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Metal Shortages Add Concerns to Global Economy

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Archives, Global Trade Daily, International Trade, Special Reports

Metal Shortages Add Concerns to Global Economy

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As the global economy continues to throw curveballs at various industries, raw materials and associated manufacturers, distributors, workers, and consumers are among those feeling the bulk of the pressure. So, how can these effects be mitigated without costing consumers and company’s unreasonable amounts? A global leader in all things tungsten, Almonty Industries focuses on the mining, processing, and shipping of tungsten across the world. The company’s CEO, Lewis Black, shares the challenges automotive and energy companies are currently navigating and how these industries can overcome them in this exclusive Q&A.

What are some of the most significant impacts of the steel and metal shortages and what industries are being hit the hardest?

Black: From Almonty’s point of view and what we are doing with the tungsten industry in South Korea, the construction industry is definitely feeling the brunt of the impact. Even though the material is available, the price is extraordinarily high, and we are witnessing a huge escalation in costs and delay in delivery times.

The industry is moving along and accepting these challenges, but things are now taking longer to build and it is costing more money to accomplish. The redeeming quality is that money is still unbelievably cheap which has helped in mitigating these cost escalations.

Problems arise when inflation keeps rising and governments continue to raise rates to counter it, which is another issue. Now, companies with projects are optimistically moving forward because they have no choice. The increase in time it takes to build and its impact on the costs for labor can predictably cause a movement within labor unions demanding compensation for their workers to counter inflation.

How are the semiconductor and automotive industries affected by this?

Black: The semiconductor industry is experiencing shortages due to demand far outweighing supply. It is interesting because it is commonly assumed that the industry is a relatively straightforward product to produce, when in fact, it’s anything but. Creating this type of product is technically advanced and takes around nine weeks to make one semiconductor. From a tungsten point of view, one must pump tungsten gas into every semiconductor, so increasing capacity becomes a huge undertaking for the factory.

Are there any specific initiatives that can be taken to mitigate these challenges?

Black: As a manufacturer, you are caught in a tricky situation. You will continue to see rising costs and how much of that cost you can push onto the consumer is yet to be evaluated. There is an inherent apprehension about how much to pass on to the consumer. Consumer indexes and inflation rises of 4-5 percent are not the same for raw materials, in fact, it is much higher than these figures. We are seeing extra caution from manufacturers regarding the consumer aspect of it.

At this point, it is just a matter of time before we start seeing price escalations. As the saying goes, “No one can hold back a rising tide.”

Companies are very reluctant to pass off some of these costs because of the price gouging headlines and hearsay that does not apply to them. In Spain, for instance, energy cost is 400 percent higher than previously recorded, impoverishing millions of people. The response of the central government was to accuse the energy companies of price gouging and say they were going to introduce legislation to seize their profits and distribute them to the people. Of course, they have not done that because in a democracy you cannot just do that. It was an absurd proposition to even state because it had nothing to do with the energy companies – the market sets the price, not the companies.

That is exactly what manufacturers are reluctant to do – get caught in the crosshairs of this type of situation when passing costs off to consumers.

Any last thoughts you would like to add?

Black: Inflation is inevitably going to get worse before it gets better. You can analyze a market and forecast all day, but what you cannot do is control what the government is going to implement. If a government continues to spend money, the problem is compounded. Inflation is not a mysterious economic concept.

To learn more about Almonty Industries, visit almonty.com

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Archives, Banking, Global Trade Daily, Special Reports

Why Investors Need to be Wary of the Investment Herd Mentality

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The past year has been one of exceptional volatility – volatility for personal lives while dealing with COVID restrictions, volatility in job markets due to government-mandated shutdowns, and volatility in markets as economies collapsed and began to rebound. After a drop of over 10,000 points from February to March 2020 at the onset of the COVID crisis, the Dow Jones Industrial Index entered a strong recovery. Investors flooded back into the market, driving prices to new heights in early 2021.

Much of this new investment came as investors responded to positive news about the launch of COVID vaccines and the prospect of world economies reopening. Markets began to show the effects of herd mentality investing as investors pursued profit opportunities. While herd investing may lead to profitable spikes, it is also capable of causing sudden drops with accompanying losses for the herd. 

