Moreover, when more and more people are using Windows, the barrier is built higher and higher, as we can see that people who are using Linux or MacOS are using these two softwares’ specific features, for most people, Windows is more convienent.

On the other hand, we can see many examples that people have good ideas but become harder and harder to make profits. For example, private equity firms love the idea of “buy-and-build” and the number of the investments using this strategy accelerates. However, the increasing popularity squeezes the profitability for the private equity firms. They are bidding over each other and making the costs of buying small firms more expensive. Of course, there is still some room for them to make profits; however, because it is easy for others to copy the strategy, as long as there is an existence of a profitable opportunity, more and more people will enter and increase the competition, thus lowering profitability.

To conclude, if someone can have a good idea about a particular strategy, he or she can earn huge profits in the beginning, but when more and more competitors who use the same strategy appears, the profitability will be lowered. This makes people lack incentives to be more creative in terms of strategies rather than technology, as technology has much higher barriers.

It is the time to test if Trump is pro-Russia

 Many talk show hosts in the US make jokes about Trump is a Russian spy and one of the hosts even make a joke that if Trump were a Russian spy, what he would do differently. Now is the time to test if Trump is truly pro-Russian. Trump had a meeting with European Commission chief Jean-Claude Juncker at the meeting and they announced a "new phase" in EU-US relations after the meeting. One of the agreements made during the meeting is EU will buy US liquefied natural gas to diversify Europe's energy supply. Trump previously accused during the NATO summit that Germany's energy supply was controlled by Russia. In addition, the EU will buy more soybeans from US farmers.

The Trump administration is Republican and it is not surprising to see they make benefits for US oil companies, and the deal with the EU is great news for US oil companies. However, this deal will deeply affect Russia's finance negatively. The Russian economy is heavily dependent of its energy export; it is fair to say that the EU is the largest Russia's energy consumer and even the UK does consume some Russian natural gas. If the EU increases its consumption of US liquefied natural gas, it means that the EU will reduce its consumption in Russian natural gas, though liquefied natural gas shipped from the US is more expensive than natural gas transported by pipelines.

The deal with the EU certainly will benefit US energy companies and hurt the Russian economy, especially given Russia's heavy dependence of energy export. Therefore, if Trump makes the deal actually happen, it will be unfair to say that Trump is pro-Russian.

Facebook and the market

Facebook failed to announce an impressive quarter report and the market punished the company with a cut of $110bn in its market value. Investors focus on its warning about slowing user and sales growth; the standard EPS and revenue report is mixed and should not have such significant impact. $110bn is almost equal to the entire value of McDonald's or Nike, and greater than some corporate giant such as Goldman Sachs and BlackRock.

The investors' major concern is its slowing user and sales growth that it makes investors re-consider Facebook's future prospects and amend their expectations about the stock since the company's trend changes. This is surprising, shown by the market volatile move; however, there was some sign beforehand that Netflix also had a slowing subscription growth. Maybe Google's report made investors gain more confidence in Faang and ignore the downside of Facebook (this quarter has not been easy for Facebook, regarding Cambridge Analytica scandal, and we can see Facebook has been advertising hard in the hope of erasing the negative effect brought by the scandal).

In addition, usually Faang stocks co-move; however, this time we can see some splits. The ones which already reported their earnings are unaffected by Facebook's news; however, Amazon which reported its earnings after Thursday's close suffered from the news and fell by almost 3%, and its quarter report was reasonably fine. This might signal that investors do not hold full confidence in Faang any more.

The next US economic recession

Most fund managers surveyed by Bank of America think the next US recession could break out in the second half of 2019 or early 2020 (https://www.ft.com/content/0b6410fa-8f52-11e8-b639-7680cedcc421). If this story is true, then the current financial market is vulnerable. Fund managers are the major players in the global financial market, the market can move in the same direction they expect since they are influential especially when most of them agree with each other.

