June 22, 2017

Perspective

Data Is Beautiful – Adult Obesity rates in the United States – zonination 6/20

Worthy Insights / Opinion Pieces / Advice

Project Syndicate – Brexit In Reverse? – George Soros 6/19

  • “Economic reality is beginning to catch up with the false hopes of many Britons. One year ago, when a slim majority voted for the United Kingdom’s withdrawal from the European Union, they believed the promises of the popular press, and of the politicians who backed the Leave campaign, that Brexit would not reduce their living standards. Indeed, in the year since, they have managed to maintain those standards by running up household debt.”

A Teachable Moment – How Can We Fix a Broken 403(b) System? – Anthony Isola 6/21

Markets / Economy

Reuters – For thousands of U.S. auto workers, downturn is already here – Nick Carey 6/21

Real Estate

WSJ – Avocado Toast Looks a Better Bet Than Australian Housing – Jacky Wong 6/20

  • “Chinese buyers have been gobbling up houses all over the world in recent years. There could be some nasty surprises when the buying stops.”
  • “There are already signs of imminent pain for the global property market, thanks to China’s efforts to stop money pouring out of the country. Inquiries from China for foreign real estate fell 31% in the first quarter from a year ago, according to Juwai.com, a portal that connects potential Chinese buyers to property listings overseas. For some of the most popular destinations, the drop was even bigger—42% for the U.S. and 39% for Australia.”
  • “The property market Down Under looks particularly vulnerable. China accounts for four in every five foreign buyers in Australia, with their interest a prime reason why home prices have surged to unaffordable levels: Prices in Sydney, for example, are up 72% since 2012.”
  • “Some are waking up to the potential trouble ahead, with Australia’s household debt now nearing 200% of disposable income. Moody’s downgraded 12 Australian banks and their affiliates Monday, citing rising risks associated with the housing market, following a similar move by Standard & Poor’s last month. The country’s four biggest banks alone have a $1.1 trillion exposure to Australian housing loans, making up 55% of their total portfolios, according to Morgan Stanley.”
  • “Worse still, nearly 40% of home loans now are interest-only, meaning borrowers don’t need to repay the principal for a certain period, usually five years. Such loans work fine when house prices keep rising. The worry now is that prices will start falling as Chinese buying interest wanes: Meanwhile, homeowners who have only had to pay interest on mortgages could see a rise in payments as the interest-only period on their loans expires.”

Energy

WSJ – Oil Returns to Bear Market – Stephanie Yang, Alison Sider, and Timothy Puko 6/20

  • “Prices are down 20.6% since Feb. 23, marking the sixth bear market for crude in four years and the first since August. Crude prices have lost 62% since settling at $115.06 a barrel three years ago. A bear market is typically defined as a decline of 20% or more from a recent peak, while a bull market is a gain of 20% or more from a recent trough.”

Finance

FT – Argentina’s 100-year bond cannot defy EM playbook forever – Jonathan Wheatley 6/20

  • “Really? A dollar-denominated bond that pays back 100 years from now, from a junk-rated country that has barely managed to stay solvent for more than half that time in its entire history as a creditor? While there is certainly an investment case for taking part, several analysts warn that this issue is a classic sign of a market getting ahead of itself.”
  • “The point, though, is not the 100 years. The complexities of bond math mean that, once maturities go beyond 30 years, the investment case barely changes. Barring default, with a yield of nearly 8%, the bond will repay investors in full in about 12 years, all else (such as inflation) being equal — and that’s leaving aside its resale value. Many investors will have much shorter horizons.”
  • “In a world starved of yield, the 7.91% on offer proved to be quite a pull and the bond attracted orders of $9.75bn for the $2.75bn issued. ‘People are looking out over the next 12 to 24 months and see a pretty positive outlook [for Argentina],’ says David Robbins, head of emerging markets at TCW in New York. ‘Duration in high yield is something they are more comfortable with.’ Argentina, he notes, is in effect selling equity in its economic recovery.”
  • “Sérgio Trigo Paz, head of emerging market fixed income portfolio management at BlackRock, says the rationale and the pricing are all good. But, he adds: ‘When you put it into perspective, it gives you a sense of déjà vu.’”
  • “He sees two scenarios. In one, the Fed is right about inflation and rates will continue to rise. This would turn the Argentine bond into ‘a bad experience’. In the other, markets are right, US inflation and payrolls will disappoint and we will be back in a low rate environment, which will be good for the bonds — until deflation rears its head again, hurting the Argentine economy and its ability to pay.”
  • “In the meantime, he says, there is a ‘Goldilocks’ middle ground in which investors can suck up an 8% coupon. Beyond that: ‘It doesn’t look good either way — which is why you get an inflection point.'”

