You know that the whole world has sunk into
an economic crisis caused by non-economic
factors.
But it would be interesting to know when we
will stop diving down and hit the bottom,
from which we are going to float back to normal
life.
After watching this video, you will find out
how China, the United States, the Eurozone,
and Russia are dealing with the crisis.
What is a black swan?
And what profession can prompt the end of
the crisis?
First, tell me: what is happiness?
What does a person need to be happy?
You must have come up with a few options and
it's not easy to choose specific ones.
It can be the health of your family, lots
of money, career success, respect and honour
of society, or finding your significant other.
Some appreciate all these things equally,
while others prefer only a few.
To understand what happiness is, one just
needs to ask.
This is exactly what analysts do to figure
out what is happening with the economy.
They just ask.
If you now think of saying…
" - What in the heaven's name you are talking about?"
don’t rush
to close this video.
There is a thing called Purchasing Management's
Index or PMI.
The index was introduced in America around
a hundred years ago and is now used as an
operational indicator that allows you to quickly
assess where the economy is headed and what
will happen to it.
The secret of this method is this - you need
to ask not just random people on the street...
but purchasing managers.
After all, they simply must have their finger
on the pulse of production.
For example, a car manufacturer looks at new
customer orders and determines how many cars
the market will need in the next month.
They assess the warehouse stocking and decide
how many parts should be purchased.
The production plan as a whole depends on
this.
Roughly speaking, if a supplier needs more
raw materials, resources, and labor, then
production is growing and this particular
company is doing well.
PMI follows this scheme.
They ask purchasing managers from 300 or 500
companies a simple question - compared to
the previous month, are things going better,
worse, or the same?
The most valuable metrics include new orders,
the state of warehouses, production volumes,
employment, and supply of components.
Like with the question about happiness, it
all depends on how we weigh each component.
There is the American Institute of Procurement,
which gives all these categories the same
priority, and then there is a second reputable
organization that believes that new orders
are the most important indicator.
And you can see the importance of other categories
on the screen.
Ultimately, PMI shows how purchasing managers
value the economy.
The good thing about this index is that you,
a person sitting on your couch, cannot know
how many new orders each company receives.
It takes a few months before companies release
their reports.
Information on GDP also comes with a delay.
Meanwhile, PMI shows data just a month later
and tells us where all this mess is headed.
The downside of this method is subjectivity
because when it comes to polling people, even
if they are local specialists who know how
their company is doing, the human factor is
at play.
The supplier may just not care or give an
indifferent answer.
Remember, in the video about the current corona
crisis we said ...
" - So, Germany began to show signs of recession in 2018 to 2019 when negative growth was observed."
... but imagine that it is
the beginning of 2019, quarterly GDP has not
yet been released, but PMI data has already
signaled a recession.
Since January, PMI values had been below 50.
Although it was still unclear if we looked
at GDP.
On top of that, this data is received with
a delay and must be revised later.
But you understand that we will get ideal
statistics only when the entire economy is
digitalized, production data down to every
last screw is controlled by Skynet, and robots
regulate over- and underproduction without
human involvement.
Ough... someday, it will happen ... Will this
video still be up by then?
But let’s get back to the present.
With all its possible subjectivity, this method
is good, albeit not ideal.
And the best part is that it is easy to understand.
If you think that now I’m going throw a
bunch of boring formulas at you, like in economics
courses that were forced upon you in college,
you can relax.
PMI is simpler than GDP because for GDP you
need to know at least the specifics of the
country's economy.
For example, a couple of percent growth for
the US economy is normal, but for China, it
is a serious wake-up call signaling a recession.
The PMI gives you one number, from 0 to 100.
50 means that during this month nothing has
changed.
A number below 50 shows that things are going
worse.
And if PMI is above 50 then the situation
is improving.
Why am I telling you this in detail?
So that later you can see what's happening
in the economy.
It's like an element of financial literacy.
Or like understanding how the cell towers
work.
All of this has one goal: to make you understand
how it works so you can figure out which countries
are coming out of the crisis and when.
