Monday, March 23, 2020

Global Economic Outlook 2020: Democratizing Information and Advancing the Frontiers of Economic Thought... Part II

by Terry O'Neill 

Founder, Institute for the Study of Global Economics and Finance (ISEF)
Chairman Emeritus, The O'Neill Company

During these very challenging economic times, the events taking place will be much more dynamic than static. Therefore, in an effort to keep everyone up to date and best informed, I am adding to my last writing and will continue to comment and add context to some key economic changes that are rapidly taking place (please review caveat below: Poland and the creation of an “anti-crisis shield”). For those of you who have not read my March 17 comments, may I encourage you to review them here.

I now believe that we will experience what I would refer to as a “front-loaded recession” and the Global Financial Crisis 2 (GFC2) will be more severe, however, shorter in time. Given the current data, the recession has already started in the first quarter of 2020. So we will have a Q1 (quarter) contraction, a Q2 contraction, most likely a Q3 contraction and, if we get a fiscal stimulus (congress needs to act quickly) of at least 3 percent of GDP (GDP is 21tn, therefore 600-800bn) and we control the pandemic by doing systematic quarantines, it will be more severe than the Global Financial Crisis 1 of 2008 (GFC1). However, because it is front-loaded, if the pandemic can be stopped by potentially June or July, then maybe by the fourth quarter of this year, we could possibly start to see an economic recovery. The recession could be three quarters rather than six or seven quarters. Again the key that is needed is the fiscal stimulus to backstop the collapse of private demand, the collapse of exports, the collapse of consumption, the collapse of residential investment, the collapse in small and medium size businesses of capital expenditures (CapEx), and the collapse of the private sector, overall.

We need liquidity in the economy, a big balance sheet like the Federal Government that can create the liquidity and then spend or transfer income to those who need it. We will need to assist those who will not be working during the shut down, those in America who have been “preconditioned to save in reverse through installment purchases” (on credit, which is a large percentage of our citizenry), and those in the lower wage category who are not capable of building any financial reserves and are now not working due to the shutdown. The Federal Reserve completed a survey and concluded that about 40 percent of adults have said they would not be able to cover a $400 unexpected expense with cash.

 We all know that, in life, we experience reaching peaks that are euphoric and valleys that can appear to be devastating and/or troublesome. Looking back on GFC1 of 2008, the valley was unforeseeable, however, the valley of the 2020 pandemic and the resulting economic crisis can be seen and understood. I might suggest we look out to the next mountain peak of mid 2021 and 2022 knowing that this shall soon become a passing memory and we can be grateful for advancing through another moment in history.

Caveat: While my own peripatetic economic analysis plans have been possibly/probably postponed for this May to Poland, Ukraine and Romania, let me paint a picture of the “creation of an anti-crisis shield” that is taking place in Poland which will give us a better understanding of what needs to take place in other countries.

Poland and the creation of an “anti-crisis shield”

Poland has not experienced a recession in 30 years. It has been among the most aggressive in the EU in responding to the outbreak by closing its borders, banning large gatherings, and ordering most non-essential shops to close. Such measures are a sensible response to the pandemic. But, together with the slump in demand, they will experience high strains on the country’s businesses.

The government spelled out how it plans to mitigate this. The 212bn zloty (US$52bn) package will allow companies to defer social security payments; provide government support for up to 40 percent of workers salaries’ at companies that have seen their turnover drop as a result of the pandemic; offer support for the self employed; and includes 7.5bn zloty of health spending and 30bn zloty of infrastructure spending.