Japan

FT – Toshiba picks government-backed group as chip unit buyer – Kana Inagaki and Leo Lewis 6/20

  • “After a chaotic months-long search for a buyer, Toshiba has picked a consortium led by a Japanese government-backed fund as the preferred bidder for its prized memory chip business.”
  • “The group — which includes the Innovation Network Corporation of Japan fund, private equity group Bain Capital and the Development Bank of Japan — competed against rival offers topping ¥2tn ($18bn) from US chipmaker Broadcom and Apple supplier Foxconn.”
  • “’Toshiba has determined that the consortium has presented the best proposal, not only in terms of valuation, but also in respect to certainty of closing, retention of employees, and maintenance of sensitive technology within Japan,’ the company said in a statement on Wednesday.”

South America

NYT – Venezuela Opens Inquiry Into a Critic: Its Attorney General – Nicholas Casey 6/20

  • Long a Chavista, attorney general Luisa Ortega is being investigated now that she has expressed concern at how far those in power are willing to go to quiet dissent.

June 21, 2017

If you were to read only one thing…

FT – China gains entry to MSCI’s $1.6tn emerging markets benchmark – Jennifer Hughes and Nicole Bullock 6/20

  • “Chinese stocks have gained direct entry to MSCI’s global benchmark equity index for the first time, marking a milestone in Beijing’s efforts to draw international funds into the world’s second-largest market.”
  • “The move means mainland stocks, known as A-shares, will next year be included in MSCI’s flagship emerging markets index, obliging the estimated $1.6tn of investment funds that track the index to buy mainland equities.”
  • “China’s domestic equity and bond markets are the second- and third-largest in the world, respectively, yet foreigners hold just roughly 2% of each. Three previous proposals by MSCI to include mainland stocks were rebuffed by the index provider’s stakeholders — mostly large asset managers.”

Perspective

WSJ – Daily Shot: Tax Foundation – Massachusetts’s Proposed Soda Tax 6/20

Economist – Finland tests an unconditional basic income 6/20

Worthy Insights / Opinion Pieces / Advice

Economist – Electoral victory will make France’s president a potent force 6/17

  • “But he will still have to face down a challenge from the street.”

Medium – One does not simply become successful – Timi Lliev 6/4

  • Good post with links to some useful tools (mind mapping and vision boards)

WSJ – The Fed’s Poor Record on Soft Landings – Justin Lahart 6/19

  • “The only time the Fed really succeeded in executing a soft landing, according to most economists, was when it raised rates through 1994. In the mid-1960s and mid-1980s it had a couple of qualified successes. Its other tightening cycles over the past 60 years were followed by recessions, though in some cases a recession was necessary to wipe out inflation.”

Economist – The rebellion of Venezuela’s top prosecutor 6/20

  • “Ms. Ortega’s rebellion and Mr. Ramirez’s resignation are a sure sign that the regime has lost moral authority even among some of its most fervent supporters. As misery and anger grow, disenchantment within the regime will spread. Its power to coerce may then begin to weaken.”

Markets / Economy

WSJ – Daily Shot: BMO – Bloomberg Economic Surprise Index 6/20

WSJ – Daily Shot: BMO – S&P 500 Earnings & Dividend Growth v. Index Total Return 6/20

Energy

WSJ – Daily Shot: Bloomberg Intelligence – OPEC Nations Production Changes 6/20

Environment / Science

Honolulu Star-Advertiser – Astronomers find more Earth-like planets – Jim Borg 6/20

  • “At a news conference Monday at NASA’s Ames Research Center in Mountain View, Calif., the Kepler space telescope team released a catalog of 219 new planet candidates, including 10 that are near-Earth size and orbiting in their star’s “Goldilocks zone” – neither too hot nor too cold – where liquid water could exist.”

Canada

Economist – The lessons from Canada’s attempts to curb its house-price boom 6/17

  • “In its twice-yearly health-check on the financial system, published this month, the Bank of Canada concluded that ‘extrapolative expectations’ are a feature of the market. In other words, people are buying because they hope, or fear, that prices will keep rising.”
  • “Common to all these cities are buyers from emerging markets, notably China, who have helped to drive a wedge between the price of homes and the local fundamentals of incomes and rental payments. They are willing to pay above the odds to secure a safe place for their savings. Though fairly small in number, their presence is enough to inflate bubbles.”
  • “Canada’s housing market thus opens a window on a tragic flaw in the global economy. In only a few decades China has mastered the manufacture of high-quality goods. But it takes far longer to be able to manufacture safe stores of value. Instead, their affluent citizens seek out rich-country assets, including houses. This fundamental mismatch limits the ability of policymakers to stop bubbles from inflating.”
  • Thing is, “the demand from emerging markets for safe assets will not soon diminish. Recent history shows that big run-ups in property prices often reverse suddenly. Better to batten down the hatches now in case the weather turns bad.”