The US stock market is still booming, especially at the moment the earnings release period is on its way, led by an excellent Google quarterly earnings report despite it has paid $5bn fines to the European Union. We can expect the market right now is optimistic about other companies' performances for last quarter as well as the coming future; therefore, the US stock market is highly likely to continue its current growth trend.

However, since many fund managers are aware of the coming economic recession, they will be cautious about their activities. They are all guessing the right time point where they start to sell off their holding assets. No one wants to move too early because it will make them suffer incredible opportunity losses, as they give up the potential gains from the current good era; however, no one wants to move too late because they will suffer losses from the US economic recession.

A non-cooperative massive scale of sell-offs can happen at any time when most fund managers think a recession is coming in the near future and they tend to do herding in the financial market.

The subsidies provided by the US government

The American farmers are hurt by the current trading tension, especially after China imposes high tariffs on the American farm products including soya beans; to subsidize the farmers to compensate their losses caused by the tension created by the current American administration, the US government announces a $12bn aid for these farmers including soyabean, pork farmers.

There are several questions regarding this aid. Firstly, people may question where the money comes from. Secondly, to what extent the aid can compensate the farmers' losses due to the increasing trading tension. Thirdly, people may ask if other sectors which are also affected by the current tension should also be compensated.

The current US administration holds a strong belief about reducing taxes for individuals as well as companies and the Republican Party believes the economic growth generated by the low tax-rate environment can maintain or even increase the previous tax income. However, their belief could be false, and the national debt can increase due to the reduction in the tax income. Then the aid would accelerate the growth of American national debts and the US government has to increase the cap for its national debt level, this may create some panic in the market.

The effectiveness of this aid depends on the scale and degree of the trading tension. When the trading tension is shallow, the aid can help and even benefit the farmers; however, if the trading tension is getting worse and worse, the aid might not be enough. Moreover, other sectors are also affected by the trading tension besides the agricultural sector. Of course, people can argue because farmers are mostly Trump's supporters, the US administration prioritises farmers' benefits.

To conclude, the aid is large but not enough for clearing up the effect created by the trading tension and could accelerate the US national debt level growth.

The independence of the US Federal Reserve

The US President Trump complained about the US Federal Reserve's decision of rate hikes. The US Fed is supposed to be independent of the government; however, it is never new to hear any government attempt to intervene central banks. Governments love to have central banks on their sides and work together to produce good economic performances to help governments to win more support from their nations' populations. Such reason is understandable; sometimes, it is good to see governments and central banks are working together and making our economies better, especially during an economic crisis period.

When the US president Trump is trying to intervene with the US Fed's decision, it makes people worried. Trump is not a typical politician, and he seems to lack knowledge about governing. In many cases, he acts like a business who only cares about his own personal interests rather than the common values of the community. A businessman does not like the idea of rate hikes, because it means getting financing is more difficult and expensive, meanwhile equity prices tend to be negatively correlated with the interest rate, and the businessman will be poorer due to the depreciation of his(her) equities. I cannot be sure if the US President Trump is against the rate hike because of his personal interest, but I personally think this could be possible.

The US President has power over the US Federal Reserve in terms of its board selection and the current US Fed's chairman is appointed by Trump. At the moment, the US Fed could potentially change its previous policy guidance due to the pressure from the president and this can hurt the credibility and especially the professional of the Fed's decision, though I am not saying pausing rate hikes is a bad thing.

Chicken game

I have used chicken game to describe nuclear or trade tensions, as these tensions do harm both sides. One property of chicken game is that it does not have a Nash Equilibrium of pure strategy, which means there is not any best strategy for the players in the game. When players do not have a guidance, they can play any strategy as long as it is not obviously the worst strategy; however, mixtures of some strategies by the players in the game can create the worst outcomes that the game is able to deliver.

We should avoid entering a chicken game in the first place, since there is no best outcome and players can all suffer losses. However, there are circumstances where we are forced to enter a chicken game. Under such circumstance, we need to provide information that we will play till the last for our opponents and we also need to make the information credible and be believed by the opponents, so the opponents may withdraw themselves from the game or no enter in the first place.