Poland’s banks themselves last week pledged to allow retail and business customers hit by the crisis to suspend loan repayments for 3 months, giving people confidence in the anti-crisis shield that, with time, things will improve and soon get back to normal. The key is to survive the acute phase of the crisis, as unscathed as possible and then, later, work on rebuilding confidence.
The total amount of 212bn zloty (which equates to 9 percent of GDP) includes not only direct fiscal stimulus, but also central bank actions including repo operations, a TLTRO-like program (targeted longer-term refinancing operations used by the EU during the financial crises of 2008) and the purchase of treasury bonds on the secondary market. This would be a package to get through the end of April. If Poland is still in lockdown in May, it would not be enough. So if this crisis proves more than a passing one, businesses will need more radical assistance. Just as important as the size and structure of the “anti-crisis shield”, are the details of how it will work.
Overall government backstops will need to be as automatic as possible and the rescue packages will only be as effective as the bureaucracy administering it, so let’s hope and pray we can rise to the occasion of this crisis as Americans and set partisan politics aside, as least for the moment, or maybe learn an important lesson and make it permanent.

Tuesday, March 17, 2020

Global Economic Outlook 2020: Democratizing Information and Advancing the Frontiers of Economic Thought...

by Terry O'Neill
Founder, Institute for the Study of Global Economics and Finance (ISEF)
Chairman Emeritus, The O'Neill Company

As we look at our global economic outlook for 2020 through the lens of economics, I have repeatedly stated that we’re in the middle of a global synchronized slowdown in addition to de-globalization, global decoupling, Balkanization, fragmentation, nationalism and populism plus an over-dependency upon monetary policy by all of the following central banks: The Federal Reserve, European Central Bank, Bank of Japan, Bank of England and People’s Bank of China along with absolutely no emphasis upon fiscal stimulus or infrastructure development domestically and globally.

The annual global growth over the past few years has been positive, yet slowing for the last two years respectively: 3.8%, 3.4% and this year 3% (with COVID-19 possibly 2+%). Along with the synchronized slowdown we are experiencing, there have been a variety of global tail risks that we could refer to as “white swan” events. A "white swan" is a highly certain event with three principal characteristics: it is certain; it carries an impact that can easily be estimated; and, after the fact, we reason an explanation that recognizes the certainty of occurrence, but again, shifts the focus to errors in judgment or some other other human form of causation.  

Three economic scenarios were the consideration going into this year. First, an optimistic view with global growth at around 3.4%, inflation being maintained and financial risk disappearing as economic expansion continued. Second, a skeptical view of the world in the midst of a global synchronized slowdown, with only some growth picking-up in emerging markets. Third, a global recession where the US and China would be in a trade war; a hard Brexit setting in and/or a war with Iran.

The “white swan” global tail risk event of the year has been triggered by COVID-19. Some pundits say we have had these kinds of epidemics in the past from SARS to MERS (SARS, at the peak, was approximately 8,000 cases and 800 deaths. As of this writing, COVID-19 has experienced near 170,000 confirmed cases and more than 6,600 deaths globally, not a good comparison). In China alone, we have seen the Swine Flu, Bird Flu and now the Coronavirus. My first comment is the markets will be more severely affected now because when SARS surfaced, China had just joined the World Trade Organization and was only 4% of the global GDP, contributing around 20% yearly to global growth. Today, China is approximately 20% of the global economy and contributing around 50% yearly to global growth.

Now, think about the economic “spillovers” in the surrounding Asian world in addition to Europe and the United States that will take place because China is a key player in the global supply chain. All over the world, firms are shutting down because they cannot do business due to a lack of key supplies coming out of China. Think about it this way: In the fourth quarter of 2018, you had almost a “bear stock market” (down 19.78%). Why? Because the market wrongfully felt that, as the Federal Reserve was on their way to “rate normalization”, they would end up normalizing too fast and would squelch economic growth. The Fed rate was at 2.5% and I forecast at the time that the terminal rate would be at around 3.2-3.5%. (Caveat: I always said the Fed would go extremely slowly in the rate normalization processes so as not to hinder the overall economic trajectory.) My hypothesis proved to be correct. And, when the markets realized the Fed would normalize slowly, the markets quickly recovered.

