The First Major Pandemic Scare

 Doug Nolan

January 31 – Bloomberg: “Chinese officials took issue with U.S. comments about the country’s response to the coronavirus outbreak, and promised they would bring the infection under control. ‘U.S. comments are inconsistent with the facts and inappropriate.’ Chinese Ministry of Foreign Affairs Spokeswoman Hua Chunying said… ‘The World Health Organization ‘called on countries to avoid adopting travel bans. Yet shortly afterward, the U.S. went in the opposite direction, and started a very bad turn. It is so unkind.’”

The World Health Organization (WHO) declared the coronavirus outbreak an international public-health emergency, while praising China’s virus containment efforts during its Thursday afternoon press briefing. The DJIA rallied 260 points, apparently on WHO officials’ opposition to travel bans and trade restrictions.

This is an extraordinarily complex developing crisis.

Understandably, Beijing fears economic hardship could be pushed into an intractable downward spiral by the world essentially quarantining the entire Chinese nation. Meanwhile, Beijing has taken unprecedented Draconian measures to quarantine 60 million of its citizens. Photographs are circulating of roads surrounding Wuhan and neighboring cities blocked by large boulders and impassible mounds of dirt.

The number of confirmed coronavirus infections jumped 34% on Tuesday, 27% Wednesday, 26% Thursday and 22% on Friday. Almost reaching 12,000, the outbreak has escalated much more rapidly and has already surpassed the SARS peak. If cases expand 15% daily over the next two weeks, the number of infections would quickly surpass 80,000. The official tally of coronavirus cases is likely but a fraction of those actually infected.

January 29 – Bloomberg (Jason Gale): “The case of a 10-year-old boy who was diagnosed with the Wuhan coronavirus even though he showed no symptoms is raising concern that people may be spreading the virus undetected by the front-line screening methods implemented to contain the epidemic. The boy was part of a family who visited relatives in the central Chinese city over the New Year. While his parents and grandparents fell ill and were treated after they returned to their hometown, the 10-year-old appeared healthy and was only diagnosed with the virus after his parents insisted he too was tested, his doctors said, adding that he ‘was shedding virus without symptoms.’”

Today’s U.S. Coronavirus Taskforce press briefing was not comforting. A U.S. public health emergency was declared, with significant travel restrictions imposed for travelers from China. U.S. citizens returning from China are now subject to quarantine, while “foreign nationals” that have been in China within the previous 14 days will be denied entry. Risk to the U.S. public is said to be low.

However, the Taskforce covered a list of factors that made the situation extraordinary, including asymptomatic virus transmission and issues with the accuracy of current coronavirus testing. CNBC: “CDC issues mandatory quarantine for first time in more than 50 years to Wuhan passengers in California.”

Hopefully, China's herculean efforts are successful in rapidly getting their outbreak under control. In the meantime, this pandemic is replete with great uncertainty. It will surely be months before pilots and flight attendants feel safe flying into China. Tourists, business travelers, students and academics will avoid visiting for some time.

WHO and Chinese officials are wishful thinking if it they actually believe travel and trade won’t face large-scale disruptions. Investment – business and financial – will be on hold. If things go poorly, a run on China’s financial assets and currency can’t be ruled out.

An assortment of Bloomberg headlines: “At Least Two-Thirds of China Economy to Stay Shut Next Week.” “China Plant Closures to Accelerate, IHS says.” “Shipping Rates Plunge 90% as Coronavirus Paralyzes Cargoes.” “Singapore’s Ban on Chinese Visitors to Have Severe Impact.” Other headlines: “Delta, United and American Airlines are Suspending All Flights Between the U.S. and Mainland China.” “There Could be More than 75,000 Cases of Coronavirus in China, Researchers Say.” “Coronavirus Outbreak Tests World’s Dependence on China.” “Trump Administration Temporarily Bars Foreigners Who Visited China.”

Welcome to The First Major Pandemic Scare for –after a most freakishly protracted boom – a highly integrated world. Moreover, unprecedented monetary stimulus, debt growth, financial flows and speculation ensure unmatched latent financial fragility – in China and globally. Throw in unparalleled mal- and over-investment and other economic imbalances and the world today confronts lurking economic fragilities. Central banks have ensured that markets (trading at near all-time highs) are keen to disregard myriad risks. This dynamic has greatly exacerbated the risk of global financial and economic disruption.