However, when all players have the same idea, such strategy will have a disastrous outcome. That’s why I think it is wise not to enter such game in the first place.

Why do investors love large tech company stocks?

Inflows into technology-focused funds have lasted for 12 straight weeks and surpassed $20bn. The US's Faang (Facebook, Amazon, Apple, Netflix and Google) and the China's Bats (Baidu, Alibaba and Tencent) have dominated the rally in the global stock market, despite Tencent has dropped around 7% this year; in addition, the New York Stock Exchange's Fang+ index has increased more than 32 per cent this year. The Nasdaq Index is outperforming S&P500 and the Nasdaq Index has more weights on the tech companies. Tech companies seem very amazing and attractive.

Of course, investors are attracted to these tech stocks because of their amazing performances. Meanwhile, because of the investors' favour, stock prices are pushed higher by the continuing inflows of investment. Besides the profits generated by these well-performing stocks, investors could have other reasons about their decisions to invest in these tech companies. Firstly, investors are worried about the current global trading environment. Because of the hostile in the global trading environment, investors are worried about the companies they invest in are affected by the hostile environment; however, these tech companies seem less affected by the environment because they already grow powerful and dominating. Secondly, many people believe we are entering the era of AI and these tech companies are the leaders in this field and investors want to join this party. Thirdly, investors need to choose where they put money. The interest rates around the world are relatively low, though the US Fed has increased the base rates several times and other central banks have similar plans. Tech companies are the best options for these investors and it seems there are no other better alternatives. Money needs somewhere to place it.

To conclude, tech companies are almost the best investors can have in their portfolios, especially if they can't choose a lot.

Should Alphabet charge for Android?

Android is the most popular smartphone operating system in the world which occupies 80% of the entire smartphone market (the other 20% is mainly occupied by the Apple's operating system). Alphabet, the developer of Android, makes Android a free and open operating system that is available for all smartphone makers to use; meanwhile, some smartphone makers amend Android operating system to make their own style Android operating system. Android is so popular because it is free and smartphone makers do not need to pay for using the operating system. However, Alphabet implies that it will charge for Android after it is fined over Android for being anti-competitive by the European Union. Alphabet CEO Sundar Pichai said: "So far, the Android business model has meant that we haven't had to charge phone makers for our technology. But we are concerned that today's decision will upset the careful balance that we have struck with Android, and that it sends a troubling signal in favor of proprietary systems over open platforms."

If smartphone makers are charged by Alphabet for using Android, they will have two options: either they develop their own operating systems, or they pay and continue using Android. As long as the cost of developing a new operating system is higher than the cost of paying for using Android, most smartphone makers will choose to stick to Android. Moreover, when the users have already been used to using the Android operating system, it is difficult for them to switch to other operating systems. Apple's smartphones are expensive but Apple has a very loyal user group because many of the users are used to using the iOS operating system. When Alphabet believes its Android system has a large number of loyal consumers, to charge for Android can help Alphabet earn additional revenues; therefore, in this case, Alphabet should charge for its operating system and be the Microsoft in the smartphone market.

The effect of QE on social equality

The European Central Bank has pointed out that its aggressive monetary policy, quantitative easing (QE), helped vulnerable people more than the rich during the financial crisis, in response to the critics about QE widening the social inequality. The ECB claimed that the QE program had lifted economic growth and inflation  and created more jobs and these achievements had helped the "hand-to-mouth" households. The research (https://www.ecb.europa.eu/pub/pdf/scpwps/ecb.wp2170.en.pdf?15cfb0c4a4e166bc411c39fa3b9f8d17) finds that "hand-to-mouth households are either entirely unaffected or negatively exposed to interest rate risk, i.e. they experience a gain in net financial income after a monetary policy easing" while other households' incomes are negatively affected by lower real returns.