Now, I will attempt to explain what is happening currently. This time around certain pundits are saying, under the best scenario, we will see a “V” shaped recovery. That means, as you would imagine, that the first quarter of 2020 is down and then the global economy recovers and grows faster the second quarter and then, subsequently, in the third and fourth quarters. Well let’s go back to the China scenarios. First, again, the pundits are saying that China’s growth in 2020 will be adjusted because of the COVID-19 pandemic to be around 5.5%. I would strongly argue that, after one completes the calculus year over year, China’s first quarter growth will be a minus 2% to a minus 4%. And if you annualize that it turns out to be a negative year over year.  As a result, my final conclusion on China is that their year-end GDP growth will close out the year between 2.5 and 4.0% -- what academic economists refer to as a hard landing.  Therefore, a “V”- shaped recovery will look more like a “U” shape or even a “hockey stick” recovery which everyone became familiar with after the 2008 Great Recession. It would not be too far fetched to conclude that we could experience what I would refer to as a “rolling recession”. Today, Italy, Korea and Japan are in a recession; Germany is on the brink of a recession, and, subsequently, the EU and the United States could be close behind...we can’t count out that scenario. The European Central Bank has minuscule policy bullets. Their current lending rate is a negative .5% and I will forecast that soon they will go to negative .6%. In addition, the Bank of Japan is negative and, last October, Prime Minister Abe implemented a consumption tax that has dramatically hurt Japan’s economy. (Reminder: a recession is simply two consecutive quarters of negative GDP growth, a business cycle contraction is when there is a general decline in economic activity.)

In conclusion, for the past 11 years, I have stated repeatedly that the world has been over dependent on monetary policy, zero and negative interest rates, asset purchases and Quantitative Easing (QE) scenarios QE1, QE2, QE3, and, probably, now QE4. Let’s get ready for one additional scenario that needs to take place before we slide into the next recession and that is a big and bold fiscal stimulus. We must bring out the “heavy weapons” (helicopter drops of money) and not the “small arms”. On March 4, the EU finance ministers held a conference call to discuss the latest developments and COVID-19’s impact on the economy. Instead of coordinating a decisive fiscal response to support businesses and households, they merely agreed to stay ready to act, using the small wiggle room allowed by existing fiscal rules. This is a missed opportunity to create a common fiscal capacity to deal with adverse shocks via automatic stabilizers.

In the US, approximately 70% of our GDP is attributable to consumption. (In China, 70% of GDP was driven by infrastructure development and they have been striving to migrate rapidly toward consumption which is vital to the China and global economies.)  With COVID-19 destroying demand and supply simultaneously, this has undermined global growth. Also, it is important to note that with an over abundance of collateralized loan obligations (CLOs), shadow banking, an over leveraged consumer, and with the rating agencies about to down grade the CLOs of the fallen angels to non-investment grade high-yield status (also know as junk bonds) estimated at around 1 trillion dollars, the CLO’s and high yield bonds are at risk.  Therefore, a recession would not necessarily come from the stock market but from the credit markets as a credit crisis.  (The 2008 recession dramatically affected the banking sector and government bailouts were required, however, the sector is healthy currently as a result of Macroprudential and Basel 3 regulatory requirements.)

As a result, asset managers and pension funds (with specific covenants once the down grades occur) will be forced to sell these assets which, unless the liquidity is created in the system, will cause massive defaults. As of this writing, the Fed has experienced two nonscheduled meetings and lowered the Fed funds rate 0 to ¼% (which will have no economic effect on the current crisis) and will facilitate 1.5 trillion dollars to provide order and liquidity in certain markets. In addition, the government will possibly need to bail out the airline industry (because it is tied to our national security), the cruise ship industry and other hospitality sectors of the economy.  And, let’s not forget the large troubles currently occurring in the energy sector.

During the 2008 Great Recession, some uninformed comments were made that we were on our way to possibly slipping close to the Great Depression of the 1930s. Nothing was farther from the truth. Empirically, the Great Recession had a GDP contraction of 4% and the Great Depression had a contraction of 40%. There was obviously no comparison and, yet, times like these can be extremely trying. Equities will continue to adjust until market participants believe that the virus has been successfully contained at the global level.