Understanding the herd

Humans are naturally prone to herding. While perhaps originally a protective measure against predators, herding spread through every facet of human life. Throughout their lives, people join any number of herd groups – social groups, religious groups, political groups, sports groups and others. They rely on the mutual support found in these settings and the information sharing that occurs in the group.

Herd investing behavior has many underlying causes. Some seek to achieve the same wealth and status as the successful investors they see in the news. Many people who know little to nothing about investing but who also want to take advantage of investing in markets rely on the herd to provide them with information about investment opportunities. Many investors just have FOMO – the fear of missing out on a good thing. 

Frequently, it is uninformed investors, and those with the most to lose, who form the bulk of the investing herd. Trying to get rich quickly by following the example of successful traders, they wind up losing everything. 

But even with post-COVID volatility roiling markets, there are good opportunities in the markets for informed investors who pursue sensible investing strategies.

The dangers of following the herd

Unfortunately, herd mentality all too frequently results in the herd running off a cliff together. The history of markets is replete with examples of investors driving markets drastically upwards, only for herd panic to crash those markets. 

The dangers of herd investing first appeared in the 17th-century tulip buying craze in the Netherlands. Tulipmania, as it is now known, was the first market bubble. Just before the bubble burst, the most sought-after tulips were selling for upwards of 5000 florins. 

To put this in context, at the time, you could buy four oxen (and not just any oxen, fat ones) for 480 florins. A thousand pounds of cheese was 120 florins, and the equivalent of 65 kegs of beer was 32 florins. The cost of tulips grew to exceed annual salaries, and the most expensive tulips cost more than a house. 

Using margin contracts, buying on credit, leveraging assets, investors did whatever was needed to get their hands on tulip bulbs. But prices began to fall, and the market quickly and completely collapsed, leaving many investors bankrupt.

History has repeated itself several times since the beginning of the 20th century. The Great Depression of the 1920s, the dotcom bubble in the late 1990s and early 2000s, and the subprime mortgage crisis culminating in the housing crash of 2008 are all examples of herd-driven bubbles. 

Herd activity drives market volatility

Herd investing appears to be increasingly driving market volatility. The past year alone has seen several glaring examples of herd-created bubbles.

The herd creates crypto bubbles

A more recent example of herd investing is the explosion of interest in the cryptocurrency markets. From October 2020 to April 2021, the price of Bitcoin increased sixfold, from $10,000 to over $60,000. Since that time, it has lost a third of its value. And this is the second crypto bubble in less than five years. In early 2018, Bitcoin lost 65% of its value in a single month. By the end of 2018, cryptocurrency markets had seen a larger percentage decline than the stock market did during the dotcom bubble.

Cryptocurrency is an attractive investment. But it is notoriously volatile, and the crypto investing herd quickly responds to even minute suggestions about price direction. Tesla founder Elon Musk’s support for dogecoin helped its price skyrocket in early 2021. But when he made a joke on Saturday Night Live about dogecoin being a “hustle,” the price quickly plummeted.

Robinhood and GameStop

The GameStop price rollercoaster in early 2021 is a particularly alarming example of herd investing because it involved an intentional manipulation of the herd. A group of investors decided to punish investment firms that were relying on shorting stocks by driving up the prices of those stocks. They then promoted the stocks on an investment board on Reddit. GameStop became the poster child for their efforts, but other frequently shorted stocks also began to rise.

GameStop’s price skyrocketed as social media-based investors followed the Reddit group. Trading volume increased as well, with GameStop becoming the most traded stock on the S&P 500 at one point. Once again, Elon Musk got involved, sending out a tweet about GameStop that exacerbated the frenzy, causing the price to nearly double shortly after the tweet. 

GameStop quickly fell again after the Robinhood trading platform and others suspended trading. The fallout from this event is ongoing.