From this research, we find that it is not always for "hand-to-mouth" households to be benefited from the QE program. Of course, the monetary easing can reduce other households' savings and real capital returns; however, they are also benefited from income increases created by the QE program. I find the result from the research is rather vague in terms of social inequality. The wealthy households may be not wealthy enough. The wealthy households in the research are definitely not the very top 0.1% or 0.01%; for these households, their investments are not concentrated in where they live, they can have assets all over the world, so the measures in the research can be imprecise. Additionally, the research does not seem not to take into account of the long term accumulation of wealth. If the QE program helps to recover the economy, it means the capital returns increase again and the wealth gap will be again widened even possibly beyond the pre-crisis level. More importantly, the QE program does not fundamentally change the structure of the economy and or the employability of the hand-to-mouth people; therefore, in the future, their wealth will still be falling behind.

A great era for the isolated world

The US media is angry about Trump siding with the Russian president Putin and sees Trump trashing the US a great humiliation. It is definitely great news for Russia to have the US president standing on their side. The US and Russia (after the collapse of Soviet Union) have been hostile to each other for the most of time since the end of the World War II. The NATO was founded under the threat of Soviet Union; therefore, when Trump disrespected his NATO allies and stood on the side of Russia, this really worried many of the US allies, especially American European allies, who believe they are still under the threat of Russia. Russia is partially isolated from the mainstream of the Western World; however, this time, the US is opening a door for Russia, this is definitely a great opportunity for its development, not only economic development but also expanding its political influence around the world.

Meantime, because the US is no longer interested in the world order matter, Iran may be able to face its new opportunities in the world, though the current US president Trump is very hostile towards the Iran Deal. While other countries are turning against the US, they will need more allies, and Iran is an oil rich country and a force that is needed to be against the US; therefore, under the new world order, Iran could re-join the world community as a crucial member. Moreover, some small countries are not significant enough to attract America's attention, so they might be able to escape American trade bullies and gain a golden period of development.

To conclude, because of the forming new world order, some countries which were previously isolated from the rest of the world (mainly the Western World) can now re-join the world community and play crucial roles.

Is more people returning labour force good news?

The US Federal Reserve sees more American people returning to workforce and the reason the Fed gives is that the strength of the US economy encourages more people to join the active labour force in order to gain more incomes. However, the reason may not be that straightforward.

Marginal return from incomes is changing over incomes. For a person to join, especially rejoin the labour market, a good potential income level is necessary for the inactive labours to re-become active labours to compensate what they lose for joining the labour market. Under such circumstance, the economy has to good to encourage more people to join the labour market. On the other hand, this is not the only case for people rejoining the labour market, there could be other reasons. When people can no longer afford their lifestyles, they will be forced out to rejoin the labour market; under such circumstance, it signals that the US economy is not doing very well and the US good economic performance might ignore some groups of people in the US.

Therefore, seeing participation rate increasing and good economic data does not mean more people want to grab their chances and earn their fortunes from the bull market, it could be caused by unfair distribution of the wealth in the society that when some people in the society get much less and costs of living increase, they have to go out for work.

The establishing new connection between the East and the West

This topic is very political and important for understanding what the future world economy is like and what is ahead of us. The Chinese prime minister, Li Keqiang, and the German Chancellor, Angela Merkel, stressed the two countries' commitment to a multilateral trade system; the two countries have signed trade deals worth approximately $30bn. The US last Friday imposed 25 percent tariffs on $34bn of Chinese goods and China wants the deal with Germany can comfort the effect of the American tariff policy; moreover, China aims to build long term alliance and friendship with Germany and other countries who are experiencing bullies from the US.

The only friend that the US is making might be Russia; however, American people do not like the idea of befriending with Russia and Russia certainly does not think the US is the friend of Russia. Therefore, it is fair to say that the US is not making any new friend; in addition, the US is fighting against many of its friends at the moment. The US has attacked the NATO and many European Union countries and its neighbours, Mexico and Canada. When the US is turning against its allies, here comes the chance for China to make friends with these countries. Currently, these countries still have the hope that this is only a temporary problem and the US has the chance to handle it by itself; however, if this lasts too long, these countries will lose patience and then look for a new potential ally for alternative, and China is large enough to be the alternative.