Of course, you won't become a top-class specialist
just by watching YouTube videos, and we do
not pretend to be those top-class specialists
as well, but this can be the beginning of
something good.
Of course, no indicator will tell you about
a virus that paralyzes the entire economy.
But when it has already happened, PMI can
hint at when we will hit the bottom from which
the economy will begin to move towards a normal
life.
It will also show when we will finally be
able to deal with the "black swan".
Black Swan is the term of the American-Lebanese
economist Nassim Taleb, who wrote the book
of this name.
The point is that if you have never seen a
black swan, you will assume that such birds
do not exist.
And that's what everyone thought until the
end of the 18th century when these birds were
discovered Down Under.
Nassim Taleb has written a whole series of
books; the first one is called Fooled by Randomness.
He calls a "black swan" a rare and unpredictable
event that can change your life or even the
life of all mankind.
Examples of such events would be the collapse
of the Soviet Union, the attack on the Twin
Towers on September 11, 2001, and a fresh
example from 2020 - the coronavirus.
In January, no one could even imagine that
3 months later planes would stop flying, people
would be washing the food from the store with
soap, and stop going to restaurants and concerts.
Nevertheless, it happened.
In hindsight, we can somehow rationalize and
explain such an event.
The problem is that the next swan will fly
out of nowhere and peck us right in the ass.
In general, using the PMI, you can determine
which countries have reached the bottom and
are starting to bounce back, and which ones
are yet to sink.
This is what we are going to do now.
So, on your screen, you can see the PMIs of
China, the Eurozone, Russia, and the USA.
There is something that catches the eye right
away.
China stands out the most.
Ironically, it all started there.
They met the virus before everyone else, and
they also coped with it faster than others.
The biggest dip was registered in February.
At that time, the first restrictions were
imposed: on January 23, the quarantine of
the Hubei province, and then a ban on domestic
flights and traveling.
Overall, the end of January and February were
the most quarantined periods.
And, accordingly, the most unfortunate for
the economy.
On March 18 it was reported for the first
time that no one got sick.
It was in March when strict control began
to subside gradually, and the number of infected
people was close to zero.
China began to feel its economic bottom.
By the way, let me remind you that number
50 only means that the situation in the economy
is the same as it was last month.
This does not mean that things are getting
better; the pre-crisis values are still far
away.
In March, the decline in China only slowed
down.
That is, it did not get any worse, the situation
remained the same.
And gradually, moving towards June, the country
began to get closer to the pre-crisis lifestyle,
but not economic indicators.
People went back to work, the lifted ban on
cross-regional transport movement restored
the supply chain.
So, the economy started to recover.
From March onwards, other countries around
the world only began to impose restrictions.
And then many realized the consequences of
globalization.
It turned out that the Chinese factories returned
to normal life faster than the demand from
other countries for their goods.
Roughly speaking, China was ready to sell
abroad, but buyers were still struggling with
the consequences of the coronavirus.
China is the largest exporter in the world
and sells the most to the United States.
When in March-April China was ready to send
its products abroad and re-spin the wheel
of the economy, the United States had just
begun to impose strict regulations.
This resulted in an unprecedented unemployment
rate of 15 percent in April and an industrial
downturn, which only began to stabilize in
June.
Let me remind you again that in June, the
US industry was just feeling the bottom.
Russia, like all countries of the 21st century,
is very dependent on others.
It is another proof of the reciprocity and
interdependence of the modern world.
Just like uncle Alvin Toffler described it
in his book “The Third Wave”.
Since the beginning of this year, the export
of goods has only been going downhill at a
rollercoaster speed.
Compared to last year, the decline was 20%,
30%, and in May, almost 40%.
And I want to again emphasize the interdependence
of countries.
Out of all exported products, Russia sells
oil, gas, and coal the most to other countries.
To be more precise, this accounts for 60%
of all the country’s export in general.