Fears about post-COVID inflation

At present, the herd is spooked about the prospect for significant inflation as world economies rebound from the COVID crisis. Consumer prices have been rising, even more so than expected at this point in the recovery. And, despite reassurances from the Fed that the inflationary spike is temporary, the fears of the herd have made themselves known in the markets. 

The fastest increase in the consumer price index in nearly fifteen years caused selloffs in the markets. At the same time, yields on treasury bonds have been rising. Home prices are also experiencing rapid upswings, leading to fears of another housing bubble.

The herd may be edging towards its next cliff.

Don’t get trampled by the herd 

Knowledgeable and prudent investors can still take advantage of hot market opportunities while avoiding suffering substantial losses by simply following the herd. Portfolio diversification is one important tool savvy should employ to counteract the effects of market volatility. Balancing risky herd-friendly investments with more stable options like bonds, mutual funds, or even gold helps portfolios avoid wild swings from market volatility.

There are also positive herd-style options, such as investment funds, that take advantage of the knowledge of investment experts. According to London-based financial advisor Alex Williams of Hosting Data, investment funds are a collection of capital that is owned by a conglomeration of investors. 

“These investors collect shares together, while each member remains in full ownership and control of their own individual shares,” says Williams. “The benefit to investment funds is that you have a wider selection of investment options and opportunities. You can also get access to better management expertise and there’s less commission than you’d be able to get on your own.”

And for those investors who do want to rely on social media, like the Reddit GameStop investors, without risking the downsides of herd investing, there are more well-founded options. Social investing platforms (distinct from socially responsible investment platforms) allow inexperienced investors to benefit from the knowledge and insights of experienced traders through copy trading and mirror trading.

Conclusion

With a bit of effort and prudent selection of a range of investments, even the most novice investors can take advantage of a booming stock market while protecting themselves from the whims of the herd.

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Archives, Global Trade Daily, International Trade

Five Ways Businesses Changed Their Daily Operations for Good

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The future is arriving quickly. There’s already been talk about how COVID-19 has accelerated automation, and some jobs will be changed if they come back at all. There’s no doubt the recent pandemic is shaping how we do business, from restaurants and retail spaces to even how we manufacture goods. And with many states reopening in phases, or just outright reopening, what does “getting back to business” look like as we forge ahead?

The supply chain gets a wakeup call

During the pandemic, shortages of masks and hand sanitizer rocked many supermarkets like Walmart and Costco. With such a quick spike, and having such a large gap to fill in the supply chain, distilleries stepped in with safe, alcohol-based hand sanitizers. Clothing companies engineered their manufacturing process to make masks out of spare materials. Auto manufacturers teamed up to help produce ventilators. The list goes on.

One of the biggest attributes many companies needed to stay successful and stay in business? Flexibility. When stay-at-home orders went into effect, businesses had to figure things out overnight. That included a new way to make goods that people desperately needed.

The upside? Now you can see hand sanitizer in repurposed liquor bottles at many grocery stores across the U.S.

But all of this was a symptom of a larger issue.

“Early on, much of the economic impact that companies in the U.S. experienced were related to supply-side disruption due to shutdowns in other countries,” said Thomas Hartland-Mackie, President & CEO of City Electric Supply. “This pandemic has highlighted the danger of over-relying on a single manufacturing hub as well as a need to diversify sources to include local or domestic suppliers.”

With global trade, a smooth-functioning supply chain doesn’t exactly impact manufacturing. That is, until it gets rocky.

As a few supplies, like masks and hand sanitizers, reached mass critical demand all around the world, they plunged in availability. Hospitals, frontline workers, and more were left without protective gear required to safely do their jobs.

At the time, when these supplies were almost impossible to locate, domestic-made products were a necessity. They were easier to source and easier to ship when time was more important than ever. This could be the wakeup call manufacturing needs to move a little closer to home instead of relying on centralized factories on the other side of the world to fill gaps in the supply chain.

With this catastrophe still fresh in the minds of many businesses and governments, various shock scenarios will have to be considered more heavily to help rebuild the supply chain for a more resilient future.