January 31 – Wall Street Journal (Mike Bird): “As the spread of the new coronavirus in China causes more factory shutdowns, the effect on global industrial supply chains could linger for years. China now makes up more than twice the share of global merchandise exports it did in 2003, when the SARS virus hit. Guangdong province alone exported more in 2018 than China did as a whole 17 years ago. Manufacturers already gripe about the effect of the Lunar New Year holiday… on their business as Chinese factories shutter. But the public health response to the virus this year effectively means extending the holiday. China’s industrial output could be running at a similarly low level for a much longer period.”

January 30 – Financial Times (Kathrin Hille, Mercedes Ruehl and Christian Shepherd): “The Wuhan coronavirus is wreaking havoc within the global technology supply chain, as many Chinese provinces extend the new year holiday in an effort to contain the spread of the deadly disease. Underlining the concerns for the tech industry, Taiwan’s Hon Hai Precision Industry, which is also known as Foxconn and makes the majority of the world’s iPhones, suffered its biggest share price fall in almost 20 years on Thursday.”

Markets celebrated this week’s stellar earnings reports from the technology heavyweights.

Stock prices at record highs envisage nothing but booming earnings as far as the eye can see.

That’s fine, but there is today major uncertainty with respect to global supply chains – technology and otherwise. And does Chinese consumer demand bounce right back as everyone seems to assume? Business investment?

I closely monitor China’s monthly Credit data. Bank loans to China’s Households rose 15.5% over the past year, 37% in two years and 139% in five. This data series doesn’t go back to the 2003 SARS outbreak. Yet Household borrowings surged almost 13-fold since 2007 to about $8.0 TN. The Chinese consumer not only has much more debt than ever before, she and he have unprecedented exposure to inflated apartment prices, securities markets and financial instruments more generally.

With expectations now incredibly inflated, there is maximum vulnerability these days to a rather precipitous reassessment. Even before this outbreak, the economy, apartment prices, Chinese finance and policymaking were all increasingly susceptible to a crisis of confidence. At this point, I’m skeptical Humpty Dumpty can be so simply restored. As a society, there exists all the essential elements for a period of troubling insecurity.

Chinese markets are to open Monday. We can assume the People’s Bank of China and the so-called “national team” will be playing tough defense. We’ll have to wait a couple weeks for the data, but it will be interesting to see the virus impact on Chinese Credit. Traditionally, January is by far the largest lending month of the year.

Last January saw a remarkable $680 billion increase in “All-System” Aggregate Finance. I would expect much slower lending growth and problematic interruptions in the flow of finance, especially to heavily impacted cities and regions. This could prove a backbreaker for scores of struggling businesses (and banks?).

A few facts courtesy of Friday’s Bloomberg Businessweek article, “Coronavirus Is More Dangerous for the Global Economy Than SARS.” Looking back, SARS “knocked two full percentage points off China’s economic growth, which dipped from 11.1% in the first quarter of 2003 to 9.1% the following quarter. With the outbreak contained, growth recovered to 10% in the third quarter.”

The “types of industries that were most affected by government-imposed bans on travel and other measures to contain the outbreak—such as retail, restaurants, entertainment, and tourism—accounted for 42% of gross domestic product. Since then, services industries’ share of GDP has risen to 54%.” “Back in 2003, China’s GDP was an insignificant 4% of the global total. That share now stands at 17%...”

“Virus May Drag China GDP to 4.5%...”, read a Friday Bloomberg headline. Other estimates have growth slowing to 5.0%.”

Yet a full-fledged economic contraction seems a high probability.

At least that’s what industrial commodities prices are suggesting. Copper dropped 6.2% this week and 9.8% for the “worst month since 2015.” Nickel fell 5.5% this week, Palladium 5.7%, Platinum 4.5%, Lead 7.2%, Tin 5.9%, Zinc 7.1% and Aluminum 3.6%. Crude (WTI) sank 4.2% this week, pushing the January decline to 15.4%. Ominously, the commodities self-off broadened this week. Coffee sank 6.8%, Wheat 3.4%, Soybeans 3.3%, Cotton 2.7% and Corn 1.5%.

There were ominous moves in global equities. Hong Kong’s China Financials Index sank 7.1%, boosting January losses to 10.4%. Taiwan’s TAIEX equities index fell 4.9%. South Korea’s KOSPI index sank 6.5%. The Jakarta Composite was down 4.9%. The Bangkok SET slumped 3.6%, and the Philippines PSE index dropped 5.5%. Germany’s DAX index fell 4.4%, and UK’s FTSE 100 dropped 4.0%. Brazil’s Bovespa index sank 3.9%.

From a global perspective, dire market signals continue to blare from sovereign safe haven bonds. Ten-year Treasury yields dropped another 10 bps this week to 1.51%, the low since September 4th. German bund yields fell 10 bps to negative 0.43%, and French 10-year yields were down 10 bps to negative 0.18%. Japanese JGB yields fell five bps to negative 0.07%. For the month, Treasury yields were down 41 bps and bund yields dropped 25 bps. In the realm of the wacky, Italian 10-year yields sank 30 bps this week (48bps for the month) to 0.94%.