These uncertain times shall pass, and, in no way do I desire to give the impression of being panglossian, however, I know that, over the long term, idiosyncratic shocks and externalities along with extremely volatile moments can and do often occur over long economic cycles and that being prudent, calm and having patience and understanding is truly warranted. Having been privileged to lead a financial service enterprise for four decades and being a continual student in the area of behavioral and macroeconomics, I have learned that financial and economic success does not come automatically in life with the possession of wisdom, but with how it is applied. Moment by moment, we have choices and we must prioritize, so let the lessons be learned as we set our affections on the giver not the gift and make an eternal significance.  

As we all navigate through these current turbulent economic waters, soon a day of calm and sunshine will return and, when it does, be prepared for economic growth like you have never experienced before. Historically the bronze, iron and industrial ages have taken 1,500 to 2,000 years of technological transition. However, over the next twenty to thirty years, we will all enjoy wonderful technological advances that have been unprecedented since the beginning of time. As an example, the vinyl record industry in 1985 was approximately an eighteen billion dollar industry and, in the year 1990, it was dead (other than as a collectible). Today, we produce a multitude of songs as digital downloads at a fraction of the cost. When your parents and grandparents grew up, a carburetor in the engine of their vehicle cost approximately three hundred dollars (depending on your era), however, today, a micro-chip costs a few cents and it doubles a vehicle’s fuel efficiency.  

On the near-term horizon, we should see the following markets revolutionize the way we work and live. Our industries of the future are: Ed-tech, Energy-tech, Biotech, Information-tech, Manufacturer tech, Financial tech, Defense tech, Humanoid robots, technological singularity and high-tech artificial intelligence. We have not seen these at the macro-level. Some people say it has been mismanaged and some say it takes time to see the results, however, I say, “Get ready.” All hands on deck because we’re about to set sail on an incredible economic journey.

In January of 1995, Mr. Smart invested 1m dollars in a diversified asset allocation mix of 80% equities and 20% fixed income and during the Great Recession of 2008 his account was DOWN -34.88%. Mr. Smart maintained his allocation and subsequently fully recovered and achieved over a twenty-five year period an average annual rate of return of 9.78%.

Thursday, February 6, 2020

Technolink Snapshot February 2020

Dear Technolink Community,

Happy February! Let's celebrate all of the great things that are happening in our community with many more advancements to share ahead. 2020 is going to be an exciting year with the theme, "Creating a Legacy for the Future." Our snapshots will feature efforts by Technolink members who are demonstrating that initiative in all they do.
Please enjoy hearing from this month's insightful contributors: Lt. General Larry James of JPL, Kevin McDonald of Alvaka Networks, and Jim Watson of CMTC.
We encourage you to think about the legacy that you are creating.
With heartfelt appreciation,

Ssusan Forte O'Neill
Editor and Co-founder,
 Technolink Association

Members Shaping the Future

NASA’s Jet Propulsion Laboratory in Pasadena not only explores our solar system and its planets, but examines the smallest components in our universe with fundamental physics experiments.  "One of our recent missions is the Cold Atom Lab (CAL) currently flying on the International Space Station (ISS)," reports Lt. General Larry James, Technolink member and Deputy Director of JPL. "CAL is utilizing laser cooling to study ultra-cold quantum gases in the microgravity environment of the ISS.  CAL will produce clouds of ultra-cooled atoms called Bose-Einstein condensates. Chilled to a fraction of a degree above absolute zero --  even colder than the average temperature of deep space -- the atoms in a BEC demonstrate quantum characteristics at relatively large size scales, allowing researchers to explore this strange domain."  There are three Nobel Prize winning Principal Investigators directing this experiment.  For more details, please click here
"The sheer numbers and damage from Ransomware are no longer something you can avoid," writes Technolink member Kevin McDonald, COO and CISO of Alvaka Networks. "If you don’t already know someone with a ransomware horror story, it is very likely that you soon will. Ransomware is growing and most often strikes when you are least able to defend against it." Read Kevin McDonald's important article about ransomware and how to protect against it now. Click here
Technolink member Jim Watson, CEO and President of CMTC, just wrapped up a successful series of 2019 events to provide relevant information to small and medium-sized manufacturers throughout California about technology integration. As part of its Made in California Program, CMTC teamed up with the Small Business Development Centers (SBDCs) around the state to host a series of innovative Technology Showcase and Access to Capital Seminars for Small and Medium-Sized Manufacturers (SMMs). CMTC is partnering with the SBDC California network to foster the deployment of technology that will improve the productivity and global competitiveness of SMMs. The seminars were a perfect blend of technology followed by financing options organized to inspire incorporation of technology into a business. For a listing of the 30 manufacturing conferences in 2020, visit CMTC.