China

FT – China property tax languishes as vested interests block reform – Gabriel Wildau 6/19

  • “As Chinese authorities struggle to contain runaway home prices, a long-awaited plan for a property tax has stalled, the latest sign of entrenched interests impeding efforts to transform the country’s growth model.” 
  • “The average price of a Shenzhen home last year was 41 times the average income, against 29 in London, 23 in Tokyo and 15 in New York, according to Macquarie Securities. Since late last year, 45 Chinese cities have introduced purchase limits and other measures in an attempt to cool rising property prices.”
  • “For years, economists have advocated for China to move away from administrative tools like purchase bans in favor of a property tax. Top Communist party leaders committed to imposing a property tax in a landmark blueprint for economic reform approved in November 2013.” 
  • “By imposing an annual levy on home ownership, a property tax would reduce the appeal of housing as a speculative investment. While the merits of property taxes in general are a matter of debate among economists, few doubt that is sorely needed in China, where 50m homes lie empty, according to the China Household Finance Survey conducted by researchers from Southwestern University of Finance and Economics in Chengdu.”
  • “Yet market observers say there is little prospect of the government implementing a tax within the next few years — at the annual session of China’s rubber-stamp parliament in March it was announced that legislation for the levy was not on the agenda this year.” 
  • “’Among well-informed economists in the government, establishing a property tax has been consensus for a long, long time,’ says Gan Li, director of the CHFS and professor of economics at Texas A&M University. ‘The concern is politics. No one wants to be blamed for bursting the housing bubble.’” 
  • “China’s home ownership rate is 87%, according to the survey — creating a large and powerful constituency opposing a property tax. In the US, the rate is only 64%, according to census data.” 
  • “A survey by FT Confidential Research, an independent research service owned by the Financial Times, found that 28% of families in medium-sized and large cities own a home that is vacant. Chinese investors have long favored housing over the volatile stock market and low-yielding bond market, and capital controls limit households’ ability to buy foreign assets.”

Bloomberg – China’s Workers are Saying Goodbye to Double-Digit Pay Raises 6/19

Still good though…

South America

FT – OAS fails to pass resolution condemning Venezuela’s Maduro – Jude Webber 6/19

  • “Twenty countries of the Organization of American States backed a resolution condemning Mr Maduro’s unpopular plans to convene a constituent assembly to draw up a new constitution on July 30 – falling short of the two-thirds majority needed. A rival proposal, backed by Caribbean countries, also failed to pass after hours of talks and bickering over procedural matters at the body’s general assembly in the Caribbean resort of Cancún.”
  • “’The crisis is real,’ Honduras’ foreign minister María Dolores Agüero told the meeting. ‘It cannot be that under the doctrine of non-intervention the alternative is to do nothing.’”

June 20, 2017

Worthy Insights / Opinion Pieces / Advice

FT – How I learnt to stop worrying and love Big Tech – Miles Johnson 6/18

  • “The only thing a good investor should care about is the price they can purchase these companies for compared with their own reasonable estimate of fair worth. Yes, mindless momentum chasers may panic and sell, but any long-term investor worth their salt would take this as an opportunity to buy should they believe they are getting a bargain. Active fund managers actually dumped Apple shares en masse before their recent surge.”

China

WSJ – China’s Ghost Cities Keep Up Property-Market Spirits – Nathaniel Taplin 6/19

  • “In Beijing and Shanghai, housing speculators are gasping for air as tighter credit bites. But in the inland cities that drive the bulk of China’s steel and copper demand, property owners are smiling: Data released Monday showed prices rose 7% on year in May, the fastest pace since early 2014.”
  • Essentially the credit hose has been redirected to the third tier cities. However, one has to wonder, does that mean that there was a bench of buyers waiting to move into these ghost cities that just needed the credit to do so? Or is this a function of investors now picking up vacant units (reducing unsold inventory) now that they can comfortably speculate on appreciation? Basically, is there true demand for these units all of a sudden?

South America

FT – Argentina launches century bond – Dan McCrum 6/19

  • “Argentina has launched a landmark sale of US dollar-denominated bonds maturing in 100 years, a dramatic market rehabilitation for a nation that spent more than a decade fighting investors over the fallout from its 2001 default on $100bn of debt.”
  • “Joining only a handful of sovereign borrowers to sell century bonds, Monday’s debt sale also highlights a broader enthusiasm for emerging market securities. Over the past 12 months the JPMorgan index of such dollar-denominated securities has produced a 9% total return for investors.”
  • “Adam Bothamley, head of debt syndicate for HSBC, said the deal came after inquiries from investors suggested demand existed. ‘It’s less about it being a 100-year maturity bond, it’s a way to express the strongest view around the trajectory of the story for investors’, he said.”
  • “At lunchtime in New York, indications were that the bond would have an effective yield of 7.92%, sold at 90 cents on the dollar and an annual coupon of 7.125%.”
  • “Keep in mind, Argentina has defaulted on sovereign debt on eight occasions since independence in 1816, and its 2001 default was at the time the world’s largest.”
  • “In recent years Mexico has issued 100-year debt denominated in dollars, euros and sterling, and in 2015 the Brazilian oil company Petrobras sold $2.5bn of century bonds, which on Monday traded at a yield of 7.8%.”
  • “Argentina is rated single B by credit rating agencies. The lead bookrunners on the deal were Citi and HSBC, with Nomura and Santander acting as co-managers.”