Bond markets are increasingly anticipating a potent solution of antiviral central bank stimulus administered to neutralize the Novel Wuhan Coronavirus (2019- nCoV). Once eradicated, central bankers can move expeditiously to counteract CO2 and climate change. Untold QE will be available in the event of political or geopolitical instability. Formations of bazookas will be primed for any equities correction.

Pundits reckon the Fed will be ready to respond in the event of a 5% market pullback. It’s good to have insurance against giving back any more than a fraction of last year’s huge gains. Not sure why a slug of monetary stimulus couldn’t do the trick for homelessness, placate Middle East strife and even bridge the divide between increasingly Balkanized societies and nations.

January 29 – Bloomberg (Rich Miller, Christopher Condon, and Matthew Boesler): “Federal Reserve Chairman Jerome Powell signaled that the central bank would pull out the stops to combat a global disinflationary downdraft, foreshadowing a potential shift toward an easier monetary policy over time. Speaking to reporters… after the Fed left its benchmark interest rate unchanged, Powell said he is intent on evading the downward spiral in inflation and inflation expectations that’s bedeviled other countries. ‘We have seen this dynamic play out in other economies around the world, and we are determined to avoid it here in the U.S.,’ he said.”

I vividly recall talk of economic depression in the aftermath of the 1987 stock market crash.

Deflation was a major worry in the early nineties after the collapse of various late-eighties Bubbles (S&Ls, coastal real estate, junk bonds, M&A, etc.). Global policymakers were fretting deflationary forces after the 1995 Mexico collapse, SE Asia in ’97 and Russia/LTCM in 1998.

The Fed was ready to resort to “helicopter money” and the “government printing press” to counteract the powerful forces of deflation after the collapse of the “tech” Bubble early in the new Millennium. And it’s now been 11 years of history’s most radical monetary stimulus to fight deflationary forces since the collapse of the last Bubble.

It all amounts to the greatest misdiagnosis in the history of central banking. The predominant risk has not been – and is not today – disinflation or deflation. Bubbles remain the overriding risk – and further inflation only intensifies historic Bubble risk. To be sure, foolhardy policy measures that work to neutralize Bubble deflation only ensure larger and more threatening Bubbles. Last year’s Monetary Fiasco unleashed precarious “blow-off” speculative excess – stocks, bonds, corporate Credit and structured finance.

The entire world inflated into the proverbial Bubble in Search of a Pin. At the epicenter of the global Bubble, trouble in China has been headlining my list of potential catalysts. The coronavirus outbreak poses a clear and present danger of pushing China into a dangerous predicament.

The most alarming aspect of all this: few contemplate China as a catalyst because virtually everyone remains oblivious to Global Bubble Risk. How about those fantastic earnings from Apple, Tesla, Microsoft and Amazon…

Trump, Unrepentant and Unleashed

The diabolical duo of Donald and Mitch, serving their own interests, not the national one.

By Maureen Dowd

Senator Kyrsten Sinema and her fellow Democrats could get only a show trial out of the Republican majority.Credit...Alyssa Schukar for The New York Times

WASHINGTON — During a meeting with Donald Trump at Trump Tower in June of 2016, with the opéra bouffe builder improbably heading toward the nomination despite a skeletal campaign crew on a floor below, I asked when he would pivot.

We all assumed he would have to pivot, that he would have to stop his belittling Twitter rants, that he would have to cease attacking fellow Republicans like John McCain, that he would have to get more in line with the traditional stances of his party, that he would have to be less of a barbarian at the gates of D.C.

He crossed his arms, pursed his lips and shook his head — a child refusing vegetables.

How naïve he was, I thought to myself. But I was the naïve one. Trump has forced the world to pivot to him.

The state of the union is upside down and inside out and sauerkraut. Trump has changed literally everything in the last three years, transforming and coarsening the game. On Friday night, he became, arguably, the most brutishly powerful Republican of all time. Never has a leader had such a stranglehold on his party, subsuming it with one gulp.

As the Senate voted 51 to 49 to smother the impeachment inquiry, guided by the dark hand of Mitch McConnell, it felt like the world’s greatest deliberative body had been hollowed out, diminished.

McConnell let Mitt Romney and Susan Collins vote to allow documents and witnesses such as John Bolton, knowing two could strain at the leash safely.

