TIME TO GO TO THE US!!!

The surge of optimism among US investors pushed Wells Fargo/Gallup US Investor and Retirement Optimism Index to record high since September 2000 in the same month in 2017, and the Index remained strong in the fourth quarter. This upbeat reflects investors’ confidence in the economy outlook, stock market, unemployment and personal finances. The slump of business investment in 2015-16 leaves room for further improvement. Enhancement of the stock market will give corporates better access to stock markets to finance their growth. 

 Source: Gallup

Test Your Knowledge about Wine

This is table wine.

This is dessert wine.

Well, what is the difference? 

I don't mean the package or colour. The definitions and distinctions are far more complicated.  

The name was based on alcoholic content, not the taste of wine. Table wines were sometimes sweet to the taste, and dessert wines sometimes dry. In fact, half of the table wine sales included wines with sweet taste and miscellaneous other wines. Mere alcohol content did not necessarily draw a definitive line between different types or qualities of wine, and the signification of “table” was arbitrary. In wine-producing European countries, the definition of wines differed widely from the United States. In 1935, France established a system with four categories: Vin de Table (“table wine”), Vin de Pays (“country wine”), VDQS (Vin Delimité de Qualité Supérieure), and AOC (Vin d’Appellation d’Origine Contrôlée). Under this definition, “table wine” was any wine made anywhere in France, and designated low-end wines. The latter two wines were superior quality, categorized as “Quality Wines Produced in Specified Regions (QWpsr).” In 1962, the then European Economic Community created wine categories similar to French definition: “table wine” and “QWpsr.” 

I know you are pretty confused now, so let's stop the elaboration. These European categorizations were not based on alcohol content but on production and management method as well as geographical conditions. The American classification of wines thus can be better understood as distinguishing between cultures of taste rather than between two types of wine.

A BIT MORE HISTORY ON WINE

There was the huge demand for so-called fortified wines, or “dessert wines,” with high alcohol content, such as angelica, muscatel, port, and sherry. Largely because of their high-alcohol content and relatively inexpensive price (50 to 75 cents per bottle), these “proof per penny wines” proved more popular than dry wines in the United States. Dessert wines outsold table wines approximately three to one. Since they were cheaper to produce than quality table wines and seldom aged, the American wine industry largely devoted to the production of these dessert wines in the 1940s and 1950s. Ernest Gallo, founder of E. & J. Gallo Winery, insisted that people bought vintage wines primarily to show off and the “greatest consumption was among those who were drinking dessert wines for alcoholic reasons, that is, drinking it for the alcoholic content.” He had little patience with people who talked about making American wine more sophisticated or changing American tastes. By the late 1970s, Gallo had accounted for more than 30 percent of the national wine market.

On the contrary, the wine importer Frank Schoonmaker regarded the popularity of dessert wines as “abnormal and unhealthy.” In The Complete Wine Book (1934), he lambasted the state of the American industry: its devotion to dessert wines, the overall poor quality of its products, and its use of generic labels and commercially invented names. Like Schoonmaker, Leon Adams considered dessert wine as distasteful. Adams especially denounced the term “fortified” as “a most ugly word.” Mass media as well as the wine industry had widely used the term to signify dessert wine in general. In retrospect, Adams later stated that fortified wines “almost killed the wine industry.” The word in itself had a connotation of “skid row drink.”

Besides, in Adams’s view, the general low-quality of fortified wines prevented Americans from developing their palate. He asserted that many Americans “ha[d] not yet been subjected to the civilizing influence of flavorful cuisine.” In such “gastronomic deserts of America, wine, which enhances food flavors, does not compete with catsup, which hides flavors that usually deserve to be hidden.” Believing that his mission was “to civilize American drinking, teach Americans to use wine,” Adams assisted winery executives to found the Wine Institute, an advocacy group for the California wine industry, in 1934.

Through the Wine Institute board of directors, Adams requested that the federal government amend the regulations to prohibit the use of the word “fortified” in any advertising or labeling. Instead of “fortified,” Adams suggested “dessert wine,” defined as wine with more than 14 percent alcohol content, and at the same time proposed the word “table wine” to designate non-sparkling wine with not over 14 percent alcohol. In 1938, the class of fortified wines was renamed dessert wines and the low-alcohol content wine as table wines. Sparkling wines, such as champagne, were classified as the latter category. By replacing the term, fortified, with dessert wines, Adams and the government officials aimed to eliminate the general association of wine with low-quality booze.

TIME TO GO TO THE US!!!

The needs from corporates to finance higher Capex or other corporate transactions will support demand side growth. Further bank consolidation will also support credit growth. The gradual tightening of monetary policy is unlikely to significantly restrain credit growth. On the contrary, higher interest rate may boost bank credit to enhance bank profitability. Loans and leases in Bank Credit of all commercial banks in US also suggest an ongoing growth trend in bank credit, which means corporates will still have easy access to debt markets to finance their capital needs.

Source: Board of Governors of the Federal Reserve System

 

 

Just Like Vines -- The Development of Wine Is Not Straight Upward

American wine-making and -drinking are not modern developments. While Native Americans had been making some kinds of wines, European immigrants brought wine making and drinking culture to the New World since the fifteenth century. Due to unfavorable climate and plant diseases, however, early attempt to establish vineyards in the American colonies were not often successful. In the eighteenth and nineteenth century, European immigrants and their descendants began developing better quality wines with new technologies and grape varieties in various regions, including today’s New York, Ohio, and California. By the end of the nineteenth century, California, particularly the Napa Valley, became the major production site of quality wines in the country. The state’s wines were acclaimed even at international competition. At the Exposition Universelle in Paris in 1889, about forty American wines won medals, and many of them were from the Napa Valley.