To conclude, maybe at the moment, China will not be able to have these countries completely on its side; but if the US is continuing doing this and making the trade war more wide, then more countries will stand on the side of China.

Escalation of trade war

The US president Trump kept his promise to his supporters and imposed further tariffs on $200bn of Chinese imports as a counter-counter-act. This new list of tariffs covers multinational companies which rely on Chinese materials and components including automotive parts, food ingredients and construction. If the same term is also applied on other countries, this means that there will be little room for multinational companies to get around of the tariffs, while many multinational companies are trying to get around of the tariffs by restructuring their business structures at the moment. Even without applying similar terms on all the other countries, this move done by the US will damage many multinational companies already.

No multinational companies can avoid doing businesses with China because China has a massive scale of manufacturing and an incredibly large market with huge potentials. From the cost effectiveness's point of view, multinational companies have to buy materials and components from China, as China has the technology as well as the labour resource to produce them at very low costs due to the economies of scope and scale. On the other hand, these multinational companies want to use the cheap materials and components bought from China into production and sell their products all over the world. Then here comes a problem. When these multinational companies are doing businesses in the US, they are facing high tariffs because they are using Chinese materials and/or components. To avoid the tariffs, these multinational companies can purchase materials from other countries; however, such move can potentially increase the costs of production. Furthermore, the US is not the only market that these multinational companies have, they need to consider of whether they want to switch their current Chinese suppliers or not based on the gains and losses. The losses come from potential loss in their Chinese market share, and potential increases in costs of production, and other possible circumstances. Either way will damage these multinational companies' profitability. Such tariff policy may create a potential cost-pull inflation worldwide.

This tariff is critical to multinational companies as well as the economies all over the world. Some countries, such as Vietnam, Thailand, may see this as an opportunity as they are in hope of taking some job of manufacturing from China; for some countries, they will suffer from the tariffs. China will definitely suffer from this tariff policy, but the US will do as well. The US is very likely to experience a cost-pull inflation. Yes, the US economy is in a good shape; however, when the trade war really hits the two world major economies, the economic data will not look great and cause more panic worldwide, and eventually have a possibility of leading the world economy into a crisis (a recession).

How does negativity about immigration fall

According to the British Social Attitudes survey, British voters currently have the most positive views about immigrants since 2011, and the negativity about immigration has been falling sharply since 2015 (just one year before the Brexit referendum). Currently, more people believe immigrants have good impacts on Britain's economy and enrich Britain's cultural life. However, the British Social Attitudes underlined that people have not changed their minds about the consequences of leaving the EU would be, this suggests that the UK population are still supporting the idea of Brexit despite warnings about its negative impacts on the British economy.

How does negativity about immigration fall? Usually we think that locals have natural negativity against immigration; however, what we see from the British Social Attitudes survey is a contradiction to this belief. Locals have hostile feelings against migrants because of several reasons generally. Firstly, locals are afraid of increasing competition in the labour market. Secondly, locals are afraid of migrants taking away their social resources. Thirdly, locals are afraid of migrants undermining the local cultural life. Negativity about immigration falls implies that locals' fears mitigate. The UK unemployment rate is very low and the income growth rate is high, this makes British people no longer afraid of increasing competition in the labour market. Moreover, as British people receive higher incomes, they care less about some social benefits  might be potentially taken away from migrants. In addition, when British people live better lifestyles, they will feel more confident about their culture, so they are less afraid of migrants undermining their cultural life.

To conclude, when people's life standards are improved, they will feel happier and more confident, then they will become less worried about the issue of immigration.

Working condition and productivity

Amazon has been criticized for its poor working condition by media and it is reported that there are several ambulance cars standing by outside its warehouses. Generally speaking, from my personal experience, Amazon probably is the firm that has the fastest delivery and the best customer experience in the UK, comparing with other firms and retailers. There have been many arguments surrounding how working condition relates to productivity.