The rest of the senators fell into line as sycophantic clones of Mike Pence. The impeachment trial amounted to one side being earnest and one pretending to be. It was exactly what Nancy Pelosi feared would happen before she was reluctantly drawn into the show trial.

“Now the State of the Union is going to be the Stay Puft Marshmallow Man coming down the street and standing in the rubble of what’s left of the Congress,” keened one Democrat on Friday night. “The Republican Party has now lost whatever control they could exert over this president, any oversight they could have. It’s gone. The state of the union is there is no union. How can there be, when one side is petrified of their Godzilla?”

Senator Chris Murphy, the Connecticut Democrat, dismissed Republicans as “a cult of personality” around Trump.

“This trial in so many ways crystallized the completely diametrically opposed threats that Democrats and Republicans see to the country,” Murphy told The Times’s Nicholas Fandos.

“We perceive Donald Trump and his corruption to be an existential threat to the country. They perceive the deep state and the liberal media to be an existential threat to the country.

“That dichotomy, that contrast, has been growing over the last three years, but this trial really crystallized that difference. We were just speaking different languages, fundamentally different languages when it came to what this trial was about. They thought it was about the deep state and the media conspiracy. We thought it was about the president’s crimes.”

I feel like I have spent my career watching the same depressing dynamic that unspooled Friday night: Democrats trying, sometimes ineptly, to play fair and Republicans ruthlessly trying to win.

I watched it with the Anita Hill-Clarence Thomas hearings. I watched it in the 2000 recount with Bush versus Gore. I watched it with the push by W., Dick Cheney and Donald Rumsfeld to go to war in Iraq. I watched it with the pantomime of Merrick Garland.

Democrats are warning Republicans that they will be judged harshly by history. But in the meantime, the triumphant Republicans get to make history. And a lot of the history that Republicans have made is frightening: the endless, futile wars, the obliviousness to climate change, the stamp on the judiciary.

As Carl Hulse writes in his book, “Confirmation Bias,” about the Garland fiasco: “The success in naming judges was the signal achievement of Trump’s first two years. In the coming years, those judges will be among the members of the federal bench called to rule on Trump’s policies and practices in cases arising from challenges initiated by increasingly confrontational Democrats and other legal adversaries around the nation. Mitch McConnell made a snap decision one night in 2016. The consequences will reverberate for decades.”

For hours on Friday, the House managers made their vain final arguments. Pressing for Bolton’s testimony, Val Demings implored Republican senators: Aren’t you worried that, if left in office, Trump will harm America’s national security, seek to corrupt the upcoming election and undermine our democracy to further his own personal gain? Don’t you want to hear the witnesses and see the documents that would give the full story and make this a fair trial rather than a mock one?

“This is the American way and this is the American story,” Demings told the Republican senators as they looked back at her, impassive or impatient.

But, of course, they didn’t want that. As he voted against witnesses and documents, Lamar Alexander, McConnell’s pal, said Trump did something inappropriate but they just did not accept that it was impeachable, and they did not want to tear up ballots and “pour gasoline on cultural fires that are burning out there.”

So why not shut it down and cover it up? The books were cooked from the start.

As with so many other pivotal moments in modern history, Republicans wanted to win, not look for the truth. And history, God help us, is written by the winners.

The Truth About the Trump Economy

It is becoming conventional wisdom that US President Donald Trump will be tough to beat in November, because, whatever reservations about him voters may have, he has been good for the American economy. Nothing could be further from the truth.

Joseph E. Stiglitz

stiglitz267_BRYAN R. SMITHAFP via Getty Images_trumpstockmarket

NEW YORK – As the world’s business elites trek to Davos for their annual gathering, people should be asking a simple question: Have they overcome their infatuation with US President Donald Trump?

Two years ago, a few rare corporate leaders were concerned about climate change, or upset at Trump’s misogyny and bigotry. Most, however, were celebrating the president’s tax cuts for billionaires and corporations and looking forward to his efforts to deregulate the economy.

That would allow businesses to pollute the air more, get more Americans hooked on opioids, entice more children to eat their diabetes-inducing foods, and engage in the sort of financial shenanigans that brought on the 2008 crisis.

Today, many corporate bosses are still talking about the continued GDP growth and record stock prices. But neither GDP nor the Dow is a good measure of economic performance.

Neither tells us what’s happening to ordinary citizens’ living standards or anything about sustainability. In fact, US economic performance over the past four years is Exhibit A in the indictment against relying on these indicators.

To get a good reading on a country’s economic health, start by looking at the health of its citizens. If they are happy and prosperous, they will be healthy and live longer. Among developed countries,

America sits at the bottom in this regard. US life expectancy, already relatively low, fell in each of the first two years of Trump’s presidency, and in 2017, midlife mortality reached its highest rate since World War II. This is not a surprise, because no president has worked harder to make sure that more Americans lack health insurance. Millions have lost their coverage, and the uninsured rate has risen, in just two years, from 10.9% to 13.7%.