June 19, 2017

If you were to read only one thing…

FT – The real risks of the falling oil price – Nick Butler 6/11

  • “In any discussion of the oil market it is all too easy to ignore the real world consequences of the price fall that has occurred over the last three years. We might appreciate a small cut in the price of petrol or gasoline at the pump, even though its effect is dampened by high levels of taxation. But we do not give much thought to the impact of price changes on the supplying countries. That is short-sighted because the structural shift that has taken place is profoundly destabilizing and potentially very dangerous.”
  • “A new note from the Energy Information Administration in the US published last month sets out the impact of the fall in prices in recent years. It is worth summarizing the data, which are expressed in real 2016 dollars.”
  • “These are big numbers for all the countries involved. Very few have diverse economies that can adjust quickly to the fall in the price of a crucial export commodity. Most have large dependent populations, especially of children and young people. Nigeria, for instance, has some 115m people, amounting to 61% of its population, under the age of 25; Angola 13m — 63% of its population.”
  • “But simply looking down on the failings of the oil producers is not an adequate response.”
  • “The price fall has reduced the revenue of the Opec states by some $750bn from the 2012 level — a fall of over 60%. None have fully adapted to that loss of income. Most have assumed that the price change would be temporary and some have even borrowed to cover the shortfall of revenue against current spending — thereby storing up even more problems for the future.”
  • “The real pain of enforced austerity is only just beginning and will deepen as governments realize that the price fall is more structural than cyclical. The latest attempt to manage the market by extending the production quota for another nine months has had no positive effect. Prices for Brent crude on Friday were down to about $48 per barrel.”
  • “The pain will be profoundly destabilizing. At least five Opec states are at risk of very serious political and economic destabilization, including major economies such as Venezuela and Nigeria. Civil unrest is already evident in Libya and latent in Algeria. Across the whole of the cartel there is a substantial and growing group of restless, unemployed youths aged between 15 and 30.”
  • “In reality, the structural fall in the oil price is the most destabilizing economic event to have hit the world since the financial crash of 2008. In this case, the impact is being felt in slow motion but it is building and feeding on existing conflicts and tensions. And just as the collapse of the subprime housing market in the US shook the global economic system, so the problems of the cartel cannot be contained within the countries themselves. When problems are rapidly globalized through migration, terrorism and even health risks if key public services collapse, the deteriorating situation within Opec is all too likely to become our problem too.”

Perspective

Bloomberg – The U.S. Is Where the Rich Are the Richest – Ben Steverman 6/16

cnsnews.com – Census: More Americans 18-to-34 Now Live With Parents Than With Spouse – Terence Jeffrey 4/19

Worthy Insights / Opinion Pieces / Advice

WSJ – How Anbang Could Clog China’s Financial Plumbing – Anjani Trivedi 6/16

  • “China’s decision to detain the chairman of Anbang Insurance Group, one of the country’s most acquisitive companies, is stunning in itself. The knock-on effects on the Chinese financial system could deepen the drama.”
  • “If customers of Anbang—owner of New York’s Waldorf Astoria hotel—start surrendering their policies and stop buying new ones, that could accelerate a continuing cash drain at the company. China’s insurance regulator has already been clamping down on the primary source of Anbang’s cash since late last year—short-term, high-yielding investment products disguised as insurance policies. Its premium income plunged 99% in April while its solvency ratio halved in the first quarter from the previous year.”
  • “The company’s tentacles reach far and deep into China’s financial system, with one key route being its lending of short-term funds into Chinese money markets.”
  • “Take its dealings with Chengdu Rural Commercial Bank, a provincial bank of which Anbang owns more than one-third, and which itself has some 40 subsidiaries across towns and villages in China. Anbang provides around 40% of the deposits for Chengdu Rural, and accounts for 80% of its related-party transactions, most of which are short-term, money-market loans. The bank also pays Anbang a high 5% interest on its deposits and holds some of Anbang’s debt.”
  • “Such tight relationships illustrate how financial stress at Anbang could quickly ripple through China’s banking system. Banks like Chengdu Rural have already become increasingly reliant on short-term wholesale funding and have been resorting to capital raises: The loss of a big cash provider like Anbang could cause real pain. Interbank funding conditions are already tight in China—the country’s central bank made its biggest one-day cash injection into the market in nearly six months on Friday. If the detention of Anbang’s chairman leads to the company stepping back more broadly from Chinese markets, the saga could have a while to run.”