Some people think that comfortable and relaxing working conditions help to improve workers' productivities. Some tech companies provide very nice offices and lots of free space and luxury room (such as kitchens, gyms) for their employees and believe such environment can encourage more innovation and invention which will create more values for the firms. However, on the other side some firms have very tough working conditions for their employees and even illegal make them work over time; some firms go even further by hiring child labours and paying very low wages. Such improper action is taken based on the will of cutting costs of production. These two kinds of behaivour seem to contradict each other, as one seems to believe that treating employees nicely can make them work hard, and the other seems to believe that pushing employees hard can make them work hard. However, both make sense and do not contradict each other. One aims to boost outputs by making employees more innovative and creative and the other aims to lower inputs by giving less to employees. Productivity is a measure of the ratio of outputs to inputs, either increasing outputs or decreasing inputs can improve productivities.

In general, firms tend to boost their outputs by treating their employees nicely when there are large potentials in their outputs, while they tend to lower their inputs by give less to their employees when there is little room to improve in their outputs.

Day 1 of the official trade war between China and the US

Today, the US and China has increases their tariffs on each other. The US imposed tariffs on $34bn of Chinese imports today; and China called this act as 'trade bullying' and counters with own levies. Furthermore, the US has planned a further $16bn that will be targeted in the coming weeks and if China continues to fight back, a further $200bn will follow and this will go on and on (suggested by the US President Trump).

The US President Trump is really serious about his words, it means that he wants the US to an absolute winner while making China an absolute loser after all. China, as a sovereign country, has no reason to allow such humiliating trade tariffs to be imposed on its exports by the US, China is fighting back and would always fight back. This behaviour will not only be seen on China, but also be seen on other sovereign countries, such as Canada, Germany and Mexico. The US has attacked many countries on the issue of trade, this could imply that Trump may lead the US to enter a wide scale trade war with many countries and no country will surrender in this war.

Although the market has reacted to the news of trade war, it does not mean that the market will not react to the trade war in the near future volatilely. No one knows what will happen surrounding the issue of trade war. Countries may try to find some ways to get around of this issue; however, since several major economies have already involved in this matter, the chance of finding some way to get around is low. If the world fails to find a way to get around of this issue, then almost everything can happen, and it is almost certain that there will be one or more losers in the trade war but there is a possibility of no winner after all.

Today’s Fed Minutes

Today, the US Federal Reserve decides to raise rates for the second time of this year, only one day before the US and China officially start to impose high tariffs on each other’s exports. The Fed stays bullish on the US future economic performance, given the acceleration of job creation and income growth. However, it does not mean that the Fed ignores the effect of the trade war between the US and other countries. Some businesses pointed out to the Fed that they have scaled back their investment in increasing capacity, and the Fed recognises that the increasing prices in steel and aluminium due to the tariffs will have potential negative impacts on the US economy. But the Fed does not give its estimation about the impact of tariffs on the US economy in general, and only pointed out the range of the impact is “particularly wide”.

In the short term, the range of the trade war’s impact I think is rather narrow. The only outcome of the trade war between two major economies in the world can only result in a seriously negative impact on the global economy. The current trading and manufacturing system is a globalised network that most products are produced via cooperation between multiple countries; therefore, the impact is not only restricted within these two economies. However, on the long term, the range of the impact is like what the Fed concluded, particularly wide. There are many possible outcomes of the trade war, and each outcome will bring a different impact on these two economies individually as well as the global economy. Though the range of the impact is particularly wide, it is not good news for the global economy, as it indicates a high uncertainty (as the variance is big by its definition).

Overall, I still think that the US Fed has been a bit too optimistic and the decision of the second rate hike could be problematic as the businesses have already been starting to cut their investments.

Strong US dollar and its impact

The US dollar has been strong since the Fed announced its plan for rate hikes, and the appreciation of USD is also contributed by the increasing world tension and the strong US economic performance. USD is appreciating mainly against the EM currencies, including the Chinese currency, Renminbi. The appreciation of USD can have impacts on the EM economic performance.