One reason for declining life expectancy in America is what Anne Case and Nobel laureate economist Angus Deaton call deaths of despair, caused by alcohol, drug overdoses, and suicide. In 2017 (the most recent year for which good data are available), such deaths stood at almost four times their 1999 level.

The only time I have seen anything like these declines in health – outside of war or epidemics – was when I was chief economist of the World Bank and found out that mortality and morbidity data confirmed what our economic indicators suggested about the dismal state of the post-Soviet Russian economy.

Trump may be a good president for the top 1% – and especially for the top 0.1% – but he has not been good for everyone else. If fully implemented, the 2017 tax cut will result in tax increases for most households in the second, third, and fourth income quintiles.

Given tax cuts that disproportionately benefit the ultrarich and corporations, it should come as no surprise that there was no significant change in the median US household’s disposable incomebetween 2017 and 2018 (again, the most recent year with good data). The lion’s share of the increase in GDP is also going to those at the top. Real median weekly earnings are just 2.6% above their level when Trump took office.

And these increases have not offset long periods of wage stagnation. For example, the median wage of a full-time male worker (and those with full-time jobs are the lucky ones) is still more than 3% below what it was 40 years ago. Nor has there been much progress on reducing racial disparities: in the third quarter of 2019, median weekly earnings for black men working full-time were less than three-quarters the level for white men.

Making matters worse, the growth that has occurred is not environmentally sustainable – and even less so thanks to the Trump administration’s gutting of regulations that have passed stringent cost-benefit analyses. The air will be less breathable, the water less drinkable, and the planet more subject to climate change. In fact, losses related to climate change have already reached new highs in the US, which has suffered more property damage than any other country – reaching some 1.5% of GDP in 2017.

The tax cuts were supposed to spur a new wave of investment. Instead, they triggered an all-time record binge of share buybacks – some $800 billion in 2018 – by some of America’s most profitable companies, and led to record peacetime deficits (almost $1 trillion in fiscal 2019) in a country supposedly near full employment.

And even with weak investment, the US had to borrow massively abroad: the most recent data show foreign borrowing at nearly $500 billion a year, with an increase of more than 10% in America’s net indebtedness position in one year alone.

Likewise, Trump’s trade wars, for all their sound and fury, have not reduced the US trade deficit, which was one-quarter higher in 2018 than it was in 2016. The 2018 goods deficit was the largest on record. Even the deficit in trade with China was up almost a quarter from 2016.

The US did get a new North American trade agreement, without the investment agreement provisions that the Business Roundtable wanted, without the provisions raising drug prices that the pharmaceutical companies wanted, and with better labor and environmental provisions. Trump, a self-proclaimed master deal maker, lost on almost every front in his negotiations with congressional Democrats, resulting in a slightly improved trade arrangement.

And despite Trump’s vaunted promises to bring manufacturing jobs back to the US, the increase in manufacturing employment is still lower than it was under his predecessor, Barack Obama, once the post-2008 recovery set in, and is still markedly below its pre-crisis level. Even the unemployment rate, at a 50-year low, masks economic fragility.

The employment rate for working-age males and females, while rising, has increased less than during the Obama recovery, and is still significantly below that of other developed countries. The pace of job creation is also markedly slower than it was under Obama.

Again, the low employment rate is not a surprise, not least because unhealthy people can’t work. Moreover, those on disability benefits, in prison – the US incarceration rate has increased more than sixfold since 1970, with some two million people currently behind bars – or so discouraged that they are not actively seeking jobs are not counted as “unemployed.”

But, of course, they are not employed. Nor is it a surprise that a country that doesn’t provide affordable childcare or guarantee family leave would have lower female employment – adjusted for population, more than ten percentage points lower – than other developed countries.

Even judging by GDP, the Trump economy falls short. Last quarter’s growth was just 2.1%, far less than the 4%, 5%, or even 6% Trump promised to deliver, and even less than the 2.4% average of Obama’s second term. That is a remarkably poor performance considering the stimulus provided by the $1 trillion deficit and ultra-low interest rates.

This is not an accident, or just a matter of bad luck: Trump’s brand is uncertainty, volatility, and prevarication, whereas trust, stability, and confidence are essential for growth. So is equality, according to the International Monetary Fund.

So, Trump deserves failing grades not just on essential tasks like upholding democracy and preserving our planet. He should not get a pass on the economy, either.