Markets / Economy

Bloomberg – Nissans Crowding Rental-Car Lots Carry Risk as U.S. Sales Slow – Jamie Butters and John Lippert 5/30

Real Estate

Investment News – W.P. Carey exiting the nontraded REIT business – Bruce Kelly 6/16

Energy

Bloomberg – Solar Power Will Kill Coal Faster Than You Think – Jess Shankleman and Hayley Warren 6/15

National Post – This lonely drifting tanker carrying 2 million barrels nobody wants to buy sums up global oil’s struggle – Laura Hurst and Javier Blas 6/14

Asia – excluding China and Japan

FT – US targets $540m in assets bought with 1MDB funds – David Lynch 6/15

  • “The US Department of Justice on Thursday moved to seize an additional $540m in assets purchased with funds stolen from Malaysian sovereign wealth fund 1MDB, including a luxury yacht, a Picasso painting, jewelery and rights to the movie Dumb and Dumber.” 
  • “The US now estimates that a total of $4.5bn was pilfered by Malaysian public officials and their associates including Jho Low, a well-connected Malaysian businessman who held no formal role in the project.” 
  • “Including the new lawsuit and earlier civil forfeiture actions, the US government has moved to recover $1.7bn of that amount, according to Kendall Day, acting deputy assistant attorney-general. This represents the largest such US seizure action under a DoJ initiative aimed at recovering money stolen by corrupt foreign officials.”

China

Bloomberg Businessweek – Try Getting Your Kid Into a Beijing Public School – Dexter Roberts 6/7

FT – A deal too far for China’s Anbang – Tom Mitchell, Henny Sender, Lucy Hornby, and Gabriel Wildau 6/16

  • “The apparent fall from grace of the founder Wu Xiaohui has shone a spotlight on a brand of Chinese capitalism that has taken root in the financial industry.”

South America

FT – Venezuela’s food parcels prove imperfect solution to crisis – Gideon Long 6/16

  • “According to Fedeagro, an agricultural association, Venezuela produces only enough food to cover between 30-40% of domestic consumption, compared with about 70% a decade ago. Chronic food shortages ensure that Venezuelans regularly skip meals and go hungry. A survey from the Universidad Central de Venezuela found that three-quarters of the Opec nation’s population lost weight involuntarily in 2016.”

Other Links

Tax Foundation – How High Are Wine Taxes In Your State? – Jose Trejos 6/15

June 16, 2017

Perspective

MarketingDaily – Despite Retail Slump, Consumers Feel Generous At Checkout – Sarah Mahoney 6/14

  • “With retailers closing thousands of stores and malls growing emptier, it’s easy to think Americans would be less inclined to pony up for good causes at the register. But the latest Charity Checkout Champions report says that people contributed $441 million last year to some of the biggest point-of-sale campaigns, up 4.5% from 2014.”
  • “The biggest fund-raiser is eBay for Charity, which raised $56.6 million by allowing sellers to give a portion of sales to one of 34,000 charities. The Miracle Balloon program at Sam’s Clubs and Walmart stores came in at No. 2, raising $37 million for Children’s Miracle Network Hospitals in just seven weeks. And Petco bumped the McDonald’s Coin Collection program, benefitting Ronald McDonald House, out of third place, generating $28.3 million in gifts for the Petco Foundation, which funds pet welfare and adoption groups.”

The Big Picture – Sharing Economy – Barry Ritholtz 6/15

Our World in Data – Proportion of seats held by women in national parliaments 6/15

WSJ – A Test of Loyalty at Macy’s – Miriam Gottfried 6/15

Worthy Insights / Opinion Pieces / Advice

WSJ – Oil Outlook Now So Bleak It May Be an Opportunity – Spencer Jakab 6/14

  • “Things look bleak, but oil bulls nursing losses should take solace in the fact that the consensus view in this market is usually wrong.”

Markets / Economy

WSJ – Daily Shot: FRED – Used cars and trucks price index 6/15

WSJ – Daily Shot: Capital Economics – Projected Fed Asset Holdings 6/15

Real Estate

Bloomberg – Blackstone Plans to Sell San Francisco’s Ferry Building – David Carey and Hui-yong Yu 6/9

NYT – A $664,000 Parking Spot Symbolizes Hong Kong’s Property Frenzy – Austin Ramzy 6/15

  • The last time this happened I covered in my 10/28/16 – 11/3/16 post. Well now the record is $664,000.
  • “The buyer was listed as Kwan Wai-ming, whom local news outlets identified as executive director of the Huarong Investment Stock Corporation. His company declined to comment. That price, paid for a spot in an apartment complex on Hong Kong Island, was a new local record, breaking the previous $615,000 paid for a slightly smaller spot last year.”
  • “For his money, Mr. Kwan may get convenience. He already owns property in the same apartment complex where the parking spot is situated, called the Upton, in the Sai Ying Pun district. He previously bought two apartments for $9.7 million and two other parking spots in the complex for $995,000, according to the Hong Kong land registry.”
  • “But some wealthy residents revel in the recognition that comes with a Lamborghini or even a coveted license plate. Last year, a plate carrying the number 28, which sounds like a phrase for ‘easy money’ in Cantonese, sold for a record $2.3 million at auction.
  • Seriously?