Staying connected

The businesses that figured out how to stay connected with their customers, whether they were operating in a limited capacity or having to put business on hold completely, were the ones that added to their digital currency. But for most small businesses, digital currency could only take them so far. That meant developing alternative revenue streams to help them stay afloat, even if they were designated as essential businesses.

Restaurants and bars regularly teamed up with delivery services to help them maintain some cash flow during the lean months, including online ordering and curbside pickup. Personal trainers and fitness studios went digital with their classes to help keep their clients working out and to help keep their brand top of mind.

Other companies went a step further and identified gaps in the supply chain to fulfill in meaningful ways. As we mentioned before, distilleries helped make safe, alcohol-based hand sanitizers, and clothing companies reengineered their manufacturing process to make masks out of spare materials.

All of this helped these businesses either keep cash flowing into the business, or at the very least, kept them in the minds of their customers long enough until they could reopen. From creative online solutions that let them continue operating to doubling down on marketing efforts to keep in touch virtually, the ones that stayed flexible and stayed connected weathered the pandemic better than others.

But also, what about the flood of statements from companies preaching togetherness in the first few weeks of the pandemic? Did that help customers feel more connected to their favorite businesses? Hartland-Mackie certainly thinks so.

“We’ve all heard those jokes about how people are receiving too many long emails from businesses explaining what they’re doing in response to COVID-19, but the reality is that customers appreciate it,” said Hartland-Mackie. “Customers want to hear from the companies they are loyal to and be reassured – as long as it is authentic – that businesses have their customers in mind as they make decisions.”

Remote work is not remote

Working in offices could be a thing of the past. Already high-profile companies like Twitter have announced indefinite work-from-home plans for their employees, and more will probably follow their lead. In an age of digital nomads, this could be a huge selling point for attracting talented workers.

When the pandemic first started, many companies had to figure out how to work 100% digitally practically overnight. This involved utilizing web-based communication programs like Skype, Zoom, and Slack to ensure teams were in constant communication with each other when it mattered most. Now, with some offices opening back up, some employees could be receiving more lenient work from home policies, or, at the very least, there may be less face-to-face meetings in the workplace.

Another huge benefit to remote working becoming more commonplace? (Aside from less meetings, of course.) Embracing the all-digital transformation can boost productivity. Now with a lot of the same information freely available for employees to do their job, there should be less presentations sharing known information across the company. Now, only vital information can be created and shared, freeing up more resources to resolve the most critical issues at hand along with more focused daily agendas.

It’s not delivery, it’s curbside pickup

Well, it’s a little bit of both. For essential businesses that couldn’t take advantage of “contactless” delivery, the next best bet was curbside pickup.

“As a federally designated essential business, City Electric Supply branches have stayed open, but we needed to provide ways to keep customers and employees as safe as possible. We began offering curbside pickup and it’s been so successful that we’ve received feedback from customers asking us to continue it as an ongoing service,” Hartland-Mackie said.

What was once seen as an added-value service was the main way for many businesses to maintain cash flow when customers were no longer allowed inside. And with the latest reopening efforts, some customers are still opting for curbside pickup in lieu of shopping themselves.

With how convenient curbside pickup is for keeping in-store capacity low — and for saving the time of customers who no longer have to spend time shopping or even getting out of their vehicles — this could soon be the new normal for many businesses.

Temperature checks

Whether or not customers should receive temperature checks has been up for some debate, but temperature checks of employees are being implemented in almost all states in various industries, including food service and healthcare. Even though workers could be asymptomatic, it still helps cut down on cases progressing to severe stages and worsening infection rates.

This has also had a snowball effect on various other issues related to work policies, from sick leave to hazard pay. Most employers are erring on the side of caution, allowing employees to stay home if they or someone they come into regular contact with have health issues that put them at risk of infection.

With daily operations coming under such a heavy microscope, this means that even employers are examining how existing sick policies have hurt more than helped. If more lenient and flexible policies have not already been put in place, expect it to happen as phased reopening progresses.

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Brad McElory is a Copywriter at City Electric Supply

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Archives, Global Trade Daily, Imports/Exports, International Trade

BLACKLISTING DEPLOYED IN THE BATTLE OVER TECH TRADE

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National Security an Overriding Consideration

If there is one defining feature of current U.S. trade policy, it is that national security has become an overriding consideration in how the United States engages China. It is also a focal point of U.S. engagement with its main allied trading partners.