Joseph E. Stiglitz, a Nobel laureate in economics, is University Professor at Columbia University and Chief Economist at the Roosevelt Institute. His most recent book is People, Power, and Profits: Progressive Capitalism for an Age of Discontent.

Memo to Brexit Britain — free trade is not a vote-winner

The aggregate gains are distributed unevenly — witness how well the top 1 per cent have done

Philip Stephens

web_Uk and US Trade deals
© Ingram Pinn/Financial Times

One of the things that has always puzzled me about Britain’s Brexiters is the casual assumption that free trade is a vote-winner. Boris Johnson promises a quick deal with US president Donald Trump. Japan, Australia and Canada are among others on the prime minister’s list. The voters, ministers say, will cheer these agreements from the rooftops.

They have been mistaken before. In 2016, Brexiters said nothing would be easier than striking a favourable bargain with the EU27. “We hold all the cards” ran the mantra. Reality proved otherwise. We are now in 2020 and negotiations will start only next month when Britain leaves the Union. Mr Johnson’s December deadline for an agreement creates a “no-deal” cliff-edge.

Still, ministers say that talks with others can proceed in parallel with those with the EU27.

Britain will soon have deals with nations from every corner of the globe. I have my doubts about this, but assume the predictions are right. Why, I wonder, would voters cheer?

Liberalising trade is good for us. For the most part, dismantling cross-border tariffs and regulatory constraints lifts economic performance and raises public welfare. This incidentally was Britain’s experience as a member of the EU. For all that it threw up serious inequities, the great wave of globalisation that began in the 1980s transformed the life chances of billions of people.

Good is not the same as popular, at least not in rich economies. The aggregate gains are distributed unevenly — witness how well the wealthiest 1 per cent have done. Trade deals create absolute losers as well as winners. Nowadays, we call the losers “left-behinds”. Living in Britain’s neglected coastal areas and small-town middle America, they voted for Brexit and Mr Trump. They prefer barricades to bridges.

Trade deals produce uncomfortable trade-offs. The farmer put out of business by imports is unlikely to be won over by being told that local manufacturers can export more. Objections are not confined to economics. Regulatory alignment creates disputes rooted in cultural preferences. The objections in Europe to chlorinated chicken from the US are really about animal welfare.

Typically, the complaints of losers drown out any thanks from winners. This explains why Mr Trump’s protectionism has the support of core working-class voters, and why the US Congress has set its face against any trade deal not stacked in favour of US farmers and businesses. Once free-trade Republicans have turned, well, protectionist.

British politicians have forgotten all this. Trade negotiations have been subcontracted to Brussels. But “taking back control” means assuming responsibility. In future, the painful compromises will be the property of the government.

Mr Johnson and Mr Trump may be chums but anything more than a basic deal with the US will be especially hard. Washington has said what it wants. Beyond removing tariffs and quotas on manufactures, the list starts with the liberalisation of agricultural trade. Next come free access for American business to public sector contracts, including in the health service, and safeguards allowing US pharmaceutical companies to set their own prices.

Generous regimes for data transfer and taxation of big technology companies also loom large.

And in return? Well, Britain would certainly benefit from tariff-free trade in manufactures and probably from fewer restrictions on its financial and professional services. The package may play well in Peoria. It is hard to say the same about the reaction in Preston.

On the face of it, opening the door to cheap food from the US, and for that matter from everywhere else, makes eminent sense. No one has been a harsher critic than Britain of the heavy EU subsidies for farmers. The politics are otherwise. Any thanks from consumers would be drowned out by the certain fury in predominantly Conservative-voting rural England.

Ministers are already on the defensive, promising to keep the EU ban on chlorine-washed chicken and hormone-fed beef. Even were the US to respect those red lines, the politics of a transatlantic deal are less than inviting.

How will voters in left-behind Britain weigh gains in the US for British bankers and consultants against bankrupt farms and higher prices for medicines?

Working-class enthusiasts for Brexit, after all, have never been free-traders. The let’s-be-a-European-Singapore contingent represents a small minority. The Brexit campaign’s main pitch was about pulling up the drawbridge against immigrants. Free of single market rules, the government would also throw its weight behind domestic industry. Mr Johnson campaigned hard on this “Buy-British” theme to win the general election.

Yet run down the list of putative partners, and the common denominator is their demand for looser immigration rules and the liberalisation of agricultural trade. Unless the government concedes in these areas, the very best it can hope for are deals not quite as good as those it had while in the EU.

Any agreement with the EU27, of course, will be different. The outcome will be essentially protectionist. Even if there are no tariffs or quotas, there will be new regulatory and bureaucratic hurdles to trade. Some businesses — those who at present struggle to compete with European rivals — may well benefit. Others — those embedded deep in continental supply chains — will lose. I wonder which will shout loudest?