WSJ – Google Will Buy Modular Homes to Address Housing Crunch – 6/14

  • “The Mountain View, Calif., company is finalizing an order to buy 300 apartment units from Factory OS, a modular-home startup, in a building likely to serve as short-term housing for Google employees, according to executives from both companies.”

Energy

WSJ – OPEC Stumbles in Face of Oil Glut – Summer Said, Georgi Kantchev, and Neanda Salvaterra 6/14

  • “The global oil glut is proving immune to the limits set by the Organization of the Petroleum Exporting Countries and its big-producer allies like Russia, fueling the idea that output caps withholding almost 2% of world crude supply were a miscalculation.”
  • “In the U.S., the Energy Information Administration said Wednesday that crude stockpiles fell last week by 1.7 million barrels, less than the 2.6 million drop forecast by a Wall Street Journal survey. At the same time, gasoline inventories rose by 2.1 million barrels, compared with the survey’s expectation of a 700,000 decline, underlining worries about the oversupply extending to crude oil’s products.”
  • “Oil stockpiles in the Organization for Economic Cooperation and Development—a club of 35 countries with industrialized economies—rose by 18.6 million barrels in April and were higher than they were when OPEC agreed to its cut late last year, said the International Energy Agency, a Paris-based group that advises governments on energy trends.”
  • “Adding to oil traders’ angst: U.S. oil production has come roaring back to life. The IEA said U.S. crude supply will grow almost 5% on average this year, and nearly 8% in 2018, potentially vaulting American producers ahead of Saudi Arabia in daily output.”
  • “’Such is the dynamism of this extraordinary, very diverse industry it is possible that growth will be faster,’ the IEA said.”
  • “Saudi energy minister Khalid al-Falih said this week that the production cuts would start having an impact this summer, accelerating a drop in stored oil that OPEC said began in January. He has said OPEC and Russia would do ‘whatever it takes’ to bring supply back in line with demand.”
  • “Daniel Yergin, vice chairman of IHS Markit and a long-time oil market watcher, said OPEC wouldn’t abandon its production-cut agreement, which took almost a year to put together through 2016.”
  • “’When OPEC and the other producers agreed to this deal, they hoped that, as the old adage says, time heals all—and time will heal the inventory problem,’ Mr. Yergin said. ‘They should now take a deep breath and realize this will take a lot more time.’”
  • “The cartel set a tough goal last December, when its officials said they wanted to cut oil-storage levels to the five-year average.”
  • “OPEC said OECD storage levels actually have been falling but by only 88 million barrels in the first four months of 2017. At that pace, it would take until March 2018 for stockpiles to fall another 250 million barrels to the five-year average.”

WSJ – Daily Shot: eia – US Wind and Solar Electricity Generation 6/15

WSJ – Beijing Gives Banks the Go-Ahead for Yet Another Lending Binge – Anjani Trivedi 6/14

  • “While Beijing is carrying out a high-profile campaign to reduce leverage in its financial markets with one hand, with the other it is encouraging more potentially reckless borrowing. This week, the regulator put pressure on the country’s big banks to lend more to small companies and farmers, while the government announced tax breaks for financial institutions that lend to rural households.”
  • “If the goal of lending to poorer customers sounds noble, the concern is that the execution will only worsen Chinese banks’ existing problems, namely high levels of bad loans and swaths of mispriced credit. Bank lending to small companies is already growing pretty fast, with non-trivial sums involved: It jumped 17% in the year through March to 27.8 trillion yuan ($4.084 trillion). That compares favorably with the 7% rise in loans to large- and medium-size companies over the same period.”
  • “But lending standards are set to get even looser. Banks have been told they should tolerate higher nonperforming loan ratios for small companies and agriculture-related lending, meaning they need to worry less about credit quality. The regulator also asked banks to keep interest rates on such loans at an ‘appropriate’ level—effectively allowing banks to ignore the proper pricing of risk.”
  • “This all flies in the face of efforts to cull bad credit from the economy. Chinese banks are already given plenty of leeway to classify loans how they like: The new measures may only encourage them to avoid writing off bad debt. It isn’t clear, either, how allowing small businesses and farmers to borrow even more will help China Inc. cure its addiction to debt-fueled growth.”