The Trump administration has added many tools to its arsenal in combatting what it refers to as “vectors of economic aggression” by China. Tariffs are only the most visible. The United States – and other countries – are increasingly turning to the practice of “blacklisting” persons and companies that pose a national security risk.

Through controls on exports of particular technologies, governments can either prohibit their sale to foreign entities, governments or individuals, or require the technologies be sold only upon issuance of a government license.

Not New, But Expanded

Controlling the export of commercial technologies that have “dual use” or military applications is a longstanding practice. The General Agreement on Tariffs and Trade 1994 includes a general prohibition on quantitative restrictions on both imports and exports, but contains built-in exceptions that allow for export control regimes.

In the United States, the Export Control Act requires the Secretary of Commerce to establish and maintain a list of controlled items, foreign persons, and end-uses determined to be a threat to U.S. national security and foreign policy for the purpose of regulating the export, reexport and in-country transfer of those technologies and to those entities.

countries turning to blacklisting

Futureproofing

At today’s blistering pace of tech innovation, the lines between technologies that are used commercially in the products we buy as private sector businesses and consumers are increasingly blurred with their potential applications in a military setting.

Under the 2018 Export Control Reform Act, Congress authorized the Commerce Department to review its list of controlled technologies to consider “emerging and foundational technologies” that should be added to its control list.

The technologies contemplated include a hit parade of Sci-Fi innovations such as neural networks and deep learning, swarming technology, self-assembling robots and smart dust (whatever that is), in addition to more recognizable technologies such as quantum computing, additive manufacturing and propulsion technologies.

Special Designations

In addition to technologies that may be controlled for export, the Commerce Department also maintains a Restricted Entity List. Entities designated are subject to a policy of presumed denial for all products, whether on the controlled technologies list or not. American companies may not export to entities on this list except through waivers and specific licenses.

Huawei Technologies, the Chinese telecommunications giant that is chasing global market share in 5G mobile technology, finds itself on the Restricted Entity List, along with all of its overseas affiliates. Other Chinese companies on the list include FiberHome Technologies Group, another 5G network equipment provider, as well as China’s leading artificial intelligence startups Megvii, SenseTime and Yitu Technologies.

The U.S. government is concerned with entities that could engage in industrial and electronic espionage and infiltrate critical U.S. military systems. But the Commerce Department also took the novel step recently of adding companies to its Restricted Entity List that furnish the Chinese state and its security bureaus with technologies used to surveil and repress civil society.

In October 2019, the United States blacklisted 28 Chinese governmental and commercial organizations, citing human rights violations and abuses in China’s campaign targeting Uighurs and other predominantly Muslim ethnic minorities in the Xinjiang Uighur Autonomous Region. The companies included Hangzhou Hikvision Digital Technology Co. and Zhejiang Dahua Technology Co. which are two of the world’s largest producers of surveillance products as well as several of China’s leading companies in facial and voice recognition.

A Chinese Finger Trap

Last month, as U.S.-China relations continued to deteriorate in very public ways, the U.S. government added two dozen more Chinese governmental and commercial organizations to the Restricted Entity List. The Department of Commerce said they have ties to weapons of mass destruction and military activities.

As with a Chinese finger trap, American companies are now ensnared at both ends. They must comply with U.S. export restrictions but doing so may land them on China’s newly created “Unreliable Entity List”. China created the list as a countermeasure and says it will go after American companies for causing “material damage to the legitimate interests of Chinese companies and relevant industrial sectors” and creating a potential threat to China’s national security.

American cos caught in trap

More Can Play at That Game

The global landscape is actively shifting as countries work to shore up and modernize their export control regimes.

In 2009, the European Union (EU) set up a community-wide regime for the control of exports, transfers, brokering and transit of dual-use items to ensure a common EU list of dual-use items, common criteria for assessments and authorizations throughout the EU.