In the nineteenth century, winemakers, intellectuals, and elites promoted wines as the symbol of pastoral ideal and sophistication. Thomas Jefferson, who was dedicated to French culture, was particularly in favor of French and Italian wine in his pursuit of European tastes and sophistication. Jefferson rejected “the strong wines of Portugal and Spain” and selected fine lighter wines to accompany meals. Wine-making and drinking were part of his vision of agrarian ideal.

Beginning in 1922, Prohibition had devastating impacts on American winemaking, and also altered the image of wines. The acreage of fine wine-grape varieties decreased sharply, and table-grape and raisin-grape acreages increased. These latter varieties, less suitable for quality wines, dominated the supply of grapes for American wine well after the repeal of Prohibition. The number of licensed wineries plummeted from 917 in 1922 to 268 by the repeal in 1933.

Right, and the story continues in next post.

Remarkable Change in American Wine Industry

In 2013, the United States became the largest wine consumer in the world, accounting for more than 13 percent of the global wine consumption, followed by France and Italy.  

Historically, wine-producing European countries, led by France, had been the leading global consumers, as well as producers, of wines. In the nineteenth century, American wineries were known to produce quality wines, but the era of Prohibition form 1922 to 1933 eradicated the domestic wine industry, and had long-lasting consequences. It took several decades after its repeal for American wine consumption to move upwards. From the 1960s there was spectacular growth: U.S. wine consumption grew from 163 million gallons in 1960 to 913  million gallons in 2015.  

Although beer has remained the most popular alcoholic beverage in the United States in terms of consumption amounts, the growth rate of wine consumption has exceeded that of beer consumption over the last four decades.

 

Time to Go to the US!!!

Fed has been gradually raising interest rates and unwinding its balance sheet from the record $4.5 trillion level, which will put upward pressure on sovereign debt securities and mortgage-backed securities. Yet the impact is expected to be small and well-controlled. Articulated goal of reducing balance sheet will reflect in limited amount of monthly securities roll off in a measured and orderly pace. OppenheimerFunds estimates that Fed will prevent a $430 billion roll off over 5 years, which means enterprises can still enjoy accommodative monetary policy to nurture their business.

Source: Business Insider

Time to Go to the US!!!

Easy financial conditions have been supporting the pickup of global growth since mid-2016. Financial conditions in US have loosed to the easiest levels in mid-2017 since 2014, largely due to tighter credit spreads. The situation won’t be changed in short-term according to National Financial Conditions Index (NFCI), the positive values of which have been historically associated with tighter-than-average financial conditions. NFCI has remained negative since 2012. Fed will avoid a sharp change to prevent any artificial market turmoil. 

Source: Federal Reserve Bank of Chicago

Time to Go to the US!!!

The US government enters into bilateral income tax treaties with numerous countries in order to encourage international trade and investment, promote cross-border cooperation, stimulate information exchange and reduce double or excessive taxation. French enterprises in the states may apply reduced rates or be exempted from the requirement to withhold tax at source. Tax rate imposed on dividends paid by US corporations in general, dividends qualifying for direct dividend rate and interest paid by US obligors in general can be reduced from 30% to 15%, 5% and 0% respectively.

Bilateral Income Tax Treaties

Time to Go to the US!!!

Also following 2017 Tax Reform, the cost of qualifying property of no more than $500,000 per piece can be deducted for tax purpose. In addition, additional first-year depreciation deduction is allowed equal to 50% of the adjusted basis of qualified property. Qualifying property is also extended to property already put in service. The ability to depreciate assets upfront provides strong incentive for fixed asset investment.

Bonus Depreciation Rule

Time to Go to the US!!!

President Trump signed the Tax Cuts and Jobs Act into Law on Dec 22 last year. The tax reform reduced top corporate tax rate from 35% to 21% in 2018. This brings US taxes from the highest in the G20 nations to just below the average in the EU, which will undoubtedly stimulate earnings growth and investment activities. The reduction of tax burden will give corporates more flexibility to deal with their cash, such as increasing dividends, buybacks or attracting talents. Enhanced competitiveness of the US market means huge opportunities for French businesses. 

Tax rate in Asia on average is lower than developed markets. After tax cut, US will rank right behind Hong Kong and Singapore and before China and India. This will give corporates more headroom to  invest and research, and delivering more back to investors. 

Time to Go to the US!!!

Output gap estimates the spread between actual economy growth and its potential level. Potential level can be achieved if all resources in the economy are utilized at their long-term sustainable rate. Global Financial Crisis started negative output gap and it was until recently the gap begins to close in most advanced economies, which provides evidence of increasing demand and strengthening economy. Closing gap also theoretically indicates full employment is being approached or has been achieved, yet most economies are far from overheating.

US has slightly passed full capacity and the gap is closing rapidly. A decrease in spare capacity can reduce the competition pressure on supply side and lead to an increase in price level, allowing more profitability for corporates. It is also expected that peaks are not coming soon, i.e. corporates have time to embrace the economy boon.

Time to Go to the US!!!

Consumer spending growth in September achieved 1.0%, the fasted pace since 2009. This GDP component accelerated in November again last year while shipments of key capital goods orders increased for 10 consecutive months. In aggregate statistics and dollar term, consumer spending increased to $12,027.89 billion in Q4 2017 from $11,916.58 USD billion in Q3. 

Furthermore, according to Paul Ryan, average US family of four will save $1,182 in 2018 on taxes following the $1.5 trillion tax cut package approved by the Congress. Increased disposable income and enhanced consumer confidence, as the marginal propensity to consume picked up, will stimulate customer demand and spending, leading to a promising demand side.