WSJ – Chinese Banks Limit Exposure to Anbang – James T. Areddy 6/15

  • “A number of banks have slowed marketing of Anbang-branded investments to their customers in recent days, according to people with knowledge of the situation.”

June 15, 2017

Perspective

WSJ – Daily Shot: Business Insider – U.S. Pretax income growth by income category – 6/14

Economist – Around the world, beer consumption is falling – THE DATA TEAM 6/13

WSJ – Daily Shot: BMI Research – Projected Global Water Availability 6/14

Markets / Economy

Bloomberg – Wheat Soars as U.S. Spring Crop in Worst Shape in 29 Years – Megan Durisin 6/13

  • “A prolonged dry spell has left the U.S. spring wheat crop in its worst shape in almost three decades, sending prices for the grain on a tear.”

WSJ – Daily Shot: Red Spring Wheat Futures – 6/13

  • “According to the USDA, the US wheat crop is now in worse shape than at any time since 1998. Prices spike.”

Real Estate

Bloomberg  – These Cities Have Too Many Stores, and They’re Still Building – Patrick Clark and Dorothy Gambrell 6/12

China

FT – Shanghai loosens housing policy after rare protests – Yuan Yang, Xinning Liu, and Tom Hancock 6/13

  • “The Shanghai city government has made a partial policy concession after a rare housing protest at the weekend, in an effort to placate middle-class anger at measures to pour cold water on a hot property market.”
  • “Some 100 demonstrators gathered in the main shopping street of Nanjing Road on Saturday night — a sight rarely seen in China’s financial capital.”
  • “The crowd said they had bought ‘dual-use’ homes built on land sold for commercial rather than residential development, and criticized the government’s recent decision to enforce an old rule that restricts such land to commercial use.”
  • “’The government has realized its reliance on asset bubbles for growth is not sustainable,’ said Wang Xinling, lead analyst at China Policy, a Beijing think-tank.”
  • “’So it wants to change direction, but the public perceives this as hurting their wealth while the property market stagnates,’ Ms. Wang added.”
  • “Late on Monday the Shanghai government blamed property developers for ‘distorting the policy’ and ‘delaying reforms’, trying to paint the developers — rather than the government — as the target for public anger.”
  • “However, it relented by allowing buyers of ‘dual-use’ homes to move in, although it did not loosen restrictions on selling the houses, which is a big contention for the homebuyers.”
  • “China is worried about property bubbles developing after years of breakneck price rises, and has attempted to cool prices by limiting citizens’ ability to buy houses while simultaneously bringing the residential market under stricter oversight.”
  • “The regulations affect 12m square meters of property, according to Zhang Hongwei, chief analyst of Tospur, a property consultancy.”
  • “About 30 local governments across China have issued measures making it more difficult to buy houses since last autumn.”
  • “As a result, Beijing house prices fell 4% in May, according to a study by the Chinese Academy of Social Sciences. Prices in other big cities are falling or at a standstill and sales have collapsed this year.”
  • “Aspiring homebuyers have been pushed into greyer areas of the market, such as buying dual-use commercial properties.”

June 14, 2017

Perspective

Economist – Climbing without ropes 6/8

  • “A series of remarkable feats increases the appeal of a niche sport.”

FT – Diplomatic victory for China as Panama ditches Taiwan – Ben Bland 6/13

  • “Panama has cut ties with Taiwan and established diplomatic relations with China, as Beijing intensifies efforts to isolate the self-governing island, which it considers Chinese territory.”
  • “Isabel Saint Malo, Panama’s foreign minister, signed a communiqué with her Chinese counterpart Wang Yi on Tuesday in Beijing to formalize the switch, leaving Taiwan with just 20 diplomatic allies.”
  • “Juan Carlos Varela, the president of the central American nation, said that signing up to Beijing’s ‘One China’ principle would generate ‘great potential in all areas’ including investment and job creation.”
  • “Beijing has tightened the squeeze on Taiwan since the election last year of President Tsai Ing-wen and her pro-independence Democratic Progressive party.”
  • “Panama’s defection is the latest diplomatic coup for Beijing, which is capitalizing on the uncertainty surrounding President Donald Trump’s foreign policy by exerting its influence from Southeast Asia to South Korea.”
  • “’China is exercising smart power more often, while the US is retreating from mainstream international politics,’ said Huang Kwei-bo, a professor of diplomacy at National Chengchi University in Taipei.”
  • “Taiwan still has expansive political and economic relations with many countries that do not formally recognize it, including the US, Japan and China itself, which consumes about 40 per cent of Taiwan’s exports.”