Last year, Japan and Korea got into a major trade spat when the Japanese government removed South Korea from its so-called “white list” of preferred trading partners for strategic technologies, subjecting some Japanese exports to South Korea to new screening.

Japan’s placement of three chemicals used to make computer chips on the control list resulted in delayed shipments that affected the entire global semiconductor industry since South Korean companies account for nearly two-thirds of the world’s memory chips. South Korea retaliated by dropping Japan from its white list.

One Good Turn Deserves Another

For its part, China deemed its own “Unreliable Entity List” to be unreliable. In January this year (on the same date the U.S.-China Phase One deal was signed in Washington) the National People’s Congress in Beijing published a draft of China’s first comprehensive national Export Control Law, providing China with increased leverage to apply and counteract U.S. export control measures. Safe to say we’ll be reading a lot more about blacklisting in the coming years.

An interesting report to dive deeper:

2018 Report on Foreign Policy-Based Export Controls, U.S. Department of Commerce Bureau of Industry and Security

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Andrea Durkin is the Editor-in-Chief of TradeVistas and Founder of Sparkplug, LLC. Ms. Durkin previously served as a U.S. Government trade negotiator and has proudly taught international trade policy and negotiations for the last fifteen years as an Adjunct Professor at Georgetown University’s Master of Science in Foreign Service program.

This article originally appeared on TradeVistas.org. Republished with permission.
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Archives, Global Trade Daily, In The News

230 years of Data Show Rates Will Soon Hit to 0.50 Percent

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While everyone has been concerned about the sell-off in the stock market in the past two weeks, this decline should be contrasted with the rapid rise in the price of government bonds. For the first time in history, the yield on the 10-year government bond fell below 1%.

As Figure 1 illustrates, the 75-year interest rate pyramid is continuing its path toward new lows. The pyramid began on November 30, 1945, when the 10-year bond yielded 1.55%. The yield gradually rose for the next 36 years, peaking at 15.84% on September 30, 1981. The yield has trended downward for the past 39 years and now has sunk below 1%. The past 75 years have provided a near mirror image in bond yields.  So what does it mean?

Before the current downturn, the lowest yield on the 10-year bond was 1.37% which occurred on July 5, 2016. We analyzed the 75-year interest rate pyramid in the blog “Government Bond Yields and Returns in the 2020s” which was published on January 8. We predicted the continued decline in government bond yields in the United States during the coming decade. With negative interest rates on most 10-year bonds in Europe and Japan, there is no reason why yields in the United States shouldn’t continue to decline.

The 10-year bond yielded over 3% in November 2018 and by December 31, 2019, the yield on the 10-year bond had fallen to 1.92%.  Today, the yield is half that. This decline has provided an 8% return to fixed-income investors during the past two months as the price of government bonds has risen. A 10-basis point decline in the yield rewards investors with a short-term gain of about 1%.

In the blog “300 Years of the Equity-risk Premium” published on February 5, we predicted that the total return to government bonds over the next 10 years will be around 2% per annum or less. This return can only occur through the continued decline in bond yields and increase in the price of government bonds. As we explained, government bonds have outperformed stocks since 2000; however, our analysis indicates that the return to bonds will be lower than the return to stocks over the coming decade.

The 5-year bond yield fell to almost 0.5% back in 2012.  So why can’t the 10-year bond yield decline to 0.5%in 2020? Figure 2 provides 230 years of bond yield data, which shows each decline building a deeper valley indicating that interest rates will soon reach a lower low. We believe it is only a matter of time before the yield on the U.S. 10-year bond hits 0.5%.

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Dr. Bryan Taylor is President and Chief Economist for Global Financial Data. He received his Ph.D. from Claremont Graduate University in Economics writing about the economics of the arts. He has taught both economics and finance at numerous universities in southern California and in Switzerland. He began putting together the Global Financial Database in 1990, collecting and transcribing financial and economic data from historical archives around the world. Dr. Taylor has published numerous articles and blogs based upon the Global Financial Database, the US Stocks and the GFD Indices. Dr. Taylor’s research has uncovered previously unknown aspects of financial history. He has written two books on financial history.