The largest buyer of these goods is the manufacturing
giant China, which does not need hydrocarbons
that much now, because the Chinese have just
begun to spin the wheel of the domestic economy
and are still suffering from weak demand from
abroad, including the USA.
That is, Russia sells less oil because China
produces fewer goods which is caused by low
demand in the US due to the effects of the
coronavirus.
This is, of course, a very simplified scheme;
the actual export structure of these countries
is more complex.
For example, we haven’t said anything about
Europe yet, but this scheme describes well
the essence of the modern interdependent economy.
There is no one special way, everything is
intertwined.
Another difference between Russia and other
countries is that the crisis is aggravated
by the weakness of the ruble, which took a
nosedive in March.
A little later a new reality in which 1 dollar
equals 70 rubles was established in Russia
and it would be so before the opening of the
borders.
There is a chance that the conversion rate
will grow even more and millions of Russians,
longing for a vacation at the seaside, will
rush to exchange offices to buy euros and
dollars for their trip abroad.
And here is the question: when are we going
to stop falling, slowing down, hitting the
brakes?
When will we reach the bottom and bounce back?
When will we start returning to the pre-crisis
situation?
There is a reason to believe that production
in China, the USA, Europe, and Russia is touching
that bottom right now.
It so happened that the release of this video
coincides with the stabilization in the manufacturing
sector.
The index of these countries is close to 50,
and China has started to come back up slowly.
But... it is important to say that I withheld
something from you.
All the indexes that you saw here were for
production only.
But there is also a service sector.
And you can guess that it was the one that
suffered the most.
So let me complete the picture with information
on services.
Bring the data on the screen, please.
European services took the hardest
hit.
Tourism has suffered incredibly.
It received a PMI of 3.5 in April.
On the other hand, what could you expect when
all countries are busy fighting the pandemic
and borders are closed?
Interestingly, the services market in Russia
suffered as badly as Europe, although the
role of services in the European economy is
much higher.
The current crisis is not of an economic nature,
and actions of all governments are a logical
response to a biological threat.
The countries that coped most effectively
were those that quickly recognized the problem,
introduced serious restrictions, correctly
monitored the amount of infected, provided
hospitals with everything they needed, worked
correctly with the population, and financially
supported people when the work ban was imposed.
We can say that even the service market is
beginning to touch the bottom.
The whole world will emerge from the crisis
in the same way as it entered it: unevenly,
over several months.
China is already chilling and waiting for
Mexico, Japan, and Switzerland, while Russia,
the US, Spain, and the UK will soon begin
to recover.
For most countries, April and May were the
toughest, while June, on average, gives us
hope that the collapse is nearing the end.
The global PMI index, that is, the world average,
in the industries and services is already
close to 50, while in May it was 36.
All indications are that the economic crisis
is easing its pressure.
In other words - that's it, gentlemen.
If you’ve made it through this period, it
won't get any worse.
But this does not mean that we have returned
to the pre-crisis life; it only means that
we have stopped flying down.
It will take a few more years to fully recover.
What is important to know about the economy
for us ordinary people?
The unemployment rate.
It is difficult to survive in the modern world
without income.
In the United States, unemployment exceeded
all conceivable indicators, Russia was thrown
8 years back, a similar mess is going on in
China, but the European Union, surprisingly,
is doing better than others.
I would like to end this video with an analogy.
Since the last global financial crisis, people
have spun the wheel of the economy with all
their might, hired new workers, expanded,
but then Sars-CoV-2 showed up and this wheel
slowed down.
Fewer people are required to start spinning
it again.
And now humanity starts its work anew, increasing
business activity to regain lost momentum,
and in the future, expansion and people will
be needed again.
But it will take several years.
And this is provided that things follow the
current trajectory.
But the data was collected during the restrictions
and their gradual removal.
And when the borders are opened, the resorts
will be filled with people, business trips
will resume, a lot of people will relax...
In the basic scenario, the second wave of
infection is expected by autumn.
And God forbid the second black swan will
come.
And I hope we won't have to make a similar
video again.
Like this video, leave your comments.
See you in the next one.