Worthy Insights / Opinion Pieces / Advice

Economist – America is no longer a force for stability in the Gulf 6/10

NYT – ‘No Such Thing as Justice’ in Fight Over Chemical Pollution in China – Javier Hernandez 6/12

Real Estate

WSJ – The Mall of the Future Will Have No Stores – Esther Fung 6/12

  • “Some landlords plug empty spaces with churches, for-profit schools and random enterprises while they figure out a long-term plan. Others see a future in mixed-use real estate, converting malls into streetscapes with restaurants, offices and housing. And some are razing properties altogether and turning them into entertainment or industrial parks.”
  • “In all, retailers have announced 2,880 store closings from January to April 6 of this year, more than twice as many as in the same period a year earlier, according to Credit Suisse . For the full year, the investment bank anticipates more than 8,600 stores to close. Analysts predict that 400 or so of the roughly 1,100 malls in the U.S. will close in the coming years.”
  • “Many mall owners are trying to liven up the experience, bringing more dining and entertainment tenants and eschewing the traditional mix of middling food courts, fashion retailers and department stores.”
  • “In GGP’s holdings of more than 130 shopping centers, apparel takes up half of the portfolio by gross leasable area. Food has risen to 13% from 6% and is projected to go to 20% by 2025, said GGP Chief Executive Sandeep Mathrani in a recent earnings call. Apparel will fall by another 10% or so by the fall, and stabilize at around 40%, he said.”

China

Economist – China’s rockiest environmental problem: its soil 6/9

  • “Cleaning filthy soil is much harder than cleaning foul air.”

FT – China drive to relocate millions of rural poor runs into trouble – Tom Hancock 6/12

  • “Villagers return home after struggling with lack of jobs in urban apartments.”

FT – China accuses 2 more provinces of faking data – Lucy Hornby 6/12

  • “Corruption watchdog cites concerns over figures from Jilin and Inner Mongolia.”

FT – Anbang confirms chairman detained by Chinese government – Tom Mitchell and Lucy Hornby 6/13

Japan

FT – Japan Inc’s silence over Toshiba sends chill across Tokyo – Leo Lewis and Kana Inagaki 6/12

  • “For almost 70 years, Japan Inc, a support network of invisible corporate allegiances, binding investments and unwritten understandings, has stood behind the nation’s companies as the ultimate guarantor of stability.”
  • “But for Toshiba, one of its famous industrial names, corporate Japan has gone missing in its darkest hour of need.”
  • “The failure of Japan Inc to bail out Toshiba is not only a shock for the embattled group — it suggests the framework that has previously helped rescue troubled megabanks and distressed electronics makers may be disintegrating.”
  • “’The deal of Japan Inc was: ‘I will help you when times are tough’,’ says Jesper Koll, head of fund manager WisdomTree Japan, pointing to the diminishing grip of the ‘keiretsu’ — the business groupings whose closeness and mutual support underpinned Japan’s postwar economic growth.”
  • “The Japan Inc concept, say economic historians, evolved over decades to remedy precisely the problem thrown up by Toshiba. It is an unwritten code that demands that, even if the result is unsuccessful, an all-Japanese solution will not only be attempted but will receive broad support from big business, banks and government.”
  • “So far, say people involved in the talks, not a single Japanese company has submitted a bid for the chip division even though business leaders have voiced dismay at the prospect of Toshiba’s technology falling into the hands of Asian rivals.”
  • “Thinning financial ties have contributed to the unravelling of the Japan Inc structures. A long-term trend, accelerated under Prime Minister Shinzo Abe’s governance push, has been the unwinding of the cross-held share stakes between friendly companies.” 
  • “According to Nomura Securities, the ratio of holdings of Japanese stocks by listed Japanese banks and non-financial companies was 10.3% at the end of the financial year that ended in 2015. At its height in 1990, the ratio was 34%. Nomura optimistically predicts Japan’s megabanks will reduce their shareholdings in Japanese companies over the next few years by 20-30% from current levels.” 
  • “The question remains, according to Mr Koll, whether it is still meaningful to talk about Japan Inc, as the Toshiba situation has clearly shown that the old safety nets are gone.”
  • “The chief executive of a large Japanese company, who is close to top METI (Ministry of Economy, Trade and Industry) officials, adds that it is not just a lack of willingness to help. ‘I don’t know if you would call this the ‘end of Japan Inc’ but it is certainly true that the task of resolving the Toshiba problem has taken everyone here by surprise because of its difficulty,’ he says.” 
  • “’I think it has been a wake-up call for METI and Japan for what they can really do in a crisis. Less than they thought, is the frank answer.’”

South America

WSJ – Daily Shot: Caracas Stock Exchange 6/12

  • “Venezuela’s stock market was up another 10% on the day.”

WSJ – Daily Shot: Venezuelan Black Market value for one US dollar 6/12

  • “This rally has little to do with the stock market and everything to do with the collapsing Venezuelan bolivar. It takes over 7k bolivares to buy one dollar on the black market.”

Other Links

WSJ – Daily Shot: Tax Foundation – U.S. Beer Taxes by State 6/13