 Putin’s State of the Nation Address and His Path to Future Power

By: Ekaterina Zolotova

On Wednesday, Russian President Vladimir Putin delivered his annual state of the nation address in front of the Russian parliament. In the speech, he proposed new measures to boost social assistance as well as some key constitutional amendments.

Just hours after the address, Prime Minister Dmitry Medvedev, a longtime Putin ally, announced that he and his Cabinet would resign, though the Cabinet will remain in place until a new government is formed.

The focus on social welfare and the government shakeup were hardly surprising, given the state of the country’s economy and the government’s slipping approval ratings. According to the Russian Public Opinion Research Center, the United Russia party’s popularity rating dropped to 31.4 percent in December, its lowest level in over 13 years. Medvedev’s own approval rating fell sharply over the past year, as did his public confidence rating.

More than half of the population believes that Medvedev did not do a good job as prime minister, according to a survey by state-sponsored polling agency FOM.

Add to this the increasing signs of the Russian economy’s dire condition – Russian economic growth remains low, nearly 20 million Russians live below the poverty line and the number of bankruptcies among Russians increased by 57 percent in 2019 compared to 2018 – and it’s clear that something had to be done to shake things up.

Wavering Public Satisfaction in Russia
(click to enlarge)

Putin likely hopes that by promising to improve the economic standing of the general population, he can help boost the approval ratings of both the government and his own party. Putin himself has a high public approval rating at 64 percent, but remaining in power (either directly or indirectly) beyond 2024, when his current term expires, will require that he has the support of a strong party and a strong government.

Based on his address, Putin plans to improve the country’s economy by boosting social spending. To this end, he announced on Wednesday a series of costly reforms to existing projects. He proposed providing monthly payments for children aged three to seven and announced the extension of the maternity capital program – which provides state assistance to families with children – until at least 2026. These two measures are in part meant to increase the country’s birthrate. According to estimates from the Federal State Statistics Service, Russia’s population will decline in 2019 by the most in 11 years. Putin also proposed continuing allowances for teachers.

All of these initiatives will require heavy government investment for years to come. It’s estimated that all the measures Putin announced in his speech will cost 400 billion to 500 billion rubles ($6.5 billion to $8.1 billion) per year. Putin’s National Projects program, launched in 2019 and scheduled to end in 2024, is another ambitious initiative that the government hopes will boost economic growth.

It will cost the state a total of $400 billion. But the program has faced scrutiny, even from within the government itself, over where the funds will come from and how they should be spent. It was split over whether to invest money from the reserve fund in the National Projects program or in more profitable assets abroad to stimulate Russian exports. Putin will need support from within the government for his signature projects, especially given that it's possible a federal budget review will be carried out. He has therefore nominated the head of Russia’s Federal Tax Service, Mikhail Mishustin, to be the next prime minister.

2021 is an election year for the State Duma, and the government’s resignation was no doubt designed to help Putin secure the best possible result for his party. We should expect that the shakeup, and the increases in social spending, will help boost the popularity of Putin’s main backers ahead of legislative elections. But we shouldn’t expect radical changes; most of the government officials who resigned will likely continue to play a role in the government in one way or another. Medvedev, for example, was offered the post of deputy chairman of the Security Council.

Indeed, Putin’s own hold on power beyond 2024 could be extended through his proposed constitutional amendments. Under the constitution, he won’t be allowed to run for reelection after his current term expires. In his speech, he didn’t suggest extending term limits but instead proposed constitutional changes that will transfer certain powers, including the power to nominate the prime minister and Cabinet, from the president to the parliament.

This is likely part of Putin’s longer-term strategy to maintain a strong hold over the government, and we should expect that over the next four years, the powers of the government will be expanded. As things stand now,

Putin will be forced to leave office in 2024, but he’s unlikely to leave politics. He could either find a candidate for president who could carry out his agenda or keep ruling the country himself in another capacity.

The Gym of the Future: Senior Citizens, Small Talk, No Sweat

Japan’s health clubs court the elderly; the 101-year-old regular

By Miho Inada

Saiko Osawa, 85 years old, works out at a Curves club in Tokyo. Miho Inada/THE WALL STREET JOURNAL

TOKYO—Exercise buff  Yukie Watabe just about had it when she went to her fitness club and found older women using the bench-press machine as an actual bench.

The women were chatting about how to pickle vegetables at home—a worthy subject for the health-conscious, no doubt, but not quite the vibe Ms. Watabe was looking for.