Sunday, November 3, 2019

Technolink Snapshot November 2019

Dear Technolink Community Member,

With Thanksgiving at the end of this month, abundance becomes our spotlight once again. We are grateful to all of you for shaping the Technolink community into such a unique and inspirational hub for cutting-edge innovators across multiple sectors throughout Southern California...with a reach that extends far beyond.
On that note, I'd like to welcome Aaron Anderson and Brenden Monahan, co-Founders of Vusar, to Technolink. Vusar has recently launched their immersive visualization tool which enables teams to collaborate on product designs through the use of augmented reality. We are honored to have a submission from Aaron Anderson, CEO,  for this month's snapshot.
We are also pleased to hear from Donn Silberman who reports on the tenth anniversary of the Optical Engineering and Optical Instrument Design Programs at UC Irvine. Charles Ostman, in response to our October Snapshot, reminds us that "what appears to be the future for many, is already the past for some, who are now unfolding it into the present."
Please enjoy hearing from this month's insightful contributors.

With heartfelt appreciation, 

Ssusan Forte O'Neill
Editor and Co-founder,
 Technolink Association

Members Shaping the Future

Aaron Anderson, CEO of Vusar, fills us in on the impact of augmented reality (AR) on the future of design. Vusar is an immersive visualization tool enables teams to collaborate on product designs throughout the product development lifecycle through the use of augmented reality.  Recently launched, Vusar allows for the viewing of designs at true scale through mobile devices, bringing designs into the real world for review in a more immersive manner. Vusar is available for download on Android and iOS.
Read Anderson's essay,  "Designing the Future," here.
Learn more at
Donn Silberman, Technolink Sponsor and Founding Director of the Optics Institute of Southern California, started the Optical Engineering and Optical Instrument Design Programs at UC Irvine 10 years ago and they have grown stronger ever since. Over the years, they have added new courses, new instructors, received awards and honors and had many students complete their studies, receive their certificates and get promoted in their current companies or get new jobs using their new skills.  These programs were established to fill industry needs for workers with the requisite skills and to date there have been the following numbers of students in the two programs:
Optical Engineering:  62 Graduates; 23 Candidates
Optical Instrument Design: 17 Graduates; 9 Candidates
More students have taken one or more courses without declaring their candidacy for a certificate. Recently, an article was written about the programs by Kathy Seaton Tam, the communications specialist for the Dean of Continuing Education and Vice Provost of Career Pathways at the UC Irvine Division of Continuing Education and was published in Photonics Spectra magazine.
Please click here to read the article.
For more information about the Optical Engineering and Optical Instrument Design Program at UCI,
 please watch this Informational Session webinar

Charles Ostman, a long time member of Technolink and a senior fellow at the Institute for Global Futures, wrote in after reading Doug Finke's piece on Quantum Computing. Ostman has spent over 25 years working in the fields of electronics, physics, computers, artificial intelligence, and most recently, various aspects of applied and theoretical Nanotechnology. Ostman agrees that quantum tech is becoming the most significant evolutionary catalyst ever encountered. "In our emergent future history, quantum computing  is much more than merely a 'faster' computer. " says Ostman,  "As I see it, we are stepping into uncharted territory, in which the human species here on earth is being morphed into a symbiotic co-evolutionary relationship with non-human forms of 'intelligence', enhancements, and systems which behave biologically." The task now is to visualize how this quantum tech fits into the larger framework of emergent (and irreversible) changes for which there is no known precedent.
Please visit Charles Ostman's website here

Tuesday, October 8, 2019

Technolink Snapshot October 2019

Thank you for joining us for another insightful forum! All of the presentations on Abundance and Optimism in Society were an enriching way to mark the 25th year of Technolink. 