Many EM economies rely on the US economy to generate their own economic development. The US administration is currently attacking the issue of its trade deficit and some of these EM economies are generating economic development by producing exporting products for other countries, especially the US. While the US administration increases its tariffs on the imports, these EM economic performances will be hurt by this action.

Strong US dollar could potentially improve these EM's exporting businesses, as their products become cheaper; however, such impact can be cancelled out by the impact from the increasing tariffs. Moreover, these EM economies need US dollar reservations to maintain their credibility. Once these economies cannot get sufficient US dollar reservations, their credit ratings are likely to be lowered, then they will become more difficult to borrow money to leverage up their economic development. In addition, if these economies already have very high leverage ratios, they have to keep borrowing for rollover to continue their businesses and economic development. The appreciation of US dollar definitely increases the difficulty for these EMs to raise sufficient US dollar reservations. Furthermore, the major buyer of the US Treasury bills, China, has shrunken its holding of the US Treasury Bills.

To conclude, when US dollar is appreciating, the EM economies may find it more difficult to raise sufficient US dollar backed assets to maintain their credit ratings.

Could the European privacy policy hit the Tech sector?

Today the Nasdaq Index fell and many US tech giants are panic about the new privacy policy in Europe. European countries have been aware of the issue of privacy since the Edward Snowden scandal. Moreover, the latest US presidential election has also raised people’s concern about the control of information by tech giants. Facebook’s CEO was asked to attend several hearings about information usage in the US as well as Europe after the US election. Europe asks tech companies to base data centres storing European data  in Europe, and many tech companies have followed the new policy and opened their data centres in Europe already.

The data usage has been the key to many tech companies’ success. Tech companies have used the data collected from their users to create additional profits through providing precisely tageting advertise for other companies from other industries. In addition, having their users’ information help them to develop their future products as well as services. Currently, people have been less aware of their personal information, since giving personal information to tech companies is almost unavoidable; tech companies have hired law firms to help them get around the privacy policy and these companies’ users have to tick the box to agree tedious and tiringly long contracts to continue to use these companies’ services and in many cases people cannot avoid using these companies’ services. Here is why people ask governments to do more about this privacy issue. However, standing at the government’s point of view, having such scale of data collection is not a bad thing.

Big government or small government is a choice of people but not the government. The interest of government is always to grow bigger and more influential. Having access to these companies’ databases can help governments to become more influential and powerful, they may ask for accesses to tech companies’ data but do not really want to restrict their power of collecting their users’ data voluntarily.

Europe seems to be hostile against the US tech giants over the issue of privacy; however, I think that the biggest issue is not about privacy but about the nationalities of these firms. The new privacy policy might be an action taken by European countries to counter the US trade tariffs on American tech sector.

US manufacturing and the ongoing trade war

According to the Institute for Supply Management, manufacturing gauge rose to 60.2 in June, which was 1.5 higher than May and beat the economists’ estimate of 58.5. Such data are showing the US manufacturing were expanding in June. The Trump administration has launched a worldwide trade, not only with China, which they assume is the biggest threat of the US, and also with its allies, such as the European Union, Canada and Mexico. All these countries have publicly announced they will fight back and fight hard on the US tariffs imposed on their exports. Such world trading environment should be hostile to the US businesses; therefore, such expansion in June was a surprise. However, some data seems a bit more surprising and could imply a possible decline in the manufacturing sector. New orders registered a slight decline, showing the expansion could slow down in the next period possibly. In addition, the trade war was not actively ongoing during the entire period of June, so it is reasonable to believe that the impact of the trade war has not been fully reflected in the June manufacturing sector report. Moreover, the costs of importing raw materials are highly likely to rise, this would also slow down the expansion of the manufacturing sector, this impact was not fully reflected by the June manufacturing report.

Therefore, though the June manufacturing sector report is very encouraging, the future of the US manufacturing sector might not be as optimistic as economists expect.