“I complained a couple of times to the staff there. But it seemed they prioritized” the elderly clientele, said Ms. Watabe, 46 years old. She quit the club and now jogs with her husband.

Japan’s retired people are taking over establishments traditionally associated with youth and sculpted bodies. The gym of the future, as seen in a country where nearly 30% of the population is over 65, features tai chi classes, lengthy soaks in hot baths and plenty of socializing among folks who have no business meetings to rush back to.

One recent morning, more than a dozen elderly men and women gathered at the entrance of a Tokyo outlet of fitness club operator Renaissance Co.,chatting about their medicines and a serial drama on public TV. As they waited for the 10 a.m. opening, an old woman passed by, hunched over a small cart to support herself. The club members greeted her, a former gym friend.

Ninety-one-year-old Taeko Shimodaira, left, awaits the opening of Tokyo sports club Renaissance. Photo: Miho Inada/THE WALL STREET JOURNAL

Soon 91-year-oldTaeko Shimodairaarrived, and a younger woman helped her climb a few steps to the entrance porch and settle on a bench there. Ms. Shimodaira comes to the club every day.

“When people stop seeing me here, it means I’ve gone,” she said.

When the doors opened, 77-year-oldKuniko Kikuchiheaded to the locker room to change for her 10:15 tai chi class. She used the bottom locker. “It’s hard for me to reach the top one,” Ms. Kikuchi said, pointing to her slightly curved back.

After a walk on the treadmill or dip in the pool, many club members repair to a hot bath—a centuries-old form of relaxation in Japan. On another recent day, Ms. Kikuchi spent hours there and played hooky from her swimming class.

“I got so wrapped up in talking,” she said. “But I walked in the water on my own.”

Kuniko Kikuchi, 77, doing tai chi at her Tokyo health club. Photo: Miho Inada/THE WALL STREET JOURNAL

For gym goers in Japan, soaking in a bath is the second most popular activity after working out on machines, according to a survey by a marketing unit of phone company NTT DoCoMo Inc.
At Renaissance, only 3% of members were over 60 a quarter-century ago. Today, one in three are in that category and, depending on the location and time of the day, the customers are nearly all elderly, said a spokeswoman.

Programs at Renaissance gyms include stretching classes to prevent back pain and brain exercises to keep aging minds sharp. It and other chains are adding features for the elderly such as massage chairs and steps into the pool instead of metal ladders.

Yoshihiko Kato,a 49-year-old factory worker in Tokyo, recently quit his fitness club and switched to Anytime Fitness, a Minnesota-based chain with outlets in Japan. It appeals to a younger crowd with 24-hour service and a focus on fitness machines rather than amenities for relaxing.

“I’m going to get old too, so I don’t want to complain,” said Mr. Kato. At his previous club, he said, “I was a bit annoyed at how a group of old people were chatting nonstop.”

For gym operators, elderly members have helped tone up the bottom line. Japan’s fitness industry in 2018 posted a record $4.4 billion in revenue, and government figures show more than half of that comes from people over 60, who tend to buy pricier full memberships.

One in three members of Renaissance sports club are over 60 years old. Photo: Miho Inada/THE WALL STREET JOURNAL

Japan’s life expectancy, at 87 years for women and 81 for men, is among the highest in the world. Studies suggest the average Japanese person’s number of years in good health is roughly a decade shorter than life expectancy. The government, seeking to tame medical costs, is encouraging exercise and aims to extend the healthy lifespan by three years by 2040.

Curves, a women-only gym, originally started in the U.S. targeting busy mothers and working women. In Japan, it is one of the fastest-growing sports clubs, with 850,000 members.

Japanese people sometimes call it a gym for “obaachan,” or grandmas, who pay some $50 to $60 a month. The average Japanese member is 64, and the oldest member, 101 years old, comes to the gym regularly with her septuagenarian daughter, said a Curves spokeswoman.

Takeshi Masumoto,who started out running Curves franchising in Japan and now controls the Curves brand globally, said the company’s main marketing tool in Japan was getting older members to introduce their friends. “Given their age, they don’t search around online. They don’t trust TV ads,” he said.

Saiko Osawa,85, is one of those Curves is counting on as a walking advertisement. She joined five years ago. “I used to fall often. But I have not fallen even once for the past couple of years,” she said. “I don’t want to be bedridden.”

The word-of-mouth strategy has its limits. Encountering the manager of her club recently, Ms. Osawa apologized for not being much help. “Most of my friends are now at homes for the elderly,” she said.

Some Japanese refer to Curves, a women-only health club, as a gym for ‘obaachan,’ or grandmas. Photo: Miho Inada/THE WALL STREET JOURNAL