As we shared during our meeting, many wonderful links have taken place. Most recently, our rich Technolink conversations have spawned a new Apprenticeship/Internship program between Irvine Valley College and Alvaka Networks. Guy Ronen, CEO of Reasonings LTD reflects on data security and Doug Finke, Publisher of the Quantum Computing Report shares news of an important Quantum Computing event with Dr. Barbara Jones of IBM.

We share below the forum presentations of Lt. General Larry James, Brian Keith and Lee Krevat.

With heartfelt appreciation, 

Ssusan Forte O'Neill
Editor and Co-founder,
 Technolink Association

Members Shaping the Future

Answering the Call for Action
During the spring 2019 Technolink forum, honest conversations about the state of education in the United States took place.  Kevin McDonald of Alvaka Networks expressed skepticism about working with College Intern Programs which immediately sparked a challenge for the executives from Irvine Valley College (IVC) in attendance.
Given industry cries and expression of concerns over the “lack of qualified workers,” why are community colleges so slow to respond?  Knowing that the most successful employees had good mentors and work experience in the form of internships/apprenticeships as part of their college experience, why are there so few opportunities for on-the-job training?  Lastly, why does our society struggle to develop public-private partnerships that benefit students, colleges, and our industry partners?
The representatives from IVC, part of the Southern Orange County Community College District (SOCCCD) expressed their genuine desire to understand Alvaka’s needs and, thanks to thoughtful collaboration over the months to follow, a new partnership structure has been developed for compensating student workers and sharing liability.  As part of the internship program, students will enroll in a Cooperative Work Experience (CWE) course, which will allow for collaboration between IVC faculty and Alvaka personnel.  IVC faculty will provide support and guidance to students during their internship placement and Alvaka personnel will provide feedback on the students’ performance and make suggestions for curriculum development and improvement.
“The SOCCD and IVC representatives were a genuine pleasure to work with and we are thrilled to have been a part of developing such an elegant solution," says Kevin McDonald. “We hope that thousands of students and the companies that help propel them forward benefit immensely from this exciting new vision for college internship programs.”   To succeed, kids need a plan for lifelong learning and continued skill development. IVC’s partnership with Alvaka will serve as the model for future collaborations between the college and other industry partners.
To learn more about Irvine Valley College,  click here.
To learn more about Alvaka Networks, click here.
Guy Ronen, CEO of Reasonings LTD writes in this month with a thought piece about our vast amount of data and the protection of privacy. "Many communities across the western world are now at a crossroads: The growing spread of technologies, including AI, Big Data, IoT, and Machine Learning, changes many “old school” rules and responsibilities. The spread of these technologies – most of which are civilian, could create data breaches and lead to backdoor threats for different communities."
Read the full article here
For those of you interested in learning more about what’s in store for quantum computing, Doug Finke, Technolink member and publisher of the Quantum Computing Report,  informs us that the Southern California Quantum Computing Meetup group along with the Innovate Pasadena organization and others will be hosting a session on October 15th from 6-8 PM in Pasadena.  The guest speakers will be Dr. Barbara Jones from the IBM Almaden Research Center and Dr. Mark Jackson from Cambridge Quantum Computing, a leading quantum computing software startup.  For more information and to register, please view the event website. Click here

Fall Forum Presentation Slides 

Lt. General Larry James
Jet Propulsion Laboratory
"JPL - Enhancing Our Lives at the Frontiers of Science"


Brian Keith
United States Department of
Homeland Security
"The Convergence of Cyber, Drone and Physical Security Threats: Insights to a Culture of Resilient


Lee Krevat
Krevat Energy Innovations
"The Utility of the Future: Your city, your community, your garage